Budget Resolutions and Economic Situation

Meg Hillier Excerpts

Wednesday 20th March 2013 Commons Chamber

[Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

In a spirit of agreement, I endorse the final comments from the right hon. Member for Sutton Coldfield (Mr Mitchell) about the preservation of our aid budget, which has support across the House, and about how every pound of taxpayers’ money should be spent efficiently and effectively to deliver for our constituents. I fear, however, that that might be where the agreement ends.

The Budget was not only disappointing but unsurprising, given that, as my right hon. Friend the Member for Doncaster North (Edward Miliband) said, it was leaked to the newspapers in unprecedented detail. I want to concentrate, however, on three issues key to my constituency and, I believe, the future of our country and families and households throughout the land: child care, lending for business, and housing.

First, the Government—the same Government who removed child benefits from those earning more than £50,000 a year, reduced tax credits and watered down child care by increasing children-to-carers ratios—are offering a giveaway: £1,200 per child, per year off child care costs, but that is two and a half years away. It is jam tomorrow for parents up and down the country who have been feeling the pain for months and years.

[Jessica Morden (Newport East) (Lab)]

My hon. Friend is making the valid point that the Prime Minister has just taken child benefit from parents who are already struggling to pay massive child care costs and who now learn that the Government will not be softening the blow until their children are in school. Does she not think we ought to be doing much more now?

[Meg Hillier]

I completely agree with my hon. Friend. It is tough being a parent, especially in the early years up to age five, so although any support is welcome—all parties have to welcome any support, however inadequate, for children—this is not the sort of thing Labour should be promising at the next election. It is vital that we get cross-party agreement about the importance of families and of parents getting into work.

There is still no promise on the supply of quality child care, however. Supply is a key issue. The Under-Secretary of State for Education, the hon. Member for Crewe and Nantwich (Mr Timpson), who has responsibility for children, has been tinkering, finger in the wind, hoping for more child minders but not more child care in child care settings. There are important and detailed questions that I hope Ministers will consider and that I will follow up for a proper response. Will the child care tax break only apply to Ofsted-regulated child care? If so, how does that chime with the children’s Minister’s desire for lighter-touch, or no-touch, regulation by that very important body? Does the £2,000 national insurance break for small businesses also apply to anyone employing child care directly, as well as the promised tax break? We could see a double subsidy for the higher income earner, who can afford to employ a child carer in their home, and much less help for those at the lower end of the scale.

When only one parent is working, much more difficult issues arise. Low-income parents have higher marginal costs. I think of two women I met at a recent roundtable I organised in one of my child care centres: one was a chef who, because of her working hours, found it much harder to access the sort of child care that would get the subsidy the Government have waved in front of us today; and the other was herself a child carer working for a private nursery on £15,000 a year who could not afford to pay for child care herself and whose employer, shockingly, would not allow her to work part-time. How will those women be helped by what the Government have offered today? We need more detail and to ensure that we make this work for working parents. In a spirit of co-operation, I want it to work—I am not just carping—but I do not see how the proposals will work as planned.

I turn now to lending for businesses. I am proud to represent Shoreditch. It is a borough of thriving small businesses, but there are issues with lending. Merlin’s magic wand has not delivered loans from local banks. The reduction in loan interest has not helped businesses, which tell me that one of their big worries is banks removing overdrafts at a moment’s notice. I want to see—I am disappointed that the Budget did not touch on this—better support for peer-to-peer lending to help interesting nascent businesses.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Does my hon. Friend agree that, given the failure of the funding for lending scheme to get money into small businesses via the main clearing banks, which appear to be using it to reinforce their capital position, the Government should consider using the scheme to help other sources of financing for small businesses?

[Meg Hillier]

My hon. Friend, who does good work on the Business, Innovation and Skills Committee, speaks clearly on this issue. It is vital that we do what he suggests. The funding for lending scheme has effectively been supporting more buy-to-let landlords, which was not really what it was intended for, while businesses in Shoreditch—businesses visited regularly by the occupants of No. 10 and No. 11 Downing street—are losing out.

It is interesting that the Labour Front-Bench team, even in opposition, are encouraging local government to consider investing in one of the peer-to-peer lending vehicles, Funding Circle, representing an important part of the difference in ethos between the Government and the Opposition. We want local money invested in local business and creating local jobs—a break from the distant lenders that have no connection to the business models and economies to which they lend. We cannot say that the banks have stood up well to the test. They have let the side down. They overextended themselves with risky lending and brought the world financial system to the brink of collapse, and the rest of us, including local businesses in my area, have been paying the price.

One way to cut the banks out is to have better approaches to peer-to-peer lending. The Government have said that they will channel £100 million to small businesses through alternative mainstream, but we do not have the detail. The key issue about peer-to-peer lending is that, although it is for profit, there is no necessary prior relationship between borrower and lender. The lender, who buys into the model and will believe in the business, can choose the loan recipients, but there is no protection from the Financial Services Compensation Scheme and no full regulation.

The first peer-to-peer lending company, Zopa, was founded in February 2005, but we now have others: RateSetter, the Funding Circle, ThinCats and MarketInvoice. Between them, they expect to provide about £200 million this year alone in funding to businesses with innovative models that are struggling to get money from the banks, which, if they are not familiar with a business model, think it a risk and do not lend, resulting in a vicious circle of not being able to fund a business.

Despite the low level of regulation, there is a good case for peer-to-peer lending organisations receiving more support even as they are. Zopa says that bad debts account for just 0.84% of the £200 million it has loaned over the last seven years, compared with 3% to 5% for traditional banks, so I think the banks are missing a trick and the Government most certainly are. The average increase in employment after a Funding Circle loan was 25%. If we give businesses the tools to get on and build their businesses, we see jobs created. The Chancellor talks the talk on this issue, but he could have done more to help the industry. The problem is that the industry is barely regulated and lenders have to absorb the losses. Where was the discussion today—or even a hint—that the Government might be looking at better regulation? Where were the changes to taxation, for example, to offset losses through bad debtors against tax, which would encourage more people to lend through such models?

My party is strongly supportive of peer-to-peer lending, as it can help small businesses such as those in Shoreditch and Hackney to obtain access to funding that would otherwise not be available—something on which the Government have failed to date. In the current climate there is a lack of access to funding—often to very small pots of funding. Indeed, the owner of Lock 7 cycle shop in Hackney—the first cycle café to open in the country—took out a personal loan to get her business started. She did that because it was quicker and easier than trying to put her innovative business model—a café that sells coffee and fixes bikes—to the banks. Actually, it is not that innovative—I give her credit for being the first, but it is hardly a risky business, given that both sides of the business are likely to do well—but the banks would have been slow, had they even coughed up. To take the chance, she took another route. The Government need to be fleeter of foot if they really mean what they say about supporting businesses.

Finally, I must touch on housing. There is much of promise in what the Chancellor said, but I suspect there will be a lot in the detail, which we have yet to see. The interest-free loan is for all buyers, not just first-time buyers, so it could be a licence to print rent for potential buy-to-let landlords and others looking to invest in second homes. From what the Chancellor said, it is not clear whether this will apply only to first homes.

[Paul Farrelly]

Does my hon. Friend share my concern that the measures announced by the Government today tilt the financial incentives more towards new build than improving the existing housing stock? Home improvements attract the full rate of VAT; new build does not. One of the imperatives in her area, like mine, is to incentivise the improvement of existing housing.

[Meg Hillier]

My hon. Friend makes a good point.

We do not have full details about the exact implications of the measure for overseas owners—albeit perhaps those with a tax footprint in the UK—or whether they can benefit from an interest-free loan. There are many questions about the measure, which I simply pose at this point, because it does not seem to do anything in particular to target those in greatest need. We see nothing for the growing number of private renters who struggle to pay high rents in areas such as mine, who will effectively be paying the mortgages that many borrowers may take out under this proposal.

We have a promise of more housing supply, but in my area we have seen many properties sold over a weekend to investors from Hong Kong or Dubai. They might be good landlords in that they are not cowboys, but they are after the rental yield, so we see a high turnover of population. These are not local homes for local people. We have also had the announcement of an increase in the right to buy discount, to £100,000. My area has been ravaged because people have, obviously understandably, taken the opportunity to buy their homes, yet within a few years they are inherited by people paying high rents or purchased by those who could have purchased other properties, thereby reducing our valuable—and so far not replaced—affordable housing stock.

This is the same Government who want all new affordable housing to be let at 80% of local private rents, which in my area and many others will put it out of the reach of ordinary working people. We see a Government wanting to cleanse areas such as Shoreditch and Hackney, along with other high-price areas, of people on lower incomes and also provide more housing, but for those at the higher end of the scale. Overall, we see muddle. This is also the same Government who have a Department—the Department for Communities and Local Government—that wanted offices in Shoreditch converted into fancy loft apartments, not homes for local people, instead of the kind of business space that is so often visited by the occupants of No. 10 and No. 11. We will lose business but not get the homes we need. The Chancellor has woefully failed to tackle the housing crisis in this country.

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[John Healey]

That was exactly the case that I, the hon. Gentleman and others were making—that the escalator was damaging investment, damaging jobs, damaging pubs, damaging the British brewing industry and that it had even started to damage tax revenues. This afternoon’s decision is therefore sensible and welcome.

The right hon. Member for Wokingham made an important point in the middle of his speech, when he said that the problem of tax revenues was at the heart of the Chancellor’s fiscal problem. The right hon. Gentleman acknowledged that it was partly about growth. It certainly is, and I would argue that he underestimates the extent to which it is about growth. The big gap in the Chancellor’s record to date—and, to an extent, the Budget announcements today—remains that we have a growth crisis without having a growth plan.

When the Chancellor first took office nearly three years ago, unemployment was falling, the economy was recovering and we had had growth of 1.9% in the final year of the last Labour Government. That is the baseline from which the Chancellor has now given us four Budgets, four fiscal reports, four economic forecasts—with each one worse than the last. Since his first Budget plan in June 2010, debt is up, borrowing is up, we have lost our triple A credit rating, the economy has flatlined and we have had the first double-dip recession for 40 years.

Five years after the recklessness of bankers brought the global financial system close to collapse and drove a worldwide downturn and three years after this Chancellor took control, our UK gross domestic product is still 3% lower than it was at the start of that global crisis. So, our economy is smaller, weaker, making less, earning less and contributing less in revenues to the public finances. Other major countries such as Germany or the US have made up the ground they lost during that global financial crisis—we have failed.

[Meg Hillier]

Does my right hon. Friend agree with me that it is entirely perverse for the Department for Communities and Local Government to suggest that offices should become homes and thereby not provide space for businesses to grow, which would help to boost the economy in the way we agree is needed?

[John Healey]

I have to say to my hon. Friend that there is sometimes a case for changing the historical land use, but that is a decision that very much needs to be taken locally. It will certainly not work if it is dictated by the Department for Communities and Local Government.

To deal with a deficit, which is what we face—whether it be for a country or a family—we must control spending, as the Chancellor said, but if we cut income at the same time, that makes it much harder to close that gap. That is why growth is so vital to a proper balanced plan for the country’s finances. That is why the Chancellor is now further from his fiscal targets than he was before the Budget.

The Prime Minister has tried to claim that the depressed growth has nothing to do with the Government. The independent Office for Budget Responsibility, he told us, is

“absolutely clear that the deficit reduction plan is not responsible; in fact, quite the opposite.”

Next day, a letter from the chairman of the OBR indeed confirmed the opposite, saying

“for the avoidance of doubt”

that the OBR operates

“the widely held assumption that tax increases and spending cuts reduce economic growth.”

In other words, the Chancellor has cut too far, too fast, killed the recovery and choked off growth.

There is good reason to believe that the OBR has underestimated and is underestimating the impact of fiscal policy on growth—the fiscal multipliers. Its estimates to date have been based on the International Monetary Fund figures, which estimate a 0.5% fiscal multiplier, 0.3% for changes in personal taxation and 1% for infrastructure and capital spending. The IMF has recently changed its estimates—up from 0.5% to a range between 0.9% and 1.7%. In other words, the impact of fiscal policy, the potential of the fiscal multiplier and of Government action and Government investment might be much greater than we have been led to believe.

At a time when consumer and business confidence is rock bottom and companies and households are cutting back and not spending, the Government must be ready to do more. They must be ready to invest alongside the private sector and they must, yes, be ready to borrow to help the country through tough times. Borrowing is bad when the repayments are not affordable or if it is done to cover day-to-day spending or indeed a shortfall between income and expenditure. That is why the Government’s planned borrowing bill has been ballooning, but borrowing can be good. It is good if it is for investment to improve infrastructure or the productive capacity of the economy or if it is to create jobs, revive growth and generate the tax revenue that is so sorely lacking.

Companies would borrow to take advantage of an opportunity to increase their earnings and profitability. Companies would never say, “We can borrow to invest only if we can cover the cost entirely by cutting the cost of our operations.” Households would do the same thing if, for example, borrowing to buy a car meant that it was possible to take up better-paid work, or if taking out a mortgage was cheaper than paying a private rent. In those circumstances, households would be daft not to borrow.

--- Later in debate ---

[Meg Hillier]

I agree with the hon. Gentleman that investment in business is a good thing and that growth in business is a good thing. Would he like to comment on the efficacies of the Government’s efforts so far to increase lending to, and other forms of financing for, business?

[Adam Afriyie]

I think the Government have been doing an incredibly tough job in incredibly difficult economic circumstances. The funding for lending scheme should work in time, but the deficit and the troubles we have today have all been caused by the Opposition. I will give way to anybody on the Labour Benches who will stand up and apologise to Britain for putting us in this huge hole. I am happy to give way to anybody—will they apologise?

I believe that it is the primary responsibility and duty of Government to create the environment in which enterprise can flourish, and that means unashamedly celebrating business success. Next time we hear of a British company making huge profits, I want to hear the House cheer. Even now I can feel a little shudder from Opposition Members. The reality is that, under Labour, the little guy stays little and the little guy cannot grow. In Labour’s time in office, it bred in this country a culture of state dependency, a trap not just for the least well-off but for the middle classes.

Labour politicians should be ashamed of themselves and the Labour leadership should be ashamed of itself for digging this hole. This is why I am a Conservative. This is why I believe the Conservative way is the best way forward for this country. We want, and I want, enterprise to bloom and succeed so that opportunities are available for everyone in our society.

Turning to the Budget, I welcome the reduction in corporation tax; it makes Britain a more impressive and attractive place in which to invest. I welcome the increase in the tax-free threshold that will allow lower earners to keep more of their money and encourage people off the benefits that Labour created and into meaningful work. I also welcome the capital gains tax relief that will encourage further investment in business and create more jobs. Above all, I welcome the reduction in employers’ national insurance for smaller businesses that are taking on new employees. The direction of travel is good, and we will look forward to digesting the details and examining the implementation in months to come.

In conclusion, I want to see our nation self-confident and at ease with itself, and my vision is of a Britain where people can succeed through hard work. Whether someone is first, third or 300th generation British, I want them to know that the Government are on their side. Business is the engine of the economy and social mobility, and a path to a better life. It gives people the chance to better themselves and forge a better future for their families.