The Economy

Richard Fuller Excerpts

Tuesday 6th December 2011 Commons Chamber

[Ed Balls]

The hon. Gentleman makes an important point: there was a major financial crisis that hit Britain and all countries throughout the world. The Chancellor always wants to blame Labour, as he does the snow, the earthquake and the euro area.

[Richard Fuller (Bedford) (Con)]

Will the right hon. Gentleman give way?

[Ed Balls]

In a second. I will answer the previous intervention before I turn to the next one.

The financial crisis hit every major country in the world, and bank regulation was not tough enough here in Britain or in countries throughout the world—[Hon. Members: “Ah!”] There is no doubt about that. The Chancellor of the Exchequer, who was then the shadow Chancellor, spent his whole time urging us to deregulate, complaining about “burdensome, complex” regulations—but there we are.

By spring 2010 the economy was growing, inflation was low and unemployment was coming down. More people were in work and paying taxes then, so borrowing came in £20 billion lower than had been forecast in the pre-Budget report of 2009. How things have changed in 18 months! Then borrowing came in lower than was planned; now it is coming in at £158 billion more than was planned. The country is tired of the Chancellor’s excuses, and it is time he admitted that his failing plan is hurting but not working. His reckless gamble has not made things better; it has made things worse.

[Richard Fuller]

As the shadow Chancellor’s soon-to-be replacement, the hon. Member for Leeds West (Rachel Reeves), rustles through her papers to find a data point to throw back at me, may I ask him whether he has had the opportunity to look at McKinsey’s debt and deleveraging report, which identifies that on his watch and under his Government we became the most indebted major economy in the world? Does he not bear some responsibility for the enormous pain that families are going through in order to remedy some of his excesses?

[Ed Balls]

In the hon. Gentleman’s constituency 10,800 families are actually losing out as a result of the change in tax credits. We look forward to seeing that in his press release.

The fact is that we went into the global financial crisis with a lower level of national debt than France, Germany, America and Japan—

[Richard Fuller]

rose—

[Ed Balls]

If the hon. Gentleman calms down and lets me answer his point he will be able to intervene again. I shall be happy to take another intervention.

The fact is that when we went into the financial crisis our level of national debt was lower than that in America, France, Germany and Japan—and lower than that which we inherited from the Conservatives in 1997. I will give the House one good reason why: in 1999, when we raised £20 billion from the auction of the 3G mobile spectrum and they urged us to spend the money, we used the entire amount to repay the national debt.

[Richard Fuller]

The shadow Chancellor makes potentially a fair point about Government debt, but the Government are responsible not just for Government debt but for the total indebtedness of the nation, and he fails to understand that under the previous Government the total indebtedness of this country grew to become the largest of any major economy in the world. That is his legacy, and that is why 10,000 people in my constituency will be hearing why his policies led to the pain that they feel today.

[Ed Balls]

Over 1 million more homeowners than in 1997, and over 1 million more new businesses—with overdrafts and borrowing facilities—compared with 1997! The hon. Gentleman should be careful about giving the impression that borrowing in an economy is a bad thing for consumers, households and businesses. Many businesses want to borrow at the moment; it is just that the banks will not lend.

What did we get last week from the Chancellor? We got a cobbled-together package of growth measures which he knows, and the OBR forecast confirms, does not address the fundamental problem that his rapid and deflationary plan has choked off the recovery and pushed up borrowing. It is a so-called plan for growth that, according to the Treasury’s own figures, hits women harder than men, pushes up child poverty and delivers lower growth and higher unemployment.

--- Later in debate ---

[Richard Fuller (Bedford) (Con)]

I listened with great interest to the comments of the hon. Member for Penistone and Stocksbridge (Angela Smith), who spoke eloquently about the short-term pain that many families in her constituency and, I am sure, in mine are going through in these difficult economic circumstances. She also rightly pointed to the need for the Government to think about the long term. I hope that she will listen to my observations in the same spirit.

Under the previous Government, the United Kingdom became the most indebted major economy on earth. That was not the fault of the bankers alone, of Government borrowing alone or of companies alone; it was the fault of us all, although led by a Government who were at best asleep at the wheel and at worst systematically undermining our long-term finances for short-term political gain. These problems are so endemic that they cannot possibly be put right in one year, in one term or by one policy.

The absolute core policy that a massively indebted nation must pursue is the maintenance of low interest rates for as long as possible. The McKinsey Global Institute study on debt and deleveraging shows that the UK led the pack of the world’s largest economies in terms of its debt-to-GDP ratio and became increasingly more indebted from the mid-’90s and, in particular, from 2003. From 2000 to 2010, domestic, public and private debt as a percentage of our GDP rose by 182 percentage points to nearly 500% of GDP, making the UK the most indebted of all major economies—even more so than Japan at the end of the period.

[Mr MacShane]

In the 1930s, interest rates were close to zero, as they were in Japan in the 1990s. Arguably, that increases indebtedness because if people can borrow massively without having to pay serious interest rates, they might run up debts. I am just gently saying that the idea that one factor can explain the problem and that we should focus on that is wrong. We need a holistic approach.

[Richard Fuller]

The right hon. Gentleman makes a helpful point. It is precisely my point, although unfortunately the shadow Chancellor missed it when he seemed to think that the responsibility of the Government towards debt management was to do with Government debt alone. It is not. The responsibility of the Government is to look at the whole economy. The debt of a nation, whether taken on by the Government, households or companies, has to be repaid by the nation. That is what got so out of control over the past 10 years.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I assume that in his figures for debt, the hon. Gentleman is talking about secured debt as well as unsecured debt. Did he read the article in the Financial Times about three weeks ago demonstrating that the level of unsecured debt under the Labour Government actually lagged behind economic growth, which means that our boom was not led by unsustainable borrowing?

[Richard Fuller]

I thank the hon. Gentleman for his intervention. He makes one correct point but draws a false conclusion. It may well be true that unsecured debt did not rise as rapidly as secured household debt under the last, Labour Government, but it is absolutely not true that the last, Labour Government did not preside over one of the most massive increases in debt of any nation on earth.

In response to the right hon. Member for Rotherham (Mr MacShane), let me make four points. The first is about the potentially crushing impact of household mortgage debt. Let us compare a household deciding whether to purchase a house with a mortgage in 1997 with one making that decision in 2007, looking at the loan-to-value ratio and average house prices in those two periods, and ask how much money the average household will lose over the next 25 years because house prices were allowed to rise so much. The answer is that the average household will have £250,000 less to spend—it will be a quarter of a million pounds worse off—in the next 25 years precisely because the last, Labour Government thought that they were creating wealth by making average house prices escalate way out of the range of the average family.

As a Government we need to look at building more houses and regulating mortgage lending to maintain sustainable norms. We need to look—as we are—at simplifying planning controls and removing obstacles standing in the way of house building. At some stage we also need to analyse the impact of the reintroduction of mortgage interest tax relief, should interest rates rise precipitously.

[Matthew Hancock]

Should we not also consider regulating the overall debt in the economy, as was done until 1997, but then stopped?

[Richard Fuller]

My hon. Friend makes a good point; indeed, that is also an idea that we should consider.

The other thing that we are leaving the next generation that we need to consider is our pensions liabilities and how to resolve them. The happily titled “Project Armageddon” report from Tullet Prebon shows that the public sector pensions liability is £1.18 trillion, which is almost the same as the published, or “treaty”, Government debt of £1.11 trillion. I do not particularly want to dwell on public sector pensions, but this raises in my mind the way in which we have structured our pensions liabilities—that is, the pay-as-you-go nature of the basic pension scheme—such that we expect the next generation to pay for them rather than paying ourselves. Given that this generation will pass on such significant debts to the next generation in other ways, I have been considering various ways to change how we fund our pensions in this period.

In 2006 the Australian Government established the future fund, with 18 billion Australian dollars of seed capital. The goal was to invest in long-term infrastructure projects with a commercial return in order fully to fund the pension liability of public servants—that is, to move from a pay-as-you-go approach to an essentially self-funding system for public sector pensions. In the autumn statement my right hon. Friend the Chancellor talked about £21 billion of credit easing, which he will put through the banks via the national loan guarantee scheme. Let me suggest to the Minister that instead of putting that £21 billion of credit easing through the banks, perhaps we should create a UK version of the Australian future fund, essentially moving a portion of our pensions liability into what might be termed a hypothecated fund for that purpose. That is one thing that the Government could do that would significantly benefit the future generations that will have to pay off the debts racked up over the past 15 years.

Let me make two observations about job creation. There is nothing worse than people not having work to do when they are seeking it—hon. Members on both sides of the House think that is true. I am very pleased that the Chancellor has said that he will ask the independent pay review bodies to consider how public sector pay can be made more responsive to local labour markets. That would be a far more effective way of addressing wage-price rigidities than calls to scrap the minimum wage or other such measures. It is an issue—I listened to a speech by an Opposition Member about this earlier—that in certain parts in the north of our country, the public sector premium over private sector pay is 20%, whereas in other parts it is much lower, at 4%. In those areas the private sector should not be priced out of the market getting people to work for it because public sector pay is set significantly higher.

In closing, let me also gently suggest to the Minister that, with national insurance contributions at 13.8%, we have a significant tax on jobs. As we look to implement our policy to take the lowest paid out of tax, may I ask him perhaps to consider the national insurance tax on jobs too?