Oral Answers to Questions
Debate between Sajid Javid and Tom Harris(11 years, 10 months ago)
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The Economic Secretary to the Treasury (Sajid Javid)
I know that my hon. Friend is passionate about this issue, and he is right to raise it today. The Government are committed to ensuring that people who borrow from payday lenders are protected against bad practices. Last January, we announced our intention to transfer the regulation of consumer credit from the Office of Fair Trading to the new Financial Conduct Authority. The FCA will have powers and sanctions to address consumer detriment in the consumer credit market, and we will shortly be publishing consultation on this very issue.
Mr Tom Harris (Glasgow South) (Lab)
T2. May I take this opportunity to pay tribute to the Chancellor’s excellent judgment in supporting Labour’s spending plans up until November 2008? Will he therefore accept that the deficit he inherited was caused not by the spending plans supported by those on both sides of the House but by the worldwide recession?
Budget Resolutions and Economic Situation
Debate between Sajid Javid and Tom Harris(14 years, 5 months ago)
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Sajid Javid
The hon. Gentleman’s own party said before the election that it expected to make very large, severe cuts, in the order of about 20% in real terms. Our Budget proposes cuts of about 25% in real terms in unprotected Departments. Is he really saying that the only thing bothering him is a difference of 5%? I have not heard anything from Labour Members in the past two or three days that remotely suggests how they would achieve the 20% cut that they have talked about.
James Carville, who was President Clinton’s political adviser, once famously said:
“I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everyone.”
Soon after that, President Clinton abandoned his plans to increase borrowing, recognising instead that, even at that time, he had no choice but to balance the budget. I have traded in the international bond markets for many years, and working on a trading floor I saw for myself just how severe the financial crisis was. There is no question but that we would have faced economic problems regardless of the actions that were taken by the previous Government, but their actions made things worse, and that is the key. The situation has been made worse by the huge amount of borrowing that we have taken on since that time.
Mr Tom Harris
Does the hon. Gentleman believe that it was right for the Government to bail out Northern Rock?
Sajid Javid
Personally speaking, on my own behalf, I would not have carried out the bail-out in such a way. I think that the true consequences and costs of that bail-out are yet to be borne out.
I know from my own experience of the bond markets that they take no hostages. We now depend on them utterly for the nation’s finances. My right hon. Friend the Secretary of State was absolutely right to point out that we face a major sovereign crisis unless we take serious action. Some Labour Members have said that it does not look as though we have had problems with financing our budget deficit to date. We borrowed about £225 billion in gilts in the last financial year, but at the same time, the previous Government, through the process of quantitative easing, printed about £225 billion of new money. It is therefore not difficult to work out how, in effect, much of that borrowing was paid for.
The United States was the only other major economy that went through a process of quantitative easing, and we cannot use it as an example to compare with ourselves because, as we know, it has a reserve currency and we do not. That makes its situation entirely different when it comes to such an economic policy. The only other country in the world that I can think of without a reserve currency that went ahead and printed money at about the same time as us—indeed, before—was Zimbabwe. It is rumoured that the Finance Minister of Zimbabwe sent a note in 2008 to the then Chancellor of the Exchequer offering him his economic advice in exchange for lifting visa restrictions on him and his family. I think the then Chancellor took the advice but did not give anything in return.
The bond markets are picking off grossly indebted nations one by one with rising bond yields and falling prices. We have heard today about Greece, and we have seen what has happened in Ireland, Portugal, Spain and Italy. Those who observe the markets carefully need only look at what has happened, to a lesser extent, in France in recent weeks, where problems have started. That is why France, too, recently announced an austerity package. We have no choice but to reduce the record budget deficit, or else we will face an economic crisis of cataclysmic proportions.
Sajid Javid
Yes; Professor Blanchflower has been consistently wrong for the past three years since the crisis started, and he was wrong in what he said yesterday.
We have no choice but to cut the deficit, and that requires both cuts in spending and the raising of taxes. As we have heard today, we have to a strike a balance between the two, and the burden must fall on public spending. We have no choice about that, because if we raise taxes too much we will destroy the very incentives that we need to create the growth that will get us out of this economic mess.
As we go through that process, we must naturally try to protect the most vulnerable as much as we possibly can. Opposition Members have accused us of being ideological about the matter, but how can we be anything else? They are absolutely right, and there is no shame in it, because there is an ideological difference between what they believe and what we believe about how to get our country back on track and our economy going.
The Opposition believe in some kind of Alice in Wonderland economics in which we can go on living beyond our means year after year. We believe in the real world, where we have to pay our way. They believe that the state has the answer to all society’s problems, but we believe that individuals, helped by the state, have the answers. They believe in an ever increasing welfare state, in which people are tied down and not allowed to profit from their own industry, and we believe in helping the most vulnerable in society—those who cannot help themselves—but freeing those who can work for themselves and earn an income, and giving them the incentives to do just that. Because of that, we believe that we can get more out of our constrained budget, repair our economy and create a fairer and more responsible society.
Sajid Javid
I should like to plough on for a bit, but I will give way in a moment.
The size of our national debt cannot be ignored, either. It has not been mentioned much—we have all talked about the deficit, but let us not forget the enormity of the problem caused by the national debt. Any Government will have to address it at some point. Benjamin Disraeli once said:
“Debt is the prolific mother of folly and of crime.”
He should have known, because there was not just public debt at the time; I believe he had some personal debt, and he was probably referring to that as well.
After 13 years in office, Labour took our visible national debt from £350 billion to more than £900 billion—an almost threefold increase. That does not include the invisible national debt, public sector pension liabilities, which reputable organisations estimate to be more than £2 trillion, and all the private finance initiative liabilities, which grew from approximately £20 billion to £150 billion. We have a huge debt problem, which must be addressed, otherwise not only will this generation and our children pay for it, but our children’s children will inherit it. Let us not forget the changing demographics in our country, where we have a growing elderly population and fewer people of working age. That means that there are fewer people to tax and fewer who are able to fund the state’s activities, including repayment of debt.
The Budget addressed how to start promoting growth, which will help us get out of the mess. The Government are reducing corporation tax, the tax on small companies and on entrepreneurs’ relief, and addressing some of the problems of bank lending Many banks have been held back from increasing lending since the onset of the crisis because of the uncertainty of the future economy. The Budget gives banks much more certainty about the future of our economy, and that gives them more confidence to lend.
The securitisation market has not been mentioned often in the debate. More than the equivalent of £5 trillion has been issued in the past 10 years. Many banks used that to provide funding to small and medium-sized companies and to fund mortgages throughout the world. Securitisation unquestionably caused some of the problems of the credit crisis, but we must consider that market if we are serious about getting banks to lend again. So far this year, European banks have issued €30 billion of securitised bonds, against €500 billion in the same period last year. Last year, 95% was purchased by the private sector; so far this year, 95% has been purchased by the public sector central banks throughout Europe, including ours.
We are considering a bold Budget to redress a dire situation. Its measures are thoughtful and disciplined and it aims to spread the economising process throughout the nation. No group is spared and none is favoured.