Finance Bill

Phil Wilson Excerpts

Tuesday 6th July 2010 Commons Chamber

[Mr Byrne]

Absolutely. Jim O’Neill is a very respected economist, he is chief economist at Goldman Sachs, and his opinion was echoed by the chief economist at the British Chambers of Commerce. So this is not a narrow perspective from any one particular corner of the business community. This view is widely shared.

[Phil Wilson (Sedgefield) (Lab)]

We have to accept that the Prime Minister has kept one promise. He said that the cuts would affect the north-east of England the most, and that has been proved to be true. The Government have cancelled a new hospital, abolished One NorthEast and stopped nearly 100 Building Schools for the Future projects, which would have created many construction jobs in the private sector. Is it not a shame that the Prime Minister did not keep the other promise, which was that cuts would not affect the front line?

[Mr Byrne]

My hon. Friend is absolutely right. Like so many words that we heard during the election from those now in government, those ones turned out to be rather empty.

Perhaps we would not be quite so worried about what we have heard from the Chief Secretary this afternoon if we did not know that the risk of failure for this Budget was so great. The Office for Budget Responsibility, which is supposed to know, has said that there is just a 40% chance of the Chancellor hitting his growth forecast for next year, yet the VAT increase in the Bill will tax consumption so hard that we will be forced to rely on a history-making burst of exports and business investment. Last week we heard that just once since 1966 have we had the kind of rise in investment and exports on which the Chancellor will be banking in each of the next three years. The House would therefore be right to ask what measures exist in the Finance Bill to help. On close inspection, there appears to be no help at all for exporters, yet the Chancellor needs Britain’s exporters to grow their trade abroad by £100 billion for his plan to come true. That is the equivalent of our trade with America rising threefold, our trade with China rising by 20 times or our trade with India rising by 40 times. It is fair to say that that is not a bet that any of us would take.

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[Helen Jones]

In a moment—I will make a little progress first.

Something interesting is happening on the Government Benches. We used to hear from the Con bit of the Con-Dem alliance simple, open hostility to the public sector and the welfare state. Now, most of them are becoming a little more sophisticated and wrapping it up a little better. The Chancellor says constantly, “The things I’m having to do are dreadful. I don’t really want to make these cuts. However, if I could cut benefits more, it wouldn’t be so bad.” It is an interesting exercise in shifting the blame. The implication is that responsibility lies not with the Government’s decisions, but with those in receipt of benefits.

[Phil Wilson]

In the March Budget, the then Chancellor offered reform of housing benefit that would have saved about £250 million a year. This Government have brought in cuts of £1.8 billion. That is not reform; it is an ideological cut in welfare, which will hit some of the poorest people in this country. That proves that these are cuts of choice—they did not have to make them to cut the deficit.

[Helen Jones]

My hon. Friend is absolutely right, and I shall talk about the effect after giving way to the hon. Gentleman.

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[Mr Lammy]

The hon. Gentleman paints a fantasy picture of history, and takes the banks out of context. I will return to that in a few moments.

[Phil Wilson]

I agree with 100% of what my right hon. Friend is saying. Back in the 1990s, 11% of young people were out of work; in the 1980s, the figure was 12%. As a proportion of the work force, the unemployment rate was much higher than it is now, and 40% of those people had been out of work for 12 months or more. That figure too is much higher than the figure today. In my own constituency the unemployment is just over 1,000, but at the height of the recessions in the 1980s it was 5,500. The main reason for the difference between what we have experienced over the last year and what we experienced then is what the Labour Government did to ensure that ordinary people up and down the country did not suffer.

[Mr Lammy]

My hon. Friend is absolutely right. That is why Members on the Government Benches should be reminded that employment in my constituency was running at 20% in the recession of the 1980s and at 28% shortly before we cane to power in 1997, and that although my constituency now has the highest unemployment rate in London, it is currently running at 9%. I say “currently” because it will surely rise as a result of this Finance Bill. The consequences—the social consequences —of what we are debating today, and what we will vote on in a few hours’ time, will be so significant that it is hard to put words to them, but they will be real and stark.

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[Mr Jones]

The hon. Gentleman misunderstands. No one is suggesting that we do not need to reduce the debt: the Labour Government did reduce the debt. I know that during the election the stock in-phrase was “Labour didn’t mend the roof while the sun was shining”. Well, I am sorry, but we did. We actually paid off debt. For example, the 3G licences for mobile phones raised in excess of £20 billion, which went directly to paying off debt. However, we are now in danger of doing what happened in the 1980s with the Thatcher Government: borrowing money not to invest, which we were doing, but to pay unemployment and other benefits. The Government are going to slash welfare benefits, exactly as happened in Canada, and blame the poor. It was not the poor, unemployed or disabled in my constituency who got the debt this high; it was the international bankers and the people who are now to be rewarded by the Budget proposals on corporation tax as part of this stimulus.

[Phil Wilson]

On the 3G licences, is my hon. Friend also aware that we paid back more debt then than all the Governments since 1945 put together?

[Mr Jones]

Yes, we did, and that was the responsible thing to do. My right hon. Friend the shadow Chancellor set out what our Government reductions were going to be.

On the recession, if anyone says we are out of the woods, they should look at the provisional gross domestic product figures: 0.3% growth in the first quarter of this year, and 0.4% growth in the final quarter of 2009. The new Office for Budget Responsibility thinks that the economy will grow by 1.2% in 2010, and by 2.3% in 2011. So the Budget is a great gamble. However, this is not just about what is in the Budget and the Finance Bill, which will take money out of the economy at this crucial time when we need to put money in; the Government are also gambling on the complete and utter nonsense that there are two different economies in the country—the private sector, which is good and which we look up to and say, “It’s a wonderful thing,” and the public sector, which is bad and which we boo whenever we talk about it—and that somehow we can separate the two. I shall return to that point in a minute.

On the proposed deficit reduction, the Government’s fox has been shot by their own Office for Budget Responsibility. Its independent analysis is that Labour’s deficit reduction plan would have more than achieved the target of halving the deficit over four years, from 11.1% in 2009-10 to 5% in 2013-14. The OBR also said that the Labour plan would reduce the structural deficit by nearly three quarters, from 5.2% of GDP in 2010-11 to 1.6% in 2014. The plan as outlined to halve the budget deficit within four years would have met the timetable set out at the recent G20 summit on 27 June 2010. Government Members and commentators say that the previous Government did not have a plan, but they did, and even the Government’s own Office for Budget Responsibility recognise that. That plan, however, is now being crammed into two years, which cannot be done without a cost to jobs.

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[Mr Jones]

My right hon. Friend is right as usual: the Government’s plan has nothing to do with that, but is being used as an excuse for an ideological attack, because what they actually want is a smaller state in this country. I return to the point that the Government’s plan is about saying, “Private sector good; public sector to be sneered at, public sector workers to be denigrated and not valued,” and that if we reduce the size of the state, that will somehow lead to nirvana, at which point we can all go off into the sunset and live happily ever after. However, the Government suddenly announced yesterday that they were basically going to shelve the Building Schools for the Future programme, affecting exactly those jobs that the local construction industry—I met the Civil Engineering Contractors Association a few weeks ago—was relying on to ensure that the recovery continues. Therefore, to argue that we can somehow cut back the public sector without having any effect whatever on the private sector is complete nonsense.

We all know that in regions such as mine in the north-east, as well as those in Northern Ireland and others that have a larger public sector dependency than other areas, the effect of what is outlined in the Budget will be even worse. However, I give hon. Members this warning: we ain’t seen nothing yet, because the Finance Bill will work by salami slicing, which is a technique that the Government are using to slip the news out. The biggest crackdown will come—we all know this—with the public sector spending round in October. That is when the real cuts in both capital budgets and other investments will be made.

[Phil Wilson]

I thank my hon. Friend for giving way again, and he is absolutely right. The Government have an objective of trying to create a big society, but does he agree that if we continue down this road, what they will produce is a little Britain?

[Mr Jones]

Yes, they will, and there is something else that they will do. Interestingly, the hon. Member for Ipswich, who made an excellent maiden speech, talked about prison reform, saying things that he really meant, on an issue to which he is committed. However, he will soon be disabused of that, when he finds that the prison reforms being put through the Ministry of Justice have nothing at all to do with the penal system, and everything to do with budget restraint.

As for the other measures , the VAT increase will have a disproportionate effect on my constituents and those in regions such as mine, because it is, in part, one of the poorest communities. As for the Liberal Democrats—we saw a half-hearted attempt earlier to defend the increase in VAT—the measure will indeed affect the poorest.