Draft EU Budget 2011

John Redwood Excerpts

Wednesday 13th October 2010 Commons Chamber

[Justine Greening]

My hon. Friend is absolutely right. That is one of the reasons why I welcome tonight’s debate. I believe that it underlines the concern that we feel, not just as a Government but as a Parliament. The value that we can gain from the debate is our ability to show that we are united as a Parliament in standing up to the rise in 2011, and in wanting to see it cut.

The Chancellor, Ministers and officials have been working with member states, the Commission and the European Parliament to make our case. As members of the European Scrutiny Committee will know, at a time of fiscal consolidation the EU simply cannot afford to budget for more than it can realistically spend. Therefore, we have also maintained a firm focus on realistic implementation rates, because implementation of the EU budget has long been a cause of concern with a combined surplus and underspend in 2009 of almost €5 billion.

As I have said, the Government will focus not only on the size of the EU budget. We also want to focus on its priorities for spending, because it is clear that certain areas of the EU budget simply do not offer the best possible value for money that we should be able to expect. The common agricultural policy, citizenship spending in some areas and spending on the EU’s own administration are foremost among them. There is also, of course, the perennial question of why the EU is based in both Brussels and Strasbourg. Critically, we want an EU budget that prioritises economic growth and recovery across the EU and worldwide, just as we are doing with our fiscal consolidation measures here in the UK. We want a budget that is focused on prioritising poverty reduction, promoting stability and addressing the challenges of climate change. The Government will therefore work to ensure that funding for activities is focused on areas that offer the best value for money and that offer the best deal for the British taxpayer.

[Mr John Redwood (Wokingham) (Con)]

Why does the Foreign Secretary seem to favour increasing expenditure on the common External Action Service so that we have duplicated embassies, with those at EU level undercutting our own and charging us double?

[Justine Greening]

I have no doubt that other Members will refer to that in their contributions. As my right hon. Friend will be aware, we did not support the setting up of the European External Action Service, but as it is now in place our aim is to ensure that it does not duplicate in the way that he says, and that instead it has a role that has some value. We have been concerned about the increased budget because when the EEAS was set up, a key aspect of the conditions was that there would be fiscal neutrality and that is already being challenged. That is one reason why we have been pressing for that to be explicitly put into the terms of the EEAS remit. We have been successful in that, and we are pressing Cathy Ashton to make 10% savings immediately. Discussions on this are continuing in the EU right now. My right hon. Friend is absolutely right, therefore.

To make a broader point on the EU budget, it is vital that decisions taken on budgeting are stuck to. There is an underlying problem that I talked about in respect of implementation: in too many projects there is a gap between what has been budgeted for and what ends up being spent. It is quite a basic financial management problem, but it needs to be addressed.

Turning to the background to today’s debate and what has happened so far, in August the Council adopted its first reading position on the Commission’s draft budget. We should bear in mind that this draft budget proposed an increase of 6% in the 2011 budget. That first reading position saw the Council reduce the budget level proposed by the Commission by €788 million in commitment appropriations and by just over €3.5 billion in payment appropriations. However, although the Council reduced the payment levels in the Commission’s proposal, the reductions would still have meant an increase of almost 3% in EU budget spending from 2010 to 2011. Also, although the Council’s position was to reduce spend in the administration budget by more than €160 million and to cut the total budget for the EU’s regulatory agencies by almost €12 million, even that would have left a rise in administration of 2.5%.

I should remind the House that when we had the opportunity in the European Parliament to vote against the rise in the Parliament’s 2010 budget, we took it. Although the Council had battened down the rise proposed by the Commission, the Government could not accept the proposed level of budget increase and we therefore voted against the Council’s first reading. In fact, six other member states joined us: our Nordic partners—Finland, Sweden and Denmark; and the great brewing nations of Austria, the Netherlands and the Czech Republic. The Council’s position was, however, adopted by a qualified majority, although I just remind the House that we were very close to achieving a blocking minority on that vote; we were just three votes away from doing so—we got 29 votes when we needed 32. That is why we have been working so hard with our European partners to put our case, because we want, at the minimum, to be in a position to have a blocking minority. We really want to aim for a majority, and that is what we are working towards.

I know that, as we have just heard, the European Scrutiny Committee is considering the Council’s first reading position and the Commission’s first amending letter. However, I thought it would be helpful for Members taking part in this debate to be given an outline of that developing position. I referred to this briefly in response to my right hon. Friend the Member for Wokingham (Mr Redwood), but I can say that more than 90% of the 2011 budget for the EEAS is transferred from the existing budgets of the Commission and Council. As he points out, an additional €34.5 million is requested to fund new staff posts and other start-up costs.

Overall, the proposal includes the following: first, the establishment plan of more than 1,600 posts—this includes 100 newly created in 2010, and 18 requested for 2011, carrying a remuneration cost of just under €19 million; secondly, just over 2,000 other staff, 70 of whom are newly recruited this year, costing an extra €2.5 million in 2011; thirdly, other staff-related spending, of which less than €2 million would be additional; and, fourthly, spending on buildings and other operational spending amounting to just over €157 million, less than €4 million of which would be additional.

The amending letter stated that cost-efficiency, budget neutrality and efficient management should guide the EEAS, and, as I said, it set a target of 10% efficiency savings in headquarters. Although the Government acknowledge that some additional funding is required in the EEAS’s first full year, it is essential that the EEAS demonstrates not only value for money, but budget discipline in its funding bids and a firm commitment to substantial cost efficiencies. It is vital that the aim of budget neutrality is respected, so we are pushing for immediate cost savings and stressing the importance of achieving cost efficiencies, including in decisions over the EEAS’s premises.

We have also pushed, thus far successfully, for the Council to state on the record that the term “budget neutrality” for the EEAS applies solely to the context of the EU budget. We pressed for that so that we can counter unhelpful suggestions from the Commission in the future that additional spending at EU level could be offset by savings in member states’ diplomatic services. Such suggestions are completely unacceptable to the UK.

--- Later in debate ---

[Kerry McCarthy]

I want to make progress. The Minister cannot just talk tough on European issues and pander to people who want to take us out of the EU. She is here to make progress in negotiations and to fight Britain’s corner. I have asked her what she would see as success in doing that.

On the specifics, we are here to debate whether, when EU member states and regions are all engaged in belt tightening, the EU itself should engage in a similar exercise. The Minister has said that sizeable austerity measures are being implemented across the EU. Does that not in itself prove that this economic situation is a global phenomenon that affects all EU member states and not, as the Government say every time Ministers get to their feet in the Chamber, the result of profligate public spending by the previous Government?

[Mr Redwood]

Will the hon. Lady tell us whether she now thinks it regrettable that the previous Government gave away our rebate and got no reform at all of the common agricultural policy, which is why this is such a big budget?

[Kerry McCarthy]

The CAP represented 71% of the EU budget, but it is now down to 40%, so that is significant progress, although I agree that there is more work to be done on that front. I shall come to that.

--- Later in debate ---

[Mr Denis MacShane (Rotherham) (Lab)]

I rise to cast a protective arm over the Economic Secretary as she confronts the massed ranks of well-argued opposition from those on the Benches behind her. The hon. Member for Stone (Mr Cash) gave a masterclass on why the amendment of the hon. Member for Clacton (Mr Carswell) should not be pressed to a Division, but we will see what happens.

This debate is part of a long process of changing our relationship with our partners in Europe, and I do not know where it may end. The hon. Member for Clacton emotionally talked about the nursing jobs that could be saved and the extra soldiers who would not need to be relieved of their duties, but the problem here is not the fault of the European Union. Rather, it is a consequence of a set of decisions that the Conservative and Liberal Democrat coalition has taken. It is seeking to reduce the deficit over four years, much as if I could abolish my mortgage deficit over that period. I wish I could do that—by starving my children, perhaps, or cutting back on other spending. That is the Government’s decision. It is nothing to do with Europe itself. At the end of the day it must never be forgotten that the EU budget represents just 1% of Europe’s gross national product.

[Mr Redwood]

rose—

[Mr MacShane]

That proportion is less than when the right hon. Gentleman was a member of the previous Conservative Government.

[Mr Redwood]

Given that the EU is urging all member states to cut their budgets in order to cut their deficits, why does it not show the way by giving a lead in cutting its own?

[Mr MacShane]

I have absolutely no objection to that point. The right hon. Gentleman is right. If he wants to advance that argument, however, he does not have to persuade me, and the hon. Member for Clacton does not have to persuade the fellow signatories to his amendment. We have to link up with others, in the right hon. Gentleman’s case with fellow conservatives and centre-right politicians across the rest of Europe.

The hon. Member for Stone brushed aside my earlier intervention, but the plain fact is that a fortnight tomorrow the leaders of Europe—the vast majority of European Governments including those of Mr Reinfeldt, who has just been confirmed in Sweden, and the new conservative-liberal coalition being formed in the Netherlands—[Interruption.] I am so sorry for the disturbance caused by my mobile phone ringing. I shall make a donation to any charity you wish, Madam Deputy Speaker. Those leaders in Europe will sit down to dinner and discuss precisely the points raised here tonight, but there will be a Banquo at that feast: the British Prime Minister.

I am not going to tell the Prime Minister what to do. He did not quite win the election, but he has settled in well as Prime Minister. He has to decide whether his collegial dining comrades at European feasts where decisions are taken should include rather interesting gentlemen from Latvia, Poland and elsewhere. I can quote the Deputy Prime Minister’s description if it helps, but I think most Members have it in their mind.

The other point that we have to consider is that 20 years ago the EU was largely financed by what is called own resources, such as VAT and duty. I know tax is anonymous but some taxes are less in the payer’s face than others. There has been a massive change in the past 20 years in that the EU budget now comes from direct Government contributions. Therefore these arguments are now deeply sensitive in all nations. People in the poorer—perhaps the east European—countries ask why they are signing a big cheque for the British rebate. I am prepared to defend it, but we would be in a much stronger position if more Members were networking across the continent, making the points they are making today and finding allies and friends of weight and seriousness. Frankly, the Conservatives are not doing that at present. I try to make that point more in terms of political science; at this time in the evening, there is no point in seeking controversy.

This is the first of a serious set of debates, and the Government will have to decide. My estimate is that the Economic Secretary to the Treasury, is speaking just as if there had been no change of Government. The European policy of the coalition is no whit different from that of the previous Government in its broad approach to European issues. That may change, but the Conservative party will have to decide whether it wants to confront the deep national interests of this country that have never opted for protectionism or isolationism, no matter how seductively those positions have been put—they have certainly been put that way tonight.

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

Conservative Members clearly have a very simple message for the Minister: we wish her well and we wish her to be strong and fierce in argument and debate, because we think she should be more ambitious. It is not enough just to freeze this budget; this budget has to be brought down. If there is any budget of all the budgets we look at in this difficult time about which we can say, “We can get away with cutting that,” it is this budget. I suspect many Opposition Members would agree with that, were they honest about it. We are talking about a budget of €143 billion or £120 billion, which is more than we spend on the national health service. A big chunk of that budget is down to us, and we get nothing like the value out of it that we get from the NHS.

I therefore hope the Minister will look to the following very important precedent. The last time we had a good battling female Minister who stood up for Britain she was armed only with a handbag, yet with that one piece of equipment she came back with the biggest rebate we ever got: the rebate the Labour party stupidly gave away, and the rebate we need back. That rebate would give us twice as much money as the amount the Government are hoping to save from the cut in child benefit. We know the Minister has the right equipment. She assures me that she has an excellent handbag, so we wish her every success in putting that argument.

The argument to the Greeks, Italians and Portuguese must be that they are having to make far worse cuts than any that are suggested for the European budget. We can cut collectively in a much more sensible way than the damaging domestic cuts they are having to put to their electors. The French have already had riots on the streets over their domestic cuts. I am sure they will agree with our Minister that there are some easy pickings to be had by removing items from this European budget. I therefore also hope the Minister will point out that because this is a levy on all the member states and all the member states are borrowing too much money, every penny and cent of that €143 billion is going to be borrowed. The taxpayers will not just have to pay once, therefore; they will also have to pay all the interest on that and be ready to repay the debt.

Is this really the kind of thing we want to be borrowing money for? Of course it is not. So Godspeed to you Minister: put the case, and win over all those other Governments. They will surely agree with us that it is better to cut the European budget than to cut important domestic programmes.

[Mr Bone]

rose—

Finance (No. 2) Bill

John Redwood Excerpts

Monday 11th October 2010 Commons Chamber

[John Mann (Bassetlaw) (Lab)]

I know that the Leader of the Opposition is otherwise detained with an important speech at the moment, but I am sure that the newly appointed shadow Minister, my hon. Friend the Member for Nottingham East (Chris Leslie)—I congratulate him on his appointment—will want to convey the sentiment and details of the advice that I will outline in the next few minutes, not only to the rest of the shadow Treasury team but to the new leader.

I want to start by congratulating the hon. Member for Boston and Skegness (Mark Simmonds). It must be irritating—it seems so even from the Opposition Benches—for him to be sitting on the Back Benches with a Liberal having nicked his job, but such are the dilemmas of coalition. He is a great expert on real estate. I congratulate him on his speech, although it showed that he was not too well schooled in economics even though he went to school in my constituency. I may need to have a word with his former head teacher about the economics curriculum at that school, because the hon. Gentleman’s analysis of borrowing, like the document that he has read, shows a fatal flaw in economic logic and understanding.

The primary reason for the deficit—and more so in the current year than our competitors—is our over-reliance on the economic activity of, and consequently our tax take from, the financial institutions of the City of London. Over-reliance on the City, leading to the drying up of that tax take as its economic activity dived, was the classic error made by the previous Government and the two Governments before them—by Prime Ministers ever since the big bang. All failed to see that an economy that is unduly weighted towards its financial institutions and the City will succumb at any time in a financial downturn. That is precisely what has happened in the United Kingdom. However, underlying that, our actual debt, built recurrently, is not only no worse but better than that of most of our competitors, not least because of the former Chancellor’s pay-back and buy-back of debt between 1998 and 2000.

Of course, a Government must get on top of the current year’s situation, because if that features a recurrent build-up of debt, the situation over a period of years will deteriorate. In the league table of debt, we do not sit at the top, as the Chancellor and others on the Government Front Bench try to suggest. We sit in the middle—below France, alongside Germany and below Italy, and well below Japan and the United States of America. That is critically important, because they are servicing those debts recurrently as well as having a build-up.

The question that those on both Front Benches shy away from is what I call the China syndrome. That is the big issue of the imbalances in the world economy that no one is daring to address, and it has been accentuated by the financial crisis. It is rather ironic that capitalist economies are managing to ignore a state-controlled, Communist party run, non-democratic, non-central bank democratic, non-financial institution democratic state that owns more of the world’s dollar debt than anybody else, on the basis of which we are all buying huge amounts of goods with an artificially rigged currency against the rest of the world. That is at the heart of the ongoing problems and the potential for double-dip recession, which, if Government policy in this country is poor, will affect us more adversely than our competitors, but will happen on a worldwide basis. The China syndrome lies behind that; when the Nobel peace prize, or another Nobel prize, is awarded to a Chinese dissident, the Government do not even have the courage to stand alongside others such as President Obama in congratulating those dissidents. How the world of politics has gone in a circle when the Tory party is kowtowing to the Chinese Communist party, hoping that that will somehow assist our economic growth.

Protectionism has been mentioned. Anyone who analyses the economics of the 1930s will understand one particular factor that makes the current situation different: all the growth in the ’30s was protectionist growth. The United States has understood that in the longer term. Its growth was built on military expansion, rearmament and road building and, as much as possible, on the non-importation of labour and materials. It therefore allowed regeneration and created jobs.

[Mr John Redwood (Wokingham) (Con)]

Could the hon. Gentleman explain how the British Government could make the Chinese revalue their currency?

Equitable Life (Payments) Bill

John Redwood Excerpts

Tuesday 14th September 2010 Commons Chamber

[Mr Hoban]

Before Opposition Members get to their feet, they should think about what happened over the past decade. The bill for the taxpayer would have been much less if rather than waiting till now, the matter had been resolved under the last Government. They had 10 years to resolve it. Nothing happened until the present Government took power.

[Mr John Redwood (Wokingham) (Con)]

I welcome the swift move to put right the injustice about which the Opposition did nothing for more than a decade. To reassure colleagues, will my hon. Friend confirm that there will be a discussion between the Chief Secretary representing the taxpayers, and himself or some other Minister representing the Equitable Life policyholders? There needs to be a balance and we look forward to a sensible balance being struck.

[Mr Hoban]

My right hon. Friend makes an important point. There are two decisions to be taken. One is on the loss figure and the other is on the amount of compensation that the taxpayer can afford to pay. It is right that those decisions are made in the context of the spending review. That decision will be announced on 20 October.

Finance Bill

John Redwood Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Byrne]

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

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

[Mr John Redwood (Wokingham) (Con)]

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

[Mr Byrne]

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

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

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

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

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

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

--- Later in debate ---

[Mary Creagh (Wakefield) (Lab)]

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

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

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

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

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

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

[Mr Redwood]

Will the hon. Lady give way?

[Mary Creagh]

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

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

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

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

Equitable Life

John Redwood Excerpts

Tuesday 20th July 2010 Westminster Hall

[Nicola Blackwood]

Transparency must clearly be at the heart of any process we now embark upon. As I have said, with trust at an all-time low, the only way we can ensure a process in which all partners can take part is by showing that we are not in some way trying to brush under the carpet some of the problems that the previous Government did.

[Mr John Redwood (Wokingham) (Con)]

My hon. Friend is making a strong case. Like her, I wish to see justice for the victims of the problem. Does she agree with me that it would be helpful if in the meantime all the work proceeds on cleaning up the records and ensuring that the lists, and therefore the potential eligibility by category, are in the best possible order so that my hon. Friend the Minister can make a speedy disposition of funds once he has made a decision?

[Nicola Blackwood]

My right hon. Friend makes an excellent point. With all the delays we have seen, the last thing we want is to come to an agreement on the terms of a payments scheme, only to have to embark on a lengthy period of making the data ready for that. It would be excellent to hear the Minister’s comments on that point.

On timetabling, it does not take much imagination to see how such long-term uncertainty would eat away at an Equitable member, causing as much damage as a shrinking pension. The Minister was vocal in calling for a clear timetable in his statement on 17 March, so I am sure that he will be able to offer a timetable today, or very shortly in a statement to the House.

The final problem I will mention is the deep suspicion with which EMAG members view the Chadwick process. Indeed, the fact that they pulled out of that process less than 24 hours before the most recent debate on the matter was noted, as was the fact that as a result the final Chadwick report might be subject to serious dispute, if not to judicial review proceedings, which will also delay proceeding.

The concerns they have raised include concerns about the assumption of the third interim report, which asserted that regulators should be assessed on the basis of the lowest common denominator, despite the fact that the High Court judgment in EMAG v. Her Majesty’s Government found that it was reasonable to assess injustice on the basis of not only strict legal liability, but the policyholder’s reasonable expectation of a regulator. During those court proceedings, the ombudsman expressed concern that the Chadwick process broke the link between injustice arising from maladministration and the provision of any remedy by limiting future payments to those who had been disproportionately affected. Also, among current EMAG members is a sense that, in our straitened economic times, the Chadwick report will find a way to underestimate the losses.

Finance Bill

John Redwood Excerpts

Thursday 15th July 2010 Commons Chamber

One might also talk about what happens in dentistry. It is almost impossible now to access free dentistry on the NHS. Indeed, I understand from the British Dental Association that, in terms of value, about half the dentistry in this country is practised in the private sector, and a lot of that is funded through insurance. If we want a nation that prides itself on having about the worst dental care of anywhere in the world, we are heading in the right direction. I am sorry that my hon. Friend the Member for Mole Valley (Sir Paul Beresford) is not here to supplement my points about that, but there is an increasing crisis in dentistry in this country, because of a lack of resources that are funded by the taxpayer. In moving the amendment, I am not asking that those taxpayer resources should be greater; rather, I am trying to ensure that proper incentives are in place to encourage people to take responsibility for such insurance themselves.

[Mr John Redwood (Wokingham) (Con)]

I am delighted by the case that my hon. Friend is making. As he is suggesting, people who insure for their health needs are paying twice, because they are also paying their contribution to the NHS, thereby helping doubly. Does he therefore think that keeping the tax rate at 5% is enough, or would he really rather it were lower?

[Mr Chope]

My right hon. Friend asks a pertinent question. I would prefer the tax to be much lower—indeed, perhaps there should be no tax at all—for particular insurance premiums. However, in order to try to carry as many people with me as possible in this debate, I thought that I would limit my ambition, by saying, “Why don’t we not increase the tax from 5% to 6% for specific types of insurance premiums?”

I have picked out a couple of examples of that, and I will come to another in a minute, but obviously the principles could apply much more widely. For example, many people are now taking out insurance against their long-term care needs. Indeed, the Conservative party said in its manifesto that for an £8,000 premium, a family would be able to secure themselves against the cost of having to fund long-term care. I do not know whether such a premium, if it were paid, would be subject to insurance premium tax, but perhaps my hon. Friend the Minister will be able to tell us about that. At the same time, perhaps he can let us know when he expects that part of the Conservative manifesto to be brought before the House for implementation in legislative form.

The principle of insurance is one that most Conservatives—most of my constituents—applaud. People can either self-insure, which means that they take the risks themselves, or they can pool that risk by buying an insurance policy, which many people do, by buying life insurance, pension insurance and so on. In the case of pension insurance, we are talking about incentives for saving; in the case of life insurance, we are trying to encourage people to ensure that if they die prematurely, their dependants have some support and are not wholly dependent on the state. Those examples do not fall within the scope of my amendments, but they would be covered by amendment 15, which goes rather wider. However, it is important that we should have this little debate, to try to tease out a bit more from the Government on these important issues.

Turning to my amendment 19, let me say that we have a real problem with motor insurance in this country. For young people, the price of motor insurance is almost prohibitive. Indeed, it is so high that people cannot afford to buy it. Instead, what happens is that young people might get their parents to put them on their policies, if they are lucky enough to have parents who will do so—sometimes in quite dubious circumstances, as we have been reading in the newspapers recently—but quite often they will take a risk and drive uninsured. I regard driving without insurance as an extremely serious motoring offence. It is reckless, and those who do pay for their motor insurance end up having to pick up the bill for those who cause accidents and injuries as a result of not buying insurance.

--- Later in debate ---

[Stewart Hosie]

I am a great supporter of innovative product design, marketing and pricing strategies, and I hope that all those things happen, but we are debating an amendment to the Finance Bill in which the Government are putting up IPT. I shall not strain the limits allowed by the Chair, but shall stick to the amendment and what is in the Bill, while supporting any innovation that the insurance sector, which is massively important in Scotland, might bring forward.

There is a deterrent effect on those who wish sensibly to insure themselves against many risks, and that effect will be enhanced as the cost of insurance rises. There are also specific consequences for individuals. Some 1.2 million people—about one in 20 motorists—regularly drive uninsured, and honest motorists pay the £30 premium I have mentioned, which is likely to go up. If someone is caught driving without insurance, the police are entitled to remove their vehicle from the road and charge them for the cost of transporting, storing or scrapping it. However, some cars may be worth less than the cost of insurance and there will be a burden on the public purse as a result of that removal, storage and scrapping of vehicles if people choose simply to abandon them.

People might also cut corners and opt for the “free” travel insurance offered by credit card companies, which might leave some travellers without the necessary levels of cover and might be costly in the long term. I do not intend to take up much of the Committee’s time on this issue, as this is a probing amendment, but this issue is more serious than I had initially imagined. I look forward to hearing the Minister’s comments on that last point in particular, because if people decide not to pay insurance premiums and instead settle for the “free” cover offered by their credit cards, they might be underinsured in certain circumstances. Also, business might be driven from the traditional, successful, good insurance companies, and I am conscious of what the net loss of jobs, revenue and profitability in that sector might be. So, putting up IPT will have consequences for the sector, for individuals and for jobs. All these points need to be answered properly and considerable comfort needs to be given that we are not going to turn into a nation that says, “We can’t afford insurance; we’ll do without it and let other people pick up the tab.” I shall listen very carefully to the Minister’s reply.

[Mr Redwood]

My hon. Friend the Member for Christchurch (Mr Chope) has highlighted the two very important and different issues of health insurance and motor insurance. Let me start with motor insurance, which is a legal obligation that is imposed on everyone who wishes to own and drive a car.

Like my hon. Friend, and, I suspect, everyone else in the House, I think it quite right that there should be that obligation. It reminds people that driving a car is a serious business and that they could do considerable damage to others or themselves if they do it badly. It also means that, were someone to drive badly or to be involved in an accident that was not their fault, there would be redress and injured third parties who might need substantial compensation would not be left without it. For all those reasons, we think that car insurance is a very good idea and we accept that it should be a legal obligation.

The coalition Government think that one way of raising more revenue is to increase the tax on that compulsory purchase, but quite a lot of people in the House think it would be better to raise more revenue from the existing level of insurance tax on motor insurance by getting more people to be insured. We are rightly very concerned that, because of the way in which the insurance market works, a significant number of people, particularly younger people, may not be taking out any insurance or may not be taking out proper insurance for their circumstances, and that that places other people at risk and could mean losses that those young people could not afford to pay if they had an accident. That clearly means a loss of revenue for the Exchequer, because those people are not making their contribution by paying their share of insurance tax. We would like the Minister to consider whether better enforcement of the insurance rules could help with his task of filling the coffers and narrowing the deficit. That might be a better route than increasing the tax.

I am sure that the Minister will remind us that we are talking about a 1% increase and that it is quite a modest sum of money. We have been reminded a few times that young people with certain kinds of vehicles, or some young people with any kind of vehicle, can be required to pay a four-figure sum each year for their motor insurance, so we could be talking about £10 or more. The additional increase would not be welcome, because most young people find such sums of money quite large in the first place, and a further 1% would not be helpful.

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[The First Deputy Chairman]

Order. We are not referring to taxes that are not proposed in the Bill. We are talking specifically about the amendments to the Bill.

[Mr Redwood]

How wise you are, Mr Evans.

I was making the point that the Minister, in responding to this debate on the insurance premium tax, might assuage some of our grief if he were to say that the Government had looked at the total package of taxes on the motorist and that they were aware that this was yet another example of the piling high of taxes on the motorist. Although this individual tax increase will not be large for many motorists—it will be more penal for young drivers and high-risk drivers—it is none the less an additional burden. Even if the Minister cannot accept the amendment, I hope that he will look at other ways of dealing with the problem of fair motoring taxes.

Every time something like this happens to motorists—this time, it is the insurance tax levy—they say, “We are being sandbagged again. Where are those better roads? Where is that safer junction? Where is the wish to spend money on improving the flows on the roads so that we can travel in a more fuel-efficient, green manner of which the Environment Secretary would approve?” There never seems to be the money to do that. We know that this bit of taxation on the motorist, like most others, primarily goes not to making better roads but to a wide range of other purposes; it gets lost in the general coffers.

[Lorely Burt]

A number of speakers today have singled out specific kinds of insurance, but as I understand it, the Bill proposes to increase insurance premium tax on a whole range of insurance products, which we would encourage people to take in a responsible manner. I have every sympathy for young drivers and for other motorists, but why does the right hon. Gentleman feel that we should specifically single out motorists or people who take out private health insurance? Why should those people be specifically excluded?

[Mr Redwood]

That is what I am trying to explain, while remaining in order on this narrow amendment. The bottom line of my case is that motorists comprise a large category and, when polled, they say that they feel badly done by because they pay a disproportionate amount of tax and do not get much back. It is argued that motorists ought to pay more because they get the use of the roads, which are provided free at the point of use in most cases. It is not like that, however, because the bulk of the taxes levied on the motorist, including this insurance premium tax, are used for purposes other than roads and motoring. That is why motorists feel hard done by.

I hope that the Minister and his colleagues will consider carefully the general category of the motorist. I would love it if he could make a concession to my hon. Friend the Member for Christchurch, but if he cannot, it would help us and the people we represent if he could say that the Government were at least aware of the bad deal that the motorist has been getting in recent years, and that, where possible, they will do something about that. As we have heard, people in rural areas have no choice; they have to use their cars. People in urban and suburban areas also have no choice at certain times of the day or at weekends. People who work antisocial hours clearly need a car. Most MPs need a car, for example, because we still work antisocial hours.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I am following the right hon. Gentleman’s argument with some care. He said that motorists get only a limited amount back from the taxes that they put in. Does he therefore support arguments in favour of the greater hypothecation of taxes such as the insurance premium tax, to help to resolve that problem?

[Mr Redwood]

No, I do not. I am sufficiently in tune with Treasury thinking to know that all Treasuries under any Government hate hypothecation, and I understand the complication. Critics of motoring and cars often argue that motorists are walking off with all these free goods, but people have come up with lots of figures that show conclusively that, in a hypothecated way, motorists get a particularly poor deal. People now look at these issues in such a way partly because the green movement has made them do so. It has now been demonstrated that, calculated in a hypothecated way, motorists put in a lot more than they get back. I do not think that the Treasury should operate all its taxation on that basis, but it does need to take account of the mood and the politics surrounding this question, which we are here to represent.

The feeling of unfairness is now quite extreme among the motoring community, and motorists want to communicate through us the fact that they are often motorists because they have to be. There is no train to take them to the shops, for example. The train might be 2 miles away from their home so, unless they have plenty of time to walk to the station, they need to start their journey in the car and sometimes they might as well finish it in the car as well. There is often no alternative, which is why some 86% of our journey miles are carried out by car, and only some 6% by train. There is a basic necessity, which is why we need to be fair when making any tax proposals affecting motorists.

The case of private health insurance is somewhat different, as I am sure my hon. Friend the Member for Christchurch would agree. I make my declaration: I have no private health insurance, so I am not arguing my own case. I rely on the NHS, should ill health befall me, as I am sure do many other Members. However, I am not saying that some of my constituents are wrong to take out private health insurance. It is still a legal thing to do. Indeed, in a way, I feel that I am cheap-skating at their expense, because they are paying twice and I am paying only once. I pay my taxes, and if something happens to me, I hope to receive NHS care, whereas they contribute to everyone else’s NHS care through their taxes—they have no choice, of course, but some of them do it graciously—and then make the additional choice to pay for their own insurance. There is a double advantage: more money comes into the health sector, but when those people become ill they make no claim on the health service, even though they contribute to it.

My hon. Friend the Member for Christchurch is making a reasonable point. Given that it is not illegal to have private insurance, and that those who have it help to eke out NHS funds, should we be taxing it more? That is a very good question to raise. I shall make no stronger statement than that, but it will be interesting to see how the Treasury responds. After all, on this side of the House, we are all now big society fans and advocates—[Interruption.] Well, practically all of us, perhaps. There might be one or two of my right hon. and hon. Friends who are not so enthusiastic about it, but I am; I think it is a great idea. The essence of the big society idea is to harness private money, voluntary effort and charitable activity, and to understand that the state cannot solve all the problems. In a complex, difficult and expensive area such as health care and related social care, we need voluntary and private contributions as top-ups, or in addition to public sector care.

This issue poses a particularly interesting question for Ministers. If they are really serious about the big society idea, do they want to increase the taxes on people who make voluntary contributions and take some of the demand away from public services? Ought they not to be encouraging people to do such things? I look forward to hearing my hon. Friend the Minister’s reply to these nice philosophical questions in this wonderful caring, sharing age of coalition government, in which the big society will require some erosion of the old boundaries between public and private.

[Mr Byrne]

It is an enormous pleasure to follow the hon. Members for Christchurch (Mr Chope) and for Dundee East (Stewart Hosie) and the right hon. Member for Wokingham (Mr Redwood). The strength of their contributions was in illustrating that the proposals in clause 4 raise a wide range of policy concerns and debates. Hitherto, the House has not had much explanation of the logic or rationale of all the changes set out in the clause. The arguments for some of the proposals are fairly easy to deduce, but the core of the clause is the increase in the standard rate of insurance premium tax, which has not been explained.

The lack of explanation underlines the fact that the Bill is somewhat piecemeal. It is fragmented. It is not a whole Bill; it is not even a half Bill; it is a bit of a Bill. We were told with great fanfare a few weeks ago that the Government were introducing an emergency Budget. The Bill and the clause illustrate in our debate this afternoon that the only emergency was the need to get some pretty difficult changes on to the statute book by the summer, before Liberal Democrat members on the Treasury Bench got cold feet or had, dare I suggest, too many conversations with their constituents.

So the result of that emergency—something that some would uncharitably call a panic—is a Finance Bill with measures such as clause 4 that so far are bereft of logical explanation. The strategy has also produced clause 5, which we shall debate later this afternoon, which withdraws tax legislation without putting anything back in its place. Where there is certainty, the Government in their panic have decided to substitute mystery. So much for the simplification credentials.

The effect of clause 4 on one level, as I have said, is reasonably straightforward. It raises the higher rate of insurance premium tax from 17.5% to 20%. That would appear to be a fairly automatic consequence of the decision to raise VAT to 20%. The higher rate of IPT was introduced in 1999 to prevent a problem called value shifting, whereby some retailers and other producers tried to lower prices of goods and bundle them with insurance policies, for which they redeemed some of the value. I was not sure whether that was some of the financial innovation that the hon. Member for Dundee East was beginning to welcome in his remarks. Perhaps he will say more about that a little later.

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[Chris Leslie]

Thankfully, Labour has shifted the terms of reference for this debate, and not just in this country, where the Liberals and the Conservatives—the Conservatives in particular, to be fair to the Liberals—have now accepted that the NHS is one of the jewels in the crown of our welfare system. It is respected worldwide, and there is no longer any attempt, or at least no overt attempt, by the Conservative party to unwind the change that has been made, although having listened to Government Back Benchers, there may be some straws in the wind. I agree more with the hon. Member for Christchurch (Mr Chope) on amendment 19 on motor insurance.

[Mr Redwood]

Was the absence of support for amendments 18 and 19 from the Labour Front Benchers a sign that Labour will not vote for those two amendments?

[Chris Leslie]

I have absolutely no idea. As a humble Back Bencher, I simply make my comments and observations. Clearly, I will happily take a lead from our Front Benchers; they are immensely sensible individuals, and will make their arguments. But I have my own observations to make about the changes.

One of those observations is that there is a level of compulsion that distinguishes motor insurance. In a way, private health insurance is an entirely discretionary commodity, so I suppose one could argue that paying tax on it is a matter of choice, but that is not the case for drivers and for motor insurance. As the right hon. Member for East Yorkshire (Mr Knight) said, in the case of third-party car insurance we are talking about adding a tax on top of a charge that is effectively a requirement in law. That raises the hackles. It makes me feel aggrieved that there is a bit of opportunism on the part of the Treasury. It is a parasitical choice effectively to cream off more money from something that the general public have no choice but to get.

I suppose that those on the Treasury Bench might say that members of the public could give up driving and stop purchasing cars. Perhaps that would be good for the environment more widely, but in the real world, people have to get around, have to get to the shops and to school, and have to commute. It is part and parcel of ordinary life. I am very worried—genuinely worried—that ratcheting up insurance premium tax on motor insurance will create a disincentive for people to comply with the law, take out insurance, and ensure that the cost is covered if any accidents occur or harm is caused to other members of society and the wider public.

--- Later in debate ---

[Ms Eagle]

My hon. Friend raises a reasonable point. Changes in this area have to be made very carefully to avoid the law of unintended consequences, especially when large amounts of tax-privileged income are at stake. The Minister knows that, which is why she said that there would be no increase in tax-avoidance opportunities.

[Mr Redwood]

Can the hon. Lady remind the House how many private sector final salary pension schemes actually closed as a result of the taxes and regulations introduced by the last Government?

[Ms Eagle]

We would have to have a long debate about a range of issues to answer that, but I am happy to defend our record. The closure of defined-benefit schemes took place for a range of reasons and the closures began in earnest when I was still at school, so I do not take personal responsibility for that.

When we look at the impact assessment, we see that the changes will affect a tiny minority at the very top—a mere 8,000 people on the Government’s estimates, out of 445,000 people who annuitise every year. They will affect only those who can afford to live without touching their pension pot until fully 10 years after retiring. We know that two thirds of people take their annuity upon retirement and that only a much smaller number of people last beyond 70, so the flexibilities that the Government are looking for will be required by only a tiny number of very rich people. The Minister therefore needs to justify why this is a priority and why we need a rushed consultation of only eight weeks over the summer to bring it about.

[Mr Redwood]

I will be brief, Mr Evans, because I believe that some Members have other things to do later on. I also remind the House that in the Register of Members’ Financial Interests I have explained that I offer business advice to a couple of companies.

I would like to briefly praise the Minister and her team for their proposal. For many years, the Conservatives while in opposition urged the then Labour Government to allow people a bit more flexibility and freedom with their money in retirement. Even now, after the election defeat, the party does not get it. This was not the main reason it lost the election, but it was one of many things where it misread the public mood. People want more freedom and flexibility over their own resources and more control over their own lives, but Labour was always trying to stop them. This is a small but important move, and I think we might find that it affects rather more people than the hon. Lady says—

[Ms Eagle]

It is in the Government document.

[Mr Redwood]

The hon. Lady is protesting. I know it is in the Government document, but I am suggesting that the Government might be wrong and might have underestimated the number—it is extremely difficult to know how many people might take advantage of the provision. I also think it will not necessarily be only rich people who are affected. I know that Labour never wants any successful people to make money and be able to spend their money sensibly.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

It did a really good job stopping them.

[Mr Redwood]

Indeed, it tried to stop them on many occasions. If we do too much of that, however, we have a poorer country, a smaller tax base and all the rest of it. It is a pity that the Labour party still has such a downer on success, prudence and savers, but it might be surprised—hopefully, pleasantly surprised—in due course to find that people on more modest means take advantage of this flexibility as well. We no longer live in a world in which everybody retires at 65 and does no more work. I see around my constituency many people taking on paid work into their late 60s and early 70s, either because they want to or, in some cases, because they have to in order to supplement their resources. Why should we debar them from this flexibility any more than richer people, if they have savings?

[Bill Esterson]

The right hon. Gentleman mentioned the record of the last Labour Government on pensions, but what about the record of the previous Conservative Government when it came to the mis-selling of pensions? I trust he would accept that that was a serious problem.

[The First Deputy Chairman]

Order. That is much wider than the amendment.

[Mr Redwood]

I would love to deal with that point, but I shall take your advice, Mr Evans. The real sin was the tax and regulatory raid on pensions under the last Government, which led to the wholesale closures of final salary schemes, and as a result of which most people starting out in work today have no access to a final salary work-based scheme in the way that their parents’ generation did. That is a great tragedy. However, this provision is a small move in the right direction, so I hope that the House will warmly welcome it. Well done to the Minister.

[Justine Greening]

I thank my right hon. Friend for his kind words. This provision is a step forward. As he said, it might be a small one, but it is an important one that will open up a flexibility that many whom we want to encourage to start saving for a pension will value, which is why it is important that we take the time to make an early start on this matter.

I want to respond to a couple of the shadow Minister’s points, including the one about the consultation document not being published in good time. This clause allows us to engage in a consultation. It was not necessary to launch the consultation today, but as it was it was launched at 12.30 pm, and by the time we got to the clause it was 5 o’clock—several hours after the document became available—which has meant that we have had a more informed debate today.

Finance Bill

John Redwood Excerpts

Monday 12th July 2010 Commons Chamber

[John McDonnell]

Let me say as objectively as I can that I have not yet seen a Budget that simplified the taxation system, and I have been here for 13 years. I live in hope, which is why my amendment requests a further report that might indicate the path that the Government intend to take. I am merely a humble seeker for truth in this matter, as always.

I investigated various sources in my search for estimates of the tax gap. The latest HMRC estimate that I could find was £40 billion, but there is an element of uncertainty reflected in a reported memorandum circulated to staff in HMRC and the wider Treasury, asking people to come up with ideas for identifying and calculating the gap.

The HMRC estimate has been challenged by others. I chair a group called the Left Economics Advisory Panel, which brings together a number of Left economists including some who have been working with the Tax Justice Campaign. Over the years many Members will have worked with Richard Murphy and John Christensen, who are held in respect across parties because of the work they have undertaken in this sphere, and the advice that they have given to the Treasury and other organisations for a number of years. According to their estimate over the past year, the tax gap could be anything between £70 billion and £120 billion.

[Mr John Redwood (Wokingham) (Con)]

If the gap is so enormous, can the hon. Gentleman explain why 13 years of Labour government did not close it?

[John McDonnell]

I can only say that that is one of the reasons why I have raised the issue so consistently. I hope that some Government will address it, and will do so effectively. It is also why I have sought to amend the Bill in a consensual way. All I am asking is for the Treasury to produce a report setting out our best current estimate of the extent of avoidance and evasion, and to propose measures that the Government could take. That would be a way for the Government to demonstrate that they are taking the issue seriously and tackling it.

There have been other estimates of the tax gap that go beyond that of Richard Murphy, some of which are as high as £150 billion a year. Interestingly in respect of the Treasury’s £40 billion figure, it estimated in a table it published earlier this year that corporation tax accounted for 16% of its tax gap and that capital gains tax along with national insurance contributions and so forth accounted for 6%, so the taxes this particular amendment addresses are significant contributors to the tax gap.

I fear that unless this issue is addressed we will continue to have a sterile debate in the House about cuts in public services, whereas if we tackled the tax gap we would avoid a significant amount of the public service cuts that will impact upon all our communities. I therefore urge that we have a serious debate and that the Treasury produces a report quantifying more exactly the levels of tax avoidance and tax evasion, and that we then look at possible measures—including, I agree, on simplification. Issues to do with what resources we apply to tackling tax evasion and avoidance are also of relevance, however, and that comes down to staffing.

--- Later in debate ---

[John McDonnell]

I fully agree.

I have not included any reference to VAT, which is one of the largest areas of tax evasion and avoidance. Interestingly, it appears from the responses we have had over the years from the Treasury that it uses different methodologies to calculate the different forms of evasion and avoidance for particular taxes. I find that extremely confusing.

The amendment has been described as not tribalist. Well, I am a tribalist, but I am trying not to be on this issue; instead, I am being as consensus-seeking as I can be. Even though I come from a class-based politics, I am trying to come at this from a straightforward administrative perspective, asking how we can arrive at a situation in which HMRC will report to the House—to the Chancellor of the Exchequer—on the extent of evasion and avoidance and the measures that are going to be pursued. The reason why I am making a link to the changes in tax measures is that I want there to be a time limit, so that we get a report back to the House; otherwise, this situation will continue year after year.

This issue does relate to that of staffing, which I raised with the previous Government and am raising with this one. I chair the cross-party PCS trade union group in Parliament, which regularly meets PCS members who work in HMRC and who are tax inspectors. It is clear that they have performed an excellent service to our country over the years, and their productivity has been increasing year on year. However, over the past three years job cuts totalling 12,000 within HMRC have been announced that specifically affect staff involved in tax generation. At a time when we are desperately trying to tackle the deficit through measures other than reductions in public expenditure and cuts in public services, we could do that by tackling tax evasion and tax avoidance. However, at the same time, we have the prospect of another 12,000 jobs being lost within HMRC.

[Mr Redwood]

If a constituent of the hon. Gentleman’s had a deposit in a savings product that was paying interest, on which they were paying tax, and they switched that into a tax-free national savings product, would that be tax avoidance or sensible investment?

[John McDonnell]

That is an interesting point. Tax compliance should be a duty in law, so there should be a requirement on us all to pay our appropriate level of tax. Tax planning is perfectly consistent within the law and is appropriate for individuals and organisations in order to ensure that they pay the appropriate tax. However, such devices should not be used to avoid paying the rightful level of tax and certainly should not be used for the purposes of tax evasion, which is the illegal avoidance of tax.

As I was saying, my concern is that, just when we need staff to tackle tax evasion and avoidance, we are faced with the previous Government’s plan for a further 12,000 job cuts within HMRC. I urge the new Government to review the matter and to look again at the staffing level that will be required if we are seriously to address tax evasion and avoidance. That is another reason why my amendment calls on the Chancellor of the Exchequer to lay before us a report that sets out the measures he proposes to take

“to ensure the payment of tax which is due”.

In devising those measures, appropriate discussions will need to take place about the level of staffing and the qualifications and abilities required of such staff. Such factors will militate against the scale of job cuts that have taken place.

On another issue, but one that has certainly been close to the hearts of several Members over the past two years, such measures will need to take into account not just staffing levels but staff location. The closure in recent times of local tax offices has reduced HMRC’s ability to respond to tax evasion and tax avoidance on the basis of local knowledge, and to assist local companies and individuals in proper tax planning so that they can comply with the law. I request that any report that the Chancellor introduces deal with the implications of the closure of local tax offices and, therefore, the appropriate location of the staff themselves.

I have tabled two amendments, the first of which, amendment 11, deals with corporation tax.

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[Mr Redwood]

Let me start by saying a few words about my new hon. Friend the Member for Lincoln (Karl MᶜCartney). I am sure that the House will join me in praising him for his speech and in wishing him every success now that he has joined us here. It is good to hear someone with a radio face with a passionate voice for his constituency. If he continues that, I am sure that his constituents will be well served. It was great to be reminded of the hugely important Lincoln cathedral, which many of us have visited and admired, and of the fact that Parliaments were once more peripatetic. In those days, there was probably less security and fewer people in the baggage train, so it was probably cheaper to take Parliament around the country than it would be today. I fear that he might have quite a long wait before the next Parliament at Lincoln.

We are here to debate tax avoidance and evasion. I listened carefully to the hon. Member for Hayes and Harlington (John McDonnell), but I think that the Committee is pursuing a will-o’-the-wisp if it seriously believes that there is £120 billion of tax evasion and avoidance generally, and that there is substantial tax evasion and avoidance in particular on corporation tax, which we are debating, that we can tackle and get the money in from. Every hon. Member would like to think that there is an easy way out of the financial crisis. If there were a great pot of money representing tax dodging that we could identify and bring into the Treasury, it would have been done by now. It is not a matter of party dispute. If there are tax evaders out there whom we know about, they need to be brought to book—we all agree with that. Labour spent 13 years trying to do it, but the hon. Gentleman does not think that it did it well enough, and is now urging the coalition Government to do it. The coalition Government will pursue it in similar ways, with similar intensity, to the outgoing Labour Government. I fear that they will be no more successful than the previous Government at finding that £120 billion pot of gold because, in all honesty, I do not think that it exists in the form that hon. Members wish that it did.

Let us take evasion—the more serious case. I am sure that everyone in the House agrees that if someone is deliberately evading tax, it is a criminal offence. The House has said that it is a serious offence, and made it a criminal offence, or series of criminal offences, and we wish to see those people pursued and prosecuted. In the case of corporation tax, for example, if a company deliberately misreports its income, and says that it receives less income than it earned—one way of misleading the tax authorities over corporation tax—the book should be straightened, the record corrected, and they should be prosecuted. If the company deliberately overstates its costs to try to suppress its profits—the other way in which people could evade corporation tax, if they were seeking to do so—that, too, should be something that the authorities can identify on investigation, leading to a correction of the accounts. False accounting would be involved, as well as the criminal offence of tax evasion, and there are methods of tackling it. The state has a range of powers, introduced by Governments of all persuasions, to allow company investigation, including second-guessing the audit, and going in if it is thought that crooked directors are misrepresenting their costs or revenues, and the auditors have missed it. I wish my right hon. and hon. Friends the Ministers in the Treasury every success in trying to capture genuine crooks, because we do not need them in our community, and we need to flush them out.

There is another kind of failure to pay the amount of tax that the corporation tax authorities think is correct which, in some people’s language, could be evasion. A company may report honestly its revenues and costs, but comes to a different conclusion from the Revenue about what the taxable profit should be, given its income stream and costs. It attempts to understand the complexity of the law—it may well have its own tax advisers and auditors in support, because any medium or large company does not do this in isolation; the directors want the comfort of knowing that they have serious tax experts behind them, because of the complications of the law—and it makes its case to the Revenue, which disagrees with them. I do not think that that should be treated as a severe criminal offence leading to the imprisonment of the directors. What should usually happen—and what tends to happen—is a fierce exchange of views between the Revenue, which is trying for one view of the tax, and the company and its tax advisers with a different view. Eventually, agreement is reached. If it is thought to be a bad case, the Revenue has the power to impose financial penalties as well as to secure the tax that it thinks that it is owed.

[Clive Efford (Eltham) (Lab)]

I am interested in the right hon. Gentleman’s train of thought, but will he clarify something? Is he saying that there is no such thing as avoidance of corporation tax, or is he saying that anything that comes about is just the result of a misunderstanding?

[Mr Redwood]

Has the hon. Gentleman been in the Chamber while I have been talking? The first part of my speech was about bad cases of evasion in which a company has deliberately misrepresented its financial condition. Like him, I think that those cases should be taken seriously, and prosecution should result. I am going on to the second set of cases, in which evasion is thought to have taken place according to the Revenue, but when we look at what is going on there is a genuine disagreement between one group of tax experts, lawyers and company advisers and another lot advising the Revenue, which sometimes needs to consult counsel on these complicated matters to try to reach a conclusion. Such cases are often sorted out slightly more amicably, and rightly so, because the companies concerned were obviously not trying to do down the Revenue but to pay the minimum amount of tax to comply with the law, as most sensible people try to do, and there was a disagreement that had to be sorted out sensibly. That might result in financial penalties or in an agreement not to have financial penalties, but usually the Revenue has a certain amount of strength in having its way.

That is evasion, and then there is avoidance, which is much more problematic. I am sure that billions-worth of avoidance is going on all the time, because it is a perfectly legal approach; one man’s avoidance is another man’s sensible tax planning. That is why I asked the hon. Member for Hayes and Harlington for an example relating to personal income tax, which is easier for people listening in to this debate to understand. Many small savers switch from tax-paying savings to tax-free savings, which is avoidance of tax, is it not? They realise that they can do better by having a tax-exempt savings product; surely we should not condemn that, because it is about someone trying to get the most for their money. Indeed, that is something that the Government positively encourage. They encourage tax avoidance because they say, “We have the unique power to provide tax-exempt products for savings, and we want you to buy ours rather than the taxed private sector product.”

[Stephen Timms (East Ham) (Lab)]

My hon. Friend the Member for Eltham (Clive Efford) asked a telling question, and I am not sure what the right hon. Gentleman’s answer is. The question is this: does he deprecate any tax avoidance, or is he saying that as long as it is strictly in compliance with the law, anything goes? As he knows, there have been some very ingenious, and indeed expensive, schemes used by companies to avoid paying tax, clearly contrary to the spirit of the law but arguably in compliance with the letter of the law. Does he not deprecate that kind of activity?

[Mr Redwood]

I do not want to get drawn into the moral issue of deprecating or not deprecating: what I am interested in is the efficiency of revenue collection and the clarity of the law for the people having to meet it. It is the job of this House to have a clear tax law that people have to follow, and we often have these debates to try to carry out that task. Sometimes tax law is so complicated, or people outside this House are so ingenious, that there are ways round it that I might disagree with and the right hon. Gentleman will often disagree with, and that is when we come back to legislate again. We say, “We haven’t done our job well enough. People are avoiding tax more easily than we would like them to be able to, and so we’re going to add another complication”—or sometimes even a simplification or clarification—“to the tax law to try to capture that.” That is the job of this House. The shadow spokesman and I will sometimes agree that an avoidance scheme goes too far and we need to legislate to stop it; on other occasions, we will disagree. I will say, “That’s perfectly rational tax planning—don’t be such a party pooper”, he will say, “I don’t like people getting away with that kind of thing”, and we will have our disagreements.

[Mr Love]

Given the thrust of the right hon. Gentleman’s remarks, does he agree with my hon. Friend the Member for Hayes and Harlington (John McDonnell) that cutting the number of HMRC employees by 10,000 might not assist in the process that he is outlining of ensuring that those who take part in avoidance are brought to book?

--- Later in debate ---

[Mr Redwood]

It would clearly be a false economy to cut back on the number of staff needed to tackle serious cases of tax evasion; I do not think anybody wants to do that, and I certainly would not recommend it to Front Benchers. It would also be wrong, however, to exempt Revenue and Customs from pressure to improve efficiency and to do more with less at a time of enormous strictures on public spending. I hope that there will be ways to accommodate the hon. Gentleman’s wish for us still to have Revenue and Customs pursuing tax evasion and our coming back to legislate on tax avoidance that it thinks is going too far, as we have under past Conservative and Labour Governments, and that that will be done efficiently and effectively in the way that we wish to see.

[John McDonnell]

To follow up on the question of my right hon. Friend the Member for East Ham (Stephen Timms), are there any measures that the right hon. Gentleman would consider tax avoidance that should be brought within the purview of Her Majesty’s Revenue and Customs, such as the large-scale offshoring mechanisms that corporations use to avoid tax? All that the amendment asks is for a report to be made about the measures that the Government will take on such issues.

[Mr Redwood]

I do not necessarily disagree about the need for us to consider another report on tax avoidance and evasion, but I am trying to set some of the parameters for that report and the framework of the debate. This is an opportunity to discuss why the matter is difficult, and why past Governments have not lived up to the hon. Gentleman’s expectations. I have no problem with having a report, although I do not want to link it to the particular corporation tax rate in clause 1, as his amendment would.

[John McDonnell]

I am grateful for that response. Successive Governments have pragmatically examined the latest tax avoidance mechanisms and then sought to work through them systematically to address them. The amendment is intended simply to bring forward a report on those mechanisms so that the House can have more oversight of that process.

[Mr Redwood]

As the hon. Gentleman knows, I am all in favour of more oversight by this House, and the more informed a debate we can have about this and other issues the better. Public debate in Britain has been stifled in recent years for all sorts of political reasons that we need not go into. It is better if we can bring such debates out into the open, but we need collectively to think through what avoidance is and what evasion is. If we do not know that, we cannot hope to guess its scale or optimise our measures for dealing with the features of it that we do not like. I am trying to deal with avoidance, on which I believe there is more scope for disagreement than on evasion, which we are all against.

I return to the point that some people’s avoidance is a bad practice and other people’s is common sense. Let us take another example of a matter on which the Government encourage avoidance. I gave one from personal tax, but we ought to be concentrating on corporation tax. The previous Labour Government were keen to encourage avoidance of corporation tax because they wanted companies to invest—a perfectly worthy aim. They said to companies, “If you invest more than you otherwise would do, that is an allowance against your corporation tax so that you will be able to avoid some tax in order to invest more.” One debate that the Committee will have is whether this Government are cracking down too much on investment avoidance by removing some of that allowance and giving everybody the benefit of a lower rate. I hope that Opposition Members will see that they are not as pure as they think they are on avoidance, and that there are certain types of avoidance that they see as a very good thing. It is a well-known feature of many tax structures to encourage avoidance in order to encourage good works or change conduct.

[Mark Tami (Alyn and Deeside) (Lab)]

The right hon. Gentleman talks about avoidance all the time, but is it not about the Government giving companies incentives to invest, rather than allowing them to avoid tax?

[Mr Redwood]

The hon. Gentleman has made my point beautifully. I have just said that one man’s avoidance is another man’s tax incentive—that is exactly the point that I am trying to make. There are good types of avoidance and bad types. Sometimes all the parties in the House agree that a certain type of avoidance is bad, and then it is in our own gift, because we are the legislature, to table business on any day to stop that tax avoidance in its tracks by changing legislation explicitly and clearly to send a signal. At other times we come together to legislate in favour of tax avoidance, because there are things that we wish to encourage. As he rightly says, sometimes the best thing to do is to give people a lower tax bill to encourage such procedures. That is surely encouragement of tax avoidance of a benign kind and a perfectly reasonable thing to do.

[Mark Tami]

indicated dissent.

[Mr Redwood]

The hon. Gentleman shakes his head, but what else is it? Why are people investing more than they otherwise would have done? Because they are allowed to avoid tax and pay less tax than they otherwise would.

[Stephen Timms]

The right hon. Gentleman is uncharacteristically abusing the English language. To say that something that is explicitly provided for in the law is tax avoidance is not what most people mean by the term.

[Mr Redwood]

Fine—that is a very good linguistic point, and if the right hon. Gentleman wishes to define tax avoidance more narrowly as actions that we all disagree with, we can do that and it makes the debate much simpler. However, he has to understand that there are a series of grey areas, and it is not a black-and-white matter. There is not a set of actions that everybody agrees are tax avoidance and another set that everybody agrees are perfectly reasonable incentives or sensible ways of paying less tax.

Let us get on to the more difficult corporation tax cases, having dealt with the investment one—everybody in the House thinks that investment is a good thing and that corporations should therefore pay less tax one way or another, either through the rate of tax or through explicit relief.

--- Later in debate ---

[Clive Efford]

My hon. Friend’s intervention needs no comment from me, other than to say that it is an excellent example of the sort of practices that we need to bear down on. We pay a plethora of accountants and financial advisers to advise on how to invest our money wisely, and that is a legitimate area of activity. It is right that people may order their finances within the rules to maximise their income, but if that becomes exploitation or unfair in terms of what people are contributing, we have to act. That is where the amendments that we have tabled on capital gains tax, which we will discuss later, come in.

The hon. Member for Dundee East (Stewart Hosie) mentioned the cut in tax staff, and if we are going to see substantial cuts in staff, it will make it even more difficult for HMRC staff to perform their task on whatever tax they are pursuing, be it corporation tax or any other.

The right hon. Member for Wokingham seemed to dismiss the issue of tax evasion, suggesting that we could pursue evaders until the cows came home, but they would never pay the tax so we would not be able to close the deficit by pursuing them. He then went on to talk about the difference between evasion and avoidance, rather than focusing on what we can do—as the people who scrutinise legislation—to ensure that the Government are delivering on their words in the Budget.

[Mr Redwood]

I wish to correct the record. I made it very clear that if a company were evading tax, we should throw the book at them and get the money back.

[Clive Efford]

My point is that that was the sum total of the right hon. Gentleman’s contribution on that subject. He then elaborated on other issues. The point is that the thrust of the amendment is evasion—people working the system in a way that breaches the rules and means that they do not make the contributions that they should make. Those are the people we should bear down on. In my intervention in his speech, he accepted that there was such avoidance, and that those people should be dealt with. It is how we scrutinise that that we are discussing now. It is the function of this House to hold the Government to account, and the amendment asks for a report to Parliament on what exactly the Government are doing.

I congratulate my hon. Friend the Member for Hayes and Harlington on his amendment, and I look forward to hearing what the Government have to say in response.

--- Later in debate ---

[Stephen Timms]

I join others in congratulating the hon. Member for Lincoln (Karl MᶜCartney) on his maiden speech. He launched some important claims on behalf of his constituents. I was interested in the case that he made for reintroducing indexation and taper relief on capital gains tax. I suspect that these debates will gain a new currency, given the increase in the rate of capital gains tax that the Bill introduces. I also welcome the evidence of independent thinking that he showed the Committee today, and I appreciate, as many will, his generous remarks about Gillian Merron, who was certainly a very popular Member of the House, as well as a popular feature in the local press in the hon. Gentleman’s constituency.

I am grateful to my hon. Friend the Member for Hayes and Harlington (John McDonnell) for raising this issue. He has done us a service by raising some important points. I do not agree with his criticism of the previous Government in that respect, as I shall explain, but it is right that we should have this debate in this part of our consideration of the Bill.

I enjoyed listening to what the hon. Member for South Staffordshire (Gavin Williamson) said a moment ago. What he was saying, I think, was that he was expecting the new Government to simplify the tax system. Well, maybe, although I do not think that there is much simplification in the Bill. In fact, there is a major new complication, as we will see when we come to clause 2. For the first time ever, the rate of capital gains tax is being changed in the middle of a year. That is a significant new complexity that the Bill introduces. Although I am touched by his faith, I suspect that he might find himself somewhat disappointed as time goes on.

My hon. Friend the Member for Hayes and Harlington was right to pay tribute to the work of Richard Murphy and the tax justice campaign. I want to pay particular tribute to Richard Murphy for developing, and first arguing for, the idea of country-by-country reporting. We are debating the avoidance, and indeed evasion, of corporation tax, and of course, that is a matter not only for the UK but for developing countries on a large scale as well. Richard Murphy was the first person to argue that companies should report, on a country-by-country basis, the profits that they make in each country and the tax that they pay in each country, so that everyone can see if there is a mismatch between the two.

The previous Government supported that call, and I am pleased that the OECD is taking the matter up. I think that we are now going to see some progress on that front, thanks to Richard’s efforts. I note from his blog that he has been on the receiving end of some unwarranted online harassment recently on account of his work. I certainly wish him well in what he is doing. However, I am not entirely persuaded by his criticism, or that of my hon. Friend the Member for Hayes and Harlington, of the work of HMRC on the tax gap. As my hon. Friend rightly mentioned, however, it is inevitable that any estimates in this area will be uncertain because no one knows precisely what is being hidden from the tax authorities.

Narrowing the tax gap was an important priority for the previous Government, and I was grateful for the comments made by the hon. Member for Southport (Dr Pugh) and by the Minister in the debate on tax avoidance that was held in Westminster Hall on 14 June. In that debate, my hon. Friend the Member for Wallasey (Ms Eagle) set out the key elements of the progress that the previous Government had made on tackling the problem of avoidance. One of the initiatives that we took was to propose a voluntary code of practice for the banks, and I hope that the Minister will be able to tell us more about this when he winds up the debate. My hon. Friend the Member for Leeds East (Mr Mudie) mentioned one of the banks a few moments ago. The idea was that banks would sign up to the code of practice and, in doing so, would agree to stick not only to the law on the payment of taxes but to the spirit of the law as well.

Having listened to the arguments put forward by the right hon. Member for Wokingham (Mr Redwood), I imagine that he would be opposed to that initiative, because he would feel that it should simply be a matter of asking, “Are you or are you not complying with the letter of the law?” and that, if a problem arose, the Government should legislate to close the loophole. The problem with that approach is that we can get into an arms race, as we have certainly done on many occasions, in which the Government and Parliament agree on changes to the law and everyone knows perfectly well what they mean, but the banks then commission ingenious accountants to find ways round the spirit of the law, even though the letter of the law is being complied with. If we were to stick with the approach for which the right hon. Gentleman is arguing, Parliament would then have to close the loophole, perhaps a year later, and the circle would continue to go round. He made an interesting case, but we have to find a way of breaking that vicious circle, because huge amounts of money are being spent by taxpayers and by HMRC, and, in the end, nobody benefits.

[Mr Redwood]

The right hon. Gentleman is quite right to say that there can be an arms race, but would he also acknowledge that, while quite a lot of companies accept that they need to pay a fair whack of tax, there are many judgments involved? Those companies seek advice on that judgment, but they do not always get the same advice as HMRC. It is not that they are all trying to cheat the taxpayer; these are complicated matters and a view needs to be taken on cost overhead allocation, transfer prices and so on. Judgments are reached and the Revenue disagrees, but these are judgment matters, and this subject is not easy to handle.

[Stephen Timms]

The right hon. Gentleman is absolutely right about that. I entirely accept that that often happens, but I hope that he will accept that there are also people who commission very highly paid accountants to find ways of getting round the law. Everyone involved in that practice knows perfectly well that they are going against the spirit of what Parliament intended, and that is the kind of damaging avoidance that we need to bear down on.

--- Later in debate ---

There are other flaws in Mr Murphy’s methods. For example, he does not appear to take into account any tax recovered through HMRC’s compliance activity.

[Mr Redwood]

My hon. Friend reinforces my point: avoidance covers a variety of different things. In this case, it seems to cover conduct that a Government are trying to encourage, as well as conduct that a Government are trying to repress or stop. That is why the House needs a little more humility instead of rushing into saying, “There’s all this tax being avoided.” Some of it is being avoided for reasons that the previous Government approved of.

[Mr Gauke]

I am grateful to my right hon. Friend, who brings me to my next point.

The Government see the distinction between tax avoidance and tax planning, but those lines can be blurred, and sometimes use of the terminology is not as accurate as it might be. For example, I quote the “Missing Billions” report, produced for the TUC, which, after setting out a series of numbers leading towards the estimate for corporation tax avoidance, states:

“Much may be due to legitimate tax planning, but by no means all is. Some, undoubtedly, is due to tax avoidance.”

That seems to me to suggest a slight blurring of the lines. Again, I am sure that I will be corrected in Mr Murphy’s blog if I am wrong, but there does appear to be some confusion.

I am not suggesting that tax avoidance and tax evasion do not matter. The £40 billion figure is significant. However, it is also true that we cannot pretend that if we just address this problem, the deficit will go away. Although it is always tempting for a new Minister in a new Government to attack everything that happened before, I must point out—not purely out of fondness for my predecessor, the right hon. Member for East Ham—that, in international terms, £40 billion is not too bad as a percentage of tax revenue raised.

HMRC does not do particularly badly. Indeed, it tends to lead the field in this respect. Nor has it deteriorated during a period in which it has incurred substantial job losses, as a number of Members have pointed out. I believe that it employed 97,000 people in 2005, and the most recent figure is 69,000. It is a question of deploying resources as effectively and efficiently as possible.

None the less, to the extent that it is possible to go further in reducing evasion and avoidance, the Government are keen to do so, and I have set out some of the ways in which we intend to do so. I can tell the hon. Member for Hayes and Harlington that we already assess the amount of tax lost through avoidance and evasion, and that we are committed to reduce those losses as much as possible. We will also continue to publish the tax gap figures as frequently as possible, to provide a focus for HMRC and to ensure that our debate is well informed.

I hope that what I have said gives some reassurance to the hon. Member for Hayes and Harlington. Let me also remind the shadow Minister that HMRC introduced a banking code of practice in 2009, and HMRC’s annual report will provide anonymised statistics on the number of banks that have adopted it. We believe that the code encourages banks not to enter into, or be party to, avoidance arrangements, but we will of course continue to monitor and review its operation.

Finance Bill

John Redwood Excerpts

Tuesday 6th July 2010 Commons Chamber

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

May I begin by putting on record the Opposition’s thanks to Sir Alan Budd for his excellent work in the short months that he has served the Government? May I also congratulate the Chief Secretary, who is rapidly becoming one of the Chancellor’s longest-serving advisers? After his performance this afternoon, I think we can see why that is. He is pursuing what is now a noble Liberal Democrat tradition of fronting up some of the Government’s nastiest and most regressive policies in the House. His speech was a Liberal Democrat defence of an emergency Budget—an emergency so great that the Chancellor could not be bothered to join us this afternoon to listen to the House’s deliberations.

It is fair to say that since we met last week to debate the Budget, the economic horizon has darkened. British families and businesses fought so hard in the past year and a half for this country’s recovery, but the Bill puts all that at risk. We can see from the Bill that the Chancellor would like us to believe that size is not everything—although it is very thin, it is none the less very dangerous.

We all enjoyed the Chief Secretary’s summary of business opinion, but Opposition Members thought it odd that he missed some of the news that has appeared since the Chancellor gave his Budget speech. The truth is that, as we warned last week, the dangers in the global economy have become not less visible—they have not ebbed away—but, if anything, become more visible and more dangerous. This week, for example, the news from our trading partners and from the United States, which is our single biggest export market, has not been good. Factory orders in May dropped after eight consecutive months of improvement, and confidence surveys last week showed the biggest falls for some time—far bigger than expected.

Last week, we heard that the number of Americans in work has fallen by almost the largest number since 1995, and new figures for the eurozone show unemployment stuck at more than 10%. The news from new markets is likewise not great. China’s stock exchange hit a 15-month low yesterday, and confidence surveys have reported the worst outlook for a year and a half. Therefore, we cannot blame British businesses, investors and exporters for being somewhat depressed. They know that the odds of success in the gamble on which the Chancellor has embarked are slim, and they know very clearly who will pay the price for his failure.

[Mr John Redwood (Wokingham) (Con)]

The previous Labour Government said that they would halve the deficit in four years. What spending cuts and tax increases would they have introduced if they do not like ours?

[Mr Byrne]

The right hon. Gentleman has today put out a number of very constructive suggestions—for example, urging people hit by budget cuts to wear more clothes, to turn down the thermostat and to eat more vegetables—[Hon. Members: “Withdraw!”] I am merely quoting the Daily Mail, which is a source I trust—it is, of course, beyond reproach.

[Mr Byrne]

I will learn never to trust a word I read in the Daily Mail ever again—

[Mr Redwood]

The Daily Mail withdrew the article from its website because it was untrue.

[Mr Byrne]

Well, that rather proves my point—[Interruption.]

--- Later in debate ---

[Mr Byrne]

It is not a great triumph for unemployment to fall as an economy returns to growth. The point that I was making is that employment in this country is lower as a result of the Chief Secretary’s Budget, that growth is lower as a result of his Budget, and that the Budget hits the economy so hard that he must raise another £9 billion of taxes, although the Chancellor refused to admit it at the Dispatch Box.

I now wish to turn to a question to which I hope we will devote quite some time today: the wider question of why this Finance Bill is so unfair. We now have the judgment of the Institute for Fiscal Studies, which tells us that the Budget is so regressive that its only redeeming features are Labour policies. Age Concern tells us—clearly, starkly, urgently—that it will put older people’s lives at risk. The Child Poverty Action Group tells us that it will drive poorer parents into the arms of loan sharks. The House of Commons Library tells us that nearly three quarters of the £8 billion tax and benefits bill will be paid by our country’s women—and that is before we get to VAT.

Clause 3 is the clause that deals with VAT, and I think it fair to say that it is the clause without a mandate. I have come to learn that, after nearly 30 years in the House, the hon. Member for Bermondsey and Old Southwark did not get where he is today without knowing what makes his party tick. I believe that when he said, a week before the Budget,

“I hope we don’t have a VAT increase because it is the most regressive form of tax”,

he spoke for the majority of his party’s voters and his party’s members. Before too long, those words will come back to haunt the Chief Secretary and the rest of the occupants of the Treasury Bench.

Back on 7 April, the Deputy Prime Minister warned us about hikes in VAT. He said:

“let’s remember, it is a regressive tax”.

He was right: it is a regressive tax, and we now know that he is a regressive politician for supporting it.

I think that it is fair to say—I feel that I can say this among friends—that I know a thing or two about writing something and regretting it later, but the Liberal Democrats did not just write a silly note. They unveiled a whacking great poster on a lorry saying, “Tory VAT bombshell”. Little did we know that they would be the ones not only to prime it, but to set it off.

[Mr Redwood]

Will the right hon. Gentleman give way?

[Mr Byrne]

I will in a moment.

If Members go to the Deputy Prime Minister’s website—for those who do not have the address, let me be helpful, it is nickclegg.co.uk; it is not a site that I visit quite as much as I used to—they will see that that famous poster saying, “Tory VAT bombshell” is still on the website, available to download. The Liberal Democrats cannot kick the habit of saying one thing and doing another.

[Mr Byrne]

Yes, and the electorate will hold the Chief Secretary to account at the next election.

[Mr Redwood]

Can the right hon. Gentleman explain why putting VAT up by 2.5% before the recession was scarcely over, as the Labour party did in government, was a good idea and did not destabilise the recovery, but putting it up another 2.5% to pay all the previous Government’s bills, which Labour still will not tell us how it would pay for, is a bad idea?

--- Later in debate ---

[Helen Jones]

I am extremely confused and rather surprised that, although the Chancellor said that he would make sure that nothing was hidden in the small print and that he would show us all the figures, he declines to publish the Treasury’s own forecasts.

[Mr Redwood]

Will the hon. Lady give way on that point?

[Helen Jones]

I want to finish my point first. We are talking about an attempt by the Government to switch lane by saying that what is happening is not a decision of the Government, nor the fault of the banks, which brought us into global economic meltdown because of their irresponsible lending and reliance on financial instruments that they did not understand. The Government’s treatment of the banks compared with their treatment of some of the poorest people is significant.

The Chancellor made great play of his levy on the banks, which will raise £2 billion a year, but the big five banks alone will gain £1.6 billion from the changes he set out to capital gains tax. No attempt has been made to rein in City bonuses—in fact, rather than coshing the banks over the head, he tickled them with a feather duster. So good was the news for the banks that their shares actually went up.

Compare that with the treatment that the Chancellor has meted out to industry. We hear much about the fall in capital gains tax, although the Government are legislating that for one year only. What we do not hear is that that is being paid for by cuts in investment allowances, which hit manufacturing the hardest. There we have it: those who want to invest for the long term and capital intensive industries that want to create jobs in the future will be hit. This is a Bill for industries that are less capital intensive but that are making vast profits—industries that, as the Institute for Fiscal Studies said, are “typified by the financial sector”. What we have here is simple: rewards for those wanting to make a fast buck and a hit for those who are interested in long-term investment. It is the Del Boy Bill—it could have been written by Trotter’s Independent Trading. I am only sorry that Rodney has disappeared from the Dispatch Box.

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

I remind the House that in the Register of Members’ Financial Interests I have declared that I offer business advice to an industrial and an investment company.

In this debate, the Labour Treasury spokesman wanted to talk the economy into a double dip. He was trying to create a mood of gloom and doom. He rejected the independent forecasts provided in conjunction with the Budget and the many independent forecasts put together by people outside the House, and sometimes outside the country, which all say that a recovery is expected for the British economy over the next five years and that that recovery will be led by investments and exports.

Obviously, the scepticism among those on the Opposition Benches arises because Labour Members have not understood one fundamental thing. The economy was so badly damaged and devastated by what happened in 2008-09 that it can indeed, I am pleased to tell the House, have a recovery based on higher exports, higher manufacturing output and higher service sector output—because the outputs were so badly hit in ’08-’09. That does not mean that we will go into a new utopia or suddenly into overdrive with superbly high growth rates; it means that we will start recovering from a disastrous banking crisis and recession, which some of us felt were made far worse by the policies and antics of the Labour party when it was in office.

To try to buttress its double-dip case, the Labour party is now saying that the true Treasury forecast says that, far from there being a drop in unemployment, there will be 1.3 million job losses and that somehow my right hon. and hon. Friends at the Treasury are trying to conceal that. As I understand it, the leak to The Guardian was misjudged because it was a working paper with lots of errors in it. The proper expression of Treasury opinion was passed to the Office for Budget Responsibility, which is manned by people of independent judgment who could ask the Treasury for all the details that they wanted about its workings, and could use the Treasury’s own models. They came to the perfectly sensible conclusion, shared by most other forecasters, that there will be nothing like that degree of job loss and that unemployment will indeed fall over the period of the forecast.

[Kelvin Hopkins]

The right hon. Gentleman has paid a glowing tribute to the Treasury. Was it not the Treasury that advised the 1979 Conservative Government, who drove us into a massive recession, with 3 million unemployed? Was it not the Treasury that advised the then Conservative Government to go into the exchange rate mechanism and cause 2 million to be unemployed? Did not the Treasury get things wrong time and again? Is the right hon. Gentleman not praying in aid an organisation that has demonstrated its failure over and over again?

[Mr Redwood]

The hon. Gentleman is making my case for me; I am saying that the 1.3 million forecast figure was an error, and that it will be seen as such. He rightly says that the Treasury can make mistakes. On this occasion, we are pleased to say that an independent judge outside is reviewing all the facts and figures and the working papers and coming up with a forecast that reflects the views of many more people outside the Treasury.

[Owen Smith]

Given the right hon. Gentleman’s admission that the OBR’s forecast on job losses may be wrong—[Interruption.] Well, if he was not implying that, that is what I took him to be implying. Irrespective of that, I want to ask about the OBR forecast’s and the leaked Treasury document’s anticipation of increases in private sector jobs over the next five years. Given the right hon. Gentleman’s long experience of economic matters, will he comment on the plausibility of that suggestion, given that during no period in the past 40 years has that volume of private sector jobs been created, apart from in the early 1980s—and then only through the fiction of the privatisations.

--- Later in debate ---

[Mr Redwood]

The point that I have been making for the Labour party’s benefit is that I think it is possible to get a reasonable private sector-led recovery from here, because the private sector was so gravely damaged and battered, and the figures were so awful, in ’08-’09. We are talking about rates of change from a very low base, so it is quite possible for things to get going.

[Clive Efford]

rose—

[Grahame M. Morris (Easington) (Lab)]

rose—

[Mr Redwood]

I should like to finish my point.

At the moment, there are worries, reflected in the comments made by the shadow Chief Secretary to the Treasury, that the clouds may be gathering again in the international community, and we need to watch that. I suggest to those on the Treasury Bench that we need to do more work on ensuring that our banks are capable of lending in sufficient quantities so that all the private sector projects we need and all the private capital we need for the public projects as well can go forward as rapidly as possible.

We can encourage that to happen in many ways. An important part of the policy is that when we get some control over public spending and the public deficit, to instil confidence in the markets, we use those markets for a well financed private sector-led recovery, so that we can surprise on the upside in comparison with the fairly cautious figures given by the OBR. I am certainly not challenging the OBR figures, which are the best available at the moment. I would like to think that we could improve on them over the five years. If we do more about how the banks work and are regulated, so that we can accept that they have enough cash and capital for this stage of the cycle, and if we allow them to get on with the job of lending more money to businesses and worthwhile public projects, we can make progress.

We can also make a lot more progress in the public sector in respect of the public spending plans published in the Budget. Those public sector spending plans show public spending going up every year in cash terms over the five years to which the Finance Bill relates and is trying to finance. The increases are not very big, so if there were lots of wage increases and a lot of price inflation for the things bought by the public sector, and if there were the explosion in benefit claims that Labour is wrongly forecasting, there would of course be a big squeeze on much valued public services. We Government Members do not wish to see that any more than Labour Members do, and I wish that they would not keep pretending that somehow we want to cut the services, because we do not.

[Grahame M. Morris]

Two simple decisions arose from the Budget: the new £464 million hospital north of the Tees and the £500 million Building Schools for the Future projects in County Durham were cancelled. All would have been built by the private sector. How will those cancellations assist the growth in the private sector, particularly in respect of jobs in my constituency?

[Mr Redwood]

As the hon. Gentleman should be aware, the outgoing Government’s capital spending plans have not been changed by this Government. We have to accept the previous Government’s plans for a modest increase in the capital stock of the state over a period of great stress in the budgets. But the cancellation of the Building Schools for the Future programme and its replacement with a programme that gives better value for money is exactly what we want. The trouble with Building Schools for the Future was that there were three years of delay and £10 million of consultancy costs before bricks and mortar or steel and glass could even start to be laid.

What my right hon. and hon. Friends rightly want to do is cut out all that nonsense, stop wasting all the money on the documentation, delays, consultancies and all the rest of it, and have a more straightforward approach, so that a bigger proportion of the inherited capital expenditure budget can be spent on bricks and mortar and bricklayers’ wages, as the hon. Gentleman wants.

[Owen Smith]

Is the right hon. Gentleman worried in any way by the remarks, made during the radio discussion that he took part in this morning, about the £50 billion of contracts that would be taken out of the construction industry as a result of the cancellation of the Building Schools for the Future programme? Will that not have a detrimental impact on the economy—specifically, on jobs in construction?

[Mr Redwood]

Once again, the hon. Gentleman is not listening. I was explaining that the coalition Government have made no change to the capital expenditure line that they inherited from the outgoing Government. What they will do is get more bang for the buck—to get more spending on construction, relative to the total investment line in the Budget. On the radio this morning, I was able to satisfy the other people in the discussion; the independent forecaster’s overall forecasts for the economy say that investment is going to rise. There will be an overall increase in investment because more homes will be built over the next five years than the pathetically low figure that was reached under Labour. There will be more investment in housing improvement, and more investment by the private sector. That more than offsets the decline in the investment programme in the public sector inherited from Labour.

[Mr Meacher]

The right hon. Gentleman’s fantasy that there will be a continuation of or an increase in capital investment is completely belied by the OBR forecast on page 90 of the Treasury Red Book, which shows that net investment will fall from £49 billion in the current year to £21 billion in 2014-15. That is a colossal drop.

[Mr Redwood]

Those are Labour’s figures for the public sector. I have just told the House that I am talking about total investment across the economy. Overall, the right hon. Gentleman will find in the Red Book that it is anticipated that the rises in investment elsewhere will more than offset Labour’s cuts in the capital programme, which we have decided to live with. I should also tell him that he is quoting the net line when he should be quoting the gross line. In other words, he is knocking off the depreciation, whereas we are interested in the total spend—the gross line, which is much higher than the figures that he has inadvertently, I think, given the House in error.

[Mr Meacher]

How can the right hon. Gentleman believe that private investment will remotely compensate for this enormous fall in public sector net investment, given that household consumption is falling, particularly with the increase in VAT, the banks are not lending, and export markets are fading because of the situation in the eurozone? Why should the private sector invest in those circumstances?

[Mr Redwood]

That is what I have been explaining to the right hon. Gentleman. We are in this position because everything has been so awful. The private sector has just been through a couple of years when it has invested practically nothing because companies could not get any money and were not making much profit. Now, profit margins are growing, there is a bit more money around and they are getting more confident for the future.

It would be much better if Labour Members got behind their voters and constituents, who want the jobs that we wish to see created, got behind the recovery that everybody else is forecasting, and started to live in the real world. They presided over the collapse. Throughout their years in office, manufacturing fell, whereas in the Tory years before that, manufacturing rose. We want to get manufacturing rising again. From that point of view, the one good thing that they did was to preside over a collapse in the value of the pound. They probably allowed it to collapse a bit too much, and it is beginning to rise again under the new Government. That gives those in manufacturing a huge opportunity to make better profit margins, to invest more money, and to produce more. That is exactly what they are beginning to do, and there will be a beneficial effect.

[Owen Smith]

In the light of what the right hon. Gentleman suggests about manufacturing, is he not worried when he sees the prediction in the Deloitte manufacturing index that over the next five years our manufacturing will decline, not grow, and that we will shift from our admittedly low position of 17th on that index to 20th?

[Mr Redwood]

A shift in the relative position predicted by someone else does not necessarily mean that manufacturing is going to decline. The figures in the official forecast, and I think in most sensible forecasts outside, show that manufacturing will recover from the very low base that it reached in 2009-10. That is what is needed, and we need to have policies that do just that.

[Mr Meacher]

rose—

[Mr Love]

rose—

[Mr Redwood]

I am going to conclude, because many people wish to participate in this debate. Labour Members may want to be here until 3 o’clock in the morning, but they never used to when they were in the dock and did not allow us the time to debate these things properly.

The Budget is a necessary evil to clear up the mess inherited from the previous Government. This is a necessary task to instil confidence and to avoid interest rates going through the roof. Labour Members should look at what has happened in Ireland. Ireland had extremely big cuts—bigger, I am pleased to say, than those in this Budget. In the last quarter, the Irish economy started to grow extremely well, which is exactly what Labour Members are predicting cannot happen if one starts to get control of public spending.

I urge the Government and the whole public sector to work strongly together to ensure that these modest increases in cash spending translate into maintained and improved public services, as they can if we take the right action over pay rates, efficiency levels, improved process, investment in technology and so forth. I hope that we will get the banks working better by creating a more competitive environment so that we can then have the investment we need in the private sector to fill the gap and create the jobs. This is a doable task and a feasible profile, and it is backed by the independent forecaster. We need to be very sure that we are going to pump everything into that task, because recovery is what we all want.

[Vernon Coaker (Gedling) (Lab)]

On a point of order, Mr Deputy Speaker. Has the Secretary of State for Education indicated to you any desire to come to this Chamber to explain the situation that has arisen? Following the points of order that were made by me and two of my hon. Friends, a further list of schools affected by the Building Schools for the Future cuts was published this afternoon. That third list reflects 22 errors from the first list, which means that a significant number of communities up and down the country have been affected by the chaotic statement about schools made yesterday by the Secretary of State. Are we to expect a fourth list, given that there are still some concerns that even the latest list may not be totally accurate? If not this evening, then tomorrow, we should expect the Secretary of State to come and explain what on earth is going on in respect of the cuts that are being made to a programme that is welcomed in communities up and down the country.

--- Later in debate ---

[Stewart Hosie (Dundee East) (SNP)]

I intend to finish my remarks by talking about the performance of the Chief Secretary, but I will start by commenting on what the shadow Chief Secretary said. He rightly pointed out that if the Government did not get the growth forecasts that they expected, the only option that they would have in meeting their deficit reduction targets would be to cut more. However, Labour’s policy to halve the deficit, again in a fixed time scale, suffered from precisely the same problem. If the growth forecasts of 3.25% for four of the next five years had not been met—indeed, if there had been a downturn—there would have been no room not only for a fiscal stimulus but, perhaps, for the use of the automatic stabilisers. The Government’s plans and Labour’s previous plans have that problem in common.

Let me start by commenting on the things that we agree with in this very thin Finance Bill. I am pleased that the Bill seeks to bring down corporation tax. The phased reduction in the headline rate will provide an incentive for businesses to locate in the UK, although I am not convinced that paying for this through the changes to investment and other capital allowances might not yet prove to be a problem for growing businesses. As the hon. Member for Warrington North (Helen Jones), who is not in her place, said, this may help businesses that are up and running, but not those that seek to grow. I am disappointed that she is not here, because if she were, I would have the opportunity to ask whether she now regrets the Labour Government’s abolition of the industrial buildings allowance—another key allowance to help industrial investment that went some time ago.

[Mr Redwood]

The hon. Gentleman and I made common cause against the previous Government for not adjusting for the cycle in their Budget plans. I believe that this Government have said that if things were to go wrong and we headed into another global recession, they would adjust the plans accordingly for the cycle.

[Stewart Hosie]

Indeed. It is worth making the point, though, that on paper there is a rigidity about this. I remain concerned that if growth forecasts, downrated sensibly, are not met, there will have to be these necessary adjustments.

I welcome the phased reduction in corporation tax, but question whether it makes sense to pay for it through changes to capital and other investment allowances. The Road Haulage Association has said:

“We are concerned about the reduction of the investment allowance for small firms to £25,000 from £50,000 which will have a detrimental impact on small haulage companies.”

That trade body probably speaks for many in its approach to the change to the annual investment allowance.

I am pleased by the way in which the Government have handled the capital gains tax changes, keeping the rate unchanged for basic rate payers to encourage and allow modest investment but increasing the rate for higher taxpayers. Closing the gap removes a perverse incentive to take income that could be taxed as capital rather than through income tax, but keeps a sufficient distance between the rates of income tax and capital gains tax to encourage real investment. That was handled quite well.

I have a question, though, about the rationale for the increase in insurance premium tax. I heard the explanation that it has previously mirrored the VAT rate, but there is no reason why that should still be the case. It will bring in some £2 billion in additional tax over the next five years, and I can only hope that that decision does not come back to haunt this Government in the way that the abolition of advanced corporation tax on pensions came back to haunt the Labour Government. The Conservative party in particular has made a great many criticisms about how that pension change was made and the impact that it had. Indeed, it was a smash-and-grab raid that the Chancellor described as “disastrous” in Accountancy Age last year. I hope that the insurance premium tax increase will not be described in that way in future.

Incidentally, in the same interview, on 6 October, the Chancellor also stated his aim to get the country saving again, which makes it even more difficult to explain the coalition Government’s intention to scrap the child trust funds. We have spoken about savings and savings ratios in the past, and the Red Book forecasts future ratios of just over 5%. However, that is about half the savings ratio that the Labour Government inherited and about the average through the whole of 2004 and 2005. It is not particularly ambitious, if the Government’s intention was to get the country saving again.

However, the real damage in this Finance Bill, as many Members have mentioned, is the determination to put up VAT. That directly contradicts the stated intention of both coalition parties to create a fairer society. Although it may well be the case that in cash terms the wealthiest will pay more VAT, it is clear that the poorest 10% will pay nearly three times higher a percentage of their disposable income than the richest 10%. That is all because of the wrong-headed view, to some extent shared by Labour, that deficit consolidation must be achieved quickly. That is based, I believe, on a flawed assessment of the Canadian model, rather than a credible one perhaps based on the New Zealand model, which certainly worked. The consequence of the VAT changes, at least according to Save the Children, is that the VAT bill for the poorest could rise to more than £31 a week.

Budget Resolutions and Economic Situation

John Redwood Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

It falls to me to respond just as everybody quite reasonably goes off for a bite to eat. I commiserate with the right hon. and learned Member for Camberwell and Peckham (Ms Harman) about having to respond to the Budget without a chance to absorb it, although I must say that that showed in some of the things she said. She made the best of a very weak hand, but a couple of points must be borne in mind. I shall say this as best I can without partisanship.

First, all three parties were committed at the last election to sharp cuts in spending. According to the Institute for Fiscal Studies, Labour was planning about £45 billion-worth of cuts, which, because of ring-fencing, would have had to fall on only four main areas: education, defence, transport and housing. To give people an idea of the scale, defence spending is only about £40 billion, so massive adjustments would have had to be made by Labour, but that did not seem to feature in anything the right hon. and learned Lady said.

A second point that needs to be made is that we went into the recession carrying a huge structural deficit. Again, the right hon. and learned Lady did not acknowledge that at all. That deficit developed as a result of over-ambitious spending over many years by the previous Government, particularly by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). It simply had to be tackled; it could not have been left unaddressed. It really is not correct to attribute most of the tightening we need now to the mistakes of banks, the global recession or, as she has suggested today, to coalition ideology. The overwhelming majority of people who have looked at this have concluded that we must take early action to curb the huge, burgeoning deficit.

[Mr John Redwood (Wokingham) (Con)]

Does my hon. Friend agree that it was a disgraceful performance by the acting leader of the Labour party to accept no responsibility for the disgraceful state of the public accounts, and to dare to say that we wanted to cut when Labour was going to have to cut?

--- Later in debate ---

[Malcolm Bruce]

I am grateful to my hon. Friend. Opposition Members and the wider audience looking at the Budget should examine it in detail and recognise the extent to which it is based on a much broader consensus and approach to consultation, while being radical across the piece and balanced. That is not easy to achieve, and I am prepared to admit that I had my doubts about whether the Chancellor of the Exchequer would be able to achieve it. I am pleasantly surprised by the extent to which he has been able to do so.

Indeed, there is little in the Budget to which I can fundamentally take exception. It is absolutely true that an increase in VAT is a painful decision—there is no question about that. It is difficult to understand how the Opposition could balance their books without any such tax increases. Although our proposals in the self-contained Liberal Democrat budget did not require an increase in VAT, we always said that if the financial situation required it, we would not rule it out. We never did rule it out, so those attacks that suggest that somehow this is a betrayal are not true. There was careful and guarded explanation of that position.

[Mr Redwood]

Has the right hon. Gentleman noticed that on page 45 of the Red Book the public spending figures make it quite clear that there is not a single year in which there is a cash cut in overall public spending? Public spending goes up every year in cash terms.

--- Later in debate ---

[Sammy Wilson]

The hon. Gentleman is leading me on to my second point, which is about fairness, but let me finish this point first.

I have described the two sides of the argument. It is a subjective assessment, because the report before us does not present any conclusive evidence to the effect that the financial markets are so nervous that we have to take such deep, draconian action at this stage. Neither is there an assurance that the reduction in the amount of money that is going into the economy as a result of public spending cuts will not have an impact on economic growth.

[Mr Redwood]

I think that we should try to talk about the Budget that was actually presented. The figure for total spending in 2009-10, the last year of the previous Government, was £669 billion, and the forecast total spending for the last year of this Government, if they run to five years, is £737 billion. That is an increase of about £77 billion over the period, so what is the hon. Gentleman talking about?

[Sammy Wilson]

The right hon. Gentleman quotes the figure for spending, not the figures for taxation or, indeed, those relating to bringing down the deficit. That money was borrowed to be pumped back into the economy, so the amount of money going into the economy will be substantially less.

This is a subjective assessment, because the report does not give us any clear picture of what the likely impact will be. At least we now have an independent body reporting on whether these measures will be effective, but only time will tell as to whether the risk that has been taken today will pay off and will balance the economy quickly.

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

I remind the House that, in the declaration of Members’ interests, I have revealed that I offer business advice to a global industrial company and an investment company.

In her response to my right hon. Friend the Chancellor’s Budget, the Leader of the Opposition gave one of the worst speeches I have ever heard in the House. It was intemperate and ill judged, and did not seem to be based at all on the Budget presented to us today. It is a great pity that she and her party still do not understand their culpability for the financial mess in which we find ourselves, show a little humility over the inheritance they have passed on—the worst financial and economic inheritance any Government have received since the second world war—and show a little willingness to work with us on getting out of this hole.

Many Labour Members, having been Ministers or ministerial advisers until just a few weeks ago, have a lot of information. They told us during the election, in general terms, that they would unleash substantial public spending cuts after the election, and it would be good to know from them where those cuts would have been made. They might be preferable to some of the ones we are thinking about, and it would be most useful if they would share them with us. If they are not prepared to share them with us or the country, the country is entitled to say, “These people got us into this mess, are totally unconstructive and still have not learned anything.” As other Members have said, it might be better if they got on with their leadership election, and let us get on with the serious task of debating the state of the country.

[Austin Mitchell (Great Grimsby) (Lab)]

If the public finances are in such a mess, why did the Conservative party want to adopt Labour’s spending targets in 2008, and did it oppose the huge amounts of money put into the banks to save the banking system, which was responsible for much of the borrowing?

[Mr Redwood]

I was clear throughout the previous Parliament that I thought Labour’s spending targets were unaffordable, and I said so in the economic policy review that I wrote for the Conservative party at the time. I was strongly opposed to the indiscriminate subsidies and moneys flung at the banks on a scale that defied belief and which I felt was totally unnecessary. I offered an alternative way of saving what needed saving in those banks, for the sake of the general economy and at a much lower cost, so I think that the hon. Gentleman has challenged the wrong person on that issue.

I pay tribute to my hon. Friend the Member for Dewsbury (Simon Reevell). He gave an elegant, traditional and classical maiden speech that bodes well for his representation of the people of Dewsbury. It was funny and detailed; showed a great love of the territory and people he now represents; and showed that he will be a campaigning politician. I also detected just a little conservatism in his attitudes, so I was entirely happy with it and wish him a long and successful stay with us in the House.

The Budget has been little understood by some of the people who have commented on it so far—perhaps that is not surprising because those who speak early do not necessarily manage to read the Red Book quickly enough. I praise my right hon. Friend the Chancellor for producing a Red Book half the length of the Labour Red Book—and, therefore, a lot cheaper and economical—but containing much more useful information. With a short read one can understand exactly what he is trying to do in the measures he is proposing, whereas I used to find it took more than a day to winnow out the truths from the great weight of paper that the previous Chancellors of the Exchequer used to present, because they were always trying to disguise the negatives and highlight and exaggerate the positives.

My right hon. Friend is right to say in his Budget that we can get out of this mess only with a strong and vigorous private sector-led recovery. We need to preside over the creation of a very large number of new private sector jobs, because we need to absorb many of the people languishing on benefits as a result of past policies—almost 6 million people of working age without a job, many of whom would like and need a job. We need to create a much more vibrant private sector that can take them into employment, so that the benefit costs come off the public accounts and those people can start to make a contribution through taxes.

We also need to create many more jobs because the 6 million people currently employed in the public sector are too many. I do not wish to see compulsory redundancies, but I am glad that my right hon. Friends in ministerial office are now imposing freezes on recruitment and allowing recruitment from outside only where it is really necessary. We need to reduce the number of people across the public sector, and I am pleased that we will be showing the way here as well, so that nobody can say that MPs are exempt from the process.

[Chris Leslie]

The right hon. Gentleman is talking about the number of people in public service employment. What sort of reduction does he feel would be acceptable? How many people should no longer be employed in the public sector?

[Mr Redwood]

That has to be judged case by case. I will not play the hon. Gentleman’s silly political game so that he can create a sensational press release immediately after I have given him a suitably large number, and I am not going to give him a suitably small number so that he can say it would not have the necessary impact. Suffice it to say that proper management could deliver more for less across many parts of the public sector, and we can do that without compulsory redundancies; we can do it by sensible management.

My first test for my right hon. Friend’s Budget is: how does it promote private sector-led recovery? I am pleased that he has said that he wishes to cut, through a steady process, the headline rate of corporation tax by rather more, I think, than under the plans when he was in opposition. The receipts pages—pages 40 and 41 of the Red Book—on “Budget policy decisions” show that he will be reducing the tax burden for most of business, and that not all of it will be given back in the form of reduced capital allowances in the way that Labour feared. However, if we add in the banks tax, the corporate sector as a whole will be making a bigger contribution. So the thrust of the Budget is that non-banking businesses will get a modest benefit from the changes and that overall business will have to help to pay for the large amounts of public spending still going on. However, a clear message will be sent to the outside world that we want lower taxes and that we believe in lower tax rates. The lower headline rate is the most beneficial thing that we can do to get people abroad interested in coming here with their companies, investments and new ventures, which is what we need.

I am pleased that the Chancellor has done more for small business. [Hon. Members: “Hear, hear!”] All the evidence shows that small businesses are not only politically popular with my colleagues, as we have just heard, but the main generators of new jobs during an economic recovery. They are more creative and need to take on more people. He has targeted them favourably with both the small business profits tax rate reduction and, for those outside London and the south-east, the generous national insurance reduction—as a Member for a south-east constituency, I would like him to extend that to the rest of the country as well, but I understand his argument that he wishes to concentrate the help on those parts of the country with the most unemployment and the biggest public sector problem.

Overall, the Budget judgment is not to ensure that 80% of the strain is taken by public spending reductions. The idea is that next year 57% of the strain is taken by public spending changes and 43% by tax increases. That is quite high on the tax increase side, which is a little worrying, but it reflects how my right hon. Friend is very reluctant to cut public spending in a damaging way and his understandable wish to get on with Budget deficit reduction.

[Tom Blenkinsop]

The right hon. Gentleman mentioned that he would like to see extra advantages for his constituents in the south-east. The Financial Times recently calculated that cuts to benefits and key Departments will have twice the detrimental impact on family incomes in Middlesbrough South and East Cleveland and other constituencies in the north-east as they will in the home counties. Given that, how can the Government talk about us all sharing the burden, and about all of us being in this together?

[Mr Redwood]

I was coming on to talk about the impact on incomes. The Red Book is quite explicit about that, and has some very helpful tables. I suggest that the hon. Gentleman gets a copy for his greater interests, as those tables make it very clear that the more one earns, the bigger will be the negative impact on earnings. As the Chancellor himself said, in that sense this is a very progressive Budget: he has shielded people on low incomes from part of the impact, and made those on higher incomes carry more of it. Although the hon. Gentleman represents a place with more people on lower incomes, they will be relatively protected.

[Mr Nigel Dodds (Belfast North) (DUP)]

The right hon. Gentleman listed a number of measures that the Chancellor is taking to promote the private sector. I am sure that he will agree that one of the most welcome proposals is to reduce the volume and complexity of regulation. However, does he accept—I am sure that he will—that a lot of regulations come from the EU? How can we grapple with the extent and complexity of regulation if a lot of it emanates from somewhere other than Whitehall?

[Mr Redwood]

The hon. Gentleman is right to say that we have much less power to reduce or improve regulation from Brussels than we do with what is homespun. However, so much crass and foolish regulation has been put on British businesses over the past decade by the home legislators—the then Labour Government—that we can get quite a long way by removing, amending or changing that. In the meantime, we need to summon up a bit of courage and tell those in Brussels that they, too, should join in the process, as that would benefit their businesses as much as ours.

I have often said in this House that, from the point of view of running a business, reducing regulatory cost is a good way of offering something that is just like a tax cut without reducing the public revenue. Indeed, it is even better: not only is there no revenue loss, but public sector costs can be reduced, as the enforcement and monitoring costs of needless or over-the-top regulation can themselves be reduced. That means that businesses get a cash flow benefit, and that there is a reduction in the costs of Government.

The previous Government regulated too many things, and they did so too much and too often. They often regulated in a way that made things worse rather than better. We often found ourselves opposing them, even though we did not disagree with their aims. Like them, we wanted people to have nice lives and decent jobs, and to be free from risk in the workplace and so forth, but we often found that the regulation that the former Government proposed was very expensive and did not achieve the required result.

A tick-box culture means that people get very good at ticking boxes and writing memos, but that they do not manage in the proper way. A factory can be made less safe if the process is merely bureaucratic. Instead, the notion that safety comes first, second and third must be inculcated in all the senior people in that factory. They must manage safety intuitively, as ensuring that a workplace is safe cannot be achieved by tick boxes, inspectors or regulators.

Safety must be inherent in every workplace, and what we can do is to set a tone by saying that it matters above all else. We can have laws at a high level on safety but we need not go into as much detail as the previous Government did. Their approach often made things worse, and much more expensive.

The most important table in the Red Book can be found on page 45. It is one that we must discuss and understand, as it sets out the expenditure patterns for the forthcoming period of Government. The information in the table will come as a pleasant surprise to many neutral people outside the House, although it may worry Labour Members, who seem to be in denial about it. The table shows that total expenditure in the last year of the Labour Government reached £669 billion, and that expenditure will rise steadily to £737 billion by 2014-15.

[Stewart Hosie]

The right hon. Gentleman is accusing Labour over this cash-terms expenditure increase, but I am sure that he will remember that the Chancellor explained early in his speech that ever-increasing debt repayment costs were included. I have no doubt that, for the sake of completeness, he will want to remind the House of the gross domestic product deflators of 3.2%, 2.1%, 2.1% and 2.6% over the next four years.

[Mr Redwood]

I was going on to say that we are talking about a big increase in cash. If all of us in the public sector can get better at managing that cash, we should be able to do a good job for people because the amount of spending is going up.

What could go wrong? Well, the hon. Gentleman has mentioned two things that could go wrong. If public sector inflation is as high as, or higher than, forecast general inflation, that will eat away at the value of the money that we are spending and make it more difficult to sustain good public services. However, Ministers tell us that they will be very tough on wage increases. That will help, as it will share the work and mean that we can keep more people doing more worthwhile things for our constituents, without all the money being eaten away by wage increases.

After all, that is what the private sector had to experience for two or three years, during the worst of the recession. In that regard, I pay tribute to the many work forces and unions in this country that did not merely accept that there would be no pay increases; instead, they often accepted pay reductions and very tough work-sharing schemes. They did so because they understood how dire the position of their industries and companies were, and they helped their managements to see their companies through.

We do not have to go that far in the public sector, but there is something that we need to tell all our public sector employees, and I think that this is a task for Opposition MPs as well as Government MPs. We need to say, “Things will be less painful and better for all of us if we can keep costs down and wages and salaries under control. More jobs will be preserved and a better service delivered to the people whom we serve, because more of that cash increase is going to go into helpful spending.”

As the hon. Gentleman says, the rising interest charges are also a worry, albeit one that makes the coalition Government’s case rather well. If we do not tackle the rising deficit now, more and more of the money will go on paying interest bills for past spending, rather than being available for paying teachers’ or nurses’ wages, which is what we would rather be doing with it. His point therefore makes the case strongly that the more action that is taken at the beginning, the better, because then more of the quite large sums of extra money that will be available will go on buying real improvements or maintaining a decent quality of public service, instead of going on the rising interest bill.

The Government have had just one piece of good fortune with their rather bleak inheritance, as well as quite a lot of bad news from outside the United Kingdom. The one piece of good fortune is that over the weekend the Chinese Government announced that they were going to allow their currency to start to move upwards against the dollar. We have had quite a long period of the yuan/renminbi being pegged to the dollar. That has meant that China has been super-competitive. China works hard, she is developing much better technology and she produces good products. With the managed exchange rate that we were experiencing, with the pound sticking around with the dollar in recent months, we discovered that China was getting more and more competitive. Indeed, there has been another huge surge in Chinese exports in recent months.

Let us hope that the Chinese will now allow their crawling peg to crawl up quite a bit. The last time they had a crawling peg, it started a bit slowly, but then there was a 20% revaluation of the currency, which was quite helpful. We need all the help that we can get, because Britain has to export more and earn more money in overseas markets. The world’s No. 1 colossus—the dominant, most competitive exporter—is China, and any currency revaluation would be helpful. We still have to work hard—we have to get smarter and control our costs—but that revaluation might take some of the pressure off.

However, the bad news is that the European market is getting worse. We had hoped that European countries would have a normal, cyclical recovery, such as that which the United States is enjoying. However, it now looks as if their recovery will be slow, with quite a number of countries going backwards this year and early next year, because of their deficit problems and difficulties with the euro. Indeed, those countries’ economies might continue to fall or start to fall again. That is difficult for Britain, because euroland is an important marketplace for our physical goods—it is not nearly so important for services or inward and outward investment, but it is important for physical goods. It is therefore in our interests that euroland starts to mend itself as soon as possible. I therefore hope that the Chancellor will continue his negotiations and work with his European partners, because it is important that we allow them to take the actions that they need to take to start mending the euro.

The euro is a single currency in search of a single country, and that has been its tragedy ever since it was first created. Those of us who warned that we could not have a single currency without a single economy, a single budget and a single Government were told that we were quite wrong and that we had misunderstood things. Apparently all that history that we had read was a waste of time. However, all the history of currency unions that I have ever read shows that they work only if there is control of the borrowing and spending levels through a central power, which is what we are now told our friends and colleagues in euroland are learning. They have discovered that they cannot allow Ireland, Greece, Portugal and Spain to free-ride at the expense of the rather more prudent core. Those in euroland are learning that, if they allow those countries to borrow and borrow at the lower common interest rate that Germany has granted them, there comes a point when the markets no longer believe in those countries and they start to blow their debt markets apart.

[Sammy Wilson]

Is the right hon. Gentleman not a bit concerned that the Government now accept that the European Union perhaps has the right to scrutinise the budgets of euro countries before those budgets are implemented? Does he not believe that that could be the thin end of the wedge, and that such scrutiny might eventually extend to all members of the European Union?

[Mr Redwood]

I am very strongly of the view that countries have to do that, and more, in euroland. As Members might guess, I am passionately of the view that that has nothing to do with Britain. The deal I want my right hon. Friends to offer our European partners is that we will accept more or less any kind of treaty change to give them proper control over the budgets of euroland as long as we get some powers back and it is made very clear that we are not part of this new machine to try to create an economic Government of Europe.

There need to be changes. The system is not at all stable, and I do not think that the much advertised trillion dollar package of loans and guarantees, and possible facilities, is necessarily going to see all these countries through the future threats to their stability. Given the rather damaged states of their private sector economies in many cases, there is a danger that, if all they do in response to the financial market pressures is to cut public spending to try to get their borrowing down, they will not succeed. If they are cutting their public spending, but there is no growth coming through in the private sector to take up the slack, or if they are cutting their public spending while their tax revenues are falling, the gloomy pundits will be right and the medicine will not work. Just cutting expenditure does not create a strong economy.

It is important to cut spending sufficiently to allow the private sector to grow and it is important to cut spending sufficiently so that the deficit does not get out of control and produce too much pressure on interest rates, but that needs to be done against the background of the beginning of a recovery—as we have in the United Kingdom. For a country in turmoil with a deeply damaged economy, as some of the southern states seem to have, simply cutting expenditure might make the problem worse, not better, without taking other action to try to get the economy’s private sector going.

The proof of the Budget will be in what happens to the private sector recovery over the next year or so. I hope that the Office for Budget Responsibility will turn out to have been too gloomy. It says that the impact of the Budget in the first two years will be to lower the growth rate slightly; it says the growth rate will be better in the following years when the full benefits of deficit reduction and private enterprise promotion kick in.

It need not be like that; we could do better than that. If the Chancellor wishes to do better than that, as I trust he does, he needs to turn his attention urgently to the state of the British banking industry and the capability of British banks to finance the private sector-led recovery that we clearly need. I do not believe that the current regulators of the British banks have got it right, and although I fully support centralising the regulation of money markets and banks in the Bank of England—I advocated it myself and I am happy that that is going to be done—that in itself is not enough. That is a structural change, but what we also need is an attitude change.

The sad truth of life is that we have just lived through the worst five years I have ever seen in terms of mismanagement of money and banking in this country. Labour Members will want to blame just the private sector banks, and I agree that some directors of those banks got it horribly wrong and they deserve to be dealt with in the appropriate way by their shareholders and by others. However, I hope that sensible Opposition Members would agree with me that it does not speak well of the monetary control system and the regulatory system that that happened. Why do we have financial regulators? We have them to stop that kind of thing happening. They are meant to stop runs on banks, even if banks have directors who are likely to produce a run. They are meant to stop systemic collapse, even if directors get a bit carried away.

[Mr Binley]

Is it not right to point out to the Opposition that the then Chancellor of the Exchequer, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), asked the Financial Services Authority to apply a light touch in order to sustain his myth that he had done away with bust? Is that not one of the reasons that Labour Members should apologise?

[Mr Redwood]

If one interprets light touch as meaning regulating the wrong things, I would agree with my hon. Friend. There was a huge increase in the amount of regulation during the Labour years, as one would expect, as Labour Members believe in regulation, but I think that they have demonstrated that it does not work. Our old friend the box ticker is relevant. There were many more box tickers in the City at the end of the Labour period than at the beginning: lots of nice, neat forms were duly filed; and people got into trouble if they put the wrong figure in the wrong box, which was apparently a great crime.

Meanwhile, the regulators simply ignored the phenomenal explosion of the banks’ balance sheets. I do not mean just hedge funds or off-balance-sheet items; the actual balance sheets ballooned in a crazy and unreal way. As I recall, the main banks went from 20 times to 34 times leverage, and not once did the regulators ask, “What is going on here? Is this not a bit excessive?” Why did the banks have only 20 times leverage in Lady Thatcher’s day? She was not known for being too shy about promoting private sector recovery. Perhaps there was a reason why banks were only allowed to gear that much in those days, and perhaps we should think again about the degree of gearing.

We then lurched from that to the opposite position. At the depth of the recession the regulators said, “We have now decided that the banks must get rid of all this leverage. They must have huge amounts of cash and capital pumped into them so that they cannot lend anything to anyone.” That made the recession 10 times worse.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

My right hon. Friend has just made the very point that I was going to make. The regulators compounded their failure to regulate at a time when they should have reduced the lending of banks by, during the bust, doing the precise opposite, and compressing lending when the economy desperately needed the banks to lend more. That was a double whammy for the British economy, it was entirely due to the behaviour of the Labour party, and it has left a terrible economic legacy which the Chancellor today set out bravely to put right.

[Mr Redwood]

I think that we now need to be positive, and I want to try to engage the Labour party in the process. I understand that the hon. Member for Leeds West (Rachel Reeves) used to work at the Bank of England, and we may have learnt from her speech why it is a good thing that her advice is no longer available to the Bank; I do not think that she would have helped to get us out of the mess. From now on, however, we need to ask ourselves what we should do about banking regulations, because I do not believe that the current system is right. It is all very well for us to say that it was wrong under the previous Government, as it clearly was, but it is our duty now to try to ensure that we do a better job. Unless we change the system, it will not be much better under the present Government.

I believe, and I think Treasury Ministers believe, that we should now have counter-cyclical rather than pro-cyclical regulation. What does that mean? It means that when times are tough and we are in recession, we should allow banks to lend more money on easier terms, and when times are really good—as in 2006-07—we should rein in the banks and say, “You cannot go on lending like this.” In the immortal words of the Governor of the Bank of England, we should remove the punchbowl before the party has everyone blind drunk. It is a pity that we did not do that in 2007.

Some of my critics say to me, “That is all very well, but how do we know where we are in the cycle?” We can never be sure where we are in the cycle, but I should have thought that it was fairly easy at the moment to agree that we are somewhere near the bottom of it. Heaven help us if this is not the bottom of it. I do not believe that all the figures in the Red Book about growth from this point are wrong, and I do not believe that all the independent forecasters are wrong. I think it quite likely that there will be some growth, but not as much as I would like and not as much as we will need.

The main reason that there will not be enough growth is that we do not have easy enough money for the private sector to refuel the recovery. The overall money supply figures are pretty dire, and we should bear in mind how much of the money is circulated around the system from the Bank of England to the Treasury to the spending Departments. Labour left a perfectly good money machine to put relatively low-cost money into the public sector, but at the cost of the private sector, which—particularly small and medium-sized enterprises—is still shivering in a world in which there is not enough sensible credit.

I do not want to stoke a new unsustainable boom, but there must be a judgment about whether the recovery is too fast or too slow, too hot or too cold. At present, it is most people’s judgment that in the private sector is too cold. It is not going quickly enough, and it is not easy enough. We need to make it easier for ordinary, run-of-the-mill entrepreneurs to succeed. It should not be necessary to be a complete genius who is prepared to take on all the odds in order to establish a company. We want people to be able to do that who have reasonable skills and do not want to have to fight the jungle all the time.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

I agree with my right hon. Friend. He has heard me speak passionately about start-ups, and I was pleased that my right hon. Friend the Chancellor provided some incentives for them today, but given the reality of where we are today in the economy, the recovery will be fuelled less by start-ups than by medium-sized businesses that are already exporting to countries such as China and Brazil, where our record is currently abysmal. We export more to Ireland than to those countries. It is those type of companies that have a more mature business that are not investing at present. They are not retrenching, but they are not investing. Banks need to send a message to them that there is money available to them to make that investment and to grow their business from medium to large.

[Mr Redwood]

I am grateful to my hon. Friend, and I agree exactly with what he said.

My conclusion on this is that to promote a proper recovery the Government need to have words with their financial regulators to say that at this stage of the cycle they should not be demanding more cash and capital from here. The banks are now perfectly solvent. They are perfectly liquid; they are lending huge sums of money to the Government, and that counts as liquid resources because they hold it in the form of Government bonds and Treasury bills. Job done, therefore, but by all means start to tighten things again in a year or two if we have a really good recovery going on and if credit is beginning to build up.

The economy is still anaemic, however; it is still short of credit. It does not have the oomph behind it that we need, and the answer lies in the banks. So my plea to the Chancellor is that in order to make his strategy successful he needs to do something about the way we approach banks, credit and money supply in this country.

The overall Budget strategy takes the risk of doing rather more by tax and rather less by public spending reductions than the Chancellor himself was suggesting when he first looked at this problem, but I wish it well. It is very important for all of us that it works. Every Member in this House wants their constituents to have more chance of a decent job, more chance of getting off benefit if they are unemployed, and more chance of keeping good-quality schools and hospitals.

We have seen what happens in extreme situations in countries that did not take their deficit seriously. They not only end up with a worse economy; they end up with much bigger slashes in public services because they literally run out of money. The previous Government very helpfully advised us that all the money had gone. We know where it went and who took it. The Red Book today gives a pathway to get back from that, so I hope that we will get behind it and try to make it work.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

It is an honour to represent Nottingham East, having had a few years out of Parliament from 2005. Although I would encourage Members to treat my contribution today as a maiden speech—following, perhaps, the conventions of treating me gently and with great respect—I suspect that might be twisting the rules on maidens a little bit. I do not know whether one can be a born-again maiden, but I will try to focus today on the measures in the Budget speech.

First, I would like to pay tribute to my predecessor, John Heppell, who served Nottingham East faithfully for 18 years, not only—and perhaps most infamously—as Parliamentary Private Secretary to John Prescott, but for several years in the Whips Office.

Nottingham East is truly a wonderful constituency, ranging all the way from St Ann’s, Sneinton, Mapperley, Sherwood and Carrington to Bakersfield and other parts of the core of Nottingham city, which has some of the poorest parts not only of the city, but of the country as a whole. It is because of my concern about the impact of the Budget on those in my constituency who are among the poorest in the country that I wanted to speak today to signal my deep reservations about the measures announced.

I particularly want to focus on the Chancellor’s taxation measures, but there is also the hidden part of the iceberg beneath the waterline: the 80% public spending reductions. That may harm my constituents most of all. We will not know the full ramifications until the spending review in the autumn, of course, but the Chancellor signalled that there could be a 25% reduction in those departmental expenditure limits that are not in the protected areas of health and international development. To take 25% so quickly out of some of the key budgets in the country such as education, transport, housing, police and counter-terrorism will affect key services, and there will undoubtedly be a major effect on our quality of life, in particular on the least well-off.

I want to challenge some of the Conservatives’ spin and assumptions. I understand where they are coming from. They had to set out the context as best they could to try to soften up the public before they wielded the axe, but I am not convinced that it has worked on this occasion. The notion that the condition that we are in is all the fault of the previous Labour Government is really stretching things too far. Even the right hon. Member for Wokingham (Mr Redwood), who is not at the wetter end of the Conservative party, had to acknowledge that the banks were the root cause of the credit crunch and that it was a global credit crunch that started in America and spread around the world. Yes, the regulators failed, but regulators failed worldwide. He might well be like Mystic Meg in his understanding of the sorts of problems likely to range from the regulation of derivatives all the way through to the gearing ratios that the banks pursued, but the truth is that the then Government had no choice but to take steps to save the banking industry, otherwise the cash machines would not have been working; Had he been in government, he would have done exactly the same thing. It is important to put that on the record.

[Mr Redwood]

The hon. Gentleman should really point out that Australia, China, India and Canada have had much better success at getting their banks and economies through without the kind of crisis that we have had.