Jobs and Growth
Rachel Reeves Excerpts(14 years, 7 months ago)
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Jake Berry
I am sure that the hon. Gentleman will provide me with the figures—
Jake Berry
I am sorry, but I will not give way. I want to make progress.
The Labour party opposes the Government’s public spending cuts, but its alternative—the too little, too late alternative—would mean that our economy, like Greece’s, would shrink by 5% this year, and that mortgage rates would rocket. One of the things that Government Members are most proud of is our desire and aspiration to increase the tax threshold to take many of the lowest paid in our society out of tax altogether. Had we followed the too little, too late approach, as Greece did, we would have had to cut our tax-free allowance by 50%.
The Chancellor has been frank about the choppy waters ahead, yet businesses in my constituency of Rossendale and Darwen still strive to succeed. Businesses such as J&J Ormerod, the largest employer in my constituency, B&E Boys, Crown Paints and WEC engineering, are doing their best to manufacture proper products and to rebalance the UK economy, despite tough times. Those businesses know about the Labour party’s economic illiteracy. That is why, before the general election, some of them signed a letter opposing Labour’s jobs tax. Businesses in my constituency will not forget that the previous Government were the enemy of enterprise and industry, and that Labour is the party of the jobs tax.
Jake Berry
Sorry, I will not.
How ironic it is that the Opposition motion calls for a cut in national insurance. That is too little, too late, and business in my constituency knows that the Labour party is not the solution but, in fact, the problem.
Jake Berry
Sorry, but I will not.
Looking at today’s job figures, including the increase in unemployment in my constituency—
Kwasi Kwarteng
What the markets were looking at was the deficit. The hon. Lady may remember what happened to the gilt market as her party’s Government were being shunted out. The price of British Government debt rose and yields fell in direct anticipation of Labour leaving power. The markets made their own decision. In the last 18 months, the price of British Government debt—that is, the interest rates that we pay—has fallen. It has managed to remain at the same level, precisely because markets realise that the Chancellor and his team are doing the right thing in tackling the deficit. We have been told repeatedly that if we were to show any relaxation of our deficit reduction programme, the markets would dump our bonds and interest rates would rise, which would cause immense damage to the hon. Lady’s constituents as well as mine.
Rachel Reeves
Does the hon. Gentleman accept that before the last general election—between January and May 2010—yields on Government bonds were falling and they have stayed at low rates since the general election? The markets did not know which party would win the election because the campaign was so close. Therefore, the hon. Gentleman cannot argue that those yields were falling in anticipation of an incoming Conservative Government, because nobody knew that.
Kwasi Kwarteng
The yields were not falling in anticipation of a Conservative Government, but they were certainly falling in anticipation of the then Labour Government going out. Markets anticipate events—that is how people make money—and the markets had, in their wisdom, decided that Labour would not be re-elected. I assure the House that if Labour had been re-elected, the markets would have dumped British debt and we would be facing a much tougher interest rate environment than we currently face.
I always enjoy listening to the shadow Chancellor’s speeches, as they are very entertaining, and I enjoyed his speech today—I think one Member even mentioned vaudeville, which I think does vaudeville discredit. However, I was staggered by the shadow Chancellor’s assertion that the fact that we have low interest rates is somehow a reflection of our having a weak economy. That was an extraordinary claim. People in my constituency are very grateful indeed that we have low interest rates, because that enables them to pay their mortgage liabilities. It seemed extremely arrogant for a supposedly responsible politician to say on the Floor of the House that low interest rates were a bad thing, which was essentially what the shadow Chancellor was arguing. [Interruption.] He was suggesting that they were a symptom of a weak economy, which is a bad thing.
On the contrary, however, our low interest rates are a signal that the markets have confidence in this Government. They have absolute belief that the current Government are going to deal with the deficit that was created, almost deliberately, by the Labour Government. We in the House of Commons have to understand why this deficit arose, so we can explain that to the country. It was not just handed down to us by some Moses figure—although the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) probably thinks of himself in that way. It was not handed down from on high; rather, it was created by Governments and by the Members who then sat on the Treasury Bench, and it was created for the simple reason that they, in their arrogance, honestly believed that they had abolished boom and bust. We all remember those statements, and it is an arrogant misrepresentation of the past to suggest that they did not think that. The last Prime Minister believed that he had solved the key economic question of our time, but he was wrong, and it is as a direct consequence of his mistake that our Government have had to introduce the policies we are pursuing.
Many people will ask why we do not have a different plan. They will ask: “Why don’t you suddenly borrow and spend more money in the time-honoured Labour fashion?” That would be a road to disaster, however. It would create a massive lack of confidence and lack of credibility in the British Government’s programme, leading to the markets dumping our Government debt and our interest rates rising. It would lead to people in our constituencies having to face higher payments every month. They would be squeezed even more if we were not as focused and committed as we are to reducing the deficit.
I have tried to inject some reality into this debate. We have heard consistent denials from Labour Members, and we have heard no admission of guilt or wrongdoing and no ideas as to how we might get out of the situation we are in. We have also heard no real arguments to attempt to explain why what the last Labour Government did was right. Interestingly, no Labour Member has said in this debate, “We did a marvellous job; we gave you a golden inheritance.” I would grant them more credit if any of them would be bold enough to stand up and say that, but they will not do so. That is because, as everyone in this country knows, Labour is bereft of ideas, and it would be a disaster if we were ever to leave our future in its hands again.
Rachel Reeves (Leeds West) (Lab)
It is a privilege to wind up this debate as shadow Chief Secretary to the Treasury. I may be new to the job, but after five hours of debate today I am still no clearer on this Government’s plan for jobs and for growth. Even on the day when unemployment has reached a 17-year high, the Government have no plan for jobs and for growth. Today’s numbers are proof that plan A has failed.
While Government Members say that there is no alternative to the policies being pursued by the Government, the Opposition have put forward a five-point plan for jobs and growth which was set out by my right hon. Friend the Member for Morley and Outwood (Ed Balls), the shadow Chancellor, and supported by Opposition Members. My right hon. Friend the Member for Edinburgh South West (Mr Darling) reminded us that a year and a half ago, the economy was growing and unemployment was falling. How different from today. My hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier) gave a vivid account of the impact that the Government’s policies are having on constituents in Hackney.
We heard about plans for jobs and growth rooted in the constituency experience from my hon. Friends the Members for Leeds East (Mr Mudie) and for Gateshead (Ian Mearns), my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson), my hon. Friends the Members for Middlesbrough (Sir Stuart Bell), for Wolverhampton North East (Emma Reynolds), for Coventry North West (Mr Robinson), for Bassetlaw (John Mann) and for Great Grimsby (Austin Mitchell), my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and my hon. Friend the Member for Bristol East (Kerry McCarthy).
From the Government Benches we also heard some constructive speeches, particularly from the hon. Members for Chichester (Mr Tyrie), for Sevenoaks (Michael Fallon) and for Aberconwy (Guto Bebb). Some Government Members, however, defended plan A 100% but none of them, remarkably, wanted to talk about unemployment in their constituencies. One hon. Member gave a speech not even knowing that unemployment in his constituency was up 29.2% in a year. If that is not proof that plan A has failed, I do not know what is.
Let me rebut some of the Greek myths that we heard from the hon. Members for Spelthorne (Kwasi Kwarteng), for Rossendale and Darwen (Jake Berry) and for Bromsgrove (Sajid Javid), which they use as a smokescreen for their austerity programme. First, UK debt is just over 60% of GDP; in Greece it is over 150%. Secondly, the average maturity of our debt is roughly 13 years, compared with around six years in Greece. Thirdly, bond yields were falling in the UK ahead of the general election, but they were rising in Greece. Fourthly, Greece is part of the eurozone and so, unlike the UK, cannot devalue its currency. This is a story of two very different economies. The Greek defence for austerity simply does not add up.
I urge hon. Members to look at the facts. We have great British businesses, great British industries, great universities and people in all our constituencies who want to work hard and get on. Let us celebrate and build upon our successes, rather than talking Britain down. Instead of the mantra of resignation and defeat from Government Members, the shadow Chancellor has set out practical policies for jobs and growth. What a contrast and what a different message on how to support families feeling the impact of rising energy and food prices. What a different message to businesses worried about sales and accessing finance. What a different message to young people looking at the prospect of enormous debts when they leave university, with less and less hope of getting a job.
When Labour left office unemployment was falling, but today’s figures show that unemployment, at 2.57 million, is higher now than at any point during the recession, at a level last seen under a Tory Government. Youth unemployment, at 991,000, is the highest ever on record and is inching ever closer to 1 million. Unemployment for women has increased by 40,000 since May and is now above 1 million, the highest level since 1988. Last week’s GDP revisions show that GDP estimates for the second quarter had halved to just 0.1%.
Households are feeling the biggest squeeze on their income for 35 years, but our out-of-touch Prime Minister lectures hard-pressed families to pay off their credit card bills right now. Tell that to the ordinary families coping with the effects of the Government’s VAT hike. Tell that to the struggling small businesses trying to access credit from the banks. Tell that to the anxious young person who cannot even get a job. It is also crazy economics. Of course we all need to be prudent, but the Institute for Public Policy Research has calculated that if everyone were to pay off their credit card debts, consumer spending would be reduced by 6% and GDP would fall by 4%.
Growth has flatlined for nine months, starting before the European debt crisis. We have heard the Chancellor’s excuses. First he blamed the snow, then the royal wedding and now Europe. When will the Government stand up and take responsibility for their actions? The managing director of the IMF, Christine Lagarde, says growth is necessary for fiscal credibility, and she is right. It is because the economy has ground to a halt and unemployment is at 2.57 million that the Office for Budget Responsibility now forecasts that we will borrow £46 billion more over this Parliament than planned.
It is not possible to reduce the budget deficit while paying more in benefits and getting less through taxation. Austerity alone will not reduce the budget deficit without a plan for jobs and growth. As my right hon. Friend the Member for Edinburgh South West reminded us, 18 months ago unemployment was falling, and as my right hon. Friend the shadow Chancellor noted, John Maynard Keynes once said:
“When the facts change, I change my mind.”
John Maynard Keynes was a Liberal, and so too was the Chief Secretary to the Treasury. When he was a Liberal he said:
“We are in real danger of condemning a generation of young people to a cycle of unemployment and low expectations.”
How very prescient—on the day when figures reveal that youth unemployment has gone up to 991,000 under his watch. The Liberal Democrats were once progressives, but now they just represent failed economics, implementing the reckless policies that they said before the election would not work.
There has been much debate this afternoon about the growth strategy that the Government promised, instead of which we have simply had a strategy for failure. They increased VAT, costing families £450 a year, and cancelled the loan to Sheffield Forgemasters so that high-skilled jobs are now going to South Korea rather than south Yorkshire. They scrapped the regional development agencies and replaced them with a regional growth fund that is yet to spend a single penny. The Government have introduced what the Governor of the Bank of England described as the “weakest possible measures” to get banks lending—a ringing endorsement of their Project Merlin. Today the Government have announced the guarantee of a job interview for 50,000 young people, but young people want not just an interview but a guaranteed job or training—a real opportunity, which they had under a Labour Government before the general election and before the future jobs fund was scrapped by this Government. With policies such as these from the Government, no wonder the economic recovery has ground to a halt.
Ian Lucas (Wrexham) (Lab)
One of the most dreadful things that this Government are doing is that when they do spend money, for example on the rail or helicopter contracts, they do not support British businesses such as Bombardier and AgustaWestland but spend money on jobs and growth abroad. Should we not be spending British taxpayers’ money to preserve British jobs?
Rachel Reeves
I could not agree more with my hon. Friend, with 1,000 jobs going at Bombardier and Government policies putting people out of work and businesses out of business.
While the Government offer no relief, at least the Bank of England is offering some leadership, with an extra £75 billion through quantitative easing, which the Chancellor described just two years ago as
“the last resort of desperate governments when all…other policies have failed”.
Let me be frank. The last Labour Government were desperate to avoid a global recession becoming a global depression; desperate to ensure that unemployment did not hit the 3 million mark, as it did in the recessions of the 1980s and 1990s; and desperate to avoid the business failures and home repossessions that scarred our country in Tory recessions. Government Members should be desperate today, because unemployment is at a 17-year high, because borrowing in August reached a record high, because growth has stalled, and because plan A has failed.
Today, as we see the unemployment numbers, it would be nice to have a Government who reacted and said they have got it wrong. Instead, it takes Labour to come to the Chamber with a five-point plan: a £2 billion tax on bank bonuses and a guarantee of a job for young people; bringing forward long-term investment projects to get people back to work; cutting VAT temporarily to give immediate help to our high streets and to struggling families and pensioners; cutting VAT to 5% on home improvement repairs; and a one-year national insurance tax break for every small firm taking on extra workers. That is a five-point alternative that offers hope and unlocks opportunity.
We can call it what we will—plan A-plus, plan B, or the five-point plan—but this Government must come up with an alternative to help families struggling with rising prices and stagnant wages, to help businesses that cannot get a loan and are scared to take on new workers, to help young people who are facing record youth employment, and to help pensioners facing higher gas and electricity bills this winter. This Government must act for every struggling family, for every struggling business, and for every pensioner. They must act, with Labour’s five-point plan, to unlock the potential of every young person in Britain, to create jobs, and to get our economy growing. Their plan has failed. I urge hon. Members to support this motion.
Danny Alexander
No, I will not.
We will not return to growth on the back of what we might call predatory growth, based on spending money we do not have, so that when the music stops and the bills fall due, they have to be paid for by the rest of us. Instead, we are committed to building a new model of growth powered by investment, exports and enterprise, for example by investing in infrastructure. Over the four years of this spending review period, we will invest more in transport infrastructure than our predecessors managed in the previous four years.
Rachel Reeves
Before the general election, the Secretary of State for Business, Innovation and Skills said:
“Cuts without economic growth will not deal with the deficit.”
Does the Chief Secretary agree?
Danny Alexander
I do, and I am about to set out exactly what this Government are doing for economic growth, if I can be allowed two or three more minutes to fill in that point.
As I was saying, we are investing in infrastructure. Only two weeks ago, I announced the creation of a new “Growing Places” fund—half a billion pounds that will kick-start developments that are currently stalled, deliver on key infrastructure and create jobs.
As my hon. Friend the Member for South West Norfolk (Elizabeth Truss) said, we also have to stop the decay in our competitiveness that has marred the past decade. so we are cutting corporation tax to 23% by 2014, taking it to the lowest rate in the G7. We will increase the SME rate of research and development tax credits to 225% by April 2012, and we are tackling the problems of the imbalances in growth between regions, which a number of Members on both sides of the House have raised. That is why today, the Business Secretary announced the first of our new technology and innovation centres that are being established, and why we have committed £1.4 billion to the regional growth fund, which has committed to projects in the north-east, the north-west and across the country.
As the hon. Member for Middlesbrough (Sir Stuart Bell) rightly observed, we have also announced 22 enterprise zones that will attract hundreds of new start-up enterprises and create thousands of jobs by 2015. We are ensuring, too, that our young people have the skills to seize their opportunities through the recovery. We are supporting more apprenticeships than any previous Government—by the end of this Parliament we will deliver 250,000 more than the previous Government planned, on top of a total of 100,000 work experience placements.
I know that this is a difficult time for many people and families across the country, and that it is not much comfort to say that it would be very much worse if it were not for this Government’s determination to fix the failures of the past.
Oral Answers to Questions
Rachel Reeves Excerpts(14 years, 9 months ago)
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Mr Osborne
That is, of course, absolutely what the IMF said in its recent article IV assessment—and we remember the article IV assessments at the end of the previous Labour Government. It asks explicitly whether the UK Government should change their policy, and it says no. That is the advice of the IMF. Last July, the Labour party voted against Britain paying its subscriptions to the IMF. Frankly, I do not think that Labour Members should talk about the IMF in Treasury questions until they agree with paying the subs.
Rachel Reeves (Leeds West) (Lab)
If the Office for Budget Responsibility downgrades its forecast for growth for the fourth time when it reports later in the autumn, and revises up its forecast for Government borrowing, would the Chancellor regard that as a success or failure of this Government’s economic policy?
Mr Osborne
Of course, the Government want economic growth and prosperity. We want a stable international situation in which we can trade. We have to take account of the fact that major trading partners, such as Germany, France and the United States, have seen either no growth or very limited growth as well. That is the challenge we face. As the right hon. Member for Edinburgh South West (Mr Darling) reminded us at the weekend, we can either have a credible economic policy that takes note of what is going on in the world or, as he put it, we cannot even be at the races.
Amendment of the Law
Rachel Reeves Excerpts(15 years, 2 months ago)
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Rachel Reeves (Leeds West) (Lab)
It is a privilege to speak in the same debate as my hon. Friend the Member for Barnsley Central (Dan Jarvis)—the new Member for that constituency—who will be a credit both to his constituents and to this House. We should listen carefully to his words and his warnings.
Today’s Budget is equally noticeable for what it does and does not include, because the Chancellor has not heeded the many warnings showing that the Government’s economic policies are not working. Gross domestic product figures for the last quarter of 2010 showed that our economy contracted by 0.6%. Government Members blamed the snow, but it snowed in Germany, yet its economy grew by 0.4%, and it snowed in the United States of America, yet its economy grew by 0.7%. The difference is that we are cutting too fast and too deep and they are not.
Another warning can be found in last week’s unemployment figures, which showed that unemployment is the highest it has been for 17 years and that youth unemployment is the highest on record. The OBR today showed that unemployment is set to rise to 8.2% this year and 8.1% next year—higher than it was even at the height of the recession. House prices continue to fall and yesterday we learned that the consumer prices index has increased to 4.4% and the retail prices index to 5.5%. There are many warnings that the Government’s policies are not working.
Mr Stewart Jackson
I have a quick question for the hon. Lady. Why, on the “Daily Politics” show approximately three hours ago, was she unable to name one measure in this Budget that Labour Front Benchers would vote against?
Rachel Reeves
We would like to vote, for example, on the bank bonus levy and other components of the Budget. My right hon. Friend the Member for Doncaster North (Edward Miliband) set out today that we will consider areas of growth in “The Plan for Growth” green book. There are areas where we want to work with the Government but also areas where we disagree with what they are doing.
Given the warnings I have mentioned, it is hardly surprising that the independent OBR has today downgraded its growth forecast for 2011 to 1.7% and has revised growth for next year to 2.5%. Let us put that in context. Before the Chancellor’s first Budget last year, the OBR predicted growth in 2011 of 2.6%. That forecast has now been downgraded three times—to 2.3%, 2.1% and today to 1.7%. Every time the Chancellor gets to the Dispatch Box, the OBR has to downgrade its growth forecasts.
The Government will say that the only way to get growth back on track is to reduce the deficit, but we have also seen today that the OBR’s borrowing forecast is expected to be £44.5 billion higher over this Parliament as a result of lower growth and higher unemployment. Despite today’s opportunity to think again, however, the Chancellor will still not accept that plan A is not going to plan.
Although the Chancellor has no plan for growth, his implicit plan B, I think, was looser monetary policy, yet today’s Monetary Policy Committee minutes show a further split over whether to increase rates and yesterday’s inflation data show more pressure for a rate rise. Plan B is looking as forlorn as plan A, with householders likely to see a mortgage rate rise by the summer.
We have heard many times today that the Government cannot change course, but that is a fallacy. Jonathan Portes, the new director of the National Institute of Economic and Social Research, recently said that that intransigence
“relies on an odd view of market psychology, one that says markets have more confidence in governments that never adjust policy, even when it is sensible…history suggests the opposite: that the real hit to credibility comes from sticking to unsustainable policies”.
He is right. Now is the time—more than ever—for the Government to rethink their plan, which is sapping jobs and growth out of the economy.
We need to begin to build the Britain of the future, because confidence in UK plc requires a belief that we have a competitive economy that productively employs its resources, draws on our strengths across the sectors and regions and invests in science, skills, technology and infrastructure. Today’s Budget, however, does nothing to foster investment or hope. Although I welcome “The Plan for Growth”, which has been published today, and the announcements to relieve us of a further increase in fuel prices and to provide help for first-time buyers, the Chancellor could and should have done more.
Most of all, although the Chancellor has said repeatedly that he will be tough on the banks, page 103 of the Red Book shows that the bank bonus tax brought in £3.5 billion in 2010 whereas the bank levy will bring in just £1.9 billion this year. There is no guarantee that the banks will lend any more to small businesses because the Government agreed gross lending targets and no net lending targets. No wonder the Treasury spokesperson for the Liberal Democrats in the Lords, Lord Oakeshott, resigned, saying that if this was tough action, his name was Bob Diamond. The Government have washed their hands of any responsibility to help small businesses, which are being hit hard by the banks’ actions.
There are other areas where the Chancellor could have acted today. We need a plan for green jobs and there is still the potential for Britain to be a world leader, as my hon. Friend the Member for Kingston upon Hull North (Diana Johnson) pointed out earlier, in the green technologies of the future, but the market requires certainty and we are losing the initiative to countries that are willing to provide it. We need action, not just words, on the green investment bank, yet today we found out that it will not be fully operational until 2015.
We need regional economic strategies. The regional growth fund is estimated to be 10 times over-subscribed, and with a two-thirds cut to regional economic investment, cities and towns across Britain are missing out on opportunities to grow and diversify their economies. We risk another overheating in London and the south-east while the potential powerhouses of the north of England are being left behind. Although I welcome the enterprise zones, the evidence from the 1980s shows that such approaches move, rather than create, jobs. Of course, the funding for enterprise zones is a fraction of what the regional development agencies had to spend.
Mr Kevan Jones
Does my hon. Friend agree that because the enterprise zones are being imposed on regions, unlike in London where the Mayor will decide where they are, entire areas of the north-east such as Northumberland and Durham will be completely excluded from them and the little help they will bring?
Rachel Reeves
I do agree. Of course, only half the plans were announced today, which was disappointing.
We need an approach to business taxation that fosters growth. Although the Government have trumpeted the cut in corporation tax, it has so far been funded at the expense of investment and manufacturing allowances, so while big businesses have benefited from a tax cut, start-up and investment-intensive firms have seen their taxes rise. If we are to create the jobs of the future, we need today’s entrepreneurs to innovate and that is where the limited funds should be targeted.
We also need greater investment in skills and education. Last year, 8 million people graduated from universities in China and India. No other country is cutting investment in universities, reducing the teaching grant by 80% and cancelling partnerships between business and universities, but that is what the Government are doing.
Last week, we heard that the youth unemployment figure is approaching 1 million and it beggars belief that the future jobs fund is closing its doors in the same month that youth unemployment has risen yet again. One in five young people—more in my constituency—now claims unemployment benefit. Today’s unemployment figures are likely to rise further and today’s Budget is bad news for young people up and down the country.
The public recognise the need for austerity, but they also want to know that the Government have learnt lessons from the crisis and are determined to build a fairer and more sustainable economic future. Britain could be a world leader in the jobs, technologies and industries of the future but only if the Government support growth. Today was the Chancellor’s opportunity to show that he understands the needs of businesses and families, but the OBR’s verdict was to downgrade growth for the third time in 2011 and for next year as well. The Government have ignored the wake-up calls. This Budget is a missed opportunity and I urge the Chancellor and his colleagues to think again about what is really needed to ensure that we emerge from this recession with a stronger, fairer economy for everyone in the country.
Rachel Reeves
The main thrust of my speech was to point out that growth had been downgraded and we did not know that until today. It was only when we heard the Budget that we knew that growth had been downgraded, for the third time in a row, to 1.7%, so I could not have written it earlier.
Mr Jackson
I know that the hon. Lady has some expertise on these issues. She can rest assured that my criticism will be confined mainly to the Leader of the Opposition, who delivered a master class in opportunism and vacuity. His loquacity was in inverse proportion to his intellectual insight. In his 15 minutes of speaking, no policy whatever was articulated.
The Budget is supported by the OECD, the International Monetary Fund and business leaders such as the deputy director of the CBI, John Cridland, and David Frost of the British Chambers of Commerce. It is about the Government putting in place the conditions for sustainable, balanced economic growth. Let us remember that the Institute for Fiscal Studies still says that public finances remain in a critical condition, but we have had no alternative whatever from Her Majesty’s Opposition. Indeed, we might have to call in Professor Brian Cox, the noted cosmologist, to search for the black hole where the Labour economic policy should be.
Mr Jackson
I will make some progress; I am sure that I can let the hon. Lady in a bit later. The priorities of the Budget are primarily to reduce the deficit; rebalance the economy, which was left out of kilter by the Labour Government, with an over-concentration on financial services, the housing market and public expenditure; reform public services; and grow, via initiatives such as the green investment bank, green expertise, knowledge, skills and jobs. If I may give a plug, yesterday a collaboration was announced between Peterborough city council and Cranfield university on a centre for renewable energy and biofuels, to be based in Peterborough.
We need to move towards a high-wage, low-taxation economy with less pressure on household incomes, and the Budget provides a road map for that. No one denies that we have had to make some very tough decisions in the comprehensive spending review and in last year’s emergency Budget. There were real-terms cuts in departmental expenditure; the cut to departmental expenditure will be, on average, 11%. However, we should remember that between 1998 and 2010, there was a real-terms increase in budgets in each Department of anything between 2% and 8%. The fiscal tightening between now and 2015-16 will mean that we have to reduce public expenditure and put taxes up, with capital gains tax, tobacco, fuel, the bank levy, consumer prices indexation and child benefit affected. Contrary to received wisdom among Opposition Members, the richest 2% will be hit hardest by the tax benefit and other changes.
What choice do we have? Labour’s poisonous legacy and debt millstone left us with simply no alternative. In 2010-11, we had to borrow about £140 billion—perhaps around £10 billion less than expected. Only Ireland has a bigger cyclically adjusted deficit. Labour ran a structural deficit some seven years before the banking crisis in 2007-08, and we entered the financial crisis with the largest structural deficit in the G7. The national debt doubled between 1997 and 2010. In May last year, we were at significant risk of a downgrading in our international credit rating, with a catastrophic impact on public services, business and consumer confidence, a long period of stagflation, and a contraction in the economy.
Rachel Reeves
I want to enlighten the hon. Gentleman with two facts. First, in 1996, just before the Labour Government came into power, there was a structural budget deficit of 4%, whereas it was 2.5% in 2007. Secondly, he compares the UK economy with that of Greece, but does he recognise the figures that show that although bond yields in Greece increased from 7% to 12% between January and May 2010, in the UK, before the Conservatives came to power, they were falling?
Mr Jackson
The hon. Lady will know that the markets have recognised that the fiscal consolidation that the Government had to put in place as part of a policy of growth in the private sector and consolidation in the public sector has resulted in a lessening of the pressures in the gilt markets, with gilt yields down to 3.53% since May last year, and every 1% is £1 billion of interest payment. Of course, that is change in the pocket to Labour Members; we are spending £120 million on debt every day.
Mr Kevan Jones (North Durham) (Lab)
I was going to say that it was a pleasure to follow the hon. Member for Peterborough (Mr Jackson), but we have heard a succession of speeches from Government Members that were not only economically illiterate, but stuck to the rhetoric pumped out during the general election. They seem unable to get away from that rhetoric even when the reality of what this country is facing hits them. We heard a rant from the hon. Member for Southend West (Mr Amess) and, frankly, a very strange speech from the hon. Member for Orpington (Joseph Johnson), who clearly had read something about the gilt market but did not quite understand how it works.
I congratulate my hon. Friend the Member for Barnsley Central (Dan Jarvis) on an excellent maiden speech. I think he will be a great asset to the House. He is a man of great courage in both his private and personal life and in the service of this country. I look forward to many more contributions of the standard he gave today.
I would like to focus on two issues: the lack of a policy for growth in the Budget and how that will not affect positively the economy of the north-east of England. Growth figures for the last quarter of 2010 show that the economy contracted by 0.6%, as was mentioned by my hon. Friend the Member for Leeds West (Rachel Reeves). The Government blamed snow for that, but she eloquently pointed out some great examples of economies that grew despite having weather that was far worse than it was in this country.
On top of that, last week we saw a 17-year high in unemployment, set against a continuing fall in house prices and an increase in inflation to 4.4%. It would not take an astrologer, as was mentioned earlier, or a genius to work out that the OBR was going to have to downgrade its growth forecast today. Initially, it said that growth would be 2.6%; then, that it would be 2.1%; and today, that it will be 1.7%. The lack of growth is the main risk to our economy, and let us be honest, the Budget was spun so much that we could have read or predicted most of it before the Chancellor even stood up at the Dispatch Box today to announce it.
The Government also say that the key thing they have to do is to reduce borrowing, but borrowing is now going up, so even by their standards the economic pill is clearly not working. What is happening now is both risky and dangerous to the UK economy, and, although history cannot be repeated precisely, we need to look back, because one of the key lessons we have learned from the 1920s and ’30s is that recovery from large financial crises is delicate, slow and stuttering. Now, as a precise result of this Government’s policies since May, growth is down and unemployment, borrowing and inflation are up.
Rachel Reeves
Does my hon. Friend agree with me and the chief economist of the International Monetary Fund, Olivier Blanchard, who says:
“Unless advanced countries can count on stronger private demand, both domestic and foreign, they will find it difficult to achieve fiscal consolidation”?
Mr Jones
Yes. That is the entire flaw in the Government’s policy: the idea that they can cut public expenditure as deeply and savagely as they are going to, and that somehow jobs will be created in the private sector—something that will just not happen. It might happen in parts of the economy, but there is certainly no indication that it will happen in my region. In fact, the situation is even worse, because Durham university’s model shows that taking out 20% of the public services will lead to 50,000 jobs going in the north-east, with 20,000 of them actually in the private sector. Replacing those jobs, in addition to the 30,000 in the public sector, is going to be very difficult.
Oral Answers to Questions
Rachel Reeves Excerpts(15 years, 4 months ago)
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Mr Osborne
I can indeed confirm that, and this is one of the great paradoxes at the moment. The plan, which the previous Government all appeared to have signed up to, including the shadow Chancellor—that is, the plan put in place by the last Chancellor of the Exchequer—starts in eight weeks’ time and involves billions of pounds of cuts, amounting to just £2 billion less than what we are planning this year. We have not had any proposals from the Opposition; they have eight weeks to come up with a plan.
Rachel Reeves (Leeds West) (Lab)
In Leeds we will lose 11 citizens advice bureaux debt advisers next month because of the cancellation of the financial inclusion fund. Where would the Minister suggest that my constituents who are struggling with debt and excessive and escalating charges from doorstep lenders go for advice?
Mr Hoban
The hon. Lady will be aware that the financial inclusion fund, which was set up by the previous Government, was coming to a close at the end of March. Other sources of debt advice are available. For example, the Consumer Credit Counselling Service is an effective provider of advice, while the Money Advice Trust provides advice over the phone. There are sources of advice out there, but as I said in response to a question from the hon. Member for Birmingham, Selly Oak (Steve McCabe), the Consumer Finance Education Body, which was set up by the previous Government and which we proposed, will reach out to the most vulnerable people in society to ensure that they get access to high-quality advice.
Bank Bonuses
Rachel Reeves Excerpts(15 years, 5 months ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
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Mr Osborne
An absolute central part of any settlement we might reach with the banks will be a material and verifiable increase in the amount of lending to British businesses, especially medium and small businesses. [Interruption.] Labour Members mutter, but they secured absolutely nothing for British business when they bailed out the banks. They had the money in their hands to give to the banks, and they secured absolutely nothing in return.
Rachel Reeves (Leeds West) (Lab)
A quick glance at today’s newspaper financial pages shows that the share price of RBS is 40p today compared with 52p this time last year, while that of Lloyds was 66p today compared with 64p a year ago. My constituents in Leeds West would not expect bonuses for such performance, so why should taxpayers’ money be used for the bonuses of our nationalised banks?
Mr Osborne
The deal that the previous Government signed with RBS as a condition of being part of the asset protection scheme stated that it should not pay bonuses in 2009, but that for the bonuses awarded in 2010—the period we are talking about now—it should pay the market rate. That was the deal that Labour signed up to. I am trying to reduce the RBS bonus pool, and I have made it very clear—as has the Prime Minister—that it should be a back-marker, not a market leader.
Financial Assistance (Ireland)
Rachel Reeves Excerpts(15 years, 6 months ago)
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Mr Osborne
I am not proposing to take Britain out of the Maastricht treaty, despite my hon. Friend’s request. I know that will come as a bit of a disappointment. I would like the balance of payments mechanism to remain—it has existed for many years—but of course the situation in the eurozone is not a balance of payments issue. That mechanism is for countries, particularly accession countries, to draw upon. I would like the mechanism set up under article 122 to be used for what it was designed to be used for, which was natural disasters and the like, and I would like the permanent bail-out mechanism for the eurozone not to include the United Kingdom.
Rachel Reeves (Leeds West) (Lab)
Although it is imperative that we support Ireland through the crisis, does the Chancellor accept that events in Ireland demonstrate that the global economic recovery is extremely fragile, and that to premise our own recovery on £80 billion of cuts and export-led growth looks increasingly optimistic at best and dangerously naive at worst?
Oral Answers to Questions
Rachel Reeves Excerpts(15 years, 7 months ago)
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Rachel Reeves (Leeds West) (Lab)
Does the Minister welcome the fact that the efforts of the Debt Management Office mean that the average duration of debt in the UK is around 13 years, several years longer than any other country in Europe? It is one of the many reasons why the UK is not in the position of Ireland or Greece.
Mr Hoban
The hon. Lady, who follows these matters quite carefully, will reflect that before the election long-term yields on Government debt in the UK were moved in line with those in countries such as Portugal, Greece and Spain. After the election, the margin between UK gilts and the German Bund has narrowed rather than widened, as has been the case with other European bond rates.
Mr Osborne
First, the fall has helped to reduce interest payments, and secondly it has helped many companies during the recovery. It is striking how our market interest rates have fallen since taking the steps that we announced in the Budget. That is not the case in some other countries in Europe that had similar market interest rates to ours at the time of the general election.
Rachel Reeves (Leeds West) (Lab)
Does the Chancellor agree that market interest rates were falling before the election? The fall is not due to the Government’s policies—they were falling before.
Mr Osborne
I advise the hon. Lady to look at the market interest rates of Spain and the United Kingdom, which were the same at the time of the general election. In Spain, they have hardly fallen at all, but they are 1% lower in the United Kingdom. That is a real boost to businesses.
Budget Resolutions and Economic Situation
Rachel Reeves Excerpts(15 years, 11 months ago)
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Chris Huhne
If VAT is raised right across without the exemptions that we have for food, children’s clothes and books, for example, and without the lower rate on fuel, then it is a regressive tax. It is a standard feature of basic micro-economics that indirect taxes are more regressive than direct taxes, but I ask that Members please look at the IFS analysis, because it seems to me to undermine directly the case that the Opposition are attempting to make.
Rachel Reeves (Leeds West) (Lab)
The right hon. Gentleman talks about the IFS numbers on the distributional impact. Does he agree with the following numbers from the IFS? The impact of the measures announced on Tuesday on the incomes of the poorest—the bottom—decile will be minus 2.6%, whereas it will be minus 1.5% for the next two deciles, then minus 1.4%, minus 1.3%, minus 1.1%, minus 0.9%, minus 0.6%, minus 0.6% and minus 0.7%. So the bottom decile will see a reduction in their income of minus 2.6% and the top decile will see a reduction in their income of minus 0.7%. Is that regressive or progressive?
Chris Huhne
The hon. Lady clearly did not listen to my earlier answer. When looking at the distributional impact, it is very important, particularly with indirect tax measures, to look at the expenditure effects, not the income effects. The IFS report shows very clearly the enormous distinction between the conventional answer on the distributional impact on income and the answer when we look at the expenditure effects.
The choice for this Government has been clear: either we manage the transition to lower borrowing to sustain the recovery, or we will have those choices yanked from our hands by the markets and we will face force majeure. It is far better to design a fair package, as we have done, than to have an unfair package imposed on us that no one has had the time or thought or energy to design.
No fiscal package responding to a market emergency that I have ever seen has been fair, whatever Opposition Members may say. I spent five years of my pre-political life analysing sovereign risk and sovereign crisis. I was in Seoul before Christmas 1997, in Djakarta at the time of the food riots, and in Bangkok when the authorities struggled with the collapse of the Thai baht, and I never want to see a British Government have to go cap in hand to the International Monetary Fund as those countries did, as Greece is now doing and as the friends of the right hon. Member for Doncaster North had to do in 1976.
Had we run the risk of contagion—of a sharp spike in Government and probably short-term policy interest rates too—the impact on growth would have been severe. The truth is that the course of action that the right hon. Gentleman and his friends recommend—the Micawberish course of hoping that something will turn up—would have put the British economy and British jobs in the international firing line, and no responsible Government would have done that. Frankly, I have enough respect for the intelligence and judgment of the right hon. Gentleman to believe that he would not have adopted that stance if he and his friends had been re-elected.
Edward Miliband
I have enormous respect for the hon. Gentleman, but he will have to do better than that.
Rachel Reeves
Can my right hon. Friend confirm that, in addition to what I said earlier about this Budget affecting the top decile by just 0.7% and the bottom decile by 2.6%, Labour’s March Budget had an impact on the top decile of 7% and absolutely no impact at all on the income of the poorest decile? There is a different way of doing a Budget, and that was a progressive Budget.
Edward Miliband
My hon. Friend is right, of course. That is the difference between a Labour Budget and a Conservative Budget—
Mr Clarke
I had assumed that the hon. Gentleman had a better sense of humour. It was clear to the whole country that it was a joke, so I do not regard that as being a serious point.
The Government blame the public sector for the recession, but what about the banks? [Interruption.] We must ask that question. My right hon. Friend the Member for Doncaster North (Edward Miliband) dealt at some length with how we have approached that important matter. While the Government have been hammering away at the poorest people in the poorest parts of our country, they have treated the banks with a feather duster. They have hardly responded to the problems that the banks themselves created, and no Member on their Benches can defend that.
Rachel Reeves
Does my right hon. Friend agree that it does not seem fair that the welfare bill will be cut by £11 billion, but we are asking the banks to contribute only an extra £2.4 billion?
Mr Clarke
Absolutely—that is an excellent point. Indeed, I wish now to compare the Budget’s response to local government, and to people applying for disability living allowance, with the way in which the Government have treated the banks. They have certainly not done so in a way of which my constituents, or the disability and local government organisations that I know of, would approve.
What the Government have done to local government is to cut, cut and cut again. They have offered the public a freeze in council tax but failed to explain that the services that they and the House have imposed upon local authorities cannot possibly be carried out without other services being slashed, including social services and social work for the most needy. That is clearly missing from the thoughts of coalition Members. I invite them to compare that with their approach to the banks, which I was heckled for mentioning.
What about those who seek to live on DLA? We are told that one by one, they are going to be recalled and re-examined. I was a Member of the House in the early 1980s when we had that version of Thatcherism, and I want never again to see men who have worked in the mining industry, and who have to be helped into my surgeries because they can hardly breathe, being cut off from benefit because they are told that they can walk 50 yards. If that is the type of policy that the so-called coalition Government are planning, which I believe it is, they can expect the utmost opposition.
At a time when there is a clear demand for housing, what the Government have done to housing support is simply disgraceful. I say that as somebody who was in local government before coming to the House. Even the Evening Standard had to point out last night that because of the Government’s approach to housing benefit, more poor people would be made homeless. I predict that local councils faced with the financial challenges that that represents will build fewer and fewer social houses, which the Liberal Democrats told us before the election were one of the important issues for them.
Budget Resolutions and Economic Situation
Rachel Reeves Excerpts(15 years, 11 months ago)
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Rachel Reeves (Leeds West) (Lab)
I have great concerns about what the Government have outlined today. First, international evidence shows that hasty cuts will derail growth. Secondly, by failing to set out a vision for the future, the coalition destroys our chances of rebuilding a balanced economy. Thirdly, the Budget’s measures will hit the poorest in society—those who can least afford the pain—hardest. I fear for my constituents in Leeds West and am worried about how they will fare in the months and years ahead.
On growth, it is clear from the Chancellor’s speech that he has chosen to ignore the harsh lessons of history—from Japan in the 1990s and the USA in the 1930s. Despite his talk of a plan for growth, as a result of today, we face the real prospect of a double-dip recession.
I wholeheartedly agree that the deficit needs to be cut, but the issue is whether it should be cut this year or next year, and the method of making those cuts. The surest way to bring down the deficit is to embed strong and sustainable growth, but we heard nothing about that from the Chancellor today. The Office for Budget Responsibility’s forecasts have revised growth downwards—after those presented only a week ago—by 0.1% this year and 0.3% next year, and an additional 100,000 people are due to go on the dole.
Kwasi Kwarteng (Spelthorne) (Con)
What does the hon. Lady think about the sovereign debt crisis in Greece, to which my right hon. Friend the Chancellor referred in his Budget statement?
Rachel Reeves
I thank the hon. Gentleman for giving me the opportunity to address that issue. The debt-GDP ratio in Greece is two and half times that of the UK, and the maturity on UK debt is, on average, 13 years, compared with an OECD average of two to three years. In addition, the Greek economy remains in recession, while the UK is beginning to recover from a recession. We cannot take that recovery for granted, but our economy grew by 0.3% in the first quarter of this year, and we are beginning to emerge from recession.
The downgrades from the OBR reflect the fact that the cuts will stall the recovery and throw more people into unemployment. There are two ways to reduce the deficit: strong growth, or wielding the axe. The Chancellor has today chosen the latter, and the result will be, as we have seen from those forecasts, weaker growth, higher unemployment, more business failures, more home repossessions and a less competitive British economy. Instead of a strategy for growth, we have been given a strategy for austerity, cuts and pain for working people—the people whom I have been sent to Parliament to represent.
Christopher Pincher
When the Governor of the Bank of England, who was of course Governor when Labour was in power, said that the deficit reduction plan is strong and powerful; when José Manuel Barroso says that fiscal consolidation is necessary; and when Lord Myners, who has made an astonishing but none the less welcome conversion to sanity, says that Governments should spend less than they earn, does the hon. Lady agree with them?
Rachel Reeves
I will give way less often if interventions last that long. The hon. Gentleman made a long intervention, but missed a couple of points on which I should like to fill him in. In its statement from South Korea a couple of the weeks ago, the G20, as well as calling for countries to address budget deficits, argued for growth-friendly deficit reduction strategies. Today we did not get that. Another of the hon. Gentleman’s omissions is President Barack Obama’s warning. In a letter ahead of the G20 meeting this weekend, he said that we should
“learn from the consequential mistakes of the past, when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession”.
The hon. Gentleman failed to mention those points, but they are extremely relevant to the debate.
Stewart Hosie
The hon. Lady is absolutely right on the early withdrawal of the fiscal stimulus—so does she regret the fact that her Government were one of only two Governments fully to withdraw the fiscal stimulus package in 2010?
Rachel Reeves
What I regret is that the current Government withdrew the future jobs fund and the extra 20,000 places that Labour introduced to universities, and cut the regional development agencies, which were doing fantastic work in my region of Yorkshire and Humberside. Those are my regrets.
Frankly, there is no vision from the Chancellor and the Government of the sort of economy they want to emerge from the recession. What sort of society and economy do they want when they have reduced the budget deficit? Labour wants a sectorally and regionally diverse economy that is robust enough to face future shocks. None of that is on the Chancellor’s or the Government’s radar—let alone within their grasp—because they are cutting the very measures that would ensure not only growth in the short term but future economic security.
The new Government are portraying their cuts as eliminating waste, when in fact they are risking our future economic prosperity. Eliminating the future jobs fund, which has got almost 200,000 people back to work through the recession, axing the loan to Sheffield Forgemasters—an absolute disgrace that has cost jobs and economic growth in my region—cutting funding to universities, and cutting hospitals, transport and school building programmes across the country, including in my city of Leeds, is certainly not my idea of eliminating waste. Rather, it is cutting the front-line services on which my constituents rely.
Jim McGovern
My hon. Friend mentioned her regrets and went on to describe some of the things that are happening in her constituency, but does she agree that the Government’s refusal in today’s Budget to honour the commitment to tax breaks for the computer games industry will have a detrimental effect in my constituency?
Rachel Reeves
My hon. Friend is absolutely right, and we could think of countless examples of things that the Government have done today that will risk the future economic prosperity of this country.
Worse than that, ordinary people—those least responsible for the recession—will be hardest hit. In Leeds West, average earnings are £16,000 and unemployment stands at 8.7%. Increasing VAT, reducing access to free school meals, abolishing the health in pregnancy grant, freezing child benefit and cutting tax credits will hurt my constituents. The people who bear no responsibility for the financial crisis and recession will be hardest hit. An extra £13 billion is to be paid in VAT, but there will be only £2 billion extra from the bankers. Is that fair? Is that the way to bring down a budget if we are “all in this together”? I think not. Asking those who already struggle to make ends meet, such as those in Leeds West, to make the same sacrifices as, or more than, those at the top is plain unfair and socially divisive.
I began by urging the Government not to forget the lessons from Japan in the 1990s and the United States in the 1930s. However, I am filled with fear that they want to learn a lesson from Canada, because we are in a totally different position from that of Canada when it approached its fiscal consolidation. At that time, Canada was a partner in the newly formed North American Free Trade Agreement, and was experiencing strong demand for its exports. It was also able to loosen monetary policy, which was integral to getting its economy back on track. Given that UK interest rates are at 0.5%, that rates will be low in the long term, and that quantitative easing has already been undertaken, it is pretty much impossible to see how we can loosen monetary policy further—that is simply not at our discretion. I urge the Government not to manipulate the Canadian experience to justify today’s deep cuts.
I do not dispute that we need a realistic and credible plan for reducing the deficit—[Hon. Members: “Hear, Hear!”] In response to those heckles, as far as I am aware, it is the Government’s responsibility to come up with the plans, but without a credible plan for growth, we risk a double-dip recession, or a British economy that splutters along in the slow lane of the global economic recovery.
The Government are trying to convince the public that there is only one way that Britain will bring down the deficit—pursuing hasty and unjust spending cuts—but that is simply not true. They are using the budget deficit as a cloak for fulfilling their overriding ideological desire for a smaller state. They are set on achieving that by doing the economy down—as the hon. Member for Spelthorne (Kwasi Kwarteng) did when he made the comparison with Greece, which was the most misleading comparison he could have made—and by panicking the public into thinking that there is no other option.
However, there is another option. The surest way to reduce the budget deficit is to ensure strong and sustainable growth and a rebalanced economy. Yes, taxes need to increase and spending to decrease, but not at the expense of the economic future of this country or of a diverse, strong regional and national economy; and not in a way that will plunge more families and children, who played absolutely no role in causing this recession, into poverty, unemployment and despair.
Financial Services Regulation
Rachel Reeves Excerpts(15 years, 11 months ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Mr Osborne
To be fair to the FSA, it has been rather candid about the mistakes that were made when the shadow Chancellor was the Chancellor and when the former Prime Minister was the Chancellor. We have to learn from those mistakes. As I have told the House, we will set out the details of the institutional arrangements in a parliamentary statement tomorrow.
Rachel Reeves (Leeds West) (Lab)
The Chancellor talks about breaking up the retail and investment banks, but the immediate challenge for the Government is the future of the nationalised banks. Will he consider turning the failed banks into mutuals that focus on long-term returns and not on short-term profits?
Mr Osborne
We need to take some time before coming to decisions on how to dispose of the bank shares that we own in the Royal Bank of Scotland and Lloyds, and the banks we own, such as Northern Rock, not least because at the moment the British taxpayer would make a substantial loss on many of those share purchases. However, we are prepared to consider lots of options. Sir John Vickers’ commission is going to look at competition in the banking industry. It has become incredibly consolidated in the past couple of years and that is not necessarily the best thing for bank customers, as many of us will know from representing businesses that cannot get access to credit. It is sensible to look at what Sir John Vickers and his commission have to say about this.