Fairness and Inequality

Jacob Rees-Mogg Excerpts

Tuesday 11th February 2014 Commons Chamber

[Jonathan Edwards]

The speech made by the hon. Member for Pontypridd was a truly staggering intervention in the Silk commission debate, not least because only a year or so earlier, the very same Member and his colleagues voted in favour of the very same proposals for Scotland, which were in the Bill that became the Scotland Act 2012. I find it staggering that they now believe that those measures, if applied to Wales, would completely deconstruct the United Kingdom.

I could travel much further on my historical journey, but I shall end it now by giving a mention to my political hero, D.J. Davies.

[Jacob Rees-Mogg (North East Somerset) (Con)]

The House would very much like the hon. Gentleman to continue his history lesson. It was being much enjoyed.

[Jonathan Edwards]

I am grateful for that observation from such a distinguished Member. I do not want to bore the House too much, but I want to give a mention to D.J. Davies, who is my political hero, and who was born in the same industrial valley as me, the Amman valley. In particular, I want to mention his masterpiece, “The Economics of Welsh Self-Government”, published in 1931. In that book, he made the case that the crusade for social justice for working people and the political empowerment for Wales—my country—were intrinsically intertwined. That position continues to be central to the position of my party, and to my personal political beliefs.

The national movements in these isles and the crusade to tackle inequalities in our communities are one and the same. In ignoring the founding principles of the Welsh, Scottish and Irish political traditions—and in its inability to tackle the gaping inequalities that exist in both individual and geographical terms—the Westminster élite is directly undermining the case for a United Kingdom, and furthering the aims of national freedom in Wales and Scotland. I should add that the Irish proclamation of independence contains an explicit commitment to equality.

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[Mr MacNeil]

It is quite simple—if we start to create jobs and opportunities for people, we will reduce inequality. I would certainly not be in the position of one of the hon. Gentleman’s colleagues who said last week:

“If the Scottish people are going to be better off economically and so on, I would still be against breaking away from the Union.”—[Official Report, 6 February 2014; Vol. 575, c. 467.]

It does not seem to matter whether we can cure poverty—Labour Members would still be against independence because they have made careers talking about it, and handsome careers at that.

[Jacob Rees-Mogg]

I am interested in the hon. Gentleman’s call for lower tax rates. Has he now become a tartan Tory?

[Mr MacNeil]

Devil the fear, as my old Irish mother would have said, devil the fear—no chance at all. I think the hon. Gentleman will see, as he pays more attention to the words to come, that the only Tories on this side of the House are probably the red Tories.

I listed the books I mentioned earlier for a reason. We must be aware that we do not have to reinvent the wheel to get people more opportunities and chances in life. Much of the research and science has been done, and the information has been gathered. Perhaps if we stopped, looked and learned from what is around us we would stop falling into the same traps that different generations have fallen into. Why should inequality matter—why is it important? Is it merely because a number of influential professors with Nobel prizes have written books? I would contend that they have put intellectual bones on our instinctive emotions of sympathy and empathy for our fellow people when we see them in situations that disturb us and we think are wrong. This is why nations have international aid budgets and why we give to charity. Sometimes it can be argued that the money is not always best directed, but nevertheless it is useful in the main. It shows an underlying striving for fairness and is a reproach against inequality within the broad set of people.

My first engagement with the idea of inequality was in the religious education class in Craigston primary school at the age of seven or eight, or perhaps even six, with Mrs MacCormick, God bless her. Looking back, I often think that we were really doing philosophy classes rather than RE classes. The example given was this: “If you’re given a box of chocolates at home would it be best to eat them all yourself or share them with your brothers and sisters who have not been given any chocolates?” I have to say that this scenario created a tension in my mind given my great love of chocolates. As you can see, Mr Deputy Speaker, I do not have so much a sweet tooth as a whole set of sweet teeth. I was caught in the tension between doing what was manifestly right and what I really wanted to do on another level. The consensus quickly grew in the class that it was best to share—even among six, seven or eight-year-olds. I am pleased to see you nodding in agreement, Mr Deputy Speaker.

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[Mr Brown]

Let me just mention one or two other things. The hon. Member for Suffolk Coastal (Dr Coffey) has left the Chamber, but she spoke about paying down debt. In case the House has forgotten, when we came to power in 1997, there was 43% debt, and we paid down debt as we progressed over the years to 37%.

The hon. Member for Aberconwy spoke about taxation. I do not have a problem, as he has, with a 50p income tax rate, but I do have a problem with value added tax. Our colleagues in the SNP need to be absolutely clear and honest with the people of Scotland: if Scotland achieves independence on 18 September and becomes a full EU member state, the people of Scotland will be looking at VAT on food, children’s clothing, and books and newspapers. That is fact.

The SNP is very good—and I have heard this a couple of times this afternoon—at comparing other small nations with Scotland. It is keen to mention Sweden, and all too often it mentions Norway, but the problem is that they have Conservative Governments. I do not know if that is what it wants in an independent Scotland.

[Jacob Rees-Mogg]

Will the hon. Gentleman give way?

[Mr Brown]

I would be more than delighted to do so.

[Jacob Rees-Mogg]

I think that a Conservative Government for Scotland is being a little optimistic.

[Mr Brown]

I am absolutely delighted that I allowed the hon. Gentleman to intervene. I have no wish to see that either.

The one thing that the SNP does not tell the people of Scotland is just how high taxation is in those countries that they are keen to mention and with which they make comparisons. It cannot run away from that.

On how the devolved Governments have operated in the UK until now and their record on increasing fairness and tackling inequality, the Welsh Labour Government, even in tough times, have worked to protect the most vulnerable in Wales from the Tory Government with Jobs Growth Wales, which will create over 16,000 jobs for young people in Wales, and the £35 million boost to the pupil deprivation grant in the next year. The same cannot be said for the SNP Government in Scotland. A recent report by the Joseph Rowntree Foundation noted that cuts by the UK Government and the Scottish Government in England and Scotland have meant that the most deprived local government areas receive £100 a head less in funding. Professor Arthur Midwinter of Edinburgh university recently concluded that

“the SNP’s budget strategy adds to the austerity agenda”.

I made a similar point in an intervention, as £l billion has been removed from anti-poverty programmes since 2008. Analysis by the House of Commons Library shows that cuts to the most deprived areas in Scotland are greater than those for the least deprived.

On local government and the underfunding resulting from the council tax freeze in Scotland, this is a debate about fairness and equality, so let me share with the House what we have seen as a result of local government being badly underfunded. Some of the poorest and most vulnerable people in our communities—those who need social services or who have to pay for services—have seen an increase in the cost of services or, if those services were free, charges have been introduced. That hits the poorest and most vulnerable the hardest.

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[Jacob Rees-Mogg (North East Somerset) (Con)]

I am glad, as an Englishman, finally to be allowed to enter into this debate, because the motion refers to the United Kingdom. It is a great honour to speak in this debate, because the nationalists appear to have a very clever plot, whereby they send their best and brightest people down to Westminster to make us realise how much we would miss them if they went independent. Since entering this House in 2010, I have become more and more pro-Union, simply because of the fantastic speeches we hear from nationalist Members.

Today was a model of its kind. The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) gave an absolutely brilliant speech that started with the ancient history of Wales and had the House gripped by his every word. I was sorry that I could not hear the whole speech by the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), as I had to go to European Committee A for a moment, but I was relieved that he was not too brief because there was so much to be said, and he was almost still speaking by the time the Committee ended.

The motion itself, however, though presented with panache and oratory, is fundamentally misplaced. It goes completely the wrong way about tackling issues of inequality because it argues fundamentally that we should all be impoverished. It is an argument that says that inequality is the important issue, not how prosperous people ought to be. It mentions the

“underlying trend of rising income inequality”

but the problem is that the point at which income inequality has been reduced has coincided with the recession. Yes, it is easy to reduce income inequality if we ruin the economy. If we make everybody poorer, we can all be poor—and perhaps happy—together. Actually, I think the British people will not be happy if they get poorer; they will be happier if they get richer. It is of no pleasure to me that during the recession, the income of the top decile of income receivers in the United Kingdom fell by 9%, and that of the bottom decile by 2.4%. Although it could be argued that the better off are making a bigger contribution than the worse off, I do not want to see anybody’s income decline. I want everybody’s income to increase, and that requires the economic policies that this Government have followed.

[Mr MacNeil]

As our state is getting wealthier and productivity is growing, does the hon. Gentleman agree that all should share in that, and that the rent seekers at the top end should not abuse their positions as CEOs or hedge fund managers and see their wealth grow by 60% to 80%, while over a decade the equivalent bottom 90% will see their wealth grow by only 17%?

[Jacob Rees-Mogg]

Where I disagree with the hon. Gentleman is when he fails to recognise what those very wealthy people do. By and large, hedge fund managers and corporate tycoons spend their money, and if they do not spend it they save it.

[Mr MacNeil]

They spend it on wine!

[Jacob Rees-Mogg]

If they spent it on wine, that would help the French, rather more perhaps than the English, but that is slightly beside the point. They might spend it on whisky, which will help the hon. Gentleman’s constituency. If they spend money, they create employment and economic activity, and if they save it and put it in a bank, they provide the deposits against which banks can lend. One of the great problems of the banking crisis was that the loan-to-deposit ratio went way above 100%—I think the Royal Bank of Scotland got up to 135%. It is not practical for banks to lend when they are not taking in deposits, because they then become dependent on overnight money, which can be withdrawn much more easily, and has a tendency to be withdrawn more quickly than long-term stable deposits. When the income of the wealthy is saved, it is an economic good.

[Mr MacNeil]

Is the hon. Gentleman saying that before the crash the wealthy were not saving enough of their money and were perhaps squandering it in various ways, and that one of the main reasons for the crash was that the banks did not have enough deposits from the wealthy? Surely if it had been in everybody’s hands, it would have been in the banks.

[Jacob Rees-Mogg]

The hon. Gentleman has taken one bit of what I have said and applied it incorrectly. It is uncharacteristic of him not to listen more carefully, and I will come on to the issue of spending cuts.

[Mr Bain]

Will the hon. Gentleman give way?

[Jacob Rees-Mogg]

Of course I will give way to a Member who represents a seat with “North East” in its title.

[Mr Bain]

What would be the hon. Gentleman’s answer to those well-known leftists in the International Monetary Fund who have published detailed research indicating that when the gap between rich and poor gets too large in an economy, it diminishes growth and therefore living standards for everyone?

[Jacob Rees-Mogg]

The IMF is not full of well-known leftists, but it does seem to be run, by and large, by the French, who have a very different understanding of economics, an absolutely rotten economy, and are the last people from whom I would take lessons. We will not in this Chamber go into the behaviour of the previous managing director—it would shock the viewers of the Parliament channel if they were to consider how Monsieur Strauss-Kahn had behaved. Anyway, I will not be told what to do by people who cannot behave.

I want to come back to the economic benefits of the spending and saving of the wealthy. That is what provides the employment and investment that leads to economic growth, and leads to the rising of living standards for the poorest in society. That is not done by the state. The state can indeed pass money around—it can reallocate money from pot A to pot B—but that does not increase the fundamental size of the pot. It merely reallocates what is already there, whereas the expenditure, saving and investment of individuals in the private sector grows the total amount that is available and therefore leads to cascading wealth.

This is where I must come on to the specific point in the motion calling on the Government

“to halt its further spending and welfare cuts”.

The spending cuts have been essential. The Government and the Chancellor of the Exchequer have been a model to other countries in how they have behaved. In a cross-partisan moment, I thank the Liberal Democrats for the role they have played. It must have been particularly difficult for them to take these tough decisions, having not been in government for so many generations and facing up to more serious responsibilities than parties in opposition sometimes have to deal with. I think they deserve a huge amount of credit for the support they have given to the Conservatives. Lots of economists, some of them quoted by the hon. Member for Na h-Eileanan an Iar, were saying that it was the wrong thing to do. Even the IMF had to eat its words a year after saying that austerity was not the right thing to do. The IMF was wrong and the Government were right. Why was that?

First, when the Government came into office there was a risk that there would be a funding crisis. There was a risk that the Government would simply not be able to raise the money in the gilt market that they needed to pay for the services that the British people wished to receive. That was the first problem. The second problem was that Government expenditure and very high debt crowd out private sector activity. If the Government had not reduced spending, businesses would not have been able to have access to the capital they needed to begin the recovery. The third problem was that by taking money out of the economy, there was a general depression of economic activity as individuals and their families had less to spend throughout the economic spectrum. It was being taken out of productive capacity and used unproductively merely on a money merry-go-round of the state.

This is, again, where I like the fact that the coalition has raised the basic threshold of income tax. I share the ambition of my hon. Friend the Member for Solihull (Lorely Burt) that this should be increased. It is absolutely barmy to tax people on low incomes and then give them their own money back in benefits. Not only do we want to get it to £10,000, we want to get it to the point where people on the minimum wage are neither paying national insurance nor income tax.

[Mr MacNeil]

The hon. Gentleman is mainly making points about redistribution and I disagree with him on that. In one of the longest parts of my speech, I made a point on the living wage and the number of people who are now working poor. He mentioned the billionaires and rich people that we have in apparent abundance around the place. Should we not be seeing people at least earning a wage that means that they do not need to benefit from state welfare to top up the lack in their wages?

[Jacob Rees-Mogg]

The wages that people are paid in this country are set on an economically competitive basis, not just against what goes on in this country but on what goes on in the rest of the world. As a nation, we need to produce goods and services that people will buy. Then, when we have profitability and successful businesses that grow, there will be money to pay people more. We want more billionaires, because billionaires spend money. Who do we think are buying all these Rolls-Royces, Bentleys and Jaguars? In Portugal, the people buying them might be quite poor, because it has a special scheme where one can win a car if one buys a cup of coffee and makes the person selling the cup of coffee promise to pay tax, but outside Portugal—in China, India, America and the United Kingdom itself—the people who buy these luxury goods are those who are well off. We need those people to provide the good jobs.

I want to move on to the dead hand of welfare, as it appears that the feeling expressed by those on the Opposition Benches—particularly by the nationalists, although Labour is not a million miles away—is that if a Government take money and dish it out that helps people. I fundamentally disagree. I do not think that it is fair that people who do not work should be better off than people who do. Indeed, I think that is wrong. I do not think that it is fair that people should be trapped in poverty by decisions that the state makes.

One of the noblest things that this Government are doing is the reform of the welfare state. I agree with my hon. Friend the Member for Aberconwy (Guto Bebb) that if people are lifted out of state dependency, they can take charge of their lives and become prosperous. They can then contribute to the overall economy. If benefits are set too high and the percentage of its withdrawal is so high that there is no incentive to work, people are trapped.

[Mr MacNeil]

The hon. Gentleman will be aware of yesterday’s report on working poverty by the Archbishop of York. It showed that most of the people in receipt of benefits are working and the efforts people are making to earn a decent wage are not having an effect because they are not being paid properly. Let me ask the hon. Gentleman again: does he support efforts to ensure that people are paid properly so that companies are not subsidised by the state? In the United States of America, one of the biggest recipients of welfare is Walmart and we have different examples in this country.

[Jacob Rees-Mogg]

Once again, I am sorry to say that I disagree with the hon. Gentleman on that specific point. It is much preferable that the state should pay benefits to people who are working and being paid the economic rate for their job.

[Nia Griffith]

Will the hon. Gentleman speak to his right hon. Friend the Secretary of State for Work and Pensions about the specific issue of universal credit and its acting as a disincentive, particularly for the second earner in a family?

[Jacob Rees-Mogg]

The basic principle of universal credit, which is that everybody should be better off in employment than not in employment, is fundamentally right and reducing the withdrawal rates is possibly the most exciting thing that the Government are doing. If we go back to 1979—I promise you, Madam Deputy Speaker, that this will not be a history lesson—and look at the reductions in the tax rates from 98% to 80% and then to 60%, we see that on every occasion the incentive to work increased and revenue to the Government increased too. Some of the percentages for the withdrawal rates for benefits are in the 90s. If people would not work harder when taxed at 98%, surely they will not work harder when benefits are withdrawn at 90%-plus. The model follows that if the withdrawal rates are reduced, motivation to work will miraculously be improved and increased.

That benefits the whole of society and brings me to the fundamental flaw in the motion, which is that it takes the view that there is a bottomless pit of money to be spent and that we can go on spending like there is no tomorrow, ignoring the financial markets.

[David T. C. Davies (Monmouth) (Con)]

Does my hon. Friend find it as surprising as I do that people on the left of the political spectrum seem to want to borrow more money and therefore make us even more dependent on the banks that they pretend to dislike? Why not put up a sign saying “Borrow more money and make us more dependent on the banks” instead of calling for more state spending, as they mean the same thing?

[Jacob Rees-Mogg]

My hon. Friend makes a good point. There must be fears that if the Bank of England goes on printing money, the printing presses will eventually wear out in an inflationary burst.

There is hope from the Opposition Benches. We heard that the hon. Member for Na h-Eileanan an Iar supported the reduction in corporation tax in Scotland because he thought that it would produce more revenue, more business and more prosperity for Scotland. That is the vision of fairness and of reducing inequality that we should have. It is a vision in which people succeed through their own efforts rather than being trapped by the state; in which people prosper through their own efforts, rather than being held down by the state; and in which people contribute through their own efforts to the growth of the rest of society and the economy, rather than being prevented from doing so by the state and being left unproductive .

[Mr MacNeil]

The hon. Gentleman talks about the state as a malign influence, but does he accept that markets have their flaws and do not work properly? Influences and biases in the markets can conspire so that the CEO gets far more, in ratio with the pay at the bottom end, than at one time he used to whereas the people at the bottom end cannot even make a living wage. There are huge iniquities in the private sector and it is not all “State bad”. The hon. Gentleman should realise that the state can be good as well and there can be big problems in the private sector.

[Jacob Rees-Mogg]

The hon. Gentleman and I are co-religionists, and if we are not careful we will start talking about original sin and the imperfectability of mankind. It is true, of course, that there is no perfect man-made system, and that would be an interesting debate for another day, but by and large the markets work better than state direction, which essentially re-circulates money that is created in the private sector. We need a flourishing private sector if we are to help people to improve their standard of living, their lives and their livelihoods, and if we are to take them out of this awful poverty trap. There is great nobility in what the Government are doing. They do not want unfairness; they want fairness for those people and families doing their bit for society, working hard and getting on, and they want to take away the clamping down, the closing down, the almost bankrupting of the country that was being done before.

For those reasons, I oppose the motion. It is fundamentally wrong-headed in all it seeks to do, and I hope the Government stick to their guns and carry on with economic and welfare policies that enable people to become better off through their own efforts.

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[Richard Fuller]

With respect, others wish to speak, so I will move on now to specific parts of the motion.

Let me address the issue of austerity measures and why they are in place. First, there is the fact that we have accumulated too much debt. Another issue is the ripple effects of that debt crisis. As the Government deal with the overriding debt, individual families, especially those in vulnerable circumstances, are pushed to the edge and need to go to payday lenders and other high interest rate lenders to deal with the consequences of that macro-financial situation. The individual circumstances of individual households have to be taken into account.

The other issue—again, it is the legacy of what occurred in preceding years—is the way in which house prices have become detached from incomes. Shelter is running a campaign on the issue, and although it is an interesting point to raise, I think that it is about 10 years too late. In the Living Wage Commission report, to which many hon. Members have referred, there is an interesting chart—figure 1.21—which looks at the ratio of house prices to earnings for the years 1952, 1975, 1997 and 2012. For the entire period from 1952 to 1997, the ratio of house prices to income fell. In 1952, it was five times the average income, but by 1997, it was 4.1 times. In the period from 1997 to 2012, it rose from 4.1 times to 6.7 times; 100% of that increase took place in the period to 2007. If we look at the cost of living and the cost of housing—part of enabling people to own their own home, get on the property ladder and pay their rent—we see that the issue of inequality will take time to resolve, because it took us a long time to get into that mess in the first place.

The motion refers to women and relative pay. I want to draw to the attention of the House, not by way of answer but by way of contribution to the argument, the House of Commons economic indicators report for February 2014. It looks at the gender pay gap and it makes the broad point that the overall pay gap between men and women has decreased steadily from 1997, but in considering whether the gap will be perpetuated in the future, it examines the gender pay gap by age range. For women and men between 18 and 39, the pay gap oscillates between 1.4% and 0.3%. For women over 40, it oscillates between 12% and 18%, which raises a question for policy makers such as the Minister: is that issue to do with career breaks and will it persist over time, or is it the result of a fairly good news story, with younger women and younger men on average having access to the same sort of jobs and pay, so that in about 20 years’ time the differential will go down? I do not put that forward as an answer, because I do not know the answer, but as a contribution to the debate and to broaden understanding.

There have been a number of contributions about the working poor, poverty and the living wage. We have discussed raising wages from the minimum wage level to living wage levels, but too frequently that would result in a small pay increase for the individuals concerned. It is a transaction between the employer and the Government in terms of the interaction of benefits and compensation. To contradict my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), who discussed the free market in wages—it is a small difference—I would argue that if in the low-pay sector Government are topping up wages to the tune of £10,000 on a £13,000 wage, which is the case for a married person with two children earning the minimum wage, the free market is far from working. There could be a strong argument, not only from the point of view of public finances but in order to have a freer market, for urging the Government to increase the pressure on companies by removing that subsidy, which is supporting labour. However, I should be interested to hear more from my hon. Friend.

[Jacob Rees-Mogg]

Is my hon. Friend aware that someone working 40 hours a week in receipt of the minimum wage would pay over £2,200 a year in tax, which must be part of the problem? I include in that employers’ national insurance.