Oral Answers to Questions
Rachel Reeves Excerpts(14 years, 3 months ago)
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Miss Smith
I certainly agree, and my hon. Friend will know, just as other Members of this House do, that that measure would take more than 1 million low-income earners out of tax altogether, which is a healthy start and a step on the path to our economic recovery.
Rachel Reeves (Leeds West) (Lab)
We have heard incredible complacency so far from the Minister about couples in receipt of working tax credit, who are desperately worried. Liz, a low-paid worker in Suffolk, told her union, the Union of Shop, Distributive and Allied Workers, that
“two weeks ago my boss informed me that the likelihood of finding the eight extra hours I need was next to none, at least for another three months. I have been looking for another job to boost my hours, but so far have had no joy”.
What advice would the Minister give to Liz and thousands of families in her position, who stand to lose up to £4,000 in just a month’s time?
Miss Smith
Liz from Suffolk might like to listen to Rachel from Leeds, who says that
“we must ensure we pass the test of fiscal credibility. If we don’t get this right, it doesn’t matter what we say about anything else.”
Rachel Reeves
The Minister offers Liz cold comfort, especially as the Government’s own figures show that families are likely to be £728 better off out of work, rather than in work, as a result of these crazy changes. The Minister could not answer my last question, so let me ask her about another family. Let us imagine that a single mum with three kids who is earning £42,000 a year is offered a promotion that would take her pay to £43,000. If she takes the pay rise, she will lose almost £2,500 in child benefit—every single penny of it. What is the Minister’s advice to her? Should she turn down the promotion to keep her child benefit, or should she reduce the number of hours she works?
Miss Smith
It is absolutely extraordinary that the hon. Lady is unable to deal with any aspect of her own challenge on fiscal credibility. May I ask her whether she voted for the welfare cap that highlights the average family’s earnings within the example that she just gave?
Living Standards
Rachel Reeves Excerpts(14 years, 3 months ago)
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Rachel Reeves (Leeds West) (Lab)
I beg to move,
That this House believes that next month’s Budget should include a real plan for jobs and growth in order to boost the stalled economy, help hard-pressed families, pensioners and small businesses, bring down unemployment, and so ensure that the deficit is brought down and done so in a fair way; notes that while the banks are receiving a tax cut this year, the Institute for Fiscal Studies analysis shows that families with children will lose an average of £580 per year from tax and benefit changes coming into effect in 2012-13; further notes that up to 200,000 couples with children who work part-time face losing all their working tax credit of up to £3,870 per year from April 2012 if they cannot increase their working hours to 24 hours per week, further squeezing family living standards; further recognises that, in addition to ending the principle of universal child benefit, the Government’s unfair and ill-thought-through changes to child benefit will mean that a family with two earners each earning £40,000 would keep all its child benefit, but a single-earner family on £43,000 would lose it all, at a cost of £2,450 per year for a family with three children; and calls on the Chancellor to use extra revenue from tackling tax avoidance to cancel his changes to eligibility rules for working tax credits and announce in the Budget an immediate and urgent review of his changes to child benefit, to report before they come into effect in January 2013.
The Opposition have called this debate to draw attention to the injustice of ill-considered changes to benefits and tax credits, which are about to hit hard-pressed hard-working families across the country. We urge the Government to take this chance to review and rectify the pressure they are piling on families who are already under huge strain.
The debate takes place against the backdrop of the biggest squeeze in living standards in a generation, which is made all the more painful because of the Government’s failure to generate jobs and growth, and to deal with the deficit fairly. This year, they have chosen to take more from women and families with children than they are taking from the banks—they are refusing to repeat the tax on bank bonuses that the previous Labour Government introduced, with banks benefiting instead from a cut in corporation tax. At the same time, the average family with children faces a £580 cut in their annual income next month, according to the Institute for Fiscal Studies. Those families will get a Budget bombshell from the Chancellor this year.
Today the Opposition are calling attention to two ways in which the Government are clobbering families with children. The Government’s lack of competence or care when it comes to fairness for families includes a crude cut to child benefit planned for 2013, meaning that while two-earner families with incomes up to £84,000 will keep all their child benefit, a single-earner family with an income of more than £43,000 will lose all theirs. Families will be asking: “Is that fair?” We are also about to see a punitive withdrawal of working tax credits for couples with children, meaning that unless a family on £17,000 can increase their working hours from 16 to 24 by 1 April, they will see their income fall by almost £4,000. Families will be asking the Government: “Is that fair?” I look forward to the Minister’s answers.
Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)
Does my hon. Friend agree that it is appalling that in Liverpool, Riverside alone, more than 520 children from families who are working, but in low-paid jobs, will suffer as a direct result of that measure?
Rachel Reeves
I entirely agree with my hon. Friend, who makes the point about her constituents. All hon. Members will have heard at our surgeries from people who are beginning to realise that in just a few weeks’ time, they will lose all their working tax credit, despite the fact that they are working and doing the right thing.
Mr Frank Field (Birkenhead) (Lab)
Will my hon. Friend put it to those on the Treasury Bench that when child benefit came in, it replaced family allowances and child tax allowances, and therefore played a crucial part, because whatever level of income people with children were on, we in some way maintained equity with tax-free income? The Government are abolishing that for the sake of higher rate taxpayers. How can they maintain that the tax burden is being shared between single and childless people, and those with children, if they abolish child benefit?
Rachel Reeves
My right hon. Friend is entirely right. This country will be one of the few that does not support families with children across the income distribution. Having children is expensive, and it is right that when people bring up a family, and when they retire, the state is there to provide that bit of extra support when they need it. The Government’s changes go entirely in the wrong direction.
That is a shocking illustration of the Government’s failure to come to grips with the crisis that our country faces—the crisis that is putting families under strain is the crisis in jobs, incomes and living standards. The cost-of-living crisis does not hit the headlines like a banking crisis or a currency crisis perhaps because it is a crisis from which those with the loudest voices can too easily insulate themselves. For the vast majority of people, however, trying to keep going and keep their heads above water is one of the toughest challenges that they have ever faced. Every day is a battle in a long war of attrition.
Helen Goodman (Bishop Auckland) (Lab)
Does my hon. Friend agree that those at the top of the income scale do not mention the crisis because they are not facing a crisis? The RBS bonus pool was £785 million.
Rachel Reeves
My hon. Friend is right to say that those on the lowest incomes and modest and middle incomes are being hardest hit by the changes to taxes and benefits that the Government have instituted.
George Freeman (Mid Norfolk) (Con)
Does the hon. Lady acknowledge that the Government’s proposals to take more than 1.1 million people out of tax, through the personal allowances, represents a tax cut for more than 25 million people? On the motion, will she confirm that the Budget is this month, not next?
Rachel Reeves
The changes come into effect next month, but the Budget is in 16 days. [Interruption.] The hon. Member for Taunton Deane (Mr Browne), who is a Liberal Democrat, says that he was going to vote for the motion. Perhaps he was thinking of before the election, when he agreed with progressive policies.
Every day, families are struggling, while the Government demand more from them, and there is no end in sight, no light at the end of the tunnel, just the fear that one day, sooner or later, they will not be able to pay the mortgage, rent or gas bill. We have called this debate because the Government seem unaware of what is happening, unable to understand what people are going through, unwilling to do what it takes to get our economy growing and unemployment falling, and uninterested in taking the trouble to find out what impact their decisions are having.
The choices that the Government are making are hurting but not working. [Interruption.] The hon. Member for Taunton Deane says that we are wrong. It is the Government who are wrong because they are hitting hard-working families harder than anyone else, and giving the banks a tax cut while penalising families and young children trying to do the right thing and stay afloat. The choices that the Government are making are hurting but not working. They are penalising those trying to do the right thing. In response to the crisis in living standards hitting families, the Government are piling on the pressure with badly designed and badly targeted cuts to benefits and tax credits.
Kate Green (Stretford and Urmston) (Lab)
Although, of course, it is desirable to lift more people on low wages out of tax, is it not the case that this is not a particularly well-targeted measure in difficult times because it applies exactly the same tax advantage to higher paid people?
Rachel Reeves
My hon. Friend speaks with great knowledge, having formerly worked for the Child Poverty Action Group, and what she says should hold great sway with the House.
Mr David Anderson (Blaydon) (Lab)
In response to the question from the hon. Member for Mid Norfolk (George Freeman) about people being taken out of tax, will my hon. Friend agree that more people are being taken out of tax—and put on the dole? What is that costing us? Some 700,000 public sector workers have gone on the dole in this country. Not only will they not be paying tax but they will not be paying national insurance, which will make things even worse for this country.
Rachel Reeves
My hon. Friend is absolutely right. As we all know, unemployment is at a 17-year high and youth unemployment at an all-time high. That is taking more people out of tax and costing taxpayers more and more every day, as the bills of this failed economic policy add up.
Sheila Gilmore (Edinburgh East) (Lab)
Will my hon. Friend consider the point that the people affected by the change to working tax credit who work 16 hours a week—probably on the minimum wage—already fall well below the tax threshold, so however desirable it is to raise the tax threshold, it will not help those people at all?
Rachel Reeves
My hon. Friend is absolutely right. The most by which someone affected by the changes to working tax credits could benefit from next month’s increase is £125. That pales into insignificance compared with the £3,800, which is the amount by which these families will be worse off because of these changes.
Mr John Redwood (Wokingham) (Con)
Having highlighted the anomaly with one and two-earner families regarding child benefit withdrawal, does the Labour party have a suggested solution to sort it out?
Rachel Reeves
I am looking to the Government Front-Bench team for their solution, given the words that we have heard from Ministers over the past couple of days. The Labour party supports child benefit as a universal benefit. At the very least, the Government must iron out the anomaly that means that families earning £84,000 a year can still get child benefit, while a one-earner family on £43,000 cannot.
One month tomorrow, on Good Friday, 212,000 families stand to lose up to £4,000 because of changes to the working tax credit. The Government will say that people need only to increase the number of hours they work from 16 to 24. If they were in touch with working families and businesses, they would know that this is simply not an option for many people because the jobs are not there, and employers are laying people off and cutting hours, not increasing them.
Mr Sam Gyimah (East Surrey) (Con)
The hon. Lady is demonstrating to the House that she is a very good Opposition politician. What exactly would she do to address the problem that she is highlighting?
Rachel Reeves
I thank the hon. Gentleman for saying that I am a good Opposition politician; I hope, in due course, to be a good Government politician, so that we can put into practice measures to help families, pensioners and businesses facing the squeeze. But it is this Government’s mistakes and wrong-headed policies, which are callous, incompetent and unfair, that are penalising families trying to do the right thing. As I said to the right hon. Member for Wokingham (Mr Redwood), I would like child benefit kept as a universal benefit to help all families with the cost of bringing up a family. At the very least, however, the Govt must address the anomaly.
Nia Griffith (Llanelli) (Lab)
Does my hon. Friend agree that this devastating cut in tax credits, which will take £800 million away from families in Wales alone, is not only a tragedy for each family but economic madness, because these are the very families who have to put the money immediately back into the local economy? That money will be sucked out of the local economy, resulting in fewer opportunities for growth and economic recovery.
Rachel Reeves
My hon. Friend is right. Government Members would do well to listen to her point. We also know that because of the changes to working tax credits, many families will be in the crazy situation whereby they would be better off on benefits than in work, as the Government’s own figures show.
Richard Fuller (Bedford) (Con)
The hon. Lady is moving on to some of the complexities of the benefits system. Does she support the coalition Government’s policies for a universal benefit as a way of simplifying this process? Did she vote for that?
Rachel Reeves
This has nothing to do with universal credit. Those changes take effect in about one and a half years. In the meantime, families will be £74 worse off a week because of what the Government are doing, and would be better off on benefits. That is totally inconsistent with what universal credit is supposed to do, which is to ensure that everyone is better off in work. This policy goes in totally the opposite direction.
Fiona Mactaggart (Slough) (Lab)
The hon. Member for Bedford (Richard Fuller) mentioned universal credit. That is designed to ensure that work pays in 18 months, but what would my hon. Friend say to my constituents, the parents of 1,700 children in Slough, who currently work between 16 and 24 hours and who will lose £3,800? That is in no way compensated for by the measly £200 resulting from raising the tax threshold.
Rachel Reeves
I will come to that very point. Hours are being cut at the moment, so many people working part time who will be hit by these changes to working tax credits are working part time because they cannot find full-time work. Numbers from the Office for National Statistics show that the number of people working part time because they cannot find full-time work is at a record high of 1.35 million—a 13% increase on a year ago. It is therefore not the case that families can simply increase their hours to keep their tax credits. They are being penalised, first because of the lack of economic recovery, and secondly because of this Government’s decision to cut working tax credits.
Hugh Bayley (York Central) (Lab)
Government Members keep asking what a Labour Government would do. I was a Social Security Minister when the Labour Government put together effective welfare-to-work policies. What is needed to make them effective is a macro-economic policy that creates jobs and allows people in part-time work to increase their hours. Under the Labour Government, the number of jobs in York increased from 40,000 to 57,000, many of them in retailing. It is precisely those people—1,600 in York—who look set to lose family income as a result of this Government’s policy.
Rachel Reeves
Like my hon. Friend, many of us will have spoken to constituents in jobs whose hours vary—for instance, those working in retail or call centres, or those working as cleaners. However, at the moment, their hours are varying in one direction: downwards, because employers are cutting hours and cutting staff.
In addition to the changes to working tax credits, next January more than 1.5 million families will lose every single penny of their child benefit. The Government are saying, “Well, we’re only cutting child benefit for rich families.” However, if they talked to working families, they would realise that many families are heavily reliant on a single earner, because there is only one parent or because one parent is staying at home to bring up the kids. Those families are being hard hit by the changes.
Glyn Davies (Montgomeryshire) (Con)
I am listening to the hon. Lady’s speech carefully, and she has made several references to the crises in various parts of our society. The greatest crisis facing the Government, I hope she would agree, is the debt crisis, a huge contribution to which was made by the previous Government. We would all appreciate it if the hon. Lady told us whether the response to the issue being raised today is simply to add to that debt crisis or to find some other way of dealing with it.
Rachel Reeves
I would like to know how the hon. Gentleman would explain to the 348 kids in his constituency who will be affected by the changes to working tax credits how it makes sense for their families to be better off on benefits than it is for their parents to be in work. That will surely add to the debt, not reduce it. It is this Government who are borrowing an extra £158 billion, because of the costs of their failed economic policies; it is they who are adding to the debt.
A Government who believe in fairness—a Government who say, “We’re all in this together”—are straining at the leash to cut tax for individuals with incomes over £150,000, while one-earner families on £43,000 stand to lose £2,500 of child benefit and families struggling on just £17,000 stand to lose around £4,000 because of changes to tax credits. Instead of worrying about the top 1%, this Government should start thinking about the other 99%.
Anna Soubry (Broxtowe) (Con)
The hon. Lady says that she cares about our children. Those of us on the Government Benches also care about our children and our grandchildren. Does she think it right to saddle them, generation on generation, with debt, racked up by the previous Administration?
Rachel Reeves
As for caring for children, the Government’s own figures show that child poverty will increase under this Administration. As I said in answer to an earlier question, there is nothing helpful about throwing more people out of work and on to benefits, either for those families or for taxpayers, who have to pick up the bill of extra benefits and lower tax revenue.
Rachel Reeves
The hon. Lady has had her chance; I will carry on.
When it comes to child benefits, a Government who say that they believe in rewarding work are creating a perverse and damaging incentive for people near the higher-rate tax threshold to limit their hours or pay, because of the crude cliff-edge effect that their policies will create. At the same time, changes to the rules for working tax credits will mean that some families could end up £728 better off on benefits than in work, according to a written answer from the Minister of State, Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling).
Helen Jones (Warrington North) (Lab)
The Chancellor said when he took office that he did not intend to balance the books on the backs of the poor. Is that not now exactly what he is intending—and failing—to do? That is the real answer to the hon. Member for Broxtowe (Anna Soubry).
Rachel Reeves
It is even worse than that, because the Chancellor is not even balancing the books.
Joan Walley (Stoke-on-Trent North) (Lab)
Does my hon. Friend agree that the 1,200 people in Stoke-on-Trent earning just under £17,000 a year who will be worse off under these changes desperately need the Government to listen to this debate and do something in the Budget about the comprehensive spending review, so that they do not have to pay the price for these unacceptable changes?
Rachel Reeves
My hon. Friend is right when she sticks up for the people of Stoke, who, like many of our constituents, will be hard hit by the changes, which do nothing to encourage people to go back to work, and instead encourage people to stay on the dole, because they will be better off on benefits than in work.
Toby Perkins (Chesterfield) (Lab)
I hope I can add some weight to what my hon. Friend is saying. I was contacted by a local small business owner in my constituency—Keith Bannister, who runs Harley’s pub, which people in Staveley will all be aware of. He told me that three women on his payroll are threatened with the loss of their tax credits. They have told him that they will have to give up work if that happens, but he knows that if he increases the hours of two of them, he will have to lay off the third. It just does not make sense, does it?
Rachel Reeves
It would be better if he was advising the Treasury, rather than the people who are currently doing it, because that is absolutely right, and it gets to the heart of the problem.
Indeed, that seems symptomatic of a wider problem with this Government: rushing out announcements to generate headlines before the costs have been counted; dreaming up the next big idea, when they should be focusing on the impact of their policies in the real world. We heard over the weekend that the Prime Minister had lost his blue-skies thinker. However, it might not be such a bad thing, because in tough times such as these, our constituents need a Government with their feet on the ground, not with their head in the clouds. I hope that this debate gives the Government a much needed reality check, because it is not too late to change course and protect hard-pressed families from further hardship and strain, inflicted on them by this Government.
It is the job of this House to ensure that our constituents’ voices are heard and their struggles taken into account, and that the impact of Government policies on their lives is fully understood. Labour Members hear every day from our constituents, and from the people we talk to around the country, about how hard it is to make enough money to pay the bills, find work or keep businesses afloat. It is not too late for the Chancellor to correct the mistakes that he is making with child benefit and working tax credits. I urge the Government to commit now to an urgent review of the child benefit changes and to use the money from a crackdown on stamp duty avoidance to cancel the damaging cut to working tax credits.
There is still time to listen to the families who will be hit by the restrictions on working tax credits, 78% of whom said in a survey for USDAW—the Union of Shop, Distributive and Allied Workers—that they would be unable to find the additional hours needed to keep their tax credits. There is still time to listen to the many families hit by the change who cannot work extra hours because they have disabled children or other caring responsibilities. The Government have refused to exempt those families where one parent is a full-time carer. There is still time to listen to the Child Poverty Action Group, which warns that the change will
“cause a surge in child poverty of hundreds of thousands”.
There is still time to listen to the children’s charities and organisations speaking up for hard-pressed families—including Barnardo’s, Carers UK, Citizens Advice, the National Children’s Bureau and Working Families—which today wrote to the Prime Minister urging him to think again. There is still time to listen to one woman—Mary, from Belfast—who said:
“I can’t get my employer to give me the extra hours I need to qualify. There are people in my work who have had to take redundancy or cut their hours from 36…to 12 hours a week…Where does he think we are going to pluck the extra hours from? It’s a joke.”
Frankly, Mary is right.
On child benefit, there is still time to listen to the Institute for Fiscal Studies, which says that the Government’s proposals will
“create a bizarre and economically damaging set of incentives”.
There is still time to listen to the hon. Member for Christchurch (Mr Chope), who said that the Government’s plans would lead to
“a lot of unfairness and injustice”.
He is right. There is also still time to listen to the hon. Member for Peterborough (Mr Jackson), who said that the Government’s policy was “barmy, tokenistic and unfair”. He, too, is right. I look forward to both of them, and others on the Government Benches, joining us in the Lobby this evening to tell the Government what they think of their policies.
All day, we have been getting smoke signals and spin from the Government. The Deputy Prime Minister says that they are thinking again, yet the Secretary of State for Justice says that they are not. Who is right? I look forward to getting an answer on what the Government’s policy on tax credits and child benefit actually is. It is a shame that no member of the Cabinet is in the Chamber tonight to give that answer and to talk about Government policy.
With 16 days to go until the Budget, the families that are about to be hit by the changes need certainty and commitments. The motion gives Members on both sides of the House an opportunity to dispel any doubts about the seriousness of our commitment to families and to fairness, and to show that we have listened to our constituents and our consciences. We have an opportunity this evening to stand up for fairness in tough times and to vote to protect family incomes by supporting the motion.
Rachel Reeves
Can the Minister tell us whether the measures introduced by his party are progressive or regressive?
Mr Gauke
All the measures that will be put in place in 2012-13 are being implemented by this Government. That is the point. It is impossible to disaggregate those measures. They are all going to be put in place, and we are responsible for all of them. If we had wanted to reverse some of them, we could have done so, but we did not.
Of course, none of what we are doing ignores the fact that this will be a tough year for households across the board. We know that that is the case, and it is our reason for going even further to support families and businesses throughout the country.
Banking (Responsibility and Reform)
Rachel Reeves Excerpts(14 years, 4 months ago)
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Mr Jones
I will not give way. We need to be careful that we do not vilify people whom we entrust with such positions—we should not vilify wealth creators, because they are the very people we need to get UK plc back on to its feet.
That brings me on to regulation. The tripartite system given to us by Labour clearly failed; we had banks that were thought too big to fail, with no proper checks or balances on their activity. I am pleased to say that the Financial Services Bill, which had its Second Reading yesterday unopposed, will change that situation of ring-fencing banking, so that we no longer have banks that are considered too big to fail.
That leads me on to other issues, particularly the bailing out of the banks, state ownership of banks and state guarantees for banks. They are all probably undesirable for the taxpayer and it is important that we work to try to reverse the unsustainable position that the taxpayer has been put in. We need to consider carefully how we facilitate our banking and finance industry to ensure that we can try to right the wrongs. One way of doing that is through the regulatory framework, which we are dealing with, but we can also do it through competition. We must be well aware of global competition.
I did not take part in last night’s debate on the Financial Services Bill, but spent some time listening to speech after speech from Opposition Members saying that regulation of our banking system needed to take into account the global situation that our banking industry found itself in. I totally agree, but they must therefore acknowledge in tonight’s debate that our banks must be competitive within that global market. Vilifying our banking and business sectors with an unbalanced argument and approach and putting excessive taxes on those sectors will move us away from having banks that are competitive in that global environment.
That brings me, quite neatly, to the bankers’ bonus tax, which is mentioned by the Opposition time after time. They seem very keen on that tax, which they mentioned before the Government put in place the bank levy, which raises £2.5 billion a year, rather than the £2 billion that the bankers’ bonus tax would have raised. The goalposts seem to have moved again and the Opposition seem now to be advocating that it should be an additional tax for the banks to pay.
Mr Jones
The Opposition’s position is interesting, as we are now trying to encourage our banking sector to lend, particularly to small businesses, to put their balance sheets in good order and to keep bank branches open—we expect them to do an awful lot of things as well as pay additional taxes. We need to be careful about how we approach this matter.
Richard Fuller
I thank the hon. Member for Derby North (Chris Williamson) for what will appear in print as a helpful intervention.
I turn to the mishmash of observations that the Opposition have called a motion. It might, to them, make a motion, but it certainly does not make a policy.
On the key issues, the coalition Government have already taken sensible steps towards reform: they have found an answer to the mess of regulation by centralising it under the Bank of England; they will implement the recommendations of the Vickers report; and they are introducing changes to the compensation culture so that it can get back to supporting enterprise and rewarding merit, which is what we all want.
The shadow Business Secretary did a good job of holding back the hostile anti-business rhetoric. I just hope that the shadow Chief Secretary to the Treasury can restrain herself in her usual anti-business rhetoric when she winds up for the Opposition.
Richard Fuller
I would like to give way very much, because the hon. Lady did not get a chance to comment earlier.
Rachel Reeves
The hon. Gentleman is much more generous than his colleague the hon. Member for Nuneaton (Mr Jones). With long-term unemployment up 157% in Bedford since the start of 2011, does the hon. Gentleman think that the priority should be a tax cut for the banks this year or a programme to invest in youth jobs?
Richard Fuller
That is a very good point. Perhaps the hon. Lady will be interested to know that I am leading the establishment of an enterprise investment scheme fund in Bedford to get local people to invest in jobs and create businesses in Bedford. Government Members believe in practical action to support entrepreneurs and jobs, not the empty rhetoric that we get from Opposition Front Benchers. I invite her to Bedford to see the successes that we are having and from which perhaps her party can learn. The shadow Business Secretary made some interesting points, and I only wish that he had had time to speak more about his idea for moving forward with a UK equivalent of the small business investment company in the United States. That is an interesting direction of travel from the Labour party.
It is always hard in a free society to explain or justify why some people earn more—sometimes fantastically more—than other people. That justification can be secure only when clearly based on merit—the merit that comes from taking a risk that works out or from delivering exceptional performance. It is clear, however, that throughout large swathes of the economy, those two forms of merit have been losing hold in the setting of compensation in our country. My hon. Friend the Member for Halesowen and Rowley Regis (James Morris) spoke eloquently about that disconnect between the financial sector and our entrepreneurs. I know that the Government are committed to changing that.
It is sensible to look for measures that focus remuneration more on merit, but that is precisely what the Government’s recommendations seek to do. The problem with the speeches from Opposition Members was that they could not define the problem that they were trying to solve. Were they trying to solve the problem of compensation in state-owned enterprises? Were they trying to solve the problem of compensation in banking? Were they just hostile to high compensation generally in the economy? They could not define the problem owing to the different points of view among Opposition Members. Some call for a return to the rhetoric of the 1980s, attacking people for earning too much money and trying to draw false and upsetting comparisons between people who get paid a lot and those who cannot find a job.
In this country, we need to support the risk takers and the entrepreneurs to create the jobs that people in my constituency and constituencies around the country want. The promotion of an anti-business rhetoric will be harmful. As my hon. Friend the Member for Nuneaton (Mr Jones) said, the reaction to Mr Hester’s bonus sent the unwanted signal to business that this country was anti-business. As many have said today, Members on both sides of the House have a responsibility to make it clear that that is not the case and that we all want business to be strong in our communities.
Strengthening shareholders’ responsibilities will be central to that. One of the perhaps unintended consequences of the raid on pension funds by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was to weaken the ability of shareholders, particularly pension fund holders, to hold boards to account over remuneration. There was a change in the ownership of shares, which increasingly went offshore, while those custodians of long-term interests—our insurance companies and pension funds—had their voices and representation weakened on boards. It is right, therefore, for the Government to consider in detail how to strengthen shareholder representation and control over compensation in general.
Several speakers made the connection between banks and support for small business. I ask the Government to be bolder in looking for alternatives to banks in meeting the challenge of financing our small businesses. We need to consider ways of growing bond markets for small business, and we need to go even further than we already have by adopting innovative schemes for promoting equity financing for our small and medium-sized businesses. There is no more honourable a thing for people with money today to do than putting it into equity and our small businesses, and the Government have already provided tax incentives for them to do so. I only encourage the Minister to do more.
On credit easing, will the Minister be cautious about the ability of Governments to stimulate the economy in the short term? By the time that Governments get round to deciding what to do, often the problem has passed. However, credit easing presents another opportunity, which is to use financing, through a credit easing facility, to reduce some of the long-term debt obligations in this country. As the Minister knows, I have spoken before about the possibility of using either some or all of the credit easing financing to create a future fund and unburden the next generation of taxpayers of some of the tax that would otherwise be needed to meet the unfunded public pension liability. We must look to the long term when considering how to fund our small businesses, and not always think that the Government have the answer in the short term. They rarely do.
Rachel Reeves (Leeds West) (Lab)
It is right and proper that we have had this debate in the House this afternoon. Today, we have shown that the concerns of the country are the concerns of this House. But I am sorry and disappointed—notwithstanding the fact that the Business Secretary is at a funeral—that no member of the Cabinet has been willing to attend the debate. I am disappointed—[Interruption.] Oh! I am sorry! The Education Secretary has arrived. I am not sure how long he has been here—[Interruption.] Five minutes, apparently.
Madam Deputy Speaker (Dawn Primarolo)
Order. The Education Secretary has been here for some time, actually, and he has been heckling, even though I have asked him not to. He is also still a member of the Cabinet, and he is in the Chamber.
Rachel Reeves
I am disappointed that the Chief Secretary to the Treasury has not been willing to explain the Government’s failure to follow through on the Walker review’s recommendations on transparency and high pay. I am disappointed that the Chancellor has not been willing to explain why they oppose the inclusion of ordinary workers on remuneration committees. I am also disappointed that no Cabinet Minister has been willing to come to the House to defend the tax cut that this Government are giving to banks this year.
People up and down the country are amazed when they read about individuals receiving bonuses in a single year that amount to more money than most people will see in their entire working life, especially at a time when families are struggling to make ends meet, when small businesses are finding it hard to access finance, when people are finding it hard to get a job, and when many young people are struggling to get their first job.
The “Oxford English Dictionary” tells us that a bonus is
“a sum of money added to a person’s wages as a reward for good performance”.
It goes on to say that a bonus is
“an extra and unexpected advantage”.
It is clear, however, that for a few, bonuses have come to be expected, an automatic part of their pay. Whatever their performance or that of their businesses, bonuses can be cashed, year in and year out. That seems to be the case even when the share price is falling, even when thousands of jobs are being lost and even when lending targets to small businesses are not being met. And this is happening in an industry that is significantly supported by us, the taxpayers, and that risks rapidly losing the trust and confidence of those it is supposed to serve, because of the actions of a few at the top.
Let me speak plainly. Labour Members recognise the importance of the financial services sector to our economy. A high proportion of jobs in my constituency are directly or indirectly dependent on the continued success of Leeds as a financial hub. Private sector employers whom I meet tell me time after time of the critical importance of bank finance to their ability to grow and employ more people.
The financial services industry is, and must remain, a strong part of the British economy. It offers an opportunity for Britain to play a positive role in the global economy and it plays a critical part in supporting the small businesses that could be and should be the driving force of our economic recovery. That makes it all the more important that Members are not afraid to approach the banking sector as a critical friend—not afraid to deliver home truths or the views and perspectives of the people we represent.
In expressing public concerns about excessive bonuses, we must remember that the vast majority of people who work in banks earn modest salaries. Those I know in Leeds are on salaries of £20,000 or £30,000 a year, and they find these six or seven-figure bonuses as shocking and alien as the rest of us do—especially a few years after failures in the banking sector brought the global economy to its knees.
These are the concerns we have heard in contributions to today’s debate. It must be a matter of regret that throughout this afternoon, save for the Education Secretary, no Cabinet member has been here to hear them. It is a shame that no Cabinet members were present to hear the passionate speeches by, for example, my hon. Friend the Member for Scunthorpe (Nic Dakin), whose constituents are fearful this evening for their jobs. It is a shame that no Cabinet Minister is going to respond to the concerns expressed in the passionate speeches of my hon. Friends the Members for East Kilbride, Strathaven and Lesmahagow (Mr McCann), for Edinburgh East (Sheila Gilmore) and for Bolton South East (Yasmin Qureshi) or of the hon. Member for Brighton, Pavilion (Caroline Lucas). Those Members spoke about the increasing disconnection between a small number of people at the top of the banking sector and the experiences and values of the rest of the country. This disconnect must be repaired if we are to strengthen the national purpose and shared interest that we need to get through these tough economic times.
It is a shame, too, that no Cabinet member will respond to the contributions about struggling businesses—especially to the thoughtful contributions of my hon. Friend the Member for West Bromwich West (Mr Bailey), who spoke about the dysfunctional relationship between banks and industry, which grossly impedes our ability to grow out of the recession, and of my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), who forcefully rebutted an intervention suggesting that the banks are lending. That suggestion was totally out of touch with the experience of small businesses in all our constituencies. The reality is that many businesses are being refused the loans they need to tide them over or to keep people in work. We all need a banking sector that lends, supports small businesses and acts as a sector that we can trust and rely on.
We also heard contributions from the hon. Members for Halesowen and Rowley Regis (James Morris) and for Bristol West (Stephen Williams), which I thought added important dimensions to today’s debate. I want to pick up on the contribution by the hon. Member for Nuneaton (Mr Jones), as he would not let me intervene when I tried to do so earlier. Both he and the hon. Member for Stourbridge (Margot James) seem to disagree with the decision of the RBS chief executive to hand back his bonus, when I had thought that every Member of every party would welcome that. The fact is that the chief executive of RBS earns a salary in excess of £1 million a year—46 times more than the average worker. That should be reward enough for doing his job; he should not be getting a bonus of £963,000 on top of that when few others could expect to earn that sort of salary in a lifetime.
Richard Graham (Gloucester) (Con)
Will the hon. Lady explain the Opposition’s policy on creating growth in the financial sector? We have heard a great deal of criticism about everything, about how dreadful bonuses are and all the rest of it. That is fine, but what is Labour’s policy for growth, for being creative and for going forward?
Rachel Reeves
We have argued a five-point plan for jobs and growth—to put money in the pockets of ordinary families with a VAT cut and a national insurance holiday for small businesses that are struggling to take on new workers. Those are the sort of policies that will get the economy moving again and will protect jobs in all our constituencies.
We should welcome the RBS chief executive’s decision to hand back his bonus. The reality is that, over the last year, the RBS share price has fallen, it failed to meet its lending targets and it laid off workers. As I said, I would have thought a salary in excess of £1 million reward enough.
Today’s debate, however, is not about one man or one bonus or one bank; it is about the need for an overhaul of the way in which bonuses and pay are structured. As my hon. Friend the shadow Business Secretary has spelled out and as many contributions have highlighted, issues of pay and performance—of individuals and of the banking industry as a whole—cannot be separated.
Banks need to show that they recognise the need to change, the need to reform their business models, the need to rebuild their relationships with small businesses and customers and, most of all, the need to restore public trust. The British people deserve a banking system that they can believe in and respect—a banking system that inspires trust and is seen as a responsible custodian of our earnings, our savings, and our pensions. I know that the majority of people who work in banks at all levels also want to feel proud of the job they do, so today’s debate is about beginning to restore that trust and integrity.
Opposition Members have set out clear, constructive proposals in three key areas: transparency, accountability and fairness. [Interruption.]On transparency, the Labour Government legislated for the implementation of David Walker’s recommendations on high pay, including for rules to disclose the numbers of employees paid over £1million a year. [Interruption.]
Madam Deputy Speaker (Dawn Primarolo)
Order. I am sorry to interrupt the hon. Lady, but Members are holding conversations in the Chamber, but they expected others to listen to them when they made their speeches. I expect Members who want to conduct private conversations to do so outside the Chamber and not in it.
Rachel Reeves
Thank you, Madam Deputy Speaker. I think that some Members do not want to hear the truth.
Transparency would give shareholders the vital information they need to rein in excessive remuneration, but what have we seen from the Government? No answers and no action. On accountability, the High Pay Commission has recommended the inclusion of an employee on company remuneration committees. We have called on the Government to legislate, but what have we had? No answers and no action. Yet again, on the matter of fairness, when banks continue to award bonuses beyond most people’s imagination at a time when everyone else is being squeezed, why will the Government not do what is right and tell the banks that if they continue to pay out large bonuses, they will impose a tax to ensure that some of that money comes back to the taxpayer? Hundreds of thousands of young people have been looking for work for months and even years now, struggling with the consequences of a crisis that was caused by the financial services sector for which they are paying the price. That is the real crisis our country is facing—the crisis of more than 1 million young people out of work, but what do we see from this Government? We see no answers and no action.
On transparency, on accountability and on fairness, our constituents want answers and they want action, so why do the Government not take responsibility? At the end of the day, it comes down to priorities. Labour’s priorities are those of the British people: of families facing a squeeze in living standards, of the 1 million young people trying to find work and of the thousands of good businesses trying to stay afloat.
By contrast, this Government’s priorities are increasingly clear: a tax cut for the banks and a quiet life for the Cabinet. Well, we can tell the Government that this issue will not go away. We will continue to raise the concerns of voters and if this Government will not take the necessary action, the public will draw this conclusion—that this out-of-touch Prime Minister just does not get it, that his Cabinet colleagues do not get it either and that the Labour party is the only party that does.
Mr Prisk
I will not give way. The hon. Gentleman spoke for 45 minutes, which meant that Back Benchers did not have a chance to contribute to the debate.
I understand—we understand—that to the 25% of SME employers who do not obtain that loan or overdraft, the fact that 75% do will be no consolation. That is why the Chancellor is taking decisive action to provide some £21 billion, £20 billion of it under the national loan guarantee scheme, which will be available over two years and will allow banks to offer lower-cost lending to smaller businesses. [Interruption.] Notwithstanding the chuntering of Opposition Members, that scheme is supported by the Federation of Small Businesses, the British Chambers of Commerce and the CBI. The details will be made clear in the next few weeks.
Mr Prisk
No, I will not give way to the hon. Lady. We heard a diatribe of clichés from her, but we heard no policy, no original ideas and no original thoughts.
We are also making available an initial £1 billion through a business finance partnership that will allow small businesses to invest through non-bank channels. My hon. Friend the Member for Bedford was absolutely right to say that we should not just consider the bank channels, but should ensure that other players in the market can come forward. My hon. Friend the Member for Halesowen and Rowley Regis—who, unlike many Opposition Members, has actually run a business—was also right to draw attention to the importance of choice and competition. I agreed with the shadow Business Secretary when he said that we should think about the business model and the return of relationship management. I hope that we shall hear some positive contributions about that from Labour, and not just the usual flannel.
The Opposition motion refers to the need for a reform of banking, and to the need for more regulation and responsibility. The motion is right to refer to responsibility; it is just a shame that that was not one of Labour’s policies when it was in government. However, I suppose that it is nice to have a convert, even if the conversion is late in coming.
Yesterday the Chancellor introduced the Financial Services Bill, demonstrating that we would overhaul the regulatory environment that we had inherited. The Bill’s principles are important: responsibility, prudence—I think we may remember that word—and sustainability. That means addressing the old system of excessive and irresponsible levels of pay.
As we have heard this evening, under the new FSA remuneration code we have ensured that bonuses will be deferred by at least three years and linked to the performance of employees and companies. Through the disclosure regime, we are providing more transparency than we ever saw from the Labour party when it was in government. Bonus levels are already starting to fall. As we heard earlier, last year they stood at £6.7 billion, just half as much as when the shadow Chancellor was the City Minister in the last Government.
This evening’s debate has also dealt with the wider issue of executive remuneration. The Government strongly believe that successful people who work hard should be properly rewarded. It is vital that, in a debate about the excesses of a few, we do not give the impression that enterprise and endeavour are unwelcome in Britain; but, sadly, quite a few Opposition Members simply do not understand that. We need to make our message clear. The Government are determined to work with businesses to reform executive pay, and to do so in a way that strengthens business in Britain in the long term. As was alluded to but never actually examined by the hon. Member for—
Oral Answers to Questions
Rachel Reeves Excerpts(14 years, 4 months ago)
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Danny Alexander
Of course, as the hon. Gentleman says, I cannot and will not comment on ongoing individual cases, but he is right to say that the wealthiest need to pay their fair share. That was why we announced in the spending review an extra £900 million of funding for tackling tax avoidance and evasion, which has helped to set up a new specialist unit, which became operational last year, targeting offshore evasion. High-profile tax evasion cases could become more commonplace in future, and our message to tax dodgers is: “No matter how well known you are, how clever you think your accounts are or how far away you hide your money, we are coming to get you.”
Rachel Reeves (Leeds West) (Lab)
The Chief Secretary says that the Government’s fiscal plans are working and that only the eurozone has thrown them off course. Tomorrow, we will know by how much the UK economy grew in 2011, so let me ask him a simple question. In its last forecast, did the Office for Budget Responsibility revise up or down its estimate for growth in the eurozone in 2011?
Danny Alexander
The Office for Budget Responsibility made significant changes to its forecasts for the UK and for other countries. It made a significant change to its forecast for how much damage was done to the UK economy during the time when the hon. Lady’s party was in government, suggesting that our economy is now about 13% smaller than it otherwise would have been.
Yesterday was the eighth anniversary of the shadow Chancellor’s now infamous Ken Dixon lecture, when he rightly said that long-term interest rates were
“the simplest measure of monetary and fiscal policy credibility”.
Then, 10-year gilt rates were 4.76%. Yesterday, they were 2.16%. Case closed.
Rachel Reeves
Given that the Government went to the trouble of setting up the Office for Budget Responsibility, one would expect that the Chief Secretary would read its forecasts. The reality is that it revised up its forecast for growth in the eurozone in 2011 and revised down its forecast for growth in the United Kingdom. The Government like to blame everybody except themselves for the economic troubles. First they blamed the snow, then they blamed the royal wedding, now they are blaming the eurozone. When will they take responsibility for their own actions, which choked off the economic recovery a year ago by cutting too far and too fast? As a result, they are borrowing an extra £158 billion. That is the cost of this Government’s economic failure.
Danny Alexander
Once again, the hon. Lady is wrong in her economic policy pronouncements. The Office for Budget Responsibility has the UK growing more slowly this year, but faster than countries in the eurozone in the next few years. That is a testament to the Government’s economic policies. If she wants to know who is at least partly responsible for the mess that the country is in, she should just look immediately to her left. It has come to something when Katie Price’s tweets make more sense about the economy than Labour Front Benchers.
Youth Unemployment and Bank Bonuses
Rachel Reeves Excerpts(14 years, 4 months ago)
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Rachel Reeves (Leeds West) (Lab)
I beg to move,
That this House notes with concern that unemployment has risen to its highest level for 17 years, youth unemployment has now reached a record level of 1.04 million and the number of young people claiming jobseeker’s allowance for over six months has more than doubled since January 2011; believes that cutting spending and raising taxes too far and too fast has choked off the recovery and pushed up unemployment and that it was a mistake for the Government to abolish the Future Jobs Fund; recognises that rising unemployment and the Government’s failing welfare to work programmes are leading to a higher benefits bill, which is contributing to the £158 billion of additional borrowing announced in the Autumn Statement; further notes reports that multi-million pound bank bonuses are set to be paid out this year, even in banks where the share price has almost halved; and in view of the most recent figures on unemployment, calls on the Government to take urgent action to kickstart the economy to promote jobs and growth and to reconsider its refusal to introduce a tax on bankers’ bonuses this year, in addition to the permanent bank levy, to fund 100,000 jobs for young people.
We have called the debate to raise the alarm on a crisis that is now on the verge of becoming a national disgrace—the disgrace of a few getting rewarded for failure while many more pay the heavy cost of the failure of the Government’s economic policies. However, the motion is not just a critique. It is also a call for action, a reminder to the Government that, despite the damage that has already been done, they still have a choice. There is an alternative—Labour’s five-point plan for jobs and growth could get people back into work, get our economy moving and get the deficit down in a balanced and sustainable way.
Every hon. Member who is present will have met victims of the unemployment crisis in their own constituency. They are families devastated by the arrival of the dreaded redundancy letter and afraid of what the future will bring, and parents determined to do the right thing and provide for their children but unable to make ends meet.
Matthew Hancock (West Suffolk) (Con)
The hon. Lady mentions unemployment in Members’ constituencies. Does she recognise that, based on the claimant count, unemployment in Leeds West has fallen by 106 since the election? Which of the Government’s policies would she recommend as being to blame for that?
Rachel Reeves
Youth unemployment in my constituency, like in most of our constituencies, is rising fast, whereas it was falling at the time of the last election.
Nadhim Zahawi (Stratford-on-Avon) (Con)
May I share with the hon. Lady the figures for her own constituency? Youth unemployment rose by 625 between 2005 and 2010, which was a 103% rise, yet rose by 25 between 2010 and 2011, which was a 2% rise. Can she explain why it rose so much between 2005 and 2010?
Rachel Reeves
The hon. Gentleman might be aware of the global financial crisis that took place. Between 1997 and the start of the financial crisis, unemployment and youth unemployment were falling in my constituency and nationally, and at the time of the last general election unemployment was falling. Now, it is rising.
Government Members are in denial about what is happening. The reality is that, over the past year, long- term youth unemployment has more than doubled. It is a reality that the Opposition recognise and would do something about, whereas Government Members ignore it.
Toby Perkins (Chesterfield) (Lab)
Is it not clear that what we have heard in the first moment or two of this debate is Conservative Members saying, “It’s all right, everything’s going great”? We have record youth unemployment, and all we hear from Government Members is laughter and complacency.
Rachel Reeves
I think many of our constituents watching this debate will say exactly that. The Government are in denial. Youth unemployment is at a record high, and Government Members say, “There’s not a problem. We don’t need to do anything about it. Everything is fine.” That is not the reality for our constituents.
Mr David Winnick (Walsall North) (Lab)
Even if this is a laughing matter for the Government, it certainly is not for us. My constituency has among the highest levels of youth unemployment. It is a tragedy—there is no other way to describe it—when young people are simply unable to find work. I have been in touch with Jobcentre Plus, and there is no doubt about the difficulties and hardships for such young people. Yet for the Government, it is a laughing matter.
Rachel Reeves
My hon. Friend speaks for the many families and young people in all our constituencies who are experiencing a crisis, and I give him credit for recognising their challenges.
Andrea Leadsom (South Northamptonshire) (Con)
Does the hon. Lady feel at all positive about the Government’s steps to create new apprenticeships for young people to get them into real jobs that will endure?
Rachel Reeves
The reality is that the Office for Budget Responsibility has examined all the Government’s plans and predicts that unemployment will continue to rise all the way through this year, and the OECD predicts that it will rise next year as well. That is their verdict on the Government’s economic policy.
Rachel Reeves
I will make a little progress, because we know that many Members want to speak. I will try to give way again later.
Although many of our constituents are very fearful about the future, not everyone is looking to the future with fear and trepidation—not for all the question of how their money will last until the end of the month, or whether they can afford to heat their homes and eat three meals a day. For the past week, we have been hearing stories of banks preparing to pay bonuses to a few hundred senior employees amounting to hundreds of thousands, even millions of pounds in another multi-billion pound bonus season.
The Opposition believe in rewarding hard work and encouraging enterprise that contributes to the prosperity of the economy, but this is about fairness, responsibility and proportion. It is about the difference between rewards for success and rewards for failure.
When millions of families are struggling to find work, businesses are having their loan applications turned down and banks are continuing to rely on taxpayers’ hard-earned money for their very survival, the vast majority of people in all our constituencies find the idea of such sums being paid to a small number of individuals unacceptable. People rightly feel that we did not bail out the banking system to perpetuate a business-as-usual model or to pay big bonuses when ordinary workers are losing jobs. Surely we bailed out the banks to protect the businesses and families that depend on banks serving and supporting the wider economy.
Mr John Redwood (Wokingham) (Con)
Will the hon. Lady explain why Labour Ministers accepted and approved such grotesque contracts for RBS, so that they now personify payment for failure?
Rachel Reeves
We introduced a bank bonus tax to get some money back from the banks. The Government refused to go ahead with it and, instead, gave the banks a tax cut this year. That is not acceptable, and that is what the motion is about.
While banks seemingly return to the business-as-usual model, aided and abetted by the current Government, last week the Office for National Statistics published another set of dreadful unemployment numbers. Total unemployment is now at its highest since the summer of 1994. Women’s unemployment is the highest it has been since autumn 1987. Youth unemployment is now the highest since comparable records began. The number of young people claiming jobseeker’s allowance for six months or more has doubled in just 12 months.
Those figures on their own are shocking enough and should be sufficient to end all debate and drive the Chief Secretary and the Minister of State, Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling), to urgent action. However, most worrying is the fact that, on every measure, and according to every forecast and to the Government’s Office for Budget Responsibility, unemployment is set not to fall, but to get worse.
The Office for Budget Responsibility’s projection, alongside last year’s autumn statement, showed unemployment rising to 2.8 million this year. The OECD expects unemployment to rise to 9% in 2013. If unemployment continues to rise at the rate that it has done in the past six months, it will reach 3 million this summer. The economy may well be headed back to recession—we will hear the grim reality on Wednesday.
However, it is clear that, although the situation is now perilously close to tipping point, and the Government’s failures are mounting, they could still take action. Yet since taking office in 2010, the backfiring of their attempts to cut too far and too fast has added a shocking £158 billion in extra borrowing.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
Does my hon. Friend agree that the growing trend of extended unemployment—more than six months—for young people creates the real worry that we will have a lost generation unless the Government act?
Rachel Reeves
My hon. Friend is right that long-term youth unemployment has a scarring effect, which affects more and more people throughout the country. It is similar to the situation in the early 1980s and early 1990s—the last two times a Conservative Government presided over a recession.
With more people out of work and fewer businesses succeeding, the Government end up paying out more in benefits and getting less in through taxes. They are filling that gap with the £158 billion more borrowing. The inheritance that that leaves for the next Government will mean more tough decisions about taxation and spending—the unnecessary and avoidable cost of the Government’s failure.
Mrs Madeleine Moon (Bridgend) (Lab)
Unemployment among all 16 to 24-year-olds on jobseeker’s allowance in the Bridgend constituency is 8.8%. Would one way forward be to grant a one-year national insurance holiday, so that small businesses could take on young people, give them employment and the opportunity to experience work?
Rachel Reeves
My hon. Friend is exactly right. That is why, as part of Labour’s five-point plan for jobs and growth, we include a national insurance holiday for all small businesses taking on new workers—a policy that would help small businesses and the more than 1 million young people who are desperately searching for work.
Elizabeth Truss (South West Norfolk) (Con)
Does the hon. Lady accept responsibility for the failure to skill up our young people to take on jobs? For example, after the Labour party’s 13 years in office, we had the smallest proportion of 16 to 18-year-olds studying maths of any OECD country.
Rachel Reeves
People are not getting jobs at the moment not because they do not have skills but because the jobs are not available. In all our constituencies, five or 10 people are chasing every job. That is why unemployment is rising. Until the Government take responsibility for that, the numbers will get worse, not better.
The price that families struggling with the consequences of redundancy and young people forced to abandon their career plans pay is incalculable. We cannot go on like that. Maybe some hon. Members—we have already heard from many of them—greet the prospect of rising unemployment with a degree of fatalism, perhaps resignation. They may feel that the punishment being inflicted on innocent families and young people is the sad but inevitable consequence of austerity and economic adjustment. Indeed, as I said earlier, there is a grim familiarity about the figures, which bear a depressing resemblance to the record of previous Conservative Governments.
Mr Graham Stuart (Beverley and Holderness) (Con)
The hon. Lady talks about a grim familiarity. Does she acknowledge that every Labour Government in history ended with higher unemployment than they started with? After a 40% rise in youth unemployment under the previous Government, some humility is required on both sides of the House, but not least on hers.
Rachel Reeves
Unemployment has reached 3 million twice, both times under Conservative Governments. At the last election, unemployment was falling; today, it is rising.
Rachel Reeves
In the 1980s and early 1990s, unemployment reached 3 million. Was that because Conservative Governments were clearing up a Labour mess? Really? I think it was because of the policies that Conservative Governments always pursue—policies that hurt young people and put more people out of work. That is the reality of Conservative Governments.
Labour Members are not complacent. We do not say that it is inevitable, that it has got to happen and that 3 million unemployed is a price worth paying. Labour Members are not prepared to give up on young people and we urge the Government not to give up on them, either.
In the coalition agreement, the Government said that a fundamental goal would be to
“sustain the recovery and to protect jobs.”
Before the election, the Prime Minister told voters that jobs would be his top priority. He said:
“I understand if you leave people unemployed, and short term unemployment becomes long term, then it becomes a lifetime of unemployment. It’s a waste of life. I must stop it happening.”
He was right then, but he does nothing now. The Deputy Prime Minister said earlier this month that
“supporting people into work is my priority for 2012”.
He is right, yet he does nothing.
We must—and we will—hold the Government to their promises because we cannot allow the next generation to be denied the chance of expanded opportunities that has always been the promise of Britain.
Margot James (Stourbridge) (Con)
Will the hon. Lady acknowledge that long-term youth unemployment is falling—and, indeed, has fallen by 5%? Will she also acknowledge that half a million new jobs have been created in the private sector in the past year? Currently, there are 90,000 vacancies in retail, 44,000 in hospitality and 11,000 in construction. What matters is that the Government, through the Work programme and so many other interventions, are maximising the skills and training for young people to get them into work.
Rachel Reeves
In the hon. Lady’s constituency, long-term youth unemployment has gone up by 25% in the past few months. I do not know what she says to her constituents—“There’s loads of jobs out there. Just go and get one”? More people are chasing jobs than there are jobs available. That is because the Government are pushing more and more people out of work. I am sorry that the hon. Lady does not know the numbers for her constituency, but we know.
Charlie Elphicke (Dover) (Con)
The hon. Lady talked about the scarring effect of the fast-buck culture. Will she condemn the right hon. Member for South Shields (David Miliband) for taking a consultancy with private equity?
Rachel Reeves
I will not condemn my right hon. Friend for taking a job. I am talking about the reality of the challenge that people in our constituencies face. More and more people are out of work. We should listen to them. They are saying that they are getting degrees, A-levels and vocational qualifications but that they cannot find work. As I have said, many would be shocked that many MPs say, “That’s just inevitable—it’s just what happens, and nothing can be done about it.” That is not acceptable. Our constituents see unemployment rising. The House should be taking action to address that challenge.
Sheila Gilmore (Edinburgh East) (Lab)
I would have intervened earlier, but I was trying to work out the arithmetic of Government Members. We are constantly told that 500,000 jobs were created last year, but we have been told about them for the past 20 months. Does my hon. Friend agree that Government Members cannot constantly refer to those same jobs, which were largely the result of the stimulus applied by the previous Labour Government?
Rachel Reeves
I agree with my hon. Friend. We have to look only at the forecasts from, for example, the independent OBR, which says that unemployment will continue to rise this year, or at the OECD numbers, which say that unemployment will continue to rise into 2013. That is the reality.
I am sure we will hear the Chief Secretary to the Treasury and others defend the Government’s inaction and talk about their various half-baked and half-hearted solutions. We look forward to hearing a report on the progress of those initiatives, and in particular what difference the Government expect them to make to future unemployment. As I have said, the OBR has said that there is no reason for it to revise its unemployment projections as a result of the Government’s measures.
The Government’s response is inadequate for the scale of the challenge. When the Prime Minister was challenged last week on his performance on unemployment, all he could do was admit with regret that youth unemployment is a problem. However, the Opposition are asking the Government not simply to acknowledge they have a problem—we all know that—but to do something about it. The Prime Minister says he takes responsibility for everything that happens in our economy, but taking responsibility means taking action.
Claire Perry (Devizes) (Con)
Unemployment in my constituency is creeping upwards and long-term unemployment is coming down, but in both my constituency and the hon. Lady’s constituency apprenticeship starts are increasing at an incredibly rapid rate. Can she and I agree on one thing: that the best way to get young people into work is to get them such opportunities with the private sector, and relentlessly to support them, as this Government are doing?
Rachel Reeves
I expect the hon. Lady’s constituents, like mine, regret that the Government cancelled the future jobs fund, which was helping young people back into work. Since that cancellation, long-term youth unemployment in her constituency has gone up not just by a little bit, but by 36%. That is the reality that her constituents face day in, day out.
I hope we will not hear the usual hand-wringing—although I might have to give up that hope—or the usual shoulder-shrugging or blame-shifting. The jobs crisis is not a fact of life or a force of nature, and the Government cannot play the innocent bystander, as they have tried to do. The jobs crisis is a result of the choices they have made. They chose to cut too far and too fast; to abolish employment programmes that were working; and to destroy job opportunities in both public and private sectors.
Mark Pritchard (The Wrekin) (Con)
The hon. Lady approaches such matters very thoughtfully indeed, and as a future Labour leader I would expect nothing else of her, much to the shock and horror of the shadow Chancellor.
Does the hon. Lady accept that the economy needs to be rebalanced and that we need more tax producers than tax consumers? Surely we can all agree on that.
Rachel Reeves
I am not sure how the Government will rebalance the economy by throwing more people on the scrapheap. Perhaps the hon. Gentleman and I will just have to disagree, but that does not seem to me to be the way to rebalance the economy and to get it growing again.
Despite the Government’s mistakes, they still have choices open to them.
Susan Elan Jones (Clwyd South) (Lab)
None of the automated Government Members mentions the VAT tax bombshell, because they must know in their heart of hearts the absolute disgrace of the VAT increase for small companies. Does my hon. Friend agree that when Labour Members speak of a VAT cut for home improvements, we are speaking up for jobs in construction in a way that some Government Members will never understand?
Rachel Reeves
The cut in VAT to 17.5% is part of Labour’s five-point plan for jobs and growth. It would put £450 in the pockets of an average family, which is desperately needed to help people who are struggling with the rising cost of living—the rising train, energy and petrol prices.
We have rising unemployment and excessive bank bonuses, but it does not have to be that way. While millions of families up and down the country struggle with the effects of redundancy and millions of young people lose the hope of fulfilling their potential, very little is being asked of those with the broadest shoulders. Despite his pre-election promises to tackle the bonus culture, the Prime Minister will not take the measures recommended by the High Pay Commission to make a difference. Despite the Government’s call for more shareholder activism and engagement as a check on excessive remuneration, they wash their hands of the reported decision to award more than £1 million to the chief executive of RBS, in which they are a major shareholder.
Mr James Gray (North Wiltshire) (Con)
Will the hon. Lady express some degree of regret, because bank bonuses under this Government are 40% lower than they were under the previous one? She must tell the House who it was who gave Sir Fred Goodwin his knighthood.
Rachel Reeves
The Leader of the Opposition has said that the knighthood for Fred Goodwin was not warranted, but I do not remember hearing Conservative Members saying that he should not get a knighthood when it was awarded.
Bank bonuses were taxed at 50% in the last year of the Labour Government. That brought in £3.5 billion, which was used to help to support families and to support young people back into work. Unlike Labour, which introduced a tax on bank bonuses, the Government are introducing a tax cut for banks this year. That tax cut is unwarranted and unjustified as unemployment and youth unemployment continue to rise.
The Opposition proposal is simple. While banks are still not doing their job—they are not supporting jobs or growth—the Government must step in to ensure that resources are put to better use. A 50% tax on bank bonuses above £25,000 would, on a cautious estimate, raise enough revenue to support the creation of 100,000 jobs for young people.
We know that such a measure would work because it has worked before. Labour’s 2010 bank bonus tax raised £3.5 billion, according the OBR. The future jobs fund, which was created by the previous Labour Government, supported more than 100,000 people back into work. That is a record of which Labour Members are proud. By contrast, the Government have chosen a tax cut for the banks and a belated, half-hearted and ineffective response to rising youth joblessness.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
My hon. Friend is making an excellent speech on Labour’s proposal to create 100,000 jobs for the young from a bankers’ bonus tax. The north-east is bucking the national trend in manufacturing, which is in the doldrums in the rest of the nation, but 7,000 private sector jobs were lost in the past three months of 2011, whereas 4,000 public sector jobs were lost. Given that clear disparity, what does my hon. Friend make of the Prime Minister’s rhetoric on the creation of private sector jobs?
Rachel Reeves
My hon. Friend speaks passionately about his region of the north-east, and I know he does a huge amount of work for businesses, young people and families in his constituency.
The reality is that northern towns and cities are paying a particularly high price for this Government’s policies. In my city of Leeds, the local authority is losing more than 25% of its grant over the next four years. As a result, more people are losing their jobs and fewer services can be provided. It is people in the poorest areas who are paying the highest price for this Government’s policies.
Rachel Reeves
I will give way to the hon. Member for Pudsey (Stuart Andrew), who can perhaps try to justify the cuts in the grant to Leeds city council over the next four years.
Stuart Andrew (Pudsey) (Con)
The hon. Lady talks about cuts to Leeds city council, but does she not remember that it was her Government who took away neighbourhood funding, stripping the city council of £118 million and, funnily enough, giving the money to Sedgefield?
Rachel Reeves
In Pudsey, which is my next-door constituency, long-term youth unemployment has increased by more than 20% in the last few months. I am sure that the hon. Gentleman will agree that the cuts that Leeds city council is having to endure over the next few years are out of all proportion to any reduction in the neighbourhood grant under the Labour Government. His constituents and mine are the people paying the price.
I hope that we can show in this debate that the House is in touch with the problems of those who are paying the highest price for the failure of this Government’s policies. Hon. Members will know from their own constituencies the heart-breaking stories behind some of the statistics that we have already gone through today, and I am sure that we will hear some of those stories in the debate this evening. Most of all, I hope that this debate will be focused on action—effective and practical measures that can make a difference for the millions at the sharp end of this crisis. The Government have no excuse for inaction. A tax on bank bonuses would be fair and proportionate, and would enable us to address the immediate, pressing and growing challenge of getting young people back into the jobs that are so needed.
Danny Alexander
I have heard nothing coherent from the Opposition, and I have heard nothing from the business community in this country but support for our policies to deal with the deficit and restore this country’s economic credibility. The coalition has never shirked its responsibility to take tough and sometimes unpopular decisions to tackle the deficit and pull the country out of the hole that the previous Government dug. Because we did not delay, and because we took action to get ahead of the curve, we can cut the deficit on our own terms and shelter the UK from the debt storm that has engulfed our nearest neighbours.
Rachel Reeves
The right hon. Gentleman says that the Government are tackling the deficit, but will he confirm how much extra borrowing there will be during this Parliament, compared with the prediction when they took office? Is that not a cost of their failed economic policies?
Danny Alexander
I can confirm that according to the latest forecast, there will be significantly increased borrowing compared with the previous one. The hon. Lady should have explained in her opening speech that her policies involve substantial further increases in borrowing, which would destroy this country’s economic credibility and the hard-won low interest rates that we have achieved.
As a result of our action, we have record low bond yields that feed through to record low interest rates, which benefit households paying mortgages and businesses refinancing loans right across the country. Whereas our bond yields are just 2.1%, those of Spain have risen to 5.5%, those of Italy remain over 6%, and those of Greece have climbed to a staggering 34%. Even a 1% rise in our market interest rates would force taxpayers to find an extra £21 billion in debt interest payments. A 1% rise in effective mortgage rates would result in an extra £10 billion for mortgage payments.
The Opposition have had 18 months to come to terms with the mess they created, but they still do not get it. It has taken them 18 months to move from the wrong place to all over the place. The Leader of the Opposition called the pay freeze an
“ideological attack on the public sector”,
but he now accepts it. The shadow Chief Secretary to the Treasury called the uprating of pensions with the consumer prices index an “ideologically driven move”, but it is a move that the Opposition have now accepted for their party’s own pension scheme. So let us be clear—financial discipline is not ideological; it is a necessary condition for effective government. In the past 10 days, members of the Labour shadow Cabinet have succeeded in proving that they cannot even convince themselves of the credibility of their economic policy.
Danny Alexander
I do not think that those on the Opposition Front were trying to shout the apology that the country wants from them. They should say sorry, too, for letting the deficit and the country’s debt get out of control. Instead, all we have heard today is the apology of a speech made by the shadow Chief Secretary.
Rachel Reeves
I wonder when the electorate might get an apology from the Liberal Democrats for trebling university tuition fees and imposing a VAT bombshell.
Danny Alexander
I am sorry that the shadow Chief Secretary did not take the opportunity to offer an apology for the terrible mess made by her party and the Government of which the shadow Chancellor was a leading member.
It is the coalition Government who are investing in skills, infrastructure and innovation to create new opportunities in the recovery. It is this coalition that is reforming a broken financial sector to entrench greater stability and embed long-term sustainability. It is this coalition Government alone who are determined to face up to today’s economic challenges to build tomorrow’s fair, prosperous and sustainable economy.
Public Service Pensions
Rachel Reeves Excerpts(14 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Danny Alexander
Opposition Members never have any answers, so they chunter from the sidelines instead.
At the same time, by offering transferred staff the right to remain members of the public service scheme, we are no longer requiring private, voluntary and social enterprise providers to take on the risks of defined benefit that deter many from bidding for contracts in the first place. Replacing so-called bulk transfers of pensions with continued access to public sector schemes means that we continue to protect public service workers’ pensions, manage the risk to the taxpayer and forge ahead with our ambitious plans for public service reform.
I have made the commitment that these reforms will be sustained for at least 25 years. The Government intend to include provisions on the face of the forthcoming public service pensions Bill to ensure that a high bar is set for future Governments to change the design of the schemes.
What does this deal really mean? For our work force, it means that they will continue to receive the best-quality pensions available in this country—and rightly so. In the private sector, these pensions could be bought only at a cost of one third of salary. This is a proper reward for a lifetime’s commitment to serving the public. The new scheme is fairer to women too. By moving to career average, we will give a better pension in future to those, mainly women, who have low or steady salaries throughout their careers.
The Government have been clear that because we are living longer, public service workers must work a bit longer and pay a little more for their pensions. But in return we have also made an important commitment—that at retirement, those on low and middle incomes will get at least as good a pension as they do now. I can confirm today that we have met that commitment. For people who depend on our public services, it means that most unions will be asking their executives to lift the threat of further strike action while work is done to conclude the final agreement, and I hope that the remaining unions will do the same. For the taxpayer, it means that tens of billions of pounds extra that would have been spent on unreformed pensions over the next 30 years is now available for other pressing demands. These are reforms that significantly improve the long-term fiscal sustainability of this country, and reinforce the credibility of our fiscal stance.
The Office for Budget Responsibility will provide a forecast of the savings in its next fiscal sustainability report. For industrial relations, I believe this shows that it is possible to reach agreement through negotiation in good faith, based on clear objectives. That is the right way to approach relations between government and the trade unions. Sometimes the talks have been difficult, but it has been right to stay at the table. In these difficult times, it is important to show that people can come together to achieve genuine reform, preserving the best of the past, but recognising the realities of the future. This is a fair deal for public service workers, an affordable deal for the taxpayer, and a good deal for the country. I commend this statement to the House.
Rachel Reeves (Leeds West) (Lab)
I thank the Chief Secretary for his statement. Families and businesses who rely on public services, as well as the millions of public service workers worried about their finances and their future, will be relieved to see that real progress is finally being made in these talks. Labour has been clear from the beginning that the Government and public service employees would need to find ways of adjusting to the welcome fact that people are living longer. We said in response to the Chief Secretary’s previous statement on 2 November that any resolution to the dispute needed to be fair to taxpayers, fair to public service employees and genuinely sustainable for the long term, and that that would be endangered by a search for quick cash savings or the playing of party political games.
The vast majority of public sector workers, including dinner ladies, community nurses and police community support officers, retire on very modest pensions; moreover, they are already being hit hard by a pay freeze and worried about mounting redundancies. It was clear to us that tearing up decent public service pension schemes or imposing punitive and unaffordable contribution increases would be entirely counter-productive if it resulted in lower savings and inadequate retirement incomes that only left more people retiring into poverty, dependent on state benefits in their old age.
We will be looking at the detail of these proposals on the basis of the tests that we have set out. In particular, can the Chief Secretary offer clarification on the following points? Can he set out the timetable for further consultations and negotiations for each of the four schemes discussed today? When will he come forward with details for the police, armed forces, judiciary and fire service pension schemes? For each scheme, can he give us the new schedules for contribution increases across the schemes, the timetable according to which they will be introduced and how he will ensure fairness and affordability for lower-paid employees, especially those who work part time?
For each scheme, can the Chief Secretary give us the new accrual rates and methodologies for uprating pensions, and say what the timetables for introducing them will be? What assessment has he made of the impact of the changes on the number of public sector employees opting out of the schemes, and the implications of that for future scheme income and viability, as well as future pensioner poverty and the demands on state benefits?
How will the Government ensure that older workers, especially those in physically demanding jobs, are not forced to work beyond a point that would be detrimental to their health, or their ability to do their job? What will the Government do to maintain the morale and engagement of public service employees doing vital work for our country at a time of falling real pay, heightened job insecurity and significant changes to their pensions? Although we are pleased that there is agreement on a fair deal, there is a genuine fear across the public sector that the Government intend to use that deal more as they privatise parts of our NHS and schools, as well as other parts of our public sector. Crucially, how will the Government make good on their promise to deliver a deal that is secure and sustainable for the next 25 years, so that in future we do not face the uncertainty, anxiety and disruption that we have seen over the past year?
The Chief Secretary has made much of Lord Hutton’s review of public sector pensions. We have always said that Lord Hutton’s report provided an important starting point for negotiations, and we have always recognised that change is needed. However, Lord Hutton has also stressed the need to approach these issues in a careful and balanced way, with particular care for the affordability of any additional contributions for lower-paid public service workers, and to avoid fuelling a race to the bottom on pension provision. However, the Government have made it much harder to make progress on many of Lord Hutton’s sensible long-term recommendations by seeking to impose, prior to any negotiations, a steep 3.2% rise in contributions and a permanent switch in the way in which pensions are uprated—from the retail prices index to the consumer prices index—neither of which formed part of Lord Hutton’s recommendations.
However, it is good to see that the Chief Secretary recognises that he needed to do more to address the genuine concerns about his plans over the last 10 months—concerns about the need to do more to protect lower-paid public service employees from unaffordable increases in contributions; about the need to reassure older employees worried about how long they will have to work; and about the need to ensure that people who dedicate their working lives to our public services can expect a decent income in retirement. However, it must be a matter of regret for everyone in this House that it took 10 months of stalemated negotiations and strike action that resulted in closed schools, cancelled operations and disrupted lives for families and businesses around the country, for us to reach this point, just five days before Christmas.
The last Government agreed and established a framework to negotiate reform and manage long-term costs; this Government chose to tear that up and take an aggressive and provocative approach to this serious and sensitive issue. For months the Government have refused to engage in constructive talks to address the issues concerning public service employees, engaging instead in unhelpful megaphone diplomacy. Major changes to public service employees’ current contributions and future security have been announced without warning and imposed without negotiation. Last month’s strikes could and should have been avoided. In short, the Government have displayed negotiating skills similar to those that we saw at the European summit, being more interested in going for the cheap headline than putting in the hard graft necessary to get an agreement that works for everybody.
Clearly the Government still have a lot of work to do over the next few weeks. Ministers and employers will need to clarify the details of their latest proposals, and trade unions will rightly want to inform and consult their members. Reaching a final agreement will be a difficult and delicate process, and we must hope that it is not jeopardised by provocative tactics or inflammatory rhetoric, as we have seen in previous months. We hope that further progress will be made and that early in the new year the Chief Secretary will be able to return to the House and report that a fair and sustainable agreement has been reached, and that we will not see further industrial action. That is what the Opposition want to see, and it is what the country wants to see as well.
Danny Alexander
I am not sure that the hon. Lady was listening to anything that I said in my statement, because I have already answered almost all the points that she raised. She certainly seems to have forgotten that this is the season of good will. She said that the Opposition’s position was clear, but she did not say what it was. As she and her party have opposed most of the reforms, perhaps they should have the good grace to admit that they got it wrong. It is no doubt uncomfortable for the Labour party that many of its union paymasters have been willing to come to an agreement in the interests of their members—and, indeed, in the national interest.
Lord Hutton’s contribution was significant; indeed, he is the only Labour Member—or former Labour Member—who has made a contribution. It is worth telling the hon. Lady that he welcomes the deals that we have announced today. She asked a question about the agreement put in place by the previous Government, so let me tell her what Lord Hutton said about that cap and share deal:
“Cap and share cannot take account of the increases in cost of pensions over recent decades because people have been living longer. Also, untested, complex cap and share arrangements cannot of themselves, address the underlying issue of structural reforms, nor significantly reduce current costs to taxpayers.”
That is why we could not rest with the position agreed with the previous Government.
The hon. Lady asked a few questions about the timetable. As I said in my statement, the timetable for reaching heads of agreement is finished. Negotiations on the heads of terms have finished, and as I said in my statement, those heads of terms are agreed by most unions in all schemes. That is a good result, which I hope she would welcome. The other schemes—for the judiciary, armed forces, police and so on—will be agreed in due course. For the firefighters the deadline is 20 January; for the police service the second round of the Winsor report, due at the end of January, will take forward that process.
I think that the hon. Lady still opposes the increase in member pension contributions, but I have to tell her that, as a consequence of today’s announcements, that is continuing. She asked a question about the relationship between accrual rates and revaluation factors. I listed the precise accrual rates and precise revaluation factors for each scheme in my statement; I do not propose to repeat them now, but they will certainly be available in Hansard later. As for older workers, one of the reasons why the trade unions favoured the relationship in question between accrual rates and revaluation is precisely that it works more strongly to the advantage of older workers. We will bring forward legislation, I hope in the next Session, that will include the changes that we want to make to ensure the 25-year guarantee.
The truth about this exchange, as with so many others, is that there are two parties on this side of the House acting in the national interest and one party on the other side that seems to find it increasingly hard to see even its own self-interest. While we on this side of the House are working together to build confidence in the future of the British economy, Labour Members are fighting with each other, as they lose confidence in their own leader. As a result of this statement, at least the hon. Lady can assure the Leader of the Opposition that if he falls on his sword there will be a good pension available to him. All that the British people will see is a party that has not a shred of economic credibility left.
Taxation Freedom Day Bill
Rachel Reeves Excerpts(14 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Rachel Reeves (Leeds West) (Lab)
I congratulate the hon. Member for Kettering (Mr Hollobone) on securing this debate, which is clearly of great importance to him. He referred to two dates: 1972, when tax freedom day would have been earliest in the year, and 1982, when it would have been latest.
In 1972 we had a three-day week, so there was not much happiness, and there would not have been much to celebrate on taxation freedom day. In 1982, we had unemployment of 3 million. The reason taxation freedom day came so late that year might be that there were not enough jobs and more was being paid out in benefits with not enough coming in via tax revenue.
The hon. Member for Shipley (Philip Davies) said that he would like us to be more like Cyprus and less like Belgium. The Belgian economy has grown by 1.8% over the past year, and Cyprus is one of just three countries in the European Union, along with Portugal and Greece, that has had a slower rate of growth than the anaemic growth that we have seen in the UK this year. I think that many of our constituents would rather we were a little more like Belgium, with stronger growth and lower unemployment, and a little less like Cyprus, but we may differ on that.
Philip Davies
I take it from what the hon. Lady has said that the Labour party’s official stance is that it would like taxation freedom day in this country to be 4 August.
Rachel Reeves
No, that is not our stance. If the hon. Gentleman would like us to be a bit more like Cyprus, he might want to look at it in the round, because, as I said, Cyprus is one of just three countries in the European Union that has grown at a slower rate than the UK this year.
Conservative Members have spoken about the difference between taxation freedom day in the US and in the UK. One of the reasons taxation freedom day in the US will come a little earlier is that it does not have a national health service, and, as a result, people have to pay from their own income for the health service. If hon. Members took into account how much individuals and businesses contribute towards health care insurance in the US, they might find that its taxation freedom day came a little later in the year—perhaps even later than in the UK.
My main question is why we need a Bill on this. Hon. Members, particularly the hon. Member for Kettering, have spoken about the work of the TaxPayers Alliance and the Adam Smith Institute. If they have all the facts and figures, why do they not organise a celebration for taxation freedom day? Why do we need Government legislation? If we had Government legislation on taxation freedom day as a result of passing this Bill, the day might fall a little later in the year because of the additional costs.
Rachel Reeves
I am sure that the hon. Gentleman would agree, though, that there would be costs associated with the legislation, the statutory instrument, and civil servants’ time. I wonder why hon. Members want more legislation when presumably they really want less legislation and less money spent on civil servants and so on.
Jacob Rees-Mogg
The hon. Lady has converted me. I always thought that Palmerston was right when he said that the House of Commons would eventually run out of things to legislate on. It is a thoroughly good idea that we should run out of things to legislate on and not legislate for everything we feel like. For once, I have been converted by a Labour Front Bencher.
Rachel Reeves
I am not sure whether to celebrate that, but this does seem to me to be a strange thing to want to have a piece of legislation on.
Mr Hollobone
An interesting comparator would be the interest that my hon. Friend the Member for Wellingborough (Mr Bone) has taken in human trafficking. Her Majesty’s Government have designated an anti-slavery day and given it official recognition. All the Bill asks the Government to do is officially to recognise taxation freedom day.
Rachel Reeves
That does not seem necessary to me, but I guess that the hon. Gentleman and I disagree. If the work of the TaxPayers Alliance and the Adam Smith Institute is as fantastic as he thinks, why could they not organise a celebration, as other groups organise days to celebrate things? One does not necessarily need legislation in order to celebrate a day that one thinks important.
Rachel Reeves
I guess that we disagree on that. There are costs associated with all these things and I do not think this is a cost that my constituents and many hon. Members’ constituents would want to bear.
That brings me to my main point. This is a worrying time for businesses and families throughout the country. They are struggling with higher food prices and fuel bills, and are worried about their jobs and their children’s future. I am not convinced that the hon. Member for Kettering has explained what the Bill would do to help an ordinary family in Kettering who are struggling with stagnant wages, high unemployment and high inflation. In Kettering, there has been an increase in long-term youth unemployment of 127% since January this year.
It seems to me that the most important thing that Members of Parliament can do in representing our constituents is to put in place policies to address those issues. I am not sure that celebrating tax freedom day would help get young people back to work, help families facing a squeeze in their living standards or help businesses that are seeing demand dry up. I am certainly not sure what it would do for the 4,000 people who are unemployed in my constituency of Leeds West.
One tax that the hon. Member for Kettering might want to change is VAT. I wonder whether next Tuesday he and other Government Members will support the Opposition when we argue that VAT should be cut temporarily. That would bring forward tax freedom day and put £450 in the pocket of the average family. It would be a real step to help families and businesses across the country.
The hon. Member for Dover (Charlie Elphicke), who is no longer in his place, spoke about the tax on cigarettes. Many people would think—[Interruption.] Oh, here he is. Welcome back. It seems that if anyone mentions cigarettes, he is automatically in his place. Most of our constituents recognise that cigarettes should be taxed because they have social costs beyond the cost of producing and selling them. However, if one looks at the increase in the cost of petrol that we all face when we fill up our cars, reducing VAT back down to 17.5% would reduce the cost of petrol by 3p in the pound.
Philip Davies
If the hon. Lady is so keen for people to have an extra £450 back in their pocket, which I could certainly support, will her party propose a reduction in income tax to deliver that? If her party proposed cutting income tax to give £450 back to people, I might even be tempted to support it.
Rachel Reeves
The hon. Gentleman mentioned earlier—or it might have been the hon. Member for Bury North (Mr Nuttall), but I am sure that they agree—that the increase in the income tax threshold means that fewer people are paying income tax. The good thing about reducing VAT is that it has a progressive effect, because people on lower incomes spend a higher proportion of their income on VAT than people on higher incomes. A reduction in VAT would therefore help to get money in the pockets of the people who most need it at the moment in a way that a cut in income tax would not.
Robert Halfon
I am grateful to the hon. Lady for being so generous in giving way. She said that one way to reduce petrol and diesel prices would be to cut VAT. Is it not the case that the majority of businesses get their VAT back? What most people want is a fuel duty cut, which is why I welcomed the Government’s cut in fuel duty in the last Budget and hope that they will not increase it next year.
Rachel Reeves
The reduction in VAT would put money in the hands of families. Of course, most people who run businesses are also part of a family, so they would benefit from the reduction in VAT. Labour’s five-point plan for jobs and growth also includes a national insurance holiday for small businesses taking on new employees, so that plan would help families and businesses up and down the country.
Rachel Reeves
I think my hon. Friends are where I would like to be today—in the constituency meeting constituents, rather than here. I usually try to go back to my constituency on a Thursday, as do many other MPs. Of course, the Members who are here today think that this issue is more important than doing work in their constituencies.
Charlie Elphicke
A few moments ago, the hon. Lady mentioned the taxation of cigarettes. Seeing my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) in the Chamber, it is only right that I remind her that the Roman emperor Marcus Aurelius said in his “Meditations”:
“Into every life a little rain must fall.”
Those of us who smoke have enough rain with the health hazard, without massive taxation on top.
Rachel Reeves
I am afraid I only went to a comprehensive school, so I did not study Latin. Maybe the hon. Member for North East Somerset (Jacob Rees-Mogg) would like to do some interpretation.
The hon. Member for Kettering reminds me of my holidays when I was at school. As he knows, I used to go to Kettering in all my school holidays, because my grandparents lived there. I still have many family members in Kettering.
Rachel Reeves
I expect not.
I was just thinking about the lives that my grandparents led and the things that mattered to them. Every day, they benefited from what happened in both the public and private sector. They worked in the shoe factories in Kettering, as the hon. Member for Kettering knows—we have discussed it before. However, they also lived in a council house, when they were ill they used Kettering general hospital, and their children went to state schools in Kettering. My father went to Kettering grammar school.
Having a tax freedom day suggests that until that date in May, June or whenever it falls, people are contributing to someone or something else, or to the Exchequer. Actually, the money that they pay in taxes every day from the beginning of January until the end of December is used for things that matter to them, for instance building council houses such as my grandparents lived in, paying for teachers and for schools such as they went to and paying for nurses and doctors in the hospital that treated them when they were ill. It seems a little irrelevant to have a tax freedom day, because whether it is 5 February or 25 November, people need both what they pay their taxes for and disposable income to pay for things that matter to them. That is why those suggesting a tax freedom day misconstrue the situation.
Charlie Elphicke
The hon. Lady makes the point that public services need to be funded. Does she not recognise that tax is needed also to fund the interest on the Government’s debt, much of which was added by the previous Government? Does she share my regret that we have so much debt as a nation?
Rachel Reeves
The reality is that because the current Government have failed to get a grip on growth, and because unemployment is rising and inflation is higher than forecast, borrowing is now expected to be £46 billion higher over the course of this Parliament than they had previously planned. When the Office for Budget Responsibility reports next week, we are likely to see that Government borrowing will be higher still.
The point is that we cannot reduce the budget deficit just through tax increases and spending cuts. We also need economic growth, and we can see the difference between the UK’s growth rate of 0.5% over the past year and the higher rates of other countries such as the US, Canada and even Italy. We cannot reduce the deficit and get debt down unless the economy is growing again and creating jobs; otherwise, we will end up paying more out in benefits and getting less in through tax revenues. That is why the Government’s deficit reduction plans are not bearing fruit—they do not have the strategy for growth upon which all that hinges. I believe that if we want to reduce the deficit and get our constituents back to work, we need a plan for jobs and growth. Without that, borrowing will continue to get higher and tax freedom day will be a little bit later in the year.
I was looking earlier at Labour’s five-point plan for jobs and growth and wondering how much of it Conservative Members, particularly the hon. Member for Kettering, might support. The first point is a temporary reduction in VAT, which he might support because it would bring forward tax freedom day to slightly earlier in the year. I suspect that he would not support the second point, which is a £2 billion tax on bank bonuses, although most of our constituents would not be affected by it. The bank bonus tax would be used to fund 100,000 jobs for young people, which would get more people back to work and paying taxes and mean that less was being paid out in unemployment benefits. Perhaps that, too, would bring forward tax freedom day.
The third point is the introduction of long-term investment projects. That might sound like something that the hon. Gentleman would disagree with, but if it helps people to get back to work, particularly in the construction sector, perhaps Conservative Members would support it. It would get more people back to work and paying taxes. The fourth component of Labour’s five-point plan for jobs and growth is a one-year cut in VAT—to 5%—on home improvements. Perhaps Conservative Members could also support that, given that it is a tax cut. The fifth point is a one-year national insurance tax break for every small firm taking on new workers. I hope that they could support that, too, because it would help small businesses to take on more employees and get the economy moving again.
Charlie Elphicke
The hon. Lady mentions a long wish list but what would be the total cost in extra public spending?
Rachel Reeves
The Government will be borrowing more this Parliament because they are paying the costs of economic failure: they are paying the costs of having 2.62 million unemployed people, including 1.02 million unemployed young people; they are paying because growth, at 0.5% over the past year, is lower than the Office for Budget Responsibility forecast; and they are paying for the higher levels of inflation, which was 5.2% in September compared with the 4.3% that the OBR forecast, which means that we are paying out more in benefits.
The Government are borrowing £46 billion more this Parliament, and as I said earlier, that number is likely to rise next week because the Government have not done enough to get the economy moving, to get people back to work and to contain inflation. The VAT increase led directly to that increase. I accept that these policies would cost money but they would get people back into jobs, get the economy growing again and reduce the budget deficit at a more balanced pace. As Conservative Members have said in the past couple of days, it is clear that although targeted tax cuts now might mean a bit more borrowing, they would help to get the economy back on track, which would also help to reduce the budget deficit in a balanced way.
Charlie Elphicke
But would that extra borrowing not put at risk our interest rates? I do not know whether the hon. Lady is aware, but today the interest rates on UK gilts are lower than those on German bunds. I do not know when that last happened. The risk is that if we borrow more, interest rates will be higher, which will have vastly more negative effects on our economy than the current spending squeeze—
Charlie Elphicke
May I finish first, Mr Deputy Speaker? That would delay tax freedom day.
Rachel Reeves
It is good to know that the hon. Gentleman will talk about more than just the cost of cigarettes. The last time I looked, yields on German Government bonds and UK gilts were 2.14% and 2.16% respectively. I do not know whether that changed when he nipped out of the Chamber for a cigarette.
Market traders are looking for a deficit reduction plan, but they are also looking for economies that will grow. Economic growth is a component of reducing the debt and tackling the budget deficit. Unless we have growth, we pay out more in benefits and get in less in taxes. If we want tax freedom day to be a bit earlier in the year, we need more people in work and more businesses succeeding, which is why Labour’s five-point plan for jobs and growth is so important to getting people back to work and achieving the balanced deficit reduction that we need.
In conclusion, I do not support the Bill. It is not a good use of Government time, parliamentary time or taxpayers’ money to celebrate a tax freedom day. Our constituents would all prefer us to concentrate on the things that matter to them: jobs, growth and the squeeze on living standards. The Minister said earlier in the week that the Government were on track to meet their deficit reduction plans. It would be interesting to hear what she has to say about that today, ahead of the OBR’s numbers’ coming out next Tuesday. I believe that a policy of targeted tax cuts to help families is more in touch than the Government sticking doggedly to plan A. I thank the hon. Member for Kettering for giving us a chance to debate these issues today, and I am sorry that I am unable to support his Bill.
Public Service Pensions
Rachel Reeves Excerpts(14 years, 7 months ago)
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Rachel Reeves (Leeds West) (Lab)
I thank the Chief Secretary for his statement and for advance notice of it. I welcome today’s signal that the Government are now willing to enter into proper discussions. That is a welcome change from the months of Treasury and Cabinet Office intransigence that came before.
Too often in recent months it has appeared that the Government have not understood that strikes are a sign of failure on both sides. Let us be clear: it was this Government’s decision to rip up the framework established by the last Labour Government and to go much further much faster. In particular, it was the Chancellor’s decision to pre-empt Lord Hutton and impose a 3% surcharge for all employees announced in the spending review last year, before negotiations had even begun. That decision suggested that rather than negotiating in good faith, the Government were intent on acting unilaterally and so provoking confrontation. It is good news, therefore, that the Government have at last made a constructive move to begin proper discussions.
Let me be clear: no one wants strike action. The Government and the unions have a duty to show that they have exhausted every possible avenue. Our focus is on those who rely on services that would be affected by strikes—from parents who will have to take a day off work to those who rely on home help. However, public sector workers—nurses, teachers and dinner ladies—also care too much about the people they serve day in, day out to consider action as anything other than a last resort, yet those who work in front-line public services are also desperately worried about their future and about whether they will be able to afford retirement. It is for the Government to ensure, therefore, that change is agreed and delivered in a way that brings with them the nurses, teachers, home helps and dinner ladies affected by the changes.
It is welcome that the Government have now recognised that announcing tactical offers on the airwaves, rather than constructive proposals in proper negotiations, is not the right way to proceed. However, I would suggest three key tests for a fair agreement. First, on affordability, do the changes deliver a fair deal for taxpayers when times are tough, taxes are rising and spending is being cut? Secondly, on fairness, do they deliver a fair deal for public sector workers on low and middle incomes, whose pensions are far from gold-plated and who have given so much to the services in which they work? Thirdly, on sustainability, do the changes deliver a workable settlement for the long term that does not undermine the sustainability of existing schemes and which can be flexible in the face of rising life expectancy? That is how we will judge the outcome of the negotiations.
To meet those tests, it has always been clear that public sector workers will need to accept higher contributions on average and, given that people are living longer, an increase in the retirement age, too. That was fundamental to the arrangements put in place by the previous Government for capping the Government’s contributions and then, as costs rose, negotiating how to increase workers’ contributions or change entitlements. Equally, however, the Government have to accept that for many low-paid staff, their pension is the only means of security in retirement. In a time of pay freezes, sharp increases in contributions risk hardship today and increased levels of opt-out, pushing up pensioner poverty in the future, which is why we have been critical of the confrontational stance taken by the Government and of the rush to early industrial action in June.
We will see in the coming days whether these moves are sufficient to restore the much-needed trust in these discussions that could ensure that, even at this late stage, there is still time for both sides to step back from the brink. We must all study the detail of what is now on the table, but on affordability will the Chief Secretary set out the cost of these concessions to the public purse? As he rightly sets out the transitional protections for workers in their 50s and tapering arrangements for those in their late-40s, can he say whether both these additional costs will have to be made by savings elsewhere in the system? On fairness, can he confirm that the proposed increase in contributions, if applied across the board, would still mean an increase in contributions for low-paid and part-time workers earning less than £15,000 a year? Have the Government assessed the impact of the pay freeze on opt-out rates from public sector pension schemes to date?
On sustainability, has an assessment been made of the impact of the 3% increase in contributions proposed from April and of whether increased drop-out rates could affect the viability of funded schemes, such as the local government scheme? Is it the Chief Secretary’s intention that those affected as a result of the settlement will have the certainty of knowing that there will be no further changes for 25 years? How will he deliver on that commitment? Will he give the House a timetable for discussions over the next eight weeks, given his aim to secure agreement by the end of the year? I hope that he can reassure taxpayers and public sector workers—teachers, the police, home helps and others—on those points. The Government must leave no stone unturned in their negotiations to seek a genuinely sustainable agreement that is fair for public sector workers and taxpayers, and avoids a strike this autumn.
Danny Alexander
I am grateful to the hon. Lady for her response, although she left a few questions unanswered herself, which I shall come to.
On proper discussions, I reject what she said about the Government’s stance. Talks have been going on constructively for the last eight months. The Minister for the Cabinet Office and I have spent many, many hours in those discussions, and if the hon. Lady talked to the trade unions, she would discover that they, too, see them as constructive. She also referred to the previous Government’s cap and share arrangement. Let me tell her what Lord Hutton said about it in his report:
“Cap and share cannot take account of the increases in cost of pensions over recent decades because people have been living longer. Also, untested, complex cap and share arrangements cannot of themselves, address the underlying issue of structural reforms, nor significantly reduce current costs to taxpayers.”
In other words, the previous Government’s arrangements were simply not good enough at controlling the costs in the way we need to.
The hon. Lady asked me several questions; let me address them directly. As I said in my statement, transitional protections and tapering are outside the cost ceiling, so they will not be met at the expense of other arrangements, which may be negotiated on a scheme-by-scheme basis. On contributions, there was an assumption, audited by the Office for Budget Responsibility, about the impact that 1% of pay bill would have on opt-out rates, which I accept. We are engaged in a separate track of negotiations with the local government pension scheme—which the hon. Lady also mentioned—precisely in recognition of the fact that it is a funded scheme and that therefore different considerations apply.
On affordability—the first of the hon. Lady’s three tests—let me tell her that, yes, the changes are affordable. Her test is met. This test ensures—[Interruption.] Opposition Front Benchers are saying, “Part-time workers?” The contributions increase has been set out. We have ensured, on a scheme-by-scheme basis, that the contributions will be tiered according to income. Those earning less than £15,000 a year on a full-time equivalent basis will have zero—[Interruption.] The right hon. Member for Morley and Outwood (Ed Balls) likes to hector from a sedentary position. Instead of being the shadow chunterer, perhaps he will sit there and listen. We have made it clear that those earning up to £21,000 on a full-time equivalent basis will have a reduction. The full-time equivalent basis for pension reform is the basis—[Interruption.]
Oral Answers to Questions
Rachel Reeves Excerpts(14 years, 7 months ago)
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Rachel Reeves (Leeds West) (Lab)
I must say that I find the Chief Secretary’s answers incredibly complacent. Given that unemployment is at a 17-year high and long-term youth unemployment has risen by more than 60% since the start of the year, we all know what impact the Chancellor’s policies have had on unemployment. Instead of being complacent, will the Government support calls for them to repeat the bankers’ bonus tax in order to create 100,000 extra youth jobs and to introduce a national insurance holiday for small businesses taking on new workers? That is what Labour has proposed in its five-point plan. We need policies that will get the economy moving again and reduce unemployment, thus reducing the deficit. When will the Government act?
Danny Alexander
The hon. Lady’s position would have more credibility if she recognised the fact that youth unemployment rose during Labour’s time in office, as did long-term unemployment. As for her proposal for a bonus tax, that was written off by the last Chancellor of the Exchequer, who said that it could not work. She should listen to her own colleagues first.
Eurozone Crisis
Rachel Reeves Excerpts(14 years, 7 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
I wanted to update the House as early as possible on developments in the eurozone overnight, and in the absence of the Prime Minister as he travels to the Commonwealth Heads of Government meeting, to report on the good progress made at yesterday’s European Council.
The crisis in the eurozone has caused instability in financial markets, has greatly undermined confidence around the world, and is having a chilling effect on economic growth in many countries, including our own. It is in our overwhelming national interest that a coherent, comprehensive and lasting solution to the eurozone’s problems is found, because the decisive resolution of this crisis would provide the single biggest boost to the British economy this autumn, and the break-up of the euro would be the single greatest threat to our prosperity.
Our view about how to solve the eurozone’s immediate problems has been clear, consistent and forcefully expressed. The Prime Minister, the Deputy Prime Minister and I have set it out to the House on a number of occasions: reinforcement, recapitalisation and resolution. First, eurozone member states need to reinforce their bail-out fund to create a firewall; secondly, weak European banks need to be recapitalised; and thirdly, the unsustainable position of Greece’s debts needs to be resolved. But if the solution is to last, as I said many months ago, members of the eurozone also need to address the logic of monetary union by pursuing greater fiscal integration within the eurozone, while at the same time we protect Britain’s interests.
We have to improve competitiveness: competitiveness in the peripheral economies of the eurozone as measured against the core economies such as Germany, and competitiveness across the whole European continent versus the rest of the world. This is the solution of the crisis that we have been advocating for months, and the solution again advocated by the Prime Minister at yesterday’s European Council.
Our view is that last night very good progress was made towards solving the immediate crisis—very good progress on all fronts. The deal put together is much better than was expected yesterday afternoon. But much detail remains unresolved, and having put pressure on the eurozone to get this far, we have to keep up the pressure to get the details completed. It has started down the right road; now it must finish the job.
Let me take each element of last night’s deal in turn and say how it affects Britain. First, on recapitalising banks, we are pleased that the European Council agreed to the proposal hammered out by myself and other Finance Ministers at the weekend ECOFIN. All major European banks will be required to hold at least a 9% core tier 1 capital ratio by the end of June next year, including marking to market all their exposure to sovereign debt. The European Banking Authority, based here in London, assessed that achieving this target means that banks will require an extra €106 billion of capital, and the Council yesterday confirmed that if this cannot be raised privately, Governments will have to step up to the plate.
I can confirm to the House today that in the assessment of the European Banking Authority and our own tripartite authorities, no British bank requires additional capital. This is an important expression of confidence in this country’s banking system at a time of global financial stress. EU member states also agreed to co-ordinate guarantees of term funding, should they be required, and we have ensured that state aid rules will be applied properly, and European banks will be restructured if necessary, just as the European Commission demanded of the last British Government two years ago.
While some would have wanted an even tougher banking agreement, and even more capital going into Europe’s weak banks, we should welcome what has been achieved with this agreement. We now have—unlike the totally inadequate stress tests of last year—a commitment to significant extra resources for the European banking system. However, the UK and others insisted that that commitment from the whole of the European Union on banking be conditional on the two other key components of the solution to the crisis that I set out: a reinforced firewall and a resolution of Greek debt. These are both properly matters for the Eurozone, not the UK—and they are both matters on which progress was also made last night.
On Greece, a headline agreement was reached to reduce the Greek debt-to-GDP ratio to 120% by 2020. The eurozone will contribute an additional €30 billion. Because the British Government have made sure that we are not part of the Greek bail-out, none of that extra €30 billion will come from our taxpayers, while private holders of Greek sovereign debt will be asked to accept a nominal write-down of 50%. A lot more work is needed to put all this into practice, including detailed negotiations with the private sector—but we said that Greece’s debts were unsustainable, and we are pleased to see a resolution in sight.
On reinforcing the size of the firewall, the eurozone has set out two options that could operate in tandem. One is to provide, from the bail-out fund, insurance on new debt issued by Eurozone countries; the second is to create special purpose vehicles that can attract resources from private and public investors. In its statement, the eurozone said that
“the leverage effect of both options will vary”
but that they could be
“expected to yield around 1 trillion euro”.
We have always believed that the role of the European Central Bank is critical, and I welcome the positive statement made by Mario Draghi, the incoming ECB president.
Talk of special purpose vehicles has given rise to questions about the involvement of the International Monetary Fund and major shareholders such as the UK. As I have said to the House on many occasions, Britain has always been one of the IMF’s largest shareholders and biggest supporters: we helped to create the institution 60 years ago; the last Government agreed to increase its resources two years ago; and this Government not only ratified that agreement but helped to make the IMF more representative of the new world economy by brokering a deal last year that gave countries such as China and Brazil a greater say, while securing Britain’s seat on the board. The IMF has been an active participant in the packages put together to support Ireland, Portugal and Greece. It has also been active in extending flexible credit lines to Poland and Mexico—neither of which is in the eurozone, of course—as well as supporting other countries in central and eastern Europe such as Hungary, Romania and Latvia. Indeed, it currently has 53 lending programmes around the world, of which only three are in the eurozone.
Supporting countries that cannot support themselves is what the IMF exists to do, and there may well be a case for further increasing the resources of the IMF to keep pace with the size of the global economy. Britain, as a founding and permanent member of its governing board, stands ready to consider the case for further resources and contribute, with other countries, if necessary. Let us remember that support for the IMF does not add to our debt or deficit, and that no-one who has ever provided money to the IMF has ever lost that money. But let me be very clear: we are prepared to see an increase only in the resources that the IMF makes available to all the countries of the world. We would not be prepared to see IMF resources reserved for use only by the eurozone. By all means the IMF can use its expertise and advice to help the eurozone to create the special purpose vehicle that it is considering. By all means let countries with large foreign currency reserves such as China consider putting their own money into the eurozone’s special purpose vehicle—that must be their decision—but the IMF cannot put its own resources in; it can lend only to countries with a programme for adjustment.
I confirm today that Britain will not put its resources in either. We do not have a surplus; we have a large deficit. We have had to use our resources to recapitalise our banks and to stand behind our currency. An active member of the IMF? Yes. Helping the IMF with advice and technical support? Yes. But the IMF contributing money to the eurozone bail-out fund? No. And Britain contributing money to the eurozone bail-out fund? No. That is Britain’s clear position.
We expect eurozone members to use the next few days—the next few weeks, at the most—to provide much more detail about their plans to increase their firewalls and sort out Greek debt. We have made it clear that the sooner that happens, the better it will be for the world economy. We must maintain the momentum.
This package will not on its own resolve the longer-term issues of how to make the euro work more effectively. Those longer-term issues were addressed yesterday, and there were proposals for greater fiscal integration and mutual control over the budget policies of eurozone Governments. I have argued that we need to follow the remorseless logic of monetary union, and that involves a loss of national sovereignty for countries in the eurozone.
It is in Britain’s interest that the euro operates more effectively, provided that the interests of all 27 member states are properly protected in key areas of European policy, such as the single market, competition and financial services. We are insistent that our voice will continue to be heard and our national interests protected. We have found allies among the other 10 members of the EU that are not in the euro. An important marker was put down in Sunday’s European Council conclusions.
No one pretends that sorting out this situation in a satisfactory way will be easy, but it is a necessity. That is the context in which we should approach potential treaty changes. The coalition Government have already proved that they can protect Britain’s interests by getting us out of the previous Government’s involvement in the eurozone bail-outs, holding down the European Union budget increases, and putting into law the guarantee that no further powers or competencies can be transferred to Brussels without the consent of the British people in a referendum. The Government will again protect Britain’s interests as the discussions on a possible limited treaty change begin. We will seek to rebalance the responsibilities between the EU and its member states, which in our view have become unbalanced.
Finally, the euro will not find lasting stability until its peripheral members become more competitive. That means credible plans to reduce budget deficits. That commitment was made in the very first section of yesterday’s agreement. However, that involves difficult decisions on pension ages, business tax rates, welfare reform and educational standards. Britain, thankfully, is not in the euro, but we are taking those difficult decisions at home, because the ultimate lesson of this crisis is that unless a country can pay its way in the world and compete around the globe, it will be next in the firing line. I am determined that our country will never be in the firing line.
Rachel Reeves (Leeds West) (Lab)
I thank the Chancellor for coming to the House to make that statement. With the shadow Chancellor in New York, I am responding on behalf of the Opposition, and I have a number of detailed questions. It is good that some agreement has been reached, but with so little detail, many unanswered questions remain. I hope that the Chancellor can help the House today, because whatever happens in the eurozone will have huge ramifications for British families and businesses.
First, on the recapitalisation of the banks, is the Chancellor confident that the deal announced is sufficient and that UK banks do not need further recapitalisation? Will he keep that under review? What estimates has he made of the exposure of UK banks to Greek, Italian, Portuguese and Spanish sovereign debt? Will he confirm that the House of Commons estimates of $3 billion for Greece and $17 billion for Italy reflect the current position for UK banks? Although the agreement states that banks and other creditors are invited to accept a 50% loss on Greek sovereign debt, is the Chancellor confident that the vast majority will agree—and if so, by when?
On the expansion of the European financial stability facility, does the Chancellor believe that the €1 trillion package is sufficient? Does it amount to the “big bazooka” that the Prime Minister talked about earlier this month? Alternatively, will we be back here in a few months’ time, which would mean further uncertainty, undermining confidence, undermining investment and undermining growth? That is the last thing that Britain, or Europe, needs.
Can the Chancellor explain how the leveraging of the EFSF will work, and when he believes the detail of credit enhancement and special purpose vehicles will be finalised? If the EFSF must also fund bank recapitalisation, will it be sufficient to give the markets confidence, and will there be funds remaining to underpin any sovereign debt crisis and prevent further contagion?
Although we have a clear economic interest in the eurozone sorting out its problems, the interests of British taxpayers must be safeguarded. It would have been wrong for Britain to pay twice, both through ongoing temporary EU bail-out funds and through the IMF. If this package is indeed the final and permanent bail-out fund, any British role should be through the IMF alone.
I heard the Chancellor’s question and answer session with himself on the IMF, but will he clarify what he said on the radio this morning? He said that the IMF was not
“going to put additional resources directly into the eurozone, hypothecated for the eurozone.”
Does he believe, though, that there will need to be a further increase in UK contributions to the IMF? Whether he succeeds in persuading it to describe that as anything other than a hypothecated fund is irrelevant.
On the arrangements for future decision making, the agreement states:
“The President of the Euro Summit will keep non euro-area member states closely informed of preparations and outcomes of summits.”
“Closely informed”? Has Britain now been reduced to simply receiving a postcard from Brussels? How will the Chancellor ensure that Britain’s voice, and our vital national interest, is heard loud and clear in future negotiations?
On the forthcoming treaty changes, will the Chancellor admit what the Prime Minister was unable to admit yesterday? Is it now the Government’s policy to seek to repatriate powers as part of those treaty changes? Which ones, and on what timetable?
Finally, is not the missing piece in the agreement the lack of any plan for jobs and growth, which were not mentioned at all in the Chancellor’s statement? Is it not the case that without growth we cannot solve the debt crisis, we cannot solve the banking crisis, and we cannot solve the jobs crisis? At this time, Britain should be leading the charge and pushing for a proper plan for jobs and growth across Europe. But is not the truth that this Chancellor cannot do that? With unemployment at a 17-year high here in Britain, with no growth since last autumn, and with borrowing therefore now set to be £46 billion higher than he planned, he is clinging to an austerity plan that is failing here in Britain.
With the UK economy flatlining since this time last year, before the eurozone crisis of recent months, and with only Greece and Portugal growing more slowly than Britain, is it not time that we had a plan for jobs and growth—across Europe, yes, but here in Britain too?
Mr Osborne
I thank the hon. Lady for some of her questions. Of course, we miss the constructive and consensual approach of the shadow Chancellor. We are talking about the Bretton Woods institutions, and it turns out that he is at a place called Buttonwood, which adds to the pantomime feel of Labour’s economic policy.
Let me deal directly with the hon. Lady’s questions. First, of course we keep the capital and liquidity positions of the British banks under constant review. We would do that in the absence of any European agreement, but of course we have also participated in the recent work by the European Banking Authority. We thought it was important that that was done at EU level rather than eurozone level. I repeat what I said in my statement: the EBA and our own authorities confirm that no British bank requires additional capital, which of course is very good news for us all.
On the hon. Lady’s question about getting private sector involvement in the write-down of Greek debt, that is of course one of the key unresolved issues from last night. We now need to see whether the headline agreement reached on behalf of the private sector can be implemented in practice. I am confident that it can, but that is one of the crucial next steps that need to be got on with.
The hon. Lady asked about the exposure of the UK banking system and the UK economy to various peripheral economies of Europe. Those figures are published regularly by the Bank of England. I do not propose to repeat them today, but they are available for everyone to see.
On the question that the hon. Lady asked about the overall fund, €1 trillion is the number that the eurozone has put on its firewall. Of course, some said it should be larger, but it is very significantly larger than what we had yesterday, which we should welcome. As with private sector involvement in the Greek deal, we now need to see the details of how the eurozone will create that leverage. It has set out two options that can work side by side. One is a kind of first loss insurance on newly issued debt, and the second is the special purpose vehicle, by which it hopes to get external private sector investment. Of course, it is openly speculating about getting Chinese money into that.
The IMF can only lend directly to countries, and countries with programmes or agreed and negotiated flexible credit lines, which will remain the case. It cannot lend into that special purpose vehicle. That is also the UK position. We do not think that Britain, with its deficit, can contribute to the special purpose vehicle. If we were to do so, we would add to our debt, and we do not think that that is appropriate. We have had to use our own resources to deal with our own problems in this country.
It is of course crucial that the IMF remains a central economic institution in dealing with the world’s problems, and I urge the hon. Lady, newly appointed as shadow Chief Secretary, to reconsider Labour’s position—[Interruption.] I know that the hon. Member for Nottingham East (Chris Leslie) led the Labour party in Committee to vote against the increase in IMF resources, which the last Labour Prime Minister negotiated at the London 2009 summit. Whatever I have said about the right hon. Gentleman—and I have said quite a few things—I do not think that anyone would doubt that the highlight of his premiership was the negotiation of the London 2009 G20 deal. It is completely astonishing that the Labour party voted against that agreement.
As we discuss over the next few months increasing the IMF’s resources to deal with all the countries of the world, I urge Labour Members to reconsider their position on that, and also their rather odd position on the euro. They seem to be holding out membership of the euro—[Hon. Members: “No!”] Well, that is certainly what the Labour leader was doing at the weekend. To be in the euro but out of the IMF strikes me as a rather bizarre economic policy at the moment.
That brings me to my final point. Britain has been arguing consistently for months that a solution to this crisis requires recapitalising the banks, reinforcing the firewall and resolving the Greek crisis. We have insisted that the appropriate issues are discussed at the level of 27, which is why there have been two European Councils this week, and an ECOFIN. We will continue to argue for Britain’s national interest as we enter the difficult discussions ahead on the potential treaty change, on making the euro work, and above all on getting the growth and jobs that the hon. Lady talks about across Europe and in this country, by making this continent far more competitive and stopping Britain and Europe from pricing themselves out of the world economy.