Budget Resolutions and Economic Situation

Julian Huppert Excerpts

Wednesday 20th March 2013 Commons Chamber

[Mr Tyrie]

Yes. My hon. Friend did not mention fuel duty, which rather surprised me—[Interruption.] Oh, he did? I am terribly sorry, I thought he missed it out. I shall discuss energy in a moment, if I get a chance.

Let me say a few more words about the macro decisions before I move on to the supply side.

[Dr Julian Huppert (Cambridge) (LD)]

When I was leader of the opposition on Cambridgeshire county council we had an approach of presenting an alternative budget so that it could be scrutinised by the scrutiny committees and select committees. That approach is carried on by Councillor Kilian Bourke, the current leader. Does the hon. Gentleman agree that it would be helpful if there were an alternative Budget for him and his Committee to consider in order to check whether it all added up?

[Mr Tyrie]

If anybody wants to produce one, we will certainly take a look at it.

The Chancellor has not fundamentally altered the macro-economic stance in this Budget. The big shift in direction of Britain’s fiscal policy in response to the crisis came not from this Chancellor but from his predecessor. More than two thirds of the fiscal adjustment announced by the Chancellor in the 2010 Budget had already been signalled by the right hon. Member for Edinburgh South West (Mr Darling). In 2010, the OBR estimated that the economy would grow about 4% more than it has and the key question for the Chancellor has been how much policy should be altered to take account of that—what he should announce this afternoon and what adjustments he should make in response.

It is important to be clear that policy has already been altered a great deal, something that seems to be lost in the brouhaha in this place. Both the Government and the Bank of England have implemented massive policy changes to stimulate the economy. Fiscal policy has been loosened a great deal. The so-called automatic stabilisers—the falls in tax receipts and rises in public expenditure that come with lower growth—have been allowed to kick in. No one knows their full value, but I note that the Institute for Fiscal Studies used to think that they were worth about £100 billion and said yesterday that they were worth £140 billion. No one knows the full effects of QE—quantitative easing—either, but we know that since 2010 £175 billion of QE has been pumped in, bringing the total to £375 billion in all.

Both QE and automatic stabilisers are delivering colossal extra sums to the economy—they are massive policy changes—and the Chancellor has exercised great flexibility in response to the downturn. He does not always seem happy to acknowledge the fact that there has been that huge adjustment, so I thought I would put the points myself after his speech.

I want to say a few words about growth and the supply side, but before I do I want to refer to the greatest single blight on the prospects for the economy, which is the eurozone. Eurozone demand has remained very weak, as the Chancellor pointed out. There could not be a more vivid illustration of the eurozone’s capacity for self-harm than its chronic mishandling of the Cypriot financial crisis over the past few days. What on earth possessed policy makers to play with fire by doing the very things most likely to trigger a run on the banks? I just do not know, but it beggars belief. We cannot influence policy in the eurozone directly, but we can—and should—speak truth to incompetence. That is in Britain’s interest, as well as that of the eurozone, and I urge the Government to do that and ignore what will undoubtedly be bleatings from the Foreign Office asking them to desist.

On the supply side we cannot, of course, do much about the eurozone, but we can do something to improve the micro-economy. For nearly three years, the Treasury Committee has been calling for more coherent and tougher supply-side reforms. The Chancellor has had such an agenda for at least 18 months, but implementing it in a consistent way is proving difficult. The Chancellor has done what he can on tax reform and simplification—a big ask given the lack of fiscal room—and I pay tribute to him today because he has managed a substantial cut in corporation tax and its simplification in one go. That is both simplification and reduction, despite the lack of fiscal room.

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[Mr Redwood]

I am delighted that the hon. Lady has made her own case. She is the cause of the problem. She is pricing people out of the market. She is destroying jobs. She is the reason that people cannot heat their homes at a sensible price. She is the deliberate architect of dear and scarce energy, and now she presumes to lecture us and to say that if we generate more energy, it will be dearer and not cheaper. I suggest that she consult her constituents to find out how angry they are about the cost of heating their homes and their inability to get jobs in industry. She might also like to consult a reputable economist to find out what happens to prices when we produce more of something. I think she will discover that the price normally falls.

[Dr Huppert]

Will the right hon. Gentleman give way?

[Mr Redwood]

I am sorry; I have no more injury time left, and I have more to say. I am sure the Government will be delighted about that.

The Government need to look at the problem of electricity generation. I would like them to go to our partners in the European Union and say that there is no way in which we can close down all our coal-powered stations and still produce enough sensibly priced power in the near future, and that we need a stay of execution and longer transitional arrangements. I believe that the Germans are going to generate a lot more electricity from coal, and they seem to have found a way around the European regulations. I would urge my right hon. and hon. Friends on the Front Bench to do the same, because we need to keep our homes warm, keep the machinery of industry turning and keep the lights on in the offices and shops of this country. We are pricing ourselves out of our ability to do that. We are also running the risk of not having enough electricity, full stop, because of the delays and the problems that the previous Government had in coming up with an energy policy, and because of the present Government’s problems in trying to get an energy policy through, given all the European Union restrictions and complications that are placed in their way.

The most important thing that the Chancellor will need to do in the weeks ahead, in addition to the Budget, is ensure that the banks can now create sensible amounts of credit to power the recovery. This is not just about mortgages for homes, important though they are; it is also about loans for bigger items such as cars and domestic appliances. People need to be able to renew their stock of capital, or get their first capital items when setting up a new home, using finance that is available and affordable.

Above all, this is about ensuring that much better finance is available for stock, work in progress and capital equipment in our small and medium-sized enterprises. The banks say that there is no demand for loans from the SMEs—or, at least, no demand that they are not meeting. We all know that our constituents do not think that that is the case, and we have seen many cases that imply the opposite. Let us be charitable to the banks, however. I know that most of my colleagues here are not, but I wish to be, because I think that banking is an important source of export earnings and income. Many good people work in banks, and we need to support them as well. We need to understand that the banks are now charging so much and imposing such tough terms on loans—they are doing so because they are under a regulatory cosh to lend less and hold more capital, relative to the amount of their lending—that people are simply not bothering to ask their bank manager for a loan because they assume that none will be available. Also, businesses sometimes do not foresee increases in demand ahead and, wrongly, lack the confidence to go out and borrow money.

Of course it is not easy for the United Kingdom Government to rebuild confidence when we are part of the European Union and live close to the continent of Europe, and when we can see the spectacular crash that the EU is designing, thanks to the way in which it is mishandling its single currency and common banking arrangements. I can scarcely believe that we are meeting today against a background of part of the European Union having its banks closed for days on end and unable to carry out transactions to give the business life in Cyprus an air of normality or allow the people in Cyprus to withdraw their hard-earned money.

This is happening within the European Union because it has got its system of bank management wrong and it cannot decide who should pick up the bill when there is a crisis in one part of the eurozone. The Germans say that it is not their problem and they are not going to lend more money. They think that Cyprus ought to be taught a lesson. Cyprus says that it is under EU and eurozone control and that it built a big banking sector that now needs recapitalising. It requires money on a scale well beyond the ability of the Cyprus people to pay, so we have an impasse.

I shall give the House a flavour of the numbers involved. We have heard from a Minister in a recent statement that the proposed bank deposit tax represents 33% of Cypriot national output and income. In UK terms, that would be like saying that we had to impose a one-off levy of £500 billion on people’s bank accounts to put the position right. [Laughter.] Everyone here is laughing nervously. I do not think that many of us would be up for voting that kind of thing through, and I am not surprised that the Cypriot MPs did not vote their measure through.

We are now seeing a desperate idiocy in part of the European Union. Germany thinks that it can ring-fence the situation, and I hope it can, but if we are not careful, it will spread. That would undermine confidence in banking deposits in other parts of the eurozone and drive them deeper into recession. It would do more damage to our export market and, yes, there could even be a little collateral damage to our much better funded banks because of their relationships with EU banks. We need to be in there saying, “For goodness’ sake, sort it out and come up with a fair way of recapitalising those banks, so that the Cypriot people can to return to a normal economic life.” Meanwhile, our Government are right to say that we need to export more and more outside the European Union. With all this going on, and with a forecast of a deep and long recession on the continent, there will be no relief from the European markets through our exports.

Our banking resolution, which is making progress, needs to be speeded up. I urge the Chancellor of the Exchequer to revisit the issue of RBS. I do not believe that RBS is a natural unified bank. It is far too big, and it has far too many businesses in it. We should split it up, sell it on and make it more competitive. We need more competitive banks on the British high street that are capable of financing our recovery. We are trying to build the private sector-led recovery with weak, broken banks in the state sector and not enough banks outside in the private sector. We are also trying to do it under European regulation, which does enormous damage to banking and energy costs, and therefore to industry. Britain is partly free of that regulation, but please, Government, make it freer and get on with the task of creating the jobs and the growth that the British people rightly expect.

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[Stephen Williams (Bristol West) (LD)]

Liberal Democrats will look back on our record in government and on every Budget that the coalition Government have delivered, and will judge them according to our values and our principles. We will judge them according to whether we have, together, built a stronger economy and a fairer society that enables everyone to get on in life.

The Chancellor has recognised that building a stronger economy in today’s turbulent world conditions is an extraordinarily difficult thing to do. The Office for Budget Responsibility has said that our export markets have been suppressed, and that that alone accounts for suppressed rates of growth. It is right for us to recognise the extraordinary achievements of businesses in our economy in producing 1.25 million extra private sector jobs since the first quarter of 2010. However, it is also right for the Government to give businesses a helping hand to enable them to go that one step further.

The Liberal Democrats are delighted by the announcement in the Budget of a £2,000 employers’ national insurance credit which will enable every business to take on new employees. A business could take on four adults on the national minimum wage and see absolutely no increase in its employment costs. As a result of this measure, 450,000 small businesses will make no national insurance contributions whatsoever. That will provide a further boost for the recruitment of apprentices, in respect of which the Government already have an extraordinarily good record.

The Government need to do more to get growth in our economy going. Liberal Democrats both inside and outside Government have called for that growth to come from extra capital spending, which is why I am pleased that the Budget contains a further switch to finance more of it. It is worth noting that over the decade since the Government came to office, our capital expenditure will be higher than it was throughout the 13 years of the last Labour Government. However, most capital expenditure does not come from Government; it comes from the private sector and, in particular, from housing. For some time, many of us have been calling for a boost to be given to house building, especially the building of affordable homes, so that young people can get their foot on the housing ladder for the first time.

The Government announced two housing initiatives today. Under the Help to Buy scheme, which will start in just two weeks’ time, they will put a fifth of the equity in a new home on the table for those who can put down 5% themselves. There is also our mortgage guarantee to free up the mortgage market. There are planning permissions for various sites in all our constituencies, but, as we know, they have been frozen for some time. House builders have received the message that they have been waiting for, which will enable them to make a start on those sites, to give people new homes, and to provide new jobs throughout the land. However, growth needs to come from other sectors as well.

[Dr Huppert]

Has my hon. Friend seen a report about green growth which was published last year by the Confederation of British Industry? It said:

“The business response is definitive and emphatic: green is not just complementary to growth, but is a vital driver of it.”

The CBI said that green business could

“roughly halve the UK’s trade deficit”

by 2014-15. It also said:

“With a smarter approach, green business could add £20 billion to the UK economy by 2014-15. This is an opportunity we cannot afford to miss.”

I know that Liberal Democrat Ministers are pressing for such action. Will my hon. Friend encourage them to go further, and try to persuade the Chancellor of the business benefits of green growth?

[Stephen Williams]

I entirely agree with my hon. Friend. There is, perhaps, a tension in the coalition Government between the Chancellor and the Department for Energy and Climate Change, and, if we are honest, within the Department itself, when it comes to whether sustainable growth from green technologies is desirable. I emphatically believe that it is desirable, and I want investment in wind farms in particular to go ahead. We said at the time of the 2010 general election that we wanted to rebalance the economy, and green growth is certainly one of the things that we had in mind.

What I have in mind particularly at the moment, however, is a major industry in which Britain is a world leader, especially in the south-west of England, and its centre is in Bristol. I refer to the aerospace industry. The Government are working on industrial strategies for 11 critical sectors of the economy, so I was delighted when the Deputy Prime Minister came to Bristol on Monday and announced a £2.1 billion investment in an aerospace technology institute. I would say that the best place for that is, indeed, in Bristol.

We also need to introduce reforms to help local economic growth in all our city regions. I am pleased that the Government have accepted 81 of Lord Heseltine’s recommendations, and especially pleased that they have accepted the recommendation of a single growth fund bringing together investment in skills, housing and transport. The Liberal Democrats have long believed that our economy needs to be rebalanced, away from London and the south-east, and centred on city regions such as Leeds and Bristol.