Kwasi Kwarteng
Main Page: Kwasi Kwarteng (Conservative - Spelthorne)Department Debates - View all Kwasi Kwarteng's debates with the HM Treasury
(13 years, 1 month ago)
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Mr Darling
As we have heard today, the shadow Chancellor and the Labour party are still adopting my policy on the deficit. It was a sensible policy when I first announced it in 2008, and it is still a sensible policy today. The heart of my present argument is that while no one doubts that the deficit has to come down, the judgment to be made is about how fast we bring it down and the risks involved in doing so too fast and ending up crashing the economy. That is the position we have reached today.
It is interesting that the International Monetary Fund has been much discussed this afternoon. It is worth reading what the IMF and Christine Lagarde, who talks a lot of sense on these issues, have been saying. Of course the IMF is always going to be wary of taking on one of its principal shareholders, but we do not have to read too far between the lines to see what the IMF is saying. It is saying quite clearly that there is now a serious risk of a slow-down in major economies, including our own, which will result in not less but more borrowing, and economies stagnating.
It is also interesting that when the Bank of England announced last week further measures of quantitative easing, which I support, it did so against a completely different background from its first announcement in 2009. The Bank is now worried about what is happening in Europe, which means that the economy is slowing down. The Bank is seriously worried about the lack of growth. The QE announcement last week is just the beginning of what might be called plan B or even plan 1A, because the Bank is worried. That is why it is changing direction.
I was pleased to hear the Chancellor talking about credit easing for businesses on top of the £75 billion. Surely that is at least some recognition of the fact that the plan he announced with so much confidence last summer, which was going to do so much to reduce our borrowing, is not working. He has to adapt it and my bet is that—whether it be in the autumn statement in a month’s time or in next year’s Budget—we will see more measures that acknowledge that the policy pursued by this Government is simply not working. If we do not change it, we will pay a very heavy price.
Mr Darling
I will gain another minute by giving way to the hon. Gentleman, so I will do so.
Kwasi Kwarteng
I am grateful. Will the right hon. Gentleman tell us how he voted in the IMF subscription vote?
Mr Darling
I have always made my position clear. One of the big achievements of April’s G20 meeting, led by the then Prime Minister my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), was to get countries to sign up to an increase in IMF funding. That has always been my position, and I am not going to depart from it because I believe that the IMF has a central role to play. With respect to the hon. Gentleman, his intervention does not get him off the central point of this debate, which is what is different now from the position when we left office. My deficit reduction plan was on the back of an economy that had started to grow, so my right hon. Friend the shadow Chancellor is quite right to ask himself what we need to do now, 16 months later, when economic growth has stalled, and what other measures are necessary to get the economy going.
My right hon. Friend is also quite right to say that, although a few months ago very few people were talking about the need to reduce taxes, bring forward capital spending or take measures to help businesses, that has now become common currency among many commentators. It is only the present Government who simply do not accept that the plan they announced 16 months ago is not working. As my right hon. Friend said, the Chancellor has had to downgrade his growth forecast four times. I remember his having great fun at my expense when saying that my growth forecasts were wrong. Actually, mine lasted a lot longer than his. He should reflect on that and on the fact that he is having to borrow more.
I raised another point about quantitative easing with the Chancellor on Monday and I hope we will hear more about it. If that money does not leave the vaults of the banks and get out on to the high streets, it will have failed. I know that the Chancellor has had exactly the same trouble with the Bank of England as I had. I could not persuade it to buy corporate assets; he has obviously failed as well, which is why he has had to think up his own scheme. We really need to get that money out on to the high streets; if it is not manifested in the form of loans to businesses, it will simply not work.
I note that the hon. Member for West Suffolk (Matthew Hancock) is no longer in his place. He said that quantitative easing works only when there is a credible policy. Given that the Bank of England has said that it worked, we must have had a credible policy at the time. I am sorry that the hon. Gentleman is not here to hear that; he might want to ponder it when he reads Hansard tomorrow morning, as I am sure he will. The Chancellor needs to ensure that the money gets out on to the high street; otherwise, it will fail. It is remarkable that the Bank of England is almost now doing what the Government should be doing. It recognises that the policy is not working, which is why it has embarked on another round of quantitative easing.
The Chancellor is fond of saying that all our problems are on account of the eurozone. That, too, is remarkable. When he came into office, the Tory story, backed by the Liberal Democrats, was that it was all the fault of the last Labour Government. All was fine with the rest of the world, so it was just Labour’s overspending that was responsible. Incidentally, the Chancellor supported it right up to the end of 2008 and the Liberal Democrats supported it until the day after the general election, so it could not have all have been wrong at that stage. Now they are saying that the problem is not domestic at all; that it is all to do with what is happening in the eurozone.
Of course the eurozone is a major problem and it is becoming a bigger one by the day. I hope the Chancellor was right when he said at the beginning of the week that wiser counsels are prevailing in Europe, but I am not so sure. We should remember this: although people talk about the fact that the German Parliament ratified the deal a couple of weeks ago—and Slovakia will probably put it through later this week—it was in fact agreed in July, and it is blindingly obvious that it is now out of date. At that time no one would talk about Greek default, whereas now everyone knows that Greece will default, and the only question is whether it will be done in a managed way or become a disorderly breakdown.
Another thing that is obvious—the Chancellor acknowledged this on Monday—is that the austerity measures being imposed on Greece simply are not working. Greece is reaching a point at which it is unlikely to be able to repay the interest on its borrowing, let alone reduce its borrowing and debt. The policy of austerity endorsed by far too many European countries over the last 16 months or so worked at first, but it is not working now, and Greece is living proof of that.
I hope that something compelling and convincing will be agreed at the G20 in a couple of weeks’ time, but I have my doubts. The trouble with the eurozone countries is that they are still fighting as though nothing has changed since the early summer, which has been their position since the early part of 2009. If we have any influence I hope that we will bring it to bear. If we do not, there is a risk, as the Chancellor himself recognises, that if things go wrong in the eurozone they will affect this country. While I agree with the Chancellor that we should certainly should not contribute to the bailing out of the eurozone, he is also right to say that a break-up of the euro at the present time is the last thing that the world economy needs, ourselves included.
That brings me to our policies back at home. I have always believed that reducing public expenditure at such a rate, in a climate in which the private sector is not taking its place, risks crashing the economy. I reached that view when my party was in office, and I still hold it today. The evidence seems to suggest that that is precisely what is happening now, and that is why it is so damaging.
David T. C. Davies
Has the hon. Lady finished now, and may I continue? I am always fascinated by the fact that comparisons are made between levels of debt as a percentage of GDP. I will certainly give way again if someone can explain why we compare national debt with GDP. Why do we not do what any company would do and compare it with revenue? If we look at a comparison with 2010, when this Government took over and when the national debt was £1 trillion, we will see that the revenue coming in was £520 billion. The country had a national debt that was almost twice the revenue it was taking. Anyone who has run a company—most Opposition Members have not, but I have—will know that any company that found itself in such a situation would be declared bankrupt immediately.
Kwasi Kwarteng
Will my hon. Friend remind the House why the previous Labour Government ran a deficit for nine consecutive years from 2001 to 2010, despite having a boom?
David T. C. Davies
My hon. Friend asks a very good question. They managed to come up with an excuse after 2008, following the collapse of the banks, but as I said earlier, I am yet to hear an answer on why they ran a deficit from 2001 to 2008. Perhaps we will get one later.
What I did hear from the shadow Chancellor was some rather mealy-mouthed insults directed towards my right hon. Friend the Chief Secretary to the Treasury, who had a proper job outside politics and Government, as I did, which the shadow Chancellor seems to think is worth mocking him for. My right hon. Friend was not the man who was responsible for the £1 trillion-worth of debt, for selling gold at a fraction of the price, or for running up deficits in boom years. [Interruption.] I will not say anything about the euro at the moment, but there are many Labour Members who were urging us to the join the euro during those times and are now trying to give us a lesson in economics. I notice that they have all now gone very quiet.
The reality is that Labour Members never, ever learn their lesson. For them, it is not a case of plan A or plan B; there is only one plan: “Let’s tax people as highly as we can, and when we’ve finished squeezing every penny out of them, we’ll borrow more money.” They do not remember the words of one Labour Chancellor of the Exchequer during a Labour conference: “Comrades, you may think that we can tax and spend our way out of a recession, but I tell you that is no longer an option.” They still have not learned the lesson.
Clement Attlee failed in the 1940s when he tried to build his welfare state on the back of American war loans. There was Harold Wilson in the 1960s telling the public that the pound in their pocket was worth the same when he was rapidly devaluing it. Then there was Jim “Crisis, what crisis?” Callaghan, who, just like his successors, brought the country to the brink of utter bankruptcy, and did not even seem to think that he had done anything wrong. It was 18 years before they got another chance, and they have done exactly the same thing again: tax and spend, borrow and spend, just keep on doing it and do not worry about it.
I am glad that we have a Government who are not going to go for the easy option, which would be to borrow a whole load more money now in the hope of winning an election, which is exactly what Labour Members were doing for a couple of years. We are going to take some tough decisions, and that means getting our books in order. Unlike the shadow Chancellor, I know, having run a small family haulage business, that one cannot carry on spending more money than one gets indefinitely. I welcome the fact that the Chancellor is going to encourage real growth by making it easier for businesses to take people on and not have to worry about employment tribunals, which anyone who has run a small business does worry about all the time because of the number of spurious claims.
Meg Hillier
I am afraid that I will not.
That woman told me that she uses the prepay meter key because of her fear of a large quarterly bill at the end of the autumn, even though she knows that it costs more. She is doing what the Government tell her to do. She is a single parent with four children who is working to support her family, but she lives in fear of the bills every day. There is the man who came to my surgery on Monday. He has a job offer, but he faces the choice between a job and a home because of the Government’s short-sighted approach to housing benefit.
Where are the private sector jobs? In my constituency and that of my hon. Friend the Member for Hackney North and Stoke Newington, most small businesses employ fewer than six people and they are struggling. I have been up and down my high street many times since the events of 8 August, but it is not just those events that have caused problems. Businesses are struggling with footfall and because people do not have disposable income to spend. They are worried about what will be down the road.
The Federation of Small Businesses has been very critical of the Government’s approach, as my right hon. Friend the Member for Morley and Outwood (Ed Balls) indicated. Businesses on the high street need quantitative easing, including those that are being incubated by entrepreneurs in my constituency. The Prime Minister is very fond of talking about creating a silicon valley when it suits him, but those high-street businesses are exactly the sort that could be creating jobs for young and older people in my constituency. However, they risk being throttled at birth, or if they do survive—I wish them well and hope they do—they risk not growing at the rate that they could with the right support from Government.
Kwasi Kwarteng (Spelthorne) (Con)
I am grateful for the opportunity to speak in the debate.
I am pleased and interested to learn that the shadow Chancellor recognises that the problem we face is an international problem. He spoke eloquently about the deepening eurozone crisis, and also about the prospects for Greece and Portugal, which frankly are not too good. I am also pleased to speak having heard the speech of the hon. Member for Hackney South and Shoreditch (Meg Hillier), who gave a graphic account of the difficulties that we face from the point of view of her constituents. What we have not heard from the Opposition is an admission that they were in any way responsible for the difficulties that we face today. What we have heard, from Members on both sides of the House, is the expression of a desire for a bipartisan approach and a civilised debate, and I am all for that. However, if we are to understand the challenges that we face today, we must understand how we got into this mess in the first place.
It is true that every country in the OECD and in the economically developed world faces similar challenges, but it is not true that those countries managed their public finances as badly as we did in the years between 1997 and 2010. Let us rehearse some of the facts. We entered this period of our national life with a higher deficit-to-GDP ratio than any other OECD country: 12%, when the German ratio was 3.3%. That was a direct consequence of decisions made by those on the Treasury Bench between 1997 and 2010. As my hon. Friend the Member for Sevenoaks (Michael Fallon) pointed out, the then Government ran a deficit in every year between 2001 and 2010—for nine straight years. Even when the economy was booming, we ran deficits of £30 billion a year in 2002, 2003 and 2004. The shadow Chancellor referred to Lord Keynes—
Emma Reynolds
I should prefer the hon. Gentleman to speak about debt-to-GDP ratios. Does he accept that on the eve of the world recession we had the second lowest ratio in the G7, second only to Canada’s?
Kwasi Kwarteng
What the markets were looking at was the deficit. The hon. Lady may remember what happened to the gilt market as her party’s Government were being shunted out. The price of British Government debt rose and yields fell in direct anticipation of Labour leaving power. The markets made their own decision. In the last 18 months, the price of British Government debt—that is, the interest rates that we pay—has fallen. It has managed to remain at the same level, precisely because markets realise that the Chancellor and his team are doing the right thing in tackling the deficit. We have been told repeatedly that if we were to show any relaxation of our deficit reduction programme, the markets would dump our bonds and interest rates would rise, which would cause immense damage to the hon. Lady’s constituents as well as mine.
Rachel Reeves
Does the hon. Gentleman accept that before the last general election—between January and May 2010—yields on Government bonds were falling and they have stayed at low rates since the general election? The markets did not know which party would win the election because the campaign was so close. Therefore, the hon. Gentleman cannot argue that those yields were falling in anticipation of an incoming Conservative Government, because nobody knew that.
Kwasi Kwarteng
The yields were not falling in anticipation of a Conservative Government, but they were certainly falling in anticipation of the then Labour Government going out. Markets anticipate events—that is how people make money—and the markets had, in their wisdom, decided that Labour would not be re-elected. I assure the House that if Labour had been re-elected, the markets would have dumped British debt and we would be facing a much tougher interest rate environment than we currently face.
I always enjoy listening to the shadow Chancellor’s speeches, as they are very entertaining, and I enjoyed his speech today—I think one Member even mentioned vaudeville, which I think does vaudeville discredit. However, I was staggered by the shadow Chancellor’s assertion that the fact that we have low interest rates is somehow a reflection of our having a weak economy. That was an extraordinary claim. People in my constituency are very grateful indeed that we have low interest rates, because that enables them to pay their mortgage liabilities. It seemed extremely arrogant for a supposedly responsible politician to say on the Floor of the House that low interest rates were a bad thing, which was essentially what the shadow Chancellor was arguing. [Interruption.] He was suggesting that they were a symptom of a weak economy, which is a bad thing.
On the contrary, however, our low interest rates are a signal that the markets have confidence in this Government. They have absolute belief that the current Government are going to deal with the deficit that was created, almost deliberately, by the Labour Government. We in the House of Commons have to understand why this deficit arose, so we can explain that to the country. It was not just handed down to us by some Moses figure—although the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) probably thinks of himself in that way. It was not handed down from on high; rather, it was created by Governments and by the Members who then sat on the Treasury Bench, and it was created for the simple reason that they, in their arrogance, honestly believed that they had abolished boom and bust. We all remember those statements, and it is an arrogant misrepresentation of the past to suggest that they did not think that. The last Prime Minister believed that he had solved the key economic question of our time, but he was wrong, and it is as a direct consequence of his mistake that our Government have had to introduce the policies we are pursuing.
Many people will ask why we do not have a different plan. They will ask: “Why don’t you suddenly borrow and spend more money in the time-honoured Labour fashion?” That would be a road to disaster, however. It would create a massive lack of confidence and lack of credibility in the British Government’s programme, leading to the markets dumping our Government debt and our interest rates rising. It would lead to people in our constituencies having to face higher payments every month. They would be squeezed even more if we were not as focused and committed as we are to reducing the deficit.
I have tried to inject some reality into this debate. We have heard consistent denials from Labour Members, and we have heard no admission of guilt or wrongdoing and no ideas as to how we might get out of the situation we are in. We have also heard no real arguments to attempt to explain why what the last Labour Government did was right. Interestingly, no Labour Member has said in this debate, “We did a marvellous job; we gave you a golden inheritance.” I would grant them more credit if any of them would be bold enough to stand up and say that, but they will not do so. That is because, as everyone in this country knows, Labour is bereft of ideas, and it would be a disaster if we were ever to leave our future in its hands again.
Sir Stuart Bell (Middlesbrough) (Lab)
I am grateful for the opportunity to follow the hon. Member for Bromsgrove (Sajid Javid), who has real knowledge and experience of the bond markets, as he has revealed today. He obviously knows a lot about the ratings agencies and he has a Bill before the House on debt ceilings. He is also an expert on credit default swaps. I share his great enthusiasm for that, but he will have to explain, on the basis of what he has said and what the Government’s policy is, why, if this is about deficit reduction and debt reduction, £46 billion more is going to have to be borrowed and spent in the next few years to cover their policies.
I want to mention Teesside because we have had the good news in the past few days that the insurance company, AXA, proposes to create 450 jobs in Middlesbrough, adding to the 300 staff it employs at Teesdale in Stockton. A great deal of comment—indeed, criticism, I would say—has come from my hon. Friends the Members for Leeds East (Mr Mudie) and for Gateshead (Ian Mearns) about the creation of enterprise zones and about the regional growth fund. In all my years in the House of Commons, I have had to deal with the Government of the day and although we might have liked to keep the regional development agencies, the reality is that we now have enterprise zones and the regional growth fund. We on Teesside have benefited from the regional growth fund and we also have an enterprise zone that we worked very hard to achieve—and now we will work very hard with the Government. There is also the good news that 1,000 staff are being taken on at the former Teesside Cast Products plant, with 100 already beginning the induction programme.
The Prime Minister, in Question Time today, ventured to say, in his feisty exchange with the Leader of the Opposition, that 300,000 new apprenticeships had been created in our country. I visited Carillion in my constituency last week to see the sterling work that it does in training apprentices in the real-life work of bricklaying, concrete mixing, pneumatic drilling, and other such skilled tasks. That is the kind of work that we see being done across the land on rainy and windy days—precisely the conditions under which those young men were working. Those young apprentices are a credit to themselves and to their future. I welcome the Prime Minister’s comments on the apprenticeship scheme.
If we take an overall look at what the Government are doing, we find the law of unforeseen consequences. There is a lack of compatibility in their objectives. Unemployment rises, so benefits have to rise. Benefits have gone up by £12 billion. We have heard a lot about the Welfare Reform Bill; the Prime Minister referred at Question Time to universal credit, and the Chancellor referred to the Bill today; he said that our amendments to it would add to the deficit. Of course, amendments can be reasoned, substantive or probing. Until we see them when they come before the House and know how we will vote, they have no great significance.
We see in our country, and we saw in Greece, that a too-rapid deficit reduction will lead to reduced growth. The classic example of Greece, to which my right hon. Friend the Member for Edinburgh South West (Mr Darling) referred, shows that if deficit reduction is too steep, there will be zero growth. That is the situation in our country: we have been reducing far too quickly. We talk as though my right hon. Friend never had a deficit reduction programme. We had one: we would have reduced the deficit by half over four years—a policy that even Mervyn King supported before the Government changed; then he changed to a different policy.
We were compared with Greece, which I always find very offensive to the Greeks, never mind to ourselves. The fifth largest economy in the world was being compared with a nation state of 12 million people in the Mediterranean—a state that cheated on its accounts with the European Union. Not only was that comparison offensive, but it distorted our country’s entire policy on deficit reduction.
Sir Stuart Bell
I am not giving way; it is too late in the day. The unforeseen consequence of a too-rapid reduction in the deficit and no growth is that confidence has gone from our system. The hon. Member for Sevenoaks (Michael Fallon) referred to that. We have lost confidence. We say that we have the confidence of the markets, and of course we do; why would we not? We do not have the confidence of the people—of those trying to find jobs, of the young who have lost their jobs, and of other unemployed people. We do not have the confidence of the ordinary person in the street, who looks at the Government and sees the failure of their policies, so I would be cautious if I were a Government Member.
I come back to a statement made by my right hon. Friend the Member for Edinburgh South West, and I invite the House to remember it. There will be a change in policy. It will not be plan B or plan C. It will come in the autumn statement or the next Budget. The policy needs to change if we are to get growth. There is no future in a steep deficit reduction that will never lead to growth—not now, and not in the future.