Infrastructure (Financial Assistance) Bill

Lord Redwood Excerpts

Monday 15th October 2012 Commons Chamber

[Chris Leslie]

My right hon. Friend makes an important point that emphasises the argument that we are making. This is not simply a question of the levels of capital investment; it is also a question of competence. It is also about the relentless need to focus on delivery, and on the detail behind the delivery. I just do not see the Treasury, as currently comprised, being capable of getting to grips with the granularity of some of the obstacles that face capital schemes. It is no wonder that we are falling further and further behind. The Treasury seems to see an obstacle and be deterred by it, rather than trying to tackle it and move past it.

[Mr John Redwood (Wokingham) (Con)]

We are being invited to agree to a potential £50 billion commitment. Do the Opposition have any thoughts on the pace of that kind of expenditure? What levels would they recommend for this year, next year and the following year?

[Chris Leslie]

It is difficult to say, when looking at a guarantee scheme or underwriting scheme, because certain things are not wholly in the control of Ministers. They are putting the guarantee out there and waiting for organisations in the private sector or elsewhere to come forward and bid for the resource. It is a bit like pushing against a piece of string; it is impossible to know what the demand will be. We do not rule out the possibility of the proposal being of benefit—of course it could be—but it is impossible to know at this stage. We are holding up a finger to test the direction of the wind. There are no time scales in the Bill, and the explanatory notes do not add any information in that regard. We want to know the judgment of the studied intellects in the Treasury.

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[Chris Leslie]

I would like to hope so, but I do not advise my hon. Friend to hold his breath. We are not even talking about a fund; we are talking about promises to under-run funds in order to guarantee other schemes as they come forward. Where is the confidence? Where is the demand in the economy? Where are the private sector schemes whose organisers want to come forward? Far greater efforts must be made, and the Government must take the economic climate more seriously. We should be bringing forward schemes, prioritising UK infrastructure, and kick-starting construction here at home. We have suggested that revenue from the 4G spectrum auction should be used to fund the building of 100,000 new homes, and we are more than happy for the Chancellor to steal our thunder in the autumn—or should I say Christmas—statement on 5 December. Our amendment would ensure that the Bill focused on the British economy, and that should surely be the starting point.

[Mr Redwood]

I think we should be a bit careful. I thought that the Bill to which we are being invited to consent would provide solely, or primarily, for guarantees and loans, but in fact it allows expenditure and

“any… kind of financial assistance”,

which could include direct purchase. It certainly includes court or prison facilities and roads, which, in many cases, will involve no revenue, so presumably that means direct spending.

[Chris Leslie]

I think that the right hon. Gentleman is technically correct. The wording of the Bill is very loosely framed. We know that accounting officers in the Treasury had put a big question mark over exactly what Ministers were proposing. They wanted one line to cover them in circumstances in which things might go wrong, and they would be challenged and hauled before the Public Accounts Committee. That dates back to the 1932 concordat on public accounts, and it is being radically changed by the Bill. We do not necessarily think that that is the wrong thing to do, but it is noticeable that legislation has been presented to the House of Commons by Ministers who cannot say what it will be used for. We need information on the specifics of the schemes and the dates on which they will be supported. That is the level of detail that we require.

Amendment 9 relates to the definition of “infrastructure” in clause 1. I am sorry that the amendment tabled by my hon. Friend the Member for York Central (Hugh Bayley) was not selected; he noticed that flood defence schemes were not included in the list of items covered by infrastructure expenditure.

Our amendment seeks to insert the word “childcare”. Education is included in the set of infrastructure projects that might benefit from the scheme, but child care is quite different. We consider that to be an obvious anomaly which the Government should correct. We know that the costs of child care are afflicting many families throughout the country, a number of whom are not necessarily choosing to enter employment because the child care options are too limited or too expensive. One of the reasons why child care is so expensive is that the facilities are expensive. We do not have enough of them, and we need more investment in them.

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[Chris Leslie]

My hon. Friend’s point is borne out by the statistics. Only 67% of mothers in the UK are in employment, which compares with figures of 84% in Denmark, 79% in the Netherlands and 74% in France. That reflects on the characteristics of our national output and our economy. More could be done to help those parents to gain access to employment. Families in the UK with pre-school-age children spend more on child care than is spent by this group in any other OECD country, except Switzerland. More nursery places and more not-for-profit providers of child care would help to drive down that cost. According to the OECD, the cost of child care in the UK is more than 26% of the average family income in those circumstances, whereas the OECD average is just under 12%, so this is a very significant drag on family budgets and it is holding back our economy.

The Daycare Trust has called for Government assistance to enable children’s centres, smaller private providers and not-for-profit early years providers to expand. It has pointed out that some 28,000 extra nursery places for two-year-olds need to be found in London alone, so we can clearly see that child care issues need to be considered in the definition of “infrastructure” that could obtain support under this legislation. Those are the amendments that I wish to discuss for the time being, but other hon. Members will doubtless have noticed omissions in the legislation.

[Mr Redwood]

My concern about this Bill is with the definitions and the amount of money involved. I am obviously very much in favour of more productive infrastructure projects going ahead as quickly as possible. There may well be utility in facilitating the Government to make guarantees, support or indemnities available at a time when the banking system is still not functioning well and it is difficult getting these things financed privately in the way we normally like. However, I start from the proposition that what we really need to be doing is generating a lot more freestanding private sector investment projects. It would be better if we took stronger and faster action to remedy the banking problems that lie underneath the problems we face in getting these things financed.

I am concerned that the wide-ranging powers in clause 1 may lead to a big increase in public spending, which would damage the Government’s fiscal targets. A lot of time and energy has been expended by Governments on reducing capital programmes to try to get public spending down to levels thought to be more compatible with reality and markets. We want to avoid this Bill becoming a way of undoing all the hard work that has been done to try to get the deficit down, at a time when this Government strongly believe that deficit reduction is crucial. The outgoing Government actually enacted legislation committing themselves to halving the deficit over the lifetime of this Parliament.

The definition of “infrastructure” in clause 1(2) is wide ranging. I thought that the type of infrastructure we had in mind for this Bill was that in subsection 2(a), which states that infrastructure is about “water, electricity, gas, telecommunications”. Those services are all provided by the private sector with charges to customers, so there is a flow of revenue that can remunerate the capital. If those projects are held up because of banking difficulties, I have every wish to encourage the Minister, newly in his job—I give him my congratulations—to expedite them. One hopes that the Government would be properly rewarded for the indemnities and the guarantees, or that they would not be necessary in the fullness of time, and so the taxpayer would not lose by this process. I am happy with that provision, which I thought was the thrust of the Bill.

However, subsection (2) also provides for mixed projects and entirely public sector projects. It includes mixed projects in the form of railway facilities. Railways are extremely heavily subsidised, and any new project is likely to require many years of future subsidy, because such projects do not normally reward the railway operator or the taxpayer sufficiently from the fare revenue. We therefore need to consider, for any one of these projects, the medium-term and long-term implications of cash outflows from the public sector, as well as the private sector revenues. Those things cause difficulty in the evaluation, as we have found recently through one of the franchise problems.

Subsection (2) also makes provision in respect of areas where spending must entirely be an expense for the public sector—I assume that we are not envisaging court or prison facilities having paying guests who would contribute towards the costs, so this money will be entirely expended by the public sector.

[Mr Crispin Blunt (Reigate) (Con)]

I return to an argument about prisons that I made on Second Reading. New prisons cost substantially less to run per place than old prisons and can better develop wider policy objectives—for example, on rehabilitation and work in prisons. When debating the Bill, reference should be made to the spending on prisons that would come from the Ministry of Justice’s delegated expenditure limit. This approach would enable the capital expenditure to happen now, in order to take the savings later.

[Mr Redwood]

That is a helpful contribution, but it shows the dangers of this clause, because it demonstrates that if these projects are not properly evaluated they could be more expensive overall. My hon. Friend has recent experience as Minister with responsibility for prisons and he is saying that in the short term they will definitely be dearer, because the state will have a big cash outflow in order to buy the new prison. It will take time to close down the old one and find some alternative use for it, and that process might not produce anything like the amount of money that the new prison costs. He is arguing, with his former brief in mind, that this may still represent a good bargain for the taxpayer, but when we come to account for it, we will have to account for the fact that a lot more has been spent in the first couple of years; there may be benefits for Governments to come if, as he hopes, the thing is cheaper and better in the longer term.

In debating this clause, we need to unpack the three types of project we are talking about. The first is a genuine private sector project, where we hope that there will be no ultimate call on the taxpayer and it may just involve a facilitation guarantee that will be properly rewarded. The second is a mixed project, where a lot of accounting has to be done—as the Department for Transport is discovering, such projects are difficult to evaluate. The third is the pure public sector project, where we need to go into the departmental budget. So I hope that the Minister will give me some reassurances about this.

[Hugh Bayley]

I follow the argument that the right hon. Gentleman is making, although I do not necessarily share his conclusion. Health facilities are defined as one of the fields of infrastructure that this fund could be used to support. The recent health Bill showed that the Government favour more NHS services being provided by private contractors and private hospitals. Is he telling the Committee that he would be happy for this fund to be used to finance a private clinic or a private hospital, but not happy for it to be used to fund an NHS hospital trust?

[Mr Redwood]

I am not trying to say anything that contentious. I am trying to unpack what is going on in this clause, because we are in Committee. I was not going to presume to give my views on total public spending, because that is a matter for another day and another debate. I am trying to get the Committee to understand that we are dealing with three different types of project, and the health one is closer to the pure public sector project. Even if it is carried out in a private sector facility with some so-called “private sector risk”, all the patients will be paid for by the NHS if it is for the NHS and so it is a flow of public revenue. We have to account for it in the proper way and be realistic about that.

[Kate Green]

The right hon. Gentleman is making an interesting argument. Does he not also accept that one of the difficulties with long-term infrastructure projects is that they have different phases, some of which may be susceptible to public intervention and some of which, later on, will require private investment. Let me give the example of a large site in my constituency that is currently in private ownership and has large redevelopment potential. The initial investment will have to be public investment to decontaminate the land and prepare the planning requirements, but down the line one would hope to see private investment. Does that not create a further accounting conundrum?

[Mr Redwood]

Yes, indeed. My point, which is not hostile to the Minister and is merely an attempt to inform the debate, is that we are discussing a set of very different projects and we are not sure what we are talking about because the Bill is very generic and general. We can probably all come to the conclusion that for this to work we will need precise control over what is being proposed—of how much of it is public, how much is private, how much involves a direct charge on the taxpayer and how much involves a guarantee or indemnity.

If a guarantee or indemnity is involved, I am sure that the Minister, with his forensic financial backgrounds and skills, will be able to keep control of it and to reassure the Committee that it is unlikely to be called on unless it was absolutely essential and a very important project would not go ahead without it, which would mean that it was a reasonable risk to run. I am happy at that end of the spectrum, as we will have to trust the Minister’s judgment and this is a good Minister with the skills and ability to do such things. We need to probe when such projects are proposed, however, as we are the custodians of public money and do not want to end up with white elephant projects with huge guarantees and indemnities that will in due course have to be met by some Government.

I am also concerned about the projects in which there is more of a mixture or a muddle, because they must be fitted in to the public expenditure plans. That does not prejudge whether the expenditure should be higher or lower, and there will be different views on that in the Committee, but they will need to be fitted into the plans. A large sum is involved—£50 billion—and we do not know the time scale. The Government might want to come back and ask for more money, and a provision allows them to do so by order, so I want a little more information from the Minister about how such projects will fit into the public expenditure plans and how Ministers collectively will evaluate the mixed projects that receive a big flow of public subsidy and, more particularly, those that really are public sector projects. They might be dressed up as private sector projects, but as far as I am concerned if all the money for the provision on behalf of customers or users of the service comes from the state, that is a public sector project and the private sector is merely a franchisee or agent of the state. If all the money comes from the state, I expect the state to have a grip of the project and to satisfy us that it represents value for money that is being organised in the best way.

I am not ideologically driven as regards the provision of state services. I think that should be done in the cheapest possible way, provided that they offer good quality, and that always causes problems, but I hope that the Minister will give us some guidance about how he will differentiate and seek reassurances about the granting of those indemnities and guarantees and about what proportion of the projects will involve pure public spending, as the Bill entitles him to spend as well as offer guarantees.

[Mark Field (Cities of London and Westminster) (Con)]

Although I accept much of the thrust of what my right hon. Friend has to say, does he not accept that if too much time and Treasury orthodoxy are spent on evaluating schemes at this stage, many of the infrastructure projects will simply not be built? We need to move ahead with getting them under way at the earliest opportunity if there is to be economic growth and some of the evaluation process to which he refers might be better placed at a later date.

[Mr Redwood]

I normally agree with my hon. Friend, but I am afraid that I do not on this occasion. There is not now an excuse to go in for projects that do not make any economic sense just because we all want some more growth and jobs. Indeed, that would be a very good way of setting us all back further as it would damage the public finances without giving us the benefit of a good project that people wanted to use and that produced plenty of user revenue. When one is in a financial hole, as our country is, one needs to be very careful. We look to the Treasury, in particular, to evaluate such matters carefully and I want a little more guidance because £50 billion is a huge sum. I am not surprised that so few MPs want to discuss it—if we were debating £500 million, the place would probably be packed, but because we are discussing £50 billion everyone has gone off for a tea or a coffee—but to me it is a serious sum of money and I want some reassurance that we will get something worth having for it.

[John McDonnell (Hayes and Harlington) (Lab)]

The right hon. Member for Wokingham (Mr Redwood) roamed over many of the issues covered on Second Reading and over the scepticism on both sides of the Committee. I say to the hon. Member for Cities of London and Westminster (Mark Field) that I think evaluation is critical, as we have seen with the west coast main line, and undertaking projects on a wing and prayer at this stage is dangerous, to say the least.

The Bill, as we said on Second Reading, seems to be the reverse of the private finance initiative. PFI was meant to shift the risk on to the private sector, yet the Bill seems to shifting it back on to the public sector. I share the concerns. Clause 1(4) defines financial assistance in the broadest terms possible, so it could involve revenue assistance, and clause 1(3) refers to the operation of a project. In addition to a capital project, we could be subsidising in revenue terms the operation undertaken by a capital project. That leaves open the issue of hospitals being built by the private sector and then revenue supported under the Bill.

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[Mr Raynsford]

I think it very likely that any definition of “national significance” would include flood defence schemes, which are defined as infrastructure in the national infrastructure plan. My hon. Friend should not be troubled about their absence from the list, although he wishes to move an amendment to clarify the matter. There is no question but that flood defences are infrastructure, and if they protect from flooding areas of the country at risk of flooding, which is clearly catastrophic, the likely interpretation would be that they were of national significance.

However, I do not propose to add a precise definition; I simply want to give an overall, overarching legislative obligation for the Bill to be used for the provision of financial assistance to schemes of genuinely national significance.

[Mr Redwood]

I remind the right hon. Gentleman that the Government could not merely offer a loan for the new school door; they could pay for it—they can pay for operating expenditure. So the issue is very wide-ranging.

Oral Answers to Questions

Lord Redwood Excerpts

Tuesday 11th September 2012 Commons Chamber

[Mr Osborne]

I am keen to see further investment in our ports. I am happy to engage in a specific conversation with the hon. Gentleman about his proposal and, if necessary, speak to the Welsh Government about it.

[Mr John Redwood (Wokingham) (Con)]

Does the Chancellor agree that the projects that have the most beneficial impact on the economy are those that are fully self-financing in the private sector because they are popular?

[Mr Osborne]

I agree that we want to see private sector investment, and tens of billions of pounds of private sector investment is coming into the United Kingdom. Indeed, today the Chinese company Huawei has announced a $2 billion investment in the UK. I absolutely agree with my right hon. Friend. We want to create the low-tax, competitive conditions for the UK economy in which the private sector can grow, but I think he would recognise that there is a role for public money in providing large-scale transport infrastructure, for example, which these companies need to succeed.

Draft European Union Budget

Lord Redwood Excerpts

Thursday 12th July 2012 Commons Chamber

[Mr Hoban]

Unlike the Opposition, who were prepared to sacrifice our rebate for some sort of illusory review of spending, we stand firm. It is one of our red lines. In the same way, we stand firm on the financial transaction tax. That is why we vetoed it. We have cut €500 million off the CAP budget this year, which is much more concrete than some review that cost us £10 billion.

[Mr John Redwood (Wokingham) (Con)]

rose—

[Mr Hoban]

I give way to my right hon. Friend, but then I must make some progress and allow others to speak in this short debate.

[Mr Redwood]

What would the member states that want a high budget say if the UK Government pointed out that public sector wages and benefits in Greece and Spain are having to be cut in cash terms because the EU will not cut its own budget? When there is so much waste and programmes that are not very important, one would think it was much easier and preferable to cut those.

[Mr Hoban]

My right hon. Friend needs to reflect on the fact that there are, crudely, two groups of member states: those that are net contributors to the EU budget, such as the UK, Germany, the Netherlands and France; and those that have no incentive to curb the size of the budget because they are net recipients. That is one of the reasons there was a tension in the Council debate on this year’s budget and, effectively, two blocking minorities: one if the budget settlement were too low and the other if it were too high. We are making the case across Europe that we need to curb spending and that the money is spent much better at home than through Brussels. We have a group of like-minded allies on that, although not all member states see it in the same way. I think that we need continually to send the message that there are better ways to boost growth in Europe than simply by spending more taxpayers’ money, whether it comes from Belgian, Greek or British taxpayers.

[Mr Redwood]

But they need to be educated, because in order to get money out we also have to put money in, so higher EU spending affects all member states adversely, not just those that make a net contribution.

Oral Answers to Questions

Lord Redwood Excerpts

Tuesday 26th June 2012 Commons Chamber

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

We on the Treasury Bench have argued many times in the House that it is fair to ask couples to work under similar requirements as lone parents, and I urge the hon. Lady to consider that in this case.

[Mr John Redwood (Wokingham) (Con)]

When will the House be given the details of the three very large schemes for monetary easing announced at the Mansion House, and when will we be given a chance to debate them?

[Mr Osborne]

It is standard practice for the Bank to announce its own monetary and liquidity schemes. That is what it did with the liquidity proposals, and the Governor of the Bank was answering questions about them this morning before the Treasury Committee in this House. When we have further details about the funding for lending scheme, we will of course come to the House and make that announcement, but I hope that my right hon. Friend will allow me to continue to make Mansion House speeches as Chancellors have before.

Business and the Economy

Lord Redwood Excerpts

Monday 14th May 2012 Commons Chamber

[Vince Cable]

I do not think that the Foreign Secretary actually said that. He works extremely hard with me and my colleagues promoting British business around the world. A large part of his job is commercial diplomacy and he is doing it extremely well.

One key proposal in the enterprise and regulatory reform Bill is legislation for the UK green investment bank, which will drive the transition to a green economy. The Bill will set the bank’s purpose, ensure its independence and make funding provision. The bank will be formed as a public company under the Companies Act, with initial funding of £3 billion to March 2015. It will operate independently from Government, but will agree its strategic priorities with the Government. Until formally established, the Government are making investments, on commercial terms, in green infrastructure through a specialist team in my Department. I reported to a Standing Committee of the House two weeks ago on its progress.

[Mr John Redwood (Wokingham) (Con)]

I think that the Secretary of State agrees with me that the Vickers proposals for more competition among our domestic banks are very good. What further measures can the Government take urgently to get some competition in banking capacity in the high street?

[Vince Cable]

My right hon. Friend is right that, in addition to the structural reforms, competition is essential. He will know that the Government are endeavouring to carry through as ambitiously as possible the divestment of branches from Lloyds, and a potential solution to that is in sight. There are also some excellent new banks coming up—Handelsbanken and Metro bank are good examples—and we must ensure that the regulatory process is as efficient as possible in order to get those up and running. I thank him for his continued pressure on that important point.

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[Mr Umunna]

In case the hon. Gentleman has not noticed, we are in a double-dip recession. That says something about his party’s policies, given that, as I have just said, it inherited an economy that was growing, unemployment that was falling and a recovery that was setting in.

Before the Queen’s Speech, there was, of course, the Budget. Let us remember what people said about it. The general secretary of the TUC said:

“We needed a Budget that looked to the future and made jobs - particularly for young people - the national priority… Instead we have got a Budget by the rich for the rich.”

The chief executive of the Forum of Private Business said:

“what small businesses and the economy need are confident strides forward now. Largely, that has not happened in this Budget.”

People were looking in the Queen’s Speech for signs that Ministers understood what people were telling them—to change course and to put in place policies that will deliver an economy that works for working people and businesses, and the building blocks upon which a new economy can be built.

Did the Queen’s Speech deliver the change that people and businesses signalled they wanted to see? There are things that we welcome, subject to the small print being worked through. I have given the Business Secretary credit for ensuring that the Government established the Independent Commission on Banking. We are playing our part, in a cross-party spirit as far as possible, to implement its recommendations, and will look at the detail when it is published. The Government, by their own admission, said that they were bequeathed one of the best competition regimes in the world by this party. The Business Secretary will need to demonstrate that the creation of the single competition and markets authority—which he has just spoken about—will improve on that legacy, not squander it.

Our 2010 manifesto included plans to create a supermarkets ombudsman to protect farmers and food suppliers from unfair and uncompetitive practices by major retailers. The Government are taking that forward through the grocery adjudicator, which the Secretary of State has mentioned. We will work to ensure that the grocery adjudicator is given powers to ensure fair access across the supply chain. In office we set up the primary authority scheme—which he also mentioned—to help reduce the local regulatory burden on firms. The enterprise Bill will extend that to include more businesses, which is welcome. The Secretary of State also referred to the changes to parental leave. Again, we will look at the details, but on the whole, that does not sound like a bad measure.

We were told that the enterprise Bill would contain measures on executive remuneration—something the Secretary of State has just repeated. In order to build a more productive and responsible capitalism, it is important to ensure that we bring an end to rewards for failure and the excessive pay we have seen, which is bad for our economy and our businesses. On both sides of the House we agree that change and reform must be led by shareholders and investors with Government support. In office, we were the ones who introduced the advisory shareholder votes on remuneration reports, which have been causing a lot of news recently.

[Mr Redwood]

What approach would the shadow Minister recommend to the remuneration of senior executives and directors in banks with state shareholdings?

[Mr Umunna]

I would say that their pay should be linked to performance against criteria and specified objectives. Our argument in relation to RBS is that the Government are the biggest shareholder. They have lectured others about the need for greater shareholder activism, but it would be good to see it from those on the Government Front Bench.

However, despite all the things I have welcomed, in sum, it is business as usual for this Government. This Queen’s Speech signals little change in approach. For the person looking for work, this Queen’s Speech offered no hope; for individuals, families and firms faced with increasing energy and water bills, and rising transport costs, it offered no hope; and for sound and successful small businesses struggling to get by in this recession of the Government’s making, it offered no hope. However, listening to the Business Secretary, one would think that the Queen’s Speech had been positively received. I do not know who he has been listening to, but this is what our business leaders have said about his Government’s Queen’s Speech. On Friday, Justin King, the CEO of Sainsbury’s and a member of the Prime Minister’s business advisory group, which is meeting as I speak, said:

“Consistency is what gives confidence. Unfortunately, what we have seen over the past couple of years is something that could not be described as a consistent pursuit of a clear policy”.

In other words, uncertainty—created by the Business Secretary’s Department and all across Whitehall—is reducing businesses’ confidence to invest for the long term. On Saturday, the director general of the British Chambers of Commerce said:

“there is a big black hole when it comes to aiding businesses to create enterprise, generate wealth and grow”.

Business people are clear: what they want is a Government who will step up and work in partnership with them to create the conditions for private sector growth. What they have got is a Government who step aside and leave business to struggle on alone.

What was the Government’s response to those comments by business people? Step forward the Foreign Secretary. Yesterday—in what the Business Secretary described as “commercial diplomacy”—he said:

“I think they should be getting on with the task of creating more of those jobs and more of those exports, rather than complaining about it. There’s only one growth strategy: work hard”.

What on earth does the Foreign Secretary think this country’s business owners do all day? His message is clear. He is saying that the fact the economy is not growing has nothing to do with the Government’s failed economic policies. He is saying that it is not growing because the people in all our businesses out there are not working hard enough. How out of touch can the Foreign Secretary be?

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[Mr John Redwood (Wokingham) (Con)]

I remind the House that I offer business advice to a global engineering business and a small investor management business.

We meet today with the winds of danger blowing once again from the euro area. We meet to discuss measures in the Queen’s Speech to make Britain more competitive, to equip Britain better, and to produce more jobs and deliver more goods and services around the world. No one in this House would disagree with the aim. All the main parties agree that we need more economic growth. I think they all agree it is easier to get a deficit down when we are creating more jobs, getting people who are out of work into those jobs, and generating more income and activity, than when we are not. There is no disagreement across the Floor of the House about the aim.

However, when debating how we are going to get that growth and give the best possible support to the companies and individuals who create the jobs and make things happen, we must also recognise that there is a very threatening and menacing problem on our doorsteps. As we meet here today, we know that the Greek political parties may not be able to form a Government at all, or they may not be able to form a Government that can put through the necessary measures to meet the requirements of the EU and IMF loans in Greece. They may decide on new elections in some weeks’ time, creating a dangerous hiatus; and those elections may produce a Government who fully reflect the view of the Greek people, as expressed in the last election to a considerable extent, that they do not wish to co-operate any longer with the lethal mixture of policies that the euroland senior politicians have put forward.

That matters to the United Kingdom, not only because some of our exports and services are sold within euroland, but because, as members of the European Union, we will participate in some of the meetings about what kind of growth strategy Europe as a whole can develop, and we will be a party to some of the decisions that will determine the future of the euro. If the Greek tragedy unfolds such that the Greek state cannot meet the requirements, the European Union has to decide either to give in yet again and come up with another compromise, or that there has to be an early exit of Greece from the euro. It would be better for the British economy and for the future of euroland if an early exit of Greece from the euro were organised quickly, and in confidence up to the point when the necessary announcements must be made. I would not expect the British Government to confirm that that is their aim, but I hope that Ministers are working closely together, representing the greatest financial centre in western Europe and perhaps the world, with that in mind. The sooner the Greek problem is solved, the sooner we can get on with sorting out some of the wider problems in the European economy.

If it is decided to cobble together another compromise, massive headwinds against growth and prosperity in our continent will continue to blow forcefully. Will an early Greek exit be easy to handle? No, of course not. Will it be pleasant? No, of course not. But the Greek people have got to the point where they cannot take any more years of austerity, and in some way or another Greece has to be made competitive. If is it is completely impossible, as it seems to be, in a democracy to slash wages by the amount the German side of the argument seems to say the Greeks should slash wages by, other means have to be used: having a devaluation and having a new currency.

The United Kingdom has one big advantage in the crisis: we have our own currency, it is freely floating,and we are much closer to having competitive prices than Greece, Italy or Spain can possibly be within the euro. Any measures that my right hon. Friends can take to improve our competitiveness in order to create more export jobs, the better. How right Ministers are to see that there has to be a huge reorientation of British exports towards the emerging markets—to the faster-growing territories of Asia, Latin America and parts of Africa—because Europe is making such a comprehensive mess of its economy and its prospects. It is destroying hope and jobs on such a massive scale that our only hope as a country is to support and orient our businesses to where the growth is and where the opportunities are to be found.

That means taking urgent action to mend our banks and to establish more competitive banking, with more money to lend to our companies, because they are going to need working capital and investment capital. They are going to need to gear up for the 2.5 billion Indian and Chinese who want to come to the world party, many of whom, I am pleased to say, will come to the world party and will be the market that replaces the European market, which is failing so visibly.

We also need competitive energy. Surely the Secretary of State would agree, at least in private, that if we wish to lead an industrial revival in this country or anywhere else, we need cheap and competitive energy in plentiful supply. We should not be saying, “Let’s make everything in China, so it does not score against our carbon dioxide totals.” Let us make things here. If we have cheap energy, we will have more chance. Modern manufacturing creates lots of jobs in marketing, legal work and promotion. It does not create many jobs on the shop floor because it is automated, which requires access to lots of cheap energy. That is what I want this Queen’s Speech to address: cheap energy, less intensive regulations—

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. I remind hon. Members that there is a six-minute limit on speeches.

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[Danny Alexander]

I do not have that information to hand. However, the point I made earlier, which he ignores, is that in many cases where the regional growth fund has been awarded, the private investment takes place well in advance of the public funds being needed. The measure he seeks to use of who has received public funds is therefore not necessarily the best measure of the investment that has taken place, quickly stimulated by the award of regional growth funds. If he looks around the country, he will see many examples of private sector businesses that have been awarded moneys from the regional growth fund and have started their investments well in advance of public funding arriving, because that is how their projects have been planned. If he were doing his job properly, he would understand that that is the way in which many businesses operate.

We have also heard a number of comments about the banking Bill. Indeed, strong support for that Bill was expressed on both sides of the House, and there was support, too, for the strong recommendations of the Independent Commission on Banking.

[Mr Redwood]

Has the Chief Secretary noticed the latest forecast, which says total City bonuses are likely to be only £2.3 billion this year, as opposed to £11.5 billion at the peak, under the Labour Government? Will he consider representations in favour of a bankers’ bonus tax in the light of how little revenue it will raise compared with the original forecast?

[Danny Alexander]

I was about to come on to the mess that the Labour party made of our economy, but the right hon. Gentleman’s question causes me to bring those remarks forward. One of the most calamitous failures of the last Labour Government was the complete failure to regulate the financial sector and to control the excesses that built up in the banking system, and the figures he gave are just one example of that. The banking Bill will implement the reforms that are necessary to deal with some of the excesses and, more importantly, to protect the taxpayer and the British economy from the sorts of problems that previously arose. It was very striking that in neither Labour Front-Bench speech did we hear any apology for the previous Government’s failure to regulate the banks properly, just as we heard no apology for the mess they made of our public finances and the many other mistakes they made, too.

Oral Answers to Questions

Lord Redwood Excerpts

Tuesday 24th April 2012 Commons Chamber

[Mr George Osborne]

We cut business tax to make this country more competitive and to create jobs; we delivered an income tax cut for 24 million working people; we took 2 million low-paid people out of tax altogether; and, above all, we continue to clear up the economic mess left to us by the Labour party.

[Mr John Redwood (Wokingham) (Con)]

What will we get for the £64 billion extra spending this year compared with the last year under Labour?

[Mr Osborne]

The plans we set out for public expenditure were measured, but they involved reducing the deficit. That has been very important. The public finance figures, published today, show that we are on track to meet our deficit targets. At the same time, we have found resources for things such as extra nursery education for disadvantaged youngsters, the pupil premium and all sorts of other things that support our objectives of a fairer and more balanced economy. [Interruption.]

Section 5 of the European Communities (Amendment) Act 1993

Lord Redwood Excerpts

Tuesday 24th April 2012 Commons Chamber

[Mr Hoban]

We have signed up to certain aspects of the stability and growth pact. One precondition is that we present this information, as we have done every year since the Maastricht treaty. I will set out later why the UK is treated differently in this process from other European Union member states, but there is nothing new in the information that we will supply and it has been presented to the House. When the EU sought to revise its economic governance package, we were very clear that, whereas other member states provide information to the Commission in advance of their budget-setting process, the UK will provide it after our process.

[Mr John Redwood (Wokingham) (Con)]

Does the Minister believe the UK is bound by the Maastricht rules that its deficit should be 3% per annum and no more, and that it should have a stock of debt of only 60% of national income?

[Mr Hoban]

We are required to endeavour to achieve the Maastricht criteria. A very different regime is in place for the UK because of the opt-out that John Major negotiated under the Maastricht treaty. We have been clear, as the economic governance package has developed in recent years, on preserving that opt-out and the different treatment for the UK as compared with other European member states. One achievement is that we are not subject, for example, to the sanctions regime to which other member states are subject.

We jealously protect our particular position in the process, as I am sure hon. Members on both sides of the House would want us to do. Clearly, were we to follow the Leader of the Opposition’s policy—he wants us to join the eurozone at some point—we would have to give up those safeguards and protections. That is not a policy that this Government or the Conservative party would support.

--- Later in debate ---

[Mr Hoban]

Different member states have different constitutional requirements and different histories on the use of referendums, so it is not necessarily appropriate for a politician here in Westminster to lecture others on how to ratify treaty changes.

Before I took the intervention from the hon. Member for Blackley and Broughton (Graham Stringer), who has now disappeared, I was talking about how the UK fits into the economic governance measures. We will present the convergence programme to the Commission after the Budget has been presented to Parliament—the process we are going through at the moment. The EU, alongside other international institutions such as the OECD and the International Monetary Fund, can comment on the Budget, but, crucially, we are under no obligation to take action. It is up to the Government, not Brussels, to decide what action to take in the UK.

Of course, as the euro area moves towards closer fiscal integration, we must remain vigilant to protect the UK’s interests. Where matters are rightly for discussion or agreement by all 27 member states—for example, on the single market or financial services—they must be agreed by all 27 member states. In case there is any doubt, I can reassure Members that the UK remains at the heart of the EU’s economic debate. It is because of the Prime Minister’s recent letter with 11 other Heads of State or Government ahead of the March European Council that the Council conclusions were agreed with a commitment to ambitious structural reforms at the EU level. That included concrete Council conclusions on strengthening the single market and its governance; completing the digital single market by 2015; making further progress in reducing administrative burdens; and boosting trade by removing trade barriers and ensuring better market access and investment conditions.

The Government will push for even more ambition, however, because a return to sustainable growth is the only way for EU member states to pay down their debts and exit the current crisis. It is essential that the Commission uses EU-level policy levers fully to support growth, but member states must continue to take tough decisions to prioritise the most growth-enhancing reforms, matching the kind of ambition that the Government have demonstrated since coming to office, including in our most recent Budget. The Budget information we are providing to the Commission in the convergence programme is part of the European semester process, now in its second year, and will be something that the Commission will look at.

[Mr Redwood]

Does the Minister think that, when the Commission reviews the British Government’s homework, it will say that we need to go further and faster with the cuts or endorse the Government’s programme?

[Mr Hoban]

I do not wish to pre-empt the Commission’s conclusion—it would be wrong to do so—but when other international organisations have looked at the Budget and the Government’s path to fiscal reform, they have clearly endorsed keeping to the path and sticking to the course. That is important. It has meant that we have retained the confidence of international markets, and interest rates are low as a consequence, which is to the benefit of households and businesses. That is vital to the programme of continued economic reform in the UK.

It is important that we discuss these matters with international partners and have a debate about economic policy in Europe, but at home we have to stick to the path required to deliver the necessary reforms. The Budget builds on the Government’s ambition to create a stable and prosperous economy, it shows our commitment to fiscal consolidation and economic growth, and, along with the OBR’s forecast, forms the basis of the UK’s convergence programme. We are taking the right path, and I hope that—

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

I have some sympathy with the Minister in this debate, which is about colossal issues, such as the future of economic prosperity throughout the European Union and its impact on our own economy, yet it is also a rather absurd debate. Successive Governments have felt that they have to table documentation and figures to the European Union, but they are embarrassed by that fact because they know that many of us feel that it is this Parliament, which answers to the British people, that should debate and settle these issues, and that what we are doing is none of the EU’s business. If we do a good job, we will stay in office; if we do a bad job, we will be thrown out of office, and the British people will rightly choose another group of people as they decided to do in 2010 as this crisis developed. We think that that is the right approach.

I must tell my hon. Friend the Minister that if the Opposition had tabled a motion suggesting that the House should tell Brussels that we would no longer send it these documents, I would probably vote with the Opposition, because I would consider that a sensible way of trying to send an obvious message to Brussels. However, we are being invited to spend more time debating the crucial topic of what kind of economic policy would best promote growth and stability in our own country, and what contribution wider economic policies can make to stability and growth in the European Union as a whole.

The description of the pact that we are debating as a stability and growth pact is a grotesque bad-taste joke at the expense of the European peoples. It is clear from the way in which it now operates in the euroland countries that it is actually an instability and recession pact. It is a pact for mutually assured deflation. It is intended to do more damage at the very point in an economic cycle when an economy is performing very badly, to withdraw spending power from both the private and the public sector in an economy with too little demand, and to take jobs away in an economy with a problem of mass youth unemployment.

[Mark Hendrick]

I accept that the policies of many euro area member states are deflationary, but it is ridiculous to deride them simply because those countries are members of the eurozone when our own Government’s policies are equally deflationary.

[Mr Redwood]

As I shall make clear shortly, our policies are rather different. For one thing, the coalition Government decided to increase current public spending, which is running at £64 billion a year more this year than in the last year of Labour government. The Red Book shows that real current public spending has risen in each of the two years of the coalition Government, although not by very much. The Government are clearly not trying to deflate the economy by introducing massive current spending cuts, given that overall current spending has been rising.

[Stewart Hosie]

The right hon. Gentleman, who knows the Red Book inside out, will recall that it makes it clear that the Government’s projected discretionary consolidation by 2016-17 amounts to £155 billion a year, of which 81% will be delivered by cuts in services and the remainder by tax increases. The hon. Member for Preston (Mark Hendrick) was right: the Government are embarking on precisely the policies for which the right hon. Gentleman is criticising others.

[Mr Redwood]

I am afraid that the hon. Gentleman has not read the Red Book intelligently. The 80:20 statistic on which Members seem to rely relates to changes compared with much bigger growth in public spending that was in inherited programmes. It is not the reality. The reality of the Government’s strategy is a massive increase in taxes over the planned five years of the present Parliament to pay for rather modest increases in current public spending over the life of the Parliament, and to get the deficit down. The 2010 strategy suggested that tax revenues would be £171 billion a year more in year 5 than they had been in the last Labour year. The Government have now had to reduce that figure a bit because—as other Members have pointed out—the expected growth has not been forthcoming, for a variety of reasons.

We need to promote growth vigorously and actively, which is common ground between the Government, coalition Back Benchers and many Opposition Members. The argument, surely, concerns what measures are most likely to bring that about. It appears that over the last four years both Governments have operated policies involving actively increasing public spending, with the exception of capital spend—certainly overall spending has risen—and actively promoting massive borrowing, while at the same time the economy has bombed very badly. I am not suggesting that that is causal, but it should lead Opposition Members to ask why that fiscal injection—massive borrowing and an increase in current public spending—has not done the job. There seems to be some disconnection between the remedy that they recommend and the reality of what is happening.

When we look at the way in which other countries have pulled out of crises of this kind, and, indeed, the way in which Britain has pulled out of similar but, perhaps, less aggressively damaging crises than the one that we inherited, we see that there is nearly always a period during which public spending must be reduced or controlled quite strongly to make room for a private sector recovery, and that a series of measures to promote that recovery will then be necessary. As I have explained at length in the past, banking reform and competitive banking are crucial. The Government’s theory favours a tight fiscal policy and a loose monetary policy. They want to allow more money to circulate through the private sector through credit and through the banking system, and they want to lower the deficit gradually in the public sector so that the fiscal policy becomes a bit tighter.

[Mark Hendrick]

The right hon. Gentleman makes great play of tax revenues. We all know where they come from—they come from those who can least afford to provide them—but given that only one private sector job is coming along to replace every 10 jobs that are being lost in the economy, where will they come from in future?

[Mr Redwood]

So far the strategy has generated quite a lot of new private sector jobs, which is very welcome, but it is obvious that it needs to generate many, many more over the next three years if it is to secure the savings on welfare benefits that I am sure all Members wish to see.

It is nonsensical for Opposition Members to say that the poor will be paying the taxes. We have just seen a big increase in thresholds which takes many people out of income tax altogether at the lower end of the income scale. Moreover, if the hon. Gentleman looks at the Red Book, he will see that there will be a sharp acceleration in self-assessment income tax—the income tax that is paid mainly by the rich—once we get the rate down. I know that Opposition Members do not like reading the figures in the Red Book, but it provides a much better case than Ministers ever provide for why we need to get back closer to Labour’s rates of income tax.

One of the things that I most admired about the former Prime Minister and last Chancellor of the Exchequer but one was his insistence that 40% was the highest rate of income tax that could be charged to optimise the amount of money obtained from the rich. He stuck to that view throughout his time as Chancellor and most of his time as Prime Minister. We all know that he only put it in as a political trap at the end of his period in office when he could see the writing on the wall, but it is obvious from the Red Book figures that he was right: 40% is about as high as we can go to optimise the revenue.

According to the forecast in the Red Book, the revenue will stream in after the rate falls to 45p. If Opposition Members look at the Red Book, they will see that last year, under the 50p regime, self-assessment income tax fell by an amazing 9%. That was because rich people who have a lot of freedom and ability to decide how much to pay themselves—I know that Opposition Members do not like that, but it happens to be the state of play—decided to pay themselves a great deal less. Both the outgoing and the incoming Governments had said that the tax was temporary, so they decided that they would hold back their income. It was obvious that they would do that.

[Gavin Shuker]

The right hon. Gentleman is talking like a cheerleader about the Laffer curve. Why does he think that the UK economy is not growing?

[Mr Redwood]

I think that the UK economy may be growing. We will know the facts tomorrow, when we see the first quarter figures, but I suspect that the economy will grow this year. I accept the Government’s forecast of a slow and modest rate of growth. Why, though, is the economy not growing more quickly? There are two main reasons.

The first reason is banking. All the cash that the Bank of England is printing is not going into circulation in the private sector. It is very helpful to keep the Government’s rate of interest down, and it is very helpful to make the increase in public spending more affordable because it controls the interest rate cost for the Government; but the money cannot enter the private sector in any real quantity because the banks are under a huge regulatory cosh to hold more cash and capital at what is, in my view, the wrong stage in the cycle, which means that we cannot secure the growth in banking credit that would finance a better recovery.

The second reason is that taxation is now very high overall in the United Kingdom, which—combined with the inflation tax that has resulted from the high inflation rate that we inherited, which has remained persistently high—means that real incomes are being badly squeezed. It is plain to us all that real incomes started the squeeze under Labour, when the recession really hit, and that that squeeze has continued. A progressive squeeze on the scale that we have experienced since 2008 hits demand and makes recovery that much more difficult.

[Graham Stringer]

Is there not a third reason: that we are in the wrong part of the world, next to the eurozone, which has no mechanism for the poorer countries to get rid of their trade imbalances or for Germany to get rid of its trade surplus? Normally that would be done by revaluing or devaluing those currencies, but having one currency makes it impossible.

[Mr Redwood]

I know that you would like me to wind up quickly, Mr Deputy Speaker, because others wish to contribute, but it is such a pity, as this is a crucial issue. I entirely agree with the hon. Gentleman that there is great difficulty in financing the big balance of payments deficits in the eurozone. Now that a mechanism has been found—German surplus deposits in the ECB being routed to weak member states’ banks through the ECB—the Germans are kicking up a fuss, because they suddenly realise that they have €600 billion at risk and they are not very happy. However, as the main surplus country, Germany has to finance the transfers in the union, and until she does so actively and in an encouraging way, there will be all these kinds of problems.

We have problems in Greece, Portugal and Ireland, which we know about. We now have deep problems developing in Spain, and we even have a problem in the Netherlands—which was meant to be one of the good guys—because of a falling out over the rather modest cuts needed to hit the Maastricht criteria. I agree that we need to get to 3% and 60% in due course—I have no problems with the European targets—but I feel strongly that we should do so for our own reasons, in our own time. It is nothing to do with Europe how we run this economy, and the sooner Ministers have the courage to tell Europe that, the better.

--- Later in debate ---

[Mr Nuttall]

I entirely agree with my hon. Friend on both those points: first, this is a complete waste of time, and secondly, we certainly ought to have a referendum. That is not, of course, the matter before us tonight, however. Instead, this is the question under discussion tonight: what is the point of sending this document to Brussels?

The Minister admits that we pay no attention to what Brussels says to us, and that we govern our own affairs, so what is the point of producing this document? We should be honest with the people in Brussels and say, “Look, we’re not going to listen to you anyway. We’re independent in these matters, and we’re going to stop sending you this document every year.” It is a complete waste of time to send it this year—and I would be very interested to know what happened to last year’s document.

[Mr Redwood]

Does my hon. Friend also agree that it is a cruel paradox that the EU lectures member states to get their deficit down and then demands more money from them by way of public spending?

[Mr Nuttall]

My right hon. Friend makes a very good point, and it prompts the following: if the bureaucrats in Brussels are keeping an eye on the eurozone, something has gone pretty badly wrong because right across the eurozone nobody is sticking to the rules and regulations. The growth and stability pact went west years ago. If the bureaucrats had stuck to it a bit more closely, all the bail-outs, mechanisms and IMF funds would not have been necessary. If they had spent a little less time reading convergence documents and a little more time concentrating on the problems in the eurozone, our country might be better off because our European neighbours might be better off too and would therefore want to buy our goods and services.

There is no useful purpose to our constituents in this document being sent to Brussels, and I urge the House to vote against the motion.

--- Later in debate ---

[Mrs Main]

As usual, my hon. Friend is absolutely right. Why do we want to converge? I do not believe that the British public even know that we are converging, given that this is so lost in the mists of time.

[Mr Redwood]

I fear that the convergence programme began so that countries could converge with the Maastricht criteria to join the euro. As it is clear that we do not want to join the euro, we should in no way be talking about convergence.

[Mrs Main]

I shall not be supporting this motion, because I fundamentally disagree with what is on the front of the document—convergence. I do not think that our currency or our country should be converging with anything in Europe. Our sovereign Parliament should not have to hand in its notes to see whether or not they are acceptable to Europe. If there is convergence, I am sure that somebody is marking us out of 10 on how far down the road we have gone. If we have gone down that road, I would happily stop doing so right this minute. I conclude by saying that at some point this Parliament has got to stand up for itself and say, “We are not going to do this any more.” I would like this to be the year when we are not going to do this any more.

IMF

Lord Redwood Excerpts

Monday 23rd April 2012 Commons Chamber

[Mr Osborne]

I do not think that there is much political opportunism in having to take the difficult decision that Britain should contribute to IMF resources. I have taken that difficult decision, and I am happy to explain it to Parliament and to the public.

[Mr John Redwood (Wokingham) (Con)]

Given that I agree with the Chancellor that IMF money should not be used to bail out a currency, will he urge the IMF to make sure that loans are made available to European countries only when they are in a position to devalue or when they are withdrawing from the single currency? Otherwise, as with the sterling area, surely the responsibility rests with the governing authorities and the central bank of the euro to make the money, the loans, the subsidies available.

[Mr Osborne]

I do not agree with my right hon. Friend on this point, because if the IMF said it was never going to support a loan or undertake a programme with a eurozone country, it would, first, be walking away from one of the largest economic areas in the world. Secondly, all those eurozone countries would presumably then cease to be members of the IMF, because there would be no interest in it for them. So France, Germany and other countries would then withdraw from the IMF, and I do not think that that is what we want to see happen in the IMF. The IMF needs to support all countries that get into difficulty, provided the conditions are met and the rigour is applied to those programmes.

Finance (No. 4) Bill

Lord Redwood Excerpts

Wednesday 18th April 2012 Commons Chamber

[Owen Smith]

It is a pleasure to serve under your chairmanship, Mr Hood—the first chance that I have had to say that today.

Clause 209 and our amendment to it, amendment 5, relate to the bank levy. The point of the amendment is to raise the issues that Opposition Members believe ought to be at the forefront of the Government’s thinking and at the heart of their Budget: what we do to stimulate growth and, in particular, to generate jobs in our economy. Crucially, on a day when we have seen yet another report, this time from the Institute for Public Policy Research, on the scarring impact of long-term unemployment on, in particular, young people, and on a day when we still see 1 million young people languishing on the dole, it seems to me a very easy argument and a very simple point to make to the Government that such issues ought to be at the forefront of not just our mind but theirs.

This aspect of the Bill, the bank levy, offers an opportunity for the Government to do something to fill the gaping hole at the heart of their Budget when it comes to creating growth and generating jobs. There is not a single word in the Budget or in the Bill about the problem of youth jobs, and that is a crying shame, so I hope that the Government will later today amend that omission.

In a moment I shall discuss the background to the bank levy, but to begin with I shall draw together some of the common themes that run through my remarks and the Bill—themes from the debate that we have just had on clause 1 and this debate on clause 209 and the bank levy.

First, I want to raise some questions about the Government’s competence. Clause 1, the profound uncertainty about Government decisions, the other more general decisions in the Budget in relation to VAT on caravans and on pasties, which we will debate later, and the various other curious measures that they have brought forward have all already raised enormous and pressing questions about the competence of the Chancellor and the Government when it comes to managing our economy.

Secondly, there are questions about certainty. Earlier we debated the HMRC report on the Exchequer effect of the 50p rate, and Opposition Members such as the hon. Member for East Antrim (Sammy Wilson) and my hon. Friend the Member for Rhondda (Chris Bryant) asked significant questions about the accuracy of the Government’s modelling in that report and the accuracy of the claims that only £100 million will be lost to the Exchequer. There are further questions to be asked about the accuracy with which the Government have measured the impact of the bank levy to date and juxtaposed it with the rates of revenue which were raised by the bank bonus tax that the previous, Labour Government introduced.

Thirdly, there is a crucial set of questions about values and priorities, because both the clauses that we have debated to date and the clause before us raise questions about the priorities and values of this Government versus those of the Opposition. Those questions do not reflect terribly well on this Government, Mr Gale, it is a pleasure to welcome you to the Chair—[Interruption.] Sir Roger, of course. How on earth could I have forgotten? Sir Roger, welcome. It is a pleasure to serve under your chairmanship.

I suggest that the Government could simply do the decent thing today by deciding to retain the bank levy but also introduce a bank bonus. That would be the wise thing to do, and it would set about raising the revenue that could be used to try to create 100,000 jobs for young people.

[Mr John Redwood (Wokingham) (Con)]

Does the shadow Minister think that the Royal Bank of Scotland and Lloyds HBOS need less profit and less retained cash to get out of the mess they are in, or more?

[Owen Smith]

I would be terribly happy for all the banks, including RBS and HBOS, to make more profit. That would clearly be a very good thing for the British economy; we are entirely agreed on that. At the moment, however, they are not being asked to bear a particularly heavy burden, and nor are the other banks that are already making significant profits—lower than in previous years, but still significant. It is not easy to square that with the Conservative Government’s previous commitment to honour our intention to make those with the broadest shoulders bear the greatest burden. The Government’s decisions on the 50p rate and the bank levy do not bear out their former agreement with us; rather, they speak of a Government who have decided to make a different set of decisions over the past few years, as borne out most recently by the 50p tax rate. The Government should think again about how much money they are raising from the banks and what is the appropriate amount that they should raise.

--- Later in debate ---

[Owen Smith]

That would have been a good intervention, were it not for the fact that the £3.5 billion that was realised is written in black and white on page 101 of the OBR document. It is clear how much money was raised—£3.5 billion. [Interruption.] If the Minister wants to intervene to correct me on that, he can do so.

[Mr Redwood]

Will the hon. Gentleman give way on that point?

[Owen Smith]

Yes.

[Mr Redwood]

The shadow Minister is not completing the thought. We are not disputing the gross amount. We are asking how much other revenue was lost because of the behavioural consequences. He has agreed that the purpose of the bank bonus tax was to drive down bonuses. Assuming that there was some success, the Exchequer must have lost a pile of money in other taxes.

[Owen Smith]

The right hon. Gentleman is right that there would have been behavioural impacts. We do not dispute that, nor do we dispute that there would have been behavioural impacts in respect of the 50p rate. What we dispute is that the behavioural impacts would be as significant as those projected in the document on the 50p rate and those alleged by the Government on the bank levy. Given how fallible those projections have been shown to be in today’s Treasury Committee report and in any number of comments written about the HMRC report on clause 1 and the 50p rate, we are entirely right to question the basis of the assumptions both on the 50p rate and on the bank levy.

[Mr Redwood]

If the hon. Gentleman reads the Red Book further, he will see that £4 billion-plus more a year will be raised from self-assessment income tax under the 45p rate than under the 50p rate. Indeed, in the year to April 2012 there was a 9% reduction in self-assessment income tax, because the top income tax payers paid themselves 25% less than the year before.

[Owen Smith]

At the danger of being ruled out of order for repeating today’s earlier debates—[Interruption.] The Financial Secretary says from a sedentary position that I am on the back foot, but I am absolutely not. I have been pointing out to his colleagues for the past couple of hours that the volume of behavioural change anticipated in the Exchequer analysis is fundamentally flawed. The taxable income elasticity point chosen by the Exchequer to derive that volume of behavioural change is completely outwith the normal delta used by economists to assess the elasticity of top incomes. [Interruption.] No, we are talking about the future. We are talking about what behavioural change there will be and what the yield will therefore be in future.

That takes us to the central question of the Government’s competence. There are questions to be asked about the competence of the way in which they set up the bank levy. Why on earth did the Government choose in the first instance a rate of 0.045%, only to have to increase it five times in the past 18 months to hit their annual yield target of £2.5 billion? I would be delighted to hear the Financial Secretary explain that to us. Why did the Government do it that way around? It does not make any sense to me. It would have been more sensible either to have stuck with the payroll tax, as we suggested, or to have arrived at a hard figure and allowed the yield to set the rate, not the rate to set the yield.

Thus we come to the question of how the Government can keeping saying that they are certain that the bank levy will yield £2.5 billion each year. It did not in its first year, when it hit £1.8 billion. The reason the Treasury team is continually having to tweak the rate is that it is not certain how much money it is going to yield.

--- Later in debate ---

[Sheila Gilmore]

I agree absolutely. I saw clearly, in my city, the follow-through of that financial stimulus. It was followed through to the Scottish Government, and I give them credit for bringing forward some of the construction spending at that stage. We had more affordable homes built in 2009 than we had had for some years. I believe that the figure was 900 affordable homes, which is high for Edinburgh, but that has now plunged right down again. This was not sustained and we are back in the same cycle as we were in before. Such an approach can work, as we get the homes and the jobs, and we ensure that unemployment is not rising as fast as it otherwise would.

When Labour Members suggest stimulating the economy, Government Members invariably ask how we would pay for it. They say, “Oh, you are going to borrow yet more. That is absolutely shocking.” When we make any proposal on how we would fund it, we are immediately told, “You cannot possibly do that. You should not do that.” We are making a genuine proposal here. We have talked about it for several months, but it has not yet been taken up by the Government. The economy is still flatlining and we are seeing all the results of that in our local communities. So, yet again, we are justified in tabling this amendment.

We are constantly told about all the people who are going to go abroad if we do such and such a thing—we hear that banks are going to disappear off, to wherever—but there is not a great deal of evidence of that happening. It feels very much as if we are being blackmailed and as if powerful people are trying to say, “We will take our ball away. We are not going to play.” We have to be very clear that a lot of this does not actually happen in practice; indeed, there is evidence to suggest that the bankers did not leave the country during the period of the previous bonus levy. There is no evidence to suggest that they suddenly swanned off somewhere else. If we are serious about building and growing our economy, as we have to be, this measure will be one small part—it is not suddenly the answer to everything—of enabling us to get this economy going again. It will stop us from sitting on our hands and expecting that somehow to happen, because it will not.

[Mr Redwood]

I remind hon. Members that I am an adviser to an industrial company and to a small investment management business. I am not a tax adviser, so I feel able to participate in this debate.

I was interested in the Opposition amendment and it turns out to be rather disappointing, for a number of reasons. It asks the Government to produce a report

“on how the additional revenue…would be invested to create new jobs and tackle unemployment.”

As phrased, it does not actually ask for a report on how a bank payroll tax would work, although that is perhaps what Labour Members wanted, too. Interestingly, the Opposition have shifted from wanting a bank bonus tax—a tax originally described as a “one-off” and clearly aimed at very high earners in certain kinds of investment bank, which everybody loves to hate at the moment—to wanting in this amendment a general bank payroll tax. I ask them to think about what that means, because most of the people on the payrolls of our leading large banks are, of course, modestly remunerated. This payroll tax would give a further incentive to bank directors and managers to try to get rid of personnel they are employing, because if we tax something, we clearly do not like it. The Opposition say that they do not like payroll, so they are trying to tax payroll.

[Owen Smith]

I am grateful to the right hon. Gentleman for giving me this opportunity to clarify the wording—[Interruption.] No, there is no “Ah ha” moment, I am afraid. The wording we have used reflects the wording used by the OBR to describe the temporary bank payroll tax. It is no more than that.

[Mr Redwood]

It is worth teasing these things out, because I think we have had confirmation from the Opposition that they have in mind a general payroll tax, which would hit people other than the very high earners in investment banks. The amendment does not say “a bonus tax for investment bankers”, for example; it says a “payroll tax”. One therefore has to assume it would affect conduct.

[Owen Smith]

With the greatest respect, either the right hon. Gentleman misunderstood what I said or he is deliberately misrepresenting what I said—mischievously, I suggest. We were not intending to do anything other than replicate that which we have done previously, so a bonus tax is what we were talking about. The language adopted in the amendment is reflective of that used by the Government and the OBR—that is all.

[Mr Redwood]

Well, I think we are very grateful for that clarification. We await the details that, unfortunately, we did not get from the Opposition about how they would target the measure, whom they have in mind, how much those people would have to earn and how much bonus they would get. The point rests on perhaps a narrower base than the words in the amendment lead one to infer. One has to assume that the tax will lead banks to employ fewer people.

The tax that the Government have adopted also has consequences. They have decided to get extra money out of the banks by taxing the size of their balance sheets. I think the Government might be right that that is a slightly better way of doing things than taxing personnel costs because it is more general, but that too has adverse consequences. All taxation has adverse consequences as well as some positive uses. The Government tax encourages banks to shrink their balance sheets because they do not wish to pay too much tax. What does that mean in normal language? It means they want fewer deposits and less share capital and that they want to lend less money to people because the way to reduce the tax burden is to have less taxable capacity in the United Kingdom. The tax therefore has a cost. I do not disagree with what the Government are doing: I understand the awful financial situation that the country finds itself in and I can see how this tax is more popular than many others, but let us not pretend that these things are costless. At a time when we need more growth and more loans of a suitable kind to people who can afford to pay them back in order to create demand and more loans to smaller and medium-sized enterprises at a time when they need to grow, taxes on banks are not terribly helpful.

I am enough of a politician to know that banks are very unpopular and that it is an easy hit for politicians who want to improve their own popularity to take a position against the banks, so I am being something of a foolish hero by standing up and saying that not all banks are bad and that quite a lot of people who work for banks are perfectly decent people doing a decent job. The banking service that is supplied around the country to small and medium-sized enterprises and to you and me, Sir Roger, is very necessary, and sometimes it is well handled and well conducted.

There is a dreadful run of debate in this country that everything to do with the word “bank” is evil and wrong, that it serves the banks right and that everything has to be directed against them, but we have to work with the banks—the good, the bad and the indifferent—because we need them to be on the side of economic growth and recovery to tackle the very real problem that the Opposition have identified in the second part of their amendment—tackling unemployment. We need to get unemployment down, and one way of doing that is by having a strong banking sector working closely in partnership with the small and medium-sized enterprise sector and with those people who have a reasonable income and might want to borrow more to buy things and create demand.

[Kelvin Hopkins]

The right hon. Gentleman glosses over the fact that the banking system has two distinct components. There is the banking for ordinary people and small businesses and then there is the casino component, which is about gambling with vast sums of money—often our money—and often losing it by the billion. That is the bit of banking we are complaining about, not the retail banking that looks after our money and ordinary working people’s money.

[Mr Redwood]

If it were that easy to make the distinction and to close down or punish the one and reward or encourage the other, I am sure the outgoing Government would have done it. The fact that they did not implies that in office they realised the situation was far more complicated. When we consider the complications of a large conglomerate bank—as it happens the taxpayer should have a lot of knowledge about them because we are the forced owners or part-owners of two such banks—it is immediately obvious to any sensible analyst that the activities of the investment bank are deeply integrated with, and related to, those of the normal commercial bank; for example, in their service for small and medium-sized enterprises. A small or medium-sized export business may need forward currency cover or trade finance and credit, or it may have an investable surplus. It may need all kinds of services that go well beyond the basic banking that the hon. Gentleman was trying to describe—just having a current account to make payments and a simple savings account. The world is much more complicated than that. If we are to survive and compete in a global world with international trade, we need to be able to handle its requirements.

[Mr George Mudie (Leeds East) (Lab)]

I do not share the right hon. Gentleman’s confidence that the banks are so optimistic, and that they are so ambitious to provide loans that will get jobs for the million youngsters who are out of work. The Government signed up to Merlin scheme for loans to small businesses, but were badly let down by the banks who did not live up to their part of the agreement. This year’s Budget wheeze is the loan guarantee scheme, which is supposed to get jobs for youngsters. The Treasury Committee took evidence and accepts in its report that the scheme will not provide additional lending for firms; it is only a method for lowering current rates, so why is the right hon. Gentleman so confident?

[Mr Redwood]

I do not think I expressed any confidence on the subject at all. The hon. Gentleman, the Government and I are in agreement that past levels of lending have been inadequate. That is why the Government have come forward with yet another scheme to try to encourage more lending, which I should have thought everyone in the House would want them to do. If the hon. Gentleman wants to know why there has been too little lending in the last couple of years, there are two simple reasons. The first is that after the crash the banks were forcefully regulated not to lend more—[Interruption.] The hon. Gentleman says that is nonsense, but their problem is obvious. The banks were told by the regulator that they needed to hold more cash and capital relative to their lending; the only way they can do that, especially the nationalised ones, is to keep lending down. They are not in a position to raise more money because the taxpayer does not want to put more money into RBS at the moment, and I entirely agree with the Government’s view that we should not be doing so. There is thus a regulatory squeeze on the amount of lending.

The banks would say that the projects are not out there. I am not so sure. The hon. Gentleman and I probably know of financeable propositions on which we would like to see the banks rise to the challenge. We hope that will be possible with the new scheme, but under the Opposition amendment we would spend any revenue that might be raised from what they call a payroll tax, although it is apparently a bonus tax on new jobs and tackling unemployment. We do not know exactly how much they have in mind; the amount would probably be quite modest, as it was from their bonus tax. If the banks see another bonus tax coming in this climate, there will be even fewer bonuses to tax, but the Opposition may welcome that.

[Mr Dave Watts (St Helens North) (Lab)]

Is it not right that the people who caused financial problems and hardship for many families and created mass unemployment pay a fair amount of tax to compensate for the damage they did to the economy? Is that not exactly what the amendment would provide for?

[Mr Redwood]

Many people would think that the outgoing Government had a lot of responsibility for the crash, along with their professional advisers, the quangos and the Bank of England, who apparently did not see it coming. They had very light regulation in the lead-up to the credit crunch and then very tough regulation. [Interruption.] Labour Members feel there is some justice in my response, as they are getting very heated, but we are straying rather far from amendment 5.

The point of the amendment is that the Labour party wants to raise an unspecified amount by taxing unspecified people who apparently earn more than Labour thinks is good for them. The Opposition would spend that on youth measures, and they want the Government to come back with a report on how that money could be spent.

My hon. Friend the Member for Staffordshire Moorlands (Karen Bradley), who rightly said that she could support a bank levy to try and get the deficit down, was speaking sense, but this, as she will have realised, is not the proposition of the Labour Opposition. They do not want to get the deficit down. They want to find another pot of money to increase spending. I am with them in their aim of reducing youth unemployment. We will make much more progress in reducing youth unemployment if we have stronger banks able to finance a more vigorous recovery. I urge the Government to work more strongly on that. The more money they take off the banks in taxes, however tempting that is, the less the banks will be able to lend to people to get the recovery going, so the proposal could be self-defeating.

--- Later in debate ---

[Mr Bailey]

I have often made the same point myself. I was on the Government Benches at the time of the so-called financial crisis and the run-up to it, and I do not remember any demands whatsoever from the then Opposition for us to introduce heightened regulation of the banking system. It is very easy to be wise in retrospect.

[Mr Redwood]

I think the hon. Gentleman has experienced some memory loss on that point, because I can remember both the Conservative and Liberal Democrat parties pointing out—as I did, too—that the borrowing was excessive and needed to be reined in.

--- Later in debate ---

[Cathy Jamieson]

Thank you, Sir Roger. That gives me the opportunity to repeat, for those unable to hear because of the conversations, my point about the harsh reality of the Budget, which has done nothing to give Britain the jobs and growth we desperately need, and about how it fails the fairness test. It has done nothing to help support families and pensioners on modest and middle incomes. We will discuss that further tomorrow so I shall not dwell on it now. It would, of course, be outwith the scope of the new clauses. I shall only say that families are already finding out just what the Government’s decisions will mean for their household budgets. As we will hear, businesses are also now finding out that the botched Budget makes no economic sense for them either.

There was a time when people might have given the Chancellor some credit for his strategic brain. Some on middle incomes and small businesses might even have given him the benefit of the doubt on economic policy, notwithstanding our many warnings about cuts that go too far and too fast. They might have given him the benefit of the doubt even if they did not completely agree with everything he was doing. But how times change. The Chancellor has had several weeks of torrid headlines—The Mirror: “Half-baked Tory tax a mistake-and-bake from Osborne and co”; The Sun: “PM David Cameron is urged to show leadership over pasty-gate”; The Guardian: “‘Pasty tax’ is the last thing people need”; the Evening Standard: “Heston says pasty tax will stop artisan bakers earning a crust”; and even “Tax on beloved Cornish pasties sparks furore in Britain” in USA Today and “‘Pasty tax’ row heats up for British PM” on the al-Jazeera website.

[Mr Redwood]

Is the hon. Lady at all worried that the fine reputation of the pasty will be damaged by so many MPs trying to associate themselves with it and get their ratings up as a consequence?

[Cathy Jamieson]

I am sure that the pasty industry is looking on as we speak and will want to know exactly which MPs have gone and sampled the local delicacies in whichever part of the UK they happen to live.

Those weeks of torrid headlines have led us to the current situation. There is now a pasty petition, and there has apparently been a pasty summit, while Greggs is planning a pasty protest march on Downing street to plead with the Prime Minister to step in personally and kill off the hated pasty tax.

Finance (No. 4) Bill

Lord Redwood Excerpts

Monday 16th April 2012 Commons Chamber

[Mr John Redwood (Wokingham) (Con)]

When the Government proposed VAT on pasties, did they feel they needed to do that to protect other VAT revenue on takeaways from European challenge? Is that what is in the Chief Secretary’s mind?

[Danny Alexander]

No, that is not what is in our mind. It is one of a number of anomalies in the VAT system that we addressed in the Budget, although it is not actually a matter contained in the Bill. My right hon. Friend will be aware of the comments of, for example, the National Federation of Fish Friers, which makes the point that small independent fish shops, of which there are thousands around the country located in the constituency of every Member, have for many years been charged VAT on sales whereas other retailers have not. We are seeking to correct that anomaly.

--- Later in debate ---

[Rachel Reeves (Leeds West) (Lab)]

This Finance Bill is so flawed, so unfair and so inadequate a response to the problems now facing the country that I am surprised that the Chief Secretary does not show a little more embarrassment in presenting it to the House this afternoon. This Government are presiding over an economy beset by rising unemployment, a slump in private sector investment and billions of pounds of unplanned extra Government borrowing, yet he comes to this House with a Finance Bill that does nothing for growth, nothing to get more young people back to work and nothing to help small businesses struggling to stay afloat, and which instead asks millions of hard-pressed families and pensioners to pay more so that millionaires can pay less.

It is less than two years since this Government took office, yet they have already sent our economy into reverse. Business and consumer confidence have drained away, and growth has sputtered and stalled with no net increase in our national output over the past 15 months, and with wages and incomes stagnant or falling even as the cost of food, fuel and fares rise and rise. The Office for National Statistics confirms that last year saw the sharpest annual fall in real disposable income for 35 years. The private sector has been unable to fill the gaping hole left by deep and painful public sector cuts, and as a result overall redundancies have been running at a rate of one a minute since this Government took office.

[Mr Redwood]

What tax cut does the hon. Lady think would do most to promote economic recovery?

[Rachel Reeves]

I believe that a temporary cut in VAT back down to 17.5% and a national insurance holiday for all small businesses taking on new workers are the way to put the economy back on track to recovery.