Budget Resolutions and Economic Situation

Jane Ellison Excerpts

Friday 22nd March 2013 Commons Chamber

[Mr Byrne]

I know that my hon. Friend the Member for Walthamstow (Stella Creasy) will speak later and will provide the Secretary of State with a full answer on that. I repeat, however, that if the Government do not make refinements to the Bill, we will move the necessary amendments. I am glad that the independent review has been legally sanctioned in the Bill. We will ensure that it is used to get to the bottom of what is going on, and I am sure he will co-operate.

Just as bad as the lack of action on the Work programme in the Budget were the new surprises about universal credit. The Secretary of State and others have given frequent assurances that the programme is on track, but that raises the question: what on earth is the track? Earlier in the week, we heard in the Financial Times that small businesses were so badly prepared by HMRC for the introduction of real-time information—the method by which payrolls will be updated to calculate universal credit—that the Government have had to U-turn again, only a few days before the change is being introduced. The RTI system for businesses employing fewer than 50 people—covering about 7 million—will be slipped back by six months. There are worries now, not just about the Work programme and the lack of action on bringing down unemployment, but on universal credit.

As I said earlier in the week, the ultimate test for the Secretary of State is this: when he went to Easterhouse all those years ago, he talked about the need for a jobs revolution in this country, but if we now look at the 1% most-unemployed estates in our country, we see that unemployment has not fallen over the first half of the Parliament but gone up. It has gone up in three quarters of estates, and long-term unemployment, which we are so worried about, has risen on two thirds of those estates. This welfare revolution is falling apart, and we needed a Budget for jobs this week to fix it.

The greatest tragedy is who will pay for this failure. We know that a host of cuts, not least the bedroom tax, that are arriving in a couple of weeks will hurt some of the most vulnerable people in our country. Yesterday in Great Yarmouth, together with Lara Norris, I met a woman called Sandra who had cerebral palsy. She has brought up five children, but for reasons of her disability she sleeps separately from her partner, who is her carer. She will be hit by this bedroom tax in a couple of weeks. She now has to take decisions about switching off the heating for half the week because she can no longer afford to heat her home. She has to go to bed and snuggle up in an electric blanket in order to stay warm. That is what is happening in our country, yet these cuts will start on the same day as Britain’s richest citizens are given a tax cut. It is wrong and we should have had action in the Budget to reverse it.

[Jane Ellison (Battersea) (Con)]

Labour’s general election manifesto contained a commitment to tackle the rising housing benefit bill. Given that Labour has opposed every measure this Government have introduced, what did the right hon. Gentleman have in mind?

[Mr Byrne]

Perhaps the hon. Lady could remind us how much the housing benefit bill was projected to rise in Wednesday’s Budget.

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[Jane Ellison]

Answer the question.

[Mr Byrne]

The housing benefit bill is going up by more than £1 billion, because policies such as the bedroom tax will cost more than they save. I cannot remember how many people will be hit by it in the hon. Lady’s constituency, but they will be interested to know that she voted for it. The truth, as she will know, is that those hit by the bedroom tax will have to move to the private rented sector or become homeless. Neither will cost the public purse less; they will cost it more. What we needed in the Budget was not a spare home subsidy; what we needed was action to reverse the hated bedroom tax.

[Jane Ellison]

The right hon. Gentleman has not answered the question. Given that Labour has opposed every measure this Government have introduced to reform welfare and housing benefit, what did he have in mind when that commitment went into the Labour manifesto?

[Mr Byrne]

What we need to bring down the housing benefit bill is to build more homes. That is why we have said that the 4G licences and half the bank bonus tax should be spent on building homes. The Deputy Prime Minister—the hon. Lady’s right hon. Friend—admits that capital spending was cut too fast. I look forward to hearing her justify to her constituents who will hit by the bedroom tax why they should pay £14 a week extra while millionaires get a £2,000 a week tax cut.

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[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

I am grateful for the opportunity to speak in today’s debate, and I make no apology for focusing the first half of my remarks on the north-east and on the Budget’s impact on my constituents. I had hoped for a Budget for the whole country, but I fear that the north-east is being left behind.

We have a lot to be proud of in the north-east. We are the country’s No. 1 car producing region, with one in three cars made on Wearside by Nissan. We have a strong record on exports and our world-class universities attract students from throughout Britain, and indeed from throughout the world. However, unemployment rates remain a considerable source of concern. In the last year in my constituency there has been a 96% increase in long-term unemployment, with an increase of 108% for young people. The situation for those aged 25 and over who have been claiming jobseeker’s allowance for more than two years is even more stark: there has been a 600% increase.

The unemployment rate in my constituency and throughout the north-east is higher than in May 2010, and the north-east continues to have the highest unemployment rate of any region. We witnessed in the past the devastating consequences of long-term unemployment, particularly among young people, and Ministers cannot afford to be complacent and just hope for the best. My region needs a Government willing to take action, not repeat the mistakes of the past.

Figures from the House of Commons Library also show a significant increase in the proportion of working men in part-time work in the north-east—up 27% since 2007-08. I know from local trade union representatives that they are doing all that they can to work with employers to protect jobs, but that often comes at the cost of reduced hours and pay cuts. This proportionate increase in part-time male workers places greater strain on families who are already struggling to make ends meet, and it goes some of the way to explaining the rising tax credits and housing benefit bill. Families are being forced to turn to the state as hours and pay are cut at the same time as living costs rise, and that is before we consider the impact of under-employment in the economy. The Office for National Statistics estimates that the number of people who are under-employed has risen by 1 million since 2008. That is 1 million more people who want to work more hours, but they are simply not available.

In the remaining time that I have left, I intend to focus my remarks on one of the biggest barriers that parents, particularly mothers, face, and that is child care when returning to work. Affordable and accessible child care is vital to our economic and social success as a nation, allowing parents to work and helping to give children the best possible start in life. But parents face the triple whammy of fewer child care places, rising costs and reduced Government support. The measures set out by the Government in the Budget do not even kick in until the next Parliament and do nothing to help parents now. Even in 2015, the £750 million that the Government have identified pales in comparison with the £7 billion-worth of cuts made to families in this Parliament.

The Government’s plans to water down carer to child ratios will undermine the quality of child care, and are a real cause for concern. The Government’s own adviser, Professor Nutbrown, has today strongly criticised the proposals, saying that they make no sense at all, and that they are likely to lead to worse child care, with too few adults and too many little children. There is no guarantee that the plans will have the desired impact of reducing the cost to parents.

[Jane Ellison]

Child care is of enormous concern to my constituents as well. How would the hon. Lady expand available child care within the same spending envelope?

[Bridget Phillipson]

It is a cause of concern that parents face that squeeze and rising costs, but I am not convinced that changing the ratios is the answer. The Government need to ensure that the proposals do not have the impact of driving down quality and making parents so concerned about leaving their children in child care settings that they opt not to return to work because they are worried about the time that a carer will be able to spend with a child. I agree that this area concerns us all. I am sure that it concerns the hon. Lady’s constituents. We have to get it right, and my worry is that experts say that the Government are not getting it right and will need to look at it again.

In concluding, I want to return to what my constituents needed from the Budget. The OBR has confirmed that by 2015, people will be worse off than in 2010. My constituents will take little comfort from the Budget. They are paying the price of this Government’s economic failure. We needed a Budget to promote jobs and growth and to support families and businesses that are feeling the squeeze. In the north-east we showed considerable resilience in rebuilding and diversifying our economy following the loss of our traditional industries, but we need a Government for the whole nation, and if we are to complete this transition, we need action from the Government, not more of the same failed policies of the past.

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[Mr Bain]

I will give way in a moment.

With the OBR having confirmed on Wednesday that people will be worse off in 2015 than they were in 2010, the Conservative party will also be unable to revive the 1959 election slogan: “Life’s Better Under the Conservatives”.

I have spoken in pervious Budget debates about the absurd economic theories that have underpinned the Government’s fiscal policies since 2010. As Mark Blyth writes in his recently published work on austerity:

“Austerity is a zombie economic idea because it has been disproven time and again, but it just keeps on coming.”

The central idea behind the Government’s economic policy is that a short-term sacrifice by the British people would produce long-term benefits in growth and a massive reduction in national debt.

There have been plenty of sacrifices demanded by the Chancellor: the average £10.47 a week in reduced support for child care for ordinary families since 2011; the higher VAT, which is costing ordinary families four times more in this Parliament than they will get back through the rise in the personal allowance to £10,000 from next year; the 1% cap on most benefits and tax credits being introduced in weeks, hurting 5.l million working-age households by as much as £5 a week on average; and, most cruelly of all, the vicious bedroom tax. The cumulative loss to ordinary families’ living standards in Scotland resulting from the tax, benefits and wages policies pursued by the Government has been quantified by Landman Economics for the TUC as £28.63 a week, or £1,488 a year, by 2015. What has it all been for? Where is the growth? When will our debts begin to fall during this Parliament? When will living standards begin to rise again for ordinary people?

Since the spending review in 2010, we have seen the third lowest growth in the G20, the fifth worst industrial production in the European Union and the fourth biggest slump in real wages in the EU. The judgment of the Office for Budget Responsibility on the Budget has been brutal—growth downgraded this year and next, by 0.8% of GDP, even since last December’s autumn statement; this Budget adding nothing to growth all the way through to 2018; borrowing £245 billion more than promised in 2010; and the national debt doubled by 2018 if we continue with the Chancellor’s failing plan.

Four years into a recovery, unemployment is stuck at 2.5 million—and is predicted by the OBR to peak at 2.63 million next year—and there are 3.2 million people underemployed in this country, desperate for more hours at work to pay the bills but unable to get them under a flatlining economy.

The Budget should have attempted to secure two aims: first, to boost economic demand to stimulate higher growth in the short term; and, secondly, to begin the process of rebalancing the economy by ending the culture of short-termism and making the fundamental reforms we need in our banking system.

In Scotland, retail sales are falling in a sector that comprises more than three quarters of economic output. Real wages have slumped by 3.2% since autumn 2010. Median wages are more than £3,000 a year lower in real terms since 2009. This week’s OBR projections mean a further loss of £200 a year in wages—four times more than any benefit from the increase in the personal tax allowance next year. The Chancellor should have eased that burden by cutting VAT to 17.5% in the Budget and putting back some of the £480 a year on average that he removed from average families in the June 2010 Budget. He should have done far more on child care costs.

[Jane Ellison]

This is a simple question. The hon. Gentleman has outlined what he would like to have seen in the Budget. Assuming fiscal neutrality, how would he have paid for it?

[Mr Bain]

The shadow Chancellor has said that we would follow a different path. Continuing with the fiscal policy that the Government are pursuing will lead to a doubling of the national debt and a downgrading in growth this year and next. We need to do something different, as I hope the hon. Lady will accept when she makes her contribution.

As I was saying, HMRC has shown that in the year to last December, the amount of additional support, through the tax and benefit system provided to ordinary Scottish families with their child care costs, amounted to a miserly 1p a day extra. For this year, next year and the year after, the message from the Chancellor in the Budget was, “Not a penny more.”

Under the plans unveiled on Tuesday, households require all earners to be working and paying income tax to benefit either from the child care tax relief or the additional resource through universal credit, which will have to be found from elsewhere in the welfare budget. We see the gross unfairness of a two-earner couple with children, working part time on a combined income of £19,000 a year, receiving nothing under the plans, whereas a household with two earners on a combined income of £299,000 a year receives a tax break of £2,400 a year if they have two children. How on earth can that be fair?

The Chancellor should have brought forward more capital investment in the Budget. He should have announced a major social and affordable house building plan to begin this year. All he announced was a plan to reallocate capital spending from 2015, which will be of no help to the struggling construction sector now. He should have taken the opportunity to scrap the bedroom tax affecting nearly 90,000 households in Scotland.

The Chancellor has spent the past few months searching for escape velocity for the UK economy. Wednesday was the day when he finally crashed to earth. He will not change course because he puts his pride before this nation’s economic fall. He would rather that the living standards of millions were diminished than admit the scale of his mistake or take action to put it right. Only with a new policy to promote growth and boost investment will we generate the tax revenues to cut our debt. After this Budget, that can come only with the election of a new Government to replace this disastrous coalition.

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[Steve Baker]

I am grateful to the hon. Gentleman. I came here to speak today because I expected to have 20 to 30 minutes, and if I had, I would have given him a full explanation. In many ways, I am trying to help him. If he looked at price inflation going back to 1750, he would discover that for the whole of my lifetime, since 1971, we have been living in an inflationary era unprecedented in industrial times. That is why the banking system was broken. If money is pumped into the economy at that rate, that is bound to create asset price bubbles. An independent Bank of England therefore found itself controlling the money supply by looking at price inflation without looking at house prices, which were rushing away. That was bound to end in catastrophe.

Let me explain the problem with the Chancellor’s policy on credit market intervention. When we look across the range of things that were intended, we can see that there is a clear objective, which is to restart the process of credit expansion—credit creation—into the economy. In the short term, that is indeed bound to create an increase in trade and housing and to create a small housing boom. The problem is the damage it does to the rest of the economy. If I had more time, I would talk at some length about the problem being that for far too long people have persisted in believing that there is a simple mechanical linkage between aggregate demand and total employment, but unfortunately that is not true. What matters is the distribution of employment and the use of capital across the structure of the economy and through time.

[Jane Ellison]

I am enjoying my hon. Friend’s argument and would like to hear him expand it further to talk about the effect of the limit on the amount of time that this measure is being given.

[Steve Baker]

I am grateful to my hon. Friend. Time is crucial not only in this debate but in the economy.

When one looks at Mark Carney’s speech of February last year and at what the Government are doing, it is pretty clear what is going to be done. Inflationary expectations will be anchored to the 2% target, and the Bank will be given a more relaxed reporting regime. It is clear from Mark Carney’s remarks that he intends to use monetary instruments. Let us face it: this is about money creation. He is going to increase the supply of money in order to pump up the GDP figure and so manipulate people’s expectations. It is hoped that by manipulating people’s expectations the economy will come back just in time to deal with the money creation process and get inflation back on target. The whole thing is predicated on the Bank of England’s ability to manipulate the expectations of the 65 million people in the United Kingdom.

Somebody such as Stewart Linford, who has to live in the moment as an entrepreneur, keep employing people, and keep creating and exporting wonderful furniture, deserves better than to be deliberately and systematically misled by a big player such as the Bank of England knowingly manipulating expectations through monetary policy in order to produce particular outcomes—if it is lucky and expectations of inflation do not get out of control. Last time I spoke in the Budget debate, I explained that if the Bank loses control of inflationary expectations, the bond market bubble could burst and that could then lead to a very fast rise in interest rates, which it might then have to combat by further printing money.

Government Members know me well for always carrying on my person 1 ounce of fine silver and a $100 trillion dollar note from Zimbabwe. In the end, our society is based on money. One side of every transaction is money. If there is something wrong with money, there is something wrong with the entire economy. Right now, the reason we are in this mess is that we do not have good money—we have bad money. One can hold bad money—bad politics—in one’s hand. If we get into a position where we just borrow, borrow and borrow, with no ability to repay, creating credit out of thin air, as was done in 13 years—[Interruption.] The hon. Member for North Durham (Mr Jones) is smiling; I really do not know why, because 65 million people in this country are having a miserable time. [Interruption.] I was not in Parliament at that time. If he had listened to what I have said and read what I have written throughout all my time, he would find that I have consistently advocated this point: that the problem with the Keynesians and the monetarists is that they neglect the importance of time and the structure of capital. That is what is going on again, and it will end badly.

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

The Budget shows that this Government’s policies are beginning to work in the context of what Governments can realistically do to help an economy. The right hon. Member for Birmingham, Hodge Hill (Mr Byrne) suggested a fantasy world in which Governments can send a Chancellor to the Chamber on a Wednesday morning to press a growth button and introduce a new policy that will suddenly do this, that and the next thing. That is what some rather poor economists thought in the 1960s, but they have been proved comprehensively wrong. What Governments can do is set the framework within which businesses and individuals can lead economic growth. Governments cannot of themselves—they even failed to do this in the Soviet Union—create real growth just by the fiat of the Government.

How can we see that the Government’s policy is beginning to work? Two crucial statistics are now available. The first is the reduction in Government spending—the cut from 47.4% of GDP to 43.6%. That is a substantial reduction in the Government’s share of the nation’s income. It has taken some years to achieve and it needs to be reduced further, because, on average, it is very hard for Governments to get more than 38% of GDP in taxation—if it remains at 43%, there will still be a big deficit—but it is a huge move in the right direction to create stability in the economy, which will then allow businesses and individuals to lead economic growth.

[Jane Ellison]

Does my hon. Friend therefore share my surprise that the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) said from the Opposition Front Bench earlier that the Government were making no progress in rebalancing the economy?

[Jacob Rees-Mogg]

Opposition Members are talking about their new path. There was a Shining Path in one country at one point, but that was not very successful, although the Opposition are probably looking for the Via Dolorosa. We are definitely making progress.

I want to pick the hon. Member for Glasgow North East (Mr Bain) up on his wonderful reference to the 1930s. I was pleased that he reminded us of our splendid slogans, which I will certainly use in my election campaign. I think that this was a “Safety First” Budget, and quite right too. What the country needs is genuine prudence, rather than the prudence of the late ’90s and early 2000s.