Budget Resolutions and Economic Situation

Lord Willetts Excerpts

Friday 20th March 2015 Commons Chamber

[Mr David Willetts (Havant) (Con)]

It gives me great pleasure to contribute to this debate towards the very end of my time as the Member of Parliament for Havant. It is an opportunity for me to welcome the Budget and to salute the Government’s record in managing the economy, with 2.5% growth this year. It is that record that leads Government Members to feel compelled to describe our long-term economic plan, and I should like to turn to that part of the long-term economic plan that the shadow Secretary of State failed to acknowledge.

[Emily Thornberry]

I am so disappointed in the right hon. Gentleman for using such a empty phrase. Of all the Members who are leaving, we will regret his loss as he is an intelligent man and can explain himself much better than in these rather silly Tory buzz phrases.

--- Later in debate ---

[Mr Willetts]

I am touched by the hon. Lady’s intervention. Let me try to explain to her the part of the long-term economic plan that I think is relevant to the comments made by the shadow Secretary of State. When the original fiscal strategy was set out, which included the forecast for economic growth set out by the OBR, the Chancellor made it clear that if growth was not as great as forecast by the OBR, he would accept that tax revenues would regrettably be less and the fall in public spending might not be as great—because of what are called the automatic stabilisers. Those automatic stabilisers were explicitly part of the plan from the beginning and, because of them, we have ended up borrowing rather more than was forecast initially. In other words, what the Opposition criticise as somehow a failure of the plan was always part of the plan. There was always a recognition that it would need that flexibility and if they are really saying that we should have cut even more or raised taxes even more as a result of the economy performing less well in the early years than had been forecast by the OBR because of the crisis in the eurozone, that would have been bad for the economy. I am grateful for this opportunity to explain a key feature of the plan.

I draw the House’s attention to my entry in the Register of Members’ Financial Interests, and I want to focus on two or three aspects of the Budget. I particularly welcome the imaginative package on savings. The Help to Buy ISA is an excellent innovation. I like the new flexibilities through which savers can put money into an ISA and temporarily withdraw it. It reminds me of the work that I did in the long days of opposition on what we called a lifetime savings account. It was intended to have the flexibility of people being able to put money in and take it out because it recognised the paradox that if people know that they can take their savings out of a savings instrument, they might be willing to save more in the first place. It is like the paradox that the device in the car that enables us to drive faster is the brake—when we know that we can brake we are willing to drive faster and when we know that we can take money out we might be willing to put more in.

Alongside those measures is the extra revenue generated by restricting the lifetime allowance for pension savings to £1 million. That presents the Opposition with a dilemma, because of course it was one of the measures that they announced would help fund their policy on higher education. I would be very interested to hear from the Opposition spokesman, the hon. Member for Liverpool, Wavertree (Luciana Berger), when she winds up what the Labour party envisages as the future of that much-derided commitment on university finance. Let us be clear what we are talking about. If Labour reduces fees to £6,000, that must be financed by an increase in the public expenditure going to universities. That is of no direct benefit to students, and the most that universities might hope for is some compensation for the loss of the income from fees. The beneficiaries are solely affluent graduates in middle age who will find themselves completing the process of paying loans back rather earlier.

When I heard the shadow Secretary of State speaking so passionately about housing and the importance of investing in it, I wondered what it said about Labour’s priorities. If Labour had £5 billion or £10 billion to spend, why on earth did it decide that its priority was affluent middle-aged graduates rather than, for example, a further package on housing? Many members of the shadow Cabinet must be frustrated by the bizarre priorities reflected in that judgment.

[Gavin Shuker]

The right hon. Gentleman makes his case clearly and in a statesmanlike manner, but I was in this House when he was taking through the legislation on fees. There were 91 speakers over those two days. I did not have the opportunity to speak but I was one of only about 10 Members of Parliament who knew what it was like to graduate with a large amount of student debt. I can tell him that it is paralysing and that it puts people off going to university.

[Mr Willetts]

Fortunately, the evidence is that the number of people applying for university is at a record level and that the proportion of people from disadvantaged backgrounds applying for university under the excellent stewardship of my successor, my right hon. Friend the Minister for Universities, Science and Cities, who I see on the Front Bench, has just hit another record. It looks as though those anxieties were misplaced, thank heavens.

Investment in higher education is part of a wider theme in the Budget. I welcome the proposals to invest in our young people in other ways. We have a fantastic record of falling youth unemployment and we have yet further investment in infrastructure. One of the best ways in which we can protect the interests of future generations is by leaving them with better kit and capital investment than we found.

As the debate was opened by the Secretary of State for Communities and Local Government, I must say that one of my long-standing Whitehall battles was a belief that the fragmented structure of local authority pension schemes in this country is an obstacle to long-term investment in infrastructure and in venture capital. It is frustrating that we have such a substantial amount of money going into funded pension schemes but, as they are in a multiplicity of small schemes, they cannot aggregate their investment and take the risks that would allow them to invest in substantial venture capital or long-term infrastructure. That is work in progress and more needs to be done.

While I am refighting old battles, let me also say how much I welcome the reference in the Budget Red Book to investment in rural broadband including via satellite. The current situation has never ceased to baffle me. I went to see the launch of a satellite as part of a European Space Agency project from Guiana that was going to deliver broadband services to areas of Africa that could not necessarily get conventional mobile phone coverage. It would be perfectly possible for us to guarantee 100% broadband cover for all parts of Great Britain if we were willing to use satellites to supplement conventional delivery of those services.

Let me end with praise for the Chancellor’s innovations in science and technology. We have established a happy tradition of bold new announcements on science and technology in Budgets and autumn statements. I welcome the ingenuity that has enabled a further £30 million to be invested in the excellent Crick institute.

I particularly welcome the new freedoms for research institutes, which is a response to a real competitive challenge. My hon. Friend the Member for South Suffolk (Mr Yeo) mentioned that. Let us be clear what form the competition takes. If a Nobel prize is awarded to a scientist in the UK, the Singaporeans will be absolutely clear that he or she will be able to earn a multiple of their current salary if they go to Singapore, and other competitors will make the same offer. An offer will be made to build a completely new facility of whatever sort they want. Their entire research team will be offered double their salary if they move lock, stock and barrel. It is very important that we are able to compete with such offers.

I think of our record of nuclear R and D. When major American universities recruit for expertise in nuclear R and D, they come calling in the UK. We need to be able to respond to that, and the current regime of salary and other constraints makes that harder. The new freedoms represent an excellent opportunity for us to compete globally in science.

Finally, I welcome the bold measures to support 5G communication. We had a great lead on mobile phone technologies. We lost it, I have to tell Opposition Members, because Labour’s auction of 3G licences was too successful. It extracted too much money from the industry. We have managed to catch up to some extent in 4G. We have a real opportunity to be world leaders in 5G. I support that, and it will in turn make other technological advances, such as the internet of things, possible.

All in all, this is a Budget for the future, a Budget for future generations, and it is a great pleasure for me, in one of my last speeches in this House, to be able to support it.

[Hon. Members]

Hear, hear.

[Gavin Shuker (Luton South) (Lab/Co-op)]

I do not know whether the right hon. Member for Havant (Mr Willetts) is taking the opportunity of making a valedictory speech next Thursday.

[Mr Willetts]

indicated assent.

[Gavin Shuker]

He is. Good. In that case, I need not offer any further praise other than that which many Government Members expressed when he sat down.

Mr Deputy Speaker, as you know, for the rest of us, life goes on. I am a diligent young man, as you know, so I have done my due diligence in tidying up my office and preparing for disillusionment. [Laugher.] Not so Freudian. I very much hope and expect to return after the enforced recess, which I am sure will give lots of people lots of pleasure.

However, in the process of clearing out my office I came across an incredibly rare document—something which I suspect many people do not have in their office any more—a copy of the 2010 Budget Red Book. That sound of shredding that you heard across Whitehall in recent years has been a series of Red Books being firmly thrown away. I raise the subject with reference to this Budget debate because that volume contains hugely interesting analysis.

In the Budget 2010 Red Book, on the page marked “Responsibility: deficit reduction”, the OBR set out what would happen

“without further action to tackle the deficit”.

It predicted what would happen if the Tory-Lib Dem austerity Budget was not implemented. It predicted that in five years’ time—in other words, in the financial year that we are just coming into—public sector net borrowing would remain at 4% of gross domestic product, having been at or above 5% in six consecutive years. It predicted that the structural deficit today would be at 2.8% of GDP, with the structural current deficit at 1.6%, and that debt would be rising, in the year that we are currently in, to 74.4% of GDP, with annual debt repayments of £67 billion.

We are forced to ask ourselves a question: at the end of this Parliament, after five years of Tories and Lib Dems in control, what happened next? Well, the stark analysis is that the Chancellor’s actions were worse than doing nothing. They talked down the economy for political ends and then threw what was at that point a growing economy into neutral for three years. Our public finances have performed worse than if the emergency Tory-Lib Dem Budget of 2010 had never happened.

This year’s Budget was meant to be the reward. It was meant to be the election-setting Budget. After four years of Tory pain, this was meant to be the sunny uplands—the debt starting to be paid off, the deficit ended. But the Government failed—by their own standards, not mine but those that they laid out in this book. It is the slowest recovery for 200 years. And it is to be followed after the election, should the Tories be back in power, with a slashing twice as big as that of any previous year, or any year in this Parliament.

So where are we? Public sector net borrowing is forecast to be 5%—not 4%—in 2014-15 and 4% next year. In fact, that is the same level forecast by the OBR if no action had been taken in that emergency Budget. The structural deficit is forecast to be 4.2%—not 2.8%—in 2014-15. The structural current budget deficit is running at 2.5%—not the 1.6% predicted. That is not just the same as inaction; it is worse. The public debt is still rising this year. It is claimed that it will drop in the next year, as we know, but we know that is because of some cleverly timed asset sales. We will see what happens next year. The public debt is forecast to hit 80.4% this year—five whole percentage points higher than it would have been if no action had been taken.

On all these measures—on borrowing, on the structural deficit, on the structural current deficit, on the debt—this Tory-Lib Dem austerity programme has undermined their own plans and our public finances. While we are talking about the debt, let us not forget that this Government have borrowed more than every previous Labour Administration put together. They have doubled the debt and it is still rising today. The Government have borrowed more in just over three years than the last Labour Government borrowed in 13 years, so we will take no lectures from them on the public debt and deficit.

Let me tackle this head-on. The Secretary of State for Communities and Local Government and the right hon. Member for Havant made a case for what should be done. The Secretary of State’s response was deeply telling when he was challenged on the fact that the Government had only halved the deficit rather than eradicated it, as was their original plan. He said that Labour Members were conflicted or confused—that our saying that the deficit should be lower was a sign that we were pushing for deeper, further and harder cuts. That is so telling because it points to the fact that to this Administration, everything is a nail and all they have is a hammer. But growth is a three-legged stool as are the public finances, despite the Government’s ideology. It is not just cuts but growth. There were three lost years before the inevitable rebound—admittedly aided by lower borrowing costs owing to a lack of demand in the eurozone and aided by a low oil price, which the Chancellor, by the way, has had nothing to do with despite the fact that he has tried to claim the credit for it—and the slowest recovery in 200 years.

Living standards matter. The Government failed, at the start of this Parliament, to see living standards as a central issue, with effects on tax receipts, job security and in-work benefits. The Chancellor spent an hour on Wednesday telling us that we have never had it so good. That does not reflect real people’s experiences of this economy, of their job security, of their children’s future, and the additional prices that they are paying for this Government’s failure.

There you have it, Mr Deputy Speaker. All this pain, all this hardship, paid for not on the backs of those with the broadest shoulders, who have received significant tax cuts, but on the backs of the poor. Families hammered; debt doubled and debt rising; growth years behind; and the deficit only halfway there, with deep pain to come. We are still borrowing £90 billion a year. For all the noise, for all the bluster and for all the words exchanged over the Dispatch Boxes in five Budget statements and five autumn statements, ordinary people are taking the pain. Unbelievably, this has been worse than doing nothing. That is the great Tory tragedy, not their triumph. Wednesday’s speech should be known for the hubris that it displayed.