Budget Resolutions and Economic Situation

Simon Hughes Excerpts

Thursday 24th June 2010 Commons Chamber

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

I am happy to take part in what is clearly an important debate, in which we are invoking the spirits of forebears of mine, of ours, whom I pray in aid as part of the traditions to which I belong. Lloyd George, Keynes and Beveridge are indeed part of the family of progressive liberals, of whom I regard myself as a modest inheritor.

The most important thing that was announced in the area of energy and climate change and environmental policy, the specific theme of today’s debate, was the green investment bank. It had been a Labour party commitment, and the Conservative party and Liberal Democrats were clear that it should be invented, created and got up and running. It is absolutely central to this Parliament’s strategy that we set up that bank in the near future. It must not be a modest little invention hidden away in a corner; it must be a central part of the new stage of the British economy and it must draw on money from the private sector, which will be used for projects that would not otherwise be funded. But it must also help us to invest in the new generation of green jobs that will make us again the country that can export our manufacturing abilities and the success of the world. For the last 25 years, we have slipped back in manufacturing and exports in these areas and have relied too much on the City, on finance and on banking. That is not enough to sustain a modern economy, and it is not enough to change the environmental way in which we do our business and honour our international obligations.

The second specific area that was much discussed when I shadowed the right hon. Member for Doncaster North (Edward Miliband) and my neighbour the right hon. Member for Lewisham, Deptford (Joan Ruddock) was how to ensure that households and individuals play their part. The Labour party started that process and I pay credit to the right hon. Lady and her right hon. Friend for beginning to ensure that we make households energy efficient, reduce bills, insulate homes properly, protect the vulnerable, and so on. But the scheme was never big enough; it was always a set of schemes that were confusing and lacking in coherence. The phrase “Green Deal” comes from the Conservative manifesto, but the idea comes from both manifestos. That we have a green deal for households must also be a central part of the Government’s strategy. We need to ensure that the new housing that is built and the housing that needs to be renovated and improved give us the safe, warm and pleasant housing that we need. My right hon. Friend the Secretary of State knows as well as anybody else, because he was the architect of the policy in our party a mere three years ago for a carbon neutral Britain, that the crucial area here is to ensure that the poor and the vulnerable are protected first, and that the people who spend a huge amount of their money on fuel when they cannot afford it are given the help that they need. One of the criticisms that I must repeat of the Labour Government, which I made when they were in office, is that when it came to helping the fuel poor—those who pay more than 10p in the pound of their income on fuel—they sadly failed. They tried, and I do not doubt their integrity in trying, but they failed, and we have to do better than that. We have to ensure that single people on their own, who make up 40% of households, and those with families do not have the ridiculous, out-of-control bills that they had; that we save the fuel and reduce the energy that we need as a country; and that we reduce our climate change liability.

[Dr Whitehead]

Does the hon. Gentleman agree that, if a programme such as that which he envisages is to have any real traction, there is an absolute imperative to defend and increase the almost £200 million that was set aside for the insulation of hard-to-treat homes and social housing? Will he put that in his book as a red line on Government investment in the energy efficiency uprating of social housing? If that investment does not appear, will he publicly underline his opposition to energy efficiency improvement methods that are not underwritten properly by Government funding?

[Simon Hughes]

The hon. Gentleman has a good, honourable and knowledgeable track record on the issue, and, as he would expect, in this Parliament I have already met the Housing Minister, the Secretary of State for Communities and Local Government and my friend the Secretary of State for Business, Innovation and Skills to ensure that those points are made. We are just beginning the debate about where the spending cuts must be made, and a coalition of Members needs to put the case for retaining that expenditure which is necessary to pump-prime, drive and incentivise the housing stock change that we clearly need. The other central point, on which the Government have made a commitment, is to introduce the power of general competence to local councils, so that they have much more flexibility over how they address such issues.

Thirdly, on the green agenda, I note the comments that my right hon. Friend the Secretary of State for Energy and Climate Change made about the carbon price, and we await with interest the publication of the proposals to reform the climate change levy. However, I remind him that we ought to reconsider introducing the emissions performance standard, which both our parties were willing to do. Labour resisted it, but I hope that it gets back on the agenda as a way of ensuring that we make progress not just in our country, but throughout Europe.

Fourthly, and more controversially, there is nuclear power, to which the Budget referred not specifically, but indirectly in relation to Sheffield Forgemasters. I made my position clear about nuclear power before the election, and when the initial announcement was made about the Sheffield Forgemasters loan, and I have always believed that the nuclear industry will not have a viable future unless it receives public subsidy. I have never had a theological opposition to nuclear power. I believed that it was the wrong answer, contributing too little to emissions reduction and to the country’s power needs, but in that context the Sheffield Forgemasters loan was inconsistent with a policy of not subsidising the nuclear power industry.

The announcement is difficult for Sheffield and for south Yorkshire, but we have to have a policy that applies from the beginning to the end, and we have to be tough on that. In reality, other countries such as Germany have now introduced a tax on nuclear power stations to make up for the fact that the industry benefits from a carbon price but does not pay for the clean-up of the legacy nuclear waste. There must be economic realism in the nuclear industry. That has been our position, and it has been accommodated in our parties’ agreement.

There is another matter on which I have lobbied the Government but not yet seen anything emerge, and if it could be dealt with in the ministerial winding-up speech that would be helpful. It is about helping with biodiesel that is made from recycled vegetable oil. I declare two interests: I drive a vehicle that uses it; and there is a firm in my constituency from which I purchase it, and which in turn takes it from firms locally. It is a good and environmental product, but the financial incentives for biofuels do not yet encourage the industry to grow. It is an industry of small businesses, it ought to be incentivised but the Treasury loses out because of the wrong incentives as well as inadequate incentives for the sector. I hope that that issue will be looked at, and that we might introduce an amendment to the Finance Bill in order to pick up on that individual and ring-fenced item.

On the Budget as a whole, the right hon. Member for Doncaster North rightly said that I had always assumed that the more natural coalition, had it been achievable, would have been between the Labour party and ourselves. There is no secret about that, but in the end it proved undeliverable on two counts: first, the numbers did not add up, and this country needed a secure, majority Government; and, secondly, the Labour party was not willing to move on key issues. They included political and electoral reform and a fairer taxation system—in particular, taking people on low incomes out of tax.

The measures that commend the Budget are specifically items that were in the Liberal Democrat manifesto, on which I did fight the election. They include, first, linking pensions with earnings. The link was broken by Mrs Thatcher and never reintroduced by Labour, but its restoration next year was committed to in this Budget. Secondly, there is the measure on taking people who have an income of less than £10,000 out of tax gradually, the first wave of which was introduced in the Budget, and which matters not to the absolutely poorest who have no incomes, but specifically to pensioners and working people who have a small income. Thirdly, there is the measure on increasing capital gains tax, because we believe that it should be set at the same level as income tax. There has been a debate among Government Members on that issue, and there is a difference in view, but there has been a move in that direction, which I applaud and recognise.

[Toby Perkins]

I congratulate the hon. Gentleman on his appointment as the deputy leader of the Liberal Democrats, but I fear it strangely apposite that at the moment he sits all alone on the Liberal Democrat Benches. If he feels that this is a coalition Budget, will he explain how much worse it would have been for the poorest people without the influence of the Liberal Democrats?

[Simon Hughes]

I am, and always have been, very clear about that issue. When it was obvious that there was no possibility of a coalition with the Labour party, we had the option either of letting the Conservatives become a minority Government or of being in coalition with them. I am very clear that it was better for the country and for the issues that matter to me that we were part of the Government—that we were influencing matters and ensuring that there was a shared programme, not a Conservative programme. I say that completely honestly, and the hon. Gentleman, with a constituency that is in some ways not dissimilar to mine, would expect as much. I have made it my business to battle for the people whom I represent in order to ensure that we end up with a fairer Budget, and a fairer Britain as the outcome. The election, the Budget and the next exercise, the spending cuts, must all be judged on whether we end up with a fairer Britain.

Let me therefore address the remaining issues that follow from that. There has been some press speculation that, because certain items are expensive, they are unaffordable and should be dropped. They include items for the poor, such as the freedom pass and the winter fuel allowance. There is no issue between me and my friends on the Treasury Bench, but the coalition deal is a deal and what has been agreed must stand. There cannot be any unpicking of items in that deal, otherwise the whole thing risks falling apart. There is no suggestion of that from the Government; there is a suggestion from outside the Chamber of changes. However, the deal must be that we go down the committed road. We signed up and the Conservative party signed up, all compromising where appropriate, and that must stand. If there were any suggestion that it change, there would be trouble. I do not think that it will change, because I have heard nothing from colleagues in government suggesting that they want it to, but let us be clear from the beginning: it is a deal, and if it is stuck to, it will last the five years.

I turn to yesterday’s Institute for Fiscal Studies report. The IFS is a respected organisation. It made clear that the Budget as a whole increases fairness, but that if it excluded the matters that were implemented by the Labour Government in the Budget earlier this year it would not be. However, the Budget does not exclude them; it has endorsed and continued them. The right hon. Member for Doncaster North and I know each other well, but the Government have continued with those elements that the previous Labour Chancellor introduced in the routine Budget earlier this year.

[Helen Goodman (Bishop Auckland) (Lab)]

Are you taking credit for it?

[Simon Hughes]

No, we are not taking credit for it—we are just making sure that we look together at the measures that this country has as its tax regime in the coming days and months.

On that basis, this is a Budget that produces greater fairness. There is difficulty in reaching the people at the very bottom end of the income scale who are not in work, and there are other difficult areas. However, my right hon. Friend the Chief Secretary and my hon. Friend the Member for Thornbury and Yate (Steve Webb), the Pensions Minister, who come from a proud tradition of knowing these issues well and campaigning for the poor and the disadvantaged, would not have signed up to something that undermines all the sorts of campaigns that they have been fighting for.

There remains the issue of VAT. I did not want a Budget with a VAT increase, nor did the Conservative party, and nor did the Labour party. I have no idea what was the view of some people in the Tory party behind the scenes, but there was a rumour that they would think it was a good thing. That is why, during the election campaign, we said that we thought it was a bad thing and challenged them to agree with us. Nevertheless, none of us ruled it out. I wish it were not here, as it is clearly less progressive than other taxes where people pay on the basis of income, but it is a necessary measure given that we have to fill the huge debt that the Labour party has left us.

We will vote for the Budget next week. However, if there are measures in the Finance Bill whereby we can improve fairness and make for a fairer Britain, then we will table amendments to try to do that. That is where we can make the difference, as we will during the spending review that will follow in the months ahead.

--- Later in debate ---

[Toby Perkins]

Yes, as the shadow Chancellor made clear, we would have maintained spending over the course of this year and put in place a different Budget from that of the Conservatives, along with headline measures about what future spending would be. Of course it was too early for us to have a comprehensive spending review; when the Conservatives were in opposition, did they ever do a comprehensive spending review and tell us every line of the Budget they would have carried out? Of course not. That is the reality of the situation.

My hon. Friends have pointed out that under the former Prime Minister the Labour Government led the rest of the world to the solution when the global economic crisis was at its worst. Labour made the choice to protect jobs, as I said. Just as Labour made a choice—an ethical and a political choice as well as an economic one—so the Chancellor has made his choice with the Budget. He did not choose fairness; he chose to gamble. His gamble is based on an ideology that says that the growth of the public sector somehow constricts the private sector, but it is utterly fallacious to suggest that the success of the one has to be to the detriment of the other and that the role of Government is to keep taxes low for businesses and keep out of the way. That is the wrong choice. That is taking a gamble with the recovery that Labour was delivering in a stable and managed way. It threatens our recovery at a time when the economy is still fragile.

The choice to increase VAT is, of course, regressive. When even the TaxPayers Alliance denigrates the policy as hitting the poor, we really have to listen. This will take approximately twice the amount from the incomes of the bottom 20% as it does from the top 20%, and it will stunt growth. That is acknowledged on page 97 of the Red Book, so the Chancellor is introducing a policy that he knows will stunt growth. As a business owner myself, I know that this tax will directly remove 2.5% from the bottom line of my firm if it were not passed on to my customers.

I also know that cuts in corporation tax are not as important as having a market in which one can make a profit. While the VAT cut introduced by Labour in 2008-09 stimulated growth, this VAT increase will take about £300 out of the average family’s pocket at a time when families are crying out for more help from Government, not less. That will have a knock-on effect on business. The Government seem to think that reducing the corporation tax burden, already historically low on businesses, will stimulate growth, without recognising that the environment in which businesses trade is the most important part of making a profit.

Taking money out of the pockets of consumers also takes money out of the pockets of businesses. It increases redundancies and business failures, and it stunts our ability to grow our way out of recession. For the hundreds of extra businesses that will now struggle to stay afloat, the thought of a cut in corporation tax will merit little more than a mirthless laugh. At every level, the Budget stunts growth. Cutting the allowances on which manufacturing firms were relying, and replacing them with a corporation tax cut over the next few years, will result in businesses being less likely to invest and more likely to focus on bottom-line profits.

The starkest aspect of the Budget, however, was a complete lack of a sense that the Liberal Democrats have been a moderating influence on the Tory plans. Where were the Lib Dem influences in this Budget? Seriously, does anyone in the House believe that if the Budget had been delivered by a Tory majority Administration, the Liberal Democrats would have marched through the Lobby and supported it? I will take that as a no. Where was the £2 billion capital gains tax increase? It was less than halved. Where was the commitment to restrict tax relief on pensioners to the basic rate? It disappeared. Where was the mansion tax? It does not exist. Where were the green taxes? How can one justify a £2 billion bank levy that will be compensated by corporation tax cuts for the banks that caused so much damage? Where was the Robin Hood tax on bank transactions, which would have brought in more than treble the amount?

[Simon Hughes]

Will the hon. Gentleman give way?

[Toby Perkins]

I am afraid that I do not have time.

This was a Tory Budget without a shred of Lib Demery about it. I will applaud the hon. Member for Colchester (Bob Russell) if he sticks to his guns and refuses to vote for it. The Chancellor had a choice: he made the wrong choice, and we will all pay a heavy price for years to come.