amendment of the law

John Redwood Excerpts

Monday 24th March 2014 Commons Chamber

[The Secretary of State for Communities and Local Government (Mr Eric Pickles)]

Before I start, may I say what a pleasure it is to see the right hon. Member for Leeds Central (Hilary Benn) replying to the debate? The House had an opportunity last week to express its great affection for his father. But no matter how distinguished or old a person is when they depart, to lose a parent, as those of us who have lost a parent understand, is a bitter blow. I just wanted the right hon. Gentleman to know that we express our deep condolences to him and his family at this very difficult time, and we wish him very well.

By sticking to our long-term economic plan, we have brought the deficit down by a third, we have helped a record number of people into work and we are continuing to boost Britain’s resilient economic growth. This is a Budget that literally places new pounds in the pockets of taxpayers. It is creating opportunity and putting Britain on a path to a secure future, and it will reward pensioners, savers and hard-working families. It has drawn a clear distinction between a coalition Government doing everything in their power to bolster Britain’s recovery, and a Labour party that just offers more borrowing, more debt, and more taxes, and ducks the major challenge.

We want to see a fair and fast recovery across the country. This can only be achieved by galvanising all forms of growth—whether inside a local enterprise zone or on a building site—and by firing up businesses and home builders, getting them investing, exporting and creating jobs. Local economies are providing the solid foundation for a national recovery. The economy is stronger and more resilient, and is rewarding the hard-working British public.

The Budget has recognised those who were so badly affected by poor winter weather. Some £300 million has already been announced to support the individuals, businesses and councils that were hardest hit by the flooding and storms. The Chancellor has made available an additional £140 million—money that will go towards immediate repairs to, and maintenance of, damaged flood defences across Britain. The £200 million pothole challenge fund will fill holes in the road that have already been a blight to road users.

Getting these communities back on their feet after such a devastating period of weather remains a high priority across government.

[Mr John Redwood (Wokingham) (Con)]

Those are very welcome announcements. Is my right hon. Friend also going to take action to stop rapacious councils making a misery of the lives of normally law-abiding motorists who slightly overstay their welcome at parking places and are then treated as if they were criminals? I am sure it would lift confidence if they were spared some of the excess.

[Mr Pickles]

My right hon. Friend and I are as one on that matter. He will recall that the Government have consulted on this and on other issues related to parking, and that the consultation period has recently ended. We hope to make an announcement in the very near future.

New measures in the Budget will also help to support the building of a further 200,000 new homes for hard-working people, on top of the work we have already done to kick-start house building. New house building and construction output in England is now at its highest level since 2008, and new housing construction orders are at their highest levels since 2007. More than 170,000 affordable homes have been delivered since 2010, and £20 billion has been invested in affordable housing over the spending review period.

More council housing has been built under this coalition Government than in all the 13 years of the previous Government. I honestly do not understand why Labour Governments do not build council houses. Since the last quarter of the last century, the two really big builders of houses have been the Thatcher Administration and this coalition Government.

The number of first-time buyers is at its highest since 2007, and mortgage arrears at their lowest since the Bank of England’s figures began in 2007. The number of empty homes is at its lowest rate since records began and, in the last year, new housing registrations rose by 30% in England and by a massive 60% in London. In fact, the number of new homes registered in London last year was the highest since electronic records began more than 26 years ago.

By contrast, new home registrations fell in Labour-run Wales. House builders have shifted their business across the border to England because of the Welsh Government’s anti-business policies. This is due to Labour’s extra red tape, and to its botched implementation of home ownership schemes. By contrast, thanks to this Government, more than 17,000 people have already bought a home through Help to Buy. Overwhelmingly, these are first-time buyers, and they are mainly outside London and the south-east. This shows how we are supporting all parts of the country, north and south. Help to Buy is a key part of our long-term economic plan, giving thousands more people the security and independence that comes from owning their own home.

The Budget’s pension reforms will offer freedom of choice for people who work hard. It would be helpful if the right hon. Member for Leeds Central could clarify whether the Opposition support these reforms, or whether some ambiguity still exists. Our pension reforms, such as allowing the newly retired to pay off their mortgage and be liberated from the banks, will also lead to greater security in old age. I do not agree with the doom-mongers who say that this will somehow lead to a problem with buy to let. This Government are dramatically expanding the opportunities for institutional investment in the private rented sector, through guarantees and our build to rent schemes. These offer the opportunity for savers to invest in new built rented accommodation and to receive long-term, stable returns from the property market.

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[Mr Pickles]

My right hon. Friend has carefully, and with his customary style, signposted where developers should go, from his constituency to parts of Kent. The top-down eco-towns built nothing but resentment, but this Government are working with communities to support large-scale development. As he said, this works only if local councils are in favour, and we work with local developers and with the local community to build something together in a proper partnership.

[Mr Redwood]

My right hon. Friend might like to know that about a decade ago I wrote a pamphlet called “Thames Reach”, recommending a new town in the Ebbsfleet area. I recommended it to the Labour Government, as I am full of generous good ideas and thought they might want to take it up. I think they agreed with it, but they did absolutely nothing. Can he explain why?

[Mr Pickles]

No, I cannot explain why. I suspect that my right hon. Friend’s reputation as a scourge from the right may have put the Labour Government off. I suspect they never got further than the title page, but had they gone on they would have seen some very sensible suggestions. We are free from that prejudice and, of course, he is an inspiration to us all.

Further support will come in due course from the second round of the local infrastructure fund and a prospectus on support for locally led garden cities. Increased output, increased supply and increased jobs, with stable recovery, low interest rates, and support for firms and sites of all size—we have got Britain building again. Labour’s threats of land grabs and a new development tax on house builders would cut the level of house building and undermine investment in complex land assembly projects. Against a backdrop of anti-business sentiment, perhaps epitomised by the Labour Department for Communities and Local Government team’s campaign against free Waitrose coffee, it is no surprise that this week’s Investors Chronicle warns savers to sell their shares in house builders if Labour were to win the election. That is not going to build more homes; it is a recipe for stagnation and for unemployment. As Wales shows, Labour’s anti-business dogma will have a chilling effect on jobs and the economy.

By contrast, this Government welcome enterprise and the free market. Enterprise zones have led the way in creating jobs all over the country, as well as helping the UK to become a world leader in a range of technologies and for inward investment.

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[Mr Hain]

Absolutely.

It was not Labour’s public spending that triggered Britain’s or the world’s economic crisis; it was the global inter-dependency of reckless banking that the Conservatives wanted to be less regulated that in 2008 triggered an economic meltdown in Britain and right across the globe. [Interruption.] Labour responded by boosting public spending and borrowing to offset the catastrophic collapse in private sector spending, and the £90 billion spent on bank bail-outs plunged the public sector into record annual deficits, but these were deficits that stopped a shocking slide into a fatal slump and laid the basis for recovery from the biggest shock to hit the world economy in peacetime since the 1930s great depression. [Hon. Members: “Give way.”] If I have time at the end, I will.

Contrary to right-wing free market mantras and Tory-Lib Dem history rewrites, it was the banking crisis that caused debt to rocket, the deficit to rise and borrowing to rise as well. The low yields on UK Government bonds before, during and after the credit crunch under Labour bore eloquent testimony to the fact that the international markets had full confidence in its policies, and that they were not clamouring for the right-wing dogma subsequently visited upon Britain. Indeed, so desperate was the right hon. Member for Witney (Mr Cameron) to identify with Labour’s success on spending, investment, jobs and growth that he pledged to match Labour’s spending plans for three further years in September 2007 up to 2010. [Interruption.] Members on the Government Benches shake their heads, but that is what he did. If we had spent too much—if all the charges made by the Conservatives were true—why on earth would the current Prime Minister have backed our spending plans for three years ahead? It would help the quality of this debate and the quality of assessment of the Chancellor’s Budget if the Conservatives and the Liberal Democrats had the decency to acknowledge that essential fact, including this Prime Minister’s support for our spending programmes, instead of ploughing on regardless, with no end to austerity in sight.

[Mr Redwood]

Why did the new and very expensive and complicated regulators the Labour Government introduced fail to control the banks when people like me were telling them they did not have enough cash for capital?

[Mr Hain]

I agree with the right hon. Gentleman to this extent: we did not regulate the banks well enough or carefully enough, but his party—not necessarily he, but his leadership—was saying that there should be less regulation of the banks at that time, yet now they have the temerity to attack our spending plans when we brought borrowing down. [Interruption.]

Budget Resolutions and Economic Situation

John Redwood Excerpts

Wednesday 19th March 2014 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

It is my job to take away the political punchbowl, just as the party was just getting going. What we have just heard is the most difficult speech that anybody has to make in the House of Commons, and I am sure we will all read it with interest.

First, I should like to say a few words in a personal capacity about what has been announced on savings. They look extremely interesting and long-term reforms. For a start, the ISA reform is resonant of PEPs; that goes right back to the beginning, as those introduced the savings allowance. It was a tremendous idea. I am really pleased that the cash and equity ISAs have been merged and that we have raised the cap. The Treasury Committee will have to look at the provisions. I hope I will not have to come to the House and say that it has a different view.

Getting rid of the defined contribution rules that force people into annuities is a tremendous achievement—a very far-sighted announcement. The last Labour Government were also looking at that for a while, but they could not find a way to do it. This Chancellor has found a way to do it, and we should commend him for that.

Before I say a few words about some of the other measures in the light of past Treasury Committee recommendations, I should like to say a few personal words about the deficit. When the Chancellor set out his initial Budget judgment on behalf of the new coalition, many thought that the coalition would collapse—that the political strains of implementing spending cuts would be too great and shake the coalition Government apart. Well, the opposite has been the case. The coalition has stuck with it and the deficit reduction plan has become the cement of the coalition.

Both sides deserve credit for the fact that the coalition is still going and dealing with the deficit. Particular credit goes to the Liberal Democrats. If I may say so—I hope they do not mind—I never thought they had it in ’em. But they have, and they have stuck with it.

[Mr John Redwood (Wokingham) (Con)]

Will my hon. Friend give way?

[Mr Tyrie]

May I make a bit of progress?

The deficit is down from the stratospherically high figure of 11% of gross domestic product to just below 7%, and next year it is forecast to fall to 5%, as we have just heard announced by the Office for Budget Responsibility. The consolidation is already significant. It has been achieved despite a massive external shock which was not built into the forecast four years ago and which I do not think the Chancellor mentioned—the eurozone crisis and the economic stagnation in our largest export markets. It was primarily that crisis that forced the deficit reduction plan to fall behind schedule. The key question for the Government a couple of years ago was whether to relax fiscal policy sharply in response to the almost 4% loss of forecast GDP, most of which was a consequence of the eurozone crisis.

Rightly, in my view, the Government showed considerable flexibility within the overall framework, in two important ways. First, they authorised the Bank of England broadly to double the quantitative easing programme; and secondly, equally importantly, the so-called economic stabilisers—the falls in tax receipts and rises in public expenditure that come with lower growth—were allowed to kick in.

To give an idea of the importance of the stabilisers and QE on policy, it is worth reminding ourselves of the numbers. Since the election, an additional £175 billion has been put into the economy through QE and £140 billion has been put in through the automatic stabilisers. The latter figure is based on Institute for Fiscal Studies estimates; no one knows exactly, but it is of that order of magnitude. These are very large numbers. That showed flexibility by the Government.

[Mr Redwood]

Does my hon. Friend agree that the Government’s flexibility included putting public spending up every year in cash terms over the period and relying on higher tax receipts to get the deficit down, which is how they maintained political agreement to the policy?

[Mr Tyrie]

I do not know about the political agreement point, but of course the effects of the stabilisers operate on both the tax and the spending sides. I think the Government were right to do what they did.

The Government have also been right to see off calls fundamentally to alter fiscal policy by sharply relaxing deficit reduction and increasing public spending. One of the main reasons it was important that they did not listen to those calls is that credibility in fiscal policy is hard won. It is built up over time—over many years—and it can easily be squandered. The Government resisted that temptation.

I will say a few words about the historical context. Looking to the 1930s, when stagnation set in and the agony was prolonged, partly because automatic stabilisers were suppressed and partly because far from engaging in QE, the then coalition Government did exactly the opposite: they lengthened the maturity of the debt and sucked money out of the economy. That is why the 1930s were so painful.

Now that we have a recovery, some are complaining that it is not the one we ordered. They complain that the recovery is consumer-led or uneven across sectors, regions and income groups. Well, of course it is. All recoveries of any value trigger a reallocation of resources, and therefore all recoveries change the shape of the economy. A recovery rarely takes root where the jobs were lost or the firms failed; it was ever thus and it will be the same this time. As the Chancellor stressed in his speech, jobs are being created at a record rate, but we cannot expect those jobs to be in exactly the same places as the jobs lost in the downswing. I am confident that, as in all previous recoveries, if we can sustain this recovery—and even if it is uneven, as it will be—it will, in time, deepen and spread through the whole economy. The figures for previous upswings support that.

The crucial question now, though, will be whether we can sustain the deficit reduction plan. A threat to deficit reduction will come from siren voices who say, “With the recovery under way, we can go back to spending money we haven’t got.” We are already hearing that. We need to remind ourselves that we are still spending about £7 for every £6 we collect in tax. It is true that we are in better shape, but with a deficit of about 6.6% of GDP, as the Chancellor announced today, we will remain vulnerable to economic shocks unless we do more to tackle it.

Another risk to deficit reduction is one of simple arithmetic caused by ring-fencing—something that the Treasury Committee has flagged up on several occasions. It will become increasingly difficult to find cuts to an ever-shrinking share of non-ring-fenced departmental spending. In other words, with ring-fencing of nearly half departmental expenditure, finding these savings will get tougher year by year. The Chancellor has argued, rightly, that polling evidence shows that that ring-fencing reflects public preferences. I think that is true for health and education, but it is not supported in the area of overseas aid. Spending on aid has risen by over a third in real terms and will rise even more because it is linked to GDP. Politics always points to ever-more ring-fencing; economics to less. Eventually, ring-fencing will have to be revisited, however difficult it is for all political parties.

Perhaps I should say a little about the risks—

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[Mr Hoban]

My hon. Friend is absolutely right. I think this should be seen as the first stage in a series of reforms, because as the Chancellor also said in his statement, the Office for Budget Responsibility predicts that the savings ratio will continue to fall. As well as ensuring that we can provide a better deal for those in retirement, a better way for them to spend their pension pot and encouragement for them to build up more through individual savings accounts, we need to do more. I will come back to that in a moment.

These are radical reforms. I welcome another part of the package that goes hand in hand with the increased flexibility. The challenge that many pensioners face is finding advice and someone to help them through complex decisions about what they should do in retirement. Recent surveys have shown just what a bad job some of the comparison websites do for people trying to buy an annuity.

The right to advice is an important part of the package of reform, but I suggest to those on the Treasury Bench that we need to go further. The auto-enrolment savings system assumes that people do not think too hard about saving but save automatically. We then expect them at the point of retirement to engage in saving. We need to make sure that there is more advice and guidance available before they retire, to help them think about what age they want to retire at and what sort of income they want to retire on. I think that a key part of the next stage of reform should be to take that right to advice and see how we can provide better advice for people in the run-up to retirement in order to help them provide more for their retirement.

[Mr Redwood]

Is there not also a very cruel dilemma in public policy, in that savers want a better rate of interest but we need low interest rates to promote economic growth and to service the Government debt? There is a trade-off, and that is why tax breaks are particularly welcome at a time of low interest rates.

[Mr Hoban]

Absolutely. My right hon. Friend provides me with the opportunity to praise the Chancellor for introducing the pensioner bond. Those higher rates of interest will provide not only an attractive way of enabling people to save, but some support to the Treasury.

My hon. Friend the Member for Mid Norfolk (George Freeman) made a point about the savings culture. We must recognise that we need to help people on low incomes to improve their savings, too. Although the minimum contributions under auto-enrolment help people get on the savings ladder, they are not high enough to provide them with a reasonable replacement income in retirement that is proportionate to their income in work. Those higher up the income scale tend to do better. Not only do they qualify for higher tax relief, but their pension contribution rates need to be higher, too. They also tend to have additional sources of income and savings in retirement.

I encourage my right hon. Friend the Chancellor to look carefully at this area. I welcome the fact that we have increased personal allowances for those on low incomes. In a constituency like mine, where the average wage is £24,000 a year, increases to the personal allowance are valuable. However, as well as helping the low paid while they are in work, we should think about how we help them prepare for retirement. That would help provide a rounded package of measures to help people build up savings for their retirement and then, once they are in retirement, think about how they will get best value for money from those savings.

In conclusion, it is not possible simply to repair 13 years of damage in just a few years of this first term of Government. The problems we inherited were deep-seated and challenging: an economy that was unbalanced—it was too dependent on the south and on financial services—and a Government addicted to spending, taxing and borrowing. Tackling those problems against the backdrop of economic uncertainty abroad was not easy. Plenty of commentators, including from the Labour party, said that it could not be done. They prophesised huge increases in unemployment as we cut back the public sector, and they said we were cutting too far and too fast.

They have been proved wrong: the economy is recovering, growth in the UK is expected to outstrip that of our main competitors and more people are in work than ever before. Now is not the time for complacency. We need to continue with our reforms and drive the recovery forward.

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[Sammy Wilson]

I listened intently to the Chancellor, and I was pleased when he made the point that he wanted to ensure that growth occurred in all the regions of the United Kingdom. However, I was disappointed to listen to the rest of the speech, because I wanted to know what policies would be introduced to effect that more even distribution of growth. I welcome the setting up of the enterprise zone in Coleraine, but one has to bear in mind that that will just balance out the 350 jobs that have been lost in that town, where severe unemployment had already been caused by the closure of some companies. It is intended to balance out the impact that the central Government’s decisions have had on my constituents in Northern Ireland.

[Mr Redwood]

I would just like to correct the record. The forecast is for only a 4.7% increase in exports next year and an 8% increase in investment, which I think is achievable.

[Sammy Wilson]

The percentage growth in exports was 0.8% last year, and in the next year it is forecast to be 2.6%. By any calculation, that is more than a three times increase in the rate of growth. The Government have talked about the reduction in the cost of finance for exporters, but measures that were introduced in previous years did not have the intended effect. Of course, that is against the background of a strengthening pound, so there will be a difficulty there. On what is the Government’s optimism based? If it is on export and investment-led growth, past patterns do not show that happening.

My second point is about the Chancellor’s throwaway lines saying, “I am not in the job of easing up just because things are getting better”, and “We don’t want to spend more.” I am not asking the Government to spend more; I am asking them to spend differently and better. Of course we have to get the deficit under control, but what is the increase in that deficit at the moment? Of the percentage of our GDP that is debt, what is most of it made up of? It is made up of paying people to sit on their backsides doing nothing, instead of spending on investment in infrastructure projects, which would have a return. It would put people back to work, increase tax revenues and stimulate growth. We can examine the infrastructure projects in Northern Ireland, such as in tourism. For modest amounts of money, the Titanic signature project is now bringing in millions of pounds and half a million visitors a year, mostly from outside the state. There has also been the extension of the gas pipeline. Many Members have talked today about the cost of living, and one way of bringing fuel prices down is to give people alternatives. For modest public investment, we have been able to increase the coverage of gas pipelines in Northern Ireland, bringing people cheaper fuel and helping to bring down their cost of living.

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[Mr Mitchell]

I believe that Minouche Shafik is an absolutely outstanding public servant, and she has been appointed as a deputy governor of the Bank. I am sure the whole House will agree that it is an outstanding appointment.

The economic plan that has been introduced is right. We had to make those decisions, because the United Kingdom has racked up far too much debt. Siren voices effectively urge us to head back in the direction from which we have come, but it does not seem likely to me that the public will accept that. Today’s Budget enhances and underlines the difference between the Government and the Opposition, and in my view it will stand the test of time.

[Mr Redwood]

Has my right hon. Friend noticed that despite all the efforts to control the debt, which we need to do, debt interest will still be £60 billion next year, which is more than the education budget?

[Mr Mitchell]

My right hon. Friend is absolutely right, but can he imagine what it would be like today if the Opposition’s policies were being pursued?

I wish to make a point that the Chairman of the Treasury Committee, my hon. Friend the Member for Chichester (Mr Tyrie), will not agree with, although I thought his speech was excellent in every other respect. The Government deserve huge praise for sticking to their plans on international development. The House will be aware that as a result of the all-party support for that policy, countless lives have been saved. Hundreds of thousands of children are alive today in the horn of Africa who would not have been but for British leadership on the issue.

Through the House strongly supporting the Government’s policy to vaccinate, the British contribution means that we will vaccinate a child every two seconds in the poor world, and every two minutes it will save a child’s life from the effects of diseases that none of our children die from today. As a result of reforms introduced by the Government, such as building up governance structure and ensuring that poor countries have the benefit of effective taxation, independent media and so forth, we should all be incredibly proud of the success of that policy. I am enormously proud to have served in a Government who stuck to their promises to the poorest people in the world, and who did not seek to balance the books on the backs of the poorest, either in Britain or overseas. That is also hugely in British interests—this is not just soft-hearted altruism—because it is not only aid from Britain, but aid and development for the benefit of Britain. It enhances the security and stability of our generation and of future generations, and it builds on the prosperity that our generation enjoys, and that future generations will enjoy to a greater degree as a result of those successful international development policies.

I also believe that the Chancellor was right to raise the threshold at which tax becomes payable, and—at a time of great austerity—to target help on those who earn the least. Of course the 40% level bites much earlier than we intended, but the austerity we have faced was harder and deeper, and inevitably those with a little more have had to pay a little more in those circumstances. I am clear, however, that the 40% band needs to be raised as soon as we can, and the drag of people into that band should be reversed once the economy can withstand it.

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[Mr Harris]

Yes. I absolutely believe that when the minimum wage was introduced, it was set at the right level. It disappointed a lot of people who wanted it to be higher. There will always be those who want the minimum wage increased beyond what the market can sustain. The hon. Gentleman is absolutely right: it has to be generous, but it has to be moderate so that we do not have the negative effect of losing workers.

But what about help for ordinary working families? I am loth to use some of the more overused phrases that we are encouraged to use like “cost of living crisis”—trademark patent pending—but the fact is there is such a crisis. If average wages in real terms have dropped by £1,600—and I have yet to hear any Minister saying that is not the case—that is something of a crisis if not for people in this House then certainly for families and workers in my constituency. Yet despite the high number of headline-grabbing announcements, many of which I would support, there is absolutely nothing in what the Chancellor said that will address this urgent issue that faces the whole nation.

[Mr Redwood]

The hon. Gentleman is right that there has been quite a big fall in real wages, but will he accept that the biggest part of the fall occurred in 2008-10?

[Mr Harris]

I am, as always, very grateful to the right hon. Gentleman for intervening as I was just about to get on to the events of 2008-09. I want to address the deficit, because so many Government Members have raised it in the House whenever they have got the chance in a way that I find completely disingenuous, not worthy of an adult debate and not related to what actually happened in 2008-09.

An observer from Mars who tuned into what the Chancellor said today might have come to the wrong conclusion that when the right hon. Gentleman was in opposition he somehow opposed the last Labour Government’s spending plans. That is not the case: right up to November 2008 the official Conservative party policy was to support our spending plans. That either means that the Conservatives believe the deficit was created in the 18 months from that point until the general election, which frankly none of us believes, or that they are now saying something that is completely the opposite of what they were saying in opposition. I remember sitting on those Government Benches—in a couple of years’ time I hope to be back there—and I do not recall any Conservative Member, or indeed Liberal Democrat Member, calling for an end to spending on their local schools, their local hospitals, their local roads. The fact is that the deficit was almost entirely caused not by profligate spending by the Labour Government, but by a disastrous fall in tax revenue caused by an international recession—the deepest any of us have seen in our lives. That is the truth of the matter.

Conservatives and Liberal Democrats—and I have to say especially Liberal Democrats, who seem to get more incensed about this than anyone, even though they said not a word about it in opposition—stand up and demand all this nonsense about apologies for the deficit and for mistakes that were made. Of course all Governments make mistakes, but let us be honest with the British public about how the deficit was created. It was not created because new schools were built. It was created because of a recession that put a lot of people out of work and that cut off revenue to the Treasury. That is why we are where we are. It is not because of Labour’s spending plans.

There are some items in this Budget that I welcome, but I fear it will be most notable not for the issues it addresses, but for those issues it needs to address and, sadly, ignores.

[Mr John Redwood (Wokingham) (Con)]

I would like to remind the House of my declaration of interests: I provide some advice on global economies and investments to an industrial company and an investment company.

I greatly welcome this Budget, because I think it is right that we need to do more to help the promotion of exports, industrial investment, the rebalancing of our economy and continuing the long process of getting the deficit under control. In our exchanges already I have highlighted the fact that debt interest will be higher than the education programme next year, despite the Government’s best endeavours, and that unless we carry on to make good and rapid progress to get the deficit down and eliminate it, that debt burden will build up and future Governments, whoever they may be, will find they are spending more and more money on debt interest and have less and less for the public services that our electorates expect us to provide.

I would like to clear up a common misunderstanding about how that is being done that I think has occurred because of the use of jargon and economists’ language in describing the process. The reduction in the deficit has been described as 80% by spending cuts and 20% by tax rises. That is true if the programme is successfully completed by 2018 and if we measure it as a percentage of GDP at that point, but that is not how most people think about how an excessive deficit is curbed. If we have a large deficit in our own accounts, we have either to find a way of earning more money or to make immediate cuts in the amount of cash that we spend. I think a lot of people outside the House think that, because we inherited a deficit of £160 billion, 80% by spending cuts meant £132 billion-worth of cash cuts in public spending. Of course it does not, and I am very glad that it does not, because that would have done huge damage to important public services.

What the Government have decided to do is limit the rate of increase in public spending and promote a more active economy so that tax revenues eventually catch up, and we are in that long process. The first three years of this Government saw very little growth in the economy, which delayed the reduction in the deficit because we did not get the surge in tax revenues we were hoping for. Now it looks as if there is better news, with faster growth coming through, and so the process can be completed, assuming the economy still recovers.

I had thought we might cut public spending in real terms in the first two or three years, but it appears from the latest figures that there was a small real increase in public spending. In the first three years, current public spending went up by more than inflation, and if we look at the impact on the economy as a whole, it gives the lie to all those who suggest too much was cut too soon, and that that reduced output and was the cause of the delay in growth. If we look at the attribution of growth and decline in activity and incomes, we see that the public sector made a small positive contribution to the economy in every one of the first three years of the coalition Government. I hope that reassures some of those on the Opposition Benches who felt too much was being cut and damage was being done. The good news is that it was not. There will have to be some reductions in some programmes in the years ahead in order to hit the targets, however, because although public spending will continue to rise in cash terms, there will need to be a little bit of a real reduction in the next Parliament; and because some of the programmes need to go up quite a lot—debt interest will go up quite a bit anyway—we will have to make reductions in other programmes, whoever is in office.

[Mr Newmark]

My right hon. Friend is making an excellent point. Does he agree that, notwithstanding the austerity he is talking about and the fact that more than 500,000 jobs were lost in the public sector, what is particularly remarkable about these tough times was that 1.7 million jobs were created in the private sector?

[Mr Redwood]

Yes, that was magnificent news and it shows that the private sector is remarkably resilient despite all that has been thrown at it. That is why we can now look forward to both better living standards and a better public sector: we need all those people to be in work and paying more tax in order to pay for those public services that are much-wanted by our constituents.

I would also like to deal with the argument from the Opposition, which I thought was put in a very exaggerated form by the Labour leader in his response to the Budget, in what was a rather partisan appearance which was out of sympathy with his new style at Prime Minister’s questions. I am not one to condemn partisan debate, as I think sometimes it livens the place up, but it was a very partisan speech by the Leader of the Opposition.

[Charlie Elphicke (Dover) (Con)]

It was a rant.

[Mr Redwood]

The Leader of the Opposition’s rant, as my hon. Friend says, had just one basic message: the wrong belief that the Conservatives want tax cuts for the rich and misery for everybody else. What we want is tax cuts for everyone, and what this and the previous Budget offer is tax cuts for everyone.

Let me explain how we have different types of tax cut for people at different levels of income. We take those on the lowest incomes out of tax altogether, so they get a genuine tax cut: they go from paying something to paying no income tax at all. The House is, I think, united on the wisdom of that. At the top end, we cut the rate, and what happens is that the rich and successful people actually pay more tax, not less. That seems to me to be magic, because then everybody is happy—or they should be. Only the very jealous should be miserable, because what we then have is the rich staying here, investing here, creating jobs here, creating more money here and paying more tax because the rate is lower. What is not to like about that proposition?

What is odd is that the Labour party in office, until the last couple of days, knew that and kept the top rate of tax below the level that we inherited and below the level we have now fixed. It is a bit rich that Labour is now complaining that we are light on the rich, given that our tax rates are collecting a lot more tax from the rich and are higher than the rates that Labour imposed. Indeed, we could collect even more tax from the rich if we brought the rates down a bit more, which I hope, come a Conservative Government, we might be able to do. Surely what we want is to maximise the revenue from such people, not to make a political point and drive them abroad, so that we have a society with less money, fewer jobs and less creativity.

I am pleased that the Chancellor made some moves on energy. We need a much bigger and stronger industrial recovery than we have generated so far. The first thing we need to do to have such a recovery is to ignore the advice of the Green MP, and to go for cheap energy. America is going for cheap energy, and it is re-industrialising very quickly. America is now super-competitive against companies in the European Union. A leading chemical major in Germany has recently said that it will put more of its investment abroad, outside the EU altogether, because, in the light of the energy crisis, the gas feed stock is uncompetitive. We need to find that gas and to get it out as quickly as possible. We need to match the United States’ shale revolution if we wish to save our high-energy-using industries and to re-industrialise and give some hope to the northern cities in particular, with their long tradition of industrial activity, because they need much cheaper energy.

We need to do more for savers, and I am delighted by an elaborate and interesting set of measures from the Chancellor on saving. Savers have had a miserable time after the collapse. Rightly, successive Governments and Governors of the Bank of England have kept interest rates on the floor, as they had to do, to try to stimulate activity and to prevent a worse collapse than we experienced in 2008, at the height of the crisis. That has been very bad news for savers. The tax changes will help savers, and the pensioner bond offer, if the rates are around the level we are now looking at, makes sense and would be a bit more attractive and something for pensioner savers to look forward to. I also welcome more flexibility for pensioners generally. Annuities are not good news at the moment, and if people can put that off or have a better choice, that may well be an excellent answer.

This Budget needs to be good for savers, for industry and for exports, and we are going in the right direction. It will help to promote a bit more growth, and only if we get a lot of growth will we get out of this debt bind.

[Stewart Hosie (Dundee East) (SNP)]

I start by welcoming a number of the measures that the Government announced, such as the increase in the revenue non-compliance budget, increased export funding and the further doubling of the annual investment allowance. If the Government carry on like this, we will be back to having an industrial buildings allowance policy, which should never have been scrapped in the first place. There is also the halving, at last, of bingo duty—my favourite cause. All these one-off measures are very sensible, could be implemented by any Government and ought to be welcomed by everybody.

However, that does not change this Government’s underlying direction of travel or the underlying shape of the economy as described to us in the Red Book. Scotland has suffered an 11% cut in the fiscal departmental expenditure limit, a 27% cut in capital and a real-terms 9.9% cut in the overall budget. The numbers announced today imply a further real-terms cut in the budget. I do not want to speak too much about Scotland, but it is important that we get on the record just how damaging this Government continue to be.

What the Budget speech and the Red Book tell us is that, by every measure the Chancellor has set for himself, he has failed. In his first Budget, he told us that in 2013-14 the current account deficit would be 2.3% of GDP, borrowing would be reduced to £60 billion and the net debt would be 70% of GDP. Today, he told us that for the same year, the current account deficit is higher, borrowing is actually at £95.6 billion and the net debt is around 75% of GDP.

Let me be generous: any Government can make a mistake for one year, so what about the big targets the Chancellor set for himself? They were: that debt would begin to fall as a share of GDP by 2014-15; that the current account would be in balance the following year; and that in the same year, public sector net borrowing would fall to £20 billion. Debt will not begin to fall until 2016-17—two years late. The current account will not be back in the black until 2017-18—two years late. Public sector net borrowing in 2015-16 will not be £20 billion; rather, the forecast figure—£68 billion—is more than three times that. Not a single one of the Chancellor’s key targets has been met.

[Mr Redwood]

Has the hon. Gentleman noticed the forecasted very sharp fall-off in petroleum revenue tax, and is that reflected in SNP plans?

[Stewart Hosie]

It is extremely convenient that, once again, we have a “North sea oil price crash” story on Budget day, some six months before the referendum. If the right hon. Gentleman keeps saying it, I am sure someone somewhere will finally believe him. I am not dreadfully convinced.

The bottom line is that—just like the right hon. Gentleman’s intervention—the Chancellor’s speech was hugely political. He did not tell us about recovery; he did not tell us that he is trying to lift the burden from hard-working families; he did not apologise for trying to rebalance the economy on the backs of the poor. This Budget speech was a political platform for the next election, and if it was supposed to be a vindication of his policies, then it failed, because the policies have failed.

The Chancellor did of course have a deal to say about tax. He is right to increase the basic rate threshold to £10,000, and then to £10,500. Raising the threshold from £6,500 to £10,000, resulting in savings this year of £700 for the average person, is sensible, but of course, that is only part of the personal tax story. This Government have pushed ahead with a tax cut for millionaires and have continued to squeeze the middle—the genuine middle class. The threshold for those paying the 40% rate of tax has come down from £37,500 to under £32,000, so for every penny saved at the bottom, they have had to pay more than a penny at 40%. I therefore welcome the fact that the 40% threshold is going to be increased, but that is not until 2014-15. It will not change the fact that the proportion of people paying the 40% tax rate has doubled over the past two decades, and there are now 2.1 million more people paying a rate of tax that was previously only for the rich.

It is not just the middle: it is the poorest in society who have been hit hardest. We know—the right hon. Member for Wokingham (Mr Redwood) told us—that the proportion of tax cuts to tax rises is 4:1. We knew from previous Budgets that the impact of the discretionary consolidation would be £155 billion. Interestingly, the Government have removed that figure from the Red Book: they have removed the year 2016-17 from the forecast, and are now telling us that the discretionary consolidation will be only £126 billion. However, that forecast goes only to 2015-16, and I am concerned that they are not making a longer forecast, so we can see the real scale of the damage they are trying to do.

We in the SNP know where the pain of this Budget and of this Government’s policy direction will be felt. It will be the 144,000 households in Scotland who are losing some £3,500 each through changes to incapacity benefit. It will be the 372,000 Scottish households who have seen tax credits reduced to the tune of £800 a year. It will be the 620,000 families hit by changes to child benefit, who have lost an average of £360 a year. It will be felt by the 55,000 people who are losing an average of £3,000 a year as disability living allowance is removed. Those are the people whom we should be thinking about and who should be helped. Instead, the Government continue to try to balance the books on the back of the poor.

I welcome the fact that the Budget forecast at least says that there will be some growth, but it is once again heavily predicated on business investment growth. In Budget after Budget, the Government have produced five-year growth forecasts. In 2010, growth was predicted to be between 8% and 10% a year, but by the time we got to 2011 it had turned negative and they had to set yet more ambitious targets for the next five years. So it went on, and we find in the Red Book that the forecast business investment growth for last year turned negative again. I am desperate to see positive business investment growth, and the jobs that come with it, but we keep seeing the same story from the Government. They keep failing.

What should the Government have done? There are any number of policies that they might have adopted. Instead of tinkering with air passenger duty, they might have cut it properly or acted sensibly to boost international connectivity. Instead of simply freezing fuel duty, they might have introduced a real fuel duty regulator to smooth out future spikes. They might have cancelled some of their austerity measures, or at least removed the cap on discretionary housing payments to help the poorest. There are so many things that they might have done.

In the North sea, the Government announced that they would implement the Wood review in full. That will save the industry some £45 million, and it is to be welcomed. However, they are keeping the offshore chartering regime that they announced last year, which will cost the industry £600 million. They keep getting it wrong every single time.

Fairness and Inequality

John Redwood Excerpts

Tuesday 11th February 2014 Commons Chamber

[Stephen Crabb]

My hon. Friend is exactly right. There is nothing fair, progressive or just about loading future generations with more debt and the consequences of debt. If we are a responsible political generation in the House, we will take care to ensure that our decisions minimise the impact on future generations.

This country continues to face deep-seated, long-standing economic challenges. The UK underwent an economic trauma between 2008 and 2010, and we are still living with the consequences. As a result of that trauma in those two years, there was a huge destruction of value in the economy, and a destruction of wealth, and we are still recovering from that, even in 2014. Although it is difficult for Opposition parties to admit, the Government have made difficult, challenging decisions and taken practical steps to reduce the deficit and restore stability and order to our national finances, which is the starting point—the foundation—for tackling all the other social and economic issues that the hon. Member for Carmarthen East and Dinefwr and others have begun to raise in the House this afternoon. As a coalition Government, we are ambitious that the emerging economic recovery should be a recovery for all parts of the UK, including Scotland and Wales, and for all people from all walks of life in our country. That is at the heart of our vision of fairness as a coalition Government.

[Mr John Redwood (Wokingham) (Con)]

Does the Minister agree that the socialist remedy is so often to think of tax and regulations to get rid of the rich from London to abroad, and hopeless in thinking of ways of promoting other people to good jobs and success so that they can enjoy and share the prosperity?

[Stephen Crabb]

My right hon. Friend is exactly right. There seems to be a blind spot in the left in that respect. We have begun to discuss fiscal powers for Wales and Scotland, and as that debate continues, what we should see from all the parties in Wales and Scotland are new, creative ideas to increase wealth and incentivise entrepreneurialism in those two challenged parts of the country.

Before I set out what the Government have done to tackle inequality and build a recovery for all, I want to deal with some of the issues that are already starting to be raised in this important debate. On the issue of spending and the necessary cuts to spending that we still have to make, the simple truth is that the previous Government left Britain borrowing more than £400 million every single day to pay for Government spending. As a result of the difficult decisions that we have taken, the deficit is now down by a third and we are borrowing nearly £3,000 less for every hard-working family in the country. However, there is still a long way to go. We are still borrowing around £100 billion a year and paying half that a year in interest just to service our debts, so there remain some difficult and challenging spending decisions further down the line. Whichever party or parties are in government after the next election, they will have to meet those decisions and challenges head on.

--- Later in debate ---

[Stephen Crabb]

We touched on this point during the opening speech of the hon. Member for Carmarthen East and Dinefwr. I remind hon. Members that the most recent gross value added figures show that parts of the United Kingdom far from London are rebounding strongly with growth and starting to narrow some of the economic gap that we are all concerned about.

[Mr Redwood]

I think the Minister could agree that the former Prime Minister and Chancellor was not responsible for Lehman Brothers, but by the same token, should my hon. Friend not remind the House that the right hon. Gentleman was responsible for the competition and banking regulation regime that led to the collapse on his watch of the Scottish banks RBS and HBOS?

[Stephen Crabb]

My right hon. Friend makes the point perfectly well.

It is the firmly held belief of this Government that it must pay to be in work, and we are restoring the incentives to work; restoring the value of work in our society. That is one of the reasons why we have brought in the benefit cap, opposed by the Opposition parties, to ensure that families are always better off in work rather than claiming benefit. We are also increasing the incentives in the tax system, putting money back into the pockets of working people by raising the income tax personal allowance to £10,000, taking 2.7 million people, many of whom are on the lowest wages, out of income tax altogether. In Wales alone, that will benefit 1.2 million workers, taking 130,000 people out of income tax altogether. For the record, in Scotland 2.2 million workers will benefit and 240,000 will be taken out of income tax altogether.

Autumn Statement

John Redwood Excerpts

Thursday 5th December 2013 Commons Chamber

[Mr Osborne]

The right hon. Gentleman and I are both looking forward to the Higgs centre at Edinburgh university, which is a reminder of the scientific collaboration that can happen across the entire United Kingdom. We are, of course, incredibly proud of Professor Higgs.

The right hon. Gentleman makes a very good point about oil and gas receipts in the forecast from the entirely independent Office for Budget Responsibility. Its forecast today for the whole of the UK is that oil and gas receipts will be £3.5 billion in 2016. That compares with the £6.8 billion on which the SNP Scottish Government have based their premises and their claims for independence. It is twice as much as the OBR has independently assessed, and that is another example of how they are not being straight with people about the facts in relation to independence. It would of course mean that there was a black hole in an independent Scotland’s public finances that would cost the Scottish people £1,000 each. It is yet another example of how they are not being straight; the independent facts refute their case.

[Mr John Redwood (Wokingham) (Con)]

Will the Chancellor confirm that the independent official forecast shows that the more successful he is in future years in curbing spending and cutting borrowing, the faster the economy will grow, just as America has shown that by cutting the deficit, it can get more growth?

National Insurance Contributions Bill

John Redwood Excerpts

Monday 4th November 2013 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read a Second time.

The Bill underlines this Government’s belief that pro-business policies help growth and job creation. For too long, our economy has been dependent on a booming financial services sector, on the one hand, and unsustainable levels of public spending, on the other. That made us particularly vulnerable to the crisis of 2007-08, the consequences of which continue to be felt today.

The challenge the Government faced in 2010 was how to begin the process of getting our public finances in order and to put in place the conditions for growth. Some believed that it was not possible to do both and some argued that measures to reduce the deficit would result in higher levels of unemployment. It was the Leader of the Opposition, no less, who said that the Government clearly had

“a programme that will lead to the disappearance of one million jobs”.

That was just over three years ago and there are now more people in work than ever before.

Since the coalition came to power, employment has increased by more than 1 million and there are 1.4 million private sector jobs, more than there were at the time of the last election. Employment in the three months until August 2013 was at its highest ever level, at 29.87 million. Those predicting disaster massively underestimated the capability of businesses up and down the country to adapt, innovate and expand, but they also failed to appreciate that we now had in place a Government on the side of businesses who were willing to put in place the conditions that help them to invest and expand, whether by addressing burdensome regulations or reforming our tax system.

In case we forget, such action included reversing the worst effects of the previous Government’s jobs tax. Yes, at a time when we needed businesses more than ever to take on more staff, Labour’s contribution to deficit reduction consisted of increasing the tax on jobs.

[Mr John Redwood (Wokingham) (Con)]

Does my hon. Friend think that it is possibly because they are embarrassed by that record that there are only two Labour Back Benchers in the whole Chamber and nobody from the other Opposition parties? How many extra jobs does he think his excellent Bill might help to create?

[Mr Gauke]

My right hon. Friend makes a very good observation. I can rarely remember so few Labour Members being present for the opening of a Second Reading debate. I was beginning to take it personally, but he has reassured me that this issue does not attract the interest of the Opposition. Labour is the party that intended to increase the jobs tax. Pretty much the only measure that they had for deficit reduction was to increase employers’ national insurance contributions, which was not a sensible approach at all.

We are not predicting how many jobs the Bill might create because a number of factors apply. It is interesting to note, however, that the Federation of Small Businesses believes that the measure is better than the one that it had advocated, which it anticipated would have created 45,000 new jobs. It has carried out a survey of its members and 28% of respondents believed that this measure would help them to increase the number of people they employ. That is a very encouraging step.

Living Standards

John Redwood Excerpts

Wednesday 4th September 2013 Commons Chamber

[Rachel Reeves]

I often hear about that from constituents, particularly this week, when children go back to school. The costs of the summer holidays are past, but those can be very expensive for many families, especially if they receive free school meals and have to provide an extra meal a day during the holidays. The cost of going back to school is also expensive. There is the cost of school uniforms, a new pair of shoes and a school coat—all the basics which sometimes I think the Government just do not understand.

In the face of such challenges, there is a distinct lack of urgency from the Government. For all the warm words, they do not get the reality facing families. Energy bills are up £300 a year, while energy companies enjoy huge profits.

[Mr John Redwood (Wokingham) (Con)]

I am glad that the hon. Lady is highlighting this issue. She is right that in the last couple of years under Labour there was a huge reduction in living standards, and the coalition Government have not yet reversed it. Does she now think that her party was wrong to implement policies of very high and rising energy and fuel prices, which are one of the main reasons people are in this bind?

[Rachel Reeves]

We have said that we would abolish Ofgem and create a new energy watchdog with real teeth to force energy companies to pass on price cuts when the cost of wholesale energy falls. Meanwhile, under this Prime Minister’s watch, energy giants are enjoying a £3.3 billion windfall. That shows the warped priorities of this out-of-touch Government. Rail fares are another example, increasing by up to 9% a year. We would apply strict caps. We have said that we would introduce a new legal right for passengers to be entitled to the cheapest ticket for their journey; this Government are giving powers back to train operating companies to increase some fares by up to another 5% beyond the cap. Again, that shows the warped priorities of this out-of-touch Government.

On housing, there are now 3.8 million households in the private rented sector, including more than 1 million with children. Research shows that many are being ripped off through hidden fees and charges costing tenants £76 million a year.

--- Later in debate ---

[The Financial Secretary to the Treasury (Greg Clark)]

May I begin by welcoming, on behalf of the whole House, the hon. Member for Leeds West (Rachel Reeves) back from maternity leave, and congratulating her and her husband on the birth of Anna? We wish them much joy in the years ahead. Now that she has become used to being interrupted by someone making loud, insistent and sometimes incomprehensible demands, I am sure she is glad to have returned to the House of Commons, where such things never happen.

The necessary condition for rising living standards is, of course, a sound economy. The hon. Lady will be aware that during her absence the economic policy of the Labour party has collapsed. It has spent three years opposing every reduction in public spending that this Government have made; three years calling for more borrowing and more debt; three years denying any responsibility for its failings in government; and three years warning that unless the Government changed course and adopted its so-called fiscal stimulus, the economy would not grow and unemployment would rise. However, because we followed the right policy and did not follow the shadow Chancellor’s advice, and because of the grit and hard work of the ordinary working people of this country, the economy is on the road to recovery.

[Mr Redwood]

Does the Minister agree that President Obama’s economic policy, which has been much misrepresented and much praised by the Labour party, has included a far bigger budget deficit reduction, through spending cuts and tax rises, than anything done here, and that the American economy is growing faster for longer?

[Greg Clark]

My right hon. Friend is right that there is a global consensus, if I could put it that way, that responsibility in fiscal matters is the necessary condition to revive the economy. The only exception to that consensus continues to be Opposition Front Benchers.

We have cut our structural deficit by more than any G7 country. The deficit is forecast to fall this year, next year and the year after that. We have record low interest rates. We are investing more in infrastructure during this Parliament than the previous Parliament.

It is still a world of economic turbulence—let us be clear about that—but the evidence throughout the past few months is that Britain is on the mend. National income has grown for two successive quarters.

--- Later in debate ---

[Greg Clark]

The hon. Lady and my party share the ambition of ensuring that people can earn a living that allows them to pay their and their families’ costs, but the question is how we get there. If Members oppose the reforms necessary to create that possibility they will not make any progress, given the financial situation we inherited.

[Mr Redwood]

I am glad that the Minister has said that we share Labour’s ambition for more people to have better paid jobs. Of course we want people to be better paid, but is not the best way for people to get a better paid job to start with a low-paid job and work their way up and get mentored and trained in the workplace?

[Greg Clark]

My right hon. Friend makes a powerful point. Opposition Members should not be so disparaging about the chances that are being given to millions of people to find work, make progress, learn skills and acquire the necessary experience.

Financial Services (Banking Reform) Bill

John Redwood Excerpts

Monday 8th July 2013 Commons Chamber

[Chris Leslie]

I understand the hon. Gentleman’s point. Let me be clear. The target that should be set would be for the financial system as a whole. It would be for the regulators to make judgments about firm-by-firm leverage arrangements, so it would be on a more sophisticated basis. There is a case to be made for a regulator to look at each individual institution. Some institutions are significantly different from one another. Some of the building societies, for example, have recently been making the point that they have different asset structures and so on, and that exactly the same leverage arrangement across the board for all firms simultaneously would not necessarily be appropriate. In an effort to work towards some way of dealing with the issue, this design is one that I have suggested.

[Mr John Redwood (Wokingham) (Con)]

In the proposal, the hon. Gentleman suggests that the committee has to take into account

“adequate credit availability and growth in the economy”

and report to the Treasury. Would the Chancellor and the Treasury have any right of veto or influence over that, or would they have to put up with the Bank’s judgment of what is adequate credit growth? That could be rather important if the problem were one of insufficient growth in the economy.

[Chris Leslie]

That raises the question of the operation of the inflation target. If I draw a parallel between a leverage target and an inflation target, clearly the Chancellor has been setting out his inflation target. It has been missed on a number of occasions—quite a few months and quarters have gone by—so the interplay between the Chancellor and the Bank of England is critical here. I am more than happy to come back to the issue. My point in the new clause today is that we need to start seriously discussing how, from a UK perspective, we are going to deal with the issue of leverage from a home-grown point of view, rather than waiting for the European Union to come along with a set of arrangements which may or may not fit our circumstances.

--- Later in debate ---

[Mr Redwood]

I remind the House that I provide investment advice on world markets and world economies, but I am pleased to say that it has nothing to do with banking credit or banking leverage, so I feel quite entitled to comment in this important debate.

I welcome what I hope is a probing new clause from the Opposition. It allows us to discuss something that is at the heart of what regulators need to do to have a strong banking sector and economy and to have the comfort at night of knowing that we will not live through another dreadful crisis like the credit crunch of the previous decade. The new clause goes to the heart of the issue: what action should the Government and regulators take to try to ensure that large banks and other institutions advancing credit that can be a risk to the whole system are kept under sensible control, so that we can be pretty confident that, if something goes wrong or the world economy dips, they have the necessary money to pay the bills and deal with any losses that might arise?

If we look at the tragic history of the previous decade, we can see that the then banking regulator in the United Kingdom—I think that it has now admitted this—got it wrong both ways. It wanted the banks to have too little capital, cash and protection, and in the run-up to the credit crisis in 2008 it allowed the most enormous expansion of leverage, which previous generations of regulators had not permitted. Then, in the ensuing panic, when interest rates had to rise to tackle the problem of inflation, it lurched to wanting very high amounts of capital, but at the time the banks could not generate profit and so found that very difficult. That resulted in the previous Government’s decision, in two of the worst cases, that capital should be forthcoming from the state and taxpayers themselves. I think that we all agree that we do not want to go back around that course or to get to the position again where some Members of this House feel that the only option is for the state to provide taxpayer support for organisations that have been too leveraged.

New clause 9 suggests that it is possible to set a leverage ratio for the system as a whole, and it might be, and that might be desirable, and I look forward to the Minister’s response. Of course, the regulator already does that in a way because it sets individual target ratios or capital requirements for all the major banks in the system, so if we aggregate those we get to its view of the aggregate amount of leverage. As the hon. Member for Nottingham East (Chris Leslie) has rightly said, if that overall leverage were to be set for the system as a whole, the regulator would still need to interpret that bank by bank. Some banks would be super-prudent and some would be straining at the other end of the spectrum and might be under special measures with the regulator to try to get their balance sheets into shape.

My particular worry at the moment is that it is never easy managing the transition. We would all be delighted to wake up tomorrow and discover that all the banks are super-safe, but if the price of getting to that stage too quickly is no growth in the economy or, worse still, the onset of another recession because the banks cannot finance the recovery, that would be a bad idea. Many of us would like to see the banks get to better ratios by writing more profitable business and generating more legitimate and sensible levels of profit, rather than having the regulator run the risk of moving too quickly to demand that they have much better ratios. The banks would then have to achieve those better ratios by not writing any new business and by trying to get old loans back ever more quickly from businesses that might find it difficult to repay them. Some of those banks, not being very profitable, could not trade themselves out of the difficulties that they found themselves in.

We also need to be conscious of what is happening globally, because although we should not chase the rest of the world if it has a group of regulators that are being far too generous and wish to re-enact the boom-type crisis of the previous decade—I do not think that we are in that position any more; I think that the regulators of the world are all generally trying to be more cautious—we need to ensure that we do not do anything in Britain that is particularly penal. What we need in order to have a prosperous economy is banks with sufficient profit, reserves and capital to be able to finance a normal recovery. It is very unpopular in this country to speak up for banks making profits at the moment, or indeed at any time, but it is important that they generate reasonable working profits, because that is the best way to make them more solvent.

[Mr Ruffley]

Is my right hon. Friend as unconvinced as I am by the relatively arbitrary figure of 4% being preferable to 3% for the leverage ratio? Like him, I believe that, if there is going to be any tightening on capital adequacy or leverage, it should be done when the recovery is more surely under way, and 3% is preferable to the 4% recommended by the Vickers commission and the parliamentary commission.

[Mr Redwood]

I think that I agree with my hon. Friend. What I am suggesting is that I would like to get closer to 4% and further away from 3% by growth, and I think that that could be inferred in Labour’s new clause, because I noticed that the hon. Member for Nottingham East wisely did not pledge himself firmly to 4%. Although he might secretly want 4%, like the rest of us he is probably wise enough to know that, although it might be nice to have 4% in due course, to lurch straight to a target that some big banks could not meet might be very damaging to the economy.

[Neil Parish (Tiverton and Honiton) (Con)]

One of the problems at the moment, as I know from my constituency, is that some companies are still finding it difficult to get money from banks, so the higher the leverage requirement, the more the banks will say that they have to keep the capital and cannot lend it. I agree with my right hon. Friend entirely that we have to be very careful about how we move from 3% to 4%, because otherwise it is companies and growth that will suffer.

[Mr Redwood]

I think that we have wonderful agreement across the Chamber on this, which might hearten the Minister. We would be happier with 4% than with 3% in general terms, but we do not want to get there too quickly if that means a further jolt to expectations and confidence and further actions by banks to pull back loans, rather than financing the recovery that we clearly need from them.

[Mr Love]

One of the banking commission’s recommendations was that that should be devolved to the regulator to decide and that we should not set a target or a figure. The Government seem to be resisting that, and for the reasons that have been outlined in relation to growth and living standards. What does the right hon. Gentleman think about the proposal to give that to the regulator earlier than the Government suggest?

[Mr Redwood]

I think that a Government have to take responsibility for the big calls on economic policy. They can take very good advice from independent regulators and the Bank of England, and sensible Chancellors take good advice, but ultimately it is the Chancellor of the Exchequer and the Prime Minister of the day who have their names on all that, and the electorate will expect them to be responsible. I think that people believe in independent central banks and independent regulators up to the point where they get it wrong, and then they look to politicians to take the blame. We have just been through a period when the banking regulator, by its own admission, got it very visibly wrong.

[Mr Love]

The Government are suggesting that the regulators will get it wrong in 2018, and the commissions say that they will get it wrong a little sooner. Is this not an argument about timing and when the economy will be out of its current difficulties?

[Mr Redwood]

It is important that we should have proper discussion and informed debate, taking the best advice, so that we can try to get things right for a change. We owe it to all our electors and the economy generally to try to get the matter right.

Time is not generous, so I will be brief. My worry is that, under the previous Labour Government and in the early days of the coalition, we were running a strange policy in which, on the one hand, the Bank of England was trying to depress the vehicle’s accelerator by creating a lot of extra money and saying, “We really need to get some of this money out there to do some good in the economy.” On the other hand, the banking regulator was depressing the vehicle’s brake, saying, “No, you can’t possibly spend that money to create more credit and do more things. The priority is for the banks to sit on the money to have better cash and capital ratios. They probably need to wind down their loan books, which we think are too big.” My observation is that if we try to drive a vehicle with one foot on the accelerator and one on the brake, the brake normally wins.

[Mr Ruffley]

As has been mentioned already, some in the Bank, including Sir Mervyn King, argued that insufficient lending is a consequence of insufficient capital. I put that to Mr Bailey a few days ago in the Treasury Committee. I asked him about the net new lending level now compared with when funding for lending began last August, and he said that it was flat. Is that not evidence for his proposition that we cannot have tighter adequacy requirements on capital and lots more new lending? The figures show that lending is flat.

[Mr Redwood]

Indeed. That point also shows that we need banks to be profitable—particularly RBS, which is still largely state owned. Until the bank is making profits, its capital ratios will not improve quickly enough and it will then not be in a position to lend the money that the Government would like it to. The taxpayer would be grateful if it could be more profitable, because our shares would be worth more, which would be in the general interest.

I conclude by making the same point to the Minister. Yes, I want us to get to stronger banks with tighter ratios, but I want us to get there through growth and growth in bank profits—particularly for HBOS and RBS, in which we have a large state stake and whose results have been disappointing for a number of years. If we can get to that happy position, we can have a bit of growth and some more profitability and then the regulator will have to have a sensible conversation with the banks; it will say that some of the money has to be put into cash and capital so that they are stronger. We will be the better for that.

[Mr McFadden]

I will not detain the Chamber for long; I just want to make a few points.

The argument is really about complexity versus simplicity in how banks are regulated. One of the points that my hon. Friend the Member for Nottingham East (Chris Leslie) is trying to bring out is the inadequacy of the over-complex Basel regulations, which have allowed banks to game the system and say they had hugely different capital ratios on similar classes of assets in different institutions. The truth is that the Basel system is so complex that it does not give confidence about the safety of our banks. That is why this debate about leverage is so important.

In all the debate about ring-fencing, separation and so on, what has perhaps been under-discussed is the fact that not enough attention has been paid to leverage—a basic measure of banks’ safety or resilience against future risks and very important in respect of banks’ ability to absorb losses. One of the features consistently pointed out, both to the Treasury Committee and the Parliamentary Commission on Banking Standards, was that in the run-up to the crisis banks were hugely over-leveraged. That meant that their capacity to absorb and deal with problems when they came was minimal.

Our banks still have very high gearing today. The banks lobby hard on the issue. I counsel caution on the basic trade-off that has been raised about lending and leverage. There are other ways for banks to improve their capital ratios than simply by reducing lending. They could, for example, look at the proportion that they give out in remuneration every year; that could make a difference to their capital ratios. Over the past decade or two, vast amounts of money have been paid out in remuneration that could have improved capital ratios without having any effect at all on lending. Let us not fall for the argument that we can either have banks that lend, or safe banks, but we cannot have both. It would be wrong of us to fall into that false dichotomy. We should aim for banks that are both safe and have the ability to lend.

--- Later in debate ---

[Chris Leslie]

I would tend to err on the side of publication and transparency. It is long overdue that we have better insight into banks’ balance sheets and the quality of their assets generally.

If we are to have this architecture, it could be a useful dynamic to have a leverage target set by policy makers—by Government. I slightly take issue with the parliamentary commission on this. There is a systemic aspect that ought to rest in the hands of politicians. Ultimately, the buck stops with us and Parliament is sovereign; the arguments about that are well known. However, as the commission said, the operational decisions taken institution by institution have to be left to the regulator. It would be invidious for that to be in the hands of the Treasury.

[Mr Redwood]

RBS, against the wishes of some of us, had been allowed to grow to a colossal size and to gear excessively. At the point when it got into trouble, it had a balance sheet of £2.2 trillion —almost four times the tax revenue of the state—and if it lost 2% of its asset value it lost the equivalent of the defence budget for a whole year. Is not that of interest to those conducting government?

[Chris Leslie]

There is a rare consensus across the Chamber in some respects. We have to agree that the UK economy, whether it is mid-sized or not, is potentially adversely affected by our vast financial sector.

I offered new clause 9 in the spirit of consensus to try to get some engagement from the Government. I am disappointed by the Minister’s attitude of saying, “We’ll just leave this and do it internationally. We’ll come to it in 2018 through the normal conveyor belt.” The Government must address this issue far more constructively and engage with it far more seriously, because it really does matter. We need action on leverage and it is important that we put on record the essential characteristics that it could and should have within our economy as a whole. I am afraid that I therefore wish to test the view of the House.

Question put, That the clause be read a Second time.

Finance Bill

John Redwood Excerpts

Monday 1st July 2013 Commons Chamber

[Mr John Redwood (Wokingham) (Con)]

The hon. Gentleman wishes to pay for a 10p rate from the proceeds of a mansion tax. Will he advise the House of Labour’s definition of a mansion? Could it, for example, include an one or two-bedroom flat in central London that was lived in by people of rather modest means?

[Chris Leslie]

I think the right hon. Gentleman is thinking of the bedroom tax, and we can come to that in a moment. I will come to the details of what a mansion tax would look like. We have looked carefully at the well-crafted and evidently well-thought-through proposal from the Liberal Democrats. They have proposed that properties worth £2 million or more should attract an annual charge, saying that that could net approximately £2 billion. That would allow an income tax band of around £1,000, which would give a tax cut of about £100 to those benefiting from the 10p band.

--- Later in debate ---

[Chris Leslie]

I am grateful for the hon. Gentleman’s thought on this issue, but I disagree. I do understand that more and more people are being brought into the 40p rate. That is another stealthy move by the Chancellor as he broadens out the 40p band. In the interests of fairness, our concern has to be with basic rate taxpayers on the 20p rate. There are 25 million basic rate taxpayers, and if revenue is to be generated from a mansion tax, then most of our efforts should be focused on that group. As my hon. Friend the Member for Clwyd South (Susan Elan Jones) said, that group in society feel under the most pressure and are finding it hardest to get by and to make ends meet, and they would therefore benefit most from this tax cut. It is an important point, and I am glad that the hon. Gentleman raised it.

[Mr Redwood]

I wish to make a procedural point. Does not the shadow Minister accept that when a Minister asks his officials for some information and they research it, and he then comes to the House to impart that information to us, that is publishing the information? I know that that will come as a shock to a Labour shadow Minister, because Labour Ministers always made sure that somebody else was told rather than Parliament, but I rather like the fact that the Minister researches this, takes us seriously and tells us the answer. Why cannot we now work from the published answer?

[Chris Leslie]

Obviously I believe every word that the Exchequer Secretary utters, because it would be unparliamentary to do otherwise, Madam Deputy Speaker, but I am asking for just a little bit more from him. I just want to see the detail that the Treasury has produced on the mansion tax proposition. It would be entirely possible for him to put that in the public domain. I am sure that even Liberal Democrats would like to see it and would find it of interest, as would other hon. Members.

Spending Review

John Redwood Excerpts

Wednesday 26th June 2013 Commons Chamber

[Mr Osborne]

The right hon. Gentleman and I have, I hope, a cordial relationship, but I will just disagree on one point. The idea that he handed me a golden economic legacy and an easy set of books, and that somehow it was all fantastically booming after a 6% contraction in the economy, is something that will turn out, if I check his memoirs, not to have been the case.

To answer the right hon. Gentleman’s specific points, the transport money we set out is public investment; of course, there are opportunities to lever in additional private investment. He was gracious enough to acknowledge that all Governments have had the challenge of how to deliver infrastructure projects, given the planning system we have and so forth. We are reforming planning and will set out this week changes to infrastructure delivery in Whitehall to try to accelerate the delivery of projects—something that has bedevilled the British Government for decades, and we shall do our best to put it right.

[Mr John Redwood (Wokingham) (Con)]

I fully support the Chancellor’s wish to reduce the growth rate of public spending in cash terms; it is a very necessary thing to do to get the deficit under control as economic growth picks up, as I think it is now doing. On the welfare reforms, will he look at the idea that any non-British citizen coming to our country should have to work for a period and pay taxes before being eligible for any welfare benefits?

[Mr Osborne]

I am certainly prepared to look at any ideas that my right hon. Friend puts forward on welfare. Of course, one of our challenges—one of the debates in this country and in other European countries—concerns the eligibility for benefits of people who move here. In that regard, we are hemmed in by European law, but there may be opportunities within it to make some adjustments, and we are looking closely at those.

Financial Transaction Tax and Economic and Monetary Union

John Redwood Excerpts

Tuesday 18th June 2013 Commons Chamber

[Greg Clark]

We have taken the view that the problems in the euro area that require resolution should be resolved by its members, and it is in the interests of the international economy that that should be so. My hon. Friend is right to point out, however, that our interests are engaged in this, and we will make use of our powers and rights in the EU to insist that those interests are protected. An early example of that is in the single supervisory mechanism, where through repeated interventions and insistence by the Chancellor and me at ECOFIN meetings, the Prime Minister was ultimately able to secure agreement by way of a text in the regulation of that mechanism explicitly stating that there should be no discrimination against any country or currency as a result of these arrangements.

These matters will come up from time to time, and protecting our interests requires eternal vigilance. The work that the Committee does in scrutinising and bringing matters to our attention in advance of discussions at European level is crucial to that, which is why the importance of this Parliament needs to be underlined, and will be by this debate.

[Mr John Redwood (Wokingham) (Con)]

Monetary union is like having a bank account with the neighbours, and now the neighbours who have put the money in are panicking about the other neighbours who are taking the money out. We see in these documents that EMU is going to progress with much tighter fiscal and banking controls. Is the Minister going to want to keep all British banks out of the extra controls, as we would then no longer be in charge of them, or does he think that the euro activities of our banks must be part of this new centralised scheme from Brussels?

[Greg Clark]

We have been very clear, and the single supervisory mechanism is a good example, as I have said. We have our arrangements for the supervision of our banks, which are centred around the Bank of England, and it is absolutely right that they should continue in that way, but as each of these proposals is made, we will need to look to our national interest and make sure that our rights are protected.

--- Later in debate ---

[Chris Leslie]

I want to make some progress, as there is not much time.

For the longer term, we must recalibrate the contribution of financial services to society. Of course, we must nurture a revival and restoration of the City of London’s primacy as the most trusted and professional place for financial transactions, but we cannot ignore the fact that most other jurisdictions are revisiting how banking and finance pays into society and what sort of responsibility we seek.

We have heard already from my hon. Friend the Member for Liverpool, Wavertree (Luciana Berger) about the IMF report after the G20 in 2009, which sought to think through new ways for the financial services sector to make a fair and substantial contribution to meeting the costs associated with Government interventions to repair it. In this country the interventions, in one form or another, cost near £1 trillion.

When in government, we started with the bank bonus tax, a payroll tax implemented by my right hon. Friend the Member for Edinburgh South West (Mr Darling), the former Chancellor. We thought that was a good idea then and we still think it is a good idea today. The Government then came along with the bank levy; we think that it is a good idea, but it has been poorly enforced. Ministers promised £2.5 billion in every year, but two years ago it raised just £1.8 billion and last year just £1.6 billion. Ministers keep coming back to the House and saying, “Don’t worry, we’ll deal with this shortfall.” The Minister has said that on numerous occasions, but we will believe it when we see it.

A bank levy and a bank bonus tax can only be part of the bigger picture. We must recognise that there is an ongoing systemic risk from financial services innovation and trading beyond the mainstream banks.

[Mr Redwood]

Do the Opposition think that a bank headquartered in London, with its group corporate structure in London and with international operations, should be regulated by the Bank of England to our standards or fully integrated into euro area regulation?

[Chris Leslie]

I think that any financial institution that could have a systemic impact on our economy and UK financial services needs to be regulated from within the Bank of England and by our regulatory structures. I hope that there will be a match between our arrangements and the European arrangements. That has been part of my anxiety about the Government’s design of the Prudential Regulation Authority and the Financial Conduct Authority in the context of the Bank of England and how they fit together with the supervisory structures in Europe. We have had that debate and I think it will continue to be played out over the longer term.

For the time being—for today—the time has come for the Government to get serious about a financial transaction tax. Doing whatever they can to put a spanner in the works and turning their back on the idea is just not good enough. At a time when deficits are persistently high because of rock-bottom growth, leading economies, including those of Britain and the United States, need alternative revenue measures from continuing financial market speculation to relieve pressures on lower and middle-income households and the public services they use.

There are many lessons from the banking crisis, the most obvious of which is that the sheer globalised might of financial trading can overpower the plans and defences of individual nation states. Governments should not just shrug and accept that fate, which is why the Opposition urge Conservatives and Liberal Democrats actively to champion a financial transaction tax and the reform agenda to harness international financial markets so that they serve our societies and our economies.

If ever there was a time to seek international consensus on a financial transaction tax it is now, as countries continue to deal with the aftermath of the global financial crisis and the large deficits it created. Deducting a tiny fraction of 1% of the value of trades in equities, bonds and derivatives could raise significant sums if introduced in a concerted way across the principal world financial centres.

The House of Commons Library has considered what would happen if we applied the EU variant of the tax in the UK and says that it would yield some £10 billion annually. I do not stand by that figure—I do not think that it is necessarily convincing or viable—but it prompts the question of what could be achieved in the UK by a tax with a more modest and sensible design.

I do not decry the 11 EU countries for forging ahead on the issue—it is a brave decision for those EU countries to go it alone. Even with the participation of Germany, France and Italy, there are still risks involved, and although we are not participating at present we should not withdraw from the debate, not least given the size and importance of the City of London.

--- Later in debate ---

[Mr William Cash (Stone) (Con)]

I thank the Financial Secretary for his extremely diligent approach to the debate. He has dealt with all the arguments on the financial transaction tax and I leave those on the record. It is extraordinary that the Opposition should promote the idea, but there is no need for me to go into that this afternoon. I am primarily concerned about the other aspect of the debate and the report, which is the question of primacy. Without primacy, there is no democracy in the House, and without going back to the financial transaction tax, that is a subset of the question of primacy, which is why the Scrutiny Committee insisted on having this debate. I do not think my right hon. Friend will mind my saying that there was a little uncertainty about having it, and I am indebted to him for the clarity with which he has understood this vitally important question.

Our democracy and legitimacy as a Parliament in this House is the basis on which we decide questions of taxation and spending. As my right hon. Friend the Prime Minister said, in the Bloomberg fourth principle, national Parliaments are at the root of our democracy. Therefore, it is absolutely fundamental that we stand by that. I veer away slightly from the trajectory of my right hon. Friend—which he takes for perfectly sensible reasons, but which I disagree with none the less—that somehow the blueprint, which is described as “launching a European debate” is somehow just a piece of blue- sky thinking. It is not. It is absolutely fundamental to the one question that lies at the heart of the Bloomberg speech, in the light of what is said in the Commission document and in the van Rompuy conclusions, both of which put the prime emphasis on the European Parliament, to all intents and purposes at the expense of national Parliaments. They use the word “commensurate”, but it is not commensurate. We cannot have two Governments dealing with the same subject matter. We cannot have two Parliaments dealing with the same subject matter. It is impossible, which is why we have to assert the primacy of this House, and, as the Prime Minister rightly said in the Bloomberg speech, it is at the root of our democracy.

[Mr Redwood]

I thank my hon. Friend for highlighting this crucial issue and bringing it to the attention of the House. Will he accept that those of us who will not have time to speak today are fully behind him in wanting to re-establish and re-assert the primacy of this House in all matters that are important to the British people, and we have a long way to go to do that?

[Mr Cash]

We have a long way to go, and in fact the journey is becoming longer. I am extremely glad that we are having a proposal for a referendum Bill, which will enable us to decide these questions, if it comes off. I also believe that there is an understanding among possibly 240 Government Members that there is a serious problem in relation to the EU. There are some who take a different view, but it is a tangential question for them. For us it is fundamental. The biggest demonstration of the problem is this fundamental relationship, which turns on primacy. That is what the Scrutiny Committee focused on, and that is what I will speak about, somewhat briefly.

Basically, the landscape involves a two-tier Europe. I am astonished that the shadow Minister should have said, in parenthesis, that he did not really want to go into—I paraphrase—the rather self-indulgent ruminations on institutional differences with monetary union and the like. I am certain that if the primacy question were properly explained to the hon. Gentleman and Opposition Members, they would appreciate that it is fundamental.

I pay tribute to the hon. Member for Linlithgow and East Falkirk (Michael Connarty) because he understands that. I am sure that he will not mind me referring to an interesting altercation the other day with Olli Rehn in a committee meeting that we had in Brussels. The hon. Gentleman made it crystal clear with regard to this idea of the centralisation, with the contracts that he referred to in an intervention, when he was rather abruptly caught short, The reality is that he understands that it is an infringement of our democratic relationship with the electorate. It is about the person in the polling booth voting and making a decision about the kind of Government that they want, and the kind of economy that they want. He and I may have a difference of view about whether there should be adjustments to the public purse. I would argue that if there is a black hole out there in the EU and the black hole prevents growth in the EU and we trade 50% with it, we cannot pay for the public services. The hon. Gentleman understands that.

This goes right to the heart of the issue of whether we are prepared to accept, at this fork in the road—which is what this document represents—this launching of the European debate, which we must carry forward to ensure that we retain primacy in this House over taxation and spending. The shadow Minister nods, so now he concedes that it is not a matter of self-indulgence, but a matter of significance. That is why the debate has to take place. I am afraid to say that the black hole, and the direction in which it is going—because of the two-tier arrangement that is being created, on which they are determined; I could quote from the documents, which talk about political integration that is needed within the hard core and they know what it means—will lead to a German Europe. They will control that hard core. The bottom line is that we cannot be part of it. That means that there is a change in the fundamental relationship, not merely for monetary union reasons, not merely for reasons of remorseless logic, but for political ones.