European Union Fiscal Union

Kelvin Hopkins Excerpts

Wednesday 14th September 2011 Westminster Hall

[Kelvin Hopkins (Luton North) (Lab)]

On the Eurosceptic fringe, the fact is that, on many occasions when referendums have been held, the majority have voted in a Eurosceptic way, so it is possible that there is a Eurosceptic majority in the European Union.

[Mr Cash]

Opinion polls in this country have regularly indicated that 70% want a referendum and, moreover, would vote yes against the idea of the continuation of our present relationship with the European Union. People want renegotiation and if they do not get it, they want to leave. That is the position.

We are confronted with an incredibly serious situation that is getting worse. There will be a telephone conference this afternoon—it might already be in progress, at the very moment when we are debating this question—between Monsieur Sarkozy, Angela Merkel and Papandreou, because the system has failed. If, however, we raise the question of its failure, the response is, “We don’t want less Europe; we want more,” so they want more integration, not less.

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[Kelvin Hopkins (Luton North) (Lab)]

I am grateful to have an opportunity to speak in the debate and to support the hon. Member for Stone (Mr Cash) in his concerns about fiscal union.

The issue has been raised because the eurozone is in deep trouble and is starting seriously to fall apart. A fiscal union would mean that one had substantial redistribution between the wealthy parts and the poor parts of an area. That would be acceptable in a democratic member state with a meaningful polity, but the European Union is not one. I suspect the German people would have something to say about such a proposal, if it ever went ahead. As we have seen, the German representative on the European Central Bank has already resigned because he knows that such a proposal will cause serious problems for Germany and is completely unacceptable.

I have something of track record on this issue. Thirty-two years ago, I did not think I would be speaking in such a debate. At that time, I wrote a brief for the general secretary of the union I worked for—the National and Local Government Officers Association. Economic policy was one of my areas, and I wrote a brief urging him to suggest to the TUC that we should not join the European monetary system, or the snake, which was a forerunner of the exchange rate mechanism and the single currency. He took my brief to the TUC, banged the table and demanded that the TUC take that line, which it did. The TUC then went along to see Denis Healey and banged the table, and he did not join the snake. I do not say it was all down to my brief, but at least I was on the same side, and we got the right answer. Unfortunately we joined the exchange rate mechanism a little later, and that was a mistake, but I could see the direction of travel then, and that it would be a disaster for both democracy and economics.

My hon. Friend the Member for Blackley and Broughton (Graham Stringer), who is no longer in his place, raised the question of democracy. It must have certain features: not just votes, but votes for people who will have power—Governments and representatives who can make decisions on voters’ behalf, and make the votes meaningful. If the vote has no meaning at all—if it is just a declaration and power is held by other people—that is not a true democracy.

Another feature of democracy is the ability to change Governments, as we have just done. The change we made was not to my taste, but nevertheless that is democracy. The way to keep the far right, and extremists of all kinds, away is to have a meaningful democracy, in which Governments can be changed, and where they have power over the lives of the people they represent. If they have no power there is no point, which is when street politics takes over. We do not want street politics. The things that happened on the extreme right and left before the second world war made for a very unpleasant time, which led to the war. We do not want that to happen again.

[Mr MacShane]

Does my hon. Friend take comfort from the fact that the most dramatic rise of the far right has been in Sweden, while the most dramatic and horrible single incident associated with it was the terrible slaughter in Norway? There was also the anti-Muslim referendum in Switzerland on places of worship, sponsored by the hard-right nationalist SVP. Does my hon. Friend take comfort from all those countries either being outside the European Union or not using the euro?

[Kelvin Hopkins]

With the far right we need to look at each individual case; I think that in Norway it was just one lunatic—an obsessive. Of course the far right attracts people who I would suggest are not entirely sane. Nevertheless, the far right in general has not taken hold in post-war Europe because we have had meaningful democracies; but I think those meaningful democracies are starting to fade. Fiscal union would, again, mean democracy taking more of a back seat.

It is clear that the founding fathers and mothers of the European Union in the 1950s wanted a world in which electors did not have the power to change Governments; they wanted power safely in the hands of a stable body. That is why the Commission was set up—to make sure that we do not have distasteful changes of politics and Government. However, changes of Government mean that people believe in democracy and work for it. They know that they will have a chance of getting their party into power next time. I shall certainly work hard next time to make sure that our party comes back into power; and no doubt our Conservative and Liberal Democrat colleagues will do the same. That is why democracy means something: we know it matters because those elected have power, and because it is possible to change the Government. That cannot be done with the European Union.

We are in a European crisis. The hon. Member for Stone constantly refers to Europe, but I refer to the European Union. The European Union is not Europe: they are two concepts. Europe is a wonderful continent full of fabulous people and great culture, history, music, art, languages, and literature; but the European Union is a political construct imposed on some of the countries of Europe. I fully support the idea of a different kind of European Union—a loose association of democratic member states co-operating for mutual benefit. I do not support a bureaucratic and anti-democratic machine that controls our lives and makes our votes decreasingly meaningful at national level.

The polity over which a Government govern must also be meaningful. If national boundaries are dissolved, and other structures are imposed—especially if those are not democratically controlled—that is not democracy. The great thing about democracy is that it is accepted these days that it will govern a national state. I am an internationalist, but I think that internationalism is about good relations between states, not the abolition of states, national boundaries or national entities. We get on extremely well with other states around the world because we co-operate across national boundaries, but we do not want them to disappear completely. We have culture, language and history that unite us in particular polities. That is why Germany, for example, could unite its east and west and spend a vast amount of money rebuilding East Germany. It was accepted that it was part of Germany. I doubt whether it would have spent so much money rebuilding, say, Greece—because Greece is not part of Germany but a separate country.

I think that many people would be upset if the same kind of money that went into rebuilding East Germany went into helping Greece. Greece now has the opportunity to get out of the euro, recreate the drachma and devalue. Suddenly, Greece would become the cheapest place in Europe for people to holiday, and the tourist industry would take off like nobody’s business. Greece would recover, because that is what it will be good at. It is a beautiful place, where people go on holiday. That is the logic for Greece.

The problem, of course, is that banks—and particularly French banks—have lent vast sums of money to Greece, and will be in trouble if that happens. However, as was said in a good discussion on “Newsnight” last night, either the euro will collapse and there will be a crisis with many people losing their money, or we will deconstruct the euro in a progressive and managed way, and some banks will have problems. Then Governments will have to step in and no doubt recapitalise those banks, if they choose to keep them alive. That is a difficult choice, but the logic is for countries that cannot sustain membership of the eurozone to get out, recreate their own currencies and devalue.

Ireland’s major economic partner is Britain. The British isles is not a single economy, but we are close. The fact that we are not in the euro and have depreciated our currency substantially means that the poor Irish, who are stuck in the euro, are massively over-valued relative to Britain, and so have a trading problem with Britain. I have suggested to Irish friends that they should recreate the punt, depreciate and rejoin the sterling zone, which is where they belong, instead of remaining in the eurozone, where they do not. I have not had any positive answer to that suggestion, but that is the logic of where we should be going.

I could speak for much longer, but others want to speak and I have probably said enough for the time being. I support the hon. Member for Stone in arguing the strong case against fiscal union.

[Annette Brooke (in the Chair)]

After the next speech, by the hon. Member for Northampton South (Mr Binley), I would like to call the hon. Member for Witham (Priti Patel), and I know that there are others who want to speak. The winding-up speeches will begin at 3.40pm.

Global Economy

Kelvin Hopkins Excerpts

Thursday 11th August 2011 Commons Chamber

[Mr Speaker]

Order. I appeal to colleagues to ask single, short supplementary questions without preamble, so that we can maximise the number of contributors.

[Kelvin Hopkins (Luton North) (Lab)]

The frightening instability of the world economy has arisen since, and as a result of, the abandoning of the post-war arrangements decided at Bretton Woods, and the liberalisation and globalisation of finance capital. Part of that arrangement was that each country had its own currency and managed its own economy within international rules. Would it not be sensible to move back in that direction by establishing national currencies within the eurozone and starting again where we left off?

Finance Bill

Kelvin Hopkins Excerpts

Tuesday 28th June 2011 Commons Chamber

[Ian Swales]

Well, £4,000 extra VAT is obviously one way that they are contributing as a result of this Government’s policies.

The hon. Member for Nottingham East (Chris Leslie) said in the previous debate that the important focus of the tax and benefit system is on need and alleviation of poverty. I believe that VAT increases, which impact on the wealthy more than on the poor, are a good way of doing that.

[Kelvin Hopkins (Luton North) (Lab)]

The hon. Gentleman keeps referring to VAT as a progressive tax. It is a flat tax, proportionate all the way up the income scale. Progressive taxes have increasing rates at higher incomes.

[Ian Swales]

Technically, VAT is a progressive spending tax because the average rate paid increases the more one spends. That is the definition of a progressive tax.

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[Mr Hanson]

I suppose that is why the Federation of Master Builders only today—[Interruption.] Just for the record, on my uttering “Federation of Master Builders”, Conservative Members fell about with laughter, but the FMB’s members build houses and employ people in the construction industry. Only today—in a brief dated today—it stated:

“The situation for small construction firms has been made more perilous by the VAT increase at the start of the year,”

and that we risk

“11,400 construction job losses and 34,000 total potential job losses”

because of the VAT increase. The hon. Member for Bristol West (Stephen Williams) and his colleagues may recall that the OBR expects some 200,000 additional people to become unemployed this year. The lack of consumer confidence, the impact of VAT and the lack of consumer spending will be critical to those potential job losses in the community.

[Kelvin Hopkins]

The Tories have a track record on this. My right hon. Friend may recall that in 1979 they raised VAT from 8% to 15%, massively deflating the economy. Unemployment rose by 2 million and a fifth of manufacturing industry disappeared, and it was all down to that policy.

The Economy

Kelvin Hopkins Excerpts

Wednesday 22nd June 2011 Commons Chamber

[Ed Balls]

In a moment I will deal with the parallel with the United Kingdom. Let me say first, however, that the lesson of history shows that it is not possible to deal with a solvency crisis by providing liquidity package after liquidity package, because that does not reach the heart of the issue. On the contrary, it makes the position worse and worse. At some point people will have to face up to that. Package after package has been agreed, but that has not worked. The debt has not gone down; it has gone up.

History teaches us that three things are necessary to the credibility of a plan, whether it involves monetary policy or fiscal policy. First, the plan must be for the medium term; secondly, there must be political support for it; and thirdly, it must work. If it does not work, that will eventually rebound on political support, as we have seen in Greece in recent weeks.

[Kelvin Hopkins (Luton North) (Lab)]

I entirely agree with what my right hon. Friend has said about both Greece and the need for a plan, but if a plan is to be implemented the country concerned must have control of its exchange rates, interest rates and fiscal policy, and that is not possible inside the eurozone.

[Ed Balls]

Let me deal with precisely that point by returning to the subject of the United Kingdom. Notwithstanding what I consider to be a rather tawdry attempt to use what seems to be a political claim that a sovereign debt crisis exists here in the UK to give the Liberal Democrats an excuse to ditch everything in their manifesto and support a Conservative party policy, the fact is that the plan is not working here either.

The Chancellor likes to play this game. A few weeks ago, he told the “Politics Show” that if he “abandoned” his plan,

“Within minutes Britain would be in financial turmoil.”

As I have just said, the Greek Prime Minister’s experience shows that simply talking tough does not make someone credible and does not boost market confidence if the plan is not working.

The reason why there is now a question mark over the Chancellor’s credibility is that in recent weeks and months we have had an economy that has not been growing; fewer people in work and paying tax than there should be; and more people on benefits than there should be. That makes it harder to get the deficit down. We have had stagnant output for six months and we have forecasts being downgraded left, right and centre. This is not about bad news now and short-term pain. All that makes it harder to get the deficit down and undermines our long-term credibility, investment and confidence. As the former chief economist at the Cabinet Office, who is now head of the National Institute of Economic and Social Research, said:

“You do not gain credibility by sticking to a strategy that isn’t working.”

That is the situation we are now in.

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[Mr Osborne]

We all read those papers in The Daily Telegraph. They revealed that the shadow Chancellor knew before the then Chancellor of the Exchequer came to the House of Commons that the 10p tax rate that Labour Members all voted for would hit the poorest in our country.

[Kelvin Hopkins]

rose—

[Mr Osborne]

The hon. Gentleman may not have voted for it, but the rest of his colleagues did. That is the absolutely astonishing revelation from those papers.

[Kelvin Hopkins]

I hope the Chancellor will not describe me as a henchman. Writing yesterday, Lord Skidelsky said that taking £112 billion out of the economy in the next four years will be a massive fiscal contraction, and he described it as

“the royal road to stagnation, not recovery.”

What does the right hon. Gentleman have to say to Lord Skidelsky?

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[Kelvin Hopkins]

I am listening to my right hon. Friend with interest, and I agree with what he is saying. While the interest rate reduction has helped on this occasion, on the previous occasion under the exchange rate mechanism strategy the deflationary effects of high interest rates created 1 million extra unemployed, and that unemployment, certainly in my constituency, caused many people to hand over their keys and walk away from their mortgages.

[Mr Raynsford]

My hon. Friend makes an important point. These factors are all interrelated. The lower impact of unemployment in this latest recession, compared with those of the 1980s and the 1990s, is undoubtedly one of the factors that has contributed to its having less severe consequences.

A year ago, before the Chancellor presented his first Budget, we were seeing recovery in the housing market. New housing starts were beginning to rise and confidence was returning, and it was reasonable to expect that real growth would be sustained through 2010 and 2011. Instead, the market has stalled. Prices are static or slightly falling. There has been a continuing very low level of starts, and consumer confidence is at catastrophic levels. For only the third time in its 37-year history, the GfK NOP consumer confidence barometer has been below the -30% level. That is an indication of just how devastating is the lack of confidence in current market circumstances.

Why are we in this situation? In part, it is the consequence of the Chancellor’s overall economic strategy and the way in which he is managing the British economy and damaging confidence. The confidence issue is not unique to the housing market. It is a much wider issue, as everyone will recognise, although it has a devastating consequence for the housing market. The situation is also the consequence of maladroit policies being pursued by the Government. I would be interested to know how the Chancellor approaches the Localism Bill, which his colleagues from the Department for Communities and Local Government are taking through Parliament with the confident claim that it will devolve more and more control to local neighbourhoods to be able to say no to developments that they do not like. As we heard in his latest Budget, he wants the default position on housing and other planning applications to be yes, but I am afraid that the truth is that most of the communities who have been given the prospect of far greater control over planning decisions want the default position to be no. There is a fundamental tension between the growth aspirations that he talks about and the actions of this Government, which are in many ways damaging growth.

Eurozone (Contingency Plans)

Kelvin Hopkins Excerpts

Monday 20th June 2011 Commons Chamber

[Mr Hoban]

As ever, my hon. Friend, whom I congratulate on becoming a member of the Privy Council in the birthday honours list, speaks wise words. The Chancellor has been very clear that we do not wish to be part of a fiscal government for the European Union. That is why we have fought for the right package for economic governance, which safeguards the independence and sovereignty of this House when it comes to making fiscal decisions. My hon. Friend rightly reminds us why it was right never to join the euro.

[Kelvin Hopkins (Luton North) (Lab)]

Whatever happens in Greece this afternoon, and even if there is a fire sale of public assets to buy time, the fact is that the euro is moving inexorably towards its death throes. The realistic choice is between a controlled deconstruction of the euro and the restoration of national currencies, or a crash that would be catastrophic for everyone.

[Mr Hoban]

The hon. Gentleman once again reminds us how important stability in the eurozone is—the situation could have a significant impact on the UK economy, which is why it is important that the Greeks resolve their problems in conjunction with eurozone member states. However, let me make this quite clear again: we do not want to be part of that bail-out.

Oral Answers to Questions

Kelvin Hopkins Excerpts

Tuesday 10th May 2011 Commons Chamber

[Justine Greening]

I completely agree with my hon. Friend; he is absolutely right that manufacturing has a vital role to play. In fact, the total trade deficits narrowed in each of the past three months, and that recovery in exports has been driven largely by strong growth in the export of manufactured goods, which accounted for almost 50% of the UK’s total exports. That is not just good news for those businesses; it is good news for jobs, too. It shows that under this Government Britain is not just open for business in the UK; it is open for business abroad, too.

[Kelvin Hopkins (Luton North) (Lab)]

When the Government’s cuts really start to kick-in, unemployment will rise by hundreds of thousands, if not up to 1 million. That will result in lower tax revenues and higher benefit payments, and the deficit will get worse and public borrowing will increase. Is not the Government’s policy nonsense?

[Justine Greening]

The hon. Gentleman is giving a critique of his own party’s policy in many respects, because its proposed cuts are nearly as large as ours this year. The difference is that we have set up the Office for Budget Responsibility, and there is clear evidence that we will start to see employment growing year on year and unemployment falling year on year, so by the end of this Parliament we should see a net creation of almost 1 million jobs. Surely, the hon. Gentleman must welcome that? His party leaves unemployment higher when it leaves office.

Section 5 of the European Communities (Amendment) Act 1993

Kelvin Hopkins Excerpts

Wednesday 27th April 2011 Commons Chamber

[Kelvin Hopkins (Luton North) (Lab)]

The Minister talks about imbalances. We always talk about financial imbalances, but the real imbalances in the European Union are the massive imbalances in trade. Germany has looked after its manufacturing and we have neglected ours under several Governments over the past 30 years. We at least are able to depreciate our currency and to address that to an extent, but there has still been a complete failure by successive Governments to do anything to counter the collapse of manufacturing that began in 1979 when we lost a fifth of it following the election of a Conservative Government.

[Mr Hoban]

The hon. Gentleman makes an important point. Under the previous Government, we saw a further deterioration in manufacturing and an overreliance on the financial services sector, creating some of the imbalances that led to the deepest recession since the 1930s. Part of the challenge faced by the Government is how to tackle those imbalances and move to a more broadly based economy, and I shall touch on that later in my speech.

We must remember that sustainable economic growth across Europe is vital to the success of the British economy. Having the right warning mechanisms in place, underpinned by sound data, will help to identify future economic crises that could harm the UK economy. Even though we are not part of the single currency and will not be joining it in the lifetime of this Parliament, we cannot consign ourselves to be bystanders in the debate.

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[Chris Leslie]

I presume that the House has to agree the contents of the convergence programme before it can be posted to the European Commission. The hon. Member for Bury North (Mr Nuttall) implied that the Commission could probably glean all the information online, and there is a perfectly reasonable argument that the Commission should follow events in member state countries rather than expect these matters to be handed to it on a platter. I do not think that presenting the information is necessarily genuflecting in front of Brussels, but the obligation to do so is certainly a core component of the treaties. I simply point out that fact.

The point of the motion about which we need to be most wary is the noting “with approval” the Government’s assessment of the economy, particularly given the Chancellor’s and Treasury Ministers’ lamentable failure to understand the need for economic growth. Page 13 of the convergence programme, which was published just 24 hours ago, says that the recovery is in line with previous recoveries. That, of course, is not the case.

In the recessions of the early ’80s and ’90s the economy had clawed back economic strength by this stage in the economic cycle. However, since this Government took office, the trajectory of recovery has stalled. We are already seeing that the information in the document, published just 24 hours ago, is becoming out of date.

[Kelvin Hopkins]

Is it not rather regrettable that we should have chosen to acquiesce in the Government’s decision rather than call for a Division? I would be happy to vote against the document if we had the chance.

[Chris Leslie]

We have the opportunity to divide the House on this matter, although I think that it would be a deferred Division; obviously, that is a matter for Mr Speaker.

As we go through the details of the document, we see that there are problems in it. Page 17 says that the economy is forecast to grow by 1.7% in 2011—lower than the forecast in the June Budget. Is that forecast sustainable? The Government and the Office for Budget Responsibility revised down their forecasts for growth in June and revised down expectations in November. The OBR then revised down expectations for a third time after the March Budget.

The answer to the question that I asked the Minister earlier—what was the OBR’s prediction for the first quarter of this calendar year—is 0.8%. Yet today the Office for National Statistics gave a rather comatose and limp growth rate of 0.5%. That comes on the heels of a growth rate in the fourth quarter of 2010 of minus 0.5%. Essentially, there has been a zero rate of growth—flat-lining—over the past six months.

As Stephanie Flanders, the BBC’s economics editor, said, it is

“depressing to think that the economy is treading water…in a normal recovery we would expect to see a lot of momentum at this point”.

Chris Giles, economics editor at the Financial Times, said that for there to have been any credible claim to a return of underlying growth, this quarter’s figure should have been 0.7%. He went on:

“Add in one quarter of the growth expected in 2011—about another 0.5 per cent—and the figure necessary to show the economy growing at an average pace in the first quarter is at least 1.2 per cent.

Arguably, it should be even higher, at somewhere about 1.7 per cent, if the underlying stagnation in the fourth quarter of 2010 has been recovered in the first quarter of this year.”

We are a long way from that, and that is a serious problem. Yet the Chancellor seems to think that we are on the right track; as somebody said today, if he thinks that, he needs to chuck away his satnav and get a new one.

The GDP growth figure of 0.5% for the first three months of this year merely replaces the loss of output in the snowbound fourth quarter of 2010 and suggests that the economy has no underlying momentum at all. The chief statistician at the ONS said today that we had been “on a plateau” for the past six months. Tony Dolphin, the chief economist at the Institute for Public Policy Research, says that a 0.5% fall followed by a 0.5% bounce-back is equivalent to two successive quarters of zero growth—

“as close as it is possible to come to a recession without actually being in one”.

Yet the Prime Minister says that this is “good news”—those were his words as he trumpeted this resounding success at Prime Minister’s Questions today. Even the Minister said, a matter of minutes ago, that it is good progress. I am afraid to say, however, that the document we are being asked to approve is already out of date, even though it was published only 24 hours ago. It is a bit of dead parrot. It is no more, it has ceased to be, it has expired; it is an ex-convergence programme.

It is not good enough if the Minister cannot even produce a document when he gets advance notice of ONS growth statistics that matches the realities of the economy rather than the forecasting ideas that are dreamed up in the Treasury. That is a sign that the Government do not understand the importance of growth in our economy, especially when today’s statistics showed that construction has fallen back by 7% over the past six months, with total production already falling back even from the last quarter before Christmas. Government cuts have not yet started in earnest, and the VAT increase is already biting hard.

What are the prospects for business growth? On page 14 of the document, the Treasury says:

“Credit conditions have shown signs of stabilisation”.

That is certainly not the experience of small and medium-sized enterprises: lending to businesses is in an atrocious state. It goes on to say in paragraph 2.43:

“however, credit conditions for smaller firms remain tight”.

That is an exceptional understatement. The Bank of England’s lending report shows that lending to SMEs fell by a further 3% in February. That is echoed by the British Bankers Association’s growth rate statistics on lending to small businesses, which cited a figure of minus 6% in December. So much for the much-vaunted Project Merlin. Yet the mark-ups that small businesses have to pay for loans are widening, and the banks are charging small businesses even more even though less and less lending is available. We have a serious systemic problem with our economy. Underpinning the difficulties with growth are the factors that businesses need in order to fire up the economy, and they are going wrong.

We also have to look at the Government’s failure on employment. Page 84 of the convergence programme document says:

“In line with a weaker outlook for output growth, we expect employment to be lower than forecast in November.”

The OBR predicts that unemployment will go up by 200,000 as a result of the Government’s policies. If each unemployed person costs the Exchequer about £7,800 in welfare costs and lost taxes, that could represent a loss to the Exchequer of more than £1 billion—money that the Exchequer should have coming in that is going the wrong way. In addition, inflation is undermining Government spending plans, as the document admits in terms of VAT fuelling inflation, and it is forecast that borrowing and debt will be higher than predicted in June. As a consequence, the interest that we will need to pay on our borrowing will be higher because of the inflationary costs of social security expenditure.

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[Chris Leslie]

As the hon. Gentleman knows, the paradox of austerity and of an anti-growth strategy is that it costs more in the long run. I quite understand that many Government Members do not understand the causes of the deficit. It is therefore improbable that they are the right people to solve the deficit. If they understood its causes, perhaps I would accept their rationale on how to solve it, but they do not.

[Kelvin Hopkins]

I hope to help my hon. Friend a little. If one makes unemployment go up, fewer people pay taxes, more people depend on benefits and the deficit gets worse, not better. That is precisely what will happen.

[Chris Leslie]

That is precisely the point that we need to make this evening: an austerity approach that cuts too far and too fast will cost more in the long run. That is not just in terms of the lost generation of young people who are now on the dole—one in five young people are now unemployed—and not just in terms of the higher welfare costs, which will mean higher borrowing. The House of Commons Library told me today that if the past six months of the economy had emulated the first six months since the general election, the Exchequer would have received an additional £6 billion in revenues. However, because growth is flat-lining, the Treasury is recouping less revenue. The Chancellor will therefore have to add £6 billion to borrowing and the deficit will be higher as a consequence of low growth in the years ahead.

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[Kelvin Hopkins (Luton North) (Lab)]

I want to speak briefly on this document and to support my hon. Friend the Member for Nottingham East (Chris Leslie), who sits on the Opposition Front Bench. The Government’s economic policy will drive us into recession. The cuts have not really started yet, and when they do, unemployment will rise, and when unemployment rises, people will lose confidence and stop spending, and we will see a downward spiral into recession. I am convinced of that. I am not the only person saying it. As I have pointed out in the Chamber more than once, Paul Krugman, the Nobel prize-winning economist, has said that the Government are going in precisely the wrong direction. They should be trying to stimulate the economy through additional spending in labour-intensive areas, such as construction and the public sector—but that is the absolute opposite of what they are doing.

If we bring down unemployment, revenues will rise, benefit payments will reduce and the economy will grow, and that will reduce the deficit. I have used this example many times: after the second world war, under Conservative and Labour Governments, we had a gross debt two and a half times GDP—about four times what it is now—but we just maintained a policy of full employment, led by the magnificent Atlee Governments in 1945 and 1951. We had full employment, we created the national health service, living standards rose and we even ran a labour shortage such that people came from abroad to work here because the economy was growing so fast. We ran a growth economy led by public spending. That is what we should be doing now, but we are doing the absolute opposite. If other countries do the same, we will see the 1930s relived, but people have so much more to lose now it will be politically quite dangerous.

There is already a reaction in Europe to what is happening. In Finland, a Government have been elected who are baulking at the idea of bailing out some of the weaker members of the eurozone. I have no idea why we should be bailing out members of the eurozone. Ireland is a special case, because it is our nearest neighbour and effectively part of the sterling-zone economy, not the eurozone economy. We are its major trading partner and we have an exchange of population, so Ireland is a different case from the rest of the EU. For us to be bailing out other countries in the eurozone is complete and total nonsense. The sooner they leave the eurozone, recreate their own currencies and depreciate them, the sooner they will recover.

[Chris Heaton-Harris (Daventry) (Con)]

The hon. Gentleman puts a happy and cuddly aura around the old hard-left of the Labour party. Bearing in mind that for years we and other European countries have been reporting to the European Commission on these matters, does he think that the Commission has learned any lessons from the information it has been sent? If it has, why did it not try to help the economies of Greece, Ireland, Portugal, Italy and so on?

[Kelvin Hopkins]

I think that the hon. Gentleman and I agree on this point. It has learned absolutely nothing. To try to squeeze the life out of an economy that is already almost wrecked is nonsense. The Commission should allow those economies to grow, and they can grow only if they can recreate and depreciate their own currencies, and start to compete again. Ireland is in a terrible state because it chose—foolishly, I think—to join the euro. I have said to Irish politicians—in as friendly and comradely a way as possible—that they should recreate and depreciate the punt to something like the level of sterling, and rejoin the sterling zone, which is where Ireland belongs. Its economy would then start to recover. Without that, it will not recover.

[Martin Horwood]

I am just curious: who does the hon. Gentleman think would lend those Governments the money to finance that public spending, given their credit ratings at present?

[Kelvin Hopkins]

In the end Governments can print money if they wish to, but the idea that we can squeeze those economies into growth is complete nonsense. We could debate these matters at great length—I would be happy to do so on another occasion—but that is not what this debate is about. I want to focus on the Government’s economic policy, which I think is profoundly mistaken.

Another point in the document is the emphasis on fiscal neutrality. The Government do not seem to appreciate that fiscal neutrality can be achieved in various ways. If we cut public spending and taxation at the same time, that is, in a sense, fiscally neutral. If we raise public spending and taxation, that is also fiscally neutral. We can also achieve fiscal neutrality by raising taxes on the rich and reducing them on the poor. Fiscal neutrality can have all sorts of different effects. If we cut taxes on the rich and raise them on the less well-off, we will drive the economy into recession, because poor people will spend less money. The marginal propensity of the poor to consume is higher, so if we tax the rich and give more to the poor, they will spend. If we give pensioners a rise in their pensions, for example, they will spend more, but if we give a wealthy person a tax cut, they will not spend.

Those are marginal changes, but my general point is that fiscal neutrality can be achieved in various ways. In fact, it is nonsense to have fiscal neutrality when growth is flatlining. We ought to have an expansionary fiscal strategy, not a neutral fiscal strategy. I might add that this is my view, not necessarily the view of my hon. Friends on the Opposition Front Bench. They are perhaps more cautious than me, but in the end I would like to think that I and others will be proved right. We have to generate growth, but it will not happen if the Government continue to operate in the way that they are at the moment.

[Steve Baker (Wycombe) (Con)]

As the hon. Gentleman knows, I have great admiration for him on many subjects, but does he realise that when Keynes was suggesting those fiscal stimulus packages, the state accounted for only about a quarter of GDP, whereas now the figure is up to 45% and getting on for 50%? The capacity is just not there. I would suggest to the hon. Gentleman that even Keynes would be horrified at the notion of Governments spending more from present levels?

[Kelvin Hopkins]

The role of the state is much larger than it was even in Keynes’s day; therefore, the state has to generate more demand. The state has a bigger role in the economy—I think that is a good thing—but we cannot withdraw from the idea of managing economies in the way that we did after the second world war. Between 1945 and the 1970s, we had a world that actually worked. We had rising living standards and the highest rate of growth in our history. We had full employment, we developed a welfare state and the national health service, and we had free tuition at universities. Since then, the neo-liberals and the monetarists have got hold of economic policy again and we have gone back to something like the early 1930s, albeit with higher living standards, at the moment, but that could so easily be destroyed if the current mistakes continue to be made.

[Alec Shelbrooke]

I really do not understand the hon. Gentleman’s rose-tinted view of the 1960s and 1970s. In the 1960s we had to devalue, and by the 1970s inflation and wage inflation were huge, to the point where teachers were given a 25% pay rise in the mid-1970s that was worthless the following year. As for the Keynesian arguments, the new deal in 1930s America failed until the second world war came along and the country could manufacture and lend money to support the war effort. That is what created the recovery. Surely the hon. Gentleman is not suggesting that we need another war to sort out the economy.

[Kelvin Hopkins]

I would advise the hon. Gentleman to read an excellent book by J. K. Galbraith called “The World Economy Since the Wars”. He said that wartime investment in American manufacturing transformed the economy, which emerged as the strongest economy in the world.

We could go into those matters at great length; the point is that it is nonsense to try to deflate our way to growth, as has been said by a number of leading economists. Okay, so they happen to be Keynesians rather than monetarists, but do we want to go back to a world of high unemployment and greater inequality, or do we want to go forward to a world of full employment and greater equality? That is the choice. The Government’s proposed strategy, as set out in the document under discussion, will have a devastating effect on our economy and—they may not be prepared for this—will make them detested and massively unpopular. I remind them that, after the second world war, Labour took office with a massive majority as a result of the working people of Britain rejecting what had happened in the 1930s: the recession and the war. We are in danger of going in that direction again, and the end result would be the election of a Labour Government who would have to pick up the pieces of an economy that had been destroyed.

Even PricewaterhouseCoopers—not a noted left-wing organisation—has suggested that, for every job lost in the public sector, one would also be lost in the private sector, as opposed to the private sector picking up where the public sector left off. Much of the demand in the private sector comes from public sector spending and public investment. We have already seen construction levels falling, with the cancellation of many school building programmes. That will create unemployment in the private sector as well as the public sector, and it is conceivable that unemployment could rise by 1 million. If we had 1 million unemployed, in addition to the 2.5 million that we already have, we would be in very serious economic waters. It would be a terrible time, not just for young people but for the whole economy. We would see falling living standards, mass unemployment and a mass political reaction to what was happening.

I had a different view on this matter from those on my own Front Bench, particularly before the election, when I and a number of Labour comrades rejected the idea of cuts altogether. We believe that dealing with the deficit has to be done by generating growth. After the banking crisis, the Labour Government did exactly the right thing. They pushed demand into the economy by printing money, reducing interest rates almost to zero and recapitalising the banks, all of which had to be done. In fact, the Conservative Government, in their first six months, were living on the growth generated by Labour’s policies—[Interruption.] That is the reality. Now, Conservative policies are kicking in and we are starting to see the economy go down.

I could go on about this at greater length, but others want to speak and this is a short debate. I am happy to come back and talk about these issues time and again if hon. Members wish me to. Indeed, I am happy to discuss them in private as well as in public. I am convinced that the Government have got this wrong, and that Keynesian economists such as Krugman and Stiglitz have got it right. We need to generate growth through public spending and public investment; we do not need to cut.

--- Later in debate ---

[Mr Nuttall]

My hon. Friend is absolutely right. As everyone knows, printing money invariably leads to inflation. I am sure that that would be the case if we continued to print money today.

I want to address the issue of our dealings with Europe, but first let us consider our net borrowing figures. According to forecasts from the House of Commons Library produced just a few days ago—on 21 April—even if we take into account all the measures that the Treasury are taking, we will borrow £122 billion in the current financial year and £101 billion next year. We are not paying back our debts; we are simply reducing the scale of the debt.

[Kelvin Hopkins]

I could raise a number of issues, but one in particular is that the Treasury is now predicting that the deficit at the end of this Parliament will be £11 billion higher than it thought a few months ago, simply because it expects the economy to grow less.

Finance (No. 3) Bill

Kelvin Hopkins Excerpts

Tuesday 26th April 2011 Commons Chamber

[Danny Alexander]

The hon. Gentleman makes a very good point. He will perhaps know that the Economic Secretary, having taken this measure forward, is making that case for greater flexibility at a European level. As this country has taken a lead on having greater flexibility in beer duties, we are in a stronger position to argue this case. Similarly, as this country has taken the lead on deficit reduction, we are in a stronger position to argue the case that we must argue at a European level, which is that further increases in the EU budget are unacceptable. So in a number of ways the actions this Government have taken put us in a position to make strong cases at European level.

[Kelvin Hopkins (Luton North) (Lab)]

Are the Government not just tinkering with the alcohol measures, rather than facing up to the reality of the drink problem that Britain faces? Would it not be much better to have a significant unit price for alcohol, which would not affect pubs, beer drinkers in pubs or the average bottle of wine, but would raise the floor price for those who drink to excess, particularly the young?

[Danny Alexander]

If the hon. Gentleman were being fair, as I hope he would be, he would recognise that this Government have taken a number of measures to tackle problem drinking and that our approach on beer taxation, which is the subject of part of the Bill, will send further right signals. I hope that many hon. Members would agree that the consumption of high-strength beer is a particular problem in relation to antisocial drinking, and that allowing this sort of differentiation within the tax system should help to send the right signals. The Bill also includes a further step to help people to stop smoking, as clause 16 raises the duty on tobacco.

In conclusion, the Bill sets out changes that will enable our businesses to grow and succeed, supports the necessary plan to deal with the deficit, helps to tackle the rising cost of living, supports growth and supports fairness. I commend it to the House.

[Ms Angela Eagle (Wallasey) (Lab)]

I beg to move an amendment, to leave out from “That” to the end of the Question and add:

“this House declines to give the Finance (No. 3) Bill a Second Reading because whilst the Minister of State for the Cabinet Office acknowledged that the country faces an ‘immediate national crisis in the form of less growth and jobs than we need’ this Bill does not address it; because the economic approach set out by the Government in this Bill puts jobs and growth at risk; because the Bill cuts capital allowances to businesses who invest in growth; because the Office of Budget Responsibility estimates that after all the measures in the Bill are taken into account the number of unemployed will be higher by up to 200,000 than forecast in November 2010; because the Bill fails to reverse the higher petrol prices faced by families as a result of the Government’s VAT increase in January 2011; because it does not address the damage done to family living standards caused by the wider tax and benefit changes this month; and because without a repeat of the bank bonus tax, the bank levy alone will mean lower taxes for the banks at a time when families and children are bearing the brunt of the Government’s cuts to household incomes.”

At the beginning of the Second Reading debate on a Finance Bill, it is appropriate to take stock of the situation that we face in the UK and of the Government’s handling of our economy almost a year into their time in office. This was the self-styled “Budget for Growth” that downgraded the growth figures. When one in five young people were out of work, it was a Budget that forecast higher levels of unemployment. This was a Budget from the deficit cutters which forecast £46 billion of higher Government borrowing.

After listening for months to his analysis of the economic challenges facing this country, I must confess that I am very worried about the credibility of the Chancellor. His explanation of the origins of the banking crisis and the recession that it caused is partisan fiction—it has very little connection to economic reality. It seems that I am not alone in worrying about his grasp of the facts, because over the weekend he has been attacked by the enemy within. He has been accused of “fiddling the figures” and telling “untruths”, threatened with a lawsuit and told to withdraw “completely unfounded” claims or risk losing “his credibility as Chancellor”—that is just what the Energy Secretary is saying about him.

The Chancellor is clearly also a founder member of the enemy faction identified by the Deputy Prime Minister in his interview with The Independent over the weekend as

“a right-wing elite, a right-wing clique who want to keep things the way they are”.

Perhaps the Chancellor could tell us, if he bothered to turn up—[Interruption.] Perhaps the “Orange Book” Liberals are part of that right-wing clique. Perhaps the Chancellor will tell us whether this right-wing clique all have a uniform as fetching as the Bullingdon club tux?

What about the Chancellor’s deputy, the Chief Secretary? In response to the Chancellor’s wild accusations last week about the funding of the “Yes to AV” campaign, the Chief Secretary said:

“I think it is a real shame that this sort of pretty desperate scaremongering is going on.”

Well let me tell the Chief Secretary that I know just how he feels, because the Chancellor has been indulging in pretty desperate scaremongering about the threat of a UK sovereign debt crisis since his theatrically named “Emergency Budget” last June, and he has been aided and abetted by none other than the Chief Secretary. As the Energy Secretary said in his letter to the Chancellor over the weekend:

“Robust debate is normal in British politics. Persistent resort to falsehoods is not.”

So the Energy Secretary is off to consult his lawyers, and the Chancellor, the Prime Minister, the Foreign Secretary and the chair of the Conservative Party all appear to be in his sights.

In the meantime, will the Chief Secretary now admit, in the interests of not persistently resorting to falsehoods, that the banking crisis and global recession were not caused by the previous Prime Minister? The truth is that he helped to avoid a global depression and that the current Chancellor got every important call in those days of world crisis wrong. Will the Chief Secretary also have the decency to admit that the deficit was not caused by too much spending on schools and hospitals or by the profligacy of nurses and teachers? The truth is that the crisis was caused by unforgivable excess in the banking sector. Will he also take this opportunity to disown and stop repeating the Chancellor’s irresponsible and pretty desperate scaremongering about Britain being on the brink of a sovereign debt crisis like Greece or Portugal, when it is obvious that it is not?

Like the Energy Secretary, I believe that robust debate is normal in British politics, but persistent resort to falsehoods is not. Will the Chief Secretary therefore now disown the “pretty desperate scaremongering”—I use his own words—about the supposed threat of a UK sovereign debt crisis? The truth is that it was the banking crisis that had a disastrous impact on the public finances. Between 2008 and 2009, nominal GDP fell by 1.8%—that cost £20.6 billion—and tax receipts dropped by 3.7%, costing £19.9 billion. Will he acknowledge that this sudden collapse in economic activity is responsible for the bulk of the deficit? This is not a deficit caused by too much public spending before the crisis, but a deficit caused by the crisis. The truth is that the deficit is the price that we are paying for the failure of the banking system and the recession that was caused by that failure. It is also the price that we paid to prevent a global recession from turning into a worldwide depression, and it was essential to our future well-being as a nation that a depression was averted. We could all have a more mature and relevant debate in this House about the formidable economic challenges facing us, if we began with an acknowledgement of the truth of these facts.

Last June, in their first Budget, this Government embarked on a risky and dangerous experiment with the future of our economy. Last year, they abandoned Labour’s plans to halve the deficit in four years and decided to plough full steam ahead with a deficit reduction plan that went further and faster than that of any other major economy in the G20. So preoccupied were they with their desire to make the biggest public spending cuts since the second world war that they also failed to ensure that growth formed a key part of deficit reduction. They opted for a high-risk approach, and this Finance Bill continues that dubious experiment.

It appears that the Government are in thrall to the economic dogma of a long-dead 19th-century economist, David Ricardo, and their ideological preference for a small state. They imagine that the smaller the government, the less taxation and spending there will be. They think that the private sector will somehow automatically fill the gap left by cuts and that the economy will just grow. That is why they have embarked on a drastic programme of deep and immediate cuts that, if their theory is correct, should already be turning the economy around by now and why they are so uncomfortable with publishing their wholly inadequate self-styled, “Plan for Growth”, which was meant to be the public relations centrepiece of the Budget. Their laissez-faire economic approach assumes that growth will happen automatically without the need for any Government support, much less a plan. That is why the plan was so delayed and of such dubious merit when it finally arrived. Keynesians, however, believe that the economy works very differently and that the Ricardian equivalence dogma is wrong. We ignore the insights of Keynes at our peril, which is why the Government’s economic policy, as set out in the Bill, is taking us in the wrong direction.

The great banking crisis of 2007, which began in the American sub-prime mortgage market, administered a huge and near-fatal shock to the world’s financial system.

[Kelvin Hopkins]

I agree entirely with everything my hon. Friend has said. The Government have completely failed to understand the importance of demand in the economy if we are to get growth, and demand looks as though it is weakening. Even the Treasury now estimates that by the end of this Parliament, borrowing will overshoot by £11 billion. The Government are driving the economy in precisely the wrong direction.

[Ms Eagle]

That is essentially the insight that Keynes developed from his experience as a practising economist. We ignore his insights at our peril—[Laughter.] Hon. Gentlemen on the Government Benches can laugh, but if we get this wrong and the economy does not grow or develop, the price will be paid through a smaller economy, fewer opportunities and lower standards of living for men and women up and down the country. That is not something that the Government or the Government parties should be making a joke of.

The great banking crisis transmitted itself to the real economy in the form of a synchronised global recession. Nothing so serious has been experienced in the advanced economies since the Wall street crash. That great crash destroyed the economic and social fabric of many societies in the interwar years, causing untold hardship and misery. Governments in the 1930s were in thrall to the same Ricardian dogmas as now hold sway in both the Government parties. They did not see a role for the state in protecting the economic and social well-being of their citizens. Their lack of vision and hands-off approach to economic policy led to the great depression and ultimately, the collapse into dictatorships and a cataclysmic world war.

Fortunately, in 2007 the previous Labour Government and economic policy makers the world over did not make the same mistake. They had absorbed the lessons of the interwar years, and they took actions to prevent the recession from turning into a global depression, but before the recovery had become securely established, the deficit hawks reasserted themselves, demanding austerity despite warnings from leading experts around the world that that would be the wrong approach.

[Ms Eagle]

That is true—the Liberal Democrats gave us such warnings before the election.

Undeterred by the lessons of history and without an electoral mandate for such drastic cuts, the new Administration in the UK have proved to be the most extreme of the deficit hawks. They decided that dealing at breakneck speed with the deficit created by the banking crisis was more important than any other consideration, including protecting people against long-term unemployment or against cuts in vital public services. So, before the patient was long out of the emergency room, the Government decided to start administering a deficit reduction shock therapy that could end up being worse than the original illness. There is nothing in economic theory that dictates that Governments should plan to eliminate deficits in four years rather than eight.

The sheer scale and speed at which the Government have proceeded came as a surprise, not least to the 6.5 million people who voted Liberal Democrat at the last election. The Business Secretary warned about the dangers of cutting too far and too fast before the election, only to go along with the most savage cuts that we have had in the UK in peacetime straight after it. Meanwhile, in his speech to the Liberal Democrat Scottish conference last year, the Chief Secretary promised to

“create…jobs and boost the recovery”.

Instead, he has followed the example of the leader of his party when it comes to election promises—he has done the exact opposite of what he said he would do.

Just today, Mr Gary Millar, a councillor in Liverpool, has quit the Liberal Democrats in disgust over their broken promises. He said that he was once

“happy to call myself a Lib Dem, today they make me question my integrity and reputation.”

Like so many others, he feels personally betrayed by the Liberal Democrats, which is why they will face the wrath of an angry electorate next week.

At the time of the election last year, the economy had begun to improve from the depths of the banking-induced recession. Growth was up, inflation and unemployment were falling and borrowing had come in £20 billion better than forecast in the 2009 pre-Budget report. Formidable problems lay ahead, of course, but we were moving in the right direction and growth was seen as part of the solution.

Since the fiscal hawks rolled up at the Treasury, our economy, which was improving, has ground to a halt. Unemployment is higher, inflation is double the Bank of England target and the Chancellor has presided over a collapse in consumer confidence to lower levels than it reached in the depths of the 2009 recession, because he made the political choice to inflict on ordinary families the largest and longest squeeze in living standards since the 1920s. As the cost of living rises and wages fall, he has chosen to impose the increase in VAT, huge cuts in local services and a reduction in the support for child care that threatens to drive many women out of their jobs. His VAT increase alone will cost the average family with children £450 this year, far more than they will gain through increases to tax thresholds. Little wonder, then, that the Office for Budget Responsibility has downgraded the growth forecast again and again.

In his Budget speech, the Chancellor boasted:

“Our country’s fiscal plans have been strongly endorsed by the International Monetary Fund, by the European Commission, by the OECD, and by every reputable business body in Britain.”—[Official Report, 23 March 2011; Vol. 525, c. 951.]

The IMF has lowered its growth forecasts for the UK, however, and its head, Dominique Strauss-Kahn, has warned against cutting budgets too far, creating long-term unemployment and abandoning entire generations to a workless future with no hope. The recent interim OECD assessment of G7 economies predicted that the UK was expected to grow more slowly than any other G7 country except Japan, which has just been hit by powerful earthquakes, devastating floods and the ongoing battle against a nuclear disaster.

[Kelvin Hopkins]

Again, I agree entirely with my hon. Friend, who is making an absolutely excellent speech. There is another factor, however, driving deflation, and that is the fear of unemployment. When people are frightened of losing their jobs, they stop spending their money and try to pay off their mortgages. That is what is happening now and that is why demand will be savagely cut by this Government’s policies.

[Ms Eagle]

My hon. Friend makes an extremely good point about confidence and sentiment in the economy transmitting their way into the real figures through their effect on demand.

Even those who gave their personal stamp of approval to the Chancellor’s aggressive cuts agenda last year in a letter to The Daily Telegraph are now voicing their doubts about weak growth. Ex-Tory MP Archie Norman is worried that the Government’s growth predictions are too optimistic and former Asda boss Luke Bond is predicting a two-year retail recession, which picks up on the point that my hon. Friend the Member for Luton North (Kelvin Hopkins) has just made.

The Government are going too far too fast, and we are paying the price in lost jobs and slower growth. Their phobia about the deficit means they are cutting public expenditure much further and faster than any other major economy. They have made deficit reduction the only thing that matters, regardless of how terrible its social or economic effects will be; they appear to be blind to the lessons of history; they refuse to listen to public concern; and they fail to recognise the absolute necessity of re-establishing growth to get the deficit down. Without growth, austerity measures simply make the deficit worse and impoverish the society they are inflicted on. The Chancellor should, as he so notoriously lectured us in February 2006, “Look and learn from across the Irish sea”. Ireland is on its fourth austerity budget with no end in sight. The evidence shows that all the countries that implemented drastic austerity measures saw their economies go into reverse in the fourth quarter of 2010. Those economies shrank in Greece by 1.4%, in Iceland by 1.5%, in Ireland by 1.6%, in Portugal by 1.5% and in the UK by 0.5%. In contrast, both the German and the American economies grew.

The Chancellor is not solving the problem; he is in danger of making it worse. The day after the Budget, the ratings agency Moody’s embarrassed the Government by suggesting that the UK’s triple A rating might be at risk not because of the deficit but because of slower growth. I would take any pronouncement from the rating agencies with a very large pinch of salt, as they are hugely compromised by the part they played in making the banking crisis worse and they need to be reformed, but, unlike the Chancellor, we have neither made their flawed and partial judgments the central justification for our economic policies nor installed them as the most important judges of our success by giving a dangerous credence to the fiction that the UK’s ability to finance its debts is at risk for reasons of petty party politicking. Their influence makes the inconvenient point for the Government’s political cuts narrative that growth is equally important to successful deficit reduction. Without growth, the deficit will not be sustainably reduced.

Budget Responsibility and National Audit Bill [Lords]

Kelvin Hopkins Excerpts

Tuesday 22nd March 2011 Commons Chamber

[Chris Leslie]

No, I do not. That was one reason why we raised this issue in Committee. The Bill sets out tests on the responsibilities of the OBR and the Treasury yet there was not really an adequate response from the Minister about the justiciability of those tests. For example, the Minister gave no cut-and-dried answer to the question of a member of the public who might wish to sue the OBR on its efficiency or effectiveness, what sort of legal process that might entail and where it would eventually go. The hon. Gentleman makes an important point.

In a cynical moment in Committee, I raised an eyebrow about the fact that 10 clauses are necessary to establish the OBR. I queried whether we needed 10 clauses to do that. The Bill contains a number of embellishments that, in a more sceptical moment, made me suspect that it was slightly padded out to make it appear to be a grander piece of legislation when a couple of clauses and a schedule would probably have done the trick. Perhaps I was unfairly cynical.

[Kelvin Hopkins (Luton North) (Lab)]

The hon. Member for Cities of London and Westminster (Mr Field) draws a useful parallel with monetary policy and the Bank of England, but in reality the bank’s Monetary Policy Committee currently interprets its remit flexibly because of the state of the economy. If the committee interpreted its remit rigidly, it would raise interest rates, because inflation is above the target level. It is not doing so, however, because it is sensibly looking at the wider interests of the economy.

[Chris Leslie]

My hon. Friend is entirely correct, and I am glad that the Bank of England is being flexible, but absolutely, if such mandates are set out rigidly in legislation, as the mandate is before us, and if they are interpreted as they currently are, it is hardly any wonder that the Treasury has a blinkered view of the economy and is obsessively—some might say, fetishistically—focused on deficit reduction and debt to the exclusion of almost any other facet of the economy. What we need right now is a flexible approach to economic policy which can take account of environmental and external facts, jobs and growth, and those are the issues we are raising today.

--- Later in debate ---

[Chris Leslie]

I understand where the hon. Gentleman is coming from. As I understand it, however, the Government, in creating the Financial Policy Committee at the Bank of England, propose to give it a particular responsibility for macro-prudential regulation. That is quite different from the role of the OBR, which, as an analytical and assessing independent body, will have a duty to provide comment and analysis on, and a degree of scrutiny of, the proposals of the Treasury and, more narrowly, the Treasury’s policy in relation to the accounting aspects of fiscal policy alone. If we are to have an Office for Budget Responsibility—or, as some hon. Members have suggested, the equivalent of the Congressional Budget Office, with some kind of parliamentary Budget office, which we will discuss later—it must be an independent body, so it must have the indisputable right to comment on the Treasury’s policies writ large on macro-economic and fiscal policy. I do not feel that there is necessarily a conflict with the Government proposals on changing financial services regulation, although we have not yet seen their proposals, and we do not really know what powers they intend to vest with the Bank of England on macro-prudential regulation. We will come to that another day.

I will explain why I think it is important that we focus on the concept of a growth mandate. It is not something that was just dreamed up by the Opposition. The Engineering Employers Federation has also called for a growth mandate to supplement the fiscal mandate in the charter for budget responsibility and in the Budget. It states that a growth mandate would

“send a powerful signal to business in the forthcoming Budget that government has a clear strategy to address the barriers to growth”

and calls for

“a Parliament long programme to deliver on it.”

Terry Scuoler, the chief executive of the EEF, has said that a growth mandate should be introduced to

“report on the progress at each Budget in the same way it does with the Fiscal Mandate.”

The EEF also states that

“like the Fiscal Mandate, the Growth Mandate should span the lifetime of a parliament with each subsequent Budget and policy announcement showing further incremental progress.”

The EEF makes a good point about the impact on the industries that it represents, which are in the real economy. Ultimately, that is what matters to our constituents.

[Kelvin Hopkins]

In line with that, would it not be sensible to ensure that the members of the OBR, when they are appointed, represent a range of views? The Monetary Policy Committee has hawks and doves, who have widely differing views on what should happen to interest rates. Equally, there ought to be voices in the OBR putting the case for the real economy, as well as simply for the Budget.

[Chris Leslie]

That is absolutely right. The Government have given the concession to the Treasury Committee that it can hold pre-appointment hearings for three of the five members of the OBR board. That is, of course, welcome.

--- Later in debate ---

[Chris Leslie]

My hon. Friend is absolutely right. It would be such a pity if this edifice—the OBR—did not scrutinise the things that the Government know they are vulnerable on, and on which their policies are deficient. The Government do not have a strategy for growth and jobs, and we need the OBR to be able to expose that. Growth has a number of drivers—

[Kelvin Hopkins]

Will my hon. Friend give way?

[Chris Leslie]

I will not, if my hon. Friend will allow me, because I want to focus on what the OBR needs to take account of.

[Chris Leslie]

Quite the contrary. Perhaps that was published in the free phase when the OBR, untrammelled by legislation and existing in the ether, as it currently does—we are post-hoc legislating now—had its moment of freedom when it could comment on such things. If the Bill locks the OBR into a narrow band of responsibilities and duties, it is reasonable to worry that it will be limited to commenting on a certain number of aspects. I accept absolutely that, as the Minister says, fiscal policy is affected by growth, and that therefore the OBR has an implicit right to comment, but that has not been made clear enough, which is a sign that she still does not understand the centrality of growth and employment policy to what the Treasury should be pursuing.

[Kelvin Hopkins]

My hon. Friend is right to focus on the importance of flexibility and the ability to deal with the problems he has described in his constituency. However, the hon. Member for Stone (Mr Cash) made a useful point about the EU’s arrangements, under which a completely independent central bank with no democratic controls sets interest rates that might or might not be appropriate for different nations. There are Maastricht rules and a rigid currency that cannot be flexed by countries that need to do so. Our situation is so much better because we have preserved a degree of flexibility so that we can manage our economy in the interests of our people.

[Chris Leslie]

Indeed, and we should pay tribute to the previous Prime Minister for maintaining and establishing those freedoms and that independence. However, you would rule me out of order, Mr Speaker, if we departed too much from the amendments.

A growth mandate is necessary on the four principal components of growth. The Government’s strategy on consumer spending is falling apart by the day. The nationwide consumer confidence index published this week showed a record low among the general public. One reason consumers are losing confidence is the possibility of VAT going to 20%. Real disposal incomes are falling back to the 2008 level, and median income is falling more than at any time since the 1980s. John Lewis reported falls in sales last week, Debenhams is saying that trading conditions are tough, credit levels are contracting, and from April onwards, of course, some of the tax credit changes and other changes will take money out of the pockets of consumers. We know therefore that on the consumer spending components of growth the Government have already lost control of a decent growth strategy.

On business investment, banks are still slow to lend to high-growth businesses. More than 20% of commercial real estate loans are in default or in breach of their covenants, and the much-trumpeted national insurance holiday that Ministers offered to new start-up businesses has not been taken up to the extent predicted by Ministers, owing to the complexities they have imposed on the arrangements. The Government’s growth strategy currently seems to depend on a number of odd assumptions, including that it is the fault of employee rights, which need to be eroded to boost growth. That is the kernel of their growth strategy.

On planning law, the Government are sometimes localist and sometimes not; sometimes they devolve powers but sometimes they do not want to give certain powers to councils. Their approach on planning is confused. Will they relax Sunday trading laws? There is speculation all over the place. There is even confusion over business rates. The Minister’s colleagues in HMRC have issued 40 different consultations, discussion documents, updates and responses on tax changes since the previous Budget, which, as many businesses complain, brings uncertainty and confusion. And to cap it all, with the abolition of the regional development agencies, they have created these local enterprise partnerships, with no clarity about their role or budget. We will see tomorrow about the enterprise zones, but on business investment the growth strategy is very deficient.

The Government are relying totally on an export-driven miracle to be the salvation of their growth strategy, yet if the Treasury predictions are correct we would need the highest export growth every year for the next three years, which last occurred in 1974, I think. That means, for example, that our exports to the USA would have to triple or our exports to China would have to grow twentyfold. That is not a growth strategy, but a prayer for a miracle.

To cap it all, we know what is happening with public sector expenditure. The rush to reduce the deficit so deep and so fast is causing great harm to the growth prospects of the economy and taking out a number of posts, particularly in parts of the country that are least resilient.

Amendment 3 would add to the Office for Budget Responsibility’s duties the requirement to assess the impact of Treasury policy on jobs and economic growth. Defining responsibility as such a purist, accountancy-type concept is to take a slightly dry and aloof approach, which seems to us irresponsible, given the real-world impact on people, jobs and society. We need to ensure that the OBR is a more rounded organisation that is grounded in the real economy, not just a narrow, bean-counting institution that looks at statistics or just one aspect of economic policy. It needs to be strategic, predictive, competent and authoritative, and it can do that only by having a duty to analyse the Treasury’s impact across the board. That would be one way of creating longer-term sustainability for the Office for Budget Responsibility, beyond the Government’s current plans for deficit reduction.

Amendment 4 would give the OBR a duty to assess the impact of growth in our regions and nations. We know that the Government’s spending cuts are hitting less prosperous parts of the country disproportionately. The disparities in our economy are growing as a result of the Government’s policies, and clearly that is harmful. Indeed, we saw that in the unemployment statistics this week, for example, with 27,000 more people made redundant in the west midlands and 8% unemployment in my region of the east midlands.

HM Revenue and Customs

Kelvin Hopkins Excerpts

Wednesday 2nd March 2011 Commons Chamber

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

We are discussing the administration of Her Majesty’s Revenue and Customs, and I should declare a constituency interest because Cumbernauld HMRC is one of the largest tax offices in the country. It is a strategic site, and the largest employer in my constituency. As this debate shows, HMRC is equally important for the Government, who must collect tax more effectively if they are to be successful in their economic and financial objectives.

I should like to address a few issues regarding HMRC’s effectiveness, many of which were touched on in the thoughtful contributions of the hon. Member for Chichester (Mr Tyrie), my hon. Friend the hon. Member for Leeds East (Mr Mudie) and, most recently, the hon. Member for Redcar (Ian Swales). In my view, two things are necessary if HMRC is to be as effective as possible. First, it must be properly resourced, and I endorse the final words of the hon. Member for Redcar about the wisdom of getting HMRC sorted out before moving to a programme of further cost cutting.

Secondly—this relates to observations that have already been made—HMRC must have well-organised and highly motivated staff. I am concerned that that will not be the case in the future, not only because of the cuts that the Government are making in HMRC’s budget, but because of how they are being implemented. Together, the cuts and their implementation are having serious effects on the morale of HMRC staff in Cumbernauld and elsewhere. Simply put, HMRC staff know that cuts are being made, but do not know yet where they will fall.

HMRC received a tough settlement in the comprehensive spending review. The settlement mandates overall resource savings of 15% and efficiency savings of 25%. Those cuts were announced in October, as Members in all parts of the House are well aware, but we have yet to receive any confirmation from the Government of how HMRC is to be restructured.

[Kelvin Hopkins (Luton North) (Lab)]

Is it not the case that every additional tax officer collects many times their own salary, and that if we want to collect more revenue and make HMRC a more profitable organisation, we need more staff, not fewer?

[Gregg McClymont]

My hon. Friend makes a good point. There is a problem of short-term savings at the cost of long-term benefits—what we might call a false economy. I shall come to that.

We have not had any confirmation from the Government of how HMRC is to be restructured. We do not know which services to the public will go, or which services will be changed. We do not know yet which jobs will go. Before Christmas I asked the Treasury Whip about the future of HMRC jobs in Cumbernauld in a Back-Bench debate. The Treasury Whip suggested to me that the Cumbernauld jobs were safe. I understand that as it is a strategic site, its situation is different from that of some of the smaller call centres and the like. I urged the Treasury Whip to share the information that proved this to be the case: it has not yet been forthcoming, for good reason.

Subsequent questions for written answer revealed that the Government cannot give any such undertaking until HMRC publishes its business plan. It is better for HMRC to take its time and get its business plan right than to get it wrong in a rush, but that has consequences. It seems that the business plan will not appear before April. The delay and the mixed messages do not make tax officers’ jobs any easier. Clearly, the increased anxiety can damage morale.

We have heard about the situation from the hon. Member for Chichester and others. It is not surprising in those circumstances, and also given the nature of the job, that in a recent survey only 11% of HMRC employees felt that change in the organisation was well managed. HMRC employees in Cumbernauld are now just as uncertain about their future as they were when the programme of cuts was first announced in October. Such uncertainty has an impact on staff morale, and thus on productivity and performance. More fundamentally—this goes to the point raised in an intervention by my hon. Friend the Member for Luton North (Kelvin Hopkins)—I suspect that the cuts to HMRC’s budget may well prove to be a false economy. Short-term savings at HMRC could reduce the Government’s ability to maximize tax revenue in the long run.

--- Later in debate ---

[John McDonnell]

Yes. In recent years and from the time of the initial legislation, there has been almost a Dutch auction between Front Benchers competing to see who could cut more jobs from HMRC. We tried to point that out. My hon. Friend the Member for Leeds East gave a good example of how not to do a tax return. Some people need a face-to-face discussion about their tax affairs and that cannot be done through a call-centre mentality.

Some Members have pointed out that the evidence on call centres is fairly appalling. The pressure on call centres has mounted. Let me give some statistics for the record. Calls were up 20% from 2009-10 to 2010-11. Call attempts were up 100% from 2009-2010 to 2010-11. Engaged and busy tones played were up from seven to 35 minutes. One can see why that tune—“Greensleeves” or whatever it is—pushes some people right over the edge if they have to listen to it for 35 minutes. The current contact directorate performance prediction for 2010-11 is that only 40% to 50% of call attempts will be answered.

[Kelvin Hopkins]

I agree strongly with my hon. Friend. Together with the cuts in staffing, which have put extra pressure on staff, and de-professionalisation, will my hon. Friend mention the relatively low pay with which many tax office staff have to cope?

[John McDonnell]

We once prided ourselves on an effective and efficient tax delivery service through tax collection, and the job of tax inspector was one to which people aspired. We have undermined that through the de-professionalisation of the service, the way in which staff are treated and pay.

My hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) has direct experience, having met large numbers of his constituents who work in that tax office. The problem is not just the numbers of staff or how some of the services have been downgraded; it is the fact that the redundancy payments of people who are being laid off as a result of the recent cuts are being cut by up to two thirds. In addition, their pensions are now threatened by the change from the retail prices index to the consumer prices index.

Of course, that spells disaster for many people in planning their careers and their futures, so it is no wonder that the statistics on morale are so appalling—and morale is getting worse, not better. Staff were asked whether the changes were usually for the better, but fewer than one in 10 answered yes, meaning that they hold out no hope for the future.

Staff have been treated appallingly by management over a period too. Some Members were in the House when we debated the introduction of the lean system to HMRC, which was lifted straight from the Toyota car factories. That system produced the first strike in the history of HMRC in Scotland, because of how staff felt they were being treated. Hon. Members have learned that members of staff describe the imposition of the new attendance management system as draconian. One said that HMRC management seems to be

“more interested in finding ways to justify dismissing staff to get the numbers down as this is cheaper than redundancy rather than staff welfare and delivery of good customer service.”

The fact that professional staff have those sorts of opinions is an indication that something is wrong.

Staff are also concerned about elements of privatisation, such as the increasing role of private debt collection agencies in pursuing tax debts of under £10,000, and the conduct of private companies that do not have the expertise that HMRC has developed over the years in door-to-door collection. There are real concerns about not only office closures but the disbanding of whole HMRC business streams, which is reducing expertise and damaging service delivery.

[Kelvin Hopkins]

One feature of privatisation and the call centre culture is that it destroys the public service ethos. As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said earlier, the public service ethos is vital in an important job such as tax collection.

[John McDonnell]

I fully agree, and we have painted a picture this afternoon of the impact of a combination of job reductions, cuts in redundancy pay and the threats of cuts to pensions, which my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East described as a perfect storm. The message from those on the front line of tax collection is that HMRC is in a perilous situation. I hope from here on in that those voices will be heard and that we will consider a more systematic approach to HMRC reform.

Hon. Members have been told that access to face-to-face inquiry services has been significantly reduced, which is extremely worrying. Let me put on record what a number of tax inspectors have said about that. They say:

“Those offices that remain open”

after the 200 closures

“are having their enquiry centre opening hours significantly reduced. In some case these offices are due to be opened for only two or three days”—

maximum—

“rather than the five days a week they currently open for.”

There is also concern about the disbanding of the complex personal return team in March 2009. Many thousands of the top UK taxpayers no longer have the services of a dedicated case owner and customer relationship manager. Thirty-five thousand taxpayers whose tax affairs were handled by that dedicated team—a highly trained, professional team—are now dealt with in the wider HMRC network. There is a view that the skills are therefore not available or not dedicated in the most effective way to increase tax revenues.

In conclusion, I have heard figures bandied about for how much tax is avoided or evaded, and therefore should be collected. They range from the internal estimate of £46 billion up to £120 billion. A number of us have worked with Richard Murphy and John Christensen of the Tax Justice Network over the past five to eight years to try to highlight the issue. Until recently it was not taken up or reported particularly effectively by the media, so I pay tribute to UK Uncut—a group of individuals who have come together spontaneously, taken information from the tax justice campaign and mobilised direct action, which, whatever Members think of it, has been incredibly effective in raising the issue up the political agenda. As a result of campaigning by the Tax Justice Network, UK Uncut and others, and as people are experiencing the cuts and moving from abstraction to reality in their communities, as my hon. Friend the Member for Leeds East said, they are now asking the question: why are we not collecting this tax? It is due not just to a lack of political will—although there is a tax reform issue that needs to be addressed—but to the way in which we have treated HMRC over the years, undermining its ability to collect those taxes.

--- Later in debate ---

[Kelvin Hopkins (Luton North) (Lab)]

I shall speak very briefly.

I agree with much of what was said by the hon. Member for Dover (Charlie Elphicke). I especially agree with what he said about the need not to demoralise the staff of HMRC any further, but to put the blame where it truly lies—with the Treasury. My experience has led me to believe that the Treasury is the most stupid of all our Departments, and I say that advisedly.

I had my earliest experience of the Treasury and HMRC when I first entered Parliament and visited a local VAT office. There were splendid people there who were doing a good job, but they said, “We have not enough staff to collect all the tax.” They said, very modestly, “Every tax inspector collects at least five times his or her salary. What we really need is a few more inspectors.” I wrote to the Treasury, as one does, suggesting that because they were collecting more than their own salaries, employing more of them would bring in more revenue. I thought that that was a wonderful idea. The letter that I received from the Treasury, however, was one of the most vacuous, stupid letters that I have ever received from a Government Department. It said, “We are trying to reduce costs by minimising staff.” An eight-year-old child would have seen the illogicality of that. Obviously, cutting staff would cut revenue by far more than the salaries that would have been paid to those staff.

I have not changed my mind about the Treasury since then. I would add that managing the economy has not been one of its great successes either. I hope that one day I shall be challenged by the Treasury—by Ministers, or even by senior civil servants—to justify my accusation. That letter read like a thin press release rather than a proper, intelligent letter from a Department.

I subsequently raised the matter with union members. Along with my hon. Friend the Member for Hayes and Harlington (John McDonnell), I am a member of the union support group. They said that inspectors dealing with income tax and corporation tax raise sums that are many times greater than their salaries—five times is just a modest amount for VAT inspectors, and it is much more for other forms of taxation: the Vodafone scandal involved billions of pounds, for example. HMRC cannot collect enough tax simply because it does not have the resources to do so. It has been demoralised and de-professionalised. I have had many private conversations with senior tax officers, so I know what the problems are.

My next point might not be popular with my party colleagues. Against my better judgment, the previous Government arranged for HMRC to hand out benefits as well as collecting taxes. They gave it the job of handing out credits, but in my view benefits should be handed out by a Department specialising in that, namely the Department for Work and Pensions. No other country in Europe has three major Government Departments handing out means-tested benefits— I have checked that. Housing benefit is paid by the Department for Communities and Local Government, tax credits are paid by the Treasury and other benefits are paid through the DWP. Why not have one Department responsible for handling benefits, especially as each is means-tested, they all overlap and the people who receive them and therefore have to deal with these complex, means-tested benefits are often the elderly and people who might not be the most able? These benefits should be handled by sympathetic, professional staff who can deal with all of them in one place. Part of the problem is that the people who currently do this job have been landed with it.

These two tasks are completely incompatible. Taxation is collected on an annual basis; most taxes are paid yearly, and some of us fill in tax returns while for most PAYE, or pay-as-you-earn, is collected automatically. Benefits change throughout the year, however. Those who claim benefits are often people whose circumstances change almost by the week. They might be in and out of work and their pay rates change so they are either entitled to a credit or not. The situation is immensely complex, therefore. It was stupid to hand that responsibility to HMRC, and I opposed the move. I have stated before in the Chamber that we should have one Department responsible for handing out benefits and another responsible for collecting taxation. The two roles are completely incompatible. I stand by that position, and I hope that one day a Government will be more sensible and will start to unify the handing out of benefits in one Department.

I have met many tax staff, both senior tax officers and the basic back-room staff. All of them complain that they are demoralised and overworked, and that there are too few staff. The less senior staff are very poorly paid, too. If we are going to have a good HMRC for the long term, we must re-professionalise it, and provide enough staff and make sure they are properly paid, and we must take away the nonsense of them handing out benefits as well as collecting taxes.

My message is simple, and I hope it goes home and is thought about, even if it is not acted on immediately.