Budget Resolutions and Economic Situation
Sammy Wilson Excerpts(14 years, 5 months ago)
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Sammy Wilson (East Antrim) (DUP)
First, we all must recognise that this is a very difficult Budget at a difficult time. Throughout the United Kingdom, people are talking about this Budget. They were fearful of what was going to come out, of its consequences and of the fallout from it. However, as the Chancellor said, with the announcement of the emergency Budget, at least we can now start to inject some certainty into the economic way forward, and from that point of view it must be welcome. Secondly, despite the background to the current situation, there is still immense economic uncertainty, even among those who have been professional economists, about the best way forward. I shall address that point when I discuss what we are looking for in the Budget.
Thirdly, I come from Northern Ireland, where the major party in the coalition was recently rejected by the electorate, so we do not have too much to fear from them; where the Labour party does not even stand; and where the Liberal Democrats do not have a presence, either, although they have a sister party in the Alliance party. Therefore, the political point scoring in the debate so far does not have to form part of my response. I sit on the Opposition Benches, but the Leader of the official Opposition’s hysterical reaction does not grace this debate with the seriousness that it deserves. There was not even any recognition of the role that the previous Government played. Although there were many other responsible factors, the previous Government played a role in the situation in which we now find ourselves. Indeed, there was not even any recognition that, as today’s figures point out, something similar would have had to be done if there had been a different outcome in the election. The Leader of the Opposition’s reaction was disappointing, and it is right that I make that point. However, I do not make it because I have to score party political points; I make it just as a general observation on a very serious situation.
Stephen Pound (Ealing North) (Lab)
I appreciate that the hon. Gentleman is rising above the fray in this debate, but, as a former economics lecturer, is he as concerned as I am about paragraph 2.108 of the Red Book, which refers to
“rebalancing the Northern Ireland economy”?
I suspect that I know what that means. What does the hon. Gentleman fear it means?
Sammy Wilson
I shall come on to the issue of rebalancing the Northern Ireland economy. My understanding is that it is in keeping with the Northern Ireland Executive’s programme for government, namely that we cannot for ever remain as dependent upon the public sector as we are at present. There must be a rebalancing, so that we have a structured economy that allows for greater private sector involvement and, therefore, leaves us less open to the dangers of what has had to be done today. I do believe that what has been announced today will be very detrimental to the Northern Ireland economy in the short term.
However, let me turn to what we were looking for in the Budget. We want a Budget that is effective at getting us out of the current economic situation. The Chancellor’s view is that, given the size of the debt, the interest that is accumulating on it and the fact that we have to finance it for a large number of years, we must show the financial markets that we are serious about getting the deficit down. That will ensure that our good credit rating continues, and that we do not have to borrow at punitive interest rates and, therefore, take even more money from that which we have for current spending. I have been able to have only a cursory look through the Budget statement, but it seems that the Chancellor’s assessment is that if we do not do this quickly, we will find that our credit ratings go down and we lose the confidence of the financial markets, with all the consequences of that.
The other side of the coin is that if that assessment is wrong—if our credit rating is good for a number of years because we show that we are starting to make efforts and we do not have to take draconian measures of the kind that have been announced today—then withdrawing public spending from the economy will lead to a downward multiplier effect. That will impact on the level of growth, thereby getting us into what has been called the double-dip recession, whereby tax revenues go down, welfare spending goes up, support for industry has to increase, and we get ourselves into an even bigger muddle.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
Does the hon. Gentleman recall that prior to the election, the leader of the Conservative party particularly targeted Northern Ireland and the north-east of England, my region, for criticism on account of the amount of investment in public sector funding? We have seen in today’s Budget that the Chancellor has not heeded the advice of the North East chamber of commerce, a leading voice of business in the north-east, which has said that the Chancellor and the coalition Government need to re-check their commitments on public sector spending so as not to jeopardise economic growth in the north-east.
Sammy Wilson
The hon. Gentleman is leading me on to my second point, which is about fairness, but let me finish this point first.
I have described the two sides of the argument. It is a subjective assessment, because the report before us does not present any conclusive evidence to the effect that the financial markets are so nervous that we have to take such deep, draconian action at this stage. Neither is there an assurance that the reduction in the amount of money that is going into the economy as a result of public spending cuts will not have an impact on economic growth.
Mr Redwood
I think that we should try to talk about the Budget that was actually presented. The figure for total spending in 2009-10, the last year of the previous Government, was £669 billion, and the forecast total spending for the last year of this Government, if they run to five years, is £737 billion. That is an increase of about £77 billion over the period, so what is the hon. Gentleman talking about?
Sammy Wilson
The right hon. Gentleman quotes the figure for spending, not the figures for taxation or, indeed, those relating to bringing down the deficit. That money was borrowed to be pumped back into the economy, so the amount of money going into the economy will be substantially less.
This is a subjective assessment, because the report does not give us any clear picture of what the likely impact will be. At least we now have an independent body reporting on whether these measures will be effective, but only time will tell as to whether the risk that has been taken today will pay off and will balance the economy quickly.
Gavin Barwell (Croydon Central) (Con)
Is the hon. Gentleman aware of the paper published by Goldman Sachs on 14 April, which reviewed every major fiscal correction in the OECD since 1975, and concluded,
“we find that decisive budgetary adjustments that have focused on reducing government expenditure have…typically boosted growth”?
Sammy Wilson
The context in which those adjustments take place is important, as is the speed at which they happen. All I am saying is that one way in which this Budget must be judged is on how effective it will be. Neither the report, nor the assurances given by the Chancellor today, offers any firm guarantee, if indeed that can be given, that the Budget will be effective.
The Financial Secretary to the Treasury (Mr Mark Hoban)
I suggest that the hon. Gentleman look at the report by the independent Office for Budget Responsibility in the Red Book, which sets out the impact on growth of the package proposed by the Chancellor and suggests that, post-2012, GDP growth will be stronger than the OBR initially estimated in its work prior to the Budget.
Sammy Wilson
As far as I am concerned, this is not about scoring political points off the Conservative party; the Conservatives do not present any threat to us in Northern Ireland. This is all about ensuring that the citizens of the United Kingdom do not have to live in the economic doldrums for a long period. I hope that the projections that have been quoted are correct, but it is right at least to look at both sides of the argument and make an assessment on that basis. Should these measures have been delayed, or should we have jumped in as we have done?
Secondly, we will judge this Budget on the basis of fairness. I look at that in two ways. First, is it fair to individuals; and secondly, is it fair to specific regions of the United Kingdom? The second point, as the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) suggested, is extremely important to people in Northern Ireland. Before the election, the Prime Minister—he has tried to explain it away and qualify what he said—stressed in a “Newsnight” interview that Northern Ireland is heavily dependent on the public sector. That is a fact, but he then implied that Northern Ireland would be targeted as a result. That is one of the reasons why the alliance between the Ulster Unionist party and the Conservative party failed so miserably—I do not know how well it would have done otherwise. People in Northern Ireland were extremely nervous that we in that part of the United Kingdom were going to be treated unfairly.
Under the proposals in today’s Budget, a regional fund will make money available immediately. However, it will not apply to Northern Ireland, or to Scotland or Wales, but only to England. Infrastructure projects have been guaranteed spending, but none of that applies to Northern Ireland. We are promised a report in the autumn on how Northern Ireland’s economy might be rebalanced, including an examination of proposals on economic enterprise zones, a possible mechanism for changing corporation tax rates, and other economic reform options. I look forward to that paper, and I am sure that the Northern Ireland Executive will do so too, but I note that that paper is merely examining options and proposals.
The Northern Ireland Executive have made a genuine attempt to restructure the economy by using public policy and public spending, trying to build up the infrastructure, trying to get people economically active by giving them new skills and preparing them for work, and so on. The reduction in public spending will have an impact on the ability to do such things, because they required that pump-priming. We will look to see how quickly the impact of the reductions in public spending is offset by some of the proposals in the promised paper on rebalancing the economy. This is important to us, and we want to drive it forward, but it will be made more difficult by some of today’s announcements.
Mark Durkan (Foyle) (SDLP)
Does the hon. Gentleman recognise that in the autumn, around the same time as the consultation document on rebalancing the Northern Ireland economy is published, the Executive and the Assembly will find out the outcome of the review of departmental expenditure limits in the current comprehensive spending round? That will have an effect on what Northern Ireland gets through the Barnett formula. The Budget also projects serious reductions in annually managed expenditure in the form of social security benefits, and those two squeezes on Northern Ireland combined could have a high economic impact that would make what is in the consultation document pretty irrelevant.
Sammy Wilson
That is related to the point that I made about the downward multiplier impact that the proposals will have on the UK economy, and particularly on the Northern Ireland economy. I am always reluctant to plead special cases, but one has to consider where Northern Ireland is in the economic cycle. We lag behind, as we are still in the downward part of the cycle. All the available indices, whether of output, employment, forward orders, investment or whatever else, show that we are still on the downward slide in the cycle. Our concern is about the impact that the attempts to restructure the economy could have, and the fact that while growth might occur in the rest of the United Kingdom, we might find ourselves still stuck in a recession because of the particular circumstances in Northern Ireland.
Ian Paisley (North Antrim) (DUP)
On the subject of fairness and special cases, the Red Book outlines a special case for Scotland, where there is to be a possible pilot scheme for rural fuel duty. Given that Northern Ireland is the only region of the UK that has a land border with another EU state whose fuel duty is progressively lower than ours, would it not be wise for that possible pilot scheme to be extended to the region that would benefit most from its findings?
Sammy Wilson
I would like to see that scheme initiated quickly in Northern Ireland. I suspect that it is one of the proposals that the Liberal Democrats were keen on pushing forward. Given the rural nature of much of Northern Ireland and the particular circumstances that we face, we would welcome it. We will be interested to see the outcome of the pilot scheme and how quickly it is rolled out across the rest of the UK, if at all.
I turn to fairness for individuals, on which there are things to be welcomed in the Budget. I suppose that at the end of the day, it will all be about balance. I am pleased to see that the pledge to restore the link between earnings and pensions has been honoured. For many pensioners who find themselves in difficulty, that will be an important gain. We also have the banking levy, the change to capital gains tax for those paying the top rate of tax and the fact that the pay freeze will not apply to those at the lower end of the public sector pay scale. There has been a genuine attempt to recognise that those who are already on low incomes should not be pushed down further.
On the other hand, there will be concern about the regressive nature of the VAT increase and the freezing of child benefit and tax credits. I am particularly concerned about the backdating of tax credits for one month instead of three, and I hope that the Chancellor will give us an answer about that. I hope that Her Majesty’s Revenue and Customs will improve its performance in dealing with tax credits, otherwise many people will have an unfair result through no fault of their own. They will be powerless against a bureaucracy that seems unable to move on the issue.
Kate Green (Stretford and Urmston) (Lab)
Is it not also the case that the families whose circumstances are most prone to change will be particularly hard-hit by a mere one-month backdating period? Those are families, of course, for whom jobs are particularly stop-go and at risk. The risk to families who already face dangerous and unstable economic circumstances will be heightened by that ungenerous measure.
Sammy Wilson
Not only are those the families whose circumstances are most liable to change, they are often the ones who find it the most difficult to deal with the bureaucratic maze that they face when making applications. I should like to hear from the Chancellor what proposals are in place to ensure more efficient processing of claims.
The final thing that I am looking for in the Budget is some certainty, particularly about its impact on Northern Ireland. We have been told that there will be a 25% cut in departmental expenditure limits over the next four years, but that it will not apply evenly and some Departments and areas of Government spending will be hit more than others. In Northern Ireland, we have now started the budget process. Because of the neglect of the previous Government, there was no comprehensive spending review announcement for the previous year, so we are planning in a vacuum. It is important that information be made available quickly to regional Assemblies as to what the impact on their departmental expenditure limits is likely to be, so that effective planning can take place. There is nothing worse than asking Departments to deal with difficult economic circumstances and then giving them a list of parameters and assumptions that are so vague that is almost impossible for them to make any long-term decisions.
If less money is going to be available, it has to be used more effectively. For that, there must be an ability to plan, so that we can look forward and see how that money can best be put to use and how Departments might work together to get more services from the available money. That can be done only if there is certainty, so I appeal for the information that regional Assemblies require to be given to them quickly.
Mr Redwood
I was going on to say that we are talking about a big increase in cash. If all of us in the public sector can get better at managing that cash, we should be able to do a good job for people because the amount of spending is going up.
What could go wrong? Well, the hon. Gentleman has mentioned two things that could go wrong. If public sector inflation is as high as, or higher than, forecast general inflation, that will eat away at the value of the money that we are spending and make it more difficult to sustain good public services. However, Ministers tell us that they will be very tough on wage increases. That will help, as it will share the work and mean that we can keep more people doing more worthwhile things for our constituents, without all the money being eaten away by wage increases.
After all, that is what the private sector had to experience for two or three years, during the worst of the recession. In that regard, I pay tribute to the many work forces and unions in this country that did not merely accept that there would be no pay increases; instead, they often accepted pay reductions and very tough work-sharing schemes. They did so because they understood how dire the position of their industries and companies were, and they helped their managements to see their companies through.
We do not have to go that far in the public sector, but there is something that we need to tell all our public sector employees, and I think that this is a task for Opposition MPs as well as Government MPs. We need to say, “Things will be less painful and better for all of us if we can keep costs down and wages and salaries under control. More jobs will be preserved and a better service delivered to the people whom we serve, because more of that cash increase is going to go into helpful spending.”
As the hon. Gentleman says, the rising interest charges are also a worry, albeit one that makes the coalition Government’s case rather well. If we do not tackle the rising deficit now, more and more of the money will go on paying interest bills for past spending, rather than being available for paying teachers’ or nurses’ wages, which is what we would rather be doing with it. His point therefore makes the case strongly that the more action that is taken at the beginning, the better, because then more of the quite large sums of extra money that will be available will go on buying real improvements or maintaining a decent quality of public service, instead of going on the rising interest bill.
The Government have had just one piece of good fortune with their rather bleak inheritance, as well as quite a lot of bad news from outside the United Kingdom. The one piece of good fortune is that over the weekend the Chinese Government announced that they were going to allow their currency to start to move upwards against the dollar. We have had quite a long period of the yuan/renminbi being pegged to the dollar. That has meant that China has been super-competitive. China works hard, she is developing much better technology and she produces good products. With the managed exchange rate that we were experiencing, with the pound sticking around with the dollar in recent months, we discovered that China was getting more and more competitive. Indeed, there has been another huge surge in Chinese exports in recent months.
Let us hope that the Chinese will now allow their crawling peg to crawl up quite a bit. The last time they had a crawling peg, it started a bit slowly, but then there was a 20% revaluation of the currency, which was quite helpful. We need all the help that we can get, because Britain has to export more and earn more money in overseas markets. The world’s No. 1 colossus—the dominant, most competitive exporter—is China, and any currency revaluation would be helpful. We still have to work hard—we have to get smarter and control our costs—but that revaluation might take some of the pressure off.
However, the bad news is that the European market is getting worse. We had hoped that European countries would have a normal, cyclical recovery, such as that which the United States is enjoying. However, it now looks as if their recovery will be slow, with quite a number of countries going backwards this year and early next year, because of their deficit problems and difficulties with the euro. Indeed, those countries’ economies might continue to fall or start to fall again. That is difficult for Britain, because euroland is an important marketplace for our physical goods—it is not nearly so important for services or inward and outward investment, but it is important for physical goods. It is therefore in our interests that euroland starts to mend itself as soon as possible. I therefore hope that the Chancellor will continue his negotiations and work with his European partners, because it is important that we allow them to take the actions that they need to take to start mending the euro.
The euro is a single currency in search of a single country, and that has been its tragedy ever since it was first created. Those of us who warned that we could not have a single currency without a single economy, a single budget and a single Government were told that we were quite wrong and that we had misunderstood things. Apparently all that history that we had read was a waste of time. However, all the history of currency unions that I have ever read shows that they work only if there is control of the borrowing and spending levels through a central power, which is what we are now told our friends and colleagues in euroland are learning. They have discovered that they cannot allow Ireland, Greece, Portugal and Spain to free-ride at the expense of the rather more prudent core. Those in euroland are learning that, if they allow those countries to borrow and borrow at the lower common interest rate that Germany has granted them, there comes a point when the markets no longer believe in those countries and they start to blow their debt markets apart.
Sammy Wilson
Is the right hon. Gentleman not a bit concerned that the Government now accept that the European Union perhaps has the right to scrutinise the budgets of euro countries before those budgets are implemented? Does he not believe that that could be the thin end of the wedge, and that such scrutiny might eventually extend to all members of the European Union?
Mr Redwood
I am very strongly of the view that countries have to do that, and more, in euroland. As Members might guess, I am passionately of the view that that has nothing to do with Britain. The deal I want my right hon. Friends to offer our European partners is that we will accept more or less any kind of treaty change to give them proper control over the budgets of euroland as long as we get some powers back and it is made very clear that we are not part of this new machine to try to create an economic Government of Europe.
There need to be changes. The system is not at all stable, and I do not think that the much advertised trillion dollar package of loans and guarantees, and possible facilities, is necessarily going to see all these countries through the future threats to their stability. Given the rather damaged states of their private sector economies in many cases, there is a danger that, if all they do in response to the financial market pressures is to cut public spending to try to get their borrowing down, they will not succeed. If they are cutting their public spending, but there is no growth coming through in the private sector to take up the slack, or if they are cutting their public spending while their tax revenues are falling, the gloomy pundits will be right and the medicine will not work. Just cutting expenditure does not create a strong economy.
It is important to cut spending sufficiently to allow the private sector to grow and it is important to cut spending sufficiently so that the deficit does not get out of control and produce too much pressure on interest rates, but that needs to be done against the background of the beginning of a recovery—as we have in the United Kingdom. For a country in turmoil with a deeply damaged economy, as some of the southern states seem to have, simply cutting expenditure might make the problem worse, not better, without taking other action to try to get the economy’s private sector going.
The proof of the Budget will be in what happens to the private sector recovery over the next year or so. I hope that the Office for Budget Responsibility will turn out to have been too gloomy. It says that the impact of the Budget in the first two years will be to lower the growth rate slightly; it says the growth rate will be better in the following years when the full benefits of deficit reduction and private enterprise promotion kick in.
It need not be like that; we could do better than that. If the Chancellor wishes to do better than that, as I trust he does, he needs to turn his attention urgently to the state of the British banking industry and the capability of British banks to finance the private sector-led recovery that we clearly need. I do not believe that the current regulators of the British banks have got it right, and although I fully support centralising the regulation of money markets and banks in the Bank of England—I advocated it myself and I am happy that that is going to be done—that in itself is not enough. That is a structural change, but what we also need is an attitude change.
The sad truth of life is that we have just lived through the worst five years I have ever seen in terms of mismanagement of money and banking in this country. Labour Members will want to blame just the private sector banks, and I agree that some directors of those banks got it horribly wrong and they deserve to be dealt with in the appropriate way by their shareholders and by others. However, I hope that sensible Opposition Members would agree with me that it does not speak well of the monetary control system and the regulatory system that that happened. Why do we have financial regulators? We have them to stop that kind of thing happening. They are meant to stop runs on banks, even if banks have directors who are likely to produce a run. They are meant to stop systemic collapse, even if directors get a bit carried away.
Chris Leslie
I could not agree more. That level of maturity is refreshing, but the Chancellor of the Exchequer saying that there was consensus that the measures had to be taken in a particular way shows how the hon. Gentleman departs from his Front-Bench colleagues. I hope he will have the foresight to listen to the differences of opinion and recognise the possibility that austere and harsh public expenditure reductions, as well as some of the tax increases, could have a harmful effect on the economy. We do not know about the individual measures, but we have already heard from my right hon. and learned Friend the Leader of the Opposition about the effect on unemployment, as shown in the forecasts from the so-called Office for Budget Responsibility, appointed while the Conservatives were in opposition.
Sammy Wilson
The hon. Gentleman is making some good points, but he takes his argument a little too far when he describes Government Members as economic masochists who enjoy the process. At the end of the day, their constituents will not thank them for unnecessary cuts. There is a good argument to be made, but does the hon. Gentleman not agree that the extent to which he is taking it may diminish his case?
Chris Leslie
I hope that the hon. Gentleman is right. Judging from the Conservatives’ reaction—the papers waved in the air when the Chancellor sat down—the enjoyment they took in those harsh—[Interruption.] The hon. Member for Devizes (Claire Perry) calls out, “Pathetic”, but why else would they cheer with such fervour?