Business and the Economy
John Hemming Excerpts(12 years ago)
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Sheila Gilmore (Edinburgh East) (Lab)
I start by repeating something that I raised in an intervention with the Secretary of State at the outset. He repeated the oft-made claim about the number of private sector jobs that are being created in order to prove that the Government’s policy is working. In about January 2011, after just over six months in government, the Prime Minister told us that 500,000 new private sector jobs had been created by his Government. After another few months, he said that in the first year of his Government they had created 500,000 jobs. Now the Secretary of State tells us that in two years they have created 600,000 jobs. Presumably, if the 500,000 figure was correct in the first place, only 100,000 have been created in the last 18 months. At that rate of job creation, we will expect the next 18 months to give us about another 20,000 jobs. They cannot keep repeating the same jobs. The key fact here is that that 500,000, the Prime Minister’s original boast, was largely the result of the economic stimuli applied by the outgoing Labour Government. In other words, this Government have done virtually nothing to create private sector jobs, despite all their claims—claims that were repeated again today—that the public sector was crowding out the private sector and that was the problem.
I am not, on the whole, the kind of person who goes in for the Armageddon-like language that one sometimes hears on the left. In fact, I am usually irritated by it; language such as, “We are all going to hell in a handbasket” and “People will be walking in the streets without shoes.” Actually, I am beginning to wonder. At my surgery on Friday, two people came who had both been recently sanctioned as a result of disputed issues about non-attendance at the Work programme. Neither qualified for hardship payments because they do not have dependants. The only thing their local citizens advice bureau could tell them to do in the short term was to go to a food bank.
I did some research on food banks. The Trussell Trust, which many talk about as being a wonderful charity, on its website says that in 2011-12 food banks fed 128,687 people nationwide—100% more than in the previous year. It has more than 200 food banks nationally and it hopes to have one in every town. I do not think I am overly naive, but in my lifetime I thought that this sort of thing was history. I represented an area as a councillor for 16 years, which included a district that ticked all the deprivation indices boxes, and I do not recall a constituent telling me that they had had to resort to a food bank. The only food provision that I was aware of in Edinburgh then was some vans for the street homeless, but not for people who had simply found themselves unemployed.
It must give us food for thought that one of the most rapidly growing charities in our country is one providing food banks. That is not a criticism of the charity or those who volunteer for it; I am sure that they are doing an important job, which is obviously necessary. But what should make us angry is that there is a need for that.
John Hemming (Birmingham, Yardley) (LD)
Will the hon. Lady accept that the Trussell Trust was set up with food banks in the first Blair Government?
Sheila Gilmore
I am not saying it was not set up then. I am giving its own information that in the year 2011-12, it increased the number of people it was helping by 100%.
One of those constituents has been sanctioned for six months. Unless she succeeds in an appeal shortly, she will not get jobseeker’s allowance until November this year. She has very little family support for circumstances in her life. Do any of us sitting here have any concept of what it is like to feel that they will have no income for that length of time? I do not think that we have any concept of what that must feel like. I have also to ask, as she does seem to have certain health and personal problems, what has happened to all the boasts about the Work programme. The Work programme was going to be so personalised. Edinburgh MPs were taken in by one of the providers and told that they would have health professionals and counsellors who would help people with complex needs. I am afraid that it does not appear to have helped that particular constituent. Someone like that is collateral damage from a Government who frequently talk as though the problem that faces this country is that there are too many people on out-of-work benefits, as if their obduracy or the fact that benefits are somehow too high is causing the economy to flatline.
Only this weekend a Scots business man, Tom Hunter, was widely quoted as saying that Scots were addicted to welfare. He had just returned from China, where the economy is booming, and explained that the biggest worry there is that people in China might suddenly decide that they wanted high levels of welfare. I find that fairly incredible. I cannot really picture the situation—Tom Hunter and, presumably, a Chinese business man discussing how the biggest threat to China’s economy is welfare—but that is what he tells us.
Apparently, it is not just workers who are not working hard enough; now their employers are not working hard enough either. We know that some of those employers are sitting on capital, but why do they not want to invest it? For those running businesses, surely the major reason why they do not want to invest their capital and earn more money is that there is no demand for their products or services. If there is no demand, we have a big problem. Simon Jenkins, writing in The Guardian on 9 May, stated:
“Europe’s collective response to the 2008 credit crunch ranks with the treaty of Versailles and German reparations among the great follies of history… Those who warned at the time that the coalition risked double-dip recession by over-suppressing demand have been proved right.”
What is the solution? Simon Jenkins, like the Opposition, thinks that the British economy needs three things: demand, demand and demand. It needs cash in pockets and cash in tills. It needs the old Keynesian salve: money in circulation. That is what our plan is about: cutting VAT, removing the cuts to tax credits in order to put money back in people’s pockets, reducing the rate of VAT on home improvements, and all those housing proposals that my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) explained so eloquently. If we put that investment into housing, we would not only give badly needed homes to the people who need them, but create the jobs that would boost demand in local economies. That is what we need to do, and there is no excuse for not doing it. In Edinburgh we have the land and the planning consents; we just need the funding.
IMF
John Hemming Excerpts(12 years ago)
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Mr Osborne
The 2010 quota agreement has not come into effect because it has not been ratified by all the countries. Our bilateral loan will be made only once that quota deal has been ratified. I have listened to the hon. Gentleman for the 11 years for which I have been a Member of Parliament and I cannot believe that he really supports the decision being pursued by the shadow Chancellor. The hon. Gentleman knows from his time at the Treasury and from his broader experience that Britain has a vital interest in economic multilateralism and the institutions that support a more stable economy.
John Hemming (Birmingham, Yardley) (LD)
Does the Chancellor find it odd, as I do, that the Opposition were happy to commit the British taxpayer to the eurozone bail-out but will betray British workers who depend on exports for their jobs by not supporting the IMF?
Mr Osborne
To be fair, probably most Labour MPs, in their quieter moments, support the IMF and think it is perfectly sensible that, when other countries add their resources, Britain should do so. The most remarkable thing is that the shadow Chancellor led the Labour party into voting against the implementation of the London G20 deal. Because of the change of Government, we introduced the statutory instrument that gave effect to the London G20 deal, yet the shadow Chancellor led the Opposition against it.
Budget Leak Inquiry
John Hemming Excerpts(12 years, 2 months ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
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Mr Gauke
I have answered the hon. Gentleman’s first point. I should also reiterate that we have a coalition, which means that there are negotiations and discussions involving both sides. It also means that the Budget tends to be finalised some days in advance of the Budget speech. That is quite a contrast to previous years, when revisions were made, documents pulped and decisions taken at the last minute. I think that we have a much better process, thanks to the discussions within the coalition and the involvement of the Office for Budget Responsibility.
John Hemming (Birmingham, Yardley) (LD)
Does the Minister believe that the Opposition would improve by getting some consistency on whether information should or should not be released?
Financial Services Bill
John Hemming Excerpts(12 years, 3 months ago)
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Stella Creasy (Walthamstow) (Lab/Co-op)
This is the third time that we on this side of the House have proposed legislative action on the high-cost credit market in the UK. As Mae West said:
“I’ll try anything once, twice if I like it, three times to make sure.”
I can tell the House that we are absolutely committed to the argument that something needs to change drastically in our consumer credit markets. This Bill offers the potential to address some of those concerns. We have had a positive debate today about some of the large-scale problems in our financial markets, but I want to set out the other picture. I shall talk about those people at the other end of our financial markets, the people who are called the “under-banked”. There is now irrefutable evidence that millions of people in this country are unable to access credit in a manner that is positive and constructive to their financial health. We should consider that one in six of us is now what are called “zombie debtors”—paying off the interest on our debts, not the capital.
A perfect storm has hit UK consumers in the last couple of years as pay freezes, rises in unemployment, rises in the cost of living and a lack of regulation of the consumer credit market has made us a fertile territory for the high-cost credit industry. It is not by coincidence that these companies have flourished in Britain in the last couple of years, as there has been a 200% increase in the numbers of people borrowing from payday loan companies and a similar increase in the amount of money they are making from British consumers in the last 18 months alone.
With a mind to what we could do to the Financial Services Bill, let me set out what the prices are and what they mean to British consumers. Many Members will be familiar with my own personal travails with a company called Wonga whose rates are 4,214% representative APR in a year. Some may be familiar with QuickQuid whose rates are 1,734% representative APR, while some may have come across the Money Shop in their constituencies, with a mere 219% representative APR. Some may be familiar with some of the newer players in the market—for example, Ferratum, a major European payday loan company, which has a mere 3,113% APR. Then there is Peachy Loans, which will lend people £100 at a time, with £15 interest every 10 days. That works out at a representative APR of 16,381% every year. This is not to mention companies like Borrow, recently advertising themselves on the radio and TV, which encourages people to borrow £10,000 a year at an APR of 68%.
Before we discuss any legislation, it is worth thinking about this industry and how it operates. It wants to paint itself as the new industry, the new form of financial credit that Britons are crying out for, that the Facebook generation wants, that is online, quick, easy and consumable. There is another side to this story, however, as many will have seen the people who are struggling because of the toxicities in this market. When we know that 30% of payday loans are taken out to pay off other payday loans, that should tell us that something is going drastically wrong that needs addressing.
Payplan, a debt charity company, says that 46% of its clients had six or more payday loans in the last year alone. This is not a short-term temporary measure; this is a way of life for millions of people in our country nowadays. More than half the people going to Payplan for debt advice owed more than £500 to these companies, and 61% had more than one at a time. Most crucially, 86% of its clients were using the loans for basics—food, transport and the basic costs of everyday living, not luxuries. This is not a market that is working for British consumers; it is not an industry that wants to lend people money and have them pay it off within a reasonable length of time. It is an industry that wants to lend to people, to keep lending to them and to keep taking money from them, drips at a time, raising the interest rate as it goes along, and adding money to the bill every single month.
The rates in themselves mean that debt is more likely. That is the challenge we have to address with our consumer credit regulations. We are talking about people who are short of cash now. They are not using it as a temporary stop-gap; they are struggling in Britain today. We need to be aware that 7 million Britons last year put their mortgages on their credit cards and 1 million people used payday loans to pay their mortgages. That is the sort of challenge we have to address. It is also the opportunity we have with the new Financial Conduct Authority.
I welcome the fact that Ministers have listened to the advice I gave them on 16 June last year when I suggested that the FCA could indeed take over this role and look at this industry. I welcome that, as I say, but I know there are issues over how the FCA should deal with the promotion of competition and over the real powers that the FCA needs to address these companies and to regulate this market. Indeed, I note that other consumer organisations such as Consumer Focus, Citizens Advice and the Financial Services Consumer Panel have written to the Minister asking for the FCA to have specific powers for product intervention. This must go beyond the point, which I recognise the hon. Member for St Austell and Newquay (Stephen Gilbert) mentioned, about the paucity of the response that the Office of Fair Trading has been able to make to these companies. I know all too well myself from when I tried to get the OFT to act on companies that did not display their APR how difficult it is to make progress. This goes beyond advertising and people knowing what the price is. It is about the fact that the prices reflected in the APRs I mentioned show that this is not a free market and that competition in itself is unable in this market to ensure that consumers are not put in detriment.
I know that many Members agree that things could be done, so let us give the FCA the power to intervene to make sure that there is competition and to use price as an indicator of competition. Let us give the FCA the real power it needs finally to address this country’s legal loan sharking. I agree with the hon. Member for Eastbourne (Stephen Lloyd) that there is a challenge with unauthorised overdrafts and credit cards, so let us use the FCA finally to make good on this Government’s broken promise to tackle the exorbitant rates on credit cards and unauthorised overdraft charges and cap those prices.
John Hemming (Birmingham, Yardley) (LD)
I share the hon. Lady’s concern about the very high levels of interest rates charged on certain debts. Does she share my concern about the effect of continual late payment fees, which have exactly the same effect?
Stella Creasy
Yes, I agree, and I hope that Government Members will join me in condemning those banks and credit card companies that, at the very time when millions of British consumers are struggling, are ratcheting up their interest rates, following the lack of regulation on excessive interest rates on our credit cards.
Stella Creasy
I hope the hon. Gentleman is on his feet to agree with me that this must be stopped.
John Hemming
I wanted to make reference to my entry in the register, as I have certain banking shares.
Stella Creasy
I hope that the hon. Gentleman will use the fact that he has shares to make representations to his bank about the consumer credit market in the UK.
The consequence of doing nothing about this industry and doing nothing about how British families are being made to struggle because of the cost of credit are far too great to see. Frankly, it is not good enough for the Chancellor and the Minister to say, “Well, we have to wait until we see the research from BIS.” We have been waiting years—yes, years—for action on this issue since it was first put to Ministers.
Madam Deputy Speaker (Dawn Primarolo)
Order. Before I call the next speaker, we moved rather swiftly on from a recent intervention and I wonder whether, for the sake of clarity and accuracy of the record, the hon. Member for Birmingham, Yardley (John Hemming) might like to make his final point again.
John Hemming
Yes, I wanted to refer the House to my declaration of interests and the fact that I hold certain bank shares, which will obviously be affected by limits on sums that can be claimed per letter.
Fuel Prices
John Hemming Excerpts(12 years, 6 months ago)
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Caroline Nokes (Romsey and Southampton North) (Con)
I congratulate my hon. Friend the Member for Harlow (Robert Halfon) on the persistence that enabled him to secure this important debate.
The issue that we are discussing does not affect only rural constituencies. I am very conscious that 75% of the constituents who have contacted me come from the more urban parts of the constituency. The truth is that everyone is affected by rising fuel prices. Nevertheless, a disproportionate burden has been placed on those who live in rural areas. In parts of my constituency, people have no choice but to use their cars. Those who live in remote rural villages travel, on average, 10,000 miles a year just to gain access to essential services. One constituent told me, “This is not about luxury. I leave home for work before the first bus arrives in the morning, and I return long after the last one has gone back to the depot.” He has no choice whatsoever.
However, it is not only those who use their cars for their own journeys who are affected. We should also consider those who act as volunteer drivers and support charities, an increasing number of whom tell me that they are finding it too expensive to continue to help the community in that way. We should be thinking about ways of supporting them. Although they welcome the increase in the Chancellor’s approved mileage allowance, they say it is becoming increasingly difficult for them to play their part in helping the local community and reducing the burden on the local councils that would otherwise foot the bill.
John Hemming (Birmingham, Yardley) (LD)
Does my hon. Friend agree that because of the greater scarcity of fossil fuels, we should be aware of the costs of energy generally and in the long term, not just the short term?
Caroline Nokes
Absolutely. I hope that I shall have time to mention that at the end of my speech.
This is not just of concern to middle-income families who may be running two cars; it is a huge cost for low-income families who spend proportionally more of their incomes on fuel.
Jobs and Growth
John Hemming Excerpts(12 years, 7 months ago)
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Ed Balls
I have worked in Government and at the Financial Times. I have never run a business, but I respect people who run businesses and I understand why they are so worried at the moment. In the hon. Gentleman’s constituency, where unemployment has gone up by over 400 in the past 12 months, there will be some very worried businesses, and it is important that we listen to them and hear what they are saying.
That is why now is the time for our oh-so-political Chancellor to put politics aside and start to do the right thing. Protecting our economy and protecting valuable businesses and jobs is more important than trying to protect a failed plain. We do not have to wait for another month of unemployment rising, or for 46 more days until we finally get the economic and fiscal forecast from the Chancellor, to know what he is going to have to say. He is going to have to downgrade his growth forecast for this year for the fourth time in 18 months and downgrade his growth forecast for next year. As I have explained, we already have £46 billion more borrowing in the pipeline, and unemployment is now rising. He is going to have to admit that borrowing will be billions higher still than at the time of his last forecast. The Prime Minister says:
“You can’t borrow your way out of a debt crisis”,
but he just doesn’t get it. [Interruption.] No, he doesn’t get it. Because with growth flatlining, and with today’s bleak news of rising unemployment, the Chancellor’s failing plan is leading to not lower borrowing but higher borrowing than he planned.
John Hemming (Birmingham, Yardley) (LD)
Whatever the Government’s policy, the Opposition’s policy is to borrow more to increase demand. Is there a limit on the borrowing?
John Hemming (Birmingham, Yardley) (LD)
I will not take any interventions, as that would leave less time for others to speak.
The Opposition are complaining that the forecasts show that the Government will have to borrow £46 billion more than was previously forecast. Their solution is to borrow more money. They are proposing to borrow an additional £31 billion in any one year—I think that that is the precise figure. I asked the shadow Chancellor what he thought the limit on borrowing should be, but he did not answer the question. One presumes therefore that he has no idea what the limit is. Well, the limit on borrowing is called the International Monetary Fund, when it has to come to the rescue when the markets will not fund a country’s deficit.
The reality is that the interest rates on deficits matter, because they represent a perception of the risk of non-repayment, and of the possibility that a Government will become insolvent. The difficulty is that, as a country increases its deficit, it also increases that interest rate. Gradually, the interest rate increases on the whole of Government debt, not just that borrowed in one year. If the whole of Government debt is in the order of £1 trillion, 1% of that is £10 billion. That £10 billion has to be found either from additional taxes over time, or from additional cuts. Labour’s strategy would lead to greater cuts or greater taxes in the long term—probably greater cuts.
Let us look at how we have got into this situation. An interesting person to turn to for quotations on this is Lord Turnbull, who was the Cabinet Secretary at the start of the third Blair Government. He said that excessive borrowing started to be a problem from 2005. I quote him:
“It kind of crept up on us in 2005, 2006, 2007, and we were still expanding public spending at 4.5% a year”,
and he argued that the Treasury should have put more money aside. He said last year that the primary reason Britain was
“in the mess that we’re in”
was that
“public spending got too big relative to the productive resources of the economy, by error”.
He added that a loss of output caused by the financial crisis also contributed to the Budget deficit. The mistake is thinking that the problem is caused by one thing alone. There are a number of factors: one is the banking problem; another is overspending by the previous Labour Government.
What we have before us is a motion to deal with a problem caused partly by overspending, to which the proposed solution is yet more spending. In this instance, that means borrowing by the Government for private spending, to be fair, although a cut in VAT on a temporary basis does not generally feed into people’s pockets, but into those of the corporations that do not reduce their prices and do not have to pay so much tax.
In his memoirs, Tony Blair proposed what should have been done. On page 679, we can read him reflecting on what should have been done, consistent with his analysis of the economy:
“In my view, we should have taken a New Labour way out of the economic crisis: kept direct tax rates competitive, had a gradual rise in VAT and other indirect taxes to close the deficit, and used the crisis to push further and faster on reform.”
Tony Blair was clear that Labour should have put up VAT.
I kept my ballot paper for the Labour leadership election; I did not think it was right for me to fill it in. One interesting thing about that ballot paper was that it came along with the manifestos of the candidates. I looked at the entry for the shadow Chancellor, who said that he had been “leading the fight” against the VAT rise. Last year, he led the fight against the VAT rise; now he says, “Yes, we need the VAT in the long term”, as at least the hon. Member for Bassetlaw (John Mann) recognises; he must have managed to persuade him.
What question needs to be asked? The Government have a strategy, and the strategy is reducing the deficit. There are obviously difficulties, given that the solution must be worldwide. Is it therefore right to follow the Labour party’s example and borrow yet more money—another £31,000 million a year—increasing the debt and potentially increasing the need for rescue in the long term, or should we keep on with the strategy we have? My view is that we should keep to the strategy that we have got.
Finance Bill
John Hemming Excerpts(12 years, 10 months ago)
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Michael Connarty
I could not have put it better myself—I commend my hon. Friend for helping me with his analysis.
The Labour Government were right to encourage people to provide resources that the NHS could access using taxpayers’ money where it would be more efficient. That was an excellent scheme that enabled people in my constituency to go to hospitals where beds were available over Christmas for operations that were not being done and could not be fitted into the schedules of hospitals that were short of resources. That was a good initiative, but this proposal is not; it is the opposite. It would be a damaging initiative if it encouraged people to take out private health insurance and so divert resources from the NHS, where they are needed.
John Hemming (Birmingham, Yardley) (LD)
I have found it odd recently that some private health insurers will pay those whom they insure to use the NHS. If that is the habit of private health insurance, where does the hon. Gentleman think the saving to the taxpayer is in allowing this tax relief?
Michael Connarty
I did not want to cite that example, although it is a good example of what happens when people use private health care and take resources away from the NHS. I find it appalling that through private health care people can actually buy organs donated to the NHS by paying for the hotel care and all the rest of it. They are not allowed to buy the organs any longer; instead they buy the ancillary health care and then use resources that people might have donated thinking they would go to NHS patients, but which end up being used for private care. But that is an aside from this debate.
The new clause would encourage more private money to suck out resources and money needed in the NHS. The right hon. Member for Wokingham kept talking about cash increases. We should not pretend that this is not the same Member who reminded us all of the real effect of cash increases when inflation is running higher than the increase. He was—how can I put this?—dodging the issue unnecessarily and treating us as though we were stupid. Cash increases will not keep the resources at the level they are at, and the new clause will in fact take out resources that the NHS does not have to give.
Jonathan Edwards
The hon. Gentleman will be aware that I am in a different party from those on the shadow Front Bench and we do not normally negotiate on the clauses we table. I can only assume that my staff are more effective.
Richard Banks, the chief executive of UK Asset Resolution, said that the UK economy faced a tsunami of repossessions once interest rates rise. Increases will come sooner rather than later, partly as a result of the VAT increase. The increase in inflation has come about for a variety of international reasons, including the slow devaluation of the pound and increases in basic food and oil prices, but we have a 2.1% increase in prices across the board and I am sure that many businesses have racked up their prices by greater amounts. The increase in VAT is adding to the inflationary pressures on the economy and it therefore seems strange that the Treasury is using a fiscal measure that is playing its part in increasing inflation and will inevitably at some stage lead to a tightening of monetary policy, creating a further major headwind for the economy. It is the economic equivalent of shooting oneself in the foot.
John Hemming
I congratulate the hon. Gentleman on being more efficient than the official Opposition. However, he is proposing to reduce VAT in this financial year, which would mean an increase in the deficit and therefore an increase in the borrowing. Where would we borrow the money from and how much interest would we pay?
Jonathan Edwards
As the hon. Gentleman rightly says, I am proposing a temporary cut and I am endeavouring to convey that the priority of the Treasury should be securing sustained economic growth. In my view, the increase in VAT is hindering that. That is my key point.
Older people and pensioners who thought that they had enough to live comfortably for the rest of their lives now find themselves with very little interest but high inflationary costs in their everyday life. The Government’s attempts to save money by changing indexation from the retail prices index to the consumer prices index means that any benefits people receive are lower than the real world cost, rather than keeping up with it.
Families who are stretched by the costs of their daily living are dealing with wage freezes but finding that the cost of living is rising dramatically. Young families find it hard to save to buy a house, and others live in worry about the base rate increasing and being unable to cover their mortgage. The VAT change last year is reported to have taken £450 from each family with children across the UK.
Mr Hanson
The hon. Lady will know that we have tabled several amendments to the Finance Bill. Mr Speaker chose not to select new clause 16, but he did select new clause 10, which calls for a review of the impact of VAT on things that are important to my hon. Friends’ constituents and hers: family incomes, businesses and jobs. If she looks at what the leader of her party said during the general election—[Interruption.] Perhaps the hon. Member for Chelsea and Fulham (Greg Hands) should listen to this, because during the general election the then Leader of the Opposition said during the Cameron Direct campaign in Exeter:
“You could try, as you say, to put it on VAT, sales tax, but again if you look at the effect of sales tax, it’s very regressive, it hits the poorest the hardest.”
I agree with the Prime Minister. Does the hon. Member for Chelsea and Fulham agree with his right hon. Friend?
John Hemming
On the point about hitting the poorest hardest, does the right hon. Gentleman not accept that the poorest people, those on means-tested benefits, receive an up-rating for the cost of living, which is in fact in excess of the extra VAT, and so benefit by 1% in excess of the extra cost of VAT?
Mr Hanson
If the hon. Gentleman will allow me, I should like to try to make some progress. I have been very generous in giving way so far.
Although unemployment has fallen by a couple of hundred thousand in the past few months, and that is very welcome, the OBR has said that the lack of consumer confidence, the impact of VAT increases and the long-term lack of economic growth will hit employment hard. Average UK unemployment at the moment is about 7.7%, but for those of us who represent seats in Wales, the east midlands, Scotland, the north-west, London, Yorkshire and Humberside, the west midlands and the north-east, it is well above that level. That is partly because of the impact of the VAT increase on retail sales and manufacturing in our communities. When the Government introduced the increase in January this year, the chairman of the Federation of Small Businesses, John Walker, said:
“A recent FSB survey shows that 70% of businesses are worried about the VAT increase, with almost half of respondents going to have to increase prices as a result and 45% believing it will decrease their turnover”.
The situation with regard to jobs is very important.
Mr Hanson
My hon. Friend is absolutely correct. The Conservative-Liberal Government are missing their borrowing targets and will have to increase borrowing by £46 billion because unemployment will rise over the next year and because we have lower growth. There is lower growth, in part, because of a lack of confidence, which has happened, in part, because of the rise in value added tax. It is an unfair tax that hits the poorest people hardest.
Mr Hanson
Before I let the hon. Gentleman intervene, I ask him whether he will contradict the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), who said:
“I hope we don’t have a VAT increase because it is the most regressive form of tax, it penalises the poor at the same rate as the rich.”
Perhaps the hon. Gentleman will agree with his right hon. Friend.
John Hemming
I agree with my hon. Friend the Member for Redcar (Ian Swales), who is an accountant, that on the basis of expenditure deciles VAT is a mildly progressive tax. I ask the right hon. Gentleman, whose name appears above unselected new clause, 16, which would put VAT up to 20% once things improve, why the Labour party, having opposed VAT at 20%, now believes that it should be at 20% in the long term.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. We are not going to get bogged down in the VAT figures. We need to talk about the new clauses in the group. We are drifting into parts where we should not be.
Catherine McKinnell
The fact is that the current rate of 20% is hurting, and it is not working. Growth has stalled. We need to return to growth, particularly in the north-east, and I would have thought that the hon. Gentleman would support such a move.
A sector that has faced particular difficulties over recent months and years is the construction industry. It is thought that one in five of the firms going into administration are from that sector, and research recently undertaken by the Financial Times has found that construction orders have fallen by 40% in the past 12 months. That is an alarming figure. It is really worrying, when we consider that construction makes up around 10% of the UK economy, and that some 80% of the materials used by the industry are procured from within the UK, creating an economic stimulus and jobs in other sectors.
The construction industry is one clear example of how public spending can support private sector growth and jobs. Indeed, it is estimated that every £1 spent on construction leads to an increase in gross domestic product of nearly £3 and stimulates growth elsewhere in the economy worth nearly £2. The maths is simple. It is widely accepted that coalition decisions to cancel projects such as Labour’s Building Schools for the Future programme, to cut the housing and regeneration budget by 70%, to end the HomeBuy Direct scheme, and to scrap regional spatial strategies, are having, and will continue to have, a seriously detrimental effect on the construction sector.
The coalition’s VAT rise is also having a considerable adverse impact on many small and medium-sized construction firms, particularly when combined with the draconian cuts that the Government are imposing on public spending. Indeed, at the time of the VAT rise the Federation of Master Builders—an organisation to be taken very seriously—expressed its concern that 11,400 jobs would be lost in the construction sector alone over the next decade as a direct result of the coalition’s decision to hike VAT to 20%. The impact of VAT must be kept under review.
Household income in the north-east is the lowest in England, and a temporary reduction in VAT would have a positive impact on the spending power of people living in my city and region, helping to support local businesses, local economic growth and local jobs. Such a reduction could not come at a more apposite time, given that my region is facing the policies of what Kevin Rowan, the regional secretary of the Northern TUC, has recently described as a “profoundly anti-Northern Government”.
That is a description I would agree with, in the light of the impact of some of the coalition’s policies highlighted by Mr Rowan. They include the abolition of One North East and the planned sale of its assets to finance national Government administration—something that is not happening in London. Furthermore, job creation is simply not keeping up with job losses, with up to 19 jobseekers applying for every vacancy in some areas of the region. The north has the highest unemployment rates in the UK, and it is seeing cuts in disability benefits that will have a disproportionate impact on former industrial heartlands, as well as cuts in tax credits, the abolition of area-based grants and local government cuts significantly higher than those in many councils in the south-east. It is for those reasons that I support the proposal for the Government to undertake an assessment of the impact on UK growth of the rise in the rate of VAT.
John Hemming
Well, here we are: the Opposition have said that they really hate the idea of having VAT at 20%, and that that is a dreadful proposal. What are they proposing instead? They are proposing a review.
Thomas Docherty
Can the hon. Gentleman remind me whether he agreed with his party leader when he said, during the election campaign, that a VAT rise would hit families the hardest?
John Hemming
My right hon. Friend the Member for Twickenham (Vince Cable) was quite clear when he said that the party did not rule out an increase in VAT, when he was asked that specific question—[Hon. Members: “Oh!”] The then Chancellor supported an increase in VAT to 19%, and the present Opposition now support a long-term VAT rate of 20%. The reason why they will not support new clause 9 is that the change it proposes is not temporary but permanent. Labour Members cannot criticise us for accepting a long-term VAT rate of 20% if they want the same long-term rate themselves. There is an argument about whether the stimulus that would, admittedly, result from a temporary cut in VAT would be in the long-term interests of the country, but it is a complex one. However, it is clear that we need to keep the deficit under control.
We have heard criticism from the Opposition today that the Office for Budget Responsibility has indicated that we might be borrowing more money than was originally forecast. The Opposition criticise us for the fact that the OBR forecasts higher borrowing. The Opposition’s solution, however, is even higher borrowing. They identify a problem and then put forward a policy proposal to make that problem worse. It is an absurd situation.
Ian Lucas
The hon. Gentleman ought to have listened to the debate earlier, particularly to the very good speech by my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell), who explained that for every pound that is spent in the construction sector, £3 is injected into the economy. That would lead to three times as much being put into the economy for every pound spent in the construction sector. That means we should encourage that sector, not decimate it as the Conservatives are doing as we speak.
John Hemming
We should remember that VAT does not apply. I declare an interest, as a VAT-registered person. People who understand how VAT works will know that people who charge VAT can reclaim it on their inputs. We have to look at the details. On the hon. Gentleman’s further point, yes, there is an economic multiplier that has an effect. As demand is increased, there is a multiplier effect. At the same time, we have to look at the long-term effect on the deficit, the debt and the interest paid. As interest rates go up, wider damage is done to the whole of society.
It is true that in an ideal world we would not have higher rates of VAT. In an ideal world everything would be nice, and there would no problems and no difficult decisions to take. We have to get a balance. It is very pleasing to see that the official Opposition now accept that VAT should be 20% in the long term.
Clive Efford
There used to be a time when the hon. Gentleman was fond of quoting the Institute for Fiscal Studies, which called the VAT cut “an effective stimulus”. As for the construction industry, does he not recognise the figures showing a 19% increase in the number of business failures in the construction industry in the first three months of this year—since the increase was imposed?
John Hemming
There is no VAT on new build. The hon. Gentleman’s party believes that the VAT rate should be 20% in the long term; I thank him for agreeing with us about that.
The Government, essentially, have to bring the deficit under control to keep interest rates under control—and that is what we are doing.
Mr Deputy Speaker (Mr Nigel Evans)
Is the hon. Member giving way, or has he finished?
The Economy
John Hemming Excerpts(12 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
John Hemming (Birmingham, Yardley) (LD)
The hon. Gentleman’s party’s solution is to borrow more money. From whom is it going to borrow it and how much interest is it going to pay?
Mr Anderson
My party’s policy is not to borrow more money—it is to increase taxes on bankers and make those people pay.
Mr Anderson
Sit down and shut up.
The Tories have made deliberate decisions and claimed that there are no alternatives. When my party came back into government in 1997, the people from where I came from said they wanted us to put right the attacks that had happened in the 1980s. They said, “We’re sick of living in second-class conditions.” That is why I am proud, and my party is proud, of what we did.
Mr Anderson
I was not going to discuss the Liberal Democrats because they are obviously not relevant to this country any more. I thought that perhaps they were outside unveiling a new placard about the bombshell or signing a few pledges; obviously, they are too busy to come in here.
Mr Anderson
I am not going any further.
I am proud of what we did. We put record investment into the national health service. We had the Decent Homes programme, which, in my local council area, provided £360 million to put right homes that were desperately in need of it. There was a huge improvement in school results. We had more doctors, nurses and police on the beat. We had the national minimum wage, peace in Northern Ireland, new schools and hospitals, better health outcomes, and record numbers at university and in work. We also had—Conservative Members have not mentioned this while attacking the economic progress of our Government—a record period of growth over more than 11 years before we were hit by the global crisis.
What is certain is that the Conservatives and their yellow human shields, the Liberal Democrats, will never learn from history. They want to ignore the history of ordinary men and women. Indeed, when the Chancellor was asked in 2007 about his memories of the miners’ strike, he said:
“I’m trying to see if I can honestly remember.”
What we have is a party that selectively forgets the past, including the suffering and misery of a generation of people whose only crime was to want to live in security, bring their kids up well, have a good life and go to work. The Conservatives refuse to remember those things. They are doomed to repeat the mistakes of the past, and ordinary people will pay for those mistakes.
Alec Shelbrooke
I am not sure that I quite understand the hon. Lady’s point.
John Hemming
The hon. Lady claims that the Liberal Democrats fought the election on the basis of not dealing with the deficit. We fought it on dealing with the deficit and that is what we are doing.
Alec Shelbrooke
Absolutely. It is a salutary lesson in the history of British politics that it has taken two parties to come together to deal with the mess that that lot left behind.
Labour Members say that there is no mandate, but nobody in this country was in any doubt about what the Conservative party would do in government, and they voted for us. [Interruption.] I have already given way twice and I will not give way again because I have only six minutes. The public voted for the Conservative party in big numbers. The only reason that it did not end up with a majority was the in-built advantage to the Labour party. Even with that, Labour could not win the election.
Labour Members have learned nothing from their election defeat a year ago. As far as they are concerned, there was nothing wrong with the economy and they knew how to sort things out. They think that the only reason they are in opposition is because people accidentally voted Conservative, and that we are in government only because of the Liberal Democrats. Well, I point out that we have a majority of 83 in this House. As I said, two of the main parties have come together to deal with the mess left by the Labour party. When I was campaigning up and down the country, that is what the British public wanted. They wanted a coalition Government and they got a coalition Government because this mess needed to be sorted out. I think that we should be proud of our record over the past year: job creation in the private sector—up; export growth—up; manufacturing growth—up; the largest fall in unemployment for more than 10 years; 50,000 apprenticeships; 100,000 work experience places; and millions invested.
What is Labour’s plan? From what we can work out, it is to cut taxes and carry on borrowing. What would be the consequences of that? If we had carried on borrowing money at the rate at which it was being borrowed, the people lending us the money would have thought, “Will they be able to pay it back?” They would have said, “Here, have some money, but I’m charging a higher interest rate.” This country faced the danger of unfettered borrowing, which would have meant higher interest rates in the gilt markets and everywhere else. That would have worked through to people’s mortgages. We have spent the last 12 years on interest rates of about 3% to 4%, which were seen as historically low. If the interest rate went back to 3% or 4% tomorrow, it would cause real damage to the people of this country, who for almost 18 months have been on an interest rate of 0.5%. A responsible Government must ensure that frivolous spending and unfettered borrowing do not end up with the people about whom the hon. Member for Blaydon (Mr Anderson) just spoke suffering the consequences of not being able to borrow, not being able to afford their mortgages and not being able to live within their means.
It was interesting that the shadow Chancellor had clearly spent a long time looking into details about Government Back Benchers whom he though might intervene on him, instead of looking into a credible policy. He picked out statements from Government Members to paint the picture that we were all demanding higher spending. Of course, the reason why he thinks that is that the Opposition have no concept of governing for the long term. They do not understand that when my hon. Friend the Member for Dover (Charlie Elphicke) talks about the policies that he wants to have in his constituency, he is talking about the long term. I am sure my hon. Friend will expand on that when he speaks.
I am sure that the shadow Chancellor, having a neighbouring constituency to mine, had a few choice phrases ready for me. I have made no secret of the fact that I would like a better rail infrastructure in my city. However, I have always made it quite clear that my aspirations are for the long term and do not have to be achieved tomorrow. We do not have to borrow trillions of pounds to put them in place now, but such infrastructure could be built up in the next decade or even two.
John Hemming
Does the hon. Gentleman agree that by reducing the rate of interest and the amount of interest paid, in the long term we will be able to spend more on infrastructure than the Opposition would?
Alec Shelbrooke
Absolutely, and I am very grateful to my hon. Friend for making that point. I have said in the House before that when we tell people that we have a deficit of £1 trillion that will go up to £1.4 trillion, they look at us blankly and think, “What’s a trillion?” It is such a huge number. However, when we tell them that every day of every year we are giving £120 million to foreign countries—that is the money that we borrow—they recognise the mess we are in. They recognise that we cannot give schools the improvement that they need, because of the absolute shambles of the private finance initiative projects in Building Schools for the Future. Money was wasted once again on bureaucracy.
Labour Members have banged on about regional development agencies all afternoon, but they were a great way to spend bureaucratic money. The RDAs very proudly said that they had created x number of jobs, but they did not create those jobs, the private sector did. The jobs that they created were paid for out of the public purse. Where did that money come from? From the wealth creators in this country. Everybody understands that if I want to spend £1.25 and I have only £1 in my pocket, I cannot afford to do so. We understood that idea, and the country understood it, which is why Labour Members sit on the Opposition Benches and we sit on the Government Benches.
Toby Perkins (Chesterfield) (Lab)
I think the hon. Member for Elmet and Rothwell (Alec Shelbrooke) forgets that the reason he sits on the Government Benches is that the Liberal Democrats changed their policies and decided to let him sit over there.
Toby Perkins
It is so good to see a Liberal Democrat turn up that I have to let him in. It will encourage him to come again.
John Hemming
I simply point out to the hon. Gentleman that we have not changed our policies. He is asking for more money to be borrowed. Where would it be borrowed from, and what would the interest rate be?
Toby Perkins
It is interesting that the hon. Gentleman assumes what I am going to say already. I am only three seconds into my speech. I will come to that point.
The hon. Member for Elmet and Rothwell said that he was proud of the Government’s record so far. I would not like to be here when he is ashamed. Government Members would like this debate to be about whether we need to reduce the deficit, but that is not what it is about at all. Everyone recognises that we need to do that, and that in 2008, prior to the onset of the biggest global economic crisis in history, we had a lower deficit as a ratio of GDP than in 1997 when we came into power. It was only the scale of the economic crisis that forced the Labour Government to spend money to stop the awful situation that ordinary people were finding themselves in, with jobs being lost and the danger of houses being repossessed. We are proud of the decisions that we made at the time, which were supported by the IMF. It said strongly that this country, under the Labour Government, showed leadership when the rest of the world did not know what to do in the face of a terrible global economic crisis.
Toby Perkins
I think I have given way enough. I am grateful for the fact that the hon. Lady has turned up for the debate, but I shall carry on.
As someone who for the five years prior to coming to this place ran a business that relied on people having money in their pockets to buy non-essential items, I know very well how important it is that decisions on our economy are balanced between the need to support growth and the need to reduce the nation’s borrowing. However, we are debating the economy today because since the Chancellor’s Budget a year ago, the OBR’s initial predictions get worse at every stage. The OBR now predicts £46 billion more borrowing than it predicted a year ago. The Government have discovered that the policies that they are pursuing are not working, so why do they not listen to the advice, change course and ensure that we protect not only the growth that we need in our economy to reduce the budget deficit, but the people on the ground in our constituencies—that includes the constituencies of Conservative Members—who are struggling to get by, whose houses are being repossessed? Repossessions are increasing.
Toby Perkins
I have given way to the hon. Gentleman once. I am grateful for the fact that he has turned up, but I do not want to give him any further encouragement.
The scale of the deterioration in the OBR’s forecasts is stark. The OBR, which was set up to provide an independent view of the state of Government finances, has downgraded its forecasts three times. The Chancellor told us of all the steps he is taking to stimulate growth, but even taking those into account, the forecast is that public sector net borrowing will increase by £46 billion over the next five years, which demonstrates the failure of those policies.
The Chancellor might be failing to get our economy growing, but the same cannot be said of unemployment. Government Members are celebrating, as we all do, the fact that unemployment is down in the last month, but unemployment over the course of the Conservative-Lib Dem Government will go up. Youth unemployment is up. The OBR forecast is that unemployment will rise––[Interruption.] Going forward, the OBR is now predicting that in every year over the next five years unemployment will be higher than in its prediction of a year ago.
Chris Evans
Why did I bother giving way? That is another complacent attitude.
When the Government talk about deficit denial, they miss the point completely. There seem to be two theories. If we follow the Chancellor’s logic, cutting the deficit by £112 billion will encourage the private sector to create jobs. The private sector is going to come to the rescue and all those people who worked in the public sector will get jobs in the private sector. Wonderful—if it works. The other theory is that the Chancellor’s taking £112 billion out of the economy is doing nothing for consumer confidence. When I talk to the shopkeepers on the high street in Blackwood, they say, “The cuts haven’t even bitten yet, Mr Evans, but we are already feeling the pinch.” I am worried about that.
We talk about short-termism, and there seems to be no realisation that the policies to cut the deficit that we put in place today will have ramifications down the generations. There has been a lot of talk about the ’80s. I know that Conservative Members like to worship at the altar of Baroness Thatcher, but when I say that name to anyone in the valleys, they think of two things: fear and hurt. We have had problems with Scottish Power putting its prices up, affecting the most vulnerable in society, but we could do absolutely nothing about it because everything was sold for short-term gain. In 1992, I remember talking to a friend down the pub, and he was in tears. He had gone for a job as a grass cutter and when I asked him what was wrong, he told me that he had not got the job because there had been 60 applicants. “I’m not good enough to cut grass”, he said.
Now, those people have children of their own, and they are worried, too. Figures released in June show that one third of jobseeker’s allowance claimants in my constituency are young people under the age of 24, and I am seriously worried that we are going to have another lost generation. People talk about all this anger against the Labour party, but the only anger I have heard is against the banks. Privately, those on the Government Benches will admit that it was the bankers who did it, but for reasons of political point scoring and advantage, they would rather say that it was the Labour Government who did it—[Interruption.] That is the truth.
John Hemming
Does the hon. Gentleman acknowledge that Tony Blair said in his memoirs that it was the Labour Government who did it?
Chris Evans
No, he did not. This debate would be far more honest if we said that it was the banks. This is like the sword of Damocles hanging over our heads. The banking sector is too large. We have too many large banks. I welcome some of what the Chancellor has said about this—he said that there needs to be ring-fencing between the banks’ retail and investment operations—but if we do not break those banks up and just one of the big six goes under, the economy will be back in trouble. However, we have sent the banks a message that we would send to no other business. We have said to them, “What you’re doing is okay. However you run your businesses, we will bail you out.”
Savings Accounts and Health in Pregnancy Grant Bill
John Hemming Excerpts(13 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
John Hemming (Birmingham, Yardley) (LD)
We are back where we were in the Public Bill Committee: the Opposition are going to fight on the barricades to protect the child trust fund because it is so important. We are in a world where we are borrowing large sums—we have seen in Ireland what happens if we do not bring the finances under control—and the Labour party wants to borrow money to put it into child trust funds. That sounds interesting, and in 18 years, children will be able to access that child trust fund. We then have to ask, however, what happens to the money in that child trust fund, and it is relatively difficult to find out. Today, I looked at the annual reports of the Children’s Mutual. In 2008, the funds were generally worth less than the money put in. In 2009, some were worth more than the money put in and some were worth less.
Fiona Bruce (Congleton) (Con)
Would we not be far better off doing what we are doing now and supporting growth in the economy so that we can provide the jobs that those young people will need when they finish education and start work?
John Hemming
The hon. Lady is entirely right. If we do not deal with the deficit, we face many other problems. We will end up paying a higher interest rate on sovereign debt. At the moment we are doing quite well, with an interest rate of about 3.5%. Before the bail-out, the Irish were being charged about 8% and the Greeks are being charged about 11%. When a country has a large deficit, if that country does not take action, not only does the amount of debt go up but so does the rate of interest.
Sheila Gilmore (Edinburgh East) (Lab)
In April, the leader of the Liberal Democrats said that big cuts would be extremely dangerous. Did the hon. Gentleman agree with him then? If he does not agree with that now, when did he change his mind?
John Hemming
That might be slightly out of order, but I should probably answer the question. There has been a debate about the £6 billion of cuts in this financial year. At about 4% of the overall deficit, £6 billion is not a large sum, but given what happened with the initial sovereign debt crises during the general election—things that we have to be aware of, such as what was going on in Greece—we need to give the message that we are serious about dealing with the deficit. That is a socially progressive policy.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Does the hon. Gentleman accept that the state has a special responsibility for children in care, irrespective of how they end up in care? Even in times of financial difficulty, any responsible parent would look first to the most vulnerable children, and that is what the state should do.
John Hemming
I agree entirely, but it is also the state’s responsibility to make sure that we do not spend £7 million to give people £2 million. Putting aside whether child trust funds bring a return over time, it is absolutely absurd to propose, as the Opposition do, spending £7 million to give children in care £2 million. There has to be a better way of doing things. Also, those children would not get the money until they were 18.
Nic Dakin (Scunthorpe) (Lab)
I think that the hon. Gentleman agrees that we should support looked-after children in some way, so can he suggest a better way? [Interruption.]
John Hemming
From a sedentary position, an hon. Member suggests that we ensure they have a job. That is true, but what we are talking about is a child trust fund that is made available at the age of 18.
Pete Wishart (Perth and North Perthshire) (SNP)
Would not the people whom we are talking about need that money at 18 to pay for the Liberal Democrats’ tuition fees?
John Hemming
The good news is that we are scrapping up-front tuition fees not just for full-time students but for part-time students, but I think we are straying—
John Hemming
The point is that spending £7 million to give £2 million is an appalling waste of money. Anyone who votes for anything like that will have a real stain on their financial track record, because people will observe the Opposition saying, “This is so important that we have do things in this inefficient way.” It is a ludicrous proposal.
Bill Esterson (Sefton Central) (Lab)
The hon. Gentleman has talked about ISAs replacing the child trust fund as a way of saving for children. Does he appreciate that ISAs are often related to stocks and shares and that their value can go down as well as up? I do not see the difference in what he proposes.
John Hemming
At this point, I should declare my interest, which is on the Register of Members’ Financial Interests, as the chair of a company, John Hemming and Co., which provides software to ISA providers. I understand how ISAs operate and that the value of ISAs that are exposed to the stock market can go up as well as down. The difficulty with the child trust fund is that it is relatively small and that there is a great challenge in managing small funds. As a proportion of the fund, the 1.5% charges rate is higher than that for many other funds.
Kate Green (Stretford and Urmston) (Lab)
Is the hon. Gentleman confident that the junior ISA will be more cost-effective for the local authorities that are the corporate parents of children in care than the child trust fund?
John Hemming
There is no reason why a junior ISA should be any less effective for the corporate parents. The issue is that running the computer systems for the child trust fund costs £5 million a year. That cost would not affect local authorities but would mean central Government incurring an extra £5 million in administrative costs now to give children in care £2 million in 18 years’ time.
Kate Green
Rather than this being about whether there will be more or less cost, is it not simply about whether the cost will be borne by central or local government? In the scheme of things, that makes very little difference when we are talking about overall cost to the public purse.
John Hemming
The Opposition’s proposal to maintain the child trust fund and give £2 million to children would cost £7 million, so they would waste £5 million on the process. In the sphere of the massive deficit, £5 million might not seem like much, but it is the responsibility of Government to be effective and efficient in their use of public funds.
Cathy Jamieson
Will the hon. Gentleman confirm that £5 million will still be used for children in care under the Government’s proposals? Will he also tell us how it will be used?
John Hemming
I cannot confirm precisely what is being done in the care system. I am not a Minister; I have never been in a ministerial car and I have no interest in putting my derrière inside one. I happen to be a Back-Bench Member of my party who is very supportive of the Government’s strategy of being cost-effective and of using public funds in the most effective way, particularly to look after the most vulnerable members of society. The simple point, on which I shall end if there are no more interventions, is that it is insane to spend £7 million to give people £2 million.
Paul Goggins (Wythenshawe and Sale East) (Lab)
Let me begin by complimenting my right hon. Friend the Member for Delyn (Mr Hanson) and, indeed, all my hon. Friends for their sterling work on the Bill and exposing clearly its impact on looked-after children and children from all backgrounds. My right hon. Friend said that he wanted to be helpful and conciliatory. I have worked with him for many years and I thought he was very helpful and conciliatory this afternoon. I want to adopt the same approach regarding amendments 51 and 52, which stand in my name. They would place a duty on the Chancellor to report, by the end of 2011, on two things: the impact of clause 1 on looked-after children, and the take-up rate of tax-free savings accounts for looked-after children. Admittedly, this is in its early stages because we do not have the details on the child ISA that have been promised.
Whatever divisions there are in the House, we should always try to reach consensus on our obligations and duties in relation to looked-after children. We should not be divided on that and should constantly seek answers that we can all agree on and that clearly show we are prepared to meet our obligations. Whatever other motives might be attributed to the Minister in bringing the Bill to the House, I do not believe that he came here intending to cause children in care any harm. I believe that the impact the Bill will have on looked-after children is a genuinely unintended consequence. Equally, however, if it is enacted without steps having been taken to ensure that looked-after children are not disadvantaged by its measures, the Government—indeed, all of us—will have failed to meet our obligations.
The Minister has said on several occasions that he wants the new junior, or child, ISA to be the replacement for the child trust fund, which might have merit—I shall not discuss this in too much detail. That policy might well make sense for the child who has a parent who can afford to set up and contribute to an ISA, but for the child who does not have a parent or who does not have a parent who is in a position to invest on his or her behalf, it is meaningless. It is therefore essential to establish in the Bill the principle that the Government should open and make suitable contributions to a child ISA when a child is in care for a reasonable length of time. For me, that is a fundamental principle. I will be listening carefully to the Minister’s response, because its nature and content will be important when I decide whether to press the amendment to a Division.
Mr Hoban
The fundamental difference is that under the junior ISA there will be no contributions from the state, whereas in the case of the child trust fund there were contributions from the state. Our intention is to save money in order to cut the deficit—that is why we are ending eligibility for those sums. The junior ISA will be a simple product. The hon. Member for Stretford and Urmston (Kate Green) queried that, but she should remember—to reiterate a point that I made in Committee—that 20 million people have ISAs, 12 million of whom earn incomes of less than £20,000 a year. The ISA is a mainstream financial product that people of all income streams and all ages understand; they find it very easy to contribute to a cash ISA or to an equity ISA.
John Hemming
Perhaps the hon. Member for Edinburgh East (Sheila Gilmore) was slightly confused about whether people get tax relief on contributions to an ISA. My understanding is that they do not. They get it only on contributions to a pension.
Mr Hoban
Indeed, the tax models for ISAs and pensions are different. With an ISA, the income and gains are tax-exempt, which is one of their incentives.
I believe that child trust fund eligibility should end for children born from January 2011, as the Bill provides, and not from any other date. I continue to believe that ending eligibility is the right thing to do. I know that some find that disappointing, but in the middle of the exceptional fiscal challenge that we are facing, it simply does not make sense to continue to spend half a billion pounds a year on giving people money that is locked up until the age of 18. There are more urgent priorities, and the child trust fund is a luxury that we cannot afford.
I wish now to refer to the amendments tabled by the right hon. Member for Wythenshawe and Sale East and the wider points raised in his new clause and amendment that were not selected. I understand his point about looked-after children, who are among the most disadvantaged young people in our society and face a number of particular challenges that mean they need additional support. As he said, we met last week to discuss the matter, and he outlined to me the proposal that he has referred to today. As I said then, I have a lot of sympathy with what he is trying to achieve, and I want to consider the matter more closely. Indeed, I have already written to the Under-Secretary of State for Education, my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton), to ask his views on the proposal. We will have to consider it carefully, but as I have said a number of times during debates on the Bill, we have limited resources at the moment and there is currently no unallocated funding in the Department for Education budget that could be used for the suggested payments. We would also have to be sure that they were the best use of our resources and gave us the best possible value for money.
As I have said, there is also the question of whether locking up money for up to 18 years provides better value than spending it to support people now, and we need to ensure that we focus resources on our priorities. We will also have to consider what the proposal would leave children with. As the right hon. Member for Wythenshawe and Sale East explained, the provision would not be triggered until a child had been in care for at least 13 weeks, to avoid junior ISA accounts being opened for children who were in care for only a week or so. We know that, thankfully, most children are not in care for long periods. Of the children who left care in 2009-10, about 37% were in care for less than six months. I will therefore wish to consider how many children would receive accounts containing just the £250 Government payment that he suggests, and whether those accounts would necessarily provide good value.
However, as I have said, I am more than happy to continue to consider the proposal with my hon. Friend at the Department for Education, and I certainly commit to maintaining contact with the right hon. Member for Wythenshawe and Sale East. I reassure him that if we do want to move forward with his proposal or something similar, the Bill will not be the right vehicle for doing so. It may be possible to legislate on the matter alongside the provisions on junior ISAs, or even to introduce them without legislation. Not including them in the Bill does not close down our options.
I understood the right hon. Gentleman’s points on amendments 51 and 52, which were selected, but there are practical reasons not to accept them. First, as I have said, we are still looking closely at our options, and that may end up making the reports called for in those amendments unnecessary. Secondly, if we wanted such reports to be produced, requiring their completion by the end of 2011 would be too early. By then, child trust funds would only just have stopped being opened, as the last vouchers are not expected to expire until well into 2012, and junior ISAs would have been in place for only a few months.
Thirdly, I suggest that even if we did want to carry out the reports that the right hon. Gentleman suggests, we could do so without having them specified in the Bill. In fact, leaving them out of the Bill would provide us with more flexibility on both content and timing.
Yvonne Fovargue
I want to talk about the abolition of the saving gateway and the disappointment felt not only by the putative savers but by the credit unions, which thought that it would have a massive impact on the sector. The credit unions put a large amount of time and money into designing and introducing their product because they believed that the scheme had cross-party support. While matching the money is important in incentivising savings, it is not the only factor involved; in fact, it is not always the most important factor in influencing people to save. As we have heard, ease of access to a financial institution cannot be overstressed, and to use the existing credit unions at the heart of the community and to encourage the growth and development of the sector via this product was seen as vital. Indeed, Mark Lyonette said that encouraging people to save with credit unions was the issue. People are used to credit unions giving out loans, but the important thing is to provide them with products that encourage people to save.
The message that has been endorsed by the Government via the scheme is that even a small amount of savings matters, and that cannot be overstated. Most people do not deliberately set out to be in debt, but life events—such as the loss of a job, accidents, disability or even something as simple as the cooker breaking down—can cause debt. A small amount of money saved can act as a buffer, and people can then feel more in control and have more confidence. The value of that feeling cannot be overestimated.
It might be conventional wisdom that people should pay off all their debts before they start to save, but I take issue with that, as do people from the credit unions. As I said, events happen. The washing machine might break before someone has paid off the cooker, and if there is nothing to fall back on, the spiral of debt gets faster and deeper. That is when people turn to the legal loan sharks who charge more than 2,000%, or the actual loan sharks who prey on the vulnerable who have no resources. It is vital to provide a mechanism to remove people from the spiral of debt and make it easier to save. We know that people want to save for such events. Otherwise, why would so many people have saved with Farepak, a scheme that they believed was safe? If we could provide a trusted, easily accessible, local savings vehicle to encourage saving, we would prevent a considerable amount of human misery as well saving the health service a considerable sum for the treatment of depression and, in some cases, attempted suicide due to debt. A small amount of investment now could prevent a huge amount being spent later, and I urge the Government to reflect on that.
John Hemming
The Government have to look at what can be done when resources are limited. It is generally accepted that we need to enable people on lower incomes to save, and access to bank accounts and credit unions are important in that regard. We had an evidence session in Committee, which was quite useful. The Institute for Fiscal Studies has no axe to grind in this regard, but its acting director, Carl Emmerson, said that
“perhaps the £115 million should just be spent on boosting the incomes of these individuals.”
I then asked him:
“Or potentially on a system with more crisis loans?”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 19, Q47.]
His response to that question was yes.
There is no question but that people need to balance their costs when they have to replace a washing machine, for example, and need the resources to do that. There is an issue there, but the Government need to look at the best way of helping people in those situations.
Fiona Bruce
The Government are not leaving people entirely bereft of support, are they? Next spring, the new national financial advice service will be introduced, which will make available to everyone who needs financial advice—not just those in education—real support to ensure that they make the best financial plans for their families.
John Hemming
Indeed. The difference with this particular scheme was that it was to provide a way of matching funds that people put into their savings. If we go back to the evidence session, we find that the Institute for Fiscal Studies was asked whether it thought the child trust fund did no harm; in fact, it showed that this particular scheme had the potential to do harm by encouraging people to put money into the savings account rather than pay off the debt at the time. The Royal College of Midwives said that if people have just had a baby, it is better for them not to save money, but to spend it on healthy living and feeding the baby well. I believe that this is where the Opposition are fundamentally wrong. According to the IFS—again, I stress the IFS rather than the Government or the previous Government —there was no strong evidence that greater saving was encouraged.
Mr Hanson
I would be grateful if the hon. Gentleman could tell us why the Minister of State, Foreign and Commonwealth Office, his hon. Friend the Member for Taunton Deane (Mr Browne) supported the scheme prior to the election, did not oppose it during the election and did not vote against it on Third Reading?
John Hemming
We need to find some way of reducing this country’s borrowing. We do not want to end up like Ireland or Greece. If, on looking around, we find something that costs £115 million—
John Hemming
If there were an amendment to say that we should delay it until it is instituted by order, I would find that more reasonable, but I do not think we should set a date in the future. If there is not sufficient independent evidence that this scheme achieves a result and there are good arguments to show that there are better ways of helping people in these circumstances, I would press the Government to consider them and work with organisations such as the credit union movement to ensure that everyone has access to accounts, is encouraged to balance out their financial positions and gain wider access to crisis loans.
Bill Esterson
The hon. Gentleman did not answer the question about why there was such a change of heart. When the figures came out after the election, they showed that borrowing was £20 billion lower than had been assumed before the election. That could not have been the reason for the change of policy.
John Hemming
The hon. Gentleman ignores the fact that there was a sovereign debt crisis in Greece and that we need to learn from circumstances. If we do not do so, we will face great difficulties. We have a saving of some £100 million-plus on a scheme viewed by independent experts as not being the best way to use that money. There is no independent evidence that it even achieved its objective, save perhaps for reducing the amount of money people spent on restaurant bills when eating outside the home or on takeaways. That is what the IFS drew our attention to at the evidence session. If we are serious—and we are—about ensuring that the Government keep the interest rate on sovereign debt down so that we avoid ending up with the problems of Greece or Ireland, we must take that into account.
Yes, I accept there is a job to be done: we need to look after people on lower incomes and ensure that they have access to funding systems so they can balance their finances when they incur higher expenditure. We also need to encourage people to save where appropriate, but it is not always appropriate to do so. As I mentioned, the Royal College of Midwives said that a mother who has just given birth should not be concentrating on saving all her money; she needs to focus on eating well. On that basis, the proposals represent an entirely sensible and reasonable way of reducing the amount of money that the country has to borrow.
Sheila Gilmore
First, the selection of evidence we have heard from the Committee sittings is very limited, particularly from the hon. Member for Birmingham, Yardley (John Hemming). Other people giving evidence explained exactly how helpful the saving gateway scheme had been in its pilot phases and could be in the future. Mark Lyonette of the credit union movement said how important saving was, not only because of the money actually saved, but because of
“what it does to people’s confidence that they have… a few hundred pounds built up over a year or two. It gives them some sense that they are more in control. They will have credit commitments at the same time, but it is really important to feel that there is something of a buffer. Whether through the savings gateway or some other initiative, we think that the Government can encourage—and needs to encourage—more people to get that better balance between what savings they have, however small, and their credit.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 49, Q143.]
Yes, he also said that the saving gateway was not the only way to generate savings for the credit unions, but when asked whether it would make an important contribution he said “Yes, absolutely,” it would.
I did not quite understand the rhododendrons reference of the hon. Member for Blackpool North and Cleveleys (Paul Maynard), but he seemed to suggest that we believed that a scheme like this was “the answer” to deprivation and poverty. That is obviously nonsense. We are not suggesting that and we never have suggested it. It is one part of a whole jigsaw of provision that has to be put in place. It is that part of the jigsaw that needs to look forward to two things: first, questions of asset inequality; and, secondly, long-term solutions where people begin to change their behaviour and build up some assets for themselves.
John Hemming
Let me ask a question. If the Labour party will not cut these three things, what will it cut? They are probably three of the easiest things to cut that could possibly be identified.
Let us take the child trust fund. At present we have a deficit. Every year, we borrow the deficit and add it to our debt. Putting money into the child trust fund means that the taxpayer—the state—borrows some money and then puts it into a fund. Some of the funds lose money while others gain money. Hopefully, 18 years later there will be a little bit of money for someone. If the Labour party cannot cut that, what will it cut? As the witnesses said, if we want to help people when they are 18, we can help them when they are 18. If we want to help 18-year-olds who are leaving care, we should help them at age 18, not so that they will have to wait for 18 years. It is absurd to borrow money today to put in a fund that might lose or might make money—there is evidence of both eventualities—and then 18 years later maybe a young person will have some money.
We have to make choices. A key question is whether people on lower incomes, and especially those who have just given birth, should spend money on food and health or save some money. In Committee, I asked Katherine Rake that question and she said:
“You cannot make a choice in that way.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 4 November 2010; c. 95, Q244.]
In essence, that is the Labour party’s argument. The Opposition are basically saying, “We don’t make choices. There’s no need to make choices. We can have this and this and this, and we can keep on going until the interest rates go sky high, we lose lots more jobs and we have a sovereign debt crisis.”
On Report, the hon. Member for Edinburgh East (Sheila Gilmore) talked about paying down the deficit. We do not pay down a deficit; we pay down debt. The deficit is the amount of money added each year to our debt, and the danger we face is that if we are not careful the interest rates on the debt will rise as well as the debt itself, and that would mean more cuts. If Opposition Members are going to argue this point of view, therefore, they have to explain where the cuts would come from, but they have not answered that. Are they going to close down hospitals to pay for these things? Are they going to sack more police officers? We face a very difficult time, but if the Opposition say they would keep these three particular projects, they have to explain where they would get the money from to pay for them. Would they put VAT up again?
Pete Wishart
If I had closed my eyes, I would have thought this was the hardest right-wing Thatcherite speech I had ever heard, yet it is being made by a Liberal, for goodness’ sake. Why are the Government taking this out on women and children? If cuts have to be made, why is it women and children who are in the firing line?
John Hemming
What we are talking about is putting some money in a fund and leaving it there for 18 years. That is not going to affect any woman or child for 18 years. What we should be doing is looking after people now. Our priorities have to be the vulnerable people now. We have to give priority to protecting the poorer, the less well off, the vulnerable and those with learning difficulties now, rather than putting some money away for 18 years.
Kate Green
Can the hon. Gentleman give me one single instance of where the incomes of the poorest are being increased by this Government?
John Hemming
Well—[Interruption.] Sorry? [Interruption.] Yes, that is a good one. The tax threshold is a good example. One area we are focusing on is low-paid people in work, so there is the first stage of gradually increasing the tax thresholds up to £10,000 a year, and the universal credit itself should be particularly helpful to those on benefits and low pay, such as many people who come to my advice bureau. On Saturday, I did some calculations with somebody who had worked out that when we took into account all the rules the Labour party had produced over the years, it was not worth his while to work. Interestingly, in that instance that was because of a Child Support Agency deduction. We need to focus on the low-paid and make sure that people get into work and through that route get themselves out of poverty. That is a good example of our putting money into the hands of low-paid families.
There is no evidence that the child trust fund produced extra saving, there is no evidence that the saving gateway produced extra savings—and there is only some evidence that, perhaps, it reduced spending on food outside the home—and there is no evidence that the health in pregnancy grant did any good for health in pregnancy. On that basis, if we are not going to cut these measures, what are we going to cut?
Savings Accounts and Health in Pregnancy Grant Bill
John Hemming Excerpts(13 years, 6 months ago)
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Kate Green
It is not a case of either/or. We should be doing everything possible. We should be maximising families’ financial stability and security through education, employment and a redistribution of income and wealth.
One misconception should be properly analysed. It is absolutely not the case that inequality rose exponentially under Labour. In fact, it more or less flatlined. It rose a bit during the last couple of years of Labour government, but according to the Institute for Fiscal Studies—admittedly not the Government’s favourite think tank—without the measures taken by Labour between 1997 and 2010, given the trends experienced under the previous Conservative Government, it would have been very much worse.
The hon. Lady and other Members on the Government Benches are right to say that we are all anxious to reduce inequalities; what I do not understand is how on earth the Government think that proposals of this kind will do that. How on earth do they think that removing the saving gateway will address the gender inequality involved in the fact that women have 40% less in savings than men? How on earth do they think that removing the child trust fund and the saving gateway—benefits that provided extra money or extra access for people with disabilities—will deal with the inequality of disabled people?
John Hemming (Birmingham, Yardley) (LD)
The hon. Lady asks how on earth the Bill will reduce inequality. It will do so by removing universal benefits and replacing them with targeted benefits.
Kate Green
First, let me remind the hon. Gentleman of what I said earlier about the effectiveness of universal benefits in reaching the poorest. Secondly, even if we accept the hon. Gentleman’s contention on its own terms, it does not provide a case for abolishing those benefits. It may provide a case for retaining the existing structures and targeting them for a time. Obviously I do not want that to happen—I want us to maintain as much universal support as we can—but at the very least I ask Government Members why they want to rip the whole thing up and throw it out, rather than trying to target it more effectively.
Kate Green
I will not give way, because I am about to end my speech.
I urge the Government to reconsider their proposal to abolish these benefits. I ask them to examine ways in which they might be able to maintain structures that have been effective, and have the potential to continue to be effective, in supporting the poorest families in the immediate future and—this is also important—in the longer term. Unless they come up with credible alternatives to reduce and remove income and wealth inequalities, I will not support their proposals, and I will not support the Second Reading of the Bill.