Budget Resolutions and Economic Situation

Robert Flello Excerpts

Tuesday 14th July 2015 Commons Chamber

[Mr Umunna]

That is simply not true—and if it were true, why did the hon. Gentleman’s party sign up to our spending plans in 2007?

[Robert Flello (Stoke-on-Trent South) (Lab)]

I came into this House in 2005, and right up until the crash, week in, week out Conservative Members were saying in the Chamber and in Committee meetings that we were killing the banks—that we were stifling them with overregulation and we needed to weaken it. I also remember them coming to the House week in, week out saying they wanted more schools and hospitals in their constituencies; they wanted more spending.

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[Mr Meacher]

I would like to ask the hon. Gentleman—although I am not inviting him to come back in—how he would explain the fact that in the latest quarter the growth rate was 0.4%, up from 0.3%. In the last three quarters it has gone down from 0.9% to 0.6%, and then to 0.3% or 0.4%. It was clearly a short-term growth surge, which is now fading.

We all regard productivity as crucial, but the UK’s investment as a percentage of GDP is now among the lowest in the world at barely 14%. By the time depreciation is netted off the growth figure, we are actually down at just 2.5%, which hardly even keeps up with our rising population.

Why does the OBR’s Budget report forecast a never-ending decline in Britain’s share of world exports, even compared with 2014, when this country experienced the biggest proportionate balance of payments current account decline since 1830? Why have the Government squeezed the economy so hard that they are now looking to a steep rise in household borrowing as the main source of future demand? Dangerously, the borrowing level already exceeds £2 trillion and may well be the source of the next economic crisis.

For all those reasons, the Chancellor’s boasts about the state of the economy do not bear even superficial scrutiny. Nor is his explanation of the cause of the economic crisis any more truthful. He continually lambasts the last Labour Government for overspending, but their economic record actually shows the opposite. The largest budget deficit under the Blair and Brown Governments in the 11 years from 1997 to 2008, before the crash, was 3.3% of GDP. The Thatcher and Major Governments ratcheted up budget deficits in excess of that in 10 of their 18 years. Who were the profligate ones? It was not Labour.

Then there is the question of which party has handled better the enormous rise in the deficit, caused by the bankers and the international recession. Again, it is valuable to look at the economic record. Alistair Darling, the last Labour Chancellor, gave the economy a big fiscal stimulus worth nearly 5% of GDP, allowing the automatic stabilisers to work and bringing forward public investment projects worth more than £30 billion.

[Robert Flello]

Would that be the same Alistair Darling who said that we should halve the deficit between 2010 and 2015, and who was lambasted by the Conservative party for proposing such a measure?

[Mr Meacher]

My hon. Friend makes a good point, and I will come on to comparing what the Government have achieved with what the Chancellor said in 2010.

Bearing in mind that it takes between 12 and 18 months for Budget measures to work their way through the economy fully, we should remember that Alistair Darling cut the deficit from its peak of £154 billion to just £114 billion by the fourth quarter of 2011—a cut of £40 billion in fewer than two years at a rate of £20 billion a year. The current Chancellor, however, through his successive austerity Budgets, slowed that deficit reduction to a trickle. Today it is still £90 billion, which represents a reduction of £24 billion in three years at a rate of £8 billion a year. If he wanted to reduce the deficit as efficiently and as fast as possible, he has clearly failed. But of course, his real aim all along has been to shrink the state and squeeze the public sector. The deficit has merely been a convenient pretext to enable him to do so.

Now the Chancellor is telling us that he will eliminate the structural deficit by 2019-20. Judging by the fact that he boasted that he would achieve that by this year, when it is still a whopping £90 billion, we can take that with a fair pinch of salt. His Budget forecasts assume a 2.5% a year growth rate all the way to 2020, but with the £25 billion of further expenditure and benefit cuts now being imposed on the economy, we are likely to see a reprise of what has happened in the past five years. The reimposed austerity will flatten growth, exactly as it did from 2010 to 2012, when it was relieved only by postponing austerity to generate a short 18-month economic surge in 2013-14. As I have explained, that surge has now deflated. That pattern is likely to be reproduced in the next five years. I fear that we will have the worst of both worlds—a short-lived growth spurt that fizzles out and is achieved only through a further postponement of deficit reduction extending well into the medium-term future.

The most fundamental question is: what is the right way to deal with a large deficit? We all agree that it is far too large and has to be reduced. It is a statement of the blindingly obvious, but one that is not publicly stated, that there are two ways of doing that—either by cutting expenditure or by increasing income. An individual does not have that option, of course, but the state does, because it controls the momentum of the economy through either expanding or contracting it. The Chancellor chose exclusively to pursue the latter because it suited his political ends of shrinking the state, but economically, it has been dire—the impoverishment of a quarter of the population and the generation of 350 food banks, rather like a third world country, while cutting the deficit by only a marginal amount.

Historically, all the evidence is against the Chancellor. The reduction of large deficits by both the US and Sweden in the 1990s occurred as a result of sustained growth policies. Above all, we have the precedent of Britain in 1945, when the debt was 260% of GDP—three times higher than the 80% it is today. That did not prevent the Attlee Government from introducing the NHS and the welfare state, building 300,000 houses a year, reconstructing the country’s broken infrastructure and, above all, restoring full employment, with the deficit steadily decreasing to 60% over the next 30 years.

The Chancellor has not only failed to cut the deficit by much, but his legacy will be that he fundamentally chose the wrong way to do it, for the wrong reasons, with huge, irrecoverable losses to UK growth and output.

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[Paul Blomfield (Sheffield Central) (Lab)]

I am delighted to follow the maiden speech of the hon. Member for Airdrie and Shotts (Neil Gray). Like him, I represent an area whose heritage is in mining, steel and iron, and that has similarly warm-hearted and welcoming people. I thank him for his tribute to his predecessor, Pamela Nash, and for opening his speech with a quote from John Smith, whose premature death was a sad loss to all of us in politics. The hon. Gentleman made a powerful maiden speech that demonstrated values and passion, which indicates that he will bring a great deal to the House.

I want to congratulate the Chancellor—[Interruption.] There is some dissent among my hon. Friends, but he did well to put the issue of low pay in the headlines. He is right that we need to tackle the scandal of low pay, and he was right when he stole the words of the TUC in saying that Britain needs a pay rise. The question is whether his measures meet that challenge. Any increase in wages for struggling families has to be a good thing. That was why Labour introduced the national minimum wage.

[Robert Flello]

Did my hon. Friend spot that when the Chancellor said that the nation needs a pay rise, that did not apply to public sector workers with their 1% rises for four years?

[Paul Blomfield]

My hon. Friend is absolutely right, and other colleagues have made that point forcefully in this debate.

As we have been reminded today, Labour’s introduction of the national minimum wage was opposed by the Conservatives. I am delighted that they now apparently embrace it. It ended the scandal of poverty pay, providing a safety net below which wages should not fall. But for too many people, the national minimum wage has become the norm, not a safety net, as have zero-hours contracts and part-time hours for those who want full-time work. Alongside those setting up real businesses, there has been a growth in bogus self-employment, particularly in sectors such as construction. Uncertainty has replaced job security, and it has all been aimed at reducing labour costs.

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[Paul Blomfield]

Perhaps the hon. Gentleman can explain how people can choose not to take a tax break.

The hon. Member for Braintree (James Cleverly) rightly spoke forcefully about small businesses. I do a lot of work with small businesses in my constituency. They are a driver of growth. When there is any increase in pay, they face a challenge, as does the voluntary sector. They need support, but the Government and the Budget have got it wrong. Support should not have been provided through a greater cut to corporation tax; it should have been provided to small businesses by further cuts to business rates.

The Prime Minister is right that company profits should not be subsidised by the public purse. If he is serious, why not tax listed companies that fail to pay the real living wage to recoup the cost? If he is serious about tackling poverty pay, what about strengthening labour market enforcement? We know, for example, that thousands of workers do not even get the national minimum wage in the care sector because employers refuse to pay for travelling time. We debated that in the last Parliament. Ministers admitted that the practice was widespread and said it was illegal, but nothing is happening to chase down those rogue employers and bring them to book.

[Robert Flello]

On that point, will my hon. Friend allow me to intervene?

[Paul Blomfield]

I will not because of time—I am sorry.

On the question of the care sector, will the Government find the resources to support local councils—they have been hit harder than any other part of the public sector—in meeting the cost of increasing the national minimum wage and paying workers what they are legally due?

The Government are right to respond to the need to give people a pay rise and have opened a debate, but they will need to do much more to make the difference that working families need, because this Budget fails to do so.

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[Mr Cunningham]

I agree with the hon. Gentleman. The Government, and sometimes previous Governments, have governed on the basis of what London and the south-east think, forgetting there are about 45 million people in this country outside London and the south-east. Any Government pursuing an economic policy should remember that.

As many Members have mentioned, the Budget contains cuts to tax credits that leave the poorer worse off. I will not waste everybody’s time repeating the figures that others have already mentioned, but I thought it interesting that, despite the Government’s talk of manufacturing, only once in the Budget did they talk about exports. This country, being a trading nation historically, thrives on exports, so I am surprised that a Government who want to improve the economy did not talk much about exports.

[Robert Flello]

I am listening intently to my hon. Friend, but there is another side to it: the UK is being flooded with cheap imports subsidised by overseas Governments. This Government are not acting strongly enough to deal with the issue at the point of entry or to address the safety of some of these imports.

[Mr Cunningham]

I am sure you will remember, Mr Deputy Speaker, that when we were on the Trade and Industry Committee, we discovered that the Americans were using their defence budget for research and development. The private sector benefited from that because it did not carry that overhead of research and development, which can be at least 50% of any company’s budget and even more than wages. I agree with my hon. Friend, therefore, that the Government should be looking at that.

The Chancellor’s boast—if you want to put it like that—about the living wage is, when we actually analyse it, a con. The living wage as proposed by the Living Wage Foundation is 60p an hour higher than the Chancellor’s proposed amount, and much more inside London—although I do not have the exact figure for London. His proposals have even been criticised by the Living Wage Foundation. The cost of living varies between regions, and for those on low pay, each penny matters. We can only assume that he is rebranding the national minimum wage to muddy the waters. It is political smoke and mirrors to avoid comparisons with the recommendations of that independent charity and to avoid criticism of his low-pay economy. Once again, he has also ignored young people by excluding under-25s from the proposals.

The massive cuts to tax credits will utterly undermine any positive outcomes from the increase to the minimum wage and leave 13 million families worse off, according to the independent Institute for Fiscal Studies analysis, which has also shown that the poorest will be negatively impacted far more than the well-off. Once again, the low-paid suffer. Much is paid in tax credits because of the Chancellor’s low-pay economy, but slashing tax credits will not make the problem of low pay go away.

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[Robert Flello (Stoke-on-Trent South) (Lab)]

This was a shambolic, shameful, pitiful Budget, more interested in grabbing headlines, trying to get the Chancellor in the slot for a future place in No. 10 and trying to lay political traps. This was not a Budget for the future of Britain. My right hon. Friend the Member for Oldham West and Royton (Mr Meacher) had it down to a T: this is a Budget to provide cover for the Chancellor to shrink the size of the state. That is all that this has been about.

The Secretary of State for Business, Innovation and Skills talked about security, but security for who? There is certainly no security for the working poor of this country, those on zero-hours contracts or the people who provide care on the minimum wage who do not get paid for their travelling time or travelling costs, who have to provide their own uniforms and who quite often have to contribute towards any training they receive, if they are lucky enough to get any. In short, this was a Budget providing no security whatever for the poorest, the most vulnerable or the weakest in our society, but plenty of security for multimillionaires looking to pass on assets and for other people.

The Secretary of State also talked about this great plan that the Government have got. They had a great plan in 2010 that was supposed to pay down the deficit over five years. That great plan failed to do that because it stalled the economy for three and a half years—three and a half years to get back to the same level of growth we had in May 2010. So much for hard work rewarded. No matter what the Chancellor thinks, there are people who work very long hours who can only dream of limiting their hours to those in the working time directive and who can only dream of a decent wage and being able to come back to a home that they can afford to live in. Hard work rewarded? There has been a lot of hard work from those people and very little reward for what they do.

I want to take a quick canter through some of the measures in the Budget. Much has been made about the supposedly national living wage. What an absolute con! The living wage has been put at £7.85 or £9.15 in London. The aspiration over the term of this Parliament will be to reach £9 by 2020.

So talk about this being a living wage is simply not the case. The proposal for it to be set at £7.20 is already well short of the necessary £7.85. As has been said many times, including by my hon. Friend the Member for Sheffield Central (Paul Blomfield), setting the living wage takes into account tax credits and additional support. Actually, the real living wage should be recast at a higher figure now that so much of people’s tax credits has been wiped out. This aspiration for what amounts to a rebranded minimum wage is nonsense.

To pick up on an earlier exchange, many employers have, sadly, seen the national minimum wage as a reason to dumb down wages rather than to use it as a baseline. Here there is an issue with tax credits because some employers have indeed said, “Hang on, let the state subsidise our profits and we’ll pay the minimum wage.” Those self-same employers will not now say, “Well, we should not have done that even though we did, but we are now going to put the minimum wage up to a proper living wage level”. Of course not. They will keep people working on the same minimum wage and see that their workforce are worse off on account of the reduction in tax credits.

Yet again, this is all about pulling the rug from under the working poor. The Chancellor makes great play of how the Government want to help people in work. These are people in work; they are people who are doing their best and working very long hours, but they are having the rug pulled from under them.

We hear talk about tackling aggressive tax avoidance and evasion, yet this Government have made various attempts to deal with it. We have seen various attempts to introduce general anti-avoidance type provision, but none of them had teeth and none was really designed to address the situation. I remember from when I was a tax and finance adviser in a previous life that people were capable of coming up with schemes to get round legislation within minutes. The Government have known about this for a long time; this is not new. To be fair to the Government—I rarely try to be fair to this particular Government, but I will be on this occasion—from time immemorial, Governments have not seized the opportunity to provide for proper anti-avoidance measures that will have teeth and will work. There are simple ways of achieving that.

As we have heard, reductions in public spending are about trying to take us back to a small state. The proposal to increase personal allowances, much heralded at the Dispatch Box, sounds wonderful, but it is all jam tomorrow. It is a £400 increase in the personal allowance, which is nowhere near the level it should be and nowhere near the level necessary to provide a genuine living wage in the sense of a basic amount that people need to live on. People will continue to earn less than they need to survive—and will be taxed on it, thrown into the bargain. Raising the threshold for higher rate taxation and raising the personal allowances has provided double help for those on higher incomes, who will see less of their income taxed.

[Nia Griffith]

Does my hon. Friend suspect that the Chancellor has deliberately renamed this “the living wage” so that he can break the promise of taking everybody on the national minimum wage out of tax?

[Robert Flello]

Absolutely. That could well be one of the motives behind it: it is certainly not about giving a genuine living wage to people, and it is certainly not about ensuring that people who work 40, 50 or 60 hours a week just to make ends meet will actually be able to secure a decent living wage. As I say, £7.20 from next April is already short of the £7.85 needed to take tax credit changes into account.

Let us move on to some of the Chancellor’s real friends in all this and consider inheritance tax and the increase to a £1 million threshold. How many people will benefit? It will be a tiny number, and that has to be set against the millions of people who are, to quote the Secretary of State’s words, “hard work rewarded”. It is nonsense, and it shows where the Chancellor’s thoughts lie and who he is really concerned about.

The reduction in corporation tax is another issue. On the face of it, it might seem very good. We already have one of the most competitive rates of corporation tax, but what about the small businesses that are not corporations or not incorporated companies? What about those small businesses that, as sole traders or partnerships, are the lifeblood of our country? What of the small businesses that do not pay corporation tax, for which it is not an issue?

Another item on this long list of measures is the introduction of a supplementary tax on banking sector profit versus the bank levy. I suspect—and I fear that I am right—that more smoke and mirrors has been going on in respect of what the levy was levied on and what profits will be subject to the supplementary tax; I suspect that this will work in favour of the banks.

The increase in insurance premium tax is another measure that will hit those on the lowest incomes. The Minister shakes his head, but there are no two ways about it. People who are already stretching their budgets to try to afford their contents insurance, for instance, will then be hit by a massive increase in insurance premium tax, from 6% to 9.5%.

As for the proposals for the Chancellor’s good friends, those with non-domiciled status, they are welcome on the face of it, but how soon will it be before someone comes up with a great ruse to get around the “15 of the previous 20 years” residence rule? How soon will it be before someone says, “That is OK; I will go abroad for a year, and then restart my clock”? How soon will it be before someone takes advantage of some scheme or other? Why not be more assertive, and take much stronger action?

I am conscious that time is beating me again, Mr Deputy Speaker, but I want to draw attention to a few more points. There are to be more apprenticeships, but the question is the quality of those apprenticeships. The ending of student maintenance grants will hit the poorest yet again—in this instance, the poorest students. I have already made my point about the public sector pay increase.

Buried among these measures is the reduction in the backdating of housing benefit from six months for working-age claimants and three months for pensioners to a maximum of four weeks. It is not really about reducing benefit; it is about saying, “If you were not quick enough to spot the benefit that you were able to claim, or if the paperwork was not processed, or if you are a pensioner who struggles with paperwork, you will lose out.” That will save £10 million, which is outrageous.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Will the hon. Gentleman speed up a bit? I shall have to impose a limit on speeches if he does not finish his speech very quickly.

[Robert Flello]

I thought it important to put that point on the record, Mr Deputy Speaker. As you will have noted, I have just discarded most of my speech.

Let me say just four more words. Well, eight: infrastructure spending, fuel duty, investigation of immoral or illegal economic issues such as the farming of dogs and cats, and a huge shortage of commercial drivers. Where was the Government’s help when it came to putting more drivers into the economy?

Thank you for your patience, Mr Deputy Speaker.

[Several hon. Members]

rose—