Finance Bill

Kelvin Hopkins Excerpts

Tuesday 6th July 2010 Commons Chamber

[The Chief Secretary to the Treasury (Danny Alexander)]

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

The emergency Budget takes tough action at a critical time for the British economy. The Bill implements many of the necessary measures in the Budget. As my right hon. Friend the Chancellor of the Exchequer said in his statement:

“The coalition Government have inherited from their predecessors the largest budget deficit of any economy in Europe, with the single exception of Ireland. One pound in every four we spend is being borrowed.” —[Official Report, 22 June 2010; Vol. 512, c. 166.]

The gap stands at £149 billion for this financial year alone. Yet the previous Government left us with no credible plans to reduce their record deficit. Nothing at this time is more urgent for Britain than setting out a tough, realistic and fair plan that demonstrates how we will regain control of the public finances.

[Kelvin Hopkins (Luton North) (Lab)]

Would not a better plan be for the Government to try to collect some of the taxes that are not paid, rather than cutting the wages and jobs of people in the public sector?

[Danny Alexander]

I am grateful for that intervention. Of course the hon. Gentleman will know that the Bill includes some anti-avoidance measures, to which I will come in my speech. I trust, therefore, that he will welcome those measures.

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[Danny Alexander]

On the plans for HM Revenue and Customs, I am confident that the anti-avoidance measures are deliverable and can be expected to yield the amount that I described.

[Kelvin Hopkins]

Will the Chief Secretary give way?

[Danny Alexander]

No, I have given way nearly 30 times already.

Thirdly, the emergency Budget stands for freedom because it frees businesses to go for growth. A genuine and long-lasting economic recovery must have its foundations in the private sector. That is where jobs will come from, and we will do everything we can to support their creation. That is why the Budget sets out a plan to open Britain for business once more.

We will open Britain for business by creating a more competitive system of corporation tax, reducing the rate from 28% today to just 24% over four years. It will give us the lowest rate of corporation tax of any major western economy, and one of the most competitive rates in the G20.

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[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.

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[Stewart Hosie]

I think that was certainly a consequence of the actions that were taken, but the reason I say that the assessment was flawed is that Canada sat on the northern border of a booming American economy, and its recovery was export-driven. That was a sensible approach to take. I would love our economy to be export-driven as well, but given that the European Union is our biggest trading partner with more than 60% of our goods by volume going there, I cannot see how an export-driven recovery can be achieved to the extent that is hoped for. I would love it to be, but from looking at the numbers, I cannot see how it will happen.

[Kelvin Hopkins]

The hon. Gentleman mentioned deficit reduction. Does he recall that in the post-war era successive Governments, Labour and Conservative, maintained a policy of full employment, which saw a gigantic deficit way beyond anything that we are seeing at the moment being seriously reduced? Does he accept that full employment, not cutting spending, is the way to reduce deficit?

[Stewart Hosie]

I certainly agree that long-term, sustained and sustainable above-trend growth is the real answer, but that is not to minimise the problem of the deficit and the impact that it can have on market credibility and the cost of money. I am not one to say that we need deficit or debt at any cost; I am arguing for a credible deficit consolidation plan as opposed to a fixed-term plan that is inflexible and will not work.

The current situation has led to the VAT increase, and given that the poorest families may now pay more than £31 a week, I want to think about the impact on those families. Their unemployment benefits may be reduced in real terms, their tax credits cut and their housing benefit put under real pressure, particularly in areas where rented housing is expensive. That part of society will suffer most from the VAT rise. According to Shelter, nearly half of local housing allowance claimants are already making up a shortfall of almost £100 a month to meet their rent. Socially, a VAT increase for people who are that hard-pressed at the moment might be considered unforgivable.

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[Ms Eagle]

Thank you, Mr Deputy Speaker. I was just mentioning the speech by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East—I cannot pronounce the name of his constituency very well, but it is definitely in Scotland. He made a superb speech about the political nature of economics and the attempts that have been made to hide what are basically political choices by describing them as economic imperatives that are somehow objective. He exposed what he called superstitions and myths around that whole area and demolished a lot of the arguments that the Government have been making to justify the Budget judgment in the Finance Bill. In particular, he talked with great wisdom about the paradox of Government thrift, which he pointed out is completely unlike budgeting for households. I look forward to many more such contributions from him as the Bill goes through its stages on the Floor of the House.

My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) also made a good contribution, which I particularly welcome because I enjoyed canvassing with her during her election campaign. She is already well-loved, liked and respected in her constituency. She asked an important question that the House would do well to bear in mind as we consider the policies and legislation before us: where is the justice in the Budget measures, which will hit the poorest hardest? My hon. Friend the Member for Wansbeck (Ian Lavery) pointed out the perverse glee he perceived among Liberal Democrat and Conservative Members over the pain that will be inflicted through the Budget and this Bill. His speech demonstrated the human face of public sector workers, many of whom have found their reputations decried in the newspapers, and the jobs and the contribution that public sector workers make to our society belittled.

My hon. Friend the Member for Bishop Auckland (Helen Goodman) observed that the Budget judgments are very optimistic on jobs and, in particular, growth prospects, and she highlighted the impact on work incentives of some of the policies and Budget changes in the Red Book.

[Kelvin Hopkins]

My hon. Friend talks about the judgments and forecasts. I remember, some 20 years ago, the Tories’ favourite forecasting organisation was the London Business School, which The Sunday Times gave 0 out of 10 for its forecasts because they were always completely wrong. Does she think they are wrong on this occasion as well?

[Ms Eagle]

Time will tell, although there is not widespread acknowledgment in the economic profession that some of the Budget forecasts are right—there is controversy about them. This will play out, however, so we will be able to see who is right in due course.

My hon. Friend the Member for Luton South (Gavin Shuker) talked about the balance of risk in the Budget and the worries about problems with infrastructure investment, the fact that it is being cut in his constituency and the implications for employment incentives. My hon. Friend the Member for Brent North (Barry Gardiner), with his characteristic ingenuity, managed to bring Harry Potter into our Budget deliberations, pointing out that our choices define who we are. I thought there was going to be a fight between him and the right hon. Member for Uxbridge and South Ruislip (Mr Randall), who has, I suspect, enjoyed rather a liquid evening. He was dragged off before anything more untoward happened.

My hon. Friend the Member for Pontypridd (Owen Smith) pointed out the wrong-headedness of the crowding out of private sector investment theory that underlies some of the judgments encompassed in the Bill.

My hon. Friend the Member for Derby North (Chris Williamson) made an extremely good speech about the seriousness of the Budget choices and made a good argument that they are wrong in this case.

Today has been quite an interesting day because of what has been happening in the Office for Budget Responsibility as we have been debating the Finance Bill. As we were coming into this debate, it was suddenly announced that Sir Alan Budd, who has become the oracle in the past six weeks, had decided to retire and leave the OBR after a mere three months in charge. That startling piece of information was played down by the Treasury, as one would expect, but it did prevent the Chief Secretary to the Treasury from praying in aid at every verse-end the forecasts that the OBR has produced to justify some of the policy decisions in the Budget.

The official line is that it was all planned in advance—that Sir Alan was always going to be away after he had set up the OBR—and that, somehow, nothing untoward has happened. However, I would be interested to know whether the Minister responding to the debate tonight can cast any further light—in the interests of transparency, of course—on what on earth has been happening with the OBR and, in particular, with Sir Alan Budd.

[Ms Eagle]

These are issues to which I am sure we will return when the Bill establishing the OBR on a statutory basis comes before the House. However, following the farrago that we have seen, it is important that this House should establish the principle pretty quickly that the head of the OBR should be appointed by this House and be answerable to it. When the Bill establishing the OBR is published, I certainly hope that it contains that provision.

[Kelvin Hopkins]

I have a suggestion: might it not be a good idea to appoint Professor David Blanchflower as the head of the OBR?

[Ms Eagle]

My hon. Friend has certainly made an intriguing suggestion, but we have to establish that this House has the right to appoint the new head of the OBR before we can start speculating about who that might be.

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[Ms Eagle]

I am sure that the newly elected Chair of the Treasury Select Committee will make up his own mind about that, but it would be interesting to see whether Sir Alan would actually appear before any such inquiry, whether or not he were still in his job.

We have seen a steady unravelling of the central claims contained in the Budget since it was first unveiled to the House just 15 days ago, on 22 June. It was billed as the unavoidable Budget, and this is the legislation that has come from it. The Budget strategy and judgments were presented by the Chancellor and his spin merchants as infallible. The choice that he made was to cut the deficit further and faster, and that was offered as the only possible option. That is why these measures are before us today in the Bill, particularly the VAT increase. The neo-liberal economic ideologues who have seized control of our economic policy are in the grip of their narrow-minded dogma, and they will contemplate no alternative.

In truth, a highly risky political gamble is encompassed in this Bill—and it is a gamble with our social and economic well-being. The Government have made a political choice to eliminate the entire structural deficit by 2014-15—hence the revenue-raising measures in this Bill. This goes further and faster than even the Tory party promised in its election manifesto, and it is certainly against the explicit judgment on the dangers of cutting spending too soon, which was a prominent part of the Labour and Liberal Democrat manifestos. This worry about the macro-economic risks of targeting the deficit above every other consideration by speeding up its elimination is well represented in the mainstream economic debate, even if it has not featured at all in the Government’s calculations.

The Budget judgment before us tonight is not just pre-Keynesian; it is actually Hooverite. It is not an economic, but a political and ideological, imperative being pursued in this Finance Bill. This is not an unavoidable Budget, but a huge and risky gamble with the recovery. According to the Chancellor, the overriding problem for our economy now is how the bond markets might react to insufficient austerity.

The fact that the deficit hawks have taken over in the European Union and in the G20 does not make their addiction to synchronised fiscal pain any more desirable than it was in the 1930s. It does make it fashionable, but it still may not work. The fact that these huge cuts in demand will be synchronised also increases the dangers of this policy from a macro-economic point of view. There is increasing evidence that the markets are now beginning to worry about the prospects for growth and the likelihood of a return to low or no growth, Japanese-style.

This was also billed as the emergency Budget. It had to take place immediately after the general election, according to our increasingly melodramatic Chancellor, to avoid catastrophic disruption in the bond markets, threatening the very future of our nation. Nothing matters, it seems, except the deficit. Jobs do not matter and unemployment is a price worth paying. The risk to our social fabric does not matter; it can be dismissed as long as the deficit is eliminated.

We all agree that the deficit has to be tackled, and we had set out a path to cut it by 68% by the end of this Parliament. This was prudent and was far less risky to the recovery than the hazardous path that Government parties have now chosen. How odd it is, then, that the result of all the hype about the economic emergency is a very tiny Bill. We have before us an 11-clause Finance Bill; it is just 26 pages long, and nine of them are superfluous because they are reprinted virtually word for word from the VAT section of the Finance Bill 2009.

[Kelvin Hopkins]

My hon. Friend is absolutely right to warn against the dangers of deflation, which are much more worrying than anything to do with inflation. Is it not even more worrying that the EU nations have collectively decided to cut their deficits, which will just make the problem even worse? Should we not follow the advice of President Obama, who suggested that we still need the fiscal stimulus?

[Ms Eagle]

There is certainly a respectable mainstream economic argument that synchronised austerity is worse for growth and could achieve the opposite of its intended effects on the deficit by increasing rather than decreasing it. My hon. Friend is exactly right.

Here we have this tiny Bill of 11 clauses. After all the hysteria surrounding its creation, why is it that size? I think there is only one plausible explanation. The Bill before us contains just those measures that the Chancellor must be worrying that the Liberal Democrats will wobble on over the summer recess. I would be the first to admit that size is not everything, but we might reasonably have expected that a more complete set of measures would have been forthcoming if we really were in the emergency economic crisis about which the Chancellor has spent the last few weeks irresponsibly stoking up hysteria. Instead, we have a first instalment of the Finance Bill that has been especially designed to padlock the Liberal Democrats into the coalition so that they cannot get out and cause a mess over the summer. Looking at those on the Government Benches, I have to say that some of them seem to be more willing hostages than the others. The twitching has definitely begun somewhere over there, and we intend to encourage that as the Bill continues its passage through the House.

Other differences between the Government’s rhetoric and the grim reality have become clearer in recent days. We were promised a fair Budget: the Chancellor insisted that we would all be in this together. The Budget, we were told, would be progressive, not regressive, with tax rises evenly distributed among income groups. There would be progressive cuts. The pain of spending cuts would somehow be fairly spread, with the rich bearing their fair share as we all marched together towards the establishment of a zero deficit. One by one, those loud assertions have proved to be utterly false.

In an interview in the News of the World on 13 March, before the election, the Chancellor said:

“We are all in this together. I am not going to balance the budget on the backs of the poor”.

Then, on Budget day, he made great play of calculations about the effects of his measures which purported to show that he had delivered on that promise. On closer inspection, however, those assurances dissolved into empty Budget spin. [Interruption.]