Banking Commission Report
Ed Balls Excerpts(12 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Mr George Osborne)
The Government are proposing the most far-reaching reforms of British banking in our modern history. Our objective is to make sure that what happened in Britain never happens again, that taxpayers are protected and that customers get a better service. Last year, the Business Secretary and I set up the Independent Commission on Banking to look at what has been called the British dilemma—that is, how Britain can be home to one of the world’s leading financial centres without exposing British taxpayers to the massive costs of those banks failing.
In the years leading up to the financial crisis, a failure of regulation contributed to the build-up of a debt-fuelled boom. Banks borrowed too much and took on risks they did not understand. When the bubble burst, these banks turned out to be too big to fail, and the last Government had to spend billions of pounds bailing them out. Of course, major financial institutions in other countries were bailed out by their taxpayers, but the British bail-outs were on a different scale. The Royal Bank of Scotland bail-out was the biggest in the world. The recent report of the Financial Services Authority on the failure of RBS attributed that to
“poor decisions made by the RBS management and Board”
against a backdrop of a regulatory regime that failed to stop them. The politicians responsible are named in the report.
This Government are determined to do better at protecting British taxpayers from the cost of failing banks, while at the same time acknowledging the importance of the financial sector to our country. Britain should remain home to one of the world’s leading financial centres and the home of global banks, but the strength of this industry is also a potential weakness to the economy if not properly regulated.
The sector supports nearly 1.4 million jobs—not just in the City of London but across the whole of the UK. The balance-sheet of our banking system is close to 500% of our gross domestic product, compared to 100% in the US and 300% in Germany and France. So while a European and international regulatory response to the crisis is important, we cannot rely on this response alone to make our banking system safe. We in this Parliament have to take action—and under this Government, we are.
We are putting the Bank of England back in charge of prudential regulation; we have created the Financial Policy Committee to look at risks across the financial system; and I welcome today’s report from the Joint Committee on the draft Financial Services Bill. I wanted proper pre-legislative scrutiny. That has happened, and we will respond in the new year so that we improve the legislation. We have also introduced a permanent bank levy on wholesale funding and we have introduced the toughest and most transparent pay regime of any major financial centre in the world. We also need to address the structure of our banks, however. That is why the coalition Government set up the Independent Commission on Banking. I again want to thank Sir John Vickers and the other members of the commission—Clare Spottiswoode, Martin Taylor, Bill Winters and Martin Wolf—for their impressive report.
The report made three main recommendations: first, that everyday high-street banking services should be separated from wholesale and investment banking activities, and that this be done via a ring fence; secondly, that banks be required to have bigger cushions to absorb losses without recourse to the taxpayer; and thirdly, that competition in the banking sector be strengthened by increasing the number of banks on the high street and the power of customers to switch accounts. When the final report was published in September, I made it clear that I welcomed these recommendations in principle and would return to the House by the end of the year. Today, I fulfil that commitment. Let me set out in detail how the Government plan to respond, and invite further views before we publish a White Paper next spring.
First, the Government will separate retail and investment banking through a ring fence. It is important to know that this ring fence will not prevent banks from failing, but it does mean that if banks get into trouble, those elements of the banking system that are vital for families, businesses and for the whole economy can continue without resort to the taxpayer, so the following will be in newly ring-fenced banks: the deposits of individuals and their overdrafts, and the deposits and overdrafts of small and medium-sized businesses. They will all be kept separate from riskier wholesale and investment banking, which will have to be outside the ring fence. Larger corporate deposits and lending and private banking can be either in the ring fence or outside. The ring-fenced bank will be legally and operationally independent; it will be able to finance itself independently and have its own board; and there will be limits on the amount it can lend to the rest of the group. The commission’s interim report proposed a de minimis exemption for small banks that were clearly not systemic, and we invite opinion on whether to proceed with that. Our objective is clear. We want to separate high-street banking from investment banking to protect the British economy, protect British taxpayers and make sure that nothing is too big to fail.
Secondly, we will make sure that banks have bigger cushions, so they are better able to withstand losses. The international Basel III requirement, which the UK was instrumental in negotiating, requires banks to hold minimum equity capital of 7%, and there is a top-up for systemically important banks. We will go further. Large ring-fenced retail banks will be required to hold equity capital of at least 10%, and there will also be a minimum requirement for the loss-absorbing capacity of big banks of at least 17%. This requirement will apply to the UK operations of British banks, and will also be applied to the non-UK operations of UK-headquartered banks unless they can demonstrate that they do not pose a threat to the UK taxpayer.
I can also confirm that the Government will introduce the principle of depositor preference: in other words, the principle that unsecured lenders to banks, who are better placed to monitor the risks that banks are taking on, should have to take losses ahead of ordinary depositors. We seek further views on the best way to implement this principle. This comes on top of the guaranteed protection offered by the Financial Services Compensation Scheme, which covers 100% of eligible deposits up to £85, 000.
Those proposals on loss absorbency will also strengthen the European single market. One of the greatest distortions to the single market in banking is the perceived implicit taxpayer guarantee for all European banks. Through these proposals, the UK is setting out a plan to remove that distortion for UK banks. The European Commission has indicated that it plans to consider what it can do to reconcile it at EU level. I welcome that, and the UK will engage actively in the debate.
This House and other member states have objected to the European Commission's proposals to impose maximum standards for bank capital. These proposals undermine efforts that we and others are making to improve financial stability and the single market, and bodies such as the International Monetary Fund believe that they also water down the international Basel III agreement, giving exemptions to globally active banks in certain European countries. Along with others, we will seek changes to ensure that the EU faithfully implements international agreements.
Thirdly, the Government will take action to increase competition in the banking sector. As a result of the disappearance of banks such as Bradford & Bingley and the last Government’s decision on the merger of Lloyds and HBOS, the banking sector is dominated by a handful of large banks. Last year, just four banks took 70% of the market share. We need new banks to enter the market and provide consumers and businesses with more choice. Last month the Government announced the sale of Northern Rock to Virgin Money, which creates a new competitor in our retail banking sector. In the coalition agreement we made it clear that we wished to foster diversity in financial services, including the promotion of mutuals. We welcome last week's announcement that Lloyds has identified the Co-op as preferred bidder for the divestment of more than 600 branches, which will create a strong challenger in the high street.
We will also make it easier for people to switch their current accounts. This recommendation from the Commission has received less attention from the media, but could be of huge benefit to millions of customers. The idea is that individuals and small businesses can switch to another bank within seven days, and all the direct debits and credits will be switched for them at no cost. The Government have secured the banking industry's agreement that it will implement these proposals by September 2013.
We will support the Treasury Committee's proposal to bring the Payments Council within the scope of regulation, and I can confirm that our financial services legislation next year will specify that one of the objectives of the Financial Conduct Authority is to promote effective competition in the interests of consumers. A new statutory competition remit will provide the FCA with a clear mandate for swifter, more effective action to address competition problems in financial services. Within months of the ICB report, legislation will be introduced to bring the change into force.
That brings me to timing. Some have questioned whether the Government will seek to delay implementation of these reforms—such questions come from people who never even contemplated reform when they were in office. In fact, the reverse is true. On the advice of Sir John Vickers and others, I will introduce separate legislation to implement the ring fence. The Government intend implementation to proceed in stages, with the final changes relating to loss absorbency fully completed by the beginning of 2019 in line with the Basel agreement, but I can confirm that primary and secondary legislation relating to the ring fence will be completed by the end of this Parliament in May 2015, and that banks will be expected to comply as soon as practically possible thereafter. The Government will work with the banks to develop a reasonable transition timetable.
Of course, there are both costs and benefits to these reforms. The Government estimate the total costs to UK banks to be between £3.5 billion and £8 billion, broadly in line with the commission’s estimate. Much of this reflects the cost to them of removing the subsidy that comes from any perceived implicit taxpayer guarantee, which is precisely what we intend. The cost to GDP is estimated by the Government at just £0.8 billion to £1.8 billion, slightly lower than the commission’s estimate. These are far outweighed by the benefits of the ICB’s recommendations. Even a relatively modest reduction in the likelihood or impact of future financial crises would yield an incremental economic benefit of £9.5 billion per year, such is the cost of financial crises to the economy. Since the wholesale arms of non-UK banks would be unaffected by these reforms and the principal recommendations relate to UK retail banking, the competitiveness of the City of London as a location for international banking will not be affected.
We are fixing the banking system to protect taxpayers in the future, but we also need to clear up the mistakes of the past. I have already mentioned Northern Rock and Lloyds, but the biggest call on the taxpayer was the bail-out of RBS. The Financial Services Authority’s recent report was a damning indictment of all that went wrong in this crisis, and those responsible are clearly identified in it. We need to deal with the mess they created. Despite promises from the previous Government that taxpayers would profit from the RBS bail-out, the Government’s shareholding is now worth around £27 billion less.
We are already reforming the regulatory structures that allowed these catastrophic failures to occur. Bonuses are a fraction of what they were four years ago. Early this year we placed a limit of £2,000 on cash bonuses for RBS and Lloyds. We have made it very clear that the bonus pool next year must be lower again, and more transparent. We are also clear that, at a time like this, the Financial Policy Committee’s advice should be followed: bank earnings should be used to build capital levels, not pay out large bonuses.
RBS itself has also made significant changes since 2008, including reducing the size of its investment bank by half, but I believe RBS needs to go further, and the management agree. We are the largest shareholders. Let me set out our view. RBS has already announced that it will further shift its business strategy towards its personal and SME customers and its corporate banking business which serves UK and international companies. We believe RBS’s future is as a major UK bank, with the majority of its business in the UK and in personal, SME and corporate banking. Investment banking will continue to support RBS’s corporate lending business, but it will make further significant reductions in the investment bank, scaling back riskier activities that are heavy users of capital or funding. RBS should emerge a stronger, safer bank able to maintain lending to businesses and customers, and which in time can be returned to full private sector ownership.
The British people are angry about what happened in our banks, and angry at the politicians who let it happen. This coalition Government see two parties working together to clear up the mess of the past and to create a banking system that protects taxpayers and serves customers better. Today we present the most far-reaching changes to banking in our modern history so that we can build an economy that works for everyone. I commend this statement to the House.
Ed Balls (Morley and Outwood) (Lab/Co-op)
Let me start by thanking the Chancellor of the Exchequer for advance notice of his intention to give a statement but, as with the autumn statement, it is deeply disappointing that the statement, and the 75-page document, arrived with us only eight minutes before the Chancellor entered the House of Commons. One has to ask: do the Chancellor and the Business Secretary have something to hide?
I have a number of questions for the Chancellor. We have not had time to read the report so I hope he will make an effort to answer our questions today, but let me thank him for agreeing, at least in part, to our recommendation back in September that he produce an implementation plan for the Vickers commission by the end of the year. It is vital that the Government now implement these important banking reforms without foot-dragging or back-sliding or watering them down.
So will the Chancellor now agree to our second request, also made in September, and ask the Vickers commission to come back in 12 months’ time and publish an independent report on the progress that has been made in implementing its report?
Labour Members are determined to play their part in implementing these proposals in, as far as is possible, a cross-party spirit—taxpayers, customers and businesses, angry at banking recklessness which forced a multi-billion pound bail-out, will expect nothing less. We have apologised for the part that the last Government played in this global regulatory failure. In that same cross-party spirit, perhaps the Chancellor would like to take this opportunity to apologise too: for the role his party played in opposition, and he played as shadow Chancellor, in complaining of “too much regulation”, and for the then Leader of the Opposition calling, as late as spring 2008, for “lower taxes” and “less regulation” for the City. We all made mistakes and perhaps this Chancellor, who opposed financial regulation legislation, who opposed the nationalisation of Northern Rock, RBS and Lloyds, and who opposed Bank of England independence, should show a little more humility as well. If he does, I will, in a cross-party spirit, commend him for that.
I join the Chancellor in commending the excellent work of the pre-legislative scrutiny Committee on the draft Bill and of the Treasury Committee. We will study those reports in detail, and we will approach the Bill and the Chancellor’s reforms to the machinery of financial regulation with an open mind. However, like those Committees, we are concerned that his reforms could make decision making both more complicated and less transparent in future. There is a serious and still unanswered question as to whether there is sufficient accountability to match the massive new powers that the Chancellor plans to delegate to the Bank of England. His so-called “simplification” actually increases the number of deputy governors of the Bank of England from two to three.
Our fear is that he is replacing the tripartite system with a de facto quartet system—the Treasury, the MPC, the FPC and the PRA—with the FCA on the outside. Given that complexity—I can explain the acronyms; they are all different autonomous agencies in the Bank of England—can the Chancellor tell the House why he has still not published the promised memorandum of understanding between the Treasury and the different Bank agencies? I hope it is obvious to the Chancellor that the memorandum of understanding must specify that in any crisis the Chancellor must always hear the direct advice of all three deputy governors—alongside that of the Governor—most importantly that of the deputy governor who is also the chief executive of the independent regulator responsible for ensuring the stability of the banking system. In my view, that is essential if this new, more complex quartet system of financial regulation is to work in an effective and transparent way.
In responding to the Vickers commission, Labour set out three tests that will guide our view of banking reform—let me deal with them in turn. First, to protect taxpayers, we, too, support the commission’s radical reforms on ring-fencing and regulatory standards. Rather than delay, could the Chancellor explain why he is not at least making a start with reforms in the current financial regulation Bill, which will come before the House next year? Can he clarify to the House whether it is his intention to implement, in full, the Vickers recommendation on depositor preference? On the requirement on the biggest UK global banks to have the ability to absorb losses equivalent to between 17% and 20% of risk-weighted assets, can he explain why he is deciding to water down the Vickers proposal by not applying this rule to their full global balance sheets? Is he sure that this will not leave the taxpayer exposed?
The Business Secretary told the BBC yesterday that the Vickers report was being implemented in full, but what we have here is not an implementation report; it is a consultation paper before a White Paper in the spring. Already we learn that the Chancellor is not implementing the Vickers recommendations in full. Will he tell the House whether he really intends full implementation, or have the Liberal Democrats been sold a pup yet again?
On the second test of securing international agreement, given the Prime Minister’s decision 10 days ago to walk away from the negotiating table without securing any protections at all for financial services in those discussions, will the Chancellor tell the House whether he is confident that he can do a better job? In particular, is he confident that he will be able to get the necessary EU-wide agreement, which means a qualified majority vote, to implement the Vickers capital requirement proposals?
On the third test of delivering a banking system that supports the wider long-term interests of the economy, may I ask the Chancellor about competition and the supply of credit? On competition, we argued back in September that any delay or backsliding on competition would leave consumers and small businesses to pick up an unfair share of what he has confirmed is a multi-billion pound bill for tougher capital and regulatory standards. Developments since September have not been encouraging.
On Northern Rock, will the Chancellor reassure the House that his rather hurried trade sale will deliver over the coming years—in two, three, four and five years—a new challenger bank that will compete in the small business and mortgage markets? Will he assure the House that that will be the outcome? Will he confirm that it is as a result of widespread concern that the taxpayer will not get value from his loss-making sale that the National Audit Office has launched an investigation into that decision?
On the sale of Lloyds branches to support a new challenger bank, will the Chancellor explain to the House—perhaps he could explain it to the Business Secretary, too—why he has decided not to implement in full Vickers’s proposals to increase the size of branch sales from Lloyds on divestiture? Why has he not taken the advice of the Vickers commission on competition? Is it not overwhelmingly clear, as we argued back in September, that rather than waiting until 2015 the Chancellor should now commit to a review in 2013—two years’ time—of the impact on competition of these proposals?
The fact is that none of these long-term reforms can address the two immediate threats to the supply of credit and the stability of our already fragile economy and banking system. First, here in Britain, with rising unemployment and a flatlining economy depressing confidence, thousands of small businesses are now struggling—as Members on both sides of the House know and as I heard for myself in Leigh on Saturday—to access the credit they need to survive and grow, with net bank lending to businesses not rising but falling. Alongside the long-term reforms, will the Chancellor tell the House why, rather than cutting taxes for the banks, he is not acting now to ensure that UK banks start to act now to increase their lending to small businesses?
Secondly, finally and most gravely of all, the failure of all our political leaders across Europe to solve the euro crisis and in particular to get the European Central Bank to start doing its job as lender of last resort is now the biggest threat to banks in Britain, businesses in Britain and jobs in Britain. Ten days ago, the Prime Minister walked away. Will the Chancellor reassure the House that he has not walked away, too? Are he and the British Treasury seriously engaged in trying to solve what is now the gravest threat to prosperity in our country in this generation? Is anyone in the rest of Europe listening to the Chancellor any more?
Mr Osborne
First, I apologise if the right hon. Gentleman did not get the statement far enough in advance for him to read it. I am merely following the procedures that he laid down when he was at the Treasury.
Let me deal specifically with the points he raises in detail. First, on the financial services Bill which we will introduce in Parliament early in the next year, I did not talk about it in the statement because we will have the Second Reading debate, I hope, shortly after we come back in January, but it is an important part of what we are doing. I mentioned it in passing. It is about changing the regulatory system to put the Bank of England in overall charge of monitoring levels of debt and systemic risk in our economy—a responsibility that I believe should never have been taken away from the Bank of England back in 1997—and at the same time giving it the powers that it needs to act as a prudential regulator, without which it would not be able to identify those systemic risks.
The reason why I have not produced the memorandum of understanding is that I was waiting for the Joint Committee—the pre-legislative Committee—that has been looking into the Bill. I thought it would be completely inappropriate to produce the MOU before it had reported so, as I explained to the Committee, I was going to wait until I had its report. The report is only being published today and I hope fairly shortly to be able to produce that MOU, having taken into account what both it and the Treasury Committee say.
The right hon. Gentleman says this is all rather complicated. There is a simple principle, which is that the Bank of England is in charge of monitoring risks in our financial system—
Mr Osborne
Well, we have tried the right hon. Gentleman’s approach and look what happened: the entire banking system collapsed. So with the greatest respect, his advice on what is a dangerous approach to regulation we will take with a pinch of salt.
I turn to the right hon. Gentleman’s other points. On international agreement, obviously it is extremely important that we are able to do this under European law. There has been an argument about this. We have a great deal of support. Countries such as Spain and Sweden have written to the Commission to urge it to allow countries to have their own national regimes that sit on top of the minimum capital requirements, and we are encouraged by the very recent Commission quote which says that “Vickers can be implemented fully in the UK in a way that is compatible with EU law”, but we will continue to make our argument. It is encouraging that both the European Commission and the European Parliament have expressed their keen interest in the Vickers report and are doing their own work on that. It is good to see us leading the international debate on that.
The right hon. Gentleman mentions competition. On Northern Rock, we welcome the National Audit Office investigation. It would be very surprising if the NAO did not do a report into such a financial transaction. It has done reports into all the previous financial transactions by this Government and the previous Government. I think what it will demonstrate is that this was a loss-making bank and the independent advice that we received was that it would go on losing money. The people who should be to blame for losing taxpayers’ money are sitting directly opposite me.
On Lloyds and the Lloyds branches, we have spoken throughout this process to John Vickers. Obviously, he can speak for himself and give his view, but we have kept him closely informed of what we are proposing. I think it is consistent with the intention in the report to create a strong challenger out of the divestment of the Lloyds branches.
Let me turn to the timetable that the right hon. Gentleman mentions. As I say, we will be implementing some of the competition requirements in the Vickers report—for example, the new competition remit for the FCA. That will be part of the financial services Bill that we introduce in January. We considered carefully whether to try and put all the Vickers requirements—the creation of the ring-fenced banks—into the financial services Bill that we are introducing early next year.
We did not think that was sensible. That was also the view of John Vickers, who recommended a separate piece of legislation. That is precisely what we are going to do, but our commitment is clear. We will have all the primary and secondary legislation, which is where quite a lot of the detail will be, through by the end of this Parliament. That is exactly what we want to see.
Finally, the right hon. Gentleman has been going around complaining that we are not doing enough, we are in danger of watering down Vickers, and the like. This is from the people who have opposed structural reform to our banking system. When I was sitting on the Opposition Front Bench as the shadow Chancellor under both the previous Chancellor of the Exchequer, who is in his place, and also under the Chancellor of the Exchequer before, who then became the Prime Minister, they opposed structural reform. They did not want to separate the banks. No doubt they can answer for themselves, but for the former City Minister who was in post when RBS made its bid for ABN AMRO, for the City Minister who was in post when Northern Rock was offering those 125% mortgages, for the City Minister who was in post when HBOS was making all those commercial property loans, for the former City Minister to complain that we are not doing enough is ridiculous. This is the man who advised that Fred Goodwin should get a knighthood and who told his boss to go and open the Lehman Brothers headquarters. That is his record, and his mealy-mouthed apology reminds me of that film “Whoops Apocalypse”—I am sorry, I just brought down the entire British economy; can we all please move on now. That is what he has done. Frankly, he has not made a substantive or interesting contribution to this debate on bank reform. Perhaps in the next few months he will.
Mr Osborne
I have already set out the Government’s view on the Royal Bank of Scotland, and the issue of what to do when we come to dispose of the shares will be one that we can all address at the time.
The document and the process have been a very good advertisement for the coalition Government. The Business Secretary and I have worked incredibly closely on the document, which is a joint one from us both, and people will not have read in the newspapers lots of stories about the “splits between us on the issue”—
Mr Osborne
Getting a lecture on “splitism” from the shadow Chancellor, who has been the biggest source of division in the House over the 10 years that I have been in Parliament, adds to his lessons on how to regulate banks properly as something to treasure, but this document is a very good advertisement for the coalition Government and the work that we have done with the Business Secretary.
Mr Osborne
Two of those three politicians are now busy earning quite a lot of money in the financial sector to deal with the fact that they might face a surcharge. Perhaps, with the efforts of my colleagues, we can make sure that the third politician soon follows them.
Mr Osborne
Actually, we are quite happy for the right hon. Gentleman to stay where he is, so I retract my previous comment.
In response to my hon. Friend the Member for Sevenoaks (Michael Fallon), we are confident that we will be able to do this within the regime of European Union law.
The Economy
Ed Balls Excerpts(12 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
Transparency should make it clear to the owners of these banks—the shareholders—what the pay and bonus levels and the remuneration levels are; it will then be for them to take action. I am aware of our responsibilities as a shareholder in some banks. As I mentioned at Treasury questions, an encouraging statement was made this morning by the Association of British Insurers, which represents the shareholders who own many of these banks, saying clearly that it does not accept current levels of pay in the financial sector and that it expects reform. As I said, we had a very clear warning from the Financial Policy Committee to the financial system that it should be limiting its distributions at a time like this.
Mr Osborne
I give way first to the shadow Chancellor and then to the member of the Treasury Committee.
Ed Balls
Labour Members welcome the Chancellor’s conversion to transparency in financial affairs. He will know that, following the Walker review, a piece of legislation is on the statute book that requires the publication of the salaries of all employees paid more than £1 million. Given that the legislation is on the statute book but that this Government have chosen not to enact it, will he now enact it and therefore bring about full transparency for anyone in the City earning more than £1 million?
Mr Osborne
I think that, in the interests of transparency, the right hon. Gentleman should have told the House that he was the City Minister who, for several years, had the opportunity to introduce these changes. What about the opportunity that he had to do precisely the things that we are doing today? When it comes to transparency in pay, we have consulted David Walker and others, and we think that this is exactly the right approach. We will introduce the changes unilaterally in the United Kingdom, although it is a significant financial centre, and I think that they will set an example that the rest of the world will follow.
Mr Osborne
The reason they think that is because it is true. This, again, is the absolutely hopeless position that Labour under the shadow Chancellor have put themselves in, but frankly, that is for them to work out. If I may declare an interest, we very much want him to stay in his post for the next three and a half years: he is the best recruiting sergeant we have.
The Governor of the Bank of England—appointed by the right hon. Gentleman, no doubt, when he was the chief economic adviser—said this last week:
“This is exactly the right macro-economic response to the position in which we find ourselves”.
And who is left opposing this credible action, this macro-economic response? The Labour party, which is now advancing this new theory that Britain’s low interest rates in this debt crisis are a sign of policy failure, not policy success. That was the argument we heard last week. The shadow Chancellor talked in his response to my statement of
“the illiterate fantasy that low long-term interest rates in Britain are a sign of enhanced credibility”—[Official Report, 29 November 2011; Vol. 536, c. 812.]
I pointed out that, on that basis, Italy’s rates of 7% were a policy triumph and Greece’s 30% rates were an economic miracle.
In the intervening week, I looked for evidence to support the argument that the shadow Chancellor has been advancing. I have not found it, but I did come across the very interesting “Ken Dixon lecture” to the department of economics at the university of York. It was given in 2004 by the chief economic adviser to the Treasury—Mr Edward Balls. He told a no doubt gripped audience of students about the importance of lower debt, of running surpluses in good times, of keeping deficits under control. He then cited the market interest rates that Britain was paying on its debt, versus neighbouring countries’, as the fruits of economic success. He boasted that the UK was borrowing money more cheaply than Germany and he hailed low interest rates as
“the simplest measure of monetary and fiscal policy credibility”.
Does he still believe that?
Mr Osborne
In the situation we face at the moment, where countries around the world, particularly those in the western world, face a challenge from the markets about their credibility, the countries with credibility have been able to keep their interest rates down and those without credibility have seen their interest rates rise. The right hon. Gentleman said that low “long-term interest rates” are
“the simplest measure of monetary and fiscal policy credibility”.
I want to know whether he still believes that to be the case—yes or no?
Ed Balls
This is the second time that the Chancellor has not understood the question today and has therefore not been able to answer it. Of course it is the case that in a normal operating economy that is how things are, but in a liquidity trap it is different, and that is where we are. That is why when American debt was downgraded in August, America’s long-term interest rates fell; they did not rise. Let me quote to him what the chief economist at Capital Economics said this August:
“Signs that the UK’s economic recovery has ground to a standstill have led markets to revise down their interest rate expectations”.
The National Institute of Economic and Social Research has said:
“The reason people are marking down gilt yields is because”—
they think that the UK—
“economy is weak”.
In a liquidity trap, long-term interest rates are a sign of the growth potential of the economy. It really worries me that the Chancellor does not understand the economics of this.
Mr Osborne
The right hon. Gentleman quoted the chief economist or head of the NIESR, but did not happen to declare to the House the interest that this person used to work for the shadow Chancellor. I do not agree with his analysis.
Mr Osborne
I will explain the economics very simply: if people do not think you can pay your debts in the world, they charge you a lot more interest on those debts.
I have actually bothered to read the right hon. Gentleman’s article in The Times today, in which he says that Labour would take
“tough decisions on tax and public spending.”
Will he get up and give us, either now in an intervention or in his speech, just half a dozen examples of the tough decisions he is prepared to take?
This is the shadow Chancellor who has opposed the increase in the VAT that the previous Government were planning, who opposed the increase in North sea oil taxation and who opposed the increase in capital gains tax—Labour Members do not know that, but he did actually oppose that. He opposes capping housing benefit, which was actually in the Labour manifesto; the reform of employment and support allowance; the changes to tax credits; and reforming legal aid. The Labour party has campaigned against every single change to the Ministry of Defence budget. There is not one single budget in the entirety of Whitehall that the Labour party has proposed cutting.
That is from the shadow Chancellor who says that he would take “tough decisions” on tax and spending. His position is, “We would not take them now. We would take them in the medium term.” That is his argument, if I understand it correctly. In the past seven days, he has opposed our measures to restrain public sector pay after the pay freeze comes to an end; opposed the path for public spending that we have set out for 2015-16 and 2016-17, which is in the medium term; opposed the raising of the state pension age, which is what is being done in Australia, Germany and America—the country he keeps citing. No wonder his economic policy has absolutely no credibility whatsoever. And, of course, he opposes the Government’s active enterprise policy—lower and simpler corporate tax rates; the new enterprise zones; the housing market changes that will revive the right to buy; planning reforms; and the changes to employment law.
Let me discuss just one measure that was announced seven days ago: the seed enterprise investment scheme. A group of entrepreneurs, including those who used to support the Labour party, wrote to the paper and said that the scheme will
“help the next generation of British innovations to become the next generation of great British businesses.”
This country faces some of the most serious challenges in its modern history. We are picking up the pieces of the biggest boom which became the biggest bust, and now we face a sovereign debt crisis in the eurozone. Unlike the shadow Chancellor, we are not the quack doctor promising a miracle cure. The action we have taken will help to take Britain through this storm and lay the foundations of a far more sustainable and balanced prosperity in the future, and I commend the autumn statement to the House.
Ed Balls (Morley and Outwood) (Lab/Co-op)
A year ago this week, the Chancellor of the Exchequer told the American news channel CNBC:
“We’ve already begun the reductions in public expenditure, and it has not had the impact on demand, not had the impact on economic growth that the critics said it would. So there are plenty of people who said what we were doing was wrong, but at the moment they’re being confounded by the figures.”
Twelve months later, on growth, on jobs and on borrowing, it is the Chancellor who is completely confounded by the figures. Let me remind him of what he boasted a year ago on 29 November in a Conservative party press release:
“Now the independent OBR have confirmed that the British recovery is on track, our public finances are on the mend, our debt is under control, employment is growing and our economy is rebalancing.”
Twelve months to the day, what did the independent Office for Budget Responsibility report? A recovery on track? No. Growth is flatlining—downgraded this year, next year, the year after, the year after and the year after that. Is employment growing? No. Employment is falling, and unemployment is now expected to be 500,000 higher than the previous forecast. Are public finances on the mend? No. Borrowing is disastrously off track: £158 billion more than the Chancellor told the House exactly a year ago.
The boasts of the Prime Minister and the Chancellor that they would eliminate the current structural budget deficit within five years are in complete tatters—in complete disarray. In his March Budget, the Chancellor claimed:
“We have put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 965.]
It must have been the wrong kind of fuel.
It is not as though the Chancellor was not warned. In his Bloomberg speech in August 2010, he claimed:
“There are some political opponents who claim that in setting out our decisive plans to deal with the deficit we have taken a gamble with Britain’s economy. In fact, the reverse is true.”
The Chancellor has taken an enormous gamble with the economy, with jobs and with people’s lives. The reality is that his gamble has completely backfired. Let me quote from an editorial in The New York Times at the weekend:
“A year and a half ago, Prime Minister David Cameron of Britain came to office promising to slash deficits and energise economic growth through radical fiscal austerity. It failed dismally.”
Before the election, we said that, like every country, after the global financial crisis we had to get the deficit down and we needed a tough plan. We needed spending cuts and tax rises. The question was not if we did it but how we did it. That is why the Opposition warned the Chancellor that he was reckless, that he was ripping out the foundations of the house, leaving our economy not safe but deeply exposed, and that is exactly what has happened over the last year.
Even judging by the one objective the Chancellor set himself for getting the deficit down, he is failing. In that CNBC interview a year ago, the Chancellor said:
“We have taken a series of steps, increased some taxes, consumption taxes, had some cuts in public expenditure, which have put us on a path to eliminate the deficit in a period of four years.”
Not only is the Chancellor now emphatically not going to eliminate the deficit in four years, but according to the OBR, he is set to borrow £37 billion more than under the plan he inherited from Labour at the last general election—a plan he called “deeply irresponsible.”
The Business Secretary told The Guardian in May that it was realistic for the coalition to eradicate the structural deficit by the end of this Parliament:
“Our credibility hinges on it.”
He was right, which is why the Government’s credibility is now badly undermined. The Chancellor should have listened to the warning from the Business Secretary before the election. This is what the Business Secretary said when he was a Liberal Democrat MP outside the coalition—the old kind of Liberal Democrat:
“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.”
The Business Secretary was right before the election. It was only after the election, when he took his Cabinet seat, that he changed his mind.
Unemployment is up. Borrowing is up. Going further and faster has proved to be utterly counter-productive and self-defeating. All this pain for no gain. Eighteen months in, plan A has failed, and it has failed decisively.
Nadhim Zahawi
In The Times today the shadow Chancellor wrote:
“Credibility is based on trust and trust is based on honesty, so we must be clear with the British people that under Labour there will have to be cuts.”
In the spirit of honesty, will he tell the House what he would cut?
Ed Balls
Of course I will. When I was the Education Secretary we said that there would be over £1 billion of cuts in the schools budget at that time. We said, for example, that we would cut the police budget by 12%, but not by 20% with the loss of 16,000 police officers throughout the country. We would have raised national insurance. We raised the top rate of tax, but we would not have raised VAT to 20%, precisely because it would have choked off the recovery, as it has done this year.
I can tell the hon. Gentleman and his colleagues, the friends of the Chancellor, that I was reading a profile of the Chancellor a week ago, a few days before the autumn statement, in which one ally said:
“‘The autumn statement will correct the idea that we are off course’”.
Whatever were they on? One only needs to read the rest of the article to understand what is really going on. It goes on to say that the Chancellor
“has started taking discreet steps towards the Tory leadership. . . Members of the 2010 intake of MPs . . . are invited to discreet drinks at No. 11. The favourites”—
I do not know whether the hon. Member for Stratford-on-Avon (Nadhim Zahawi) is one of the favourites; perhaps he could tell us in another intervention—
“The favourites are invited to bibulous soirees at Dorneywood.”
If you ask me, it sounds as if they have been drinking rather too much.
Let me give the House another quote from one of those allies, because it was so revealing:
“Nobody in the Osborne circle is vulgar enough to talk openly enough about his leadership ambitions. . . ‘George has no agenda. I have never heard any talk of a timetable,’”
said an ally,
‘“But the unspoken assumption is that the party would be a lot safer in George’s hands than with bonking Boris.’”
Mrs Main
May I say to the shadow Chancellor, with all due respect, that the public deserve better than this? Tittle-tattle may be a joke to him, but the public want to know what his policies are, because they have faith in our policies. Is it still the policy of the shadow Chancellor and his party to make sure that we join the euro, given the huge financial consequences, which he is no longer discussing?
Ed Balls
Obviously the hon. Lady was not invited to the drinks parties. Perhaps she should apologise to the 5,400 families in her constituency who will lose from the cuts in child tax credits. If she wants to talk about deserving better, let me give another example from one of the Osborne allies:
“They were a bit sniffy about George. The Bullingdon is basically for Etonians. But they let him in even though he went to St Paul’s, though they did insist on him reverting to his original name of Gideon.”
The hon. Lady tells us that the country needs better than that. As for the euro, I will happily give way again if she can give the Labour Government credit for keeping the country out of the single currency in 2003.
Mrs Main
I am absolutely amazed that joining the euro is still in the right hon. Gentleman’s party manifesto, and that he can still plead that he kept us out of it. I am absolutely amazed that he has the brass neck to say that he is the saviour of this country from the euro—and I am sure that he will now stand up and tell us all that he no longer sees joining the euro at any point as worth while.
Charlie Elphicke (Dover) (Con)
Given that the shadow Chancellor seems to be making up policy on the hoof in this debate, is it any surprise that one shadow Cabinet colleague has said that his policy is hurting but not working, and that he has no credibility?
Charlie Elphicke
The shadow Chancellor talks about my constituency, but let me talk about his. How does he account for the rise in the claimant count in his constituency of 1,056, or 141%, in the last Parliament? Was that an economic success?
Ed Balls
If the hon. Gentleman is quoting the figures for this year, they might be the result of the Chancellor’s policies. Let me return to concerns about Dover and Deal. While campaigning for a new hospital in Dover, the hon. Gentleman said:
“I am very, very concerned that Dover has not had and does not get its fair share of health care. I have taken this up with ministers and hammered home just how angry people are”.
Perhaps he should also hammer home with his Front Bench the failure of cuts in tax credits.
In last week’s statement, in today’s debate and in every interview the Chancellor has given, we hear him give excuse after excuse and blame anyone except himself. Earlier in the year he blamed the snow, the earthquake, the royal wedding and higher oil prices. America was badly affected by the snow, and every country was affected by the Japanese earthquake and higher commodity and oil prices, so why did Britain have slower growth than any other country in the G7 except Japan? Why do we have higher inflation than any other country except Estonia? It was the Chancellor’s decision to raise VAT in January that pushed up fuel and petrol prices, hit confidence and reduced real living standards for families. He then blamed the euro crisis, but the fact is that our economic recovery was choked off a year ago, well before the recent crisis.
The Office for Budget Responsibility has downgraded its growth forecast for Britain in 2011, but it has upgraded its growth forecast for the euro area. Only Greece, Portugal, Denmark, Cyprus and Slovenia have grown more slowly than Britain over the past year. As the OBR figures show, the fact is that it is the lack of domestic demand that has slowed down our economy. It is only net trade, the contribution of exports, that has kept us out of recession over the past year. If the eurozone countries fail to sort out their problems, that will of course have an impact, which is why it is important that they are sorted out. Far from the eurozone dragging us down this year, it is actually the euro that has been buoying us up.
Mr Tobias Ellwood (Bournemouth East) (Con)
The right hon. Gentleman speaks of asking for, or demanding, an apology, but an apology is required from Labour Members. To give credit where it is due, however, I remember that when he was Secretary of State for Education he looked for savings in that area. But he did not do so right across the board. Page 15 of the OBR report shows that in 2008 borrowing went up to £68 billion, that in 2009 £152 billion was required, and that in 2010 another £145 billion was required: spending, spending, spending. It was not until this Government came in that such spending was halted.
Ed Balls
In a second. I will answer the previous intervention before I turn to the next one.
The financial crisis hit every major country in the world, and bank regulation was not tough enough here in Britain or in countries throughout the world—[Hon. Members: “Ah!”] There is no doubt about that. The Chancellor of the Exchequer, who was then the shadow Chancellor, spent his whole time urging us to deregulate, complaining about “burdensome, complex” regulations—but there we are.
By spring 2010 the economy was growing, inflation was low and unemployment was coming down. More people were in work and paying taxes then, so borrowing came in £20 billion lower than had been forecast in the pre-Budget report of 2009. How things have changed in 18 months! Then borrowing came in lower than was planned; now it is coming in at £158 billion more than was planned. The country is tired of the Chancellor’s excuses, and it is time he admitted that his failing plan is hurting but not working. His reckless gamble has not made things better; it has made things worse.
Richard Fuller
As the shadow Chancellor’s soon-to-be replacement, the hon. Member for Leeds West (Rachel Reeves), rustles through her papers to find a data point to throw back at me, may I ask him whether he has had the opportunity to look at McKinsey’s debt and deleveraging report, which identifies that on his watch and under his Government we became the most indebted major economy in the world? Does he not bear some responsibility for the enormous pain that families are going through in order to remedy some of his excesses?
Ed Balls
In the hon. Gentleman’s constituency 10,800 families are actually losing out as a result of the change in tax credits. We look forward to seeing that in his press release.
The fact is that we went into the global financial crisis with a lower level of national debt than France, Germany, America and Japan—
Ed Balls
If the hon. Gentleman calms down and lets me answer his point he will be able to intervene again. I shall be happy to take another intervention.
The fact is that when we went into the financial crisis our level of national debt was lower than that in America, France, Germany and Japan—and lower than that which we inherited from the Conservatives in 1997. I will give the House one good reason why: in 1999, when we raised £20 billion from the auction of the 3G mobile spectrum and they urged us to spend the money, we used the entire amount to repay the national debt.
Richard Fuller
The shadow Chancellor makes potentially a fair point about Government debt, but the Government are responsible not just for Government debt but for the total indebtedness of the nation, and he fails to understand that under the previous Government the total indebtedness of this country grew to become the largest of any major economy in the world. That is his legacy, and that is why 10,000 people in my constituency will be hearing why his policies led to the pain that they feel today.
Ed Balls
Over 1 million more homeowners than in 1997, and over 1 million more new businesses—with overdrafts and borrowing facilities—compared with 1997! The hon. Gentleman should be careful about giving the impression that borrowing in an economy is a bad thing for consumers, households and businesses. Many businesses want to borrow at the moment; it is just that the banks will not lend.
What did we get last week from the Chancellor? We got a cobbled-together package of growth measures which he knows, and the OBR forecast confirms, does not address the fundamental problem that his rapid and deflationary plan has choked off the recovery and pushed up borrowing. It is a so-called plan for growth that, according to the Treasury’s own figures, hits women harder than men, pushes up child poverty and delivers lower growth and higher unemployment.
Matthew Hancock
I withdraw it. Will the shadow Chancellor have the weight to state explicitly what he has just argued, which is that private sector debt is a good thing?
Ed Balls
The numbers for the hon. Gentleman’s constituency show that 8,600 families in his constituency are losing out from the cut in tax credits. [Interruption.] He is normally quite excitable, but he is really getting rattled this afternoon.
What are the facts? “We are all in this together,” yet women are being hit twice as hard as men; there has been a 100,000 rise in child poverty, according to the Treasury’s own figures; there is a four times bigger hit for families and children than for the banks, which have seen their taxes cut this year compared with last year; not 400,000 but 710,000 public sector jobs are set to go; there is £158 billion more in borrowing than was planned a year ago—£6,500 more in borrowing for every household in this country—and there is the cost of rising unemployment. That is the cost of the failure of the Chancellor’s plan. As for the Deputy Prime Minister’s contribution, we have a cobbled-together replacement for the future jobs fund that is judged by the OBR to have no impact at all on employment and zero impact on jobs. I have to say to the Chancellor and to the Chief Secretary that protecting our economy, businesses, jobs and family finances is more important than trying to protect a failing plan and their failing reputations.
Christopher Pincher (Tamworth) (Con)
For the benefit of the shadow Chief Secretary, my constituency is Tamworth. [Laughter.] I see that she has found it.
It takes some brass neck for the man who was so responsible for wrapping this country’s economy around a lamp post to stand there now and try to teach this Government how to drive. If he wants to be credible, and if he wants to be trusted about the cuts that he says need to take place, can he explain why he has abandoned the Darling plan and wants to spend £326 billion extra over the next five years?
Ed Balls
Abandon the Darling plan? It is the Chancellor who is borrowing £37 billion more than under the Darling plan. That is because of what is happening to jobs, growth and the living standards of families in our country, with 9,500 families in Tamworth hit by the cut in child tax credit announced last week. I will not read the next figure out; I will spare the hon. Gentleman’s blushes.
As we heard in Treasury questions earlier, the IMF was right: growth is necessary for fiscal credibility. The IMF urged the Chancellor to change course if growth undershot current expectations. The Chancellor did not even know the figures at Treasury questions this afternoon, but in October the IMF advised him to change course and to delay the planned consolidation if growth undershot. At that time the IMF was forecasting 1.1% growth this year; it has come in at 0.9%. For next year it was forecasting 1.6% growth; it is now forecast to be 0.7%. If that is not growth clearly undershooting expectations, I do not know what is.
In May the OECD called for the Government to slow the pace of consolidation if the economy undershot. The Chancellor likes to quote the OECD in support of his policies, so let me tell him what its chief economist said only last week. He told the Chancellor to
“contemplate easing up on spending cuts”
if events turned out to be
“a lot bleaker than even the bleak outlook that we have.”
That is not exactly a ringing endorsement of the Chancellor’s plans.
Mr George Osborne
The right hon. Gentleman has just quoted the OECD’s chief economist. The same person said on 28 November that “plan A is working”. The OECD also said:
“The ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields, leaving room for automatic stabilisers to work fully”.
The person the shadow Chancellor is quoting in the House of Commons in defence of his policy has said that “plan A is working”. Will he now correct the record?
Ed Balls
Only this Chancellor, out of his depth and out of touch, could come to this House and claim that the forecasts he set out last week showed that plan A was working. How can it be working when we have record levels of unemployment? How can it be working when growth has flatlined? How can it be working when he is borrowing £158 billion more than he planned a year ago?
I have seen the transcript of the Sky interview that the Chancellor is quoting, and I understand the diplomacy of the OECD. However, the chief economist said that the Chancellor should
“contemplate easing up on spending cuts”
if events turned out to be
“a lot bleaker than even the bleak outlook that we have.”
How much bleaker do they have to get? How much bleaker for families? How much bleaker for jobs and young people? How much bleaker for borrowing?
We were told a year ago that the Chancellor would not change course because his plan was working. Now, even though it is clearly not working, the Government still will not change course. The Prime Minister says that we cannot borrow our way out of a crisis, but that is exactly what the Chancellor has been forced to do. He is borrowing billions more to pay for the high unemployment, stagnant growth and rising benefits bill that his plan has delivered. The Chancellor made the wrong choice a year ago. He is now making a second catastrophic choice in sticking to a failing plan, when what Britain needs is a plan that will work.
Any British Government would be borrowing at the moment. There is no doubt about that.
Mr David Anderson (Blaydon) (Lab)
The shadow Chancellor makes the point that the Government are trying to borrow their way out of a crisis. I suggest that we are actually borrowing our way into a bigger crisis. [Laughter.]
Ed Balls
In a second. Any Government would be borrowing at the moment. The question is whether it is better to borrow billions more to keep people out of work on benefits, or to act to get people back into work and paying tax, which would get the deficit down. If we let a year of stagnating growth and rising youth unemployment become a lost decade of stagnant growth and high youth unemployment, we will pay a long-term price. It makes much more sense to act now, as the International Monetary Fund has recommended, with temporary tax cuts and investment in jobs and growth. That is the best way to reduce the bills of failure for the long term. It is the only way to get our deficit down sustainably in the long term.
Ed Balls
I will give way in a second. There is a choice. We can either take action now and then have long-term fiscal discipline on the deficit, spending and our fiscal rules to make our economy stronger and to get borrowing down, or we can have what we have now and what is forecast for next year and the year after: stagnating growth, rising borrowing, including £158 billion more borrowing to pay for rising unemployment, and long-term youth unemployment, which will weaken our economy and make it harder to get the deficit down.
Nadhim Zahawi
The shadow Chancellor is obviously passionate about the subject of youth unemployment, so will he admit to the House that in the last Parliament, youth unemployment in his own constituency went up by 151%?
Ed Balls
Before the crisis, youth unemployment was lower than what we inherited in 1997. It then went up during the recession, but was falling a year and a half ago. It is now rising again. Unemployment was falling in our economy, but now there has been an 80% rise in long-term youth unemployment.
Matthew Hancock
I am very grateful. The right hon. Gentleman keeps making his argument about borrowing, but is it not completely undone by the fact that according to the OBR forecasts, borrowing has fallen and is set to fall over the next five years, and then debt will fall once it is under control? Can he answer the question that neither the shadow Chief Secretary nor other shadow Treasury Ministers can answer? How can spending more money possibly lead to lower borrowing?
Ed Balls
The economics of this are clear and easy to understand, which is why both the IMF and the OECD have made exactly the point that I am making. The fact is that the Government are borrowing £158 billion more than they planned, and the deficit is coming down much more slowly than was planned, because unemployment is going to be so much higher.
The issue is the pace at which we try to get the deficit down. If we try to get it down too fast, as the Chancellor did a year ago, it blows up in our faces. Growth and taxes slow down, unemployment goes up, and we end up borrowing £158 billion more. The right thing to do is to have a staged and balanced approach, get the economy moving, get people into jobs and get the deficit down. That is the only plan that will work.
Let me make an offer to the Chancellor. It is not too late to change course, and the deepening euro crisis makes it more important for him to see sense. If he does, we will back him—a new start, a second attempt. We read in The Daily Telegraph today about the Chancellor’s recent efforts to land a plane at Manchester airport—on a flight simulator, I should add, to reassure Members. There was too rapid a descent and a crash landing on the runway, narrowly missing ploughing into the terminal building. Too far, too fast—no surprises there. However, the Chancellor had a second go. With a little help from the experts and a steadier hand on the controls, things worked better the second time round. Perhaps there is a lesson for him in that story.
Perhaps the Chancellor should take my prescription after all. He claimed last week that a balanced plan to get our economy moving and to get the deficit down was like
“the promises of a quack doctor selling a miracle cure.”—[Official Report, 29 November 2011; Vol. 536, c. 810.]
Was not the Nobel prize-winning economist Paul Krugman closer to the truth when he described Britain’s experiment in austerity as being
“like a medieval doctor bleeding his patient, observing that the patient is getting sicker, not better, and deciding that this calls for even more bleeding”?
The patient is crying out for a second opinion, and all we hear from the Chancellor is a call for more cuts and more leeches.
Ed Balls
I will not, because I have gone on too long and there are other important speeches to be made today.
I was thinking about what other doctors the Chancellor resembled, and I concluded that he resembled Voltaire’s giant. I will take an intervention from anybody on the Government Front Bench who knows who Voltaire’s giant doctor was—Voltaire’s great doctor, Dr Pangloss. It does not matter what the evidence says, it simply strengthens Dr Pangloss’s opinion that his philosophy must be right. Britain’s rock-bottom gilts? A sign of success, not a damning verdict from the markets on the prospects for growth. Rising unemployment? Not a bad thing, just creating more space for the private sector-led recovery when it finally arrives. The worse things get in the rest of the world the better for Britain, because we are the only safe haven of prosperity.
In the Chancellor’s Panglossian world, everything is working out just fine, but in the real world, with the world economy darkening, and with the UK now forecast to endure stagnant growth and rising unemployment this year, next year and the year after, this Panglossian Chancellor is making a catastrophic error of judgment, refusing to learn the lessons of history, refusing even to understand the lessons of economics, and refusing to shift to a more balanced plan. He got it wrong 18 months ago; he is getting it so badly wrong today. He is out of his depth and out of touch. Is it not time he changed course before it is too late?
Mr Speaker
That, I think, was a case of either a point of frustration or, as the right hon. Gentleman has a smiling countenance, him getting his point on the record.
Ed Balls (Morley and Outwood) (Lab/Co-op)
On a point of order, Mr Speaker. Given that the motion before the House today was on whether there has been a sufficient debate on the economy, given the failure of plan A, given the £158 billion of extra borrowing, given rising unemployment, and given the view of the House that more time is needed for this debate, could you advise on whether the will of the House could be expressed and there could be more time to debate the very important issues facing this House and the country?
Mr Speaker
I am grateful to the right hon. Gentleman. The allocation of time for parliamentary debates is not a matter for the Chair, but the right hon. Gentleman has recorded his view, as has the Deputy Chief Whip.
Autumn Statement
Ed Balls Excerpts(12 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
Planning laws need reform, and so too do employment rules. We know many firms are afraid to hire new staff because of their fear about the costs involved if it does not work out. We are already doubling the period before an employee can bring an unfair dismissal claim and introducing fees for tribunals. Now we will call for evidence on further reforms to make it easier to hire people, including changing the TUPE regulations; reducing delay and uncertainty in the collective redundancy process; and introducing the idea of compensated no-fault dismissal for businesses with fewer than 10 employees.
We will cut the burden of health and safety rules on small firms, because we have regard for the health and safety of the British economy too. This Government have introduced flexible working practices and we are committed to fair rights for employees. But what about the right to get a job in the first place or the right to work all hours running a small business and not be sued out of existence by the costs of an employment tribunal? It is no good endlessly comparing ourselves with other European countries. The entire European continent is pricing itself out of the world economy. The same is true of taxes on business. If we tax firms out of existence, or out of the country, there will not be any tax revenues for anyone. We have set as our ambition the goal of giving this country the most competitive tax regime in the G20. Our corporate tax rate has already fallen from 28% to 26%, and I can confirm that it will fall again next April to 25%.
We are undertaking major simplification of the tax code for businesses and individuals, including, this autumn, consulting on ideas to merge the administration of income tax and national insurance. We are publishing next week rules on the taxation of foreign profits, so that multinationals stop leaving Britain, and instead start coming here, and we will end low-value consignment relief for goods from the Channel Islands, which has been used by large companies to undercut shops on our high streets. We have supported enterprise by increasing the generosity of the enterprise investment scheme. Today, we are extending this scheme specifically to help new start-up businesses to get the seed investment they need. Even at the best of times they can struggle to get finance, and in the current credit conditions that struggle too often ends in failure. From April 2012, anyone investing up to £100,000 in a qualifying new start-up business will be eligible for income tax relief of 50%, regardless of the rate at which they pay tax, and to get people investing in start-up Britain in 2012, for one year only, we will also waive any tax on capital gains invested through the new scheme. We can afford this with a freeze on the general capital gains tax threshold for next year.
I also want to help existing small businesses which find the current economic conditions tough. Business rates are a disproportionately large part of their fixed costs. In the Budget, I provided a holiday on business rates for small firms until October next year. I am today extending that rate relief holiday until April 2013. Over half a million small firms, including one third of all shops, will have reduced rate bills or no rate bills for the whole of this year and for the whole of the next financial year too. To help all businesses, including larger ones, with next year’s rise in business rates, I will allow them to defer 60% of the increase in their bills to the two following years.
I also want to help any business seeking to employ a young person who is out of work. The OBR forecasts that unemployment will rise from 8.1% this year to 8.7% next year, before falling to 6.2% by the end of the forecast. Youth unemployment has been rising for seven years and is now unacceptably high. It is little comfort that this problem is affecting all western nations today. The problem is, of course, primarily a lack of jobs—[Interruption.] But it is made worse by a lack of skills. Too many children are leaving school after 11 years of compulsory education without the basics that they need for the world of work.
Our new youth contract addresses both problems with the offer of private sector work experience for every young person unemployed for three months. After five months, there will be weekly signing on. After nine months, we will help pay for a job or an apprenticeship in a private business. Some 200,000 people will be helped in this way but, as the Deputy Prime Minister has said, this is a contract. Young people who do not engage with this offer will be considered for mandatory work activity, and those who drop out without good reason will lose their benefits.
If we are to tackle the economic performance of this country and tackle Britain’s decades-long problems with productivity, we have to transform our school system too, so that children leave school prepared for the world of work. My right hon. Friend the Secretary of State for Education is doing more to make that happen than anyone who ever had his job before him. The previous Government took six years to create 200 academies. He has created 1,200 academies in just 18 months. Supporting his education reform is a central plank of my economic policy, so today, with the savings that we have made, I am providing an extra £1.2 billion—as part of the additional investment in infrastructure—to spend on our schools.
Half of that will go to help local authorities with the greatest basic need for school places. The other £600 million will go to support my right hon. Friend’s reforms and will fund 100 additional free schools. These schools will include new maths free schools for 16 to 18-year-olds. This will give our most talented young mathematicians the chance to flourish. Like the new university technical colleges, these maths free schools are exactly what Britain needs to match our competitors and produce more of the engineering and science graduates so important for our long-term economic success.
To ensure that children born into the poorest families have a real chance to become one of those graduates, we will take further steps to improve early education. Last year, it was this coalition Government who not only expanded free nursery education for all three and four-year-olds, but gave children from the poorest fifth of families a new right to 15 hours of free nursery care a week at the age of two. I can tell the House today that we can double the number of children who will receive this free nursery care: 40% of two-year-olds—260,000 children—from the most disadvantaged families will get this support in their early years.
On education and early years learning, this is how we change the life chances of our least well-off and genuinely lift children out of poverty and that is how we build an economy ready to compete in the world. It will take time. The damage that we have to repair is great. People know how difficult things are and how little money there is, but where we can help with the rising cost of living, we will. I have already offered councils the resources for another year’s freeze in the council tax. That will help millions of families, but I want to do more.
Commuters often travel long distances to go to work and bring an income home. Train fares are expensive and they are set to go up well above inflation to pay for the much needed investment in the new rail and new trains that we need, but RPI plus 3% is too much. The Government will fund a reduction in the increase to RPI plus 1%. This will apply across national rail regulated fares, across the London tube and on London buses. It will help the millions of people who use our trains.
Millions more use their cars to go to work, and pick up the children from school. It is not a luxury for most people; it is a necessity. In the Budget I cut fuel duty by 1p. The plan was for fuel duty to be 3p higher in January and 5p higher by August next year. That would be tough for working families at a time like this, so despite all the constraints that are upon us, we are able to cancel the fuel duty increase planned for January, and fuel duty from August will be only 3p higher than it is now. Taxes on petrol will be a full 10p lower than they would have been without our action in the Budget and this autumn. Families will save £144 on filling up the average family car by the end of next year. At this tough time, we are helping where we can.
All that we are doing today—sticking to our deficit plan to keep interest rates as low as possible, increasing the supply of credit to pass those low rates on to families and businesses, rebalancing our economy with an active enterprise policy and new infrastructure, and providing help with the cost of living on fuel duty and rail fares—all that takes Britain in the right direction. It cannot transform our economic situation overnight.
People in this country understand the problems that Britain faces. They can watch the news any night of the week and see for themselves the crisis in the eurozone and the scale of the debt burden that we carry. People know that promises of quick fixes and more spending that this country cannot afford at times like this are like the promises of a quack doctor selling a miracle cure. We do not offer that today.
What we offer is a Government who have a plan to deal with our nation’s debts to keep rates low; a Government determined to support businesses and support jobs; a Government committed to take Britain safely through the storm. Leadership for tough times—that is what we offer. I commend this statement to the House.
Ed Balls (Morley and Outwood) (Lab/Co-op)
Let me start by thanking the Chancellor—[Interruption.]
Mr Speaker
Order. I ask the right hon. Gentleman to resume his seat. I said very clearly that people should not shout and yell at the Chancellor. He should be heard in respectful quiet, as the public would hope. The same goes for the reaction to the shadow Chancellor. Let us try to operate at the level of events.
Ed Balls
Thank you, Mr Speaker.
Let me start by thanking the Chancellor of the Exchequer for advance notice of his statement, and the Office for Budget Responsibility for ensuring that the Chancellor is today setting out to the House the truth about the state of the British economy and the truly colossal failure of the Chancellor’s plan.
Let us be clear about what the OBR has told us today, which the Chancellor could not bring himself to say: growth is flatlining and will be down this year, next year and the year after; unemployment is rising; and there will be well over £100 billion more borrowing than he planned a year ago, and more than was set out in the plan he inherited at the general election. As a result, his economic and fiscal strategy is in tatters. After 18 months in office, the verdict is in: plan A has failed, and failed colossally. With prices rising and unemployment soaring, families, pensioners and businesses already know that it is hurting. With billions of pounds more in borrowing to pay for rising unemployment, today we find out the truth that it is just not working.
The Prime Minister likes to say, “You can’t borrow your way out of a crisis.” Will the Chancellor confirm that that is exactly what he has been forced to do? He has been forced into higher borrowing to pay for the crisis in growth and jobs in Britain, the higher unemployment and higher benefits bill that his failing plan has delivered.
The Chancellor’s out-of-touch and complacent hubris of a year ago now seems such a distant memory. The Prime Minister boasted that Britain was out of the danger zone and the Chancellor claimed that the UK was a safe haven, but we know the truth: cutting too far and too fast has backfired and all his claims of a year ago have completely unravelled. It is not as if they were not warned, including by their coalition colleagues. Before the election, we said that, like every country after the global financial crisis, we had to get our deficit down, which meant tough decisions on tax and spending cuts. The question is not whether that should be done, but how. That is why the Opposition warned that trying to cut spending and raise taxes too far and too fast risked choking off recovery and pushing up unemployment and borrowing. We said that the Chancellor’s plan was reckless, not cautious, and that he was ripping out the foundations of the house, leaving our economy not safe, but badly and deeply exposed to the growing global storm.
Let me remind the Chancellor what the managing director of the International Monetary Fund warned this summer. She said that
“slamming on the breaks too quickly will hurt the recovery and worsen job prospects.”
What has happened? Consumer and business confidence has slumped in the past year. Our recovery was choked off over a year ago. Since then, Britain has had slower economic growth than any G7 country other than Japan, and it had an earthquake. Unemployment is at a 17-year high and over 1 million young people are out of work. Today we hear that growth this year will be not the 2.3% he so confidently predicted in the June Budget this year, but just 0.9%. It will be even lower next year and lower than forecast the year after. It is the fourth time the OBR has downgraded his growth forecasts in just 18 months.
Today we learn that the Chancellor, even when judged by the one objective he set himself—getting the deficit down—is failing. With lower growth and rising unemployment pushing up the cost of failure, will he confirm that he will now have to borrow not £46 billion more than set out in his autumn statement last year, as he said in March, but a staggering £158 billion more? Will he also confirm that, despite the pain of the £40 billion of extra spending cuts and tax rises he boasted about a year ago, because the recovery has been choked off and unemployment is higher he will be borrowing more at the end of this Parliament than he would be under the balanced plan inherited from the Labour Government at the last election? That is a fact.
A year ago the Prime Minister told the CBI:
“In five years’ time, we will have balanced the books.”
That was not some kind of dodgy rolling target, but a clear commitment to eliminate the deficit by 2015. Can the Chancellor tell the House whether he will meet that fiscal mandate? Is not the truth that, with unemployment and borrowing up, going further and faster has been utterly counter-productive and self-defeating and has backfired? We have had all the pain, but none of the gain.
The OBR forecasts show that the Chancellor’s entire economic and fiscal strategy is now in complete disarray, yet all we get are excuses. He has blamed anyone and anything, including the Labour Government, the snow, the royal wedding, the Japanese earthquake, higher inflation, VAT, the eurozone and low-paid dinner ladies and teaching assistants—anybody but himself. [Interruption.] It is he who is to blame. It is his failing plan that has pushed up unemployment and borrowing. It is his reckless gamble that has made things worse here in Britain, not better.
If eurozone countries continue to fail to sort out their problems, of course that will have an impact here. [Hon. Members: “Ah.”] However, Britain’s economic recovery was choked off a year ago, before the euro crisis. The OBR has downgraded growth in Britain this year but upgraded growth in the euro area. Of the 27 countries in the EU, only Greece, Portugal and Cyprus have grown more slowly than Britain in the past year. Not only is it not too late for the Chancellor to change course, but the deepening euro crisis makes it even more important that he sees sense. Instead he is still clinging to the fantasy that any change of course would make things worse. He still clings to the illiterate fantasy that low long-term interest rates in Britain are a sign of enhanced credibility and not, as they were in Japan in the ’90s and in America today, a sign of stagnant growth in the economy. [Interruption.] This summer the head of the IMF warned the Chancellor—[Interruption.]
Mr Speaker
Order. The situation is very simple: however long it takes, the shadow Chancellor will be heard. That is all there is to it.
Ed Balls
Thank you, Mr Speaker. They do not like it, but this is the truth. The Government set up the OBR, so maybe they should listen to its forecasts.
This summer the head of the IMF warned the Chancellor that
“growth is necessary for fiscal credibility”,
but he said that a change in his plans would lead to a loss of credibility, even though he has been forced to confirm today that his growth and borrowing targets are wildly off track. Last month the IMF advised the Government that
“If (economic) activity were to undershoot current expectations and risk a period of stagnation or contraction, countries that face historically low yields (for example, Germany and the UK) should also consider delaying some of their planned consolidation.”
With the world darkening and with today’s news that here in Britain we are set to see stagnant growth not just this year, but next, is it not time the Chancellor listened to the IMF? How much worse does it have to get? How many more young people have to lose their jobs, how many more businesses have to go bankrupt, and how many more times does he have to come here to downgrade his growth forecast and upgrade his borrowing forecasts? How many more billions in borrowing do we need to pay for failure before he finally sees sense?
These would be difficult times for any Chancellor, but our fear is that once again in his statement today the Chancellor is making a catastrophic error of judgment. He is refusing to learn the lessons of history or economics; he is refusing to switch to a more balanced plan; he got it wrong 18 months ago, and he is getting it wrong again today. Repeating the mistakes he made last year will only make things worse. Is it not now time to listen to the IMF, to cut taxes and to have a slower pace of spending reduction? Is it not time for him to change course before it is too late?
What do we have instead? We have a cobbled together package of growth measures, which the Chancellor must know, and the OBR forecast confirms, do not address the fundamental problem—that his rapid, reckless and deflationary plan is choking off recovery and pushing up borrowing. We have been here before. This is the third emergency growth package in a year, so the last thing our economy needs is yet another fantasy growth package.
Hon. Members do not have to take my word for it. Let us look at the OBR’s own forecast. Does the OBR think that the Chancellor’s plans are going to boost growth? No, it has revised growth down next year, from 2.5% to 0.7%; and for the following year it has revised growth down from 2.9% to 2.1%. Does the OBR think that the Chancellor’s plans are going to increase employment and cut unemployment? Let me tell the House two things from the OBR forecast which the Chancellor chose not to tell the House. Unemployment is not only higher next year than this year, but higher the year after than this year; and employment is expected to fall by 100,000 next year.
We were promised a game-changer of a statement and a growth plan that would secure recovery. Instead, we have a plan for growth which leads to lower growth and higher unemployment. It is not a game-changer; it is just more of the same.
Let me turn to the measures that the Chancellor has announced. He has announced a new youth jobs fund, but why did he abolish the future jobs fund in the first place? The Government abolished it in their first month in office; their new plan will not be up and running until the middle of next year.
The Chancellor claims to have increased the bank levy, so why is he cutting taxes on banks this year compared with last year—down from £3.5 billion last year to £2.5 billion this year? Why will he not repeat the bank bonus tax and do something proper about youth jobs?
The Chancellor has announced a sensible halt to January’s fuel duty rise, but will he confirm that, as a result of last January’s VAT rise, motorists are paying 3p a litre more on petrol? He has belatedly announced a plan on Labour’s enterprise finance guarantee, relabelled as credit easing, but why did he wait so long, and why did he put his faith in Project Merlin, which has patently failed and, as the Bank of England confirms today, seen net bank lending to small businesses fall over the past year? As for his equally belated decision to set up a new infrastructure fund, this is from the same Chancellor who abolished the Building Schools for the Future programme at a cost of tens of thousands of construction jobs.
How much of this new investment has been pre-announced? How much will happen this year and next year? How much of it is pre-announced funding from the next spending review after the next general election? Will the Chancellor confirm that the new off-budget infrastructure fund will be subject to a National Audit Office value-for-money test to ensure that projects are not more expensive to the taxpayer than direct Government borrowing?
The Chancellor has also announced a rebate for energy intensive industries to correct the chaos caused by his botched carbon floor price. He has reinstated just 10% of his planned £4 billion cut in housing, but even in the past few minutes, as we have studied the small print, and despite all the bluster of the new measures, we have found that because this Chancellor is so determined not to break from his failing plan, he is once again giving with one hand and taking with the other.
How are these new growth measures being paid for? By hitting families and savers. How much will the Chancellor’s cut in tax credits cost a working family on average incomes? With inflation so much higher, is he still meeting the Prime Minister’s pledge to deliver real-terms rises in NHS spending in this Parliament?
As a result, and taking into account pre-announced measures in the Chancellor’s Budget and spending review, are the Government still hitting women harder than men? Are they still increasing child poverty and not reducing it? Given that he has already cut child care support by more than £1.5 billion, is he helping women who want to go out to work, or is he making it harder?
If we are all in this together, why with this Government is it always families, women and children who pay the price? It is clear: the Chancellor’s plan is not working. The OBR knows it, the markets know it, the IMF knows it, we know it and so, increasingly, do the Chancellor’s coalition colleagues. His arch rival, the Mayor of London, certainly knows it.
We all know why the Chancellor cannot change course. We know why he cannot accept the IMF’s advice. We all know why—even as the euro crisis deepens and he is borrowing £158 billion more than he planned—this oh-so political Chancellor will not budge because to change course now would be to admit that he has got the key economic judgments of this Parliament absolutely, catastrophically wrong.
If, after just 18 months, the Chancellor’s plan is leading to falling growth, rising unemployment and £158 billion more in borrowing, the country needs either a new Chancellor or a new plan—a balanced and credible plan on jobs, growth and the deficit. We need real tax cuts, real investment, a real plan for jobs, growth and deficit reduction: Labour’s five-point plan for jobs, growth and deficit reduction.
Protecting our economy, businesses, jobs and family finances is more important than trying to protect a failed economic plan. For his sake, for his party’s sake, and in the national interest, the Chancellor needs to change course, and he needs to do so now.
Mr Osborne
As far as I can tell, the shadow Chancellor complains that we are borrowing too much—and then proposes that we borrow even more. It is completely unconvincing and a reminder to Government Members why we are so pleased that he is in the job that he is doing, for he is a constant reminder of everything that went wrong with Labour’s economic policy—a permanent advertisement for why we should never trust Labour with our money again.
Let me answer the right hon. Gentleman’s specific questions. He welcomes the fact that we have open and honest figures from the OBR. When did we never get them when he was at the Treasury? He complains about the bank levy. He was the City Minister, so why did he not introduce a bank levy? It will raise £2.5 billion a year. In the Labour policy document on the bonus tax that he proposes, his party costs its measure at £2 billion a year. That is less—a tax cut for banks, if can I put it like that.
The right hon. Gentleman complains about off balance-sheet borrowing. That is from Mr PFI. He says that we should have kept the future jobs fund, but 50% of all people who left that scheme were unemployed within 12 weeks, which is in part why we have an unemployment problem.
Yes we are committed to real increases in the health budget, and yes the OBR confirms that we will meet our fiscal mandate and our debt target—[Interruption.] In the terms set out by me in the emergency Budget.
The right hon. Gentleman told the House this extraordinary thing—that the OBR forecasts that growth in the UK will be less than in the euro area. That, I am afraid, is simply not true. I am not going to use unparliamentary language, but it is in the OBR document in black and white: 2012, 2013, 2014, 2015—every single year, growth unfortunately is slow in the eurozone and slower than in the UK. That is one of the problems we are facing.
Let me respond to the three arguments that the right hon. Gentleman advanced in his reply. First, he said that we should try to borrow our way out of a debt crisis; he talked about extra borrowing. His plans—the plans of the previous Government—would have led to an additional £100 billion on top of borrowing over the course of the Parliament. Let us look at the facts. There is not a single credible political party in the entirety of Europe that is proposing more spending at the moment, apart from—and it is not credible—the Labour party. This is what Tony Blair said this morning on the radio—[Interruption.] Go on—have a go at booing him! Tony Blair said on the radio this morning:
“frankly whatever government is in power it is going to be pursuing a pretty tough programme at the moment”.
Blair or Balls—I think the British public made their mind up on Labour politicians long ago.
The second astonishing argument that the right hon. Gentleman deployed was to say that low interest rates in Britain were a sign of failure. Presumably that means that he wants interest rates to be higher in Britain. Presumably the fact that Italian interest rates are over 7% is a sign of success. Presumably the fact that Greek interest rates are 30% is an economic miracle. His policy for higher interest rates would put families’ mortgage bills up, increase debt interest charges for taxpayers, increase the cost of loans for small businesses, and put people out of work. Now people know—you vote Labour, you get higher interest rates.
The third and final argument that the right hon. Gentleman advanced is that the events happening in Europe will have almost no impact on anyone in Britain or on the British economy. [Hon. Members: “That’s not what he said.”] He mentioned it once in passing. That flies in the face of what the Bank of England says and what the OECD said yesterday. He quoted the IMF. The IMF supports our deficit reduction plan. It explicitly asked itself the question, “Should Britain change course?”, and said no. He quoted the independent OBR’s numbers, but he refuses to accept its analysis. Anyone who turns on the television and listens to the news knows that his argument is completely absurd, so we have to ask ourselves why he advances it. Why does he alone advance the argument that Britain is not affected by what has been going on in the world—by the external oil shocks, by the size of the financial crisis, by the eurozone crisis? There is a very simple reason: because if he admits that we are in a debt crisis, then he has to admit that we borrowed too much when he was in office, that the crash here was deeper than anywhere else, and that the effects were longer lasting. It would be an admission of his personal failure.
The right hon. Gentleman was the City Minister who let the City explode. He is the author of the golden rules that failed. He does not have the excuse of the Leader of the Opposition that he was only photocopying orders: he gave the orders; the orders came from him. Labour’s economic credibility will never recover while he remains the shadow Chancellor.
Oral Answers to Questions
Ed Balls Excerpts(12 years, 7 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Ed Balls (Morley and Outwood) (Lab/Co-op)
Today’s figures have shown that the British economy has grown over the past 12 months, since the Chancellor’s spending review, by just 0.5%, and Treasury officials have apparently admitted to the BBC this afternoon that the economy is now set to worsen. The IMF says that if the British economy continues to undershoot, the Chancellor should change course to boost growth and jobs. How much longer does the country have to wait before the Chancellor will finally listen?
Mr Osborne
I welcome the right hon. Gentleman back from America. We missed him in our debates last week—even though, by some coincidence, the tone of the debate markedly improved. We have been keeping an eye on what he was saying while he was in America. This is what he told American television: “What the world needs are balanced plans on deficit reduction, and you can’t duck that.” In America he has to say that so that he is not laughed out of the TV studio. Here he not only ducks deficit reduction; he runs away from it. We are clearing up the mess that he left when he was running Britain’s economic policy for 13 years.
Ed Balls
I am afraid people watching this will think that was a deeply complacent answer. Today’s figures mean that the Chancellor’s figures for growth will be downgraded. They will undershoot the OECD and the IMF growth forecast as well. He tried to blame the eurozone, but the fact is that our recovery was choked off a year ago. Families watching this programme and struggling with their bills, businesses on the edge and young people losing their jobs will all think the Chancellor is completely out of touch. Why does he not understand that if we are to get the deficit down, the country needs a plan for growth and jobs, and it needs it now? How much longer will we have to put up with this prevarication before it is too late, and the Chancellor finally acts?
Mr Osborne
The GDP numbers showed this morning that the British economy is growing, and that is positive news. But of course we have a difficult journey to take, from the deepest recession of our lifetimes and the biggest banking crisis in British history, which the right hon. Gentleman presided over when the Labour party was in government—and it is made more difficult by what is happening elsewhere in the world. [Interruption.] Of course that is the case, which is why the growth figures in the British economy are similar to the growth figures in the American economy, or the French economy, or the German economy.
Mr Osborne
The right hon. Gentleman shakes his head, but in 2011 the British economy has grown at exactly the same rate as the United States economy. It has taken a completely different course from the one that he suggested as shadow Chancellor and yet it has the same growth, which shows that what we are doing is bringing stability to the British economy. Frankly, for him to get up every week and say that we need a deficit reduction plan, but not to give us any details, shows how hopelessly out of touch he is.
Jobs and Growth
Ed Balls Excerpts(12 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Ed Balls (Morley and Outwood) (Lab/Co-op)
I beg to move,
That this House notes that there has been no growth in the UK economy over the last nine months, compared to 1.8 per cent. growth in the previous nine months; further notes that families are feeling the squeeze, unemployment is rising again and the recovery was choked off last autumn, well before the eurozone crisis of recent months; agrees with the International Monetary Fund’s managing director that ‘growth is necessary for fiscal credibility’ and the IMF’s recent report which warned that ‘if activity were to undershoot current expectations and risk a period of stagnation’ the Government should ‘consider delaying some of their planned consolidation’; further notes that borrowing is forecast to be £46 billion higher than planned because of the slower growth and higher unemployment arising from the Government’s policy of cutting spending and raising taxes too far and too fast; further believes that the Government need a plan for jobs and growth if the deficit is to be reduced in a sustainable way; and calls on the Government to implement a steadier deficit plan and the Opposition’s five point plan for jobs, which includes a tax on bank bonuses to fund 100,000 jobs for young people, bringing forward long-term investment projects, reversing temporarily the VAT increase to provide an average £450 increase for a couple with children, implementing a one-year cut in VAT on home improvements, repairs and maintenance to five per cent, and a one-year national insurance tax break for small firms taking on extra workers.
In opening this Opposition debate on the economy and moving our motion urging the Government to kick-start Britain’s choked-off recovery and adopt Labour’s five-point plan for jobs and growth, I shall start by setting out the facts for the House and for the country. Over the past year the British economy has ground to a complete halt. The latest figures show no growth at all since last autumn. Consumer and business confidence has slumped. For three months manufacturing output has been falling. More than 16,000 companies have gone out of business. Employment is falling and today’s chilling news is that unemployment has risen by 114,000 in the past three months alone.
Unemployment here in Britain now stands at 2.57 million people out of work—the highest level since 1994. Unemployment is rising across the country. We have the highest level of unemployment among women since 1988. Most worryingly of all, youth unemployment, which a year ago was falling, is now rising again, up 74,000 in the past three months, with 991,000—more than one in five—young people out of work. There has been a 60% rise in youth long-term unemployment since February, and the overall level of youth long-term unemployment is at its highest for 19 years. What a waste of talent, what a waste of money and what a betrayal of this young generation.
Michael Fallon (Sevenoaks) (Con)
The former Home Secretary, Charles Clarke, said yesterday:
“I think the economic proposition that Labour puts at the moment is unconvincing.”
How can the right hon. Member for Morley and Outwood (Ed Balls) convince the House and the country when he cannot convince his former Cabinet colleague?
Ed Balls
Unemployment is rising and growth is flatlining. The Prime Minister said just a few months ago that the only person supporting me was The Guardian leader writer. Since then, what have we seen? The OECD and the International Monetary Fund are saying that the Government should change course. What has happened to The Guardian leader writer? He has become the speech writer to the Prime Minister.
To those who say that these are just the effects of a world economic crisis now hitting Britain—the same people who absurdly claim that the global financial crisis was all the fault of the British Labour Government, but who now want to blame the British growth crisis on the rest of the world—I say yes—
Christopher Pincher (Tamworth) (Con)
Will the right hon. Gentleman give way?
Ed Balls
In a minute.
Yes, the deepening euro crisis and the weaker US recovery have made things harder for British exporters in the past three months, but one cannot blame the eurozone or the world economy for the collapse of economic recovery here in Britain when, since last autumn, our economy has grown more slowly than that of any EU country except Greece and Portugal, when we have the highest level of inflation of any EU country except Estonia and Latvia, and when, over the past year, we have seen a bigger rise in unemployment than the EU average, when most EU countries have seen unemployment not rising, but falling. I know the Chancellor does not like it, but those are the facts. The Prime Minister said today, “I accept responsibility for everything that happens in our economy”. I hope the Chancellor will do the same today.
Mr William Cash (Stone) (Con)
Does the right hon. Gentleman accept that the trade deficit between ourselves and the 17 countries in the eurozone has gone up from minus £4 billion to minus £38 billion in the past year alone, and that one of the main reasons, both as respects the whole of Europe and as respects the United Kingdom, is that employment and social regulations are strangling small businesses, for which the Labour party was also responsible in Government? I am critical of the present Government, but am I not also critical of the right hon. Gentleman’s party’s performance in the past 10 years?
Ed Balls
The Chancellor’s big boast over the past six months, which we were told regularly, was that between 400,000 and 500,000 more jobs had been created in the British economy, but today’s figures months show that employment has not gone up at all in the past 12 months; it has actually gone down. We were also told that public sector job cuts would be more than outweighed by the rise in private sector jobs, but I am afraid that employment is falling because the private sector has been unable to deliver the recovery we were promised. It has been a complete fantasy.
Christopher Pincher
It is nice that the shadow Chancellor acknowledges the Government’s responsibility for the economy, but it would also be nice if he took some responsibility for the damage he did to it when he was in power. A former Chancellor has said that Labour lacks economic credibility. If the right hon. Gentleman cannot even convince a former Chancellor on his own Back Benches, how can he convince the country?
Ed Balls
The hon. Gentleman will have to convince his constituents because, despite the fact that we were told a year ago that the recovery would be on track, growth has flatlined for a year and unemployment is rising right across the country, which means that borrowing will be higher, not lower.
Charlie Elphicke (Dover) (Con)
The shadow Chancellor responds to questions about his failing to convince his shadow Cabinet colleagues and former Cabinet colleagues by talking about convincing constituents, so why have his poll ratings for economic credibility fallen among his constituents and my constituents and across the whole country?
Ed Balls
I would be happy to have a debate with the hon. Gentleman on economic credibility. He said in June this year:
“Employment has gone up in my constituency and unemployment has been falling, which is welcome.”—[Official Report, 22 June 2011; Vol. 530, c. 426.]
The figures show that unemployment in his constituency has gone up by 456 in the past year. Perhaps he should apologise to his constituents for getting it wrong.
Mr Dave Watts (St Helens North) (Lab)
Will the shadow Chancellor name one country that has managed to get out of recession without growth?
Ed Balls
I will make some progress before giving way again. I am always very happy to take interventions. It is clear that the Chancellor has a good whipping operation in place today, although good whipping is something he knows quite a lot about.
A year ago, we warned that a global hurricane was brewing and that it was exactly the wrong time to rip out the foundations of the house but the Chancellor disagreed and recklessly decided to raise taxes and cut spending further and faster than in any other economy. The evidence is clear that his plan has not made the British economy better able to withstand the global storm and that by going too far and too fast he has left it badly exposed. Families and businesses up and down the country are asking how many more businesses must go bankrupt, how many more families must see their living standards fall, how many more young people will have to lose their jobs, how much more unemployment and misery and rising child poverty must we see. How much more evidence do the Government need before they finally change course?
Jacob Rees-Mogg (North East Somerset) (Con)
Will the right hon. Gentleman give way?
Jacob Rees-Mogg
I am grateful to the shadow Chancellor for giving way, but I wonder whether he has got it the wrong way round. With a global storm brewing, the right thing to do was ensure that the gilt market was secure and that we could carry on borrowing cheaply, which has ensured that a recovery will eventually come. He can no doubt find something I said in 1830 and quote it back to me, but that is not really the point.
Ed Balls
I am not sure about 1830, but if the hon. Gentleman was in the House in 1930—he might have been—he will know the dangers of very low bond yields accompanied by rising national debt, rising unemployment and economies locked in stagnation. I do not know whether he was around at the time, but some forefathers and foremothers certainly were. Let me quote the director of the National Institute of Economic and Social Research, the think-tank of the year, who said:
“The reason people are marking down the gilt yields is because they think that the economy is weak.”
That is the truth.
Let me make a prediction. I do not expect the Chancellor to announce a change of course today, but will we hear him repeat his boast made this time last year that the British economy’s recovery is on track? I doubt it. Will he repeat the Prime Minister’s deeply complacent boast that Britain is out of the danger zone? I doubt that, too. Will he describe Britain as a safe haven that is immune from the global storm? Will he repeat his naive forecast that cutting public jobs will boost private confidence and create more private jobs? Even this Chancellor cannot fly in the face of the facts. Employment has fallen in the past 12 months. On the day when unemployment has risen again, will he give any indication that he understands at all how hard things are for families up and down the country? Is he so out of touch that he really believes that a £1.40 a week council tax freeze can compensate for a £9 a week rise in VAT?
Nadhim Zahawi (Stratford-on-Avon) (Con)
On unemployment in manufacturing, why does the shadow Chancellor think that manufacturing was 21% of GDP in 1997 and 12% when Labour left office?
Ed Balls
Well, unemployment has fallen as a percentage—[Interruption.] As I said, that whipping operation knows no bounds. I was hoping that the hon. Gentleman was going to repeat what the hon. Member for West Suffolk (Matthew Hancock) said earlier this year. He said that
“manufacturing is expanding under this Government”.—[Official Report, 23 March 2011; Vol. 525, c. 1024.]
The trouble is that manufacturing output has fallen in every one of the past three—[Interruption.] I am going to agree with the hon. Member for Stratford-on-Avon (Nadhim Zahawi), who wrote on his blog that
“deficit reduction alone isn’t enough. If we are to smooth the waters of this choppy recovery we need to ensure that we also support sustainable growth in the private sector.”
Where is that growth? Will the Chancellor repeat his claim that—
Sir Peter Tapsell (Louth and Horncastle) (Con)
Will the right hon. Gentleman give way?
Sir Peter Tapsell
As a lifelong Keynesian, I fully understand that growth can be achieved only by increased demand. Every Finance Minister in the western world is grappling with that problem. What are the right hon. Gentleman’s proposals for increasing demand without causing damaging side-effects for the rest of the economy?
Geraint Davies (Swansea West) (Lab/Co-op)
Does my right hon. Friend agree that it is no surprise that, if the Chancellor announces half a million job cuts in the public sector, those people will save rather than spend and that the people in the private sector, who normally sell things to them, contract and stop taking people on? It is no surprise that that very announcement underpins the lack of growth in our economy and puts the guilt on the Government side of the Chamber.
Ed Balls
I think that the Chancellor will regret talking down the British economy a year ago, because the rise in private sector jobs has been swamped by public sector job cuts. That is why employment is falling. That is why the private sector is not investing. That is why his corporation tax cut has had no impact on private sector investment. Will he repeat his claim made in January 2009 that
“quantitative easing is the last resort of desperate governments when all their other policies have failed”?
Those are prescient words, because we know the truth, and so do his increasingly desperate-looking supporters on the Government Benches.
Let me say what the Chancellor cannot admit: the private sector-led recovery he promised has proved to be a fantasy, as we predicted. In the past year, the growth that he predicted has failed to materialise.
Sajid Javid
Can the right hon. Gentleman name one country that has got out of a debt crisis by taking on more debt?
Ed Balls
I understand the hon. Gentleman’s point. If, rather than preparing his intervention, he had listened to my last point, he would have understood why borrowing is already set to be £46 billion higher than the Chancellor planned. The reason is that if unemployment goes up, if the economy flatlines, if fewer people are paying tax and if more people are on benefits, you borrow more. In the hon. Gentleman’s constituency, 50 more people are unemployed than a year ago. Perhaps he should be apologising for backing a Chancellor who got it so badly wrong.
This increasingly desperate Chancellor is now relying on plan B—or should I say plan BOE? But quantitative easing cannot work on its own, and any sensible economist can tell him why that is. The new shadow Chief Secretary to the Treasury, my hon. Friend the Member for Leeds West (Rachel Reeves), who is a former Bank of England economist, can certainly explain to the Chancellor why quantitative easing cannot do the job on its own. Whether the current Chief Secretary—the former national parks press officer—could explain to the Chancellor how quantitative easing works is another question. As the shadow Chief Secretary could very well explain—[Interruption.] Does the hon. Member for West Suffolk (Matthew Hancock) want to intervene? If so, I will happily take his intervention.
Matthew Hancock (West Suffolk) (Con)
As a former Bank of England economist, may I explain to the shadow Chancellor that quantitative easing works only when one has a credible fiscal policy?
Ed Balls
I am so pleased that the hon. Gentleman has made his intervention, because we have missed him for the past couple of debates, and now he is back. Last time he intervened on me, he put this on his website:
“Shadow Chancellor boosts Matthew’s work in West Suffolk”.
I want to do the same again. His campaigns to get more money for schools, to keep Thetford forest safe and to stop cuts to school crossing patrols are going well. The chief executive of his council has been sacked, and the Labour council in Ipswich has intervened and backed his campaign on school crossing controls and libraries. I have a quote from the shadow Chancellor for his press release: “Mr Hancock has been tireless in his campaign against unfair cuts to local services imposed by the Conservative-led Government—cuts which go too far and too fast.” He can leave the last bit out if he likes; I do not mind.
Ed Balls
I will give way, but before I do, let me return to quantitative easing. As these Bank of England economists know well, simply printing money cannot boost demand and keep interest rates low when they are already close to zero. Printing money cannot boost spending when companies are too scared to invest and consumers to spend. QE—the hon. Gentleman should know this—cannot revive a stalling economy by boosting demand in one direction when fiscal policy is working in a contractionary way in completely the opposite direction. As the Bank of England Governor said only last week, and in this respect I agree with him:
“We can do our part in it but we can’t solve all our problems alone.”
I now give way to the hon. Gentleman.
Matthew Hancock
The shadow Chancellor is famous for being a supporter of Norwich City football club, so will he join me in welcoming the decision to break ground on dualling the A11—an investment project that did not get the go-ahead under Labour and is happening under this Conservative Government?
Ed Balls
I think the hon. Gentleman got the name wrong. He does not mean Norwich City—he means premiership Norwich City, which is more than one can say for any football team in Suffolk. I will back his campaigns to stop the cuts and to spend more, and I fully support the dualling of the A11. At last some Conservatives have persuaded some Conservative councils to do the right thing about these proposals, which is very good.
Richard Fuller (Bedford) (Con)
It is all very humorous here today, but in my constituency we already have above-average national levels of unemployment and unemployment has increased. It is always interesting to hear an economist debate with another economist. However, may I ask the shadow Chancellor what direct personal experience he has of working in business, helping to create jobs, and knowing what it is like to make payroll each week? If he does not have any of that experience, will he please undertake to this House that he will go out and get some?
Ed Balls
I have worked in Government and at the Financial Times. I have never run a business, but I respect people who run businesses and I understand why they are so worried at the moment. In the hon. Gentleman’s constituency, where unemployment has gone up by over 400 in the past 12 months, there will be some very worried businesses, and it is important that we listen to them and hear what they are saying.
That is why now is the time for our oh-so-political Chancellor to put politics aside and start to do the right thing. Protecting our economy and protecting valuable businesses and jobs is more important than trying to protect a failed plain. We do not have to wait for another month of unemployment rising, or for 46 more days until we finally get the economic and fiscal forecast from the Chancellor, to know what he is going to have to say. He is going to have to downgrade his growth forecast for this year for the fourth time in 18 months and downgrade his growth forecast for next year. As I have explained, we already have £46 billion more borrowing in the pipeline, and unemployment is now rising. He is going to have to admit that borrowing will be billions higher still than at the time of his last forecast. The Prime Minister says:
“You can’t borrow your way out of a debt crisis”,
but he just doesn’t get it. [Interruption.] No, he doesn’t get it. Because with growth flatlining, and with today’s bleak news of rising unemployment, the Chancellor’s failing plan is leading to not lower borrowing but higher borrowing than he planned.
John Hemming (Birmingham, Yardley) (LD)
Whatever the Government’s policy, the Opposition’s policy is to borrow more to increase demand. Is there a limit on the borrowing?
Elizabeth Truss (South West Norfolk) (Con)
The right hon. Gentleman has talked about infrastructure and the A11. Labour cancelled the road-building programme, whereas we are breaking new ground on the A11. In addition, so much red tape was put in place that we are now 83rd in the world for regulation. Does he think that is helping small businesses in our country?
Ed Balls
To be fair to the hon. Lady, she is half on message, as she was back in January when she called for national police cuts, but not in Norfolk. That is little better than her neighbour over the border, the hon. Member for West Suffolk. I am in favour of the dualling of the A11. I personally wish we had done that, given that we did a lot of road-building and investment, but for some reason Norwich City season ticket holders did not have a strong enough voice in this House. Perhaps Mr Charles Clarke is to blame.
Gavin Shuker (Luton South) (Lab/Co-op)
Is my right hon. Friend as outraged as I am by the series of east of England Tory and Liberal Democrat MPs who choose to ignore the massive cuts to programmes such as Building Schools for the Future, which would have rebuilt schools in their own areas?
Ed Balls
My hon. Friend is being unfair. The hon. Member for West Suffolk campaigned to reverse the cuts in Building Schools for the Future, as we know. To be fair to the hon. Member for South West Norfolk (Elizabeth Truss), she has campaigned for fewer cuts in Norfolk. If only she did not take such a regional view.
John Mann (Bassetlaw) (Lab)
I congratulate the shadow Chancellor on listening to what I said in this place a year ago and on the major change in Labour’s economic policy in the last three weeks, which has gone unnoticed. Last year’s policy of a permanent reduction in VAT has changed to the far more credible policy of a temporary reduction in VAT, which is precisely what I argued for in this place a year ago. Will the shadow Chancellor listen carefully if I have the chance to make a point about national insurance in this debate?
Ed Balls
My hon. Friend is a leading indicator, not a lagging indicator.
The fact is that the deficit plan is going too far and too fast. As I have said, we should stop putting party political advantage before the national interest. That is why the right thing to do to help struggling families and businesses in the constituencies of Members across the House is to adopt a plan now to get our deficit down by getting our economy moving. We should repeat the bank bonus tax; build 25,000 homes; guarantee a job for 100,000 young people; genuinely bring forward long-term investment projects in schools, transport and roads; temporarily reverse the damaging rise in VAT, which would mean £450 for a couple with children; have an immediate one-year cut in VAT to 5% on home improvement, repairs and maintenance; and introduce a one-year national insurance tax break for every small firm that takes on extra workers.
The Chancellor does not have to wait 46 days. He can bring forward emergency resolutions in this House next week and we will support them. He can call the plan what he likes. If he wants to appease The Spectator, he can call it plan A-plus. That is fine by us. Britain just needs a plan that works for jobs and growth, which is why he should adopt Labour’s five-point plan for jobs and growth.
Jesse Norman (Hereford and South Herefordshire) (Con)
While we are on the topic of football, may I congratulate the right hon. Gentleman on his ample use of the substitutes’ bench, although it was of course not him who used the substitutes’ bench? What would be the cost of his temporary cut in VAT, how does he propose to finance it, and what would be the gain in GDP growth as a result?
Ed Balls
“Jesse is the Clark Kent of British politics.” Unfortunately, that was said by the other candidate for the leadership of the Conservative party, Boris Johnson. What an endorsement for the hon. Gentleman to have on his own website! The fact is that the deficit reduction plan is going too far—
Ed Balls
Get back in your phone box, I am answering the question. We need a slower pace of deficit reduction, not the £40 billion more that the Chancellor boasted of. An injection now to get the economy growing and unemployment coming down is the best way to get our deficit down. People do not have to take it from me; that is what the IMF and the OECD are advising the Chancellor to do. They say, “If the economy gets into sustained contraction, slow down the pace of consolidation.” I will give the hon. Gentleman another go.
Jesse Norman
We are all enjoying the shadow Chancellor’s vaudeville act, but he has failed to answer the question. I am interested in what would be the actual cost of the VAT cut that he proposes and how he would fund it.
Ed Balls
The hon. Gentleman would know the answer if he listened. I said that attempting to go £40 billion faster in deficit reduction than the plan the Chancellor inherited is not working, but pushing borrowing up. The right thing to do now is to expand demand—[Interruption.] Look, a one-year cut in VAT in its own terms would cost £12 billion. The question is what would be the impact on jobs, growth and deficit reduction. I am afraid that the Chancellor is borrowing not £12 billion more, but £46 billion more. The flatlining economy and rising unemployment mean that his deficit reduction plans are going off track. He should take the advice of the IMF and the OECD and change course.
Ed Balls
I will make a little more progress, but I will take interventions from people who have not intervened. Good grief, I have given the hon. Member for Dover (Charlie Elphicke) enough of the wrong type of publicity already and do not want to do his career any more damage.
There is a credible alternative. Why will the Chancellor not act? He used to be so confident that his plan was working. It is patently not working. He and his cheerleaders on the Government Benches claim that however bad things get, he is trapped by the financial markets. He cannot take the advice of the IMF and the OECD and change course because it would lead to higher interest rates and recession. However, the IMF has said that we cannot have credibility without growth.
The markets know that rising unemployment and zero growth are undermining the Chancellor’s deficit reduction plan. One chief economist in the City at Baring Asset Management said last week:
“Growth is essential if the UK is to be able to finance new debt, repay old debt and convince the markets and credit rating agencies there is a modicum of competency in policymaking. The longer we pursue current policies, the more likely it becomes that the UK will be the next target”.
That is the real market view. We know that the credit rating agencies put out their press releases, but the real view, as the IMF has told us, is that having a flatlining economy and rising unemployment is the wrong way to get the deficit down. As I said, even the Chancellor’s friend at the IMF has said that
“growth is necessary for fiscal credibility”.
Britain has no growth. That is why our Chancellor is losing credibility.
Harriett Baldwin
Will the shadow Chancellor confirm that cutting VAT to 17.5% would cost £12.5 billion a year? Would that not simply shift demand from one year to the next?
Ed Balls
The Chancellor’s whipping team really must tell people to listen to the answers before they intervene.
The Nobel prize winner himself, Chris Pissarides, says in the New Statesman tomorrow that a temporary VAT cut is the right way—[Interruption.] I say to Government Members that Nobel prize winners who give good advice to the Chancellor should be listened to. Given that 70 more people are unemployed in the constituency of the hon. Member for West Worcestershire (Harriett Baldwin) than a year ago, perhaps she should start to listen too.
Bill Esterson (Sefton Central) (Lab)
I know that the shadow Chancellor is aware of the “Cut the VAT” campaign, which wants the Government to reduce the VAT on home repairs, maintenance and improvement work from 20% to 5%. Its analysis shows that when the rate was 17.5%, cutting it to 5% would have injected £1.4 billion into the UK economy in the first year alone. I wonder whether he is aware that the campaign is backed by 49 business organisations.
Ed Balls
I know the details of that campaign, although I do not know all 49 members. I know that it argues for a widening of our proposal.
One business organisation, the Federation of Small Businesses, has said:
“the Government’s growth strategy is just not working…We must see a cut in VAT to five per cent in the construction and tourism sectors to boost consumer demand.”
The business demand for a change of course is growing.
Robert Flello (Stoke-on-Trent South) (Lab)
My constituents, my right hon. Friend’s constituents and constituents across this country are seeing growth—growth in their gas and electricity bills and in their food bills. That double whammy is hitting our constituents on top of the mess that the Chancellor is making.
Ed Balls
Our constituents are seeing growth in VAT and in unemployment as well. The only thing that they are not seeing is growth in growth.
The markets are not the real reason why the Chancellor is determined to cling on to his failing economic policy. There are two obstacles in his way. The first is the coalition agreement. We know how desperate the Chief Secretary and the Deputy Prime Minister are for the Chancellor to stick to the deficit reduction plan, because they steamrollered their colleagues into signing up to a manifesto that explicitly rejected it. The Liberal Democrats’ manifesto stated:
“If spending is cut too soon, it would undermine the much-needed recovery and cost jobs.”
They were right, which is why there are so few of them here for this debate. They all know that their leaders graphically predicted before the election the very calamity that has happened after the election. The fact is, any successful coalition has to have the flexibility to change course when things go wrong.
“When the facts change, I change my mind. What do you do?”
Wise words from Lord Keynes, and he was a Liberal. He must listen to the current incoherent, confused and contradictory ramblings of the Business Secretary and turn in his grave.
Duncan Hames (Chippenham) (LD)
The shadow Chancellor is certainly showing flexibility in concluding that in time, it would be acceptable for VAT to reach 20%. When did he reach that decision, and will he be able to persuade his colleagues, whom we know are so adamantly against VAT at 20%?
Ed Balls
When I became shadow Chancellor six months ago, I said that I could not responsibly come along here and make commitments on what would be in our manifesto in four years’ time. What I can do is give the Chancellor good advice, and a temporary cut now is the right thing for growth and jobs in our economy.
It is not just Labour Members who support me on this. Listen to the former Liberal Democrat leader, the right hon. Member for Ross, Skye and Lochaber (Mr Kennedy), who said on “Question Time” last Thursday that he was
“more at the Ed Balls end of the argument than the George Osborne end of the argument.”
In saying that—Superman will like this—he joined me and the Mayor of London, Boris Johnson, in urging a change of course. Charles Kennedy, Boris Johnson and me—now that would be a coalition.
It is clear that the plan is not working. The markets know it, and so, increasingly, do the Chancellor’s coalition colleagues, but there is a second reason why this very political Chancellor will not budge. The clue was in the Prime Minister’s speech last week in Manchester. What did he say of the Chancellor? How did he describe his closest political friend? As “the man who would be king”. It was a very strange choice of book, because it is the story of two fantasists who end up stripped, beaten, tortured and forced to beg for their lives. That is some people’s idea of a good night out, but the idea that the Prime Minister should say that of the Chancellor is somewhat odd.
Anyway, there we are—“the man who would be king”. It was not in the printed text of the Prime Minister’s speech but was another slip from him. However, it is so revealing, because those words show why the Chancellor just cannot admit that he has got it wrong, even at a time when, at the weekend, The Sunday Times doubted his judgment. To change course now would be to admit that the Chancellor has got the key economic judgment of this Parliament wrong, and that would be a terrible blow to his ambitions. We therefore see him putting politics before the national economic interest.
Ploughing on with a failing policy is not leadership; it is the antithesis of leadership. It is not the making of King George; it is the madness of King George. A Chancellor without the strength to change his mind is a King Canute Chancellor, who says that he will stay the waves even as the tide turns before him. A man who would be king? He is a Chancellor exposed naked before the crowd, an emperor with no clothes, a Chancellor heading for a fall. I give him some good advice. For his sake, for his party’s sake and in the national interest, he needs to change course and do so quickly. It could be the making of the man.
In the face of the new global slowdown, we desperately need the Chancellor to rise above the here and now and see the need to change course, have a plan for growth and jobs, kick-start our economy and get us out of the slow lane. We need a balanced and credible plan on jobs, growth and the deficit, and action now before it is too late—Labour’s five-point plan for jobs and growth. I commend the motion to the House.
Mr Osborne
I will in a moment, because perhaps the hon. Gentleman can respond to this point.
The shadow Chancellor said, when we debated the matter in August, that he would set out
“a tough, medium-term plan to get our deficit down”.—[Official Report, 11 August 2011; Vol. 531, c. 1110.]
Mr Osborne
He nods, but where on earth is that tough, medium-term plan to get the deficit down? It was promised two months ago. Where are the cuts that he would make? He should give us some examples. We have been waiting for three years for ideas from the Labour party about what it would cut, and none has been forthcoming. The former Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), who is in his place, was pretty revealing in his memoir about what was actually going on. He stated that
“the ‘investment versus cuts’ argument…simply wasn’t credible…I did want some examples of things we were prepared to cut. I could see, though, that there was no appetite for this in No. 10.”
And we know who was advising the occupant of No. 10 Downing street at the time.
Ed Balls
The International Monetary Fund has stated that if the UK has a period of stagnation or contraction, the Government should change course and delay their planned tax rise and spending cuts. The economy has flatlined since the autumn, with zero growth. Does that represent the sustained stagnation that would cause the Chancellor to take the IMF’s advice and change course?
Mr Osborne
The right hon. Gentleman quotes the IMF, but its managing director said a month ago that
“in the United Kingdom strong fiscal consolidation is essential to restore debt sustainability… The policy stance remains appropriate.”
The right hon. Gentleman also quoted the OECD, saying that it was telling me to change course, but the OECD’s chief economist, whom he used to quote in the House, says:
“The Government should not change its course. A cut in the VAT…would not be appropriate in our view.”
So before the shadow Chancellor bandies around the recommendations of international organisations, he should quote them properly in the House.
Ed Balls
I will quote them verbatim. The Chancellor quoted the IMF from September and the OECD from before the summer, but let me quote the IMF from October, just two weeks ago. It stated:
“If activity were to undershoot”—[Interruption.]
Let me read it, because the Chancellor has asked for the full quote, which is from October.
“If activity were to undershoot current expectations and risk a period of stagnation or contraction, countries that face historically low yields (for example, Germany and the United Kingdom) should also consider delaying some of their planned consolidation.”
Is that stagnation and contraction in place, and has it been in place for long enough yet to justify his taking the IMF’s advice of just two weeks ago?
Mr Osborne
In precisely the advice that the right hon. Gentleman reads out, the IMF, in its current forecasts for the UK economy, is very specific that the UK should not change its fiscal stance. It has consistently recommended that this country undertake credible deficit reduction. The Government have set out many proposals—controversial proposals—to get our budget deficit down, but in the 16 months that we have been in office we have heard not one single suggestion from the shadow Chancellor on how he would get the deficit down.
Mr Osborne
My hon. Friend reminds me that one of the first things I did in the Treasury was shut down the euro preparation unit. More importantly—
Mr Osborne
The shadow Chancellor, who has just been quoting the IMF, wants to intervene again, but let me say this, because my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi) reminds me of another important point. Will the shadow Chancellor explain why he led his party—not everyone in his party, because I can see in the Chamber some prominent Labour Members who chose not to vote in that Division—into voting against a quota increase to the IMF, which was a central part of the London G20 summit chaired by the previous Prime Minister? How on earth does he think he could be taken seriously in any of the international meetings taking place at the moment if he had succeeded in winning that vote? Why did he do it?
Ed Balls
As the former chair of the IMF deputies, I am a huge supporter of the IMF. The rise in subscriptions is important, but for the Chancellor to try to ram it through the House before he sorted out the flawed European stability mechanism was a mistake—we voted against because we had doubts about his European policy.
However, to come back to my earlier intervention, let me ask the Chancellor this question again. Unemployment is rising, and output has been flat for a year: how much longer does he have to wait before he takes the IMF’s advice and changes his deficit reduction plan? How bad does it have to get?
Mr Osborne
We are sorting out the mess that we inherited from the Labour party. Much as I wish that that could be done overnight, it cannot. So great was the hole into which they put the British economy that it takes time and effort to come out of it.
Mr Osborne
I will give way in a moment, because I want to ask Opposition Members some questions. The House is today asked to support an Opposition motion that would add another £20 billion to the structural deficit. They maintain the fiction that they are sticking with the so-called Darling plan on the deficit—[Interruption.] That is what they say. Does the shadow Chancellor agree?
Mr Osborne
Okay. The motion tears up the Darling plan—it is £27 billion off the plan set out in the March 2010 Budget. That is the truth.
Mr Osborne
As I was just explaining, a 1% rise in interest rates—I am not talking about the level of interest rates in Spain and Italy—would mean £10 billion in higher mortgage bills for British families. That is the reality of what the shadow Chancellor is proposing.
Mr Osborne
I shall take the right hon. Gentleman’s intervention, and then I shall make some progress and give way again later.
Ed Balls
The former chief economist at the Cabinet Office, who actually drew up the plan B that the Chancellor then shelved, said in August:
“Low long-term interest rates appear to reflect economic weakness and lack of market confidence in the prospects of the UK economy, not the reverse.”
Is the Chancellor saying that the former chief economist at the Cabinet Office, now head of the National Institute of Economic and Social Research, is wrong to say that low interest rates are a sign of lack of confidence and prospects for growth?
Mr Osborne
I am glad that I took that intervention, because the implication is that the shadow Chancellor wants higher interest rates in Britain. That is the revelation we have just heard from him, and it tells us everything about what he is proposing: a catchy five-point plan—the clue is in the title—for a conference speech that would put Britain back at the mercy of the international bond markets, with higher interest rates affecting families and businesses and causing homes to be repossessed and jobs to be lost. We will have no part in it.
Mr Osborne
I have already given way quite a bit. I shall give way again later when I have dealt with this point and when perhaps the shadow Chancellor can answer the questions that I am about to put to him.
Ed Balls
The Chancellor—the Chancellor!—must be the only person in the whole country who thinks that to have Bank of England interest rates at less than 1% for three months is a sign of economic strength, not of the fact that our economy has not grown for a year and that unemployment is rising. The long-term interest rates at the long end of the curve are a reflection of expectations that those interest rates will stay persistently low. The former chief economist said that they
“reflect economic weakness and lack of market confidence in the prospects of the UK economy, not the reverse”.
Is the Chancellor saying that Jonathan Portes, from the National Institute of Economic and Social Research, is wrong?
Mr Osborne
My first point is that Jonathan Portes and I have had our disagreements for the past 16 months. He was not my appointment to the Government, but the shadow Chancellor’s, and he is not working for the Government any more. The second thing I want to say is that he cannot have it both ways. He cannot say that Britain is alone in facing these problems, which was the implication of his speech, and then not look at long-term interest rates—or, indeed, the short-term interest rates—in the United States and Germany, which are lower than ours, although we are close to them. [Interruption.] The shadow Chancellor says that they are weak. One of our problems is that the German, US and French economies have ground to a halt. That is why we also need a solution to the eurozone crisis, which has hit all western economies. His idea that Britain is unique in the world in facing these problems is frankly laughable.
Mr Osborne
Let me make just a little bit of progress and then I shall give way.
There was an absolutely staggering second omission from the shadow Chancellor’s speech, which was any reference—I will take an intervention if I have got this wrong—to Labour’s big new economic policy idea, which was unveiled at the Labour conference two weeks ago. I am referring, in case hon. Members have forgotten, to that great plan to divide British businesses into producers and predators—good and bad—and to levy different tax rates on them. Remember the speech from the Labour leader? Did the shadow Chancellor have any part in writing that speech?
Mr Osborne
At last there is something we agree on. It was absolutely the speech that we wanted to hear from the Labour leader at the Labour conference. I want to know what happened to this great idea, which was the centrepiece of Labour’s growth strategy for the new economy. Two weeks later it is not even referred to in the motion that we are being asked to debate. It is like the Lord Lucan of policy ideas: we do not know whether it is dead already or whether it has just gone missing for ever. I was really disappointed, because we know that the shadow Chancellor likes to cover all the policy areas in the shadow Cabinet and I was hoping for an explanation from him about how the idea was going to work. Are we supposed to grow our economy by levying new taxes and regulations on companies owned by private equity firms such as Boots, T-Mobile, the AA, Saga, Somerfield, Legoland and Chessington World of Adventures, those well-known centres of predatory business activity? [Laughter.] It would be laughable if it were not the centrepiece of the Opposition’s economic policy.
Mr Osborne
The Prime Minister gave his speech, which the shadow Chancellor should have paid close attention to, and made it absolutely clear that people are paying off their credit cards—because of the situation that the Labour party has left this country in—but I would ask the shadow Chancellor this question. He had a chance before; will he please mention—just once, in one intervention—the policy of the Labour leader? Come on, just get up and say you support it.
Ed Balls
I think the research and development tax credit to encourage and incentivise investment in research and development was a good thing. I think our proposal to cut national insurance for small companies that take on more employees is a good policy. It was in the Leader of the Opposition’s speech; it was in our five-point plan; it is in the motion—so why do Government Members not vote for it?
Mr Osborne
I guess that is called an “Ed Balls endorsement”—that is what the last Chancellor and Tony Blair got used to. We increased the R and D tax credit for small businesses in the Budget, so we have taken that idea—which we came up with—and introduced it. I am very pleased that the Labour party now supports it, but what about this idea that a Labour Chancellor would sit there in No. 11 with his home-made scales of justice weighing up the companies he likes and those he does not like and levying different levels of tax on them? What happened to that? It was the centrepiece of the Labour conference two weeks ago, and it shows why Labour simply cannot be trusted to run the economy of this country and why it has become the anti-business party again.
Mr Osborne
I will take interventions in a moment, because I want to know the Labour attitude to these policies that we are proposing.
We are proposing to extend the probation period before a new employee can make an unfair dismissal claim from one to two years. We are also proposing to introduce, for the first time ever, a fee that someone has to pay before they can take a case to an employment tribunal and which they get back if they win. Those are two difficult measures; they are controversial, but they will make it easier and less risky for businesses to hire people. I want to know whether the Labour party will support those measures when they come before the House of Commons. Will it? I want to know whether the right hon. Gentleman will support these things when they come before the House of Commons. Yes or no?
Mr Osborne
It is not going to hit people; it is going to help people into work. I want to know another thing from the shadow Chancellor. I have made it clear that this proposal is going to help people to get into work and help businesses to hire men and women to do jobs without taking the risk that they might bring an unfair dismissal claim within the first couple of years. He kept talking about the Federation of Small Businesses in his speech; it supports the proposal. Does he? It is a simple question. Yes or no?
Mr Osborne
No, no—I am talking about claims for unfair dismissal, and I want to know whether the right hon. Gentleman supports those proposals. This is not about statutory maternity pay; it is about extending the probation period for unfair dismissal.
Here is another question for the Labour party. The trade unions are proposing to go on strike this autumn. That is what they are balloting on. I think everyone in the House would agree that a strike is absolutely the worst thing for the British economy at the moment, and I want to know whether Labour will support that strike or condemn it. Is the shadow Chancellor going to condemn the strike—yes or no? And I do not want any weasel words about a proper negotiation process; I want to know whether, if it comes to a strike, he will condemn it.
Mr Osborne
That is another thing that Labour refuses to condemn. There we have it. We asked the former Labour Work and Pensions Secretary, Lord Hutton, to do a report for us. In his interim report, he set out a case for increased contributions. In his final report, he set out proposals for the defined benefit. We are negotiating on the basis of that. I want to know whether, if it comes to a strike, the people who are paid for by the trade unions are going to condemn trade union activity that would be the wrong thing for the British economy at the moment. Will the shadow Chancellor condemn it?
Mr Osborne
I will make a little progress, as I know that many people want to speak in the debate.
We have taken steps to try to help people who are facing this difficult situation. We have announced a freeze in council tax, not just this year but next year, and we have taken more than 1 million people out of income tax and delivered an income tax cut for 20 million more. The shadow Chancellor often talks about fairness in paying for all those things, but I want to know why, in all the years that he was chief economic adviser to the previous Government, he blocked and never introduced a permanent bank levy. Why did he never introduce a higher charge for long-staying non-doms? Why did he never conclude a tax treaty with Switzerland to get back some of the money that should be paid into the British Exchequer?
Mr Osborne
I will give way to the right hon. Gentleman after I have made this point. His only achievement in that field was to introduce a capital gains tax regime so riddled with loopholes that some of the richest people in this country boasted about paying less tax than the people who cleaned their houses. Is he proud of that record?
Mr Osborne
The IFS says that child poverty is rising, but the reason it is rising is that the right hon. Gentleman put this country into a complete economic mess. I can see my right hon. Friend the Secretary of State for Work and Pensions standing at the Bar of the House. He is introducing universal credit, which will do more than any other measure to bring child poverty down, to give opportunities to people who have none at all, and to ensure that work pays. That is what we are doing, and I want to know whether the shadow Chancellor supports that. Does he?
Ed Balls
I support welfare reform—[Hon. Members: “Ah!”] Of course I do, but I have to say that I hope the Chancellor will give the Work and Pensions Secretary the money to make it work. The IFS said this week that any gain in child poverty through universal credit would be more than swamped by the Chancellor’s other measures, particularly the change from RPI to CPI, so that the fall in child poverty under Labour would be reversed under the Tories. Is the IFS right?
Mr Osborne
I thought that Labour supported the link to CPI. Is the shadow Chancellor changing his mind on that? In the debates, the Labour party supported the link to CPI, and he has just raised the matter. Has he changed his mind? [Interruption.] Thank God he has a new shadow Chief Secretary to give him the answer.
Ed Balls
We have always said that we would support a temporary rise in CPI during this Parliament, but that we would not support a permanent rise. It is a permanent rise that will see child poverty rising year on year under the Tories. Child poverty fell under Labour; it will rise under the Tories. That tells us everything that we need to know.
Mr Osborne
The shadow Chancellor is all over the place. He was asking me about child poverty numbers in 2012, 2013 and 2014, and he said that, according to the IFS, the principal cause of the rise was a policy to link benefit increases to CPI. That is a policy supported for this Parliament—that is, in 2012, 2013 and 2014—by the Labour Opposition, and it is complete hypocrisy for them to complain about it now. Will the shadow Chancellor confirm that he supports the CPI policy for this Parliament—yes or no?
Mr Osborne
We have kept that target, but the right hon. Gentleman has still not confirmed that—[Interruption.] I welcome the shadow Chief Secretary to her position, but I have to tell her that the shadow Chancellor has just raised with me the question of the IFS estimates on child poverty over this Parliament. The IFS says that one of the principal causes is the policy on the link to CPI. That is the IFS’s view, although universal credit will do a huge amount to offset that impact. It is a policy supported by the Labour party, and it is completely hypocritical of the Labour party to come to this Parliament and raise those statistics and complain about that policy when they said they supported it all along.
Eurozone
Ed Balls Excerpts(12 years, 8 months ago)
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Ed Balls (Morley and Outwood) (Lab/Co-op)
Let me start by thanking the Chancellor for making his statement and for advance notice of it. It is right that he has today updated the House and the country on the ongoing crisis in the eurozone. It is also right that he and I will have the opportunity to debate the ongoing growth crisis in the British economy in the House on Wednesday.
A year ago the Prime Minister told the House that our economy was
“out of the danger zone”—[Official Report, 15 December 2010; Vol. 520, c. 901.]
We warned then that there was a global hurricane brewing in the eurozone, America and across the developed world. We also warned the Chancellor that ripping out the foundations of the house here in Britain with a reckless approach to deficit reduction was the wrong approach. The global hurricane is now swirling around us. With the eurozone crisis deepening, and in advance of Wednesday’s debate, will he tell us today whether he still believes that Britain is out of the danger zone and that we are still a “safe haven” in a turbulent world? With the European Central Bank unwilling to cut its interest rates, is it really the crisis in the eurozone that has prompted the Chancellor to change so radically his views on quantitative easing? Two years ago he called it
“the last resort of desperate governments when all their other policies have failed”.
We will return to the British economy on Wednesday, but the Chancellor is right to say today that the crisis in the eurozone now constitutes a direct threat to our flatlining economy, not least because only Greece and Portugal in the eurozone have had lower growth than Britain in the past year. With no growth, it is no wonder our interest rates are so low. He is also right to say that the threat is not only to our exporters, but to the stability and solvency of our banking system. Can he update the House on his latest estimate of the full exposure of UK banks to euro sovereign debt? Is the House of Commons Library estimate of a $187 billion exposure correct? Is it correct that, as part of his contingency planning, the Treasury has been working on detailed plans to inject further capital into Royal Bank of Scotland?
The Chancellor is also right that it is a great relief that Britain is not a member of the eurozone, although I was rather surprised to hear him last week give the credit to the Foreign Secretary, who was in opposition, on the Back Benches and writing history books at the time. I have long given up hope of getting any thanks from the Chancellor for that vital judgment. Above all, the Chancellor is right: eurozone leaders have prevaricated too long and need to get their act together to put in place a credible plan before next month’s G20 meeting.
Back in July, the Chancellor told the Financial Times in an interview that eurozone leaders had to “get a grip”, and he called for a eurobond, but what has happened since? Precious little. Has he urged eurozone leaders not just to increase EFSF funding, but to widen its role to help recapitalise troubled banks and to put in place first-loss guarantees on sovereign debt to stop contagion in Spain and Italy? Rather than talking to the newspapers over the summer, perhaps the Chancellor should have gone to those meetings and urged a Europe-wide plan for jobs and growth to get unemployment falling and deficits down.
What do we have today from the Prime Minister? Do we have a report back from weekend meetings with President Sarkozy and Chancellor Merkel? No, because our Prime Minister was not at the meetings; he was too busy dealing with a local difficulty. Instead, we have another interview in the Financial Times, and his solution is that eurozone leaders need to get out their “big bazooka”. Their what? He could have called for political backing for the European Central Bank to act as a lender of last resort in return for credible fiscal policies, for a euro area debt guarantee or for a European plan for jobs and growth, but “big bazooka”—what does it mean? Can the Chancellor explain? I made the mistake of looking it up on Google this morning, and I warn hon. Members, “Do not make the same mistake.”
To be fair, and in conclusion, the Prime Minister did call this morning for a five-point plan to deal with the eurozone crisis, although it was not clear from the Chancellor’s statement what those five points are or add up to, but let us hope that, with Britain badly exposed, our growth flatlining, unemployment rising and borrowing set to be higher than planned, when the Chancellor comes back to the House on Wednesday he will agree to back our five-point plan for jobs and growth here in Britain.
Mr Osborne
I welcome the shadow Chancellor to his place. When I heard that the Labour leadership were clearing out their shadow Treasury Front-Bench team today, I was worried that the Conservative party would lose its greatest electoral asset, but it is great to see him still in his place.
Let me address the right hon. Gentleman’s specific questions. First, he asked about the exposures to eurozone nations. The FSA publishes the appropriate information on that, on the exposures overall to peripheral economies and to other eurozone banks, and it is appropriate that it does so. On RBS, I touched specifically on that issue, because there has been speculation, but let me make it very clear: in our assessment, and in that of the FSA, RBS is well capitalised and liquid.
On the eurozone facility, let me answer the right hon. Gentleman’s specific question. I believe that it should be broad in application, as well as deeper in funds, and undertake as many operations as is required. He talks about meetings, but let me reassure him that I have been to many, many meetings over the past few weeks. There has not been a shortage of meetings; there has been a lack of leadership from eurozone leaders in those meetings. But, that is changing, and that is very welcome.
Frankly, it is absolutely astonishing that a shadow Chancellor, who led his entire party through the Division Lobby in July to vote against the increase in IMF resources initiated at the London summit by the previous Prime Minister, should accuse us of a lack of leadership in the international community. Let us just imagine if that vote had been won—presumably the right hon. Gentleman cast his vote hoping to win the Division—we, alone in the world, I think, would not be ratifying the increase in IMF resources, and I would have to turn up at those meetings and explain, “I am very sorry, but the British House of Commons does not want to use the Bretton Woods institutions to help us with one of the greatest financial crises of the century.” As I say, his lectures on leadership come a little thin, and perhaps he should practise what he preaches.
I end by saying this. We will have our debate on the British economy, but it would be hard to imagine the shadow Chancellor coming back from the Labour conference with his party’s economic credibility even lower than it was before he began the conference season, but there is still no recognition from him that his Government spent too much money, ran up a big budget deficit when times were good and spent more money than they had available—even though that is acknowledged by Tony Blair, who was Prime Minister at the time. The shadow Chancellor still thinks that the answer to a debt crisis is to spend more money. His five-point plan is, of course, a complete abandonment of the plan set out by the last Chancellor of the Exchequer, to which, as I understood it, the Labour party was still in theory committed.
When we listen to the combined speeches of the shadow Chancellor and the Leader of the Opposition, they seem to amount to more regulation and more tax on businesses—indeed, they confirm the Labour party’s reputation as the anti-business party. The shadow Chancellor has managed to get the Labour party into an extraordinary position for an Opposition—of complete irrelevance: irrelevant at home and irrelevant abroad. The leader of the Labour party asked a good question—“Why would you bring Fred Goodwin back to run the banks?” But why on earth would we bring the shadow Chancellor back to run the British economy?
Mr Osborne
I did not directly mention the meeting at the weekend between the French President and the German Chancellor, but I alluded to it when I said that there were signs of progress, as the meeting was one of those signs. They have now decided to delay the European Council until the end of next week to give them more time to put together a package, the components of which are becoming clear. The timetable that we first identified of the Cannes summit being the last possible point when we can resolve this is now generally accepted. On the hon. Gentleman’s substantive point about international resources, I commend him for his sensible vote in defying the Whip imposed by the shadow Chancellor.
Mr Osborne
Let me address this. There certainly were some people on my side, and no doubt some of them may ask me about it today. I am very happy to stand up and explain why I think that is wrong, why Britain has been a founding member of the IMF, and why the international institutions like the IMF and the World Bank are absolutely central in trying to get an international response to economic problems. However, there is a big difference between Back-Bench Members of this House deciding to vote against this issue as a matter of conscience and the shadow Chancellor leading the entire Opposition into an official vote against an IMF package that—let us remember this—was supposed to be the crowning achievement of the last Prime Minister’s premiership. When we look back at the last Prime Minister’s premiership, the one thing we say he got right was the London G20 summit, and then the shadow Chancellor leads his party into the Division Lobby against it. That is pathetic.
Independent Banking Commission Report
Ed Balls Excerpts(12 years, 9 months ago)
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Ed Balls (Morley and Outwood) (Lab/Co-op)
Let me start by expressing our thanks to Sir John Vickers and the Independent Commission on Banking for producing a report which will radically reshape our banking industry and our wider economy and which will echo all around the world. It is now the task of the Government and this Parliament to respond to its recommendations in an equally balanced, radical and timely manner, because taxpayers, customers and businesses want radical action. They were shocked and angered by the irresponsible actions of banks in New York, in London, in Frankfurt and in Amsterdam which caused the global financial crisis. But while they are angry at the banks, they are also angry with the regulators, the central bankers and the Governments who failed to foresee and prevent this irresponsibility.
As I have said before, for the part that I and the last Labour Government played in that global regulatory failure, I am deeply sorry. But let me say to Conservative Members and, in particular, to the Chancellor, who accused me in 2006 of supporting
“burdensome, complex”
regulation which, he said, would make
“cross-border market penetration more difficult”
and
“threatens the global competitiveness of the City of London”,
that perhaps the Chancellor also needs to show a little humility about that global regulatory failure.
In April, I set three tests which I believe the Government must meet in implementing banking reform: to protect taxpayers in the future; to secure international agreement to protect jobs in Britain; and to deliver a wider banking system to support the wider long-term interests of our economy. I will take them in turn. First, to protect taxpayers, we support the commission’s radical reforms on ring-fencing and regulatory standards. Unlike the Chancellor, who revealingly supports them in principle, we agree with the Business Secretary and support them in practice. We agree with the commission, which says that the current weak state of the economy does not weaken but strengthens the case for reform. These are complex reforms, and the cautious timetable that the commission has set is understandable. However, given the unsettling public bickering we have seen within the Cabinet in recent weeks, we strongly agree that the Government must provide clarity about their view of the commission’s recommendations as soon as possible—and move rapidly to put in place the necessary legislation and rules.
So let me ask the Chancellor this: will he agree to publish, by end of this year, alongside his response, a detailed implementation plan for the commission’s recommendations on ring-fencing, including clear milestone dates? Will he agree to legislate as many of these changes as possible in the draft Financial Services Bill? To make sure that there is no foot-dragging—to move beyond principle to practice—will he agree with our proposal to ask the Vickers commission to come back in 12 months’ time and publish an independent report on progress so far?
On the second test of securing international agreement, will the Chancellor ensure that the Vickers report is placed firmly at the centre of the global financial reform agenda? Will he set out a plan and timetable for that international process? In recent months, he has failed to deliver international leadership on the eurozone. If he fails on this agenda, we will see a global race to the bottom, with other financial services centres taking short-term advantage of our tougher approach, which would put thousands of UK jobs at risk.
Thirdly, on competition in the wider economy, the commission is right to highlight the costs to consumers and businesses of excessive concentration in UK banking. Greater competition is not the whole answer to the culture of short-termism that still plagues our capital markets, but we fully support the commission’s recommendations on divestiture, a new challenger bank, easier account switching and a stronger competition duty on the new financial regulator. However, until 2015 is too long to wait to judge whether progress is sufficient or whether we need a referral to the Competition Commission. Delays could leave consumers and small businesses to pick up an unfair share of the multi-billion pound bill for tougher capital standards. Will the Chancellor therefore commit to review progress not in four years, but in two years in 2013—two years earlier than the commission recommends?
Finally, none of these reforms can help the thousands of small businesses that are currently struggling to access the credit they need. As the Bank of England has confirmed, net bank lending to business is not rising, but falling. It is down £4 billion in the most recent figures, despite the Chancellor’s toothless Merlin deal with the banks. Will the Chancellor agree today to ensure that state-owned banks increase their lending in the coming months? Will he act now to have greater transparency on pay and bonuses and repeat the bank bonus tax for a second year? Will he recognise that rising unemployment and a flatlining economy will further depress confidence and small business borrowing until he changes course and adopts a plan B for growth and jobs? Today’s report provides some of the answers to the pressing problems we face; it is time the Chancellor woke up to the rest.
Oral Answers to Questions
Ed Balls Excerpts(12 years, 9 months ago)
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Mr Osborne
My right hon. Friend makes a powerful point. We must learn the lessons of what went wrong in the regulation of our banking system and ask deep questions about how, as an economy, we underwrite that system. That is why the Government asked John Vickers and his fellow commissioners to look at the structure of the banking system and at how we can ensure that Britain can be home to global banks but, at the same time, the British taxpayer can be protected should those banks fail. Of course, John Vickers will publish his final report next week and I am sure that there will be plenty of discussion about it.
Ed Balls (Morley and Outwood) (Lab/Co-op)
With the future jobs fund and education maintenance allowance abolished, Labour Members have been urging the Chancellor to repeat the bank bonus tax on top of the bank levy in order to get young people into work. The Chancellor claims that the economy is recovering, unemployment is falling and that such action is unnecessary, so will he tell the House how many more young people, compared with a year ago, are now not in education, employment or training?
Mr Osborne
The number of 16 and 17-year-old NEETs has actually come down, and more than 500,000 new jobs have been created in the private sector over the past year. The right hon. Gentleman talks about the bonus tax, and I will use not the advice I have been given by Treasury officials to respond, but the advice I have been given by the previous Chancellor of the Exchequer, someone we know he is very close to. The previous Chancellor said this of the bonus tax, and he after all is the man who introduced it:
“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... will find all sorts of imaginative ways of avoiding it”.
That is why he did not want it to be anything more than a one-off tax, and that is why we introduced a much more permanent and sustainable tax on the banks, which the right hon. Gentleman never introduced when he was City Minister. It is a permanent bank levy that raises more net every year than the one-off bonus tax did.
Ed Balls
Unemployment is rising and the stock market is plummeting—it is no surprise that the Chancellor does not want to answer the question about youth unemployment. Let me tell the House that the number of young people between 18 and 25 out of work and not in education, employment or training has gone up in the past year by 18%: 119,000 more young people are unemployed. Let me tell the Chancellor what my right hon. Friend the Member for Edinburgh South West (Mr Darling) said on “Newsnight” last night:
“The government, by going so fast, is really strangling the economy…if you go too fast you stall”—
Mr Speaker
Order. I think the shadow Chancellor will want to refer to taxation levels on the banking industry.
Mr Speaker
Order. I say to the shadow Chancellor that what we need now is a very brief question. We need to move on; there are a lot of questions to cover.
Ed Balls
The question that people will be asking is if the Chancellor will not change his mind on the bank bonus tax, on VAT and on the pace of deficit reduction, why is he now changing his mind on stalling bank reform? He said that we were all in it together. Why is there one rule for the banks and another rule for everyone else?
Mr Osborne
Now we can see why the former Chancellor has said that the Labour party had no credible economic policy. The shadow Chancellor had all summer to think of that question, and the best he came up with was that we were not regulating the banks. He was the City Minister when the City exploded. We have taken action better to regulate the banks. We set up the commission that will report next week. As for downgraded numbers, the fastest falling numbers around here are his economic credibility numbers.
Global Economy
Ed Balls Excerpts(12 years, 10 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
People will be concerned about the turmoil in the world’s financial markets and what it means for economies here and across the globe. I want to update the House on what we are doing to protect Britain from the storm and to help lead a more effective international response to the fundamental causes of this instability.
As of this morning, after heavy losses yesterday, markets in Asia and Europe are a little calmer, although some are still down. Over the past month, the Dow Jones index has fallen by more than 14%, the French market by 23% and the Nikkei by 11%, and it is striking that the German market has fallen by 24%. Even Chinese equities have fallen by 20% since November. Bank shares in all countries have been hit particularly hard. Many sovereign bond markets have also been exceptionally volatile, with market rates for Italian and Spanish debts soaring before falling back in the past three days.
Sadly, Britain is not immune to these market movements. In the past month, the FTSE 100 has fallen by 16% and British bank shares have been hit hard. However, while our stock market has fallen like others, there has been one striking difference from many of our European neighbours: the market for our Government bonds has benefited from the global flight to safety. UK gilt yields have come down to about 2.5%—the lowest interest rates in more than 100 years. Earlier this week, the UK’s credit default swap spread, or the price of insuring against a sovereign default, was lower than Germany’s. That is a huge vote of confidence in the credibility of British Government debt and a major source of stability for the British economy at a time of exceptional instability. It is a reminder of the reckless folly of those who said that we were going too far, too fast. We can all now see that their approach would have been too little, too late, with disastrous consequences for Britain.
It is not hard to identify the recent events that have triggered the latest market falls. There have been weak economic data from the US, including revisions to GDP figures, and the historic downgrade of that country’s credit rating. The crisis of confidence in the ability of eurozone countries to pay their debts has spread, as many feared, from the periphery to major economies such as Italy and Spain. Those events did not come out of the blue and they all have the same root cause—debt. In particular, there is a massive overhang of debt from a decade-long boom, when economic growth was based on unsustainable household borrowing, unrealistic house prices, dangerously high banking leverage and a failure of Governments to put their public finances in order. Unfortunately, the UK was perhaps the most eager participant in that boom, with the most indebted households, the biggest housing bubble, the most over-leveraged banks and the largest budget deficit of them all.
History teaches us that recoveries from such debt-driven, balance-sheet recessions will always be choppy and difficult, and we warned that that would be the case. The whole world now realises that the huge overhang of debt means that the recovery will take longer and be harder than had been hoped. Markets are waking up to that fact. That is what makes this the most dangerous time for the global economy since 2008. We should be realistic about that and set our expectations accordingly. As the Governor of the Bank of England said yesterday and as the head of the Office for Budget Responsibility has noted, the British economy is expected to continue to grow this year. Some 500,000 new private sector jobs have been created in the past 12 months. That is the second highest rate of net job creation in the G7. However, instability across the world and in our main export markets means that, in common with many countries, the expectations for this year’s growth have fallen.
This is what our response must be. First, we must continue to put our own house in order. I spoke again to Mervyn King yesterday and I confirm that the assessment of the Bank, the Financial Services Authority and the Treasury is that British banks are sufficiently well capitalised and are holding enough liquidity to cope with the current market turbulence. We have in place well developed and well rehearsed contingency plans. We must also continue to implement the fiscal consolidation plans that have brought stability to our bond markets.
I believe that the events around the world completely vindicate the decision of this coalition Government from the day we took office to get ahead of the curve and deal with this country’s record deficit. While other countries wrestled with paralysed political systems, our coalition Government united behind the swift and decisive action of in-year cuts and the emergency Budget. While other countries struggled to command confidence in their fiscal forecasts, we created the internationally admired and respected independent Office for Budget Responsibility. Those bold steps have made Britain a safe haven in this sovereign debt storm. Our market interest rates have fallen while those of other countries have soared. The very same rating agency that downgraded the United States has taken Britain off the negative watch that we inherited and reaffirmed our triple A status. That market credibility is not some abstract concept; it saves jobs and keeps families in their homes. Families are benefiting from the lowest ever mortgage rates and companies are able to borrow and refinance at historically low rates thanks to the decisions that we have taken.
Let me make it clear not only to the House of Commons but to the whole world that ours is an absolutely unwavering commitment to fiscal responsibility and deficit reduction. Abandoning that commitment would plunge Britain into the financial whirlpool of a sovereign debt crisis and cost many thousands of jobs. We will not make that mistake.
Secondly, we need to continue to lead the international response in Europe and beyond. In the G7 statement agreed between Finance Ministers and central bank governors this week, we said that we would
“take all necessary measures to support financial stability and growth”.
In the eurozone, there is a growing acceptance of what the UK Government have been saying, first in private and now in public, for the last year—it too needs to get ahead of the curve. Individual countries must deal with their deficits, make their economies more competitive and strengthen their banking systems. Existing eurozone institutions need to do whatever is necessary to maintain stability. We welcome the interventions of the European Central Bank this week through its securities markets programme to do just that.
However, that can only ever be a bridge to a permanent solution. I have said many times before that the eurozone countries need to accept the remorseless logic of monetary union that leads from a single currency to greater fiscal integration. Many people made exactly that argument more than a decade ago as a reason for Britain staying out of the single currency, and thank God we did. Solutions such as eurobonds and other forms of guarantees now require serious consideration. That must be matched by much more effective economic governance in the eurozone to ensure fiscal responsibility is hard-wired into the system.
The break-up of the euro would be economically disastrous, including for Britain, so we should accept the need for greater fiscal integration in the eurozone, while ensuring we are not part of it and that our national interests are protected. That is the message the Prime Minister has communicated clearly in his calls with Chancellor Merkel, President Sarkozy and others this week. I have done likewise with individual Finance Ministers, in ECOFIN and in the G7 call at the weekend, and will do so again at the September ECOFIN and G7 meetings.
This is a global as well as a European crisis. At this autumn’s meetings of the IMF and the G20 we need far greater progress on global imbalances. We need an international framework that allows creditor countries such as China to increase demand and debtor countries to make the difficult adjustments necessary to repay them. Everyone knows what needs to be done, but progress so far has been frustratingly slow, with lengthy disagreements on technical definitions, let alone any concrete actions. The barriers are political not economic, so it is up to the world’s politicians to overcome them. There are no excuses left.
The UK, like the rest of the developed world, needs a new model of growth. Surely we have learned now that growth cannot come from yet more debt and more Government spending. Those who spent the whole of the past year telling us to follow the American example, with yet more fiscal stimulus, need to answer this simple question: why has the US economy grown more slowly than the UK economy so far this year? More spending now, paid for by more Government borrowing and higher debt, would lead directly to rising interest rates and falling international confidence, which would kill off the recovery, not support it.
Instead we must work hard to have a private sector that competes, invests and exports. In today’s world, that is the only route to high-quality jobs and lasting prosperity. In the developed countries, especially in Europe, that means making the difficult structural reforms needed to restore competitiveness and improve the underlying performance of our economies. The EU should cut red tape, not add to it. Internationally, we have the greatest stimulus of all on the table in the form of the Doha round—a renewed commitment to free trade across the world, which should be taken up now.
Here in Britain, the Plan for Growth that we announced in the Budget set out an ambitious path—23 measures have already been implemented and another 80 are being implemented now. On controversial issues, such as planning reform, we will overcome the opposition that stands in the way of prosperity. On tax, we have already cut our corporation tax by 2p, with three more cuts to come in the next three years. We will continue to pursue a radical agenda in welfare and education reform.
However, there is much more we can and must do if we are to create a new model of sustainable growth. All of us in the House must rise to that challenge in the months ahead and confront the vested interests—the forces of stagnation that stand in the way of growth.
In these turbulent times for world markets, we will continue to lead the international response. We will redouble our efforts to remove the obstacles to growth and stick to our plan, which has made Britain a safe haven in the global debt storm. I commend the statement to the House.
Ed Balls (Morley and Outwood) (Lab/Co-op)
The shocking and inexcusable events of recent days in our cities are today rightly the Government’s first and immediate priority. However, looking ahead, the global economic events of recent days are an equal and perhaps even graver threat to our stability and cohesion, putting small businesses, jobs and mortgages at risk throughout our country. It is therefore right that the Chancellor is today updating the House and the country on the parlous state of the global economy and, I am afraid to say, the parlous state of the British economy.
In the same spirit of bipartisan co-operation that we have just seen from the Prime Minister and the Leader of the Opposition, let me set out where Opposition Members agree with the Chancellor of the Exchequer as well as where we have grave concerns. First, the Chancellor is right: we made the right decision not to join the single currency in 2003. We agree with him that the crisis in the eurozone requires more decisive and radical action than we have seen so far. I welcome the fact that he is now, at last, involving himself in those discussions, and preparing contingency plans if British banks come under threat.
Tough fiscal decisions in Europe are vital, but is it not clear that the approach of European leaders so far—demanding ever more austerity from smaller countries—is not working because it does nothing to get those economies growing? Without that, countries find it harder and harder to convince the markets that they can repay their debts. Should not the Chancellor finally take a lead in brokering a plan in Europe for growth, alongside European-wide guarantees to reduce debt service costs, and stop the contagion?
I also agree with the Chancellor that months of political wrangling and uncertainty in the US about the pace of deficit reduction have depressed confidence and US growth. However, does the Chancellor agree with those wise heads who favour a balanced and sensible approach to deficit reduction, and fear that rapid US retrenchment could drive the world back into recession? Or does he agree with his friends—we know he has many in the Republican party and in the Tea party movement—who have urged deeper and faster cuts, and hailed the recent budget deal as delivering 98% of their demands? Is the Chancellor on the side of the Federal Reserve, former Treasury Secretaries and Nobel prize winners, or on that of, in the words of the Business Secretary, “right wing nutters”?
It is also right that G7 finance Ministers are finally discussing a co-ordinated response to a global crisis. However, listening to the Chancellor’s analysis, one would think that Britain was a bystander, watching public debt crises unfold in the eurozone and America that are best solved by individual countries taking their own actions to get debt down—on his analysis, the faster, the better. But the growth crisis is now global.
Does the Chancellor agree that the coming together of powerful negative forces in every continent, including in Britain—continued deleveraging by banks and the private sector, drastic tightening of consumer spending and fiscal retrenchment from Governments—now means that some commentators warn that the crisis could become as grave as that of the early 1930s, when Governments around the world ignored their collective responsibility to promote growth, ploughed on with austerity and retrenchment and ushered in a decade of depression, unemployment, protectionism and political instability? Here in Britain, families and businesses, deeply worried about their jobs and mortgages, will hear the Chancellor’s talk of safe havens and conclude that he is either deeply complacent or in complete denial about what is happening in our country.
Since the Chancellor’s economic policies have started to kick in, well before the latest bout of financial market instability, confidence has collapsed and our economy has flatlined for nine months, growing slower than that of the US and the eurozone. On the latest OBR figures, before growth forecasts—which the Chancellor today confirmed—were to be downgraded yet again, the borrowing forecast was £46 billion higher than the Chancellor planned.
We need a tough, medium-term plan to get our deficit down, but it is the Chancellor’s reckless—[Interruption.]
Mr Speaker
Order. The House must come to order. I repeat what I have said many times: if Members shout their heads off, then expect to be called, they are suffering from an element of self-delusion.
Ed Balls
The Chancellor’s reckless policies—too far, too fast—have ripped out the house’s foundation and left our economy deeply exposed to the brewing global hurricane. Yet, despite all the evidence and with our stock market falling 10% or more this week, the Chancellor still claims that his policies are working and that we are a safe haven. Despite the evidence of the past two years from credit default swaps and the fact that, in the past week, long-term interest rates have fallen in Britain and in the US, he still claims that falling UK long-term bond yields are a sign of enhanced credibility and not of stagnant growth in our economy. Does he not remember that the Japanese Ministry of Finance briefly took some comfort from low and falling bond yields in the early 1990s, at the beginning of a lost decade of no growth and stagnation? However many times he says that his plan is working, that does not make it true. However, many times he claims that he has restored confidence or delivered on deficit reduction, that does not make it true.
We know that the Chancellor has spent the past fortnight in Hollywood, but he cannot just write the script and watch it come to life. That is not how things work in the real world. If he will not take it from me, perhaps he should hear the words of Paul Krugman, the Nobel prize winner, who said:
“Britain’s experiment in austerity is going really, really badly. But the Chancellor of the Exchequer is finding solace in… fantasy… the wolf is at the door and Osborne thinks it’s the confidence fairy.”
The Chancellor finds the state of the British economy reassuring; we find it deeply worrying. He rejects our call for action now, including a temporary VAT cut, and vows to plough on regardless. We say that this approach is deeply incautious and reckless. The eurozone is in crisis. America is in political paralysis. The British economy is flatlining. Global markets are in turmoil. The world desperately needs strong and united leadership. Here in Britain, we need our Chancellor to get out of his complacent denial and get back to reality before it is too late.
Mr Osborne
I did meet Mickey Mouse in California, and he seems to be writing the Labour party’s economic policy at the moment.
Let me start with the areas where we agree. We agree that it is right for Britain not to join the euro—perhaps the shadow Chancellor will change the official policy of the Labour party in that respect. I would be very happy to offer him a briefing from the tripartite authorities on the contingency plans of the financial system. Obviously, they have to remain confidential, as he will understand, but I am very happy to give him that briefing.
On what the shadow Chancellor says about European countries being forced to reduce their deficits, I would ask him this question. Who is supposed to be lending those European countries the money that he talks about, in this imaginary world where they are not taking action to reduce their deficits? He voted against the decisions that we took to increase the resources of the IMF, and now he turns round and thinks that there is some magical body or some investors out there who are going to lend money to European countries that do not have credible deficit plans. It is completely for the fairies, as he puts it.
Let me talk about the US debate, which the right hon. Gentleman mentioned. He talked about deficit reduction in America and asked where I stand on the measured pace argument. Actually, I agree with the plan that President Obama set out at George Washington university. [Interruption.] Perhaps the Leader of the Opposition does not know what is going on in America at the moment, but actually, the President of the United States has set out a deficit reduction plan that is at the same pace and on the same scale as the one that we are pursuing in Britain. That is what the President has set out; it is his offer in the debate. Indeed, the composition of tax increases and spending reductions that he has put forward is the same as the spending consolidation that we announced last year, and is based on some of the ideas put forward by the bipartisan Bowles-Simpson commission, which we spoke to after the event. It said that it looked to the UK for inspiration for some of its ideas.
The shadow Chancellor says that there is a global economic crisis. He is right about that, and we agree, but it is caused by an enormous debt overhang. That is what all serious economists are saying at the moment. He is also right when he says that the Labour party needs a tough deficit reduction plan. I agree with him about that. Where is this tough deficit reduction plan? We have just spent two and a half hours listening to Labour MP after Labour MP getting up and complaining about spending cuts and the deficit reduction plan—they are all nodding their heads—but where is the tough deficit reduction plan that he promised? The shadow Chancellor is now almost alone in the world in making the argument that he makes. He talks about international leadership, but if he turned up at the G7, the IMF, the G20 or ECOFIN with his plans to borrow more and increase our deficit, he would be laughed out of that meeting. He is completely irrelevant to where the international debate has gone. I am afraid that he is living proof of why the public will never again trust the Labour party with their money.
Mr Osborne
As I have said, the British economy is growing and it is the assessment of the Bank of England and the Office for Budget Responsibility that it will continue to grow. The growth in the last six months has actually been stronger than in the United States, and half a million jobs have been created in the private sector in the last year—
Mr Osborne
In the past 12 months. So that is all good news. Where does the right hon. Member for Oldham West and Royton (Mr Meacher) expect the money to come from for additional Government borrowing? Who in the world would lend to a country that abandoned its deficit reduction plan at a time like this, especially a country such as Britain which, unfortunately, has the highest budget deficit in the G20?
Mr Osborne
Of course, stock market falls affect pension investments and other equity investments. Our stock market has fallen—not as much as some, but it has nevertheless fallen—
Mr Osborne
It is because of the global lack of confidence in Governments’ abilities to deal with their deficits. We have not seen turbulence in our bond markets precisely because we have in place a credible deficit reduction plan. I note that I have been answering questions for more than an hour and it has almost been an hour since the shadow Chancellor said that the Labour party needed a credible deficit reduction plan, but has a single Labour MP got up and proposed any component of that reduction plan? No, they have not.
Sovereign Grant Bill
Ed Balls Excerpts(12 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
We do not propose to add anything in. Frogmore is part of the Windsor castle estate, or part of the Windsor Great park, which I am sure the hon. Gentleman knew before he made his intervention.
Let me sum up this rather lengthy clause 1 stand part debate. We do not want a cut-price monarchy; nor do we want an excessively lavish monarchy. What the country wants is a monarchy properly funded to do the job we ask of it. It does that job well. Long may that continue. I commend the clause to the Committee.
Ed Balls (Morley and Outwood) (Lab/Co-op)
I commend your patience and flexibility, Mr Hoyle, in allowing this clause stand part debate to include the status of mausoleums and the role of English Heritage, which somewhat stretches the clause. Having a Second Reading-type debate on clause stand part in this way is probably a revolutionary approach to parliamentary procedure. After the events of the last few days, that may not be surprising. However, I should reassure the hon. Member for North East Somerset (Jacob Rees-Mogg) that he need not feel destabilised by my use of the word “revolutionary” in this context.
A fortnight ago, during the debate on the financial motion relating to the Bill, the Opposition made it clear that
“the monarchy continues, and must continue, to play a vital role in the affairs of our nation in the new century, but that to play this role and to command public support, the royal household must… be financed in a proper, open and fair way”.
We expressed our intention to support the Chancellor’s proposals to reform the current 250-year-old arrangements and
“to strike a fair and workable balance between the legitimate needs of the household and the interests of the taxpayer.”
However, we also made clear that it was
“the responsibility of Her Majesty’s Opposition to scrutinise the actions of the Government to make sure that it is done in a fair and proper way”.
Those are the guiding principles that lie behind today’s debates on clause 1 and, more widely, our amendments.
In that debate a fortnight ago, I cautioned the Chancellor that
“At a time when many families and businesses are under real financial pressure”
there was more work to be done, and a need for more “detail and reassurance” on Second Reading—which we have not had—or in Committee
“to establish a consensus not only across the Dispatch Box but in the country as a whole in support of these reforms.”—[Official Report, 30 June 2011; Vol. 530, c. 1150.]
I also asked the Chancellor to provide more clarity and detail on the level of the sovereign grant and the wider costs of the royal household, the arrangements for regular parliamentary scrutiny, and the mechanisms for uprating the grant.
I thank the Chancellor for the detailed way in which he has sought to answer those questions in the debate so far, and for the serious consideration that he has given to our amendments. I am also grateful to him for giving Members more information than they were given two weeks ago. However, it is difficult to hold a debate such as this when time is so constricted, and I share the concern expressed about that by Members on both sides of the House. As I said to the Chancellor earlier, I think that he could have provided even more information to help Members to understand the debate.
Mr Kevan Jones
I hear what my right hon. Friend says, but unless we know the full amount of money that is being paid to the royal household by other Departments—for instance, the Ministry of Defence—how can we determine, first, that those efficiencies are real and this is not just about moving money across and, secondly, that 15% is the right level?
Dr Andrew Murrison (South West Wiltshire) (Con)
Does the right hon. Gentleman agree that if those costs are indeed taken into account the reduction between 1991-92 and the present day becomes even greater? The figures do not include, for instance, the royal yacht, which has been decommissioned and is no longer a burden on the Ministry of Defence.
Ed Balls
What concerns me is not the fall in expenditure over the past 10 or 20 years, which most people would consider sensible—notwithstanding the issues raised by my hon. Friend the Member for North Durham (Mr Jones)—but the fact that we are set to see real-terms rises in the years ahead. That is where we should focus our scrutiny.
On the other hand—on the side of the ledger that does not feature efficiency savings—we are seeing rising pressures on the royal family. As I said a couple of weeks ago, the combination of the success of the wonderful royal wedding and the visit of the Duke and Duchess of Cambridge to Canada and the USA, following Her Majesty’s historic visit to Ireland, has resulted in a rise in both the popularity of the royal family and the demands on them around the world, and that trend is set to continue. It is important that we scrutinise whether the resources that are in place are sufficient and right.
I raised in the last debate the fact that it has been reported that a number of members of the royal family have had their security reduced or removed over the past year. I accept the Chancellor’s assurances that there are no concerns in that regard, but it was right that we raised the issue. We have tabled amendments to clauses 2 and 4 that are designed to ensure both that there would be full and independent scrutiny of all the different aspects of royal expenditure, including the level of the grant and, more widely, value for money and the effective spending of resources across the piece, and that the National Audit Office would have sufficient powers and resources to do that job. My hon. Friend the Member for North Durham asked about wider expenditure outside the sovereign grant. As I understand it, it should now properly come within the purview of the NAO to look across the piece. In our upcoming debate on those clauses, perhaps we could receive an assurance that the NAO will be able to look at all the budgets, not just this particular one. Clearly, the NAO will not be able to reach a judgment on value for money in terms of royal household expenditure under this grant unless it can do so in the context of the other expenditures by Government Departments for the royal household. It is important to maintain royal protection and security, but protecting value for money is also important. The NAO and the Public Accounts Committee will need to respond to the issue my hon. Friend has raised and make sure they can see the full picture. I say again that we seek assurances in the upcoming debate on those clauses that the NAO will be able to look right across the royal household’s expenditures, rather than only at the expenditure financed by the sovereign grant.
The Chancellor has moved very much in our direction on our second issue. I argued a couple of weeks ago that, given the historic importance of these reforms and the inevitable uncertainties at the beginning of a new financing regime, Parliament would need to keep a closer eye on the arrangements. I also said that that needed to be consistent with the Chancellor’s proper desire to give the royal household stability and certainty. In our judgment, waiting seven years for a review, and certainly seven years for the first review, was too long. In our amendments to clause 7, we propose that the first review should happen in the period up to April 2015—three years from now—with five-yearly reviews after that. The Chancellor has gone pretty much to where we would like to be on these matters. Therefore, we thank him for taking our concerns seriously and making sure Parliament will be able to take an early view on these arrangements.
On our third issue, however, I have a continuing concern, which has prompted our amendment 8 to clause 7. The issue is the level of profits from the Crown Estate. The Chancellor has told the House that
“we need a funding mechanism that prevents the sovereign coming to Parliament each year for resources, and that provides funding broadly in line with the growth of the economy…There will be a cash floor to protect the monarch from cash cuts, but basically the monarch will do as well as the economy is doing.”—[Official Report, 30 June 2011; Vol. 530, c. 1146.]
We do not know that the figure of 15% of Crown revenues will prove to rise in line with the overall performance of the economy. That obviously depends on the performance of the Crown Estate and Crown revenues. As I pointed out, the Crown Estate income from renewables grew by 44% in the year 2009-10, and it is widely expected to increase again in future years because of the financial potential of the exploitation of wind and tidal energy on the foreshore around the country.
The Crown Estate’s annual report describes current growth as “exponential” and growth over the next 10 years as “significant”. Given the potentially significant changes in income from renewables and, perhaps, wider sources, as well as the prospect that this could lead to an unintended rise in either reserves or, as described in the Bill, simply the overall level of expenditure, it is important that the proposals are robust in meeting significant unintended rises in revenues.
Some have called for a cap on the overall level of the sovereign grant. Instead, we have tabled amendment 8, which would require the trustees to review the arrangements if the Crown Estate’s income were to rise faster in the previous financial year than the underlying trend growth rate of the economy. I think that the public would expect the trustees to review matters immediately if revenues were to rise much faster than had been expected. I also think that the amendment is fully consistent not only with the spirit of the Chancellor’s reforms, but with their detailed intention, as he set out in his spending review speech. Therefore, I ask him to look at the issue again over the next hour and a half. Our proposal is fully consistent with protecting stability for the monarchy and the proper role of Parliament in scrutinising the arrangements. In order to ensure that his reforms are implemented as he intended, we should agree to the amendment.
Paul Flynn
As I understand it, the royal trustees are the Prime Minister, the Chancellor and the Keeper of the Privy Purse. Does my right hon. Friend not think that we would get a more balanced decision if Members of this House were represented among the trustees? They would give a much better opinion than the establishment one on this issue.
Ed Balls
It is obviously nostalgic for me to be back in Committee debating with the Chancellor of the Exchequer across the Dispatch Box, although I would remind my hon. Friend—these moments have been rare in my parliamentary career—that the Chancellor and the Prime Minister are both Members of this House. Therefore, they are representatives of both the Government and the House of Commons in those discussions. The important thing is that the trustees should not be able to sit on their hands if there is an unexpected surge in revenues that is faster than the trend growth rate of the economy. When the trustees produce a report, Parliament should be able to scrutinise it properly, after a report of the NAO. The latter is clearly set out in the Bill, but at the moment, whether there is a review in the five-year period is at the discretion of the trustees. Parliament should legislate today to say, “If you see something happening to revenues that is outside the Chancellor’s intentions as clearly set out by him, then there should be an immediate review.” It would still be for the trustees to decide what recommendation to make. We are not imposing a cap, because although some would like that, it would be outside the Chancellor’s intentions. I said from the beginning that I would support his reforms, and our amendment 8 delivers his reforms in detail. Therefore, I hope that he will reconsider and support our amendment.
Mr Kevan Jones
I think the Chancellor has tried to have an effect on that by, for example, putting a cap on the reserve, but does my right hon. Friend agree that it is also important to see how the reserve is spent? I said to the Chancellor that it does not take a genius or a financial wizard to work out that the way to do it is by keeping the reserve as low as possible by spending the money, so the Government’s proposals will actually lead to more inefficiency, rather than driving up efficiency.
Ed Balls
As I said, part of the motivation behind our amendments to the clauses that deal with the role of the NAO is precisely to ensure that the value-for-money question is at the centre of the NAO’s thinking and the PAC’s reports to this House. I am happy with the Chancellor’s view that it should be for the PAC and the NAO to decide when to do those reports, but they clearly cannot have a report looking at value for money without looking at all aspects, and that includes all expenditure that is financed by the taxpayer, and the use of reserves. For Parliament, that is the right mechanism. I understand that not everyone in the House will agree with those proposals, which is why it is important to get on to that debate.
Mr George Osborne
As was acknowledged by the shadow Chancellor, we have taken on board what I consider to be the most significant amendments in tabling our own manuscript amendments. There will now be a review in 2016, and there will be a review every five years after that. If the House accepts our amendments we shall be able to prevent some windfall from offshore renewable energy from not being taken into account before it comes about. We will have a chance to do that in 2016, and that is partly because we have accepted the Opposition’s amendments.
I have already dealt to some extent with the point raised by the shadow Chancellor, and by amendment 8, about whether some other mechanism is needed. A fair number of checks are already in place. If the grant turns out to be more than the royal household needs—and the assessment of need will be checked by the National Audit Office—it will go into a reserve. If the reserve hits 50% of the grant, the trustees will step in and reduce the amount of money coming in. They will turn down the taps. That is a sensible mechanism, and it means that we will not be having an annual debate in the House about royal finances, entertaining though the last few hours have been.
The hon. Member for Bristol East (Kerry McCarthy) specifically asked why the figure for 2012-13 was £31 million. In a sense, that question lies at the heart of the issue. I accept that this is a complicated concept. The royal family have been relying on grants from Parliament—either the civil list or the royal travel or royal palaces grant—and supplementing them with a reserve which has been built up, with the use of public money, in the last decade or two. In 2012-13 the royal family will get the £31 million, but they will also expect to draw on the last of the reserve that was built up in the 1990s and 2000s. They will, in effect, receive more than £1 million from public money—money raised through taxation—because they will be using the last of that reserve.
Ed Balls
When I said that there would be a 3.2% real-terms rise from next year until the end of the Parliament, I did not mean a rise in the grant; I meant a rise in total expenditure. Total expenditure in 2012-13 will be £33 million and will rise to £35.5 million, which, in 2010-11 prices, is a rise from £31.3 million to £31.9 million. Although the Chancellor has made an important historic point about the reserves, the 3.2% real-terms is not driven by the reserves: it is merely an overall rise in total expenditure. I do not think that the Chancellor was entirely right on that point.
Mr Osborne
The point I was making was that, although there are lumpy movements in individual years—in 2010-11, for various reasons, some capital works were delayed and will be undertaken next year—the average of £34 million, which was £37 million two years ago, amounts in effect to a cash freeze and a real-terms reduction.
Mr Osborne
Over the Parliament. But the point is that it strikes the right balance between too much and too little.
I think that the checks are adequate, and for that reason, although I have accepted a couple of the Opposition’s amendments, I do not wish to accept amendment 8.
Manuscript amendment A agreed to.
Manuscript amendment made: B, page 6, line 8, leave out paragraph (b) and insert—
‘(b) every period of 5 years beginning at the end of another review period.’—(Mr George Osborne.)
Amendment proposed: 8, page 6, line 8, at end add—
‘(6) The Trustees shall also review the percentage for the time being specified in Step 1 of section 6(1) as soon as practicable if, over the financial year immediately preceding the base year, the income account net surplus of the Crown Estate increased by more than the trend rate of GDP growth.
(7) In subsection (6), “the trend rate of GDP growth” means the estimate of the trend rate of GDP growth most recently published by the Office for Budget Responsibility which is applicable to that year.
(8) Subsections (2) to (4) shall also apply to a review carried out under subsection (6).’.—(Ed Balls.)
Question put, That the amendment be made.
Ed Balls
I echo the Chancellor’s thanks to Members on both sides of the House for the way in which they have participated in the debate. In particular, I thank my hon. Friends for the way in which they have helped us play the Opposition’s proper role in scrutinising such legislation. There have been many historical references and when we look back to the last serious debate in Parliament, in 1971, we can see that the tone of those debates was very different from that of our debates today and a fortnight ago. That shows that there have been many changes since the early 1970s, including more pressure on and exposure for the monarchy, as well as an unprecedented degree of international exposure. The consensus on the role of the monarchy in our constitution and in our country is stronger now than it was during the previous debate, which has been shown by the speeches from both sides of the House as we have scrutinised the Bill. I thank the Chancellor of the Exchequer for being willing to brief us and to be involved in serious discussions that have led to changes in the Bill. The manuscript amendments that he was willing to table following our suggested amendments were welcome.
The change will lead to an unprecedented increase in the scrutiny of the royal household by the National Audit Office, the Public Accounts Committee and Parliament. As the Chancellor has said, that is a good thing in building further trust and support for the monarchy in our country. Obviously, I regret the fact that we did not manage to get agreement on our trigger mechanism if revenues from the Crown Estate rise rapidly in coming years, but there are measures, checks and balances to make sure that we can properly do our job as parliamentarians in ensuring that money is well spent but also that the monarchy is properly financed.
Let me conclude by saying it is of great regret that the—oh, he is still here. For a second, I feared that the hon. Member for North East Somerset (Jacob Rees-Mogg) had left and I wanted to thank him for his contributions to the debates. It is an open question whether the financial settlement for the Crown Estate that the Chancellor generously set out will make affordable the finest horses and the gold-gilt carriages that the hon. Gentleman called for in the debate a fortnight ago as befitting Her Majesty. However, I assure him that it will certainly be enough to pay for Bath Oliver biscuits with chocolate on the outside; there is no doubt about that. His contributions have been welcome. As I said, this has been an important debate about history as well as the future and it is good to have present an hon. Member who has a great grasp of that history. Indeed, some of us sometimes think he might have been there in 1760—more in style than in substance. We thank him and all hon. Members who have contributed to the debate. The job of scrutinising these matters now starts for Parliament and I thank the Chancellor for helping us to ensure that that will be done properly in the years to come.