Oral Answers to Questions

Michael Fallon Excerpts

Tuesday 6th March 2012 Commons Chamber

[Danny Alexander]

If the hon. Gentleman wants an explanation for the country’s current economic position, he need look no further than the Office for Budget Responsibility report published at the time of the autumn statement. It highlighted three factors: the problems in the eurozone; high inflation and commodity prices over the past year; and the depth of the crisis that was caused in part by the hon. Gentleman’s Government and the damage that did to the British economy. If he is looking for people who should be asked to apologise, he should look to himself, and perhaps he should apologise not least to the people of the west midlands, as that region fell behind the rest of the economy during Labour Government’s period in office.

[Michael Fallon (Sevenoaks) (Con)]

Given the amount of Budget lobbying now going on, will the Chief Secretary remind those who want to add even more to our borrowing by proposing wholly irresponsible and unfunded tax cuts of the Institute for Fiscal Studies advice that

“there is a strong case for the Budget not to contain a significant permanent net giveaway”?

[Danny Alexander]

I would certainly remind them of that, and of the fact that the need to maintain the credibility of this country’s fiscal position should override any such considerations.

Oral Answers to Questions

Michael Fallon Excerpts

Tuesday 24th January 2012 Commons Chamber

[Miss Smith]

This Government are engaged in a credible deficit reduction plan. I would like to hear the hon. Gentleman and his colleagues tell us what their plan is and whether it veers towards credibility or the policies of the delusional left.

[Michael Fallon (Sevenoaks) (Con)]

What lesson should we draw from Standard & Poor’s warning that the UK’s rating could come under downward pressure if, against its expectation, the commitment to fiscal consolidation wavers? Should not that warning be addressed to those who want us to cut more slowly and to borrow even more as a result?

[Miss Smith]

My hon. Friend is absolutely correct. Our policies have kept the UK ahead of the curve. He and others in our House need only look to the French downgrade last week to see the value of the credibility we have restored to the UK economy.

Banking Commission Report

Michael Fallon Excerpts

Monday 19th December 2011 Commons Chamber

[Mr Osborne]

We have required all the major banks in Britain to sign up to the tax code that the previous Government introduced, although they got only two or three banks to sign up to it. We not only have the code, but we are making the banks sign up to it.

[Michael Fallon (Sevenoaks) (Con)]

Does the Chancellor agree with me that if the three politicians identified as culpable in the Royal Bank of Scotland report had been serving in local government, they would probably have been surcharged? Does he think it likely that, in the fullness of time, other European countries will follow us along the road of a retail-wholesale split?

[Mr Osborne]

Two of those three politicians are now busy earning quite a lot of money in the financial sector to deal with the fact that they might face a surcharge. Perhaps, with the efforts of my colleagues, we can make sure that the third politician soon follows them.

Northern Rock

Michael Fallon Excerpts

Monday 21st November 2011 Commons Chamber

[Mr Hoban]

It is a matter for Virgin Money and Northern Rock Foundation to discuss. Virgin Money has said as part of its agreement to acquire the business that it will extend existing arrangements to the end of 2013. It is keen to work closely with Northern Rock Foundation so that it can continue its excellent work in the north-east and Cumbria.

[Michael Fallon (Sevenoaks) (Con)]

The big plus here is that from January we will have a strong challenger retail bank. Will my hon. Friend assure me that in taking forward the Vickers proposals, he will get on with creating other challenger banks, not least as alternative sources of support for small businesses?

[Mr Hoban]

My hon. Friend is right. From 1 January we will see a strong challenger on the high street from a business that has a reputation for taking on incumbents and offering a better deal for consumers. That is one of the great attractions of Virgin Money in this transaction. We want to take more action to improve competition on the high street. We are working closely with challenger banks to find ways of removing barriers of entry to the market so that they can grow their market share. One of the Government’s key commitments is to improve competition on the high street for both business and retail customers.

Eurozone Crisis

Michael Fallon Excerpts

Thursday 27th October 2011 Commons Chamber

[Mr Osborne]

The hon. Gentleman has consistently made that argument for at least as long as I have been a Member of the House of Commons, and longer still. He probably takes some comfort in the fact that events over the past decade have tended to reinforce the views that he has expressed, but I would say this: it is in Britain’s interest that we make the euro work. The disorderly break-up of the euro, or any break-up of the euro, would be an enormous economic blow for this country. Forty per cent. of our trade is with the eurozone.

If we set aside the arguments that we will have this autumn and next year about the domestic effects of the Government’s policies—the Government will argue that they promote growth, and the Opposition will argue that they undermine it—everyone in the House would accept that instability in the eurozone has had a chilling effect on the British economy and other economies. If that is what a bit of instability and market volatility can create, let us just imagine what the break-up of the eurozone will do to this economy.

[Michael Fallon (Sevenoaks) (Con)]

Will my right hon. Friend explain to the House what the consequences would have been for our membership of the IMF if those who had voted against the increase in our subscription had prevailed?

[Mr Osborne]

That would have been catastrophic. We would have been the only IMF shareholder not to have ratified the deal initiated at the London G20 summit, which would have completely isolated Britain. We might have had to leave the IMF, and we would certainly have lost our permanent seat on the board. We heard all the talk from the shadow Chief Secretary about ensuring that Britain is at the table—but she wants us to get up and leave the IMF table.

Jobs and Growth

Michael Fallon Excerpts

Wednesday 12th October 2011 Commons Chamber

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

I beg to move,

That this House notes that there has been no growth in the UK economy over the last nine months, compared to 1.8 per cent. growth in the previous nine months; further notes that families are feeling the squeeze, unemployment is rising again and the recovery was choked off last autumn, well before the eurozone crisis of recent months; agrees with the International Monetary Fund’s managing director that ‘growth is necessary for fiscal credibility’ and the IMF’s recent report which warned that ‘if activity were to undershoot current expectations and risk a period of stagnation’ the Government should ‘consider delaying some of their planned consolidation’; further notes that borrowing is forecast to be £46 billion higher than planned because of the slower growth and higher unemployment arising from the Government’s policy of cutting spending and raising taxes too far and too fast; further believes that the Government need a plan for jobs and growth if the deficit is to be reduced in a sustainable way; and calls on the Government to implement a steadier deficit plan and the Opposition’s five point plan for jobs, which includes a tax on bank bonuses to fund 100,000 jobs for young people, bringing forward long-term investment projects, reversing temporarily the VAT increase to provide an average £450 increase for a couple with children, implementing a one-year cut in VAT on home improvements, repairs and maintenance to five per cent, and a one-year national insurance tax break for small firms taking on extra workers.

In opening this Opposition debate on the economy and moving our motion urging the Government to kick-start Britain’s choked-off recovery and adopt Labour’s five-point plan for jobs and growth, I shall start by setting out the facts for the House and for the country. Over the past year the British economy has ground to a complete halt. The latest figures show no growth at all since last autumn. Consumer and business confidence has slumped. For three months manufacturing output has been falling. More than 16,000 companies have gone out of business. Employment is falling and today’s chilling news is that unemployment has risen by 114,000 in the past three months alone.

Unemployment here in Britain now stands at 2.57 million people out of work—the highest level since 1994. Unemployment is rising across the country. We have the highest level of unemployment among women since 1988. Most worryingly of all, youth unemployment, which a year ago was falling, is now rising again, up 74,000 in the past three months, with 991,000—more than one in five—young people out of work. There has been a 60% rise in youth long-term unemployment since February, and the overall level of youth long-term unemployment is at its highest for 19 years. What a waste of talent, what a waste of money and what a betrayal of this young generation.

[Michael Fallon (Sevenoaks) (Con)]

The former Home Secretary, Charles Clarke, said yesterday:

“I think the economic proposition that Labour puts at the moment is unconvincing.”

How can the right hon. Member for Morley and Outwood (Ed Balls) convince the House and the country when he cannot convince his former Cabinet colleague?

--- Later in debate ---

[Michael Fallon (Sevenoaks) (Con)]

I remind the House of my interest recorded in the register.

There is some common ground on both sides of the House. Growth is the key, and although the Government cannot create jobs and businesses, they can set the conditions for sustainable growth through sound money, a fair and competitive tax system, an infrastructure in which businesses can flourish and, above all, keeping control of their side of the economy—the public finances. The previous Government clearly failed to do that. They failed to balance their budget for nine successive years after 2001 and they doubled then redoubled the national debt, leaving us with the largest structural deficit in the G20. Worse still, for the longer term, they left us a rate of growth that simply was not sustainable because it depended on ever-increasing public expenditure—now, I note, more than 50% of GDP for the third year running—on a boom in commercial and residential property prices that simply was not viable in the longer term, and on an over-blown banking and financial sector. We are now dealing with the consequences of the collapse of that sector.

In the end, it was all an illusion. The previous Government created a pyramid of debt and called it investment. They spent all our money on an unreformed public sector without bringing the improvements in productivity that we saw over the same period in the private sector. On the capital side, they spent it on a whole series of expensively engineered, private finance arranged schools, hospitals and the rest. Above all, as was sadly confirmed yet again today, they left us a lost generation of nearly 1 million youngsters under the age of 25 who were under-educated, underskilled and under-equipped for the needs of modern business. That is why I support a Government who are now laying the proper foundations for genuine growth on top of their fiscal consolidation plan by encouraging bank lending, cutting taxes on business and cutting regulation.

I particularly welcome the announcement made by the Chancellor in Manchester, which he repeated today, about reforming the rules regarding employment tribunals, which will make employment easier. That is one reason why I support it—another is because it will reduce the huge cost to business not only of the awards themselves but of the time taken to manage and handle cases that businesses would prefer not to get to tribunal. I also support it because it is fundamentally, as the Chancellor has emphasised this afternoon, a deregulatory measure that recognises the rights of non-workers—those who are currently frozen out of the labour market but would be prepared to work if businesses found it easier to take them on.

[Sheila Gilmore (Edinburgh East) (Lab)]

We are being asked to accept that all small businesses that might take on employees have as their first consideration the possibility of being faced with an industrial tribunal, but, of course, if they are good employers, that is most unlikely to happen. Surely, the fact that they cannot sell their products if there is no demand for them because so many people are unemployed or feel at risk of unemployment, rather than whether they might be faced with an industrial tribunal, is the most important consideration for an employer in deciding whether to take on another employee.

[Michael Fallon]

Employers in my constituency tell me that they will do almost anything to avoid taking on any single additional member of staff. The hon. Lady has to recognise that the number of cases jumped to a quarter of a million in 2009-10. I welcome the change.

I hope that there might be agreement across the House on my next point. The two things that seem to be missing at the moment in our quest for growth are cash and confidence. I fully support what the Government are doing to encourage bank lending. It beggars belief that there was no agreement in place with the banks to stimulate lending to small businesses before the Merlin agreement was concluded this year. I support that agreement, but I also share the scepticism of the Chancellor and the former Chancellor about the stimulus that the first round of quantitative easing may or may not have given to bank lending. The jury seems to be out on that, but what it does seem to have stimulated is inflation. The Bank now admits, I think, that it may have added between 0.75% and 1.5% to consumer price inflation. Two years ago, consumer price inflation was 1.1%, whereas today it is four times that. I hope that the Bank will be mindful, if there is an inflationary effect, that inflation is already higher than we would like. If there is a squeezed middle, inflation is doing quite a bit of the squeezing, and I hope that the Bank will not forget its core task of getting inflation back on target.

In the end, confidence is the key. I hope that the Government will do everything that they can to back the companies that are successful, and to learn from their success.

[John Mann]

Will the hon. Gentleman give way?

[Michael Fallon]

I will not, if the hon. Gentleman will excuse me.

I visited a small business in my constituency that I want to tell the House about. It is called Rotosound and—I say this for colleagues who play guitar or other stringed instruments—it is the prime maker of guitar strings. It sells them not only throughout the United Kingdom, but to 60 countries around the world, and it is one of our great success stories. It sold guitar strings that were used by Jimi Hendrix, The Who and many other bands. It sells them to China, which could quite easily make its own guitar strings, probably more cheaply. People in China choose to buy our guitar strings because they are associated with one of our most successful industries—popular music—and because they are British. We need to distil the essence of successful exporters such as that company. The Government need to find the secret of those companies and do everything possible to back more of them if we are to deliver the jobs that our young people need.

It is clear from the debate so far, and certainly from the Chancellor’s speech, that only this Government can help to deliver the growth that the economy needs by laying the proper foundations for our fiscal consolidation, so that we get the modern economy that we need growing successfully again.

Eurozone

Michael Fallon Excerpts

Monday 10th October 2011 Commons Chamber

[Mr Osborne]

I am not sure that the asset purchase facility was the enormous success that the hon. Gentleman implies. It probably did do a good job—again, I defer to the views of the Chancellor at the time, who would have seen the data closer up. The asset purchase facility helped to stop the collapse in the corporate bond market at the time, but it never led to the big increase in lending that the previous Government hoped it would. The Bank of England did not make use of the £50 billion facility that was made available. Although the facility remains, to date the Bank has made use of only around £1 billion. Instead of revisiting the theology, as it were, of who is responsible and the role of the Bank, my view has been that in order to maintain the proper division of responsibility between the Bank and the Government, who are accountable to Parliament, the Government should undertake credit easing operations with their own balance sheet, and that is what we are working on at the moment.

[Michael Fallon (Sevenoaks) (Con)]

What was the point of the European Banking Authority conducting two rounds of stress tests that excluded any serious test of banks’ exposure to sovereign debt? Surely it is in the interests of eurozone Governments to have such exposure made more transparent and to start facing up to how to tackle it?

[Mr Osborne]

My hon. Friend makes a very good point. We repeatedly argued that the stress tests should be tougher and more credible, but there were strong vested interests that did not want to see that happen and did not want to confront some of the problems in their own banking system. They are now having to confront those problems, however. The fact that Dexia passed the test, and that when it identified a capital shortfall it was in the low billions of euros across the entire European continent—given that tens of billions of euros were required to deal with the Irish problems that occurred around Christmas—demonstrates that those tests were not credible enough. To be fair, I do not think this is an EBA problem; it is more a problem with the membership of the EBA, but the association is now, with our support and encouragement, finally conducting what I think will be a much more credible set of assumptions for the European banking system.

Independent Banking Commission Report

Michael Fallon Excerpts

Monday 12th September 2011 Commons Chamber

[Mr Osborne]

I will not repeat what I have said about the timetable. Suffice it to say that it is what John Vickers recommended, having really thought about it. This involves a combination of getting the detail right and ensuring that the changes do not unduly damage credit supply in the short term. That is why he has recommended a longer timetable. As he pointed out at his press conference this morning, once we propose such changes and start to legislate for them, some of them will start to happen anyway as banks try to get ahead of the curve—that is certainly what happened with Basel, although they were arguably too quick to get ahead of the curve in that instance—and that is what he anticipates happening when the changes are introduced.

[Michael Fallon (Sevenoaks) (Con)]

Given the report’s emphasis not only on the size of the British banking sector but on the lack of competition within it, will the Chancellor assure the House that he will follow through on the recommendations to encourage new and challenger banks to provide the finance that our small businesses desperately need?

[Mr Osborne]

I can absolutely give my hon. Friend that assurance. The report addresses the issue of Lloyds, which is required to sell branches under European Union state aid requirements. John Vickers thinks that the key test for the Government’s handling of the Lloyds issue will be whether we have created an effective challenger bank. He thinks that any such new bank should have about 6% of the personal current account market, which is more than the state aid proposals would lead to, and that it should be properly funded. I take those recommendations very seriously.

Oral Answers to Questions

Michael Fallon Excerpts

Tuesday 6th September 2011 Commons Chamber

[Danny Alexander]

This deficit reduction plan is essential to restoring credibility to British public finances, which is critical to keeping interest rates low, as low interest rates help to keep people in their jobs and in their homes. That is the argument for the plan.

[Michael Fallon (Sevenoaks) (Con)]

Will my right hon. Friend confirm that the borrowing and revenue figures are now completely independently audited by the independent Office for Budget Responsibility and are no longer the completely unreliable and overtly political forecasts that, as we now know, were forced on the previous Chancellor by the previous Prime Minister?

Global Economy

Michael Fallon Excerpts

Thursday 11th August 2011 Commons Chamber

[Mr Osborne]

We are not proposing for a second to change our deficit reduction target. The target is a structural budget deficit target and was deliberately set as such. The reason we set out those plans in the emergency Budget and went beyond the previous Government’s mantra of halving the budget deficit in four years—not that they had actually written in the proposals to do that—was because on the day we came into office our country’s credit rating was on a negative outlook for a downgrade. Our market interest rates were tracking Spain’s and everyone from the Governor of the Bank of England to the IMF and the CBI was saying that the previous Government’s budget deficit plan was not credible. If we had stuck with that plan and even filled in the blank spaces, we would now be part of the sovereign debt crisis whirlwind that is engulfing other countries.

[Michael Fallon (Sevenoaks) (Con)]

Before there is any further attempt to rewrite history, can the Chancellor confirm again that until last year’s emergency Budget and spending plan this country’s triple A rating was on negative outlook and was restored to stable only through the measures he took last year? Is not the real lesson of the United States that any country that goes off its fiscal deficit reduction plan can suffer a downgrade, with all the damage to jobs and prosperity that that entails?

[Mr Osborne]

My hon. Friend is absolutely right. In January last year the largest bond investor in the world said that UK gilts

“are resting on a bed of nitroglycerine.”

Today I could read out a whole string of comments from market participants saying that the UK has been a safe haven in this sovereign debt crisis because of the decisions that we took.

Standard & Poor’s, the rating agency that has just downgraded the United States, took the United Kingdom off “negative outlook” and reaffirmed our triple A credit rating. The practical consequence of that is much lower interest rates. If we pursued the policy proposed by the Opposition of more spending and more debt, the immediate response would be higher interest rates which would kill off any recovery. That is why such a policy is economic madness.