Finance Bill

John Redwood Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Byrne]

I am grateful to the hon. Gentleman for raising the question of mandates. If one thing is clear in the debates that we have had in the months since the election, it is that there is absolutely no mandate for the VAT measure in the Finance Bill. I would be interested to hear how he is explaining that to his constituents.

I do not believe—nor have I heard any explanation of this—that some kind of recovery plan on the cheap could have delivered the economic recovery that is now under way. In life’s difficult moments, one is always open to advice, but the truth is that if we had followed the prescription of the Conservatives, we could have kissed goodbye to the recovery, not least because our banking system would have collapsed, the cash points would have stopped, the dole queues would have spiralled, repossessions would have spiked, and Britain’s small businesses would have been submerged beneath a wave of foreclosure, bankruptcy and liquidation.

[Mr John Redwood (Wokingham) (Con)]

In August and September 2007, when I and some others were urging the Government to make more cash and liquidity available to the banking system to prevent the collapse of Northern Rock and others, why did they ignore our warning? Why did they lecture the banks about having got it wrong, instead of supplying reasonable amounts of money to see them through, and then bankrupt them as a result?

[Mr Byrne]

I seem to remember that the Government’s response to the banking system was opposed by the Conservatives when it came down to the substance of a vote. When legislation was brought before this House to accelerate the way in which the banks could be sorted out, the Conservatives voted against it.

In the Budget and the Finance Bill, the Conservatives should have centred their rationale on how the recovery can be sustained. In the debates on those measures, I think we have established that there is a consensus that the deficit has to come down. The price of dodging an economic doomsday was not cheap, and the deficit was bound to rise. However, when the shocks hit back in 2008, we had the second lowest debt in the G7. Between 1997 and 2007, we cut public sector debt from 42.5% of gross domestic product to 36% of GDP. Over the 10 years before the crisis, UK borrowing averaged 1.4% of GDP compared with 1.9% for the rest of the OECD economies. As a result, even amid the current expense, our national debt will simply rise in line with every other major economy.

We have learned something from the debates on the Finance Bill and the Budget about the disposition—the economic philosophy—not only of the Conservatives but of the Liberal Democrats. They may feel that the price of recovery was not a price worth paying, but they cannot ignore what economic statistics are now saying about how the recovery is improving the position of the public finances. In March, my right hon. Friend the shadow Chancellor told the House that the deficit this year was £13 billion better than expected for 2010-11; in June, the Office for Budget Responsibility said that it was £8 billion better even than that. Since February, £123 billion has been knocked off projections for national debt, and that is before we sell our shares in the banks. The Government’s budget was underspent last year to the tune of £5 billion according to Treasury figures that we saw a week or two ago, and interest rates were falling in the months before the election.

When we examine the savings generated by falling unemployment, we can really see the wisdom of a strategy that hinges on growing our way out of recession. Our policy all along was to act to ensure that we kept unemployment down. Not only did that policy work well, and not only was it morally right, but it was economically wise. Our policy has delivered unemployment that is 2% lower than either in America or across the European Union. In the Budget in 2009, we had to assume that unemployment would stick at about 2.44 million. A year later, in the 2010 Budget, that forecast had fallen by 700,000 people to 1.74 million. That meant that over the four years from 2010 to 2013, there would have been a fall of £14 billion in the unemployment benefit bill, as well as an incalculable saving in human misery.

With that inherited recovery in place, the question that the House should ask in relation to the Finance Bill is what action should be taken to speed up the recovery. How can we guarantee the recovery’s certainty and begin to marshal investment into rebuilding an economy that is better balanced? Instead of providing any answers to those questions, the Budget and the Finance Bill will slow the recovery down and put more people on the dole. They offer a strategy for rebalancing the economy composed in equal measure of a wing and a prayer.

Nothing better illustrates the gambling instincts of this Government than the fast cuts to public sector jobs and the depression of consumer demand through VAT. With the most breathtaking casualness, they are prepared to put our hardest-fought recovery at risk. With such an unlikely scenario for growth in his pocket, one would have thought that the Chancellor might just hedge his bets a little and ensure that the private sector was creating jobs at some pace before bringing forward plans to sack up to 800,000 public servants. One might have thought that he would have some regard for cities such as my home town, Birmingham. It already has high unemployment, but if the Chancellor cuts 9% of the 156,000 public sector workers there, it will potentially rise by 14,000 people. That will not help the recovery in Birmingham; it will act as a drag anchor on recovery. That story can be told in towns and cities all over the country.

--- Later in debate ---

[Mary Creagh (Wakefield) (Lab)]

I want to look at three areas of this Finance Bill. The first is the economic impact of the fiscal conservatism contained therein, and particularly how, in tandem with the fiscal consolidation taking place across Europe, it threatens a double-dip recession not just here but Europe-wide. Secondly, I want to look at the social and labour market consequences of the double whammy of the VAT bombshell and the deep spending cuts. Thirdly, I shall focus on the political implications of the Liberal Democrats making the wrong choices by voting in favour of this Bill this evening.

On the economic impact of the Bill, we see the pursuit of the Goldilocks economy—one in which neither too much nor too little is spent, but the spending is somehow just right. We all know that fairy tales are fine for little children, but it is a dangerous metaphor because it over-simplifies a complex economy still in a fragile state of recovery. How do we know that it is dangerous? Well, because the Office for Budget Responsibility tells us that growth will be lower and unemployment higher in future years, with 1.3 million jobs set to be lost over the next four years as a result of the measures in this Finance Bill.

I tabled a parliamentary question a week or so ago about the contact between the Office for Budget Responsibility and the Treasury on 29 and 30 June and 1 July—and in the aftermath of those sticky Prime Minister’s questions debates. So far, I have had no reply from the Economic Secretary. I would have thought that it was a fairly simple thing to look into officials’ diaries, ministerial diaries and phone records and to give the House a reply on the important question of whether pressure was put on the Office for Budget Responsibility.

The pre-eminent question raised by this Finance Bill, but left unanswered by those on the Treasury Bench, is: how does taking money out of the economy increase confidence, boost growth and secure the recovery? The answer is, quite simply, that it does not.

There seems to be an insistence that Government spending is somehow crowding out private sector investment. That is ludicrous. The United Kingdom’s output gap—the gap between what it produces and what it has the potential to produce—is somewhere between 4% and 6%, depending on whose estimate we accept. The Chancellor expects the private sector to take over demand from a shrinking public sector, but is silent on where that private demand will come from. It is clear from what has been said in the debate that there are no real answers to that question.

The Government say that 2. 5 million jobs will be created—

[Mr Redwood]

Will the hon. Lady give way?

[Mary Creagh]

I will not, because we have only one hour left, and eight Members wish to speak. The Front-Bench spokesmen took their time, and I intend to take my time.

The labour economist David Blanchflower, a former member of the Monetary Policy Committee, has said that the Government’s prediction on jobs is wildly over-optimistic, given that the Labour Government created only 1.6 million jobs between 2000 and 2008, when the economy was, by consensus, booming.

The VAT increase for which the House voted will raise £12.1 billion in 2011-12, but will reduce the amount of goods and services that people can buy. It will depress demand and delay the recovery. It will increase prices permanently by 1%, thereby permanently reducing the value of future earnings and—one of the hot topics in the Bill—future pensions. It will also disadvantage the poorest, who spend the biggest proportion of their income.

Let me say something about the social impact of the Bill. It was difficult to hear the details of that as the Minister raced through his speech. We have heard from the Prime Minister that children need warmth, not wealth, and they will certainly miss out on the wealth part as a result of this Bill. Poor families in Wakefield will lose up to £1,200 as a result of changes in working families tax credit. From April 2011 the Sure Start maternity grant will be available only for the first child in a family. That means a £500 cut for low-income pregnant mothers who already have a child.