Budget Resolutions and Economic Situation

John Redwood Excerpts

Wednesday 18th March 2015 Commons Chamber

[Alison McGovern]

I am glad that the hon. Lady focuses on those with the least. I have been to Brighton and seen people rough-sleeping, and it worries me greatly that the council there is insufficiently focused on those with the least. She also mentioned wrong choices, and I want to say a little more about the right choices. First, we need to focus on the financial services industry, because it worries me that the Chancellor has defended bank bonuses on many occasions, not least in Europe. That is why I want to see us raise more through a bank levy, which we will invest in the next generation through our pledge for free universal child care for three and four-year-olds from working families.

[Mr John Redwood (Wokingham) (Con)]

In the final year of the five-year forecast, the Chancellor will increase public spending by £38.1 billion in a single year. Does the hon. Lady think that is enough? If not, how much more would she like?

[Alison McGovern]

If the right hon. Gentleman had been listening to my speech, he would have heard me say that we need to make the right choices and show our priorities. As I was saying, the right way to close the budget deficit is to focus on taking money through a bank levy on the financial services industry and investing that money in the next generation and in hard-working families in Britain. I am pleased that we have confirmed that the next Labour Government will have no requirement for new debt for our election pledges. That is the right way to go about managing the British economy.

The right investments matter. It matters whether we choose to invest in infrastructure for the long term. I am sorry that the rhetoric about investment is still not matched by the reality on the ground, and is still so heavily focused—as it has been over the past five years—on London and the south-east. Of course steel in the ground matters, but we also need to think about our education system as part of our country’s infrastructure. I am concerned that we have not heard a pledge from the Chancellor to match our commitment to fund education properly and to ring-fence that budget all the way through children’s lives.

While we are talking about the right balance and right investment, I want to talk about the north of England. I am in politics because I grew up on Merseyside in the 1980s and 1990s and I knew that the then Governments did not care very much about families like mine. I wanted to see a future for my friends and family in Wirral South in which they did not have to leave the place that they loved to have a successful career. Under the last Labour Government, that was happening. We had “The Northern Way”, which saw regional development agencies investing in the north. That was the right way to rebalance the economy, and it was working. Labour investment was working.

Today the Chancellor has tried to use rhetoric and spin to talk about a northern powerhouse that nobody in Merseyside believes in for a second. We have been living with the Chancellor’s true political priorities—a level of cuts not seen in the wealthier parts of the country. That is despite historical deprivation and the fact that we are still living with the consequences of a Tory Government who deindustrialised the north and provided no other options. “The Northern Way” and the regional development agencies were working under the last Labour Government, and that was the right way—not soaring rhetoric about northern powerhouses, but actual investment in the north—[Interruption.] If the Under-Secretary of State for Transport, the hon. Member for Devizes (Claire Perry), wants to intervene, she is more than welcome. As she does not seek to do so, I take it that she has nothing to say about the north.

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[Mr Mark Hoban (Fareham) (Con)]

May I first refer Members to my declaration in the Register of Members’ Financial Interests?

I commend the Chancellor for his Budget, which continues the themes of economic reform and fiscal consolidation that we have seen in each of the Budgets and autumn statements in this Parliament. It is that twin-track approach that has led to a fall in the deficit, putting the nation on a path towards a surplus in 2019-20, with one of the strongest growing economies among our competitors, falling inflation and a job-rich recovery confirmed by today’s unemployment figures.

It is absolutely vital that we continue the programme of deficit reduction. The previous Government spent beyond the nation’s means, increasing the deficit even when the economy was growing. In his speech, my right hon. Friend the Chancellor mentioned the fact that debt as a proportion of GDP increased in each year of the previous Labour Government. Even in the good times, Labour continued to spend more than the country could afford. The problem we inherited was not that the UK was under-taxed, but simply that the Government were spending too much. It has therefore been right that the bulk of deficit reduction has been borne by spending cuts.

I am pleased the Chancellor has reconfirmed our commitment to tackling the deficit after the next general election. It is wrong of both the Labour party and the Liberal Democrats to seek to slow the pace of deficit reduction. The longer the deficit takes to tackle, the more debt we will incur. Labour has failed to mention—I notice the Leader of the Opposition failed to mention it in his speech today—the £30 billion of cuts it has already signed up to. It is also pledging to spend £50 billion more than we are, which would require increased borrowing or increased taxes. The people of this country cannot afford borrowing on that scale, and to continue would be inequitable. There are three reasons why I think it is wrong.

[Mr Redwood]

I would just like to point out that although we have cut the planned spending increases of the previous Government, public spending has actually been going up. As the Red Book confirms, Government spending went up by 1.5% in real terms in 2014, and by another 1% this year.

[Mr Hoban]

That demonstrates the challenges we face to get the pace right. One thing we should be absolutely clear about is the importance of sticking to the course. There are three reasons why it is important to stick to the course of reducing the deficit and reducing debt. It is inherently unfair for future generations to bear the cost of debt we have built up.

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[John Healey]

There are not many Members opposite, as the hon. Gentleman says. [Interruption.] He will remember, however, that after 10 years of the last Labour Government, before the global financial crisis and recession hit, borrowing and debt were lower than when we entered office. We have a deficit to deal with because of how the Government intervened to pull the country through that deep recession, to keep people in their homes and jobs and to keep firms in business. Of course there is a deficit, and of course it needs to be dealt with. The difference between the parties is that we will deal with it in a more balanced way. There is a choice. We can do it with tax rises that are fair, spending cuts and efficiencies. We will do what we need to do in a more balanced way.

[Mr Redwood]

Is it not the case that the most significant change after 2008 was the plan, which Labour backed and which the coalition continued with for its first two years, of taking the RBS balance sheet down from £2.2 trillion to £1.5 trillion? Was that not what provided the mighty shock to the British economy? It was something that Labour wanted to do.

[John Healey]

The intervention in the collapsed and failing banking system was a necessary step that the last Labour Government took with support from others, and most of the RBS and other bank intervention is dealt with differently in the national accounts. I would have thought that the right hon. Gentleman would have realised that.

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[Mr John Redwood (Wokingham) (Con)]

I remind the House of my declaration in the Register of Members’ Financial Interests, as I offer advice to an industrial and an investment company.

I rise to correct some of the myths emanating from the Opposition, who do not seem to read the figures. I hope they will catch up with the Budget detail from the Red Book now that it is more commonly available. We are talking about a set of plans for a five-year period that demonstrate that the Government think that, given the growth in the economy, they can afford to spend £60 billion a year more by the final year of the forecast period than is currently being spent.

The biggest change announced in this Budget is a very substantial increase in the planned amount of spending for the end of the period, 2019-20, at which time the Chancellor proposes a £38.1 billion increase in total managed expenditure—well up on the figures in the autumn statement. This is good news. It shows that the Chancellor is reflecting the confidence in the economy, the reduced cost of interest charges as the cost of borrowing comes under better control and the lower rate of inflation, which will have a beneficial impact on the cost of providing public services.

[Mr MacNeil]

The right hon. Gentleman is giving an impression of a growing state, when what is happening in real terms is clear from page 112 of the Red Book—that, as a percentage of GDP, this Chancellor and his party are cutting the state by 13%, which will affect the poorest in society most. That is the legacy of a Tory Government.

[Mr Redwood]

I am giving the cash numbers, which are clearly set out on page 111. If the hon. Gentleman is patient, I will come on to deal with the argument about real terms and the percentage of the economy.

Let us start with cash. The £60 billion increase in the annual spend at the end of the period is a big increase, and if we can keep inflation of costs down, it could provide a real increase. We had these arguments at the beginning of the last Parliament. When I quoted the cash figures, people said it would amount to a real decline, yet we have had a real increase, with the last two years seeing real increases in total general public spending, as I indicated in a recent intervention and as this Red Book makes very clear. If the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) reads it he will see the real increases in general Government current spending over the last couple of years. Those have been affordable and the lower rate of inflation is helping.

If we look at public spending as a percentage of GDP, we see that, yes, it will fall, but that is extremely good news, because it means people will be able to keep more of the money they earn from their productive activities and as the economy is growing we can have better public services.

One of the cruellest myths being put around by the Opposition at the moment is that if we took public spending to 35% of GDP, we would be cutting it to 1930s levels. That is complete nonsense: for most of the 1930s, public spending as a percentage of GDP was well below 35% in any case, but I recently looked at the numbers and found that, in real terms, public spending this year is nine times the level of real public spending in the early 1930s—nine times in real terms.

[Mr Newmark]

It is statistically worth pointing out that the direction in which we are heading is towards 35.2% of GDP, but that when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was Chancellor he was spending about 35.8% or 35.9% of GDP. There is not a huge difference between where we are going and where he was.

[Mr Redwood]

To make the point, the Chancellor has said that he will spend a little bit more in the last year of the period so that we reach exactly the percentage of GDP that Labour thought appropriate in 2000. We cannot say that because we are spending the same percentage of GDP we have cut spending or that it is down in real terms. If we have a healthy, growing economy, public spending is well up in real terms, as is the general size of the economy. We should welcome that. What we want is growth in the economy, so that we can have affordable growth in the range and quality of public services. That is exactly what this illustrates. I hope that Labour Members will stop trying to con people into believing that if we ended up with 35% of GDP—1% lower than the Chancellor intends—we would somehow have 1930s levels of public services. It is so absurd that I cannot believe that they even dare to repeat such nonsense day by day.

What we want from this Budget, and what I think it helps to deliver, is more growth. It is great news that we now have such good employment figures, which show record highs. It is good news that unemployment is reducing and good news that youth unemployment in particular is reducing.

What has happened over these five years is quite remarkable if we consider two important background points. The first is the state of the banks inherited in 2010. This House has never really understood or grappled with the magnitude of what happened to the banking system under Labour, or the magnitude of the changes between 2008 and today, particularly with respect to RBS and HBOS. If we had asked most economic forecasters what would happen to the UK economy if we took about £1 trillion of assets off the balance sheets of two leading banks, they would probably have forecast that the economy would crash in a remarkable way. What is fantastic for our country is that after the initial crash over which Labour presided in 2008-09, we have managed to get the economy back to growth while mending the banks and going through the extraordinary shrinking on the banking balance sheets. [Interruption.]

I find it remarkable that Labour Members will not listen to what I am saying. They lived through this dreadful experience and their regulators allowed the banks to over-expand their balance sheets, when many of us were saying that it was going too far. [Interruption.] Indeed, we did. We constantly said that regulation was too lax. I remember writing in the report of the economic policy review undertaken by the Conservative Opposition that, while in some areas there was far too much regulation, the regulation of the things that really mattered—cash and capital—was far too lax, and needed to be tightened. However, the Labour Government and their regulators then made the worse mistake of over-tightening in a hurry, and precipitated a major crash. Labour needs to learn from that. Indeed, we all need to learn from it, because we do not want it to happen again. We need to understand why there was such a big crash in output and in people’s living standards and real incomes, and why it took time, between 2008 and 2013, for growth to resume. The reason was that the banking system was so badly damaged that, obviously, it took time to get it back into shape.

As the Chancellor said himself, there was another reason for our problems. In 2011 there was an extremely unpleasant euro crisis, which had an impact on Britain because we live by foreign trade as well as by our domestic activities. We had to shelter ourselves from the worst of that. We are now in the process of orientating our trade much more strongly towards Asia and the Americas, the growing parts of the world, and away from the European area, which is mired in recession and is still experiencing enormous difficulties. It decided to create a single currency without creating a single country to back it and love it, and is having to live with awful strains and stresses as a result.

As we meet today, this Budget is an important event. It is certainly a very important event politically in the United Kingdom. However, a far more important set of events is taking place on the continent, where hectic negotiations are taking place between Greece, Germany and the rest over whether Greece can stay in the euro. It is not easy to see a happy outcome in either direction from those very pained discussions, but are we not glad that we are not having to live with that awful experience in this country, thanks to some of us who urged very strongly that we should stay out of the euro? [Interruption.]

The hon. Member for Bishop Auckland (Helen Goodman) thinks it is funny that Greece has a youth unemployment rate of 50%, but I do not. I think it is a disgrace. I also do not think it is funny that several countries on the continent have a general unemployment rate of 25%. That is quite unacceptable, and the Labour party would rightly condemn it every day of the week if it were happening here, but it is not happening here because we ran our own economic policy, and we have done a much better job that they did on the continent.

[Mr MacNeil]

Does the right hon. Gentleman accept that most of the problems of the European Central Bank are to do with a fixation on inflation—a fixation that he shares?

[Mr Redwood]

I have no fixation on inflation, but neither do I think that runaway inflation creates prosperity. It is necessary to manage inflation, and to manage growth, and to have an economy that can expand. I am very pleased that this Budget helps to create and preserve the expansion that is now under way in the United Kingdom. I think it is good news that it contains measures to promote more home ownership and saving, and I think it is good news that it contains measures that will help enterprise and business to promote more jobs, because what we want are more jobs and better-paid jobs.

I was pleased to hear the Chancellor say that most jobs now are full time, and that many are highly skilled. That is what the country needs: more skills, more opportunity, and the chance for individuals to train, work and educate themselves well so that they can get better-paid jobs. That is what we all want in the House. It is sometimes suggested that the Conservatives do not want it, and I find that regrettable. We want it as much as anyone else. We want more jobs, better-paid jobs, and more skilled jobs. We know that we have to earn our money, and we want to create opportunities for people to earn theirs.

The Budget contains some sensible judgments on how much the country can afford in increased public spending. I think that £60 billion is a perfectly good judgment of the amount of extra public spending that will be possible by the end of the next Parliament. It also contains a judgment on how we can finally get rid of the deficit and start to cut the debt. I find it a bit odd that Labour has been telling us that too much was cut in this Parliament, and is now saying that the deficit is too high. I have news for Labour. You have to cut if you want to lower a deficit; it does not just magic away. The question is, how do you get that judgment right?

[John Healey]

It is possible to deal with a deficit simply by cutting, which is largely what the right hon. Gentleman’s party has done, but it is also possible to deal with it in a more balanced way by cutting where cutting is needed, raising revenue where it is right to do so, and ensuring that there is enough growth to bring in the revenue. That was the fundamental problem with the policies that existed at the beginning of the current Parliament.

[Mr Redwood]

The right hon. Gentleman has just described the policy of this Government. They put some taxes up, they went for growth—which is now coming through, and is helping to tackle the deficit problem—and they reduced the over-optimistic spending plans of the outgoing Government.

We have been told that it was wrong to cut capital spending. Well, I seem to recall that the only bit of spending that the Labour Government cut in detail before leaving office was the capital budget. They made massive cuts in capital. The Chancellor has restored some of those cuts, but because of the parlous state of the overall finances, he could not restore all of them.

The Budget presents a good package. There is good news on home ownership, good news on employment and good news on growth. A great many myths need to be put back into the dark room, because they are not going to con the British public.

[Sammy Wilson (East Antrim) (DUP)]

Let me begin by making it clear that my party has no political axe to grind when it comes to whether one party performs better than the other, although the hon. Member for Reigate (Crispin Blunt) has been on local radio in Northern Ireland telling people to vote for anyone but the DUP. We will not hold that against the Conservative party. We want the United Kingdom to succeed, and we want its economy to succeed. I think it is in the interests of all my constituents that the Government of the day—whoever they happen to be—get the policy right, because that means that people will have jobs, a good standard of living, and good public services.

The Chancellor began his speech today by saying that Britain was now walking tall, and he quoted some impressive figures. We had better growth than the rest of Europe and the other G7 countries, we had lower unemployment, we had rising living standards, and we were selling shares in banks that were bankrupt six years ago. However, while we may be walking tall in some respects, there are still people in the United Kingdom economy who are not walking tall, but are stooped under the burden of parts of the economy which are ailing. The growth that the Chancellor has talked about has not been universal. He cited impressive rates of growth in northern areas, although I note that he did not mention Northern Ireland. As I often used to say to economics students, “Look at the base from which you are starting.” Which areas were hit most by the recession? It was the northern areas, including the north-east and the north-west.

[Mr Redwood]

What Northern Ireland clearly needs is more private sector industry and activity. Does the hon. Gentleman not think that a good way of promoting that would be a much lower rate of corporation tax, which is just what the Government are giving him?

[Sammy Wilson]

I shall come to that point. I am not suggesting that everything that the Chancellor has done is wrong. What I am trying to do is paint a picture of a country in which not every region and not every individual is walking tall. Not only some regions, but some groups of people, are still suffering and stooped under the burden of an ailing economy. Young people in my constituency are suffering as a result of youth unemployment; other people are in the lower wage brackets, or are in jobs in which there is uncertainty or the effect of the economic downturn has depressed wages the most. Those people are not experiencing the improved living standards that the Chancellor has described today.

I welcome the fact that, as of the last year, 542 fewer people are on the dole or on welfare in my constituency. Nearly every week, however, people come and talk to me about the effects of the recession and the way in which it has changed employment practices, Many are uncertain about their incomes. Some are earning the minimum wage, some have jobs that are insecure, and some are not always paid because of the nature of their contracts. The Chancellor has said today that the minimum wage will be lifted and that some people will be lifted out of taxation; nevertheless, that has to be set against the fact that, for many people, those gains by Government action are depressed by employment practices that are becoming more prevalent in parts of the economy. Banks may be selling shares, but some of that growth and improvement—this is certainly the case in Northern Ireland—is being achieved by banks quickly foreclosing on those to whom they recklessly lent and by suppressing businesses instead of giving them the chance to grow.

Although the economy may be walking tall in the Chancellor’s eyes, there are many obstacles along the road that could cause us yet to stumble. I hope we avoid them, but let us look at some of the information even in the Red Book. Productivity growth is weak, which of course makes it difficult for real living standards to increase—if productivity does not increase, there is not the same chance for wage increases. Exports have not been growing in the way that the Government anticipated; indeed, the fact that the balance of payments deficit is 6% of GDP will have a deflating impact on the economy. Despite what the Chancellor has said, his own figures show that he is still dependent for future growth primarily on consumer spending. In other words, we are still dependent on people taking on the very debt that we have said brought about some of the problems we are now experiencing.

At the same time, growth in investment is weak. Growth in private sector investment is going to go up. That is quite right; however, according to the OBR forecasts, over the period of the next Budget, public sector infrastructure investment will be reduced by 17% as a percentage of GDP. That is one of the problems I have with the current policy. While I understand and, in fact, probably have more sympathy with the arguments put by Government Members—about getting the deficit down and making sure that we do not have huge debt interest, that we have confidence in money markets and that we do not have to pay more for the debt we undertake—there are ways that the Government can stimulate the economy. One way that can be done is through infrastructure investment.

I cannot understand why the money markets are more confident about lending us money to pay for welfare benefits than they are about lending it to pay for infrastructure development. There have been infrastructure developments in my constituency, such as the new road from Carrickfergus to Belfast. The improved travel times have led to investment by companies already in the town, which was isolated because of the difficult roads. The return to the Northern Ireland economy from the Titanic project in Belfast, with £90 million of investment and the return in tourist numbers—nearly 1 million in the first year and a half, with the impact that has on local pubs, hotels, restaurants and so on—has been terrific. At a time when we need to stimulate the economy, I cannot understand why the Government are planning to reduce infrastructure investment, which could produce real returns.