Amendment of the Law

Emma Reynolds Excerpts

Tuesday 29th March 2011 Commons Chamber

[Mr Duncan Smith]

Indeed. My hon. Friend is, as ever, right.

It is worth reminding—

[Emma Reynolds (Wolverhampton North East) (Lab)]

Will the Secretary of State give way?

[Mr Duncan Smith]

No. I am going to make some progress, because Mr Speaker has already told us that we need to let others speak.

Let me remind Labour Members that they were the ones who let the bankers rip as they pleased, leading to a 10-year spending spree that sent personal debt to the record level of £1.3 trillion. They let public spending rip, too, but Members should not take my word for it; strangely, Tony Blair—not now spoken about much on the Labour Benches—said that

“from 2005 onwards Labour was insufficiently vigorous in limiting or eliminating the potential structural deficit.”

Insufficiently vigorous? That is possibly the biggest understatement that I have ever read. The reality is that they did nothing at all about controlling the deficit, so it is small wonder that the No. 1 priority for this coalition Government was to get the finances straightened out, and my right hon. Friends the Chancellor and the Chief Secretary are doing just that.

[Emma Reynolds]

rose—

[Mr Duncan Smith]

I will give way to the hon. Lady, and then I am going to make some progress.

[Emma Reynolds]

Why, then, did the right hon. Gentleman’s party pledge to match our spending plans right up until the start of the financial crisis?

[Mr Duncan Smith]

What we are dealing with here—[Hon. Members: “Ah!”] I will tell Labour Members what the big “Ah!” is. It is “Ah, who were in government for the past 12 years?”, it is “Ah, who left us with the worst structural deficit?”, and it is “Ah, who left us with massive debts, rising youth unemployment and a total shambles from which we are going to have to pick up the pieces?”

One of our biggest challenges was getting to grips with the welfare system, which many Members on both sides of the House will recall. Spending on working-age welfare increased by some 50% under Labour, from £48 billion to £73 billion in real terms. People talk about the problems of increasing welfare spending in difficult times, but let me remind the House that that increase took place during a period of growth. Notwithstanding that extra spending, improvements were quite poor. The universal credit is about getting the incentives right. That is the sort of reform that we have to bring through, recognising that people have to see the financial benefits from taking up employment, and simplifying the byzantine benefits system that we inherited. Alongside it, the Work programme is about supporting people to be work-ready so that British business no longer has to look abroad when it wants to commit to bringing in employees.

We are finally getting to grips with a housing benefit system that has been allowed to run out of control. The failure to reform housing benefit has left us in the absurd situation whereby some benefit claimants can claim up to £100,000 a year to live in large houses in expensive areas. The local housing allowance formula was behind all this madness. I remind Labour Members that it was their Government who introduced the local housing allowance, which pumped fuel into that growth. The difference between the average award under the LHA and under the older schemes for private deregulated tenants that it replaced was an additional £10 per week, or about 10%. As a result, the costs of housing benefit rocketed from £14 billion in 2005-06 to £21 billion in 2010-11. Left unreformed, the housing benefit budget was projected to reach £24 billion in 2014-15. That is, frankly, unsustainable and unacceptable to hard-working British taxpayers.

Housing benefit is an issue on which Labour Members have shown themselves at their very worst. First, we got ludicrous claims about social cleansing from central London, whipping up fury and fear. [Hon. Members: “That started with you.”] No, it started with them, and I know exactly who it was. Then, on top of that, we were told that the real reason was that we are a Government bent on some kind of plan for ethnic cleansing. Labour Members are not averse to a bit of dog-whistle politics when it suits them, scaring some of the most vulnerable people in society and leading them to fear what is coming next.

The problem is that the Labour Government had over 10 years to get to grips with the welfare system, and literally nothing was done about it—it was fiddle, more fiddle, and more expense. The Office for Budget Responsibility has confirmed that as a result of the changes to expenditure that we brought through, we remain on track to eradicate our structural deficit over the course of this Parliament.

It is important, too, to reflect on how the Budget for growth has gone down with people. Sir Martin Sorrell says:

“The coalition from the very beginning had said it was crucially important that Britain had a competitive tax landscape. They've gone further than I expected on corporate”

tax

“and also on personal taxation.”

He went on to say that

“it looks as though we will make that recommendation”

to return his company’s headquarters to the United Kingdom. That is a real endorsement.

A letter in The Daily Telegraph yesterday from 39 leading venture capitalists stated:

“These changes are a shot in the arm for enterprise. Thanks to them Britain is being positioned as a world-class place to launch new businesses. Now British entrepreneurs and those relocating to Britain will find it easier to raise the funds they need to do what they do best: create and expand world-beating businesses.”

John Cridland, the CBI director general, said:

“This Budget will help businesses grow and create jobs. The chancellor has made clear the UK is open for business.”

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[Emma Reynolds (Wolverhampton North East) (Lab)]

There seems to be agreement across the House that one of the main lessons of the global financial crisis is that we need to rebalance the economy. In my view, the major objective for the Budget should have been precisely that, because it is the only way to drive sustainable growth and job creation. There are two major ways to do that, and correspondingly two tests that I set the Budget. First, it should rebalance the economy away from an over-reliance on financial services, and secondly, it should reduce the regional economic disparities in our country.

On the first test, we should recognise that our country has a proud history of making things, and we remain the sixth-largest manufacturing country in the world. Manufacturing growth is currently outstripping growth in the service sector. In my constituency, which is part of the black country—once the beating heart of the industrial revolution—manufacturing still accounts for one fifth of jobs. The aerospace cluster in my constituency is thriving, although against a backdrop of a worrying overall rate of 8% unemployment. One company in that sector, Goodrich, is currently on a recruitment drive, creating 100 new jobs. At the end of his Budget speech, the Chancellor said that he wanted to give meaning to the words, “Made in Britain”, but if the Chancellor wants goods to be made in Britain, why did he slash capital allowances in his emergency Budget in June and use the £2.7 billion to deliver a cut in corporation tax, as set out on page 44 of the Red Book? This transfer will disproportionately benefit the banks at the expense of manufacturing. How is that consistent with the Chancellor’s desire to prioritise manufacturing?

The tax reliefs that the Chancellor announced last week are a flimsy sticking plaster for the much deeper wound he left in June. In the words of the Institute for Fiscal Studies, the Chancellor is

“giving with one hand and taking away with many others”.

The same is true of the Government’s local enterprise partnerships, which they trumpet as an innovative scheme. I want to pay tribute to those businesses in the black country that have successfully formed an LEP, but again the Government have given a false prospectus to these businesses. They tell people to apply for the regional growth fund, but it is a tiny pot of money—one third of what was available for regional development agencies—and is said to be over-subscribed by 10 to one. The Government know that it will leave many more disappointed than successful among those who have applied.

The regional growth fund comes nowhere near filling the hole left by the very successful regional development agency, Advantage West Midlands, which was mentioned by my hon. Friend the Member for Birmingham, Erdington (Jack Dromey). Once again, the Government give with one hand, but take away with the other. I would like to think that the enterprise zones will in reality deliver what the Government claim they will deliver, but I am worried because even the Conservative Chairman of the Treasury Select Committee, the hon. Member for Chichester (Mr Tyrie), warned last week that they risk distorting activity and adding no new jobs. The risk is that they will simply incentivise existing businesses to move into a low-tax zone without employing more people. Britain needs job creation, not job relocation.

On the second test, there needs to be a rebalancing of economic wealth across our nation as a whole to reduce growing regional disparities. Globalisation has brought many opportunities to the UK, but all too often the communities in the midlands and the north have borne the brunt of the risks and insecurities of globalisation, while the rewards have tended to flow to London and the south-east. Unemployment in my constituency is 8%—double what it is in the south-east—and we are losing 300 jobs at New Cross hospital and 500 jobs at Wolverhampton city council. And this is just the tip of the iceberg. The Chancellor is taking a reckless gamble by expecting the private sector to pick up the pieces of his massive public sector cuts. He is driven by an ideological commitment to a smaller state. The Budget crucially fails to redress the growing economic disparity between the south-east and the rest of the UK. Areas such as the west midlands need more stimuli for the private sector than other areas. For example, the decisions about the regional growth fund need to prioritise areas hit hardest by the global financial crisis.

The Budget fails both my tests: of rebalancing the economy towards manufacturing, and of redressing growing regional disparities. We want to see more goods made in Britain, but the Chancellor’s actions do not match his rhetoric, and in fact run contrary to it. With growth down, unemployment rising, youth unemployment at a record high and consumer confidence sinking, households are seeing their living standards falling as prices outstrip wage increases. The Chancellor should have had the humility to realise that his cuts are too deep and too fast, and that his massive private sector gamble simply is not working. My constituents are bearing the brunt of his reckless Budget.

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[Mr Ellwood]

I did not receive my invitation. Perhaps I shall find it in my office when I go back there.

The bottom line is that we inherited an economic nightmare—the worst of the messes in the G20. The gap between the richest and the poorest had grown since Labour came to office, and the size of government had bloomed. In the past decade, the civil service had grown by an additional 800,000 people. I have no idea what those people actually did, but they were in addition to those who were running the country a decade earlier. That is the bloated government that we need to try to get rid of. There was also a culture of encouraging people not to work. It was never easier than under Labour to do nothing and get paid for it. Those are the kinds of issues that we need to tackle.

The number of regulations introduced under Labour was astonishing. We are now faced with about 21,000 regulations, of which about 10,000 were created by the last Government. As I said earlier, Labour was planning huge cuts, had it won the election; it just did not say where they were going to be made. Had it won, it would have received a lot of the grief that we are receiving today, because it would have had to implement very much the same measures that we are implementing.

Looking back at the legacy that we left Labour, we can see that there was an unbroken period of growth from 1992 to 2008. We had growth up to the economic downturn in 2007. The deficit in 1997-98 was £15 billion. By 2007—before the economic downturn—it had already increased to £33 billion. We were not living within our means.

[Emma Reynolds]

I want to put the same question to the hon. Gentleman that I put to the Secretary of State. Up until 2008, his party backed our spending commitments, so is there not a little bit of revisionism on his side of the House?

[Mr Ellwood]

I was not in government then. The spending commitments that we backed did not take into account the state of the economy at the time. They were the plans for the future, but they did not take into account the money that had been spent.

The point that I was trying to make was that, from a deficit and a debt perspective, the previous Government wasted money during the boom years. They lived beyond their means, which placed us on the back foot when the economic downturn came. Again and again, we hear Labour say, “It isn’t our fault. It was an international issue. It was the Americans. It was Fannie Mae and Freddie Mac. It was the sub-prime market.” Well, that was possibly the case at the start, but in 2007, 2008 and even 2009, I could have gone to Bradford & Bingley and picked up a 125% mortgage. That was simply wrong. We were still not in control of the situation well after we knew that things were going down the pan.

The Opposition’s approach is now based on several themes. They tell us that, 12 months ago, unemployment was falling, growth was rising and inflation was low and stable. However, unemployment was higher when Labour left office than when it came in. In fact, that has happened every time Labour has been in office. No emergency measures had been put in place. Unemployment goes up in every recession; that is one of the impacts. It was wrong of the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) to suggest that if Labour were in power now, unemployment would continue to fall. That is completely incorrect. The Opposition also talk about growth, but it is actually continuing to rise. It rose by 1.3% last year, and the figure will be 1.7% this year. That is not what we expected, but the economy is still growing faster than the EU average. Of course, 2011 is going to be a year of pain. Urgent measures have been introduced, and the VAT rise will hit us.

I do not have time to go through all the other aspects of the situation, but I will end by saying that the Budget is all about continuing to bring spending under control. It is about gaining sustainable revenues from the banks and protecting the most vulnerable in our society. It is also about a shift from big government to small government, and about providing businesses with the tax breaks and incentives to expand, to compete in new markets and to tackle the expected rise in unemployment. History will show that we came close to the economic abyss, but that this Government took the tough decisions necessary to build a strong and stable economy.

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[Kwasi Kwarteng (Spelthorne) (Con)]

I am glad to have been called—a happy outcome for me.

It seems to me that Labour Members are ostrich-like inasmuch as they are not aware of what is going on or of what led us to the position we are in. There is always a context, and we appreciate that savings had to be made in Government spending. Everyone knows that. When we ask ourselves why we are in the position we are in, we get conflicting answers. As Government Members have said, Labour Members suggest that it was the fault of American bankers, of evil people in the City of London who were making too much money and of international business. I think my right hon. Friend the Secretary of State for Work and pensions even suggested that at some point they would blame Dr Evil. None of those reasons, however, is remotely relevant to the deficit or the fiscal situation we are in.

The simple fact is that we had a much larger deficit than any other country in the G7. These facts are known to the world. Labour Members have to accept that when they came into office in 1997, there were balanced Budgets. For four years, the then Chancellor of Exchequer essentially balanced the Budgets and it was a matter of deliberate policy in 2001 when the Labour Government turned the taps on and presided over a massive engorgement of the public sector.

It was that decision in 2001-02 that led to the position we are in now. The cause was simple: the last Prime Minister, when he was Chancellor, believed in his hubris that he had abolished boom and bust. He thought that the economy would keep on growing and that he could then use tax and other income to fund his bigger national projects and his huge public spending. What happened, of course, was that the economy stalled. The income receipts to the Exchequer stopped coming in, so we were left with this massive deficit of £160 billion—the largest in peacetime. The coalition Government came in with the principal purpose of dealing with the deficit. That has always been this Government’s purpose. It was almost a Government of national unity, with two historic parties with different views and different traditions coming together to sort out the mess that the Labour party had left behind.

It is a very simple narrative, but because of all the obfuscation and the deliberately misleading comments of Labour Members, all that has been forgotten. My constituents are all too well aware of the mess that Labour made. In fact, one man said to me, “Well, we have seen it all before; exactly the same thing happened in the 1970s. Labour comes in and makes all sorts of spending commitments, and we run out of money.” It was that simple—and exactly the same thing has happened in Labour’s last two years in power. Blaming the global crisis for what was essentially decisions taken by the Labour party in government is entirely wrong.

[Emma Reynolds]

Does the hon. Gentleman blame Labour Members for the recession in Germany, for the recession in France, for the recession in the United States and for the recession in other parts of the world? How can he stand up and say it was all our fault? It was a global financial crisis.

[Kwasi Kwarteng]

Let me point out to the hon. Lady that in Germany the deficit to GDP ratio was 3.3%; our deficit to GDP ratio was 12.8%. That differential had nothing to do with the global crisis; it had everything to do with spending commitments made on the Treasury Bench when the hon. Lady’s party were in government. It is a deliberate obfuscation to try to blame the sub-prime crisis in America and all the rest of it for decisions taken by her party in government. It is like a magician’s trick: one always tries not to let the audience focus on what is actually being done. That is what magicians do, and it is exactly the sort of tactics that Labour is employing. As I say, it is trying to obfuscate and shift the blame for decisions that it made.

I think it is a scandal and an insult to the intelligence of Members generally that Labour Members are still in denial about the mess they created and the errors they made, which were based on hubristic assumptions about the economy growing for ever and ever. We all remember the former Prime Minister himself saying that there was an end to boom and bust. What does that mean? Anyone who says “an end to boom and bust” genuinely believes that there will be no downturn and so makes spending assumptions on the basis that money from income receipts will keep coming in. That is absolutely crazy.

[Emma Reynolds]

I ask the question for the third time in this debate, as I have yet to receive an answer from Conservative Members. Why on earth did the Conservative party back our spending plans right up to the start of the global financial crisis? This is revisionism by the hon. Gentleman’s side; it is his side that is being ostrich-like, not ours.

[Kwasi Kwarteng]

With respect to the hon. Lady, that is entirely irrelevant. Her party was in office; her party had the ultimate responsibility for the government of this country—not only in 2007, but for the 13 years before the last election. It is a strange paradox that when Labour Members got into power in 1997, they did the right thing. They balanced the books; for four years, we were not running deficits, as they stuck to our spending plans. The Chancellor was prudent; “prudence” was his favourite word. Then, all of that was deliberately swept away, and they went on a mad spending spree, which directly caused the deficit and the savings that have to made now.