Amendment of the Law

Pat McFadden Excerpts

Thursday 24th March 2011 Commons Chamber

[Vince Cable]

I am not sure that what Keynes said was a matter of changing his mind in response to a change in fact. He was stating one of the basic principles of Keynesian economics—that the cost of capital has to be kept low.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The Secretary of State said that the evidence had borne out his decision to change his mind on the scale and pace of deficit reduction, but what evidence does he need? Since he made that decision, the unemployment forecasts have risen, the inflation forecasts have risen, the growth forecasts have fallen, the debt repayment forecasts have risen, and as for bond yields he has no evidence that at the time of the election they were causing any problem for the UK’s financing of its debt under the last Government. What evidence is there to suggest that he was right to change his mind?

[Vince Cable]

I do not know when the right hon. Gentleman last opened a financial newspaper. If he had done so recently, he would know that all the countries on the periphery of Europe that have been hit by the rising cost of capital are in very acute financial crisis, which we have avoided. We have German interest rates, and at the same time we are carrying a deficit on the scale of the most debt-ridden economies such as Ireland and Portugal.

--- Later in debate ---

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The first thing to say about this Budget is that it has to be seen in the context of last year’s Budget, because that gave us a large-scale fiscal adjustment of some 6.9% of gross domestic product over the course of the Parliament and the measures announced this year were inevitably going to be smaller in scale and focus. So our discussion is not so much about the measures about to be taken, but, inevitably, largely about the measures already taken: the VAT rise; the shift from the retail prices index to the consumer prices index for so many things; the pay freezes; the child benefit freezes; and the cuts to public expenditure. All those are going to have a far larger impact on household finances and on businesses than anything announced yesterday.

The one headline the Chancellor did not want to see in today’s newspapers was anything that smacked of a U-turn or a reversion to a plan B in terms of his broader strategy. What that means for the public is set out in the forecasts published alongside the Budget by the Office for Budget Responsibility. For the third time since the election, we have seen a downgrading of growth forecasts—growth down last year, this year and next year. Inflation forecasts are up and unemployment is at a 17-year high. The forecasts for borrowing and the interest to be paid on borrowing are also up, even though dealing with that is supposed to be the central purpose of his grand economic strategy. Those forecasts underline the fact that growth is needed and although the Chancellor will continue to claim that any problems he is addressing are Labour’s fault, he will find out that, to use his own metaphor, this particular tank of political fuel runs out over time.

My right hon. Friend the shadow Chancellor fairly pointed out that growth was increasing at the time of the general election, before falling back sharply at the end of the year. I am not sure that even the Chancellor believes that that was about snow. It was about confidence, as the country realised what a tough time lay ahead for family budgets over the next couple of years. The central antidote to all this bad news about cuts was supposed to be the growth plan published yesterday. The Chancellor announced a stream of measures on innovation, tax, planning, training and so on. It was tempting to close one’s eyes, just as the Justice Secretary did, imagine a different accent and be reminded of some of the Budgets that the Chancellor used to attack so strongly for their blizzard of initiatives. We can imagine a range of groups being invited to the Treasury and the Department for Business, Innovation and Skills to be asked what was on their shopping lists. The question for us is whether the sum of these various parts adds up to a plan for growth or whether they are a list of things to insulate the Government against the accusation of having no plan for growth—the two are certainly not the same thing.

I wish to discuss a few of the individual measures, because I believe that my party should adopt a level-headed approach to them. Some of them may work, some of them may not and some of them are, in fact, Labour party policy. The technology and innovation centres announced by the Government are welcome. They were recommended by Dr Hermann Hauser in a report to the Labour Government last year and are based on the successful Fraunhofer institutes in Germany. Their essential task is to bridge the gap between concept and production—between the great idea and the manufactured product. We have long heard commentators say that Britain is less successful at doing that than other countries, so I am glad that the Government have carried on this idea begun under the Labour Government.

The Chancellor also made much yesterday of his new regime for short-life assets in manufacturing, which is designed to encourage investment in new machinery. That has been welcomed by manufacturers over the past 24 hours, but before the Government get too carried away we have also to remember what the Chancellor announced last year: a hit of almost £3 billion on manufacturing to pay for his corporation tax cut by cutting capital and investment allowances. In other words, he made manufacturing—the part of the economy that needs to invest in new plant and machinery—pay for a tax cut for the parts of the economy less reliant on such investment. This is not, as he claimed yesterday, a conversion to support for making things; this is the Chancellor applying a dressing to a wound that he created last year. What he has given back in the measures on short-term assets is a lot less than he took last year—[Interruption.] If there is any doubt about that, I refer the Economic Secretary to pages 42 and 44 of the Red Book, which clearly set it out.

The Chancellor also announced 21 new enterprise zones, with the relaxation of planning control, business rates and so on. If they can create jobs in areas such as the black country, which I represent, they should be welcomed. I sense in the proposals, however, the spirit of Lord Heseltine, who was also involved in the regional growth fund. We had enterprise zones back in the 1980s, when unemployment was 3 million and industry was collapsing all around us. I hope that in reaching for them now the Government are not privately expecting a repeat of the circumstances that gave birth to them in the first place. I also hope that they are not a consolation prize for local enterprise partnerships that are disappointed when the results of the first round bids for the regional growth fund are announced in a week or two’s time.

Some of the measures are worthy of consideration and support, but do they add up to the plan for growth that the Government have claimed they are? Surely to answer that we need to return to the broader context. There is no denying that, had the outcome of the election been different, there would have been difficult decisions to take. It is important for all of us to say that to the electorate. The deficit cannot just be wished away, but there is a legitimate debate to be had about the speed and scale of deficit reduction and its impact on families up and down the country.

The deficit is not there because the Labour Government lost control of the public finances; it is there because of the hit that our public finances took as a result of having a large financial sector and because of the measures we took to stop recession turning into depression. That is not a loss of control, but a Government acting to stop recession having a more painful impact on the public and on business than would otherwise have been the case.

The Budget claims to be a Budget for growth, but there is no escaping the fact that the growth forecasts have been reduced. That is what will matter to businesses and families throughout the country.