Recession (Standards of Living)

Sajid Javid Excerpts

Tuesday 2nd July 2013 Westminster Hall

[The Economic Secretary to the Treasury (Sajid Javid)]

It is always a pleasure to serve under your chairmanship, Mr Walker. I congratulate the hon. Member for Coventry South (Mr Cunningham) on securing this important debate and presenting his case so eloquently. I also thank the hon. Member for Coventry North West (Mr Robinson) for his contribution. I will try to respond to the points raised by both hon. Gentleman.

It is fair to say that we all want to see the UK economy performing strongly. It is also fair to say, probably, that although the hon. Member for Coventry South and I agree on that objective, we differ in our views on how best to achieve those goals. I will do my best to respond to the points raised, but it is only right to point out that when the hon. Gentleman came up with the title for the debate, on the effects of the recession on the cost of living, he must have been referring to the most recent recession, which was the one that took place under the previous Government. As we saw last week, the latest figures from the Office for National Statistics show that not only was that the most recent recession, but it was far deeper than originally thought. Originally, it was thought to be a 6.3% contraction in GDP, which would in itself have been the deepest peacetime contraction in GDP in this country, but it turns out to be even deeper, at 7.2%. No doubt it would have hurt many families throughout the country. This Government are trying to help those families with the cost of living and other issues, and trying to repair the damage done by the previous Government.

Let me talk about some actions that we have taken and the results of those. First, there is a lot to discuss about overall economic policy, but the main point is the deficit—the hon. Member for Coventry North West mentioned it—which is down by a third. We still have a long way to go, but our policies on the deficit have brought economic credibility, which has lowered interest rates to a near record level. In fact, interest rates on Government debt are almost half what they were when this Government first came to office. That has a direct impact on the cost of living for families, most notably through their mortgage bills. If interest rates rose by just 1%, the average mortgage bill for a family would rise by almost £1,000 a year.

It is right to mention the impact on employment of our economic policies. As we heard in a statement from the Chancellor last week, we were told by the shadow Chancellor and many others that our policies would lead to record rates of unemployment. Some left-wing economists were even predicting that unemployment could reach the record level of 5 million. In fact, the opposite has happened. The private sector has created more than 1.3 million net new jobs in the last three years and employment reached the highest level in history.

We will continue to build on the measures that we have taken, such as, for example, our cuts in corporation tax, which will from next year make ours the lowest corporation tax rate in the G20. Our employment allowance scheme will make it even cheaper for companies to hire employees. I think that we can all agree that more paid employment is one of the best ways to deal with cost-of-living challenges. Of course, we have to do more. We have to do things that put money in people’s pockets and we have focused on that.

I do not have enough time to mention all the measures, but I will focus on three or four key measures that will, I hope, reassure the hon. Gentleman that we are helping families across the country.

Our changes to the tax-free personal allowance, which will rise to a record £10,000 a year by April 2014, are putting almost £700 per annum into the pockets of the basic rate taxpayer. Anyone who enjoyed the 10% tax rate under the previous Government is now effectively paying a 0% tax rate. Anyone working full time on the national minimum wage will find that their tax bill has more than halved because of that single measure.

We have also frozen council tax for up to five years—the term of this Parliament—which will save the typical household some £600 over the period. We have frozen fuel duty, which the previous Government planned to raise year-on-year by inflation plus the escalator. As a result, fuel prices today are 13p a litre lower than they would have been had we continued with the plans that we inherited.

[Mr Robinson]

The Government have done, or are going to do, a number of interesting things, but is not the bottom line that living standards have fallen? Perhaps the Minister will tell us when living standards are scheduled to improve, rather than another empty, completely impossible Treasury promise. If living standards do not improve, we shall face the first occasion since 1931—that was the last real recession—when a Government have sought a new mandate with living standards lower than they were at the beginning of their term.

[Sajid Javid]

I would take the hon. Gentleman a bit more seriously if he respected the fact that the policies of the Government whom he supported are the reason that so many people face such challenging conditions on the cost of living. We are doing everything we can to address the damage that was done: the deepest recession in post-war history, the biggest budget deficit of any major industrialised country and the largest banking bail-out the world has ever seen. That was our inheritance, and he would get a lot more respect if he accepted that the policies of the previous Government were damaging and are the single most important reason why people are facing such challenges in relation to the cost of living.

In the time remaining, I will address a few points raised by the hon. Member for Coventry South. He was right to mention payday loans. There is evidence that some families, despite the action we have taken, are turning to payday lenders to meet their monthly bills, but he also rightly recognises that the Government are taking a lot of action, both on their own and with the regulators. As he knows, the Office of Fair Trading has been responsible for regulation in the sector until now. We have introduced a step change to that regulation, which will now be under the Financial Conduct Authority. The FCA will be a lot more pervasive, and it is a regulator with teeth. Payday lenders will feel the hand of the regulator on their shoulder. Yesterday, I attended a summit set up by the Government with lenders, charities and other interested groups, and the head of the FCA made it clear that he will not hesitate to take action. He has broad powers if he sees further evidence of consumer detriment.

Finally, distribution and fairness have also been mentioned. Before 2010, the richest 20% of society contributed about three and a half times as much in tax as they received in public spending; that has now increased to about four times as much. In fact, in every year of this Parliament, the rich will pay a greater proportion of income tax revenues than they did in any one of the 13 years under the last Labour Government. We have taken steps to ensure that the most vulnerable groups on low incomes are protected against the effects of the economic circumstances. For example, pensioners have seen above-inflation increases to their state pension, and the introduction of universal credit will make 3 million households better off, the majority of which will come from the bottom two fifths of the income scale.

I once again congratulate the hon. Gentleman on securing this debate. He obviously and quite rightly feels strongly about the issue, which I respect. As I said at the start, we might have different views on how to address the issue, but I fully respect that it is very important to him and his constituents. I assure him that we understand the financial pressures that hard-working families are facing, and I also assure him that we are taking what we believe are the right steps to help.