Amendment of the Law

Debate between Rory Stewart and Ed Balls

Thursday 24th March 2011 Commons Chamber

[Ed Balls]

As I said, the OBR says that subdued consumption outlook requires households to dip into their savings again in 2011, so the savings ratio continues to fall back from its post-recession peak. It also says that the savings ratio is now forecast to be historically low. Household debt as a percentage of income rises every year from 2010, even though it fell in 2009-10. Those are the facts.

Yesterday we needed a plan from the Chancellor to help hard-pressed families facing the squeeze, to get people back into work and to get our economy growing again. That is what we needed, and that is what we did not get. There was no change to a deficit reduction plan that is faster than that of any other major economy in the world. It pushes growth down and unemployment up. The Chancellor fails to realise that cutting too deep and too fast will make it harder to get our deficit down. He also failed to understand that while he gives the banks a tax cut this year, ordinary families are being hit hard now. It was a smoke-and-mirrors Budget.

[Rory Stewart (Penrith and The Border) (Con)]

Will the right hon. Gentleman please share his plan and growth strategy with us?

[Ed Balls]

I will gladly share our plan. First, the economy was strengthening and unemployment was falling—[Interruption.] The Chancellor’s Parliamentary Private Secretary shouts too loudly. Why does he not calm down a little? That may be how they do things in Chelsea and Fulham, but we do not do that in the House of Commons.

Unemployment was falling and growth was rising because we were halving the deficit over the four years. The Chancellor has gone from halving the deficit to trying to get rid of it entirely in four years, by implementing the largest cuts to spending and tax rises of any economy in the world. It is not working. In fact, we heard today that Moody’s, the credit rating agency, is looking at whether it needs to downgrade the British economy because of the threats to growth following yesterday’s Budget.

Secondly, Labour would repeat the bank bonus tax now, raise £2 billion for a second year, and use that to build 25,000 more homes and create 110,000 more jobs for young people who are now not going to get help from the future jobs fund. That was our second plan—and that option was entirely open to the Chancellor, but he chose not to repeat the bank bonus tax, but instead to give a tax cut to the banks.

Thirdly, we would have reversed the rise in VAT on fuel, because the Chancellor’s 1p cut in the Budget—there is still doubt whether that will actually get to motorists—is outweighed by the 3p a litre rise in fuel prices because of the VAT increase that he introduced just a few weeks ago. We cannot blame the Chancellor for the rise in world oil prices resulting from the middle east crisis. He made the right decision not to go ahead with the duty rise, and we would have done the same, given the level of world oil prices. However, the rise in VAT was a complete own goal. It pushed up inflation and prices and cut family budgets. It was a mistake. It was the wrong tax at the wrong time. The Chancellor should just admit that he got it wrong, go to his European partners and say, “Can I reverse this mistake before it’s too late?”

That is our plan, and the Chancellor—[Interruption.] Government Members shout, “Is that it?” but they do not understand the economics of this and the previous Budget. Halving the deficit over four years was ambitious but deliverable. Eliminating the budget deficit in four years means a massive fiscal contraction. Unless we suspend all the laws of economics, assume that no international evidence counts, and believe that fiscal multipliers do not count in our kind of economy, that kind of contraction in fiscal policy and its impact on the public and private sectors is crushing. Only Greece is trying to go faster. We have already seen the biggest fall in consumer confidence for 20 years, and unemployment is up before the cuts have really started to bite.

People are looking to the future and are worried, and the Chancellor is not listening. In his world, that is not a concern. He does not worry about what is happening out there in the real economy but for businesses and families up and down the country, the prospect of rising unemployment year by year, of slow growth last year, this year and next year, and of falling confidence, is a real concern. My advice to the Chancellor is this: take the blinkers off and look at what is actually happening in our economy. It is hurting, but it is not working.