Budget Resolutions and Economic Situation

Lord Barwell Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Sammy Wilson]

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

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

[Gavin Barwell (Croydon Central) (Con)]

Is the hon. Gentleman aware of the paper published by Goldman Sachs on 14 April, which reviewed every major fiscal correction in the OECD since 1975, and concluded,

“we find that decisive budgetary adjustments that have focused on reducing government expenditure have…typically boosted growth”?

[Sammy Wilson]

The context in which those adjustments take place is important, as is the speed at which they happen. All I am saying is that one way in which this Budget must be judged is on how effective it will be. Neither the report, nor the assurances given by the Chancellor today, offers any firm guarantee, if indeed that can be given, that the Budget will be effective.

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[Chris Leslie]

I sincerely hope that that does not happen, but I worry that my hon. Friend may well indeed be right. The Government have tried their best to stagger the arrangement by delaying the introduction of the VAT rise, but they had better hope that the recovery is well under way by the time that the increase comes in—I think, in January—because, if there are still difficulties in our economy and they wallop up VAT by such a large amount, we risk a double-dip recession, which would particularly hit those who are in greatest need.

I want to talk about the most pernicious parts of the Budget which affect child poverty and even infant mortality: for instance, the scrapping of the health in pregnancy grant—just stating its name makes me incredulous that the Government have chosen it—in this financial year, from January onwards, coupled with the restriction of the Sure Start maternity grant to the first child from April 2011. I shall be very interested to see whether Government Members will walk through the Lobby with their heads held high to vote on those measures in respect of pregnant women in the greatest need. Coupled with the freezing of child benefit for three years, the shunting of lone parents off income support from next year—something that is also hidden away in the Budget—the abolition of the child trust fund and a couple of other things that the Chancellor spoke about very quickly in his statement, such as reversing the child tax credit supplement for one and two-year-olds and removing the baby element of the child tax credit from next year, which will cost young new families across the country £295 million, that is a phenomenal tax essentially on those who are in greatest need. Taken together, that seems to be one of the most despicable series of changes in the Budget.

[Gavin Barwell]

rose—

[Chris Leslie]

I should like to hear the hon. Gentleman justify those changes.

[Gavin Barwell]

The hon. Gentleman is being very generous in taking interventions. Has he had the chance to look at chart A6 on page 70 of the Red Book, which shows the combined effect of the freeze in child benefits and the indexation increase in child tax credit? It demonstrates that the two changes are extremely progressive when taken together and not regressive, as he tries to argue.

[Chris Leslie]

It is interesting that the hon. Gentleman talks about that table because I have looked at the whole of annexe A of the document, which attempts to suggest that the changes will affect all income levels fairly and that we are all in it together. However, the tables extend only to 2012-13, which is only a couple of years hence. If the hon. Gentleman has a copy of the document in front of him, he will see that page 40 shows that cuts in benefits really start to bite in—guess when—2013-14 and 2014-15. There is more spin in the document than in any Budget document that I have seen before. If the hon. Gentleman would care to table a written question to the Chancellor to ask for the tables to be extended beyond the short period to 2012-13, I would then be more than happy to debate fairness implications.

I would like to raise a few more of the many hidden elements in the Budget. The Budget will levy an extra £455 million of tax on the insurance bills that our constituents pay, such as for buildings and contents insurance, although I do not think that the Chancellor mentioned that in his statement. The Government will also scrap the saving gateway, which was due to be introduced in July. That initiative was designed to encourage the very poorest in society to save for the future, but it is gone as a result of the Chancellor’s generosity. Given that the child trust fund is also being scrapped, we will have no measures to encourage the poorest in society to start the savings habit, so it is a great pity that Government Members will support such policies.

A further hidden element in the Budget is the Government’s announcement that they will cut support for the payment of unemployed people’s mortgage interest by £15 million in this financial year, although that support is given at the point of those people’s lives at which they are in most need.

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[Chris Leslie]

Absolutely—my hon. Friend is right. We need a mature debate about the economy, and the hon. Lady should listen to her hon. Friend the Member for Wycombe (Steve Baker), who said that there are differences of opinion. There is not just one particular view of these things.

There are risks to the economy from completely pulling the rug from under it by doing things such as imposing tax increases that go too far or cutting public expenditure too swiftly or harshly. If the hon. Lady thinks that we can cut public expenditure harshly without any ramifications for the economy, I shall just have to beg to differ.

I have been director of a local government research organisation for the past five years, and something that I suspected would be in the Budget looks as if it may be coming. Capital expenditure will reduce significantly, but many local authorities rely on public borrowing from the Public Works Loan Board, which has a prudential borrowing regime that offers considerable freedom to local authorities as a means of accessing capital for important projects in our constituencies. The Budget document reveals that the tap may well begin to be turned off for local authorities, and discusses monitoring that lending far more closely. Reading between the lines, the implication is that the Government are considering reviewing the prudential borrowing regime. I urge members of the Government, particularly the Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill), who helpfully has come into the Chamber especially to hear my contribution, not to change that prudential borrowing framework, because the implications may be severe.

[Gavin Barwell]

I thank the hon. Gentleman for giving way again. He has just made an important point, but I should like to take him back to his reply to my hon. Friend the Member for Devizes (Claire Perry). He said that he wanted a pro-growth strategy. I am sure that everyone in the Chamber wants growth, but does he accept that by definition, growth will not deal with the structural deficit, which is what is there, even when the economy returns to growth. How would he deal with that deficit?

[Chris Leslie]

I disagree. I think it is possible to deal with the structural and cyclical deficits through pro-growth strategy. The fact that the Government’s so-called independent Office for Budget Responsibility has downgraded the growth forecast as a result of measures in the Budget shows that even it has had to admit that there are dangers in their strategy. I hope that they are absolutely confident about this—they seem to be—although I detect that a few Government Members may have doubts and questions in the evening when they are looking at the measures that will be introduced. I hope that they will look at them line by line, and not just hold their noses and vote regardless, especially Liberal Democrat Members.

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[Gavin Barwell (Croydon Central) (Con)]

Thank you, Mr Speaker, for that advice on timing.

My constituents understand that, as a country, we are in a hole. The public sector makes up nearly 50% of the economy, and we have the second highest budget deficit as a percentage of national wealth of any OECD country—it is high not only relative to our competitors, but by historical standards. According to the Library, the deficit was 11.1% last year, compared with previous peaks of 7.7% in 1993-94 and 4.8% in 1980-81. This year, we are in the ludicrous position whereby almost a quarter of all the money the Government spend is being financed by more debt.

According to the OBR, things are worse than the previous Government told us. The structural deficit—the part of the deficit that will not disappear as the economy recovers—which we should focus on, is worse than predicted in the previous Budget. My constituents recognise that the structural deficit is partly the result of a global recession. They and Conservative Members also entirely understand that it is not all the fault of the previous Government, who had to respond to a recession. However, it is also partly the result of the previous Government spending more than they were willing to raise in tax over a prolonged period.

Some Labour Members seem to have convinced themselves that the recession is all the fault of bankers. It is rather ironic for them to blame bankers when we consider that the things the banks did wrong—failure to set aside money in the good years, holding liabilities off balance sheet and constantly going to the markets to raise money—are exactly the policies that Labour pursued in government. The fact is that we were running a structural deficit of nearly 3% from 2002-03 through to the beginning of the recession. We are still waiting for an apology for that mistake, which has contributed to the problem that we face. Indeed, listening to the synthetic anger of Labour Members today has been rather difficult, because the current Government are dealing with the mess they inherited from the previous regime.

[Nicky Morgan (Loughborough) (Con)]

Would my hon. Friend like to comment on the fact that there is not a single Opposition Back Bencher here today? It may well be a sunny afternoon, but not a single person is here to defend Labour’s record when my hon. Friend is talking about some very serious matters.

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[Gavin Barwell]

My hon. Friend’s question is almost telepathic, because I was about to say that if the anger was genuine, I would have expected the Opposition Benches to be full throughout the debate, but that has not happened.

[Bill Esterson]

Will the hon. Gentleman give way?

[Gavin Barwell]

I would happily give way but I want to make progress, if I may, given the time limit.

My constituents understand that the problem is due partly to the recession and partly to the previous Government. What they were looking for today is the truth, and for the Government to take the right decisions for the long term rather than chase tomorrow’s headlines. They want the deficit to be tackled without undermining the recovery, and as far as possible in a way that is fair to all sections of society and that protects front-line services. In her response, the Leader of the Opposition seemed to agree with those principles—but then told us absolutely nothing about how Labour would do things differently.

[Bill Esterson]

Last time I checked, I was an Opposition Back Bencher, as are my colleagues sitting next to me. I take exception to comments that suggest otherwise.

[Gavin Barwell]

Some Labour Back Benchers have attended the debate, but the Opposition Benches have hardly been full. The record is fairly clear.

The hon. Member for Leeds West (Rachel Reeves), who is not in the Chamber, said that it is the responsibility of the Conservatives to come up with the answers. It certainly is, and the Chancellor has discharged that today. However, it is the responsibility of the official Opposition to come up with a realistic alternative if they disagree with his measures. The hon. Members for Nottingham East (Chris Leslie) and for Great Grimsby (Austin Mitchell), who are also not in the Chamber, went much further and suggested that we could just grow our way out of the problem. They seemed not to understand that a structural deficit is one that will not disappear as the economy grows.

The key questions that my right hon. Friend the Chancellor had to answer today were: by how much to reduce borrowing, how quickly to do that, and what should be the balance between spending cuts and tax increases. The previous Government planned to dig deeper still into the hole by the end of this Parliament, and my right hon. Friend made the right judgment when he said that we should be in balance by the end of that period, and that we should have started paying off debt by 2014-15.

To the extent that I understand the Opposition’s position, they seem to be saying that we are doing too much too soon, and with too heavy a reliance on spending cuts. There are no risk-free options—it is actually a matter of judgment of the balance of risks—and there is growing evidence that the real risk to recovery is not robust action, but inaction. Anyone who has got into debt could tell us that the longer one leaves the problem, the worse it gets.

We are not going to convince Opposition Members on that point, because they have convinced themselves that Conservative Members take some ideological joy from cutting public services. It is worth putting on the record that that is complete and utter nonsense. I had lymphatic cancer at the age of seven and the NHS saved my life, and I have two children in a state primary school. My constituents want more police officers on their streets, and road maintenance to improve. I have come to this place wanting better public services, but they can be delivered only within a stable financial setting. That is what Conservatives stand for. There is a growing consensus on this point: the Liberal Democrats have shifted their position in the light of recent events in the money markets, and the Governor of the Bank of England, in a press conference on 12 May, said:

“it is very important that measures are taken straight away to demonstrate the seriousness and the credibility of the commitment to dealing with that deficit… I am very pleased that there is a very clear and binding commitment to accelerate the reduction in the deficit over the lifetime of the parliament, and to introduce additional measures this fiscal year to demonstrate the importance of getting to grips with that”—

problem—

“before running the risk of an adverse market reaction.”

The G20 communiqué a couple of weeks ago stated:

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their…frameworks”.

On the balance between spending cuts and tax rises, Goldman Sachs published a paper on 14 April that reviewed every major fiscal consolidation since 1975 and concluded:

“we find that decisive budgetary adjustments that have focused on reducing…expenditure have…been successful”

and “typically boosted growth”, and that by contrast, those that rely on tax increases

“typically fail to correct…imbalances and are damaging for growth.”

The Office for Budget Responsibility forecasts, based on the Budget, to which the Leader of the Opposition referred, show a slight reduction in growth this year and next compared with previous forecasts; but then, forecast growth is actually stronger as a result of the measures the Chancellor announced today.

On public services, there are many public sector employees in my constituency and they will be rightly concerned about what the Chancellor’s announcement today will mean for them. I welcome the commitment to protect the NHS, which clearly suffers from inflation above and beyond general inflation in the economy. That protection is well justified. I also believe there is the potential to make cuts without damaging the front line. Lord Myners, the former Financial Services Secretary, said in the other place:

“there is considerable waste in public expenditure. I have seen that in my own experience as a…Minister.”—[Official Report, House of Lords, 8 June 2010; Vol. 719, c. 625.]

Between 26 May and 2 June, the Institute of Chartered Accountants in England and Wales interviewed a number of its members, over 80% of whom believed that further efficiency savings were possible. I point out to the Treasury Bench that we must look at welfare payments, as the Chancellor said we would, over the next few months, because a 25% reduction in departmental expenditure is a significant target.

Let me say a few words about fairness. We need to protect not just the poorest but those in lower-paid jobs, who all too often are the group targeted whenever money needs to be raised. In that regard, raising the income tax threshold, thereby taking 880,000 people out of income tax, is a fantastic measure from the Liberal Democrat manifesto—but one that all Conservatives, I think, are happy to support. I also welcome the one-year council tax freeze. My own Conservative-controlled local authority will take advantage of it, and we hope that the Treasury Front-Bench team will find the money to extend it for a second year, as promised in the Conservative manifesto. On being progressive, I draw Members’ attention to chart A2 on page 67 of the Red Book, which shows that the overall effect of the package of measures announced by the Chancellor is progressive.

Finally, I would like to make a moral point, above and beyond the economic arguments I have tried to advance. Over the past few years, we in this country have been living beyond our means. The current generation is imposing a burden on our children and grandchildren. Above and beyond the economic arguments that will take place on the Floor of the House about that, it is morally objectionable to saddle our children in this way with debts they will spend their entire working lives trying to pay off. Although the measures the Chancellor has announced are tough, he told the truth and struck the right balance. There is a stark contrast between that and the Labour party’s complete lack of recognition of the problem, its lack of responsibility and its failure to apologise.