Budget Resolutions and Economic Situation

Michael Fallon Excerpts

Thursday 24th June 2010 Commons Chamber

[Michael Fallon (Sevenoaks) (Con)]

It is always a pleasure to follow the right hon. Member for Coatbridge, Chryston and Bellshill (Mr Clarke), but he will not be surprised that I cannot agree with his analysis. I wish to make two specific comments to him. First, he spoke passionately on behalf of the poorest people in his constituency, but I cannot see how one helps the poorest and those out of work in Coatbridge by messing up the public finances and producing spending plans that are unaffordable and cannot be carried through. Making promises of that kind does the poor no favours.

Secondly, I disagree with the right hon. Gentleman’s accusation that we take pleasure in the measures that were announced on Tuesday. There are many things in the Budget that I do not take pleasure from, and many spending cuts are coming that Members in all parts of the House will probably wish had not been made. There are certainly tax increases in the pipeline that we would not have wished for. However, many of the decisions that the Chancellor has taken were simply unavoidable because of the mess that we have inherited. We take no pleasure in the judgments that have had to be made.

It is heartening to Members on the Government side of the House, after so many years of hubris, boasting and declaration, to have a Budget that is so clear, honest and straightforward. Even if the right hon. Gentleman disagrees with the measures in it, it sets them out clearly and simply. It is refreshing to have a Budget that takes the longer view—a Budget for a whole Parliament. It is good to know now the structure of the measures in it, unpopular and unpalatable as some of them are to Members on our side of the House as well as his, and that if those decisions are carried through, the current structural deficit will be closed by the end of this Parliament.

It is refreshing also to have a Government who face up to a situation that has deteriorated rapidly, as we have seen in the eurozone. There is no exact parallel between our deficit and that of Greece, or between our debt and that of Spain, but there was a parallel between the Labour Government and the Governments of Greece and Spain in that all of them ignored successive warnings. They were all warned by the International Monetary Fund, the OECD and the European Commission to start putting their public finances in order, and they ignored those warnings. That is why we have had to be confronted with a second Budget in a year—an emergency Budget that puts right the weaknesses that have been identified.

[Mr Tom Clarke]

When the hon. Gentleman makes comparisons with other countries, will he bear in mind that we in Britain are not in the euro? Will he also, as he did when he was on the Treasury Committee, recognise that there is a big difference between short and long-term debt, and that that matters?

--- Later in debate ---

[Michael Fallon]

I accept both those points, and I am not drawing exact parallels with Greece and Spain. I am making the much more general point that when a country is warned by all the international agencies and commentators, and depends on the international markets to finance its accelerated borrowing, it has to listen to those warnings. That is why we are now confronted with a second Budget in three months.

The Budget is to be welcomed because the pain is quite clearly shared. We can of course argue about its relative impact on various deciles and so on, and we have had that argument. We can also discuss whether we should include the measures taken in earlier Budgets or just consider this Budget itself. What cannot be argued about, however, is that the pain is spread across all income groups and sectors. My constituents will bear some of that pain, just as the right hon. Gentleman’s constituents will in Coatbridge.

Let us be clear about some of the spending cuts that will ensue: they are legacy cuts; in the end, they are Labour’s cuts. We discovered that some of the spending promises made in January would, shockingly, have been financed from the reserve, which was set aside to ensure that our troops in Afghanistan would be properly financed if new need arose there for equipment and so on. It would have been raided to finance the extra spending commitments that were announced in the pre-election rush. The plain fact is that the spending was unfunded. We cannot continue to spend £700 billion and raise only £545 billion in taxes. That gap must be bridged and the Budget, for the first time in a series of Budgets, sets out a credible path for achieving that.

I am pleased that, when the Chancellor considered the make-up of those spending totals, he decided not to cut the capital spending programme further. That is important. Clearly, there are implications for jobs, and the capital spending totals were already being halved from their peak. There are explanations for that, but it was right not to cut them further.

I note that when the Chancellor reviewed the capital spending programme and future capital spending commitments, he was careful to preserve some of the commitments for key infrastructure projects in, for example, the northern cities. It is not true that the Budget hits Scotland, Lanarkshire or the north harder than other parts of the country. The dualling of the A21, for which we have long campaigned in Kent, was one of the first casualties of the spending review. Long-cherished projects in the south-east, too, are being further postponed. The pain is being spread across the country. That should be borne in mind when particular decisions, such as the loan to Sheffield Forgemasters, are considered.

I want to make three further comments about the Budget judgment. First, I assume—obviously, I must await the completion of the spending review—that there will be further contributions from annually managed expenditure. I assume that, as well as the decisions that have already been made—I accept that Labour Members may oppose them—about housing benefit and some of the other grants that have been mentioned, there will be more changes through some of the welfare reforms that my right hon. Friend the Secretary of State for Work and Pensions and his team are considering.

Secondly, I hope that, when an element of spending is protected, it will not be wholly insulated from the same downward pressures that we apply elsewhere to reducing management, eliminating unnecessary bureaucracy and focusing more spending on the front line. That must apply equally to health and international development as to other matters. Otherwise, in two, three or four years, those who happen to work in the health service will end up being better rewarded than those who have chosen to work in the education service or the police service. That would not be right.

Thirdly, I want to say a little more about the proposed freezes. There are freezes on public sector pay, child benefit and council tax. The reasons for them are all too obvious: the private sector has had to accept a huge measure of freezing—I pay tribute to trade unions in the private sector for the extent to which they accepted the necessary restraint on pay and the changes in working practices that had to follow in the teeth of one of the worst recessions we have had to face. It is therefore right that, as well as freezing pay, we should continue to consider the greater flexibilities that we need, and equity between the private and public sectors. Working practices, various entitlements and inherited rights should also be examined. It is not simply a question of freezing pay for two years and exposing public services to some of the problems that we have experienced in the past with incomes policy, when there is immediate demand for catch-up, immediate pressure for comparability and so on. While the freezes are in place, it is important to continue the search for radical reform, which helps restructure those services. That should apply across the public sector, where we have frozen pay and in local government, where we will freeze council tax. We must continue the drive for more efficient services, and shared services between councils.

The principle may also apply to some of the frozen benefits, such as child benefit, where freezing the benefit does not wholly tackle some of the inherent difficulties with universal benefits—the deadweight cost that is expended on those who are well able to afford to bring up their children but are entitled to exactly the same amount of child benefit as those much further down the income scale. Those issues need to be addressed while the benefits are frozen.

As we rebalance the economy away from the expansion in the public sector to encouraging the private sector to grow again—I welcome the enterprise measures in the Budget—it is enormously important to continue to focus effort on reskilling and ensuring that those who have to change their jobs and seek the new opportunities that are being provided have the necessary skills to alter their position in the labour market. We must get alternative training providers in alongside jobcentres and existing services.

Labour Members have described the Budget as a gamble. It is not a gamble, but a necessary judgment to restore the public finances and get our economy growing again in a way that provides the jobs of the future. We are in politics to make such judgments, and I am delighted that my right hon. Friend the Chancellor has set out his judgment so honestly in the Budget that I support.