Oral Answers to Questions
Helen Goodman Excerpts(13 years, 9 months ago)
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Mr Hoban
My hon. Friend is absolutely right. The OECD is one of a number of organisations that have supported our plans. The IMF has said:
“The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability.”
That theme continues to come across from international organisations, which demonstrates that we are on the right track to get this economy growing again and ensure that Britain continues to live within its means after a decade of a Labour Government who maxed out on the nation’s credit cards.
Helen Goodman (Bishop Auckland) (Lab)
11. If he will (a) prepare and (b) publish an assessment of the relative effect of his forthcoming budget on women, families and ethnic minorities.
The Exchequer Secretary to the Treasury (Mr David Gauke)
Consistent with the approach taken at the June Budget, the Government will publish analysis on the Budget’s overall impact on households across the income and expenditure distributions in the Red Book. The Budget is an overall statement of economic policy containing a wide range of measures, and it is not possible to make a robust assessment of its overall impact on specific groups.
Helen Goodman
I am surprised by that answer. Since the general election, the Government have made 17 distinct cuts to tax credits and child benefit, which are paid to women. Tomorrow, the Chancellor will announce increases in personal allowances, which will benefit millions more men than women. Does the Minister think it is fair that money should be taken from women to give it to men?
Oral Answers to Questions
Helen Goodman Excerpts(13 years, 10 months ago)
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Justine Greening
Yes, I can, and of course my hon. Friend is not the only person to hold that view. The secretary-general of the OECD said only last week that Britain needed to “stay the course”. He realises, as did the Bank of England Governor Mervyn King when he talked about our deficit as being “clearly unsustainable”, that if we had not set out a credible plan and got a grip on our public finances to tackle the deficit, we would have run the risk of an even sharper fiscal tightening later down the road, a loss of confidence and higher interest rates in future.
Helen Goodman (Bishop Auckland) (Lab)
It costs £150 to give a person debt advice, and it costs £50,000 to rehouse a family. Will the Economic Secretary explain why Treasury Ministers are cutting the funds to citizens advice bureaux to provide such advice, and why that is a good way to cut the debt?
Justine Greening
We are looking at ways in which we can ensure that people still get the debt advice that they need, and of course a lot of the grants are provided by local authorities. There is no point in Opposition Members talking about debt, because it was their party that created the problem in the first place.
Comprehensive Spending Review
Helen Goodman Excerpts(14 years, 1 month ago)
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Danny Alexander
I agree wholeheartedly with my hon. Friend. If we had not tackled the deficit, the poor in this country would have suffered most.
Danny Alexander
I will give way to the hon. Lady, and then I will press on.
Helen Goodman
I am grateful. The Chief Secretary has pointed to the forecasts made by the OBR. He will know that between 1994 and 2008, the private sector created 100,000 jobs a year. In that period, growth was 2.8%. The OBR projects growth of 2.4%. How, then, is it possible that 1 million jobs can be created in the forthcoming period?
Danny Alexander
In fact the OBR forecast more private sector jobs than the hon. Lady suggests. She will know that in the past two quarters several hundred thousand jobs have been created in the private sector. I will explain later in my speech the measures that we are taking to support the private sector.
Mr John Redwood (Wokingham) (Con)
At the end of the period, in 2014-15, the Government plan to spend £92 billion a year more, on current spending, on services than Labour did in its last year—that is a large 15% increase in the amount of cash. We need to ask ourselves why it is that every year public spending increases, yet the Government are proposing some extremely difficult or, in some cases, undesirable choices to be made in subsequent years to try to live within that rather big figure. I suggest to the Government that there are three areas that they could work on, and that their doing so would be in all our interests in this House, because if they could manage them better, they might not need to make so many of those difficult choices in the later years and would still be able to live within their totals and get the deficit down.
The first reason why there is a squeeze on some programmes that many Members do not want to see squeezed is the big rise in money allocated to pay for inflation; the plans assume quite a lot of public sector inflation over the five years. If the Government can do better at buying in goods and services—they are a very big purchaser and they say they are going to do so—they might reduce the average price of bought-in things. Instead of having positive inflation, they would have negative inflation on that part of the programme. If they can do a good deal with their employees, reassure them and get them to accept the kind of measures on pay that are being suggested—I believe that they are talking about a two-year pay freeze, for example—that will take a lot of extra inflation out of the system, because the biggest single item in these budgets is of course pay. Again, the more that we in the public sector can share the pain by moderate means, such as accepting pay restraint, the less we will have to take the difficult choices in later years that are built into the programme.
The next thing is staff numbers. A lot has been made so far in what passes for a debate in this House about having 490,000 fewer jobs in the public sector by the end of the period. These are not 490,000 redundancies. Given the large rate of resignations and retirements in the public sector to which the Chancellor has referred, I hope that most can be taken care of by eliminating posts after people have resigned or left.
Helen Goodman
I am most grateful to the right hon. Gentleman for giving way. Of course, in a very small-minded way, what he says is right. If those jobs are cut, where does he think that young people will get the new jobs that they need?
Mr Redwood
In the private sector, which is already generating tens of thousands of jobs every month. That is what we need to do. I am not saying that there should be a complete staff freeze. For example, if 480,000 a year are leaving, which was the Chancellor’s figure in the Budget, 250,000 people could be hired while still achieving half the reduction in the first year. I think that the Chancellor might have been a bit optimistic, but he referred to an 8% rate. If the percentage was half as great, the reduction could still be made in the first two years. There could be reductions of 250,000 without a single redundancy.
I urge my right hon. and hon. Friends not to pursue the redundancy route wherever possible. It is expensive, unpleasant and disruptive. I do not want to see lots of people retiring early from the administrative services on big pensions, and I do not want to see redundancy payments made with people coming back into the public sector at a later date, leaving us to wonder why all the cost and disruption has been incurred.
The next big area that puts pressure on the increased money is debt interest. I entirely agree with the Government, and with Opposition Members who knew this when they were in government, that we have to bring the deficit down before it kills the whole budget. If we allow the deficit to keep on rising, as the Opposition originally proposed, debt interest will take more and more of the increased spending and we will have to make unpleasant cuts to the things that matter. How can we reduce that debt interest burden more quickly? If we can get more cash into the public sector, starting today—we do not need to wait to start the programme next year, as is implied in the figures—we will reduce the increase in the debt day by day. If we sell more assets, we will not have to raise so much money in the debt markets, which will keep the debt down.
It is very good news that the Government’s programme has restored a lot of confidence in the markets, so that the rate at which they now have to borrow is now lower. That will obviously make a contribution to getting the debt interest rate programme down.
I have to say to the Government that I do not think that we can afford to give £80 billion to foreign countries over the CSR period. If we add the overseas aid programme to the European Union programme, the total is £80 billion over the period. I do not want to take any money away from the poorest countries or from humanitarian aid. Those are good things and I fully support the Government’s intention to carry on with them, but I do not think that there is any need to subsidise China, India or Russia—nuclear weapons powers with, in the case of China, $2.5 trillion in the bank. It is a bit odd to give China a grant when we then have to borrow the money from China to pay the grant to China. That cannot make any sense.
I believe that the Government are now going to remove the aid to the richer and more successful countries. Cannot we pocket that for a couple of years and then become more generous when we have the deficit under control? May we please get the European amounts down? They are the most unforgivable ones; poor people in Britain are paying tax to offer grants to rich countries in Europe, and that is not acceptable in the current conditions.
The more that these pressures—the grants abroad, debt interest, costs, inflation and staff numbers—can be abated, the more we will have money available to do better things with the growing programmes. It is good news that nine of the Departments have level or rising cash throughout the period, but it is bad news that one or two other Departments will find that the shoe pinches a lot. That is why I think that we need to make more rapid progress in controlling costs and staff numbers, particularly in administration, and in dealing with the debt interest programmes, so that we have a bit more free to ease those areas that will be very tight in future years.
I do not for one moment believe the figures from 2013 to 2015 anyway, because I think that they will be subject to subsequent revision because of the pressure of events. As inflation changes, we will need to revise them. As the state of the economy changes, we will need to revise them one way or the other. Let us hope it will outperform and we will have a bit more scope.
As an election draws near, politicians tend to want to spend more, so we should discount the 2013-15 figures and concentrate on what is happening now. Will the Government please bring forward as many of the reductions as possible to this year, and not wait until next year? The more we save now, the less we borrow and the more the pressure is reduced on subsequent years’ programmes.
Mr Dominic Raab (Esher and Walton) (Con)
I commend Ministers on the spending review, because finally we have a Government who are prepared to address the big picture.
In the last four years of the previous Government, Britain dropped from third to 13th on the international rankings for economic competitiveness, partly because of rising global competition, but also because of the excessive inflation of the public sector. As a result, British productivity lags behind our major international competitors. According to EUROSTAT data, between 2000 and 2008, European Governments who spent 42% or less of GDP created 27% extra jobs. Governments who spent more than 42% had jobs growth of just 6%. In that period—before the banking crisis—Britain jumped from the high-jobs-growth camp to the low-jobs-growth camp. The amount of GDP consumed by the UK Government rose by 11% to 48%, and sure enough jobs growth was a paltry 5%. The evidence is plain: we cannot spend our way to economic growth.
There is nothing ideological about wanting to create jobs, and there is nothing socially fair about the welfare trap. I hear the calls every week from Opposition Members to soak the rich, but today the top 5% of earners in this country pay almost half the country’s income tax. If that is not a fair share, fine, but where would the Opposition raise taxes, and by how much? The real risk with their strategy is that the brightest talent will flee this country, if they believe that talent and graft are punished rather than rewarded. The brain drain does nothing for social fairness. The July Budget and this deficit plan have brought Britain back from the cusp of default.
Yesterday, we saw Standard & Poor’s triple A rating restored from negative to stable, and the task now is to drive economic growth and competitiveness. However, the spending review also addresses fairness at three levels. First, there is the snapshot of winners and losers that there will be in any budgetary process, and the matter of protecting the lowest-paid public sector employees from the pay freeze, the pupil premium and the triple lock on pensions. We must address the glaring unfairness in pay not only between the public and private sectors, but within the public sector. The best paramedic in this country can earn just one tenth of what the top NHS manager can earn. What does that say about our priorities? Some are bucking the trend. Sir Norman Bettison, the chief constable of West Yorkshire, described the idea that the public sector is competing with the private sector for talent as “costly and irresponsible nonsense”. He proposes to address public sector pay restraint incrementally, starting with the highest paid 25%. His proposal merits close consideration.
The second dimension of fairness in the CSR relates to the intergenerational allocation of resources. According to the National Institute of Economic and Social Research, a failure to tackle the deficit would leave each member of the next generation having to pay £200,000 extra in taxes just to enjoy the same level of public services that we and previous generations have enjoyed. What is fair about leaving our children with a tax bill of £200,000 each?
Helen Goodman
What is fair about those of us who had a free university education not paying extra tax while our children are to be burdened with extra debt?
Mr Raab
I thank the hon. Lady for her intervention, but the problem is that the university budget as it was configured under the previous Government was simply unsustainable. That is but one of the many examples of where they ducked the problem of reform and we have addressed it.
Finance Bill
Helen Goodman Excerpts(14 years, 5 months ago)
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Danny Alexander
I will not give way.
Clause 7 amends the tax rules for the expenses incurred by Members of Parliament, following the creation of the Independent Parliamentary Standards Authority. I know that that is of interest to many Members. The clause will broadly have the effect of maintaining the tax system and treatment that applied to similar expenses paid under the previous regime.
Helen Jones
Indeed, and if my hon. Friend will permit me I shall come on to that issue in a moment.
Before I move on, I want to mention the cuts that will specifically hit families with young children, including the scrapping of the baby element of child tax credits and the scrapping of the new toddler credits for one and two-year-olds. That will cost an eligible family more than £1,000 a year, even before they start paying the price of the VAT rise.
Helen Goodman
My hon. Friend is absolutely right to point out the devastating impact on families. Has she looked at the serious impact of the cuts in housing benefit on households with people who are in work and households with old-age pensioners? From the housing benefit cuts alone, it looks as if 1 million people will suffer further reductions of between £500 and £1,000 in their incomes.
Helen Jones
My hon. Friend is right, because some of the nastiest, meanest cuts in the Budget are to housing benefit and mortgage support. Mortgage interest support will be limited to the average mortgage rate, meaning many families will no longer be able to meet their payments. If someone is unlucky enough to lose their job and be out of work for 12 months, even if they have done their level best to find a job and applied for everything going, and even if there are no jobs, their housing benefit will be cut by 10%. That is not a work incentive, as the Government seem to think; it will lead to a spiral of repossessions, homelessness, family stress and breakdown, which will simply increase the cycle of worklessness.
Is that really what the Prime Minister meant when he said that this Government were going to be the most family-friendly Government on record? They will not be for families in my constituency.
Mr Meacher
The opposite conclusion should be drawn from the Irish economy. The Irish Government made huge, swingeing cuts of 12% to 15%, which absolutely decimated that economy. Sooner or later, of course there will be a revival in all economies, but at a fearful cost. We shall very much be going down the route of the Irish economy if this Budget goes through. If the hon. Gentleman were to go to the Republic of Ireland and ask people’s view of the finance budget of three or four years ago, I think that he would get a very different impression.
Helen Goodman
I support my right hon. Friend’s interpretation of what has been going on in Ireland. The construction industry has been completely destroyed, and there are empty shells of houses all around the countryside. Unemployment is sky high and, for the first time in many decades, people are emigrating from the Republic.
Mr Meacher
My hon. Friend helpfully assists my argument.
I want to be fair and point out the Government’s proposals on corporation tax and the small companies tax to get firms investing, as well as the national insurance cuts for firms outside the south-east to aid new hiring. That is all very welcome, but those measures will be more than cancelled out by the additional Tory spending cuts of £32 billion a year by 2014-15, and the additional £8 billion in tax increases. Let us take a highly topical example. It has been pointed out that the construction industry gets 40% of its work from public sector contracts. The 700 cutbacks in the schools building programme announced yesterday, and the nadir in house building, which is now at its lowest ebb since 1923, will almost certainly cost tens of thousands, if not hundreds of thousands, of building workers their jobs over the five-year period.
I shall give the House another example. According to the Treasury Red Book, the OBR forecast for public sector net investment is that it will be flattened from its current level of about £49 billion to just £21 billion in 2014-15. That is a staggering drop. It is not just a marginal change or a change in direction but a staggering reduction. So I repeat, where is the growth going to come from, especially as the banks are not lending? The Bank of England reported a fortnight ago that the flow of net lending to UK businesses was still negative. In other words, people are repaying money to the banks, rather than the banks handing out money to businesses. That compares with the situation in the first half of 2007, when there was annual growth of 20% in the relevant M4 figures for banks lending to businesses.
The great fallacy of the Bill—the fantasy black hole at the centre of the Budget—is that as the devastating public spending cuts take effect, the private sector will expand its hiring and investing to compensate. That is the Government’s argument, but the premise is completely indefensible. Why should the private sector do that? The only reason that private businesses invest is because they see the possibility of profitability and expansion, but where will that come from when consumption is falling, when the banks are not lending and when export markets are fading? Where is the growth to come from? All the coming misery is allegedly unavoidable because there is a crisis in the bond market, which there is not, and because the UK is supposedly like Greece, which it certainly is not.
Many of my colleagues have pointed out the real risk involved in this deficit-cutting fixation to shrink the state. Let us make no mistake, this cannot be justified economically; it has ideological motive. That is the fundamental bottom line in assessing this Budget. It will impale Britain on a very low growth path for years ahead, with rising joblessness and stagnant gross domestic product, even if the country does avoid a double-dip recession, although the Lord Chancellor and Secretary of State for Justice admitted the other day with typical frankness that that remains an open possibility.
Even in the Chancellor’s own framework for the Budget, there remains the question of striking a balance between tax increases and spending cuts. The Chancellor chose an 80:20 ratio, but that is far more heavily weighted against public spending than in previous economic episodes of this kind, including under previous Tory Governments, such as that of the early 1990s. Poorer households will unquestionably be the main victims of the spending cuts, and even the tax increases—notably VAT—will of course impact most harshly on the poorer half of the population. This is anything but a fair Budget.
Even the two new taxes that impact directly on the rich will have little effect on them. The £2.5 billion bank levy will mainly be offset. There has been no mention of this, but it is fixed at the very low rate of 0.07% of eligible liabilities. One could hardly find a tax rate lower than that. One can be sure that it will be largely avoided through balance sheet adjustments away from short-term wholesale funding, together with other devices such as group restructuring and de-leveraging.
The second tax change that will affect the rich is the increase in capital gains tax to 28%, but that still takes it only halfway to parity with higher rate income tax, which is where it ought to be, and where Nigel Lawson—Nigel Lawson!—left it in the 1980s. The change will still allow people with very high incomes to dress up their income as capital gains so as to halve the tax that would otherwise be payable. The idea that the rich are making an equivalent sacrifice and—to use the mantra that I think will come back to haunt the Government—that we are all in it together is nothing more than a sick joke.
Jacob Rees-Mogg (North East Somerset) (Con)
May I begin by congratulating hon. Members on a series of excellent maiden speeches? My hon. Friend the Member for Weaver Vale (Graham Evans) spoke. I did not know that area of the country at all before he did so, and I feel much better informed as to its great beauties. The hon. Member for Scunthorpe (Nic Dakin) told the House, to its considerable relief, that he is not going to be a pugilist, as one of his predecessors once was, so I am glad to note that, if he disagrees with my speech, I may not end up with a broken nose—[Interruption.] I could not quite catch that, and I expect the Hansard reporters could not, either. My hon. Friend the Member for Ipswich (Ben Gummer), as Edmund Burke said of Pitt the Younger, is not so much a chip off the old block, as the old block itself. And finally, my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) told us that he was—on the internet, under the same name—a cabaret artist. I may be rare in the country at large, but in this House probably not, in that I much prefer a political speech to a cabaret artist, so I am very glad that we had the wrong website for him.
Let me come to the matter at hand, the Second Reading of this incredibly important Finance Bill. It is, like the one in 1981, of considerable controversy but great importance. We have heard at length, but interestingly, from Opposition Members that, actually, this is not a serious circumstance, and that, if we pay off the debt, though a bit too high, in dribs and drabs, all will be well. Sadly, that just is not correct. The deficit that we have faced has reached levels that in peacetime we have never had, and a key factor about the funding of the deficit last year has been missed. It was that almost all the gilts that were issued were bought by the Bank of England under its programme of quantitative easing. That programme has now stopped.
Even with this Finance Bill, we face an increase in the amount that the Government need to raise from £40 billion to £160 billion, and if we had stuck to the Opposition’s proposals it would have been higher still. Where does that money come from? Who is willing to give this country £160 billion? As it is collected, who finds it harder to borrow? The answer is the very businesses that Opposition Members say find it difficult to make investment decisions. If we borrow and borrow, and the Government use up all the money, we force up interest rates for mortgage holders and squeeze out the investment that private companies need to make.
Helen Goodman
I am trying, but I am having great difficulty following the hon. Gentleman’s train of thought. On the one hand, he says, rightly, that the deficit and the debt stock are too large, but he then connects that with extremely high interest rates. We do not have extremely high interest rates; we have record low interest rates at the moment.
Jacob Rees-Mogg
I am sorry to say that the hon. Lady left my train of thought at the wrong station. The point I was making was that, if we carry on issuing gilts at an even faster rate, long-term interest rates will rise, and it is on long-term interest rates that mortgages end up being priced. If we look at the gilts market, we see that the very thought—the prospect, the hope—of a Conservative Government saw it rally, therefore reducing the cost of borrowing to people in this country, whether Her Majesty’s Government or private individuals. So yes, we have very low overnight rates, but the long-term rate set by the gilts market is more important for mortgages.
Mr Jones
It will, and I shall refer to that later. It will affect many people in my constituency, including some of the poorest.
In introducing his Budget, the Chancellor said:
“This emergency Budget deals decisively with our country’s record debts. It pays for the past, and it plans for the future. It supports a strong, enterprise-led recovery, it rewards work and it protects the most vulnerable in our society. Yes, it is tough, but it is also fair.”—[Official Report, 22 June 2010; Vol. 512, c. 166.]
His apprentice, in the form of the Chief Secretary to the Treasury, came before us today. He is wheeled out every time the Conservative party wants to do a nasty deed. I would have thought that he would wake up to the fact that the Conservatives use him and the Liberal Democrats as a shield.
Mr Jones
I am not sure that it is, because the Chief Secretary knows what he has signed up to. With his great experience as press officer for the Cairngorms national park, I am sure that he knows danger when he sees it. We need to expose the Liberal Democrats’ rank hypocrisy. They went into the election campaign arguing against most of the things to which they have now signed up. They have abandoned decades of commitment to some of the poorest in our society.
Those actions are predicated on a myth. The hon. Member for Dundee East (Stewart Hosie) identified it earlier when he mentioned Canada. That is a worthwhile example, because if we want to explain what is happening, we need to examine in detail what happened in Canada in the 1990s. The Government are copying not only every single measure that the then Canadian Government introduced but the tactics, including the great consultation with the Canadian people about how to cut the budget.
Helen Goodman
I am sure my hon. Friend is aware that a large proportion of British Government debt is bought by domestic savers rather than overseas savers. That is another reason why the British Government are much less at risk from the international markets.
Mr Jones
The way the Government are going with this Budget, I am not sure that it will be. The hon. Gentleman will have to get used to the fact that we will question the Government on the proposals because they will have a draconian effect on my constituents in North Durham.
I must refer not just to the retail trade or charities, but to the Conservative grass roots. Tim Montgomerie, on his website ConservativeHome, said:
“First, it hurts the poor most of all and, second, both the Conservatives and the Liberal Democrats said they had ‘no plans’ to increase this tax. At a time when trust in politics is so low we don’t need ‘plans’ to emerge tomorrow.”
That was in advance of the announcement that is contained in the Bill.
The other sector that the Bill will have a dramatic effect on is the construction sector. Yesterday, we saw the Building Schools for the Future programme decimated, directly affecting thousands of jobs. I am glad that my hon. Friend the Member for Halton (Derek Twigg) is back. He mentioned the decimation not only of BSF in his constituency but of other projects that have been put forward. Again, business and construction will have to carry the cost of the VAT increase.
Another sector that will be affected will be charities and the work that they do. I know that under the new Conservative approach, as part of the big society, charities are supposed to be stepping up to the mark, but they will be the ones that will be affected.
Helen Goodman
Has my hon. Friend noticed with respect to charities that the Government have now proposed to let welfare-to-work contracts on such a basis that only large companies with a lot of capital will be able to deliver them to unemployed people, thereby ruling out the voluntary sector from being involved in that worthwhile work?
Mr Jones
From a sedentary position, my hon. Friend rightly says that this is a stealth tax, and again, it will affect some of the poorest in our community. Earlier in the debate, we were talking about the level of fuel duty and rural communities where a car is not a luxury but an essential item that enables people to get around. This Budget will increase the insurance premiums for those drivers, with young drivers being particularly affected. Just because of their age, those drivers pay the highest premiums and they will have to pay an extra 1% under this Budget. In some cases, that will stop young drivers being able to get access to insurance.
Helen Goodman
On that point, does my hon. Friend agree that this will inhibit young people from learning to drive? Being able to drive is often an extremely important skill for people to have when looking for a job.
Helen Goodman (Bishop Auckland) (Lab)
In considering the Bill, we need to address three basic questions. First, does it raise the right amount of money? Secondly, will it promote growth? Thirdly, is it fair? Table 1.1 on page 15 of the Red Book is particularly useful. It lays the policy that the new coalition Government inherited alongside their own tax and spending increases. One of the most interesting things that it shows is that over the five-year period, the extra spending reductions required are £112 billion, and the extra tax increases required are £33 billion.
The policy that the Government inherited of halving the budget deficit over four years was set out by my right hon. Friend the Member for Edinburgh South West (Mr Darling) in March, and the detail of how that would be done was repeated today by my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne).
One of the key issues that we have not considered so far tonight is whether we should be more concerned about the size of the deficit or the size of the debt. Government Members continually stress the importance of the deficit, but the main reason that the deficit is significant is because it contributes to the debt. Page 23 of the Red Book contains chart 1.3, “Consolidation in the cyclically-adjusted current budget”, and chart 1.4, “Public sector net debt”. They show the tremendous difference that will be made by the policies being pursued by the coalition Government. The policies that my right hon. Friend the Member for Edinburgh South West laid out would have produced a debt to GDP ratio in 2014 of 75%—a high number and not where we would like to be in the long term. But for all the pain and agony that the coalition Government will impose on the country the net impact will be to reduce the debt to GDP ratio by 5% to 70%—just a 5% reduction. It is not even a 5% reduction now, but in 2014. We are being asked to believe that the markets will take a very different view of this small difference in four years’ time. That is the altar on which we are told we should smash our public services. That is why Labour Members regard this as a deeply ideological Budget.
David Morris (Morecambe and Lunesdale) (Con)
I have been sat here now for an hour and a half listening to this passionate debate and one thing has come across loud and clear. The hon. Lady just gave figures for four years down the line. Does that not give you an indication of the amount of debt your party left this country in?
Mr Speaker
Order. May I gently say to the hon. Gentleman that I do not have a party? Some people have known that for some time.
Helen Goodman
In order to achieve that difference in the debt to GDP ratio four years hence, we will see cuts of 25% across most Departments, four times greater than those that Geoffrey Howe tried to impose on the country in the early 1980s. Even so, the tax burden will also rise by £33 billion. We have to question the judgment of a Government who are taking that amount of money out of the British economy.
Another issue is whether the Budget will promote growth. It is clear that in overall terms it will not do so. That is clear from the revisions to the forecasts made by the OBR, which show that growth is down and unemployment is up. Given the huge cuts proposed in the public sector—we heard about the first slice yesterday to the Building Schools for the Future programme—not only will the number of public sector jobs be reduced, but the knock-on effect will be significant increases in job losses in the private sector. The Government’s contention that 2 million private sector jobs can be created is just not credible. That is far more than was achieved in the 1990s when interest rates were cut aggressively and the pound depreciated by 25%. In those years, it took seven years for employment to grow by 1 million. Obviously, interest rates cannot be cut aggressively in the current situation, and it is highly unlikely we will see a depreciation of the pound against the euro, given that the European economies—our largest market—are in the state they are in. Under the Labour Government, 2.5 million jobs were created over 13 years, but that included extra jobs in the public sector, a housing boom and huge increases in financial services. The Government are now putting forward a prospectus that is simply not tenable. The argument that we have to attend to the level of the deficit because private sector investment is being crowded out by the public sector is also not credible, given that the economy has 4% spare capacity.
I turn to the measures in the Bill. On corporation tax, the coalition Government are cutting the rates—this is a long-standing pattern with the Tories—while cutting the allowances. What will that do for growth? How will that enable the economy to be rebalanced in the way the Secretary of State for Business, Innovation and Skills says is so important? Cutting allowances for investment is bad for manufacturing. The small and medium-sized firms in my constituency, where there is a lot of engineering and small manufacturing, provide several examples demonstrating what the problems are. Over the past month, I have visited two firms that make packaging, which means they supply the retail industry. Obviously, if shops are not doing very well, those firms are not doing very well. Clearly, they need a lot of big machinery to make the packaging, and if they are to continue to have the new, up-to-date machinery to do that, they need investment allowances.
Not so long ago, I visited a building and joinery firm that also has a lot of expensive machinery that it needs to keep up to date, and it also needs these investment allowances. Its contracts are largely dependent on the public sector and on schools and police stations being refurbished, so these cuts in the public sector will have huge knock-on effects in the private sector. Let us take a final example: a chemicals firm making sealant for aircraft. How will it fare with cuts to the defence budget, which is one of the budgets not being protected? Once again we have a complete picture that is totally incoherent. What the Government offer in practice and what they say they want to achieve are two completely different things.
Many hon. Members have commented on the unfairness of the low level of the bank levy and on the fact that the banks will gain more from the corporation tax cuts than they will lose from the increase in the bank levy. However, no one has asked why the bank levy is only being introduced from 1 January 2011. I would like Treasury Ministers to explain why there is a delay in the introduction of the bank levy. Surely that gives the banks a lot of time to move their assets around and avoid this tax, at which, as we all know, the financial services are particularly adept.
The Exchequer Secretary to the Treasury (Mr David Gauke)
indicated dissent.
Helen Goodman
The Minister shakes his head. They clearly do not know the answer.
The Conservative-Liberal coalition cannot agree on its environmental policy either, which is presumably why, rather than acting on environmental taxes, we now have yet another commission to look into the climate change levy. Once again, therefore, a potentially progressive measure is being put on the backburner. We do not know when it will happen. We do not know when we will see progress on it.
Many hon. Members have spoken about the unfairness of VAT. The Government claim that they had no choice, but of course they had a choice, and they have made it. Their choice has been to change the national insurance regime and replace the increase in national insurance with an increase in VAT. However, one of the things that the Government will not admit is that VAT is also a tax on jobs. VAT also drives a wedge between the cost on employers for the goods and service that employees buy, and what they pay for them, so the notion that we can have an increase in VAT without seeing an impact on the number of jobs in the economy is yet another fantasy.
The Government have not explained what they are doing about the lower rate of VAT, on essentials, and many Opposition Members would like some clarification on that.
The third and final issue that I would like to discuss is fairness in the income tax and benefits system. The Liberal Democrats say that raising the personal allowance is their major attempt to be fair to poor people. The attempt is being made, but it has not produced the upshot that the Liberal Democrats are looking for. Rather, it has failed, because they have not taken account of the interaction with the tax credit reductions and the cuts in welfare benefits.
The distribution figures on page 66 of the Red Book purport to show what the position in the Budget is. However, a day or so later, we all discovered that chart A2, entitled “Impact of all measures as a per cent of net income by income distribution”, in fact included not just the measures taken by the Chancellor of the Exchequer in announcing his June Budget, but the measures taken previously by my right hon. Friend the Member for Edinburgh South West, which were jumbled up with them. When those figures were stripped out and separated by the Institute for Fiscal Studies, we could see that the distributional impacts were totally different. Whereas my right hon. Friend’s Budget took less than 0.5% from the poorest and almost 7% from the richest, the June Budget took 2.5% from the poorest and 0.5% from the richest, so the claim of fairness is completely fraudulent.
Ms Angela Eagle
Has my hon. Friend also noticed that, mysteriously, the tables in the Red Book to which she has referred stop in the financial year 2012-13, which as it happens—I am sure that this is purely coincidental—is just before all the cuts in the public sector happen?
Helen Goodman
My hon. Friend is absolutely right. The major cuts in benefits—in housing benefits, tax credits and benefits affecting families—come in the two final years.
The other thing that Members on the Government Benches simply do not seem to understand is the impact of the changes on work incentives. The Government say that they want to promote a climate for growth. One would think that if they were trying to promote a climate for growth, they would improve work incentives. The Government are about to test to destruction the theory that simply cutting benefits will improve work incentives. That is illustrated in another table in the Red Book—the Red Book is, I have to say, a rather useful document—which shows the changes in the marginal deduction rates. That table shows that almost 100,000 people will see increases in their marginal deduction rates as a result of the Budget—that is, a worsening of their incentives.
The level of transparency in the document is totally inadequate, and it has been extremely difficult to get information out of the Government. However, in conclusion, I would like to ask: what is the balance of risk that the British economy now faces? Is it spiralling inflation or is it deflation? The choice that the Government have made is far more likely to push us towards deflation.
Before he sat down, the Chancellor or the Exchequer said that the richest should pay the most and that the vulnerable would be protected in the Budget. The Government have failed every test. They have not been fair, they have not promoted growth, they are raising far too much money and this Budget will fail the nation.
Budget Resolutions and Economic Situation
Helen Goodman Excerpts(14 years, 5 months ago)
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Simon Hughes
I am, and always have been, very clear about that issue. When it was obvious that there was no possibility of a coalition with the Labour party, we had the option either of letting the Conservatives become a minority Government or of being in coalition with them. I am very clear that it was better for the country and for the issues that matter to me that we were part of the Government—that we were influencing matters and ensuring that there was a shared programme, not a Conservative programme. I say that completely honestly, and the hon. Gentleman, with a constituency that is in some ways not dissimilar to mine, would expect as much. I have made it my business to battle for the people whom I represent in order to ensure that we end up with a fairer Budget, and a fairer Britain as the outcome. The election, the Budget and the next exercise, the spending cuts, must all be judged on whether we end up with a fairer Britain.
Let me therefore address the remaining issues that follow from that. There has been some press speculation that, because certain items are expensive, they are unaffordable and should be dropped. They include items for the poor, such as the freedom pass and the winter fuel allowance. There is no issue between me and my friends on the Treasury Bench, but the coalition deal is a deal and what has been agreed must stand. There cannot be any unpicking of items in that deal, otherwise the whole thing risks falling apart. There is no suggestion of that from the Government; there is a suggestion from outside the Chamber of changes. However, the deal must be that we go down the committed road. We signed up and the Conservative party signed up, all compromising where appropriate, and that must stand. If there were any suggestion that it change, there would be trouble. I do not think that it will change, because I have heard nothing from colleagues in government suggesting that they want it to, but let us be clear from the beginning: it is a deal, and if it is stuck to, it will last the five years.
I turn to yesterday’s Institute for Fiscal Studies report. The IFS is a respected organisation. It made clear that the Budget as a whole increases fairness, but that if it excluded the matters that were implemented by the Labour Government in the Budget earlier this year it would not be. However, the Budget does not exclude them; it has endorsed and continued them. The right hon. Member for Doncaster North and I know each other well, but the Government have continued with those elements that the previous Labour Chancellor introduced in the routine Budget earlier this year.
Simon Hughes
No, we are not taking credit for it—we are just making sure that we look together at the measures that this country has as its tax regime in the coming days and months.
On that basis, this is a Budget that produces greater fairness. There is difficulty in reaching the people at the very bottom end of the income scale who are not in work, and there are other difficult areas. However, my right hon. Friend the Chief Secretary and my hon. Friend the Member for Thornbury and Yate (Steve Webb), the Pensions Minister, who come from a proud tradition of knowing these issues well and campaigning for the poor and the disadvantaged, would not have signed up to something that undermines all the sorts of campaigns that they have been fighting for.
There remains the issue of VAT. I did not want a Budget with a VAT increase, nor did the Conservative party, and nor did the Labour party. I have no idea what was the view of some people in the Tory party behind the scenes, but there was a rumour that they would think it was a good thing. That is why, during the election campaign, we said that we thought it was a bad thing and challenged them to agree with us. Nevertheless, none of us ruled it out. I wish it were not here, as it is clearly less progressive than other taxes where people pay on the basis of income, but it is a necessary measure given that we have to fill the huge debt that the Labour party has left us.
We will vote for the Budget next week. However, if there are measures in the Finance Bill whereby we can improve fairness and make for a fairer Britain, then we will table amendments to try to do that. That is where we can make the difference, as we will during the spending review that will follow in the months ahead.