Loans to Ireland Bill

Mark Field Excerpts

Wednesday 15th December 2010 Commons Chamber

[Mr Osborne]

Sweden and Denmark are at this moment finalising their loan agreement, and I do not think they have yet made that decision. As I have said, we decided to lend in sterling so that the exchange rate risk would be borne by the Irish rather than the British Government.

The official advice from the Treasury is that the loan agreement represents value for money for the British taxpayer. As I said earlier, it is also in line with the terms offered by both the IMF and the eurozone. I have laid before the House a summary of the key terms of the agreement, and a final written agreement will be forthcoming in the next few days—or, potentially, weeks—once the European and IMF assistance has also been agreed. I will, of course, keep the House informed.

One thing is clear: Ireland is a friend in need, and it is because our economy is currently in a stronger position than Ireland’s that we are able to offer it such reasonable and sensible terms for our bilateral loan.

[Mr Mark Field (Cities of London and Westminster) (Con)]

I understand all the Chancellor’s concerns about the close relationship between us and Ireland. He said it was important for this country to be at the table in terms of any restructuring. Does he understand the concerns of many of our constituents, who would say that a similar argument could be advanced if there were problems for, say, Santander in Spain, or for other European banks with significant interests in London? Will he make it very plain at this juncture that he considers this to be a case in its own right, rather than one to which we might have to return in the next six to nine months if further problems arose in the eurozone?

[Mr Osborne]

I have said that I regard this as a case in its own right—a very specific case. As I have explained, quite candidly, my officials offered me two options: a general, enabling piece of legislation allowing us to make bilateral loans to other countries, and the much more narrowly drafted Loans to Ireland Bill. I think that the clue is in the title.

--- Later in debate ---

[Alan Johnson]

Maybe.

[Mr Mark Field]

I will try to make a more helpful point. Given that the Opposition are supporting this loan arrangement, does the shadow Chancellor think it desirable that part of it should be bilateral and therefore agree with the structure that the Chancellor has put in place?

[Alan Johnson]

I do agree that part of it should be bilateral, for all the reasons that I have mentioned. As various members have commented, however, we need to understand why the formulation has been made—because it could be setting precedents; because there is a larger pot of money out of which a lesser sum of money is being brought; and because the Chancellor can come back to this House, by virtue of a statutory instrument and seek further money for Ireland. We need to be clear what we are letting ourselves in for.

Finance (No.2) Bill

Mark Field Excerpts

Monday 8th November 2010 Commons Chamber

[Mr Hanson]

I have taken advice in drafting the new clause, and my advice is that it is workable and applicable, although I have had to leave out certain aspects. My purpose is not to force this particular model on the Treasury, but to use the new clause as a debating point, so that the Treasury can respond to the principle and decide whether this is a good proposal that will help matters, bring investment back to the United Kingdom and be supportive. I would, potentially, be happy to withdraw the new clause at the end of the debate, and I am happy to listen to what the Minister says, but I want to get to the nub of the issue.

The Under-Secretary, the hon. Members for Bath and for Dundee East, who speaks for the Scottish National party, my hon. Friend the Member for Dundee West and Labour Front Benchers all think that some form of games tax relief to help maintain the industry in the United Kingdom would be a good thing. All I want today is for the Minister to say, “Yes, I agree with that general principle. Over a period of time, I will look at how we make this proposal workable and how we bring it back in a future Budget or Finance Bill.” Indeed, he could say today that he is happy with the proposals and that the Government will look at them again in the near future in whatever format they choose. It is important to get that on the table.

Dr Richard Wilson, TIGA’s chief executive, has set out his view that we will potentially lose jobs. He said that

“the UK is losing out on jobs and investment because of the absence of Games Tax Relief.

High-skilled jobs could be created in Manchester and Warrington. Instead they are being created in Montreal.”

He says that that is particularly because our

“key competitors, particularly Canada, have tax breaks for games production. The UK does not.”

Others who comment on these matters, such as Danny Bilson, THQ’s vice-president for core game brands, has said:

“The talent in the UK is extraordinary...We have a studio up in Warrington that’s an excellent studio…but I’m sorry, it’s…about money at the end of the day.”

We need to ensure that we have the support for such things. That is the reality of the market. World-leading publishers recognise that we have an asset, which it has taken years to build up and which is worth hundreds of millions of pounds, but it will go abroad if we do not compete on the same level as our Canadian colleagues. In France, there is a 20% tax reduction for video games, and tax provisions in Canada have driven up staff numbers by 43%, but in the United Kingdom we have seen the head count start to decline over the past few years.

I do not want to go into great detail or to take up the House’s time. I simply want to tell the Minister that there is real scope for these proposals. There is scope to develop the UK film tax credit model and to use it for the UK video game tax model. We can ensure that we help to grow the sector, and we can meet the commitments that colleagues made during the general election campaign. I tabled the new clause so that we could hear whether the Minister is still of the view that there is no scope for such proposals or whether he could look at the issue in detail and bring back proposals in due course. I commend the new clause to the House.

[Mr Mark Field (Cities of London and Westminster) (Con)]

The video games industry is very important. Its spiritual home is, in part, in my constituency, in places such so Soho and Covent Garden—

[Stephen Pound (Ealing North) (Lab)]

Hardly spiritual.

--- Later in debate ---

[Mr Field]

They are the spiritual home of so many things, as I am sure the Opposition Whip would agree.

I have spoken on many occasions to leading lights in the video games industry, and they outlined many of the concerns that have been expressed by the hon. Members for Dundee West (Jim McGovern), for Dundee East (Stewart Hosie) and for West Bromwich East (Mr Watson). There is a risk that a significant amount of business is leaving these shores because of a perception, and indeed the reality, that there is unfair tax and regulatory competition from further afield.

One of my concerns, which I expressed before the election to leading lights in the video games industry, is that trying to emulate the film tax credit is not necessarily the right route down which to go. Back-Bench and Front-Bench veterans of Finance Bills going back a decade or more—you are one, Madam Deputy Speaker, from your time as a Minister, as am I from my time in opposition—will know of the concern that the film tax credit has had to be updated almost annually, because of the clear abuses and unintended consequences resulting from it. There was a sense that although the film business in this country benefited from it, there was a significant through-flow of cash that was not in the interests of either the Exchequer or the high-quality products of which our film industry has been rightly proud in decades gone by.

[Stewart Hosie]

Notwithstanding the hon. Gentleman’s points about the film tax credit, I am sure that he will understand the business model around which the video games industry operates. A large amount of cash is spent in the development of games, but revenue drops off in the run-up to a new hardware offering or console being developed. The difficulties that the sector faces are exacerbated by the regular new hardware offerings. Does that not make a stronger case for some sort of assistance?

[Mr Field]

I accept that. There is also little doubt that we have some tremendously high-quality people working in this business. I must say, in parenthesis, that one difficulty is that hitherto we have had to import far too many such people from beyond these shores. I know that our university media studies industry is much discredited, but those media studies courses that are linked to the video games industry in particular often ensure that we get some of the brightest and best of the home-grown talent in our universities entering the industry.

I take on board the concerns of the right hon. Member for Delyn (Mr Hanson), given that the issue before us has been in the ether for years. I would prefer not to rush into anything, although I hope that my hon. Friend the Minister will take on board the deep concerns expressed today so that we can come back, perhaps during next year’s Finance Bill, with a workable model based on the proposals before us.

I would like to put in a word not just for the video games industry, unique though its interests are in the minds of those who run and work in those businesses, but for the animation industry. It is a related industry within the media sphere, and faces many of the problems expressed by the hon. Member for Dundee East and businesses in the industry. The animation industry is deeply concerned that it is losing some of its brightest talent, and feels that—this is felt not just in the animation sector—it is facing unfair competition not only from the Canadian and French models, but from Ireland and, dare I say it, Scotland. It feels that it is losing out to a large degree. I would therefore like to see a clause that brings the video games industry, the animation industry and all these other industries under a single protocol. Such a protocol could operate well and effectively, so I hope that the Treasury will consider one in next year’s Finance Bill.

[Jim McGovern]

The hon. Gentleman has indicated that part of the computer games industry is based in his constituency—in fact, he seemed to indicate that the industry originated there. Does he agree that a change of name or title is required? When people hear “computer games industry”, they think of young lads between 15 and 30 sitting in front of a computer screen playing “APB” or “Grand Theft Auto”, when in fact, as people who have visited Abertay university in Dundee will have seen, it is used in medical research, construction and architecture. Perhaps we need a change of focus, rather than continuing to call it the “video games industry”.

[Mr Field]

The hon. Gentleman is right to make that important point, although it also raises the question of how we couch such a new clause and schedule in a future Finance Bill to ensure that it takes on board an industry that we want to encourage rather than see go much further afield. I am not a young lad of 15 or 30—or even of 46—so the industry has passed me by, but there is no doubt about the enthusiasm of the companies operating in this sphere. One of my biggest concerns is that all too often those companies have to employ programmers from eastern Europe and other parts of the world in order to get the relevant level of expertise. That is a regrettable state of affairs. None the less it is undoubtedly a thriving and enormous industry, in which we are cheek by jowl with the Japanese in terms of our expertise and export potential.

I implore the Minister to take our concerns seriously. Now would not be the time to accept a proposal such as the one before us, but I hope that he will give sufficient comfort to Opposition Members to ensure that they do not press the matter to a vote. However, the issue is worth discussing at length today.

[Sheila Gilmore (Edinburgh East) (Lab)]

One thing that I have not understood—I have not understood it from either the debates that we had in the Public Bill Committee, on which I served, or the responses to the various parliamentary questions that have been asked about the video games industry and tax relief—is whether the objection is to the detail of previous proposals or this proposal, or whether there is a more fundamental objection about giving such a relief at all. At times, it seems to be suggested that it is not appropriate to give such a relief, but it would be extremely helpful to know which it was.

If the issue is the detail or exactly how the proposal is to be implemented, that could be discussed further. However, targeting such an industry—or indeed any industries—might be felt to be inappropriate. In one answer given in the Chamber last week, the suggestion seemed to be that a lower rate of corporation tax generally would be sufficient, without targeting specific emerging industries. However, a tax relief is important to a growing industry in that it allows it to get off the ground and develop in the way that it needs to. People have already spoken about the cash-flow difficulties for sectors such as the video games industry, so it would be helpful if the Minister could clarify where the Government are on this issue and what their future plans might be.

--- Later in debate ---

[Mr Gauke]

We have heard the figures quoted by TIGA, but we do not accept the validity of that analysis because we feel that some of the assumptions underpinning those estimates are erroneous. The research commissioned by the industry implicitly assumes that the investment incentivised by the subsidy is entirely additional to the UK economy. In reality, it is likely that the relief will displace investment from elsewhere in the economy, so the net impact on total UK investment could be limited. For example, it is possible that such a tax subsidy would divert investment from more productive sectors to the detriment of the productivity of the UK economy as a whole.

If Opposition Members are making the case that lower taxes always result in growth in the economy, I would listen with great interest and it would—my right hon. Friend the Member for Wokingham (Mr Redwood) made this point—be an interesting conversion to supply-side economics. I do believe, however, that the strongest economic case can be made for lower tax rates as a whole, across a broader base, as opposed to targeting some sectors, unless there is a strong case that there is some kind of market failure. We have not yet heard such a case being expressed in a way that we find persuasive, and that is why we decided not to proceed with video games tax relief.

That is not to say that we do not wish to support British businesses—far from it; we do. It is vital that we have a strong private sector to drive the recovery, but we must support that growth in the right way. In the emergency Budget, the Government announced a major package of reforms to the business tax regime with the aim of creating the most competitive corporate tax system in the G20.

[Mr Mark Field]

The Minister has twice referred to the concept of market failure. Did not the hon. Member for Dundee East (Stewart Hosie) make a compelling argument when he spoke about the very nature of this market? Perhaps we should be talking not about market failures but about the way in which the video games industry operates and the fact that its nature makes it susceptible to the kind of tax relief that we are looking for. The Minister is understandably, and rightly, sceptical about some of the figures being put out by TIGA, but a multiplier of nine seems pretty high. What level of multiplier would be so unacceptable as to allow this kind of relief to be put in place?

[Mr Gauke]

The TIGA analysis makes the assumption that everything achieved as a consequence of the relief would be additional to the economy. It does not appear to recognise that there would also be displacement, and that highly skilled graduates would not remain unemployed if they did not find work in the video games industry. We are therefore sceptical about the TIGA analysis. My hon. Friend makes his point well, however, and the nature and profile of the video games business clearly have some significance for his constituency, but we are as yet unconvinced of the necessity for the tax relief that was proposed by the previous Government, and that is proposed in the new clause.

The Government’s focus must be on providing a strong business environment for sectors across the board, including video games. Our reforms will reduce rates of corporation tax by four percentage points over the next four years, which means that the UK will continue to have the lowest main rate in the G7. This will improve our relative position significantly, compared with that of our competitors, after the years in which we have fallen behind. This will benefit companies across the economy, including those in the video games industry.

Rebalancing the UK Economy

Mark Field Excerpts

Wednesday 3rd November 2010 Westminster Hall

[Mr Mark Field (Cities of London and Westminster) (Con)]

Amid the feverish analysis of the size, scope and impact of the Government’s chosen spending cuts, a fresh debate is emerging about a desirable blueprint for Britain’s economic future. Such is the near-universal distaste reserved for financial services, that a determination no longer to rely on their economic contribution seems one of the few certainties in the debate. As a result, rebalancing is the new economic watchword. For sure, the financial crisis has painfully highlighted the UK’s dependence on the City and our collective exposure to the risks taken by the global banking fraternity. My worry, however, is that the phrase is being used—even, I fear, by some Conservative coalition Ministers—for playing to the gallery as part of the general banker-bashing sentiment.

It is superficially convincing to promote attempts to stimulate growth more evenly through the regions, and stepping up our game in the innovation and incubation of companies in the high value-added areas of high- tech manufacturing, engineering, pharmaceuticals and biotechnology. I acknowledge my own part in that: I have played a role in ensuring the incubation of those small companies in the City of London. The Corporation of London is to be complimented for finding premises in double-quick time for such companies.

I wholly support the initiatives of the Government, in particular funding the £200 million science park in St Pancras. That is both welcome and highly commendable. However, we should be wary of how the aim of rebalancing is pursued. Unwisely, most of the focus so far has been on how we might shrink the City to reduce its relative importance, rather than providing a positive economic climate in which all other sectors can flourish.

Before we pursue what I believe would be such a dangerous policy any further, I wish to make the case why financial services must remain a central plank in Britain’s bid for continuing relevance in a fast-changing global economy. A strong financial services sector is overwhelmingly beneficial to our nation. It will provide the critical mass to draw business to this country. It offers diversified sources of capital to small business. It makes huge contributions to the Treasury’s coffers, in terms of tax and employment, and it supports a wide range of complementary industries, from law to leisure. It is also one of the very few areas where we might envisage significant growth in the decades to come.

The tens of millions of people who join the ranks of the global middle class annually from India and China have a greater cultural propensity to save, and they will seek expertise in investing their savings for the future. It seems evident to me that the entire drive for the west is directed towards capturing the growth of the developing markets. It is an argument that has been put to me in recent weeks by German industrialists. Here in the UK, we have already secured such an important competitive advantage. It is in the financial services sphere. Why throw that advantage away? Aside from that, there are several reasons for us to believe that the task of rebalancing might well prove trickier than we may wish.

It is time that we changed our attitude towards the City, from one of punishment, which has taken place in the past two or three years in the aftermath of the financial crisis, to hard-headed realism. How we treat our nation’s most valuable economic resource in the years ahead will be a litmus test for international business in determining how serious Britain is in its wish to be dynamic and have an open economy that embraces global talent, promotes aspiration and welcomes business.

I hope that the Minister will consider this: the UK should perhaps, for example, look at the way that the Isle of Man has quite successfully rebalanced its economy through promoting new growth areas but, crucially, in a way that has not undermined or diminished the importance of its own very important financial services sector. The Isle of Man has embarked upon a diversification drive that has built a thriving hub for high-tech manufacturing, including aerospace, which of course has strong links to the north-west of England economy. It has created a propitious environment for world-class e-gaming companies; it has established world-class high-quality aircraft and ship registers and created a diverse and thriving space commerce sector, with many of the world’s leading operators established on the island. Crucially, it has also continued to support—very vocally—and promote its successful financial sector, which is wholly compatible with, and supports, other sectors of its diversified economy. In essence, the Isle of Man Government have not picked winners at the expense of penalising other sectors, but have shown that they can build a balanced and diversified economy, while maintaining a strong and thriving financial services sector.

While the banking crisis was in full swing in 2008, it seemed that almost overnight the financial sector had become a useful scapegoat for all our economic ills. Many of the criticisms levelled at the banking fraternity have been legitimate, in part at least. The failure in that sector of the economy exposed the domestic taxpayer to such mind-boggling sums that it was, in many ways, scandalous, and seemed to confirm suspicions that the wealth created by the City was simply a mirage. Irresponsible risks were taken. Debt instruments certainly became too complex. Money was lent to those who could ill afford the repayments. Incidentally, I fear that one of the difficulties is when policy makers seek out so-called socially useful banking—the genesis of the sub-prime problem that occurred initially in the US and in the UK subsequently from the mid-1990s. Regulators—if not regulations—proved ill equipped at times for their job.

The City’s dominance in the domestic economy in the past two decades had some wide-ranging social consequences. For a large proportion of British people working outside the gilded corridors of the financial services industry, the growth of the City’s power increased the cost of living and reduced, at times, to just a wistful dream any prospect they may have had of getting on the housing ladder, except via colossal personal debt. It could also be argued that the City precipitated a brain drain from other professions and industries, with so many of our brightest and best graduates over the past quarter of a century tempted away by unrivalled starting salaries in the banking sphere.

In some senses, the City’s success has merely masked—until its failure uncovered—some more fundamental problems that had developed in the western economies. Governments had been spending far too much money. As individuals, we had also racked up far too much debt. We found it cheaper and easier to buy cheap goods from abroad, import migrant workers and pay off our own citizens with welfare, rather than confront the difficulties of either finding sufficient employment for blue-collar workers who were losing ground to eastern competition, or tackling the dearth of skills among the indigenous population. I am glad to say that with some of our welfare policies, the Government are definitely going down the right route to try to counter some of those issues.

Neil Carmichael (Stroud) (Con): I do not think that it is inconsistent to have a thriving financial sector and other thriving sectors, including small and medium-sized businesses. Thriving businesses will deal with the problems to which you just alluded, in terms of migration, skills training and so on. A financial sector would welcome further opportunities to invest in its own territory and internationally. The two things go hand in hand.

[Mr Field]

I would not disagree with my hon. Friend in any way. It is the rhetoric, I think, of some policy makers, both in the present, but particularly in the past, that could have applied something of a barrier to that very ideal goal.

Rather than openly confronting some of those issues post-crisis, the implicit and perhaps all too easy assumption has been that, had the banking sector not collapsed through the profligacy and greed of some its employees and key players, we might have continued as we had before. There is also an assumption that to solve our current problems we need simply to return to what used to be the strength of a couple of generations ago—rebalancing the economy towards making things. The intensity of the rhetoric that has built up around the role of banks in the economy is such that politicians and even bankers themselves have often been unwilling to stand up for the sector.

Alas, that rhetoric has not subsided as time has passed. In fact, it is likely to intensify in the months ahead as the cuts bite and questions are asked about how and why Government money can be found to prop up the banks and pay out what I suspect will be another bumper round of bonuses this year while public sector jobs and services, as well as benefits, face the axe.

In response, Governments approach the financial services sector as something to be outwardly chastened, while they privately recognise its importance to the wider economy and rely on the continued income and jobs that it provides. In public, banks are told to lend to inherently risky start-ups—small businesses and first-time buyers. They are berated for trying to take the collateral that small business owners will often have tied up in their own property. At the same time, however, banks are told—indeed, they are required—to meet stringent new capital requirements. The new £2 billion bank levy is announced with a fanfare and the 50% income tax rate remains in place, yet the Treasury quietly acknowledges that it cannot put further pressure on balance sheets while storms are still gathering in the eurozone, which I think will be one of the big stories in the months ahead.

[Anne Marie Morris (Newton Abbot) (Con)]

This is a very interesting and timely debate about financial services. I declare an interest as a former City lawyer. I note with interest that you say financial services include lawyers, accountants and so on. Given that your concern is about publicity, do you agree that sometimes it is what some of the professional services have done themselves that has given rise to those problems? Furthermore, do you agree that, although it is not so much a City phenomenon as one related to smaller firms, the “no win, no fee” approach that law firms have adopted—as I say, it is usually adopted by smaller firms—has not really helped the cause of financial services?

[Mr Field]

As someone who is also from the “former lawyer” fraternity—I worked for a City law firm and I know that my hon. Friend worked for another City law firm over the years—I agree. There are elements of the ethics of business that concern me; I have never been a wide-eyed supporter of everything that has been done in the context of the City. Equally, it is important to recognise the City’s importance if this country is to get off its knees.

We witness, to an extent, the public baying for more blood after the banks have posted healthy profits, due, of course, to a combination of low interest rates, a lack of competition and a cut in corporation tax, yet the public are bemused when Government restrictions lead to increased bank charges for consumers.

[David Mowat (Warrington South) (Con)]

The right answer to the question of how to rebalance the economy is not to shrink the financial services sector. However, the fact remains that we have the largest financial services sector in relation to the rest of the economy of any advanced economy; the financial services sector accounts for something like 27% of our economy. The interesting policy question is whether we want that percentage to increase as a percentage of the whole or whether we want everything in the economy to increase together.

I think that you also raised a point about the public relations problems that banks are suffering at the moment. Of course, banks have made a huge contribution to our economy, but during the last two years they have sucked in something like £150 billion-worth of Government money and they are not really answering the question about how they should restructure themselves. That question has been left to the Bank of England and others—whether through the Glass-Steagall Act, or whatever—to answer. Until the banks do that themselves, they will continue to be criticised over bonuses.

[Mr Clive Betts (in the Chair)]

Order. I want to say something to the three hon. Members who have made interventions. It is fine that you made interventions, but on each occasion you have used the word “you” as part of your comments. This is just a small reminder—I did not want to stop you in mid-flow.

[Mr Field]

It is a credit to you, Mr Betts; it must be the informality of these arrangements that have allowed my colleagues to drop their guard somewhat.

I think that there is a lot in what my hon. Friend just said. As he rightly pointed out, in many ways a huge amount of money has been pumped into the financial services sector, yet there seems to be very little idea of what the global landscape of banking and finance will look like in the future.

The Government have a part to play in the process. We are, after all, majority stakeholders in two of the big four banks—the Lloyds Banking Group and the Royal Bank of Scotland—and we need to utilise that muscle to try to make a case for how the banking world should look in the future.

To some extent, there has been a somewhat confused strategy that has been of no benefit to the Government, the banks or the public. In essence, the risk is that we are now penalising our single most competitive economic sector, while somehow fooling ourselves that a miraculous rebalancing of the economy can occur by default. In truth, the rebalancing will only be threatened by diminution of the financial services sector. Let us not forget why, on the whole, a thriving City makes for a successful Britain.

Since time immemorial, the City of London has enjoyed an international reputation as a bastion of commercial certainty and reliability. It has promoted financial innovation, it has provided an international market for global merchants and in commercial affairs it has rightly been seen as a watchword for justice, neutrality and fairness. Of course, it also has a number of innate advantages that ensure that companies’ loyalty to London runs deeper than just appreciation of its tax regime. Those advantages include, of course, a time zone that lies between those of north America and Asia, which makes the City an excellent base for international company headquarters, and the lifestyle assets of a culture, an excellent educational offering and a population so diverse that all can feel at home.

As a result, London has emerged as the global financial centre. Indeed, so successful has the British financial services sector been that it now contributes more than 10% of Britain’s economic output. We should also remember that although the sector is focused in central London, a significant amount of its activity takes place in a range of regional centres in the UK.

Of course, it is not only banks that benefit from our financial sector but complementary industries such as law, insurance, retail and entertainment, as my hon. Friend the Member for Newton Abbot (Anne Marie Morris) pointed out. Our top-flight universities, the arts and the charitable sector also gain, the latter two from cultural funds or corporate responsibility grants that are, of course, often provided by the City’s top banks and bankers. The presence of our large financial sector gives London the critical mass to attract the best professionals from across the globe.

Banking bail-outs notwithstanding, the financial services sector contributes massively to the Treasury’s coffers in tax revenues, with an estimated contribution of £61 billion in 2008-09. Of course, it also contributes massively in terms of employment, with more than 1 million people employed directly in financial services across the UK.

The financial services sector also plays a critical role in supporting business, not only in attracting huge inward flows of foreign capital to help to fund our infrastructure but in propping up our companies and providing British companies with access to a diversified source of capital, to enable them to invest and expand.

Even if opposition to City dominance is practical rather than simply ideological, I suspect that it is unlikely any time soon that any other economic sector will be a world-beater in the way that the financial services sector is. I am afraid that the industries in which we are hoping to diversify are ones where competition will be very stiff. For example, the Chinese are as keen to develop their manufacturing capacity when it comes to green technology as we are.

Moreover, we should not assume that people in developing countries will start to spend their savings as the western world weans itself off debt and consumption. Britain is just one of the nations that have been pinning some of their hopes on export-led growth. However, despite a 20% depreciation in the value of the pound, the UK’s trade deficit has continued to widen. Meanwhile, with uncertainty infecting the financial system, British corporations have shown little appetite for expansion any time soon, as they accumulate cash cushions instead of investing.

[Neil Carmichael]

Will my hon. Friend give way?

[Mr Field]

My hon. Friend will have to forgive me for not giving way; I want to say a few more things and I obviously want to hear what the Minister has to say in response.

I am not convinced that London’s population is sufficiently equipped to deal with significant growth in new industries. Few people outside the capital may realise that, at 9%, London has one of the highest levels of regional unemployment in the UK. With Britain wedded to a model of high welfare and unemployment benefits, those living in the capital need to earn considerably more than the minimum wage to make it worth their while to work. As a corollary, it has of course been far easier in recent years to encourage hard-working migrants to fill the jobs that Londoners have been unwilling or unable to take up themselves. In the capital, a large proportion of the indigenous working-age population are without the skills or inclination to fill jobs of any kind.

Put simply, our financial services sector is a huge asset. With vast numbers of employees in the developing world entering the middle classes each year and earnestly looking for ways to save and invest, it is also one of the few sectors in which we can confidently predict significant growth in the years ahead. A nation of only 60 million people should be grateful to have one absolute world-beating industry that is, in normal times, incredibly lucrative and that feeds a wide range of other sectors.

By all means, we should focus on trying to help build up other sectors if we can, and on reducing the exposure of taxpayers to risk. However, economic diversification will not be an easy option and it should not lead to the neglect or diminution of the City. Indeed, if it leads to that, the task of diversification will become even harder. Global businesses and their highly skilled work forces do not necessarily have any innate loyalty to the UK. They will go where the legal, fiscal, regulatory, physical and social environment works best for them. I fear that the continued rhetoric of hostility towards banks and regulatory uncertainty only serve to deter such businesses. Why stay and put up with ever more grief?

In that respect, more pressing than diversification is the need to make the UK a place of possibilities, enterprise and entrepreneurship. It is not for this or any Government to pick winners and losers, or indeed to prop up losers and penalise winners. The continuing attacks on our financial services sector no longer serve any purpose. I understand the need, just before the election, to play a bit to the gallery—one had to recognise public sentiment—but we are now four and a half years from the next general election. I hope that the Government will have the confidence to make the case for our financial services industry. As long as we get the regulation right, we should not be fearful of confidently articulating the terrific benefits of a robust and expanding financial sector. Let us draw a line under this period of uncertainty and hostility while we still have that fantastic springboard to ensuring the UK’s great relevance in a fast-changing global economy.

Savings Accounts and Health in Pregnancy Grant Bill

Mark Field Excerpts

Tuesday 26th October 2010 Commons Chamber

[Mr Hoban]

Of course the hon. Lady should really address that to her colleagues who were Treasury Ministers when the grant was introduced, as they could have chosen to target it more closely. Other grants that are available are targeted at women in the early stages of pregnancy and the Sure Start maternity grant is in place.

[Mr Mark Field (Cities of London and Westminster) (Con)]

I accept the honourable way in which a number of Labour Members have stood up and are concerned, but does this not show that once we give any benefits they are taken for granted by whoever ends up receiving them? Does the Minister recognise, and will he confirm, that the Bill deals with only a small number of the grants that could be looked at by the Treasury? We have to get this deficit down and his opening comments have made a perfectly valid point. Will he confirm that he might well have examined a considerable number of other grants in this Bill, but it deals with only a small number?

[Mr Hoban]

My hon. Friend makes an important point. The Government have had to go through this challenging spending process with care, examining both spending and welfare decisions. We have had to take decisions that are not straightforward, not easy and not ones that we would have wanted to take, but we have had to do so because of the financial problem that we inherited from our predecessors.

Let me give another example of targeted support that is available, because the hon. Member for Washington and Sunderland West (Mrs Hodgson) talked about means-tested grants. I am sure that she will be aware of the Healthy Start scheme, which is a statutory scheme providing a nutritional safety net and encouragement for breastfeeding and healthy eating to more than 500,000 pregnant women and to children under the age of four in low-income and disadvantaged families across the UK. The scheme is tied carefully because, unlike the health in pregnancy grant, it provides vouchers for people to put towards the cost of milk, fresh fruit and vegetables, and infant formula milk at 30,000 retail outlets. So measures are in place to support the groups that she is most concerned about, and it is right that that is so. The health in pregnancy grant is unfocused and untargeted.

--- Later in debate ---

[Mr Hoban]

My hon. Friend makes an important point. I would say that the challenge is as follows. Other schemes are in place to help families on low incomes to deal with some of the issues around childbirth. I have talked about the vouchers that are available to help with nutrition and we have the Sure Start maternity grant, too, which is designed to help low to middle-income working families and out-of-work families to cover the one-off costs associated with having a new baby. There are measures out there, but, yes, they are restricted. The Sure Start maternity grant will apply to the first child—it is a grant of up to £500—but, of course, the problem is that the previous Government left us with a huge debt that we need to tackle and to pay back. If we put off these decisions, as the hon. Friends of the hon. Member for Leicester West (Liz Kendall) would want us to, it would be the poor who would pay the most. It would be those children who would be saddled with the debt that the previous Government left hanging around their necks.

[Mr Mark Field]

I have a two-and-a-half-year-old son, so I have had the benefit of some of these universal benefits. I must say that in these straitened economic times it makes sense for things to be targeted in a much more effective way. That is all that we are trying to do, and it is regrettable to see the way in which the Minister is being harangued by Opposition Members. We should be targeting these benefits; they should not be universal. This is entirely the right way forward.

[Mr Hoban]

My hon. Friend makes an important point. We need to look very carefully at where money is spent and ensure that it is spent wisely in pursuit of improving the life chances of children and young people. That is why, for example, our right hon. Friend the Deputy Prime Minister announced recently that we will extend to all disadvantaged two-year-olds 15 hours of free nursery care. That is a very targeted way of helping children from the most disadvantaged backgrounds to achieve their life chances. We have seen the pupil premium introduced, with £2.5 billion a year to help children from disadvantaged families. The coalition Government have set out plenty of measures that are focused on helping the most vulnerable in society. That is what we need to do in the light of this financial crisis: to target measures on those who need them the most, rather than simply opposing every cut for the sake of it, as the Opposition are trying to do.

Equitable Life

Mark Field Excerpts

Thursday 22nd July 2010 Commons Chamber

[Mr Hoban]

I pay tribute to the hon. Gentleman’s excellent work as one of the joint chairmen of the all-party group. I note that the shadow Chief Secretary spoke to its members early this year, and I am happy to do the same. We have a good story to tell and I will not turn down any opportunities to tell it.

[Mr Mark Field (Cities of London and Westminster) (Con)]

Does the Financial Secretary feel bound by the 20 to 25% cap that Sir John seems to have plucked from the sky, or does he share my view that that flies entirely in the face of the transparency that the Government are trying to achieve for Equitable Life policyholders?

[Mr Hoban]

The debate is one of proportion rather than principle. In its representations on the matter, EMAG accepted that some policyholders would have stayed with Equitable Life or invested in it, despite knowing that it was not properly regulated. Indeed, several people joined Equitable Life quite late on, when its problems were well known, so there is some sense to the approach. The debate is about proportion, and I am prepared to take representations on that.

Offshore Financial Centres

Mark Field Excerpts

Wednesday 21st July 2010 Westminster Hall

[Mr Mark Field (Cities of London and Westminster) (Con)]

As international organisations and major Governments seek to understand the cause of the global financial crisis, small international financial centres have repeatedly endured political attacks and misguided criticisms—from pejorative sniping about their being tax havens and offshore centres for avaricious bankers, to allegations that they provide secrecy jurisdictions for shady figures in the international business community. Those criticisms suggest that they are partly to blame for the shortcomings in the financial markets. The debate about the role of small IFCs has, to date, been remarkably one-sided, which is unfortunate as it demonstrates a fundamental lack of understanding about their function and the benefits that they provide to the wider global economy.

Before the United Kingdom and our global partners look to develop further rigorous international standards on financial regulation, it is critical that politicians and policy makers should formulate and implement policy in an informed, consistent and balanced manner and vital that we should now take a dispassionate view of the offshore IFCs and look sensibly at the significant benefits that they can offer, both to our nation and the broader global financial system.

The UK has an almost unique position in the debate about IFCs. We have a constitutional relationship, through our Crown dependencies and overseas territories, with half of the top 30 offshore financial centres. With the Chinese Government successfully lobbying the G20 last month for both Macao and Hong Kong to be excluded from any OECD grey list on matters of tax transparency, it looks increasingly likely that the standards and regulations currently being formulated may be imposed in some jurisdictions yet overlooked in others. Not only is that incompatible with the need to find a global response to the formation of new financial regulation, but it risks undermining the UK’s financial sector and the wider British economy, which is a major recipient of investment capital raised through small IFCs.

Some small international financial centres, such as Jersey and Guernsey, are used by the global financial community for various reasons, including political stability and a favourable economic outlook; familiar legal systems, often based on English common law; a very high quality of service providers; the ability to meet important investor requirements, such as a legal infrastructure to sell shares; a lack of foreign exchange controls that remove restrictions on the payment of interest of dividends; tax neutrality—not to be confused with tax evasion—which enables investors from multiple jurisdictions to ensure they do not meet multiple layers of taxation as funds pass through the global financial system; and legal neutrality, which ensures that no nationality is given special treatment.

For those reasons there has been a mutually beneficial relationship between the City of London, in my constituency, and many Crown dependencies and overseas territories. That is demonstrated not only by the massive capital flows between the two, aiding market liquidity and investment in the UK, but by the legal and constitutional similarities and the transfer of skilled professionals.

To give some idea of the scale of the capital flows, I should say that UK banks had net financing from Guernsey alone—one of the 30 top centres—of $74.1 billion at the end of June 2009. Unfortunately, because the public debate is largely myopic in respect of IFCs, these benefits are often overlooked or conveniently ignored, in part as a result of small IFCs’ relatively low profile and partly because of a lack of seats on intergovernmental bodies that design global financial regulation.

There now needs to be a much greater understanding of the role and proven benefits provided by small international financial centres as part of the City of London’s transaction chain. I therefore seek to dispel some of the popular myths that surround such centres. The first myth is that IFCs have a negative impact on growth in the global economy. In reality, many of the smallest IFCs are able to provide a stable, well regulated and neutral jurisdiction through which to facilitate international and cross-border business. Investment channelled into small IFCs will in turn provide much-needed liquidity, further investment opportunities, genuine competitiveness and access to capital markets for businesses and investors in both the major developed world and, increasingly, in countries with vast emerging markets.

The recent Treasury review of this area, undertaken by Michael Foot—not that one, Mr Caton—concluded:

“The Crown Dependencies make a significant contribution to the liquidity of the UK market. Together they provided net financing to UK banks of $332.5 billion in the second quarter of 2009.”

Those funds are largely accounted for by the up-streaming of deposits collected by UK banks to their UK head offices, including the nationalised or part-nationalised Lloyds Banking Group and Royal Bank of Scotland, as well as Barclays, HSBC, Santander and a number of building societies.

In addition to aiding capital flows, a report by the university of Michigan’s Professor James Hines on the relation between IFCs and the world economy reveals that expanding investment opportunities through offshore centres leads to increased domestic investment and employment, creating jobs both at the financial centre and in the domestic economies.

Small IFCs play an important role in helping to allocate capital efficiently. To this end, they act as important financial intermediaries, matching the capital provided by savers in one country with the investment needs of borrowers in another. Although that has, understandably, led to concerns about “round tripping”, in which capital is recycled through an offshore centre to give it the appearance of foreign investment and attract a more favourable tax regime, the experience of China and India throws those concerns into doubt, because both of those countries have removed tax breaks for foreign investment during the past decade and both have seen internal and inward investment continue to soar. As a major net recipient of capital flows from small IFCs, our firms in the City might suffer if they found it more difficult to access capital via the international markets.

A second myth is that small IFCs played a part in causing the global financial crisis over the past three years. Although it is convenient to blame offshore centres for causing the crisis, even those who work in the financial markets do not accept that small IFCs were a major cause. Last year, the Treasury Committee found that Guernsey did not contribute at all to global financial contagion. Indeed, it could be argued that the liquidity provided by the small IFCs was significantly positive for the UK during the crisis.

The third myth is that IFCs engage in harmful tax practices. The Foot review suggested that the potential for tax leakage from so-called full tax jurisdictions, such as the UK, towards low-tax or zero-tax regimes, is relatively limited. Although the TUC has argued that the tax gap created in UK Government tax receipts as a result of offshore centres is some £25 billion, the Deloitte report commissioned by the Treasury at the time of the Foot report showed that only £2 billion is potentially lost in tax leakage per annum. Foot also concluded that the real figure might even be lower than that.

Concerns about the UK’s tax base being stripped by unfair competition have also been overstated. It is clear that the debate about tax competition needs to be properly redefined and any further policy initiatives need to protect the important principle of tax sovereignty, as well as adequately recognising the impact of tax regimes on the productive sector. The OECD has clearly warned about the detrimental effects of high corporate tax on productivity. In that regard, I welcome the moves to reduce corporation tax and peg capital gains tax. The recent attacks on the zero-10 tax regimes reveal a worrying trend, in which the sovereignty of independent states to set their own tax rates is undermined and high-tax countries seek to export their high tax rates around the world.

Economic models vary country by country. The adoption of a tax regime premised on the principles of lower tax burdens, efficient government and dynamic private sector activity is legitimate and some degree of tax competition should therefore be recognised as positive. Regardless of that, small IFCs have shown a willingness to engage with the concerns raised by their tax regime—for example, Guernsey and Jersey are voluntarily undertaking a corporate tax review to act within the spirit of the EU tax code.

A fourth myth suggests that small IFCs have a negative impact on transparency, regulation and information exchange. With the G20 placing tax transparency at the top of its agenda, understandably, small IFCs are actively participating in the expansion of the Global Forum on Transparency and Exchange of Information. Indeed, an International Monetary Fund review of Jersey’s regulatory standards in September last year concluded that it was in the top division of financial centres, and gave it the highest ranking ever achieved by a financial centre in respect of compliance with IMF recommendations.

[Mark Pritchard (The Wrekin) (Con)]

My hon. Friend makes an important point about tax transparency, and he also mentions capital flows. Does he accept that offshore centres such as the British Virgin Islands, which are on the OECD’s white list and peer review group, have set the trend in many ways on transparency? The Government should recognise that, and that such centres help rather than hinder the UK’s economy.

[Mr Field]

I agree, and that is greatly to the credit of the British Virgin Islands and other overseas dependencies, as well as some of the Crown dependencies to which I have referred. They have played an important role and led the way in the transparency agenda.

One of the great myths to have grown up is that small offshore centres do not benefit developing countries. Small IFCs have been accused of supporting capital flight out of developing countries, but the Commonwealth secretariat is publishing a new report this month to illustrate the importance of the role played by IFCs in helping developing countries, by enabling them to rent financial expertise from other countries while they develop their own financial centres. Crucially, they also offer investors greater protection of their property rights against domestic political uncertainty.

It is no exaggeration to say that without smaller offshore financial centres many developing countries would not secure key funding for project finance, which makes a substantial improvement to the lives of some of the most vulnerable global citizens. Furthermore, the financial action task force gives many IFCs a positive assessment in meeting its 49 rigorous recommendations on anti-money laundering and terrorism finance. Centres such as the Channel Islands perform better in fighting financial crime compared even with bigger countries such as France, Italy, the US or—dare I say it?— the United Kingdom.

Finally, the UK’s Crown dependencies are often accused of being fiscally unsustainable. Again, nothing could be further from the truth. The debate within the UK Government has, naturally, been framed by events surrounding the collapse of Iceland’s banking system. When the Icelandic banks imploded in September 2008, it quickly became apparent that the contagion would spread to British savers and ultimately to British taxpayers. Furthermore, the role of the Isle of Man as a core financial intermediary between British savers and Icelandic borrowers illustrated the UK’s exposure to offshore centres.

However, the subsequent Treasury review went some way towards allaying the two main concerns. In particular, the worries over the fiscal sustainability of UK Crown dependencies proved to be massively overstated. Throughout the years, IFCs such as Gibraltar, the Isle of Man, Guernsey and Jersey, have amassed large budget surpluses while actively diversifying their tax base, as Foot recommended. Indeed, the Foot report commented on the fact that none of Britain’s Crown dependencies has taken on significant levels of borrowing.

It is important that the G20 summit in Korea later this year is made aware of the beneficial role that small IFCs play in the global economy. Above all, we must stand up to misinformed or narrow views of the valuable contributions that small IFCs can offer to the world economy in terms of liquidity, efficiency, investment and economic growth. Let us make no mistake: ensuring that the voices of small IFCs are heard in Korea is very much in our national interest. If we look at the example of Jersey and its positive effect on the wider UK economy, we see that the island provides a conduit through which mobile capital from around the world can be aggregated and invested, primarily here in London.

[Andrew Rosindell (Romford) (Con)]

My hon. Friend’s speech is very welcome. People from overseas territories and Crown dependencies will thank him for raising these important matters. Does he agree that one issue that is always ignored, and which is linked to what he is saying, is that we, unlike other countries with overseas territories and dependencies, do not allow the Governments or people of those territories any say in this place? They have no way of being represented or of speaking up for themselves. They depend on Members of Parliament to raise issues. Does he also believe that, as with other countries with overseas territories and dependencies, there should be some way for those people to be able to speak and to raise their concerns here, in the Parliament that makes laws on their behalf?

[Mr Field]

I have some sympathy with my hon. Friend’s view. This debate is an example of the way in which we are to do that. If he is suggesting that we have a constituency, similar to the French system, that takes in Gibraltar, Jersey and Guernsey, I am sure that he would be only too happy to be a Member. Most people in Gibraltar already believe that my hon. Friend is the Member who looks after their interests. He makes a serious point, and the tremendous contribution that our Crown dependencies and overseas territories make to this country should not be understated. I hope that this debate plays a small part in addressing some of the myths that have arisen.

I want to speak about Jersey, which is a significant provider of administrative and legal services to international businesses that are active in the City of London and help to make it a more attractive place to do business. For example, Vallar plc successfully raised more than £700 million in an initial public offering in London earlier this month, and used a Jersey structure. That showed the respect that investors, professional advisers and companies have for Jersey as a jurisdiction. It also provides banking services to a large number of UK expatriates who are unable to access the UK banking system because they do not have a UK address.

The Crown dependencies also provide an important platform from which to learn about and access the British economy. For example, the Isle of Man acts as the No. 1 jurisdiction for the incorporation of Indian businesses listed in London, and has been identified by a Chinese Government economic unit as an important link in China’s “going out” strategy in relation to Chinese businesses setting up in the EU.

The Isle of Man plays an important and symbiotic role in London’s shipping and insurance markets, inter alia by having such a successful white list ship registry, as well as its fast-growing aircraft registry. Similarly, with satellite, space and film business, the Isle of Man brings into a British sphere of influence important strategic global businesses that might otherwise be drawn to a competitor such as Singapore, Hong Kong or the US. The Crown dependencies are keen to continue acting on this hub-and-spoke basis with the UK and adding value to Britain’s international offering in a proper and transparent way.

Small IFCs desire fair recognition for their high regulatory and supervisory standards and therefore wish to make policy makers from all G20 member countries aware of their true operation, as well as allowing them an effective voice at the table. In that regard, it would be helpful if the Minister gave an indication of what measures the Government can take to ensure that the G20 process is more inclusive, and that policy prescriptions that aim to restore financial stability strike the right balance between the onshore and offshore financial communities and recognise the mutual interests that exist between the two. It would also be helpful to have an update on progress in meeting the Foot recommendations and information on the progress being made through EU and OECD efforts to assist the overseas territories in meeting their own international requirements.

In conclusion, too few people who now seek to impose rigorous regulation on offshore jurisdictions truly understand how those jurisdictions operate. They fail to understand their positive rankings of compliance with major regulatory standards or their beneficial role in promoting investment and growth in the widest elements of the global economy.

It is inevitable that Governments will attempt to prevent further financial crises from occurring—and so they should—and I fear that that will result in the development of global standards that may have an unintended impact on all jurisdictions. It is critical that politicians and policy makers should not depart from the need to formulate and implement policy in an informed, consistent and balanced way. When it comes to our naked self-interest, it would be foolish at this juncture if the UK ignored the proven benefits provided by small international financial centres as part of the City of London’s world-class operations.

--- Later in debate ---

[Mr Field]

I am also keen to ensure that the point is made robustly about capital flows. We have had a credit crunch quite recently and we may be facing another one with all the sovereign default concerns in Europe. The free movement and liquidity provided by IFCs is key. That case needs to be made robustly at a time when others are dismissive of offshore financial centres.

[Mr Hoban]

Indeed. My hon. Friend makes an important point. Adherence to the standards makes the case that offshore financial centres should be part of the global network of financial centres and that they are valued. It is also important to ensure that when people talk about offshore financial centres, the debate is proportionate and evidence based. That is the best basis for debate in the UK, EU and G20. My hon. Friend made important points in that respect in his remarks.

The Foot review recommended that Crown dependencies and overseas territories should have to meet key international standards on tax information exchange, financial regulation, countering the financing of terrorism and anti-money laundering. The review strongly recommended that British Crown dependencies and overseas territories need to diversify their tax bases in a way that helps to secure their long-term economic sustainability. My hon. Friend made the argument that a number of territories had already done that and had withstood the financial crisis.

Budget Resolutions and Economic Situation

Mark Field Excerpts

Thursday 24th June 2010 Commons Chamber

[Edward Miliband]

The doublespeak just gets worse. The Conservatives spend the election attacking the Labour Government for putting up national insurance contributions on employees, then they produce their own Budget which is regressive and unfair, then they realise that that will be pretty damaging for them, so they take credit for a measure that they used to attack. That cannot possibly make sense. The truth is that the Chancellor made a claim in his Budget speech that the Budget was progressive. The Institute for Fiscal Studies, to which the Chancellor referred in his Budget speech, has said clearly that if one looks at the measures announced in the Budget one sees that it is a regressive Budget—and not just regressive, but deeply regressive, because the poorest 10% pay three and a half times more than the richest 10%. However much they may twist and turn with the help of their new friend, the Secretary of State for Energy and Climate Change, who is auditioning to be a member of the Conservative party, it will not help them. People can smell it. People can see through the doublespeak.

[Mr Mark Field (Cities of London and Westminster) (Con)]

The right hon. Gentleman has made a statement about national insurance that he knows does not tell anything like half the truth. Our objection always was to the employer’s element—the jobs tax element—of the national insurance rises. It is that element that we have been very glad to put to one side, rather than the employee’s element, to which he gives such undue prominence.

[Edward Miliband]

I have enormous respect for the hon. Gentleman, but he will have to do better than that.

--- Later in debate ---

[Mr Mark Field (Cities of London and Westminster) (Con)]

I congratulate my hon. Friend the Member for Staffordshire Moorlands (Karen Bradley) on her charming maiden speech. She spoke with great passion about her constituency, although I felt slightly guilty when she lamented the fact that there were no railway stations in it. There are 32 tube stations in my constituency, along with no fewer than three of the four railway stations on the Monopoly board. Perhaps we can swap a few between Cities of London and Westminster and Staffordshire Moorlands before the world is too much older.

The first Budget of any new Administration is always a momentous event. It inevitably sets the seal for much of what will follow economically. This is a groundbreaking and very brave Budget, which has expressly changed the terms of trade. In his speech, the Chancellor made a robust case for the nation to have a future that would be underwritten by the success of business and enterprise.

It is only the third time in more than three decades that such a Budget has been delivered. In the infinitely more clement economic weather of 1997, the then Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), while ostensibly sticking to his predecessor’s spending plans, announced fatefully his intention to restrict private pension tax breaks. At a stroke, the culture of personal savings was undermined, and a distinct shift from individual responsibility to collective state provision was flagged up. It has, perhaps, taken a full 13 years for us to appreciate the true implications of what many then regarded as a technical manoeuvre born largely from a need to secure an easily available pool of cash to spend on pet projects, a state of affairs that was necessitated by the making of an orthodox manifesto pledge.

In the emergency Budget of 1979, the incoming Conservative Government signalled a desire to unleash the power of the free market from the state’s grip, and to promote free trade after a characteristic spell of Labour mismanagement. Indeed, in the run-up to the general election this year, it became the pastime of many political commentators to draw comparisons between that momentous 1979 election and the political and economic landscape that faces us today. Yet, of course, that simplistic analysis ignored the significant differences between the two episodes. When the Conservative Government took control of the public purse in the final year of the 1970s, our nation had been subject to monetarist policies for two and half years courtesy of the IMF. In essence the very toughest decisions on public spending had already been made at that time.

In contrast, this year, while there was a superficial acceptance that the best of economic times was over, the sheer gravity of our economic problems has been too lightly skated over during the campaign skirmishes. Indeed, it served the expedient interests of all three main political parties to confine any economic discussion to a somewhat fatuous battle over public spending cuts of £6 billion; a sum of money that we borrow, not spend, every fortnight.

The public were willing to embrace change in 1979. Today, I fear that the electorate have been less willing to accept the seriousness of the national economic situation. The breathless relentless media coverage over the past two years charting stock market swings, house price crashes and global turbulence has convinced many that the worst is already behind us when, really, the reckoning has yet to begin.

I have felt that the past couple of years have been uncompromisingly ugly—we have seen that in many of the speeches from Opposition Members today—for those of us who support capitalism, free markets and open trade. Once again I am delighted that this Budget starts to make the case for empowering people, the smaller state and individual responsibility.

The election is now of course behind us. I remain concerned that our coalition Government do in all fairness lack the critical and explicit mandate to make some of the very tough economic decisions that are required as a matter of urgency to get the public finances back on track, for this Parliament—indeed probably for the entire decade—stands to be dominated domestically by the need to take a firm grip of the public finances.

This year’s public budget deficit of some £155 billion represents 11 per cent. of GDP and means that we continue to borrow fully £1 in every £4 that we spend. This colossal living beyond our means is made up of consumption rather than investment in any meaningful sense of the word. Correcting that imbalance will necessitate diminished living standards for the generation of taxpayers yet to enter the workplace. In a large measure, that means that we have to take an axe to public spending, and that has of course been a remarkably rare event.

I am delighted by the generally positive media response to the Budget, but I should point out to my hon. Friends that the pain of the tax rises accounts for only 23 per cent. of the overall measures. Details of the adjustments to public expenditure will be hammered home in the months to come and will become fully apparent only in 2011-12. That is when the real logistic and political tests will come.

There is much to learn from history about those very few previous episodes when we have needed to make a substantial cut in public spending. The single most significant period of efficiencies and reductions in public spending came in the aftermath of the first world war and, perhaps significantly, was also in a time of peacetime coalition between the Liberals and Conservatives under Lloyd George. The wartime economy at that juncture was characterised by huge unprecedented state control, so much so that when the conflict came to an end, there was a massive upswing in the economy as pent-up demand, wartime savings and the removal of wartime controls caused a boom. However, the first peacetime Budget in 1919 actually led to a budget deficit of 6 per cent. of GDP after the then Chancellor concentrated on building homes fit for heroes and embarking on an ambitious social programme rather than balancing books.

Hot on the heels of that boom, however, was a grim slump. Having been one of the world’s largest overseas investors before the first world war, Britain became one of the biggest debtors with interest payments taking up some 40 per cent. of all Government expenditure. The value of the pound was depressed, yet the anticipated export boom failed to materialise. Even preceding the slump there had been a public outcry at the Government’s extravagance. As the economic gloom descended and tax increased, the outcry against Government waste became a thundering clamour.

It was against that background of public pressure and economic misery that the then Prime Minister Lloyd George appointed Sir Eric Geddes to chair an independent review of Government spending in the bitter year of 1921, the aim being drastically to cut spending by eliminating the waste that had been identified. The Geddes committee was to become the most thorough and rigorous outside investigation of public expenditure ever conducted in Britain. It was also, of course, highly controversial. Its membership consisted of only a single elected MP and five unelected business leaders, and while it was lauded by the world of commerce and Conservatives and taxpayers, it was attacked by the fledgling Labour party and the trade unions.

In the end, Geddes was able to slice some £54 million off Government expenditure. That seems an almost risibly small sum today, but in those days it amounted to a 10% reduction. We should soberly remember that, once ring-fencing is accounted for, departmental cuts of about 25% are likely to be required next year.

Back in the 1920s, a clear message was sent to Ministers, Whitehall and the general public that spending in any form would be very closely scrutinised like never before. The committee’s work marked a crucial turning point in rebalancing the public finances from a distorted war basis to a peacetime basis. It is a lesson we need to learn in the months ahead as we go about the work of ensuring that these departmental changes happen.

The committee’s success in rapidly achieving its goal was due to a number of factors: it had professional and respected committee members; it enjoyed unstinting political support; it worked to a very swift timetable, which I think we will have to do again this time; there was widespread public support for its aims; and it was willing to compromise on proposals that proved to be politically unfeasible—I think we will find ourselves in that situation again in the months to come. The experience of nine decades also has demonstrated that while securing public expenditure cuts is very politically difficult, it is far from an impossible task, as is often claimed. We undoubtedly need to try to achieve great public support. The experience of the 1920s showed that while voters might agree in general with cuts, they almost never agree with specific cuts that directly affect them. To put it simply, we need to ensure that the cuts are fair, focused and effective.

History also provides important perspectives and pointers to the future. Wisely, the coalition Government have an even more recent precedent in mind. The hon. Member for Telford (David Wright) rightly pointed out that the Canadian model of deficit reduction in the first half of the 1990s took place in an era of great global growth and plenty. We should not underestimate how much easier that made its very painful readjustments, under which a quarter of public sector employees in the country lost their jobs. By contrast, today’s reductions in the head count will, to an extent, be tomorrow’s unemployment rise.

In Canada in the 1990s, the Government had already levelled with the voters over a period of time. They then proceeded to provide very clear evidence, on a year-by-year basis, of the gains as expenditure was reduced. They also made the moral case that the living standards of future generations of taxpayers should not be diminished to pick up the tab for the consumption and debts of current taxpayers. That is absolutely crucial.

This has been an extremely brave Budget from the Chancellor. The fact is that despite the—at times contrived—anger from Opposition Members, those who are most likely to suffer are middle England voters, who are the very people the Conservative party has relied upon for electoral support. The Budget’s promise to be tough but fair is largely borne out, especially in its protection for the poorest and most vulnerable in our society. Indeed, I have been calling for some years now for the removal of the very lowest earners from income tax altogether, and I am very pleased about the steps that have been taken in that regard.

I sound only two notes of caution. First, I believe that the Office for Budget Responsibility unemployment projections have been over-optimistic. Indeed, such has been the unreliability of economic forecasting over recent years, that I think that unemployment will not peak this year, but that it will be higher in both 2011 and 2012. Secondly, I fear that there is a real risk of serious sovereign default in the eurozone, as has been discussed.

I do, in part, accept the Opposition’s view that there is a significant element of risk in this Budget, with many of the toughest measures coming in next year when the coldest winds may well be sweeping across the continent. However, for the sake of this nation’s economic welfare, I believe this calculated judgment is well worth taking. Given that denial, debt and delay are part of the problem, I cannot see that they will be the solution to this crisis.

--- Later in debate ---

[Ms Angela Eagle (Wallasey) (Lab)]

It is a pleasure to welcome you to the Chair for the first time, Mr Deputy Speaker. I would also like to add my personal welcome to the Economic Secretary to the Treasury; this is the first time that we have debated over the Dispatch Box since the election, although it is not the first time ever. I hope that she will accept my personal good wishes in the job that she is now doing.

I would also like to commend the maiden speeches that we have heard in the debate today. In particular, I thank the hon. Member for Staffordshire Moorlands (Karen Bradley) for her praise of her predecessor, Charlotte Atkins, who is a very long-standing friend of mine. The hon. Lady spoke passionately about her beliefs and her constituency, which I know is a very beautiful one.

In his maiden speech, the hon. Member for Hendon (Mr Offord) talked about another good friend of mine, his predecessor Andrew Dismore. Alas for the hon. Gentleman, today’s 12-minute limit on speeches meant that he could not even begin to compete with Andrew’s record for the longest speech in the House. However, I am sure that he will rev up and have a go at that.

Unfortunately, my hon. Friend the Member for Kingston upon Hull East (Karl Turner) is unavoidably absent from the wind-ups tonight. As the successor to Lord Prescott he has very big shoes to fill, but his maiden speech was witty and astute. He spoke about his constituency and his political credo, and I am sure that we can look forward to many more contributions from him.

The final maiden speech was made by the hon. Member for Camborne and Redruth (George Eustice), who has one of the smallest majorities in the House. He spoke about Trevithick, the railway pioneer; as he did so, I was thinking about the fact that whenever I return to my own constituency, I travel through Rainhill, where the famous and historic trials that were won by the Rocket took place—an event that brings back many happy memories as we travel to Liverpool Lime Street station.

We have heard some important speeches today, from all sides of the House. One of most intriguing was made by the hon. Member for Bermondsey and Old Southwark (Simon Hughes). I shall say more about it later, but he said some intriguing things about how he might wish to amend the Budget—particularly with respect to VAT—as it goes through the House. I certainly look forward to seeing the amendments that he may propose. I think that I shall look on them with a sympathetic eye if they do what we want, which is to make this Budget more progressive than it is at the moment.

Other speakers in the debate included my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr Clarke), and my hon. Friends the Members for Telford (David Wright), for Eltham (Clive Efford), for Southampton, Test (Dr Whitehead), for Liverpool, Wavertree (Luciana Berger), for Streatham (Mr Umunna), for Walsall South (Valerie Vaz) and for Chesterfield (Toby Perkins). They all made extremely important contributions.

We heard some passionate speeches from the Government Benches, and I agreed with very little of them. However, I can certainly thank the hon. Member for Stafford (Jeremy Lefroy), who was unique among Government Members in recognising that the Labour Government did some good things while in office. I thank him for his grace in accepting that, although I am not sure that it will do him in any good, or help his career.

The hon. Member for Bromsgrove (Sajid Javid) gave the game away when he revealed himself in the Chamber as a crusading small-state Conservative, and proud of it. He praised the Government’s ideological basis, something whose very existence many Government Members were frantically trying to deny.

There were other important contributions to the debate today, and the short speech by the hon. Member for Spelthorne (Kwasi Kwarteng) was by no means the least among them. He asked us to look at the context in which the Budget was held, and I want to spend a little time doing that now.

We have lived through a difficult time in the last two years. We have seen the deepest and most synchronised global recession in living memory, with world GDP falling for the first time since the second world war as a direct result of the global credit crunch. That credit crunch was precipitated by monumentally reckless and greedy behaviour in the banking sector worldwide, which made a few people spectacularly rich but also impoverished countless millions of its victims around the world. I thought that the hon. Member for Cities of London and Westminster (Mr Field) probably came the closest of all Government Members to being up-front about that in his extremely good speech.

The credit rating agencies, which are now so frequently quoted by Government Members with reverence as economic oracles, were particularly compromised by the triple A rating that they awarded to complex derivatives masquerading as assets when they were in fact debts, and they did so for lucrative fees. The credit crunch was exacerbated by the undoubted failure of politicians, policy makers, economists and regulators to understand and price risk appropriately in the complex and interdependent global market. That led to a degree of complacency and the misreading of international conditions that were shared by almost every economic commentator. Hindsight is a wonderful thing, and with the benefit of it we can learn many lessons to prevent those problems from recurring—I certainly hope that we do.

Meanwhile, fiscal deficits everywhere had to rise dramatically to cope with the crisis. Our tax revenues here in the UK were significantly impacted, while spending had to rise to deal with the costs of recession. The fiscal stimulus, which was necessary to stop the global recession turning into a worldwide depression, also had an effect on the deficit. That is the cause of our deficit problem, and it is certainly not unique to this country. The previous Government were right to take the action that we did to protect people’s bank deposits and to shore up the very foundations of our economic system. I am proud that we were able to rise to that challenge.

I have taken some time to outline the economic context, in agreement with the pleas of the hon. Member for Spelthorne, because in four days’ debate on this theatrically named “emergency Budget”, we have not yet heard any Government Member, from the Chancellor down, have the decency and the honesty to mention it at all. They wish the country to believe that, somehow, the considerable economic challenges that we now face were all caused by the previous Government’s irresponsibility and have nothing to do with the greed of reckless bankers and speculators. That is arrant nonsense, and they know it.

[Mr Mark Field]

Does the hon. Lady not recognise that huge global imbalances built up, and that mistakes by policy makers and politicians of all colours from across the world had their part to play, rather than the problem just being caused by, as she would put it, the greed and recklessness of bankers?

[Ms Eagle]

I agree, and during an earlier part of my speech I listed all those people as being among those who had things to apologise for, as the hon. Gentleman will see if he reads the record.

In the prelude to the Budget, other preposterous myths have been peddled, designed to justify an austerity programme so severe that it is positively, even gleefully, sadistic. I will just mention one of them in passing. The myth says, “It’s all much worse than we thought.” We have heard the Prime Minister, the Deputy Prime Minister and the Chancellor all singing that refrain in recent days. They had prepared the ground, they had the newspapers all going along with it, and they had briefed their Back Benchers, who are even now loyally parroting the line. How irritating for them, then, that the facts have failed to conform to their prearranged narrative, and how positively annoying that the Chancellor’s new forecasting quango—the pejoratively named Office for Budget Responsibility—should so comprehensively give the game away just before the main show. It quickly became clear that, far from all this being much worse than we thought, it was actually better:

“embarrassingly, the economy is just not playing along. Things just keep getting better.”

I was quoting Fraser Nelson—that well known socialist writer—from the Telegraph.