Budget Resolutions and Economic Situation

Ian Swales Excerpts

Thursday 24th June 2010 Commons Chamber

[Chris Huhne]

The hon. Lady clearly did not listen to my earlier answer. When looking at the distributional impact, it is very important, particularly with indirect tax measures, to look at the expenditure effects, not the income effects. The IFS report shows very clearly the enormous distinction between the conventional answer on the distributional impact on income and the answer when we look at the expenditure effects.

The choice for this Government has been clear: either we manage the transition to lower borrowing to sustain the recovery, or we will have those choices yanked from our hands by the markets and we will face force majeure. It is far better to design a fair package, as we have done, than to have an unfair package imposed on us that no one has had the time or thought or energy to design.

No fiscal package responding to a market emergency that I have ever seen has been fair, whatever Opposition Members may say. I spent five years of my pre-political life analysing sovereign risk and sovereign crisis. I was in Seoul before Christmas 1997, in Djakarta at the time of the food riots, and in Bangkok when the authorities struggled with the collapse of the Thai baht, and I never want to see a British Government have to go cap in hand to the International Monetary Fund as those countries did, as Greece is now doing and as the friends of the right hon. Member for Doncaster North had to do in 1976.

Had we run the risk of contagion—of a sharp spike in Government and probably short-term policy interest rates too—the impact on growth would have been severe. The truth is that the course of action that the right hon. Gentleman and his friends recommend—the Micawberish course of hoping that something will turn up—would have put the British economy and British jobs in the international firing line, and no responsible Government would have done that. Frankly, I have enough respect for the intelligence and judgment of the right hon. Gentleman to believe that he would not have adopted that stance if he and his friends had been re-elected.

[Ian Swales (Redcar) (LD)]

Does my right hon. Friend agree that regressive taxes are those that stay the same regardless of people’s income, such as council tax, whereas progressive taxes are those that increase with income, such as value added tax, under which the rich will pay more because they will spend more? [Interruption.] I say that as one of the qualified accountants in this House. [Interruption.]

[Chris Huhne]

Before Opposition Members start chortling away, let me say that my hon. Friend makes a very good point. I would merely remind Opposition Members which Government raised council tax so steeply—the most regressive tax in the entire toolkit. Year after year under a Labour Government it was pushed up and up and up.

Let me now turn to the issue of growth and jobs. At this stage in every business cycle that I have followed, going all the way back to the recovery from the bust that followed the Barber boom in the early ’70s, the cry always goes up, “But where will the jobs come from?” That cry is particularly urgent whenever, as has too frequently happened, Governments are trying to deal with the legacy of past fiscal misdeeds. However, the forecast from the Office for Budget Responsibility is a reasonable central assessment and is similar to independent forecasts. It shows that the biggest impetus to growth this year comes, as is usual at this point in the cycle, from the inventory cycle. Recessions inevitably put businesses under enormous financial pressure. Businesses try to raise cash by cutting output and by meeting the demand for their goods from stocks, but that process has to exhaust itself as those stocks of finished goods run down. More of the demand for those goods then has to be met from output, and businesses once again gear up production. That is where we are today. The inventory cycle is a powerful stimulus. The OBR forecast has it contributing 1.2% of gross domestic product this year.

--- Later in debate ---

[Edward Miliband]

I am coming to them in a minute. That has been the case historically, but the difference this time is that the Liberal Democrats are faced with a choice. The hon. Member for Bermondsey and Old Southwark—someone I respect; a person of good conscience who came into politics to make our country fairer—has a big decision to make. He is not going to fall for the stuff we have heard from the Secretary of State for Energy and Climate Change, trying to explain away the Budget.

The hon. Member for Bermondsey and Old Southwark knows an unfair Budget when he sees one, so he has a decision to make in the coming days. He has an honourable path to take. He can say, “Up with this I will not put.” That is what Liberal Democrats throughout the country will expect him to do. Maybe he will defeat the Budget, maybe he will get the Government to rethink parts of it, but he could lead a movement, not just of Liberal Democrats in the House but of Liberal Democrats outside the House who will join him. He did not come into politics to put up VAT or to freeze child benefit. He campaigned against the freeze in child benefit in the 1980s under Mrs Thatcher. He did not come into politics to abolish the health in pregnancy grant. He did not come into politics to do those things, and he is not in office. He does not face the choice of resignation: he faces the choice of how to vote. In all candour I say to him that he wanted a Lib-Lab alliance after the last general election because he knew what would happen otherwise. He saw it in the runes. He saw where things would go, and he was proved right. But now he faces the ultimate choice in politics, which is between principle and expediency—and he should follow principle.

[Ian Swales]

Yesterday The Independent described the Budget as a social democratic Budget. I came into politics via the Social Democratic party, and I am very happy with the Budget.

[Edward Miliband]

The hon. Gentleman should not believe everything that he reads in The Independent. I say in all seriousness to him that, as we saw, the presentation from the Chancellor was that this was a fair Budget, and for a few hours it fooled some people, who thought that perhaps it was fair. But that has been completely exposed and blown apart by the Institute for Fiscal Studies. The Secretary of State shakes his head, but we all know what he would be doing if the Budget had been presented and he was not in government. He would be railing against it with his great eloquence. He would be talking about what he came into politics for: his belief in fairness.

One of the central arguments of the leader of the Liberal Democrats at the election was that the poorest people in our society paid too much in tax and the richest paid too little in tax. That was the central and powerful claim made by the Liberal Democrats at the election. The question one must ask is: what happens as a result of the Budget? It makes the situation worse. How can the hon. Member for Bermondsey and Old Southwark possibly vote for that? This is not a Budget that he can in all conscience support.

The Budget does not help to lay the foundations for economic growth and it is not fair. It also attacks some of the most important things that we have in this country to help the poorest families, such as tax credits. The Chancellor said in his Budget speech that he would reduce payments to families earning over £40,000 next year, but we learn from the Red Book that the cuts are for those earning over £25,000 a year—not well-off families.

What about fairness? How have the banks fared as a result of the Budget? The banks were a big target for the Liberal Democrats during the election campaign. [Interruption.] The hon. Gentleman shouts “Bank levy”. Perhaps this is the saving grace for the hon. Gentleman. Perhaps that is something that he can cling on to. It is interesting, because that is starting to unravel too. There was much trumpeting of the bank levy in the Budget as a fairness measure. But the reality is that the corporation tax cut from 28% to 24% will help every bank in the country. HSBC’s banking analysts say:

“We’d expect most domestically-orientated banks…to be better off after four years than they were pre-Budget.”

When the measures are taken together, the banks are not worse off but better off—another shred of credibility for the Budget destroyed. Deutsche Bank says that it is a good outcome for the banks. It is plain to see who bears the burden. This is not a Lloyd George Budget; it is a repeat of the unfair, unequal, unjust Tory Budgets of the past.

I end on a point about trust and credibility. The Liberal Democrats said that there should be no spending cuts this year; now they support them. They said that they supported our four-year deficit reduction plan; now they do not. They said that there should be no VAT rise; now they support it. They said that there should be protection for young people through the future jobs fund; now they support its abolition.

It takes a long time to establish an honourable political tradition, but it takes a very short time to destroy it. This is a week of judgment for the Government, but in particular it is a week of judgment for the Liberal Democrats. I say to them very clearly that they should exercise their conscience and be willing to oppose the Budget. The question that the hon. Gentleman and his colleagues need to consider this weekend is whether they are still the party of Keynes, Beveridge and Lloyd George. We all know that those three men would turn in their graves at the idea that the inheritors of the liberal tradition were supporting this Budget.

Today, Liberal Democrats face the ultimate choice between power and principle. They did not come into politics to raise VAT, freeze child benefit or do all those other things. No doubt they think that voting against the Budget would truly make them turkeys voting for Christmas. The opposite is true. If they vote for the Budget it will bring unfairness and injustice to the people whom they claim to represent. It will go against everything that they have claimed to stand for, and it will destroy for ever their claim to be a progressive alternative. That is why they should vote down this unfair, unjust Tory Budget that will damage our economy and divide our society. That is why they should join us in the No Lobby to vote down the Budget next week.