Finance (No. 3) Bill

Stella Creasy Excerpts

Tuesday 26th April 2011 Commons Chamber

[Alec Shelbrooke]

Absolutely. My hon. Friend makes an important point. That leads me to the problem, which I had not intended to mention, of how indebted the nation was personally. Indeed, my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) made the point that a total private sector debt that is 450% of GDP is something to fear and shake at.

One reason I believe we did not see the increase in the public’s spending in certain areas despite the historically low interest rates—the Bank of England brought interest rates down and I think we understand why—was because people saw the opportunity to use the extra money they had in their pockets from the reduction in their mortgage payments to start paying off credit card debts, although many were on fixed-rate mortgages. That money was not poured back into the economy as was originally envisaged because people saw the writing on the wall and started to reduce their personal debt, and the Government should take a big lesson from that. We need to get debt down if we are to sustain future growth. We talk about interest of £50 billion a year on £1 trillion-worth of debt, but that does not mean anything to people because those numbers are huge. However, when we tell them that £120 million is being given to foreign nations every day because of the money we have borrowed, they start to realise the situation we face.

We all face such situations in our constituencies, where certain services are being cut—there is some politics involved, but that is not my point—and local councils need more money, which they cannot have because of the situation we are in. People realise that rather than going to foreign nations, that £120 million could be used to go some way towards addressing, for example, the closure of a leisure centre in my constituency that is losing £100,000 in a year.

That is why we needed to rebalance the economy. We became far too reliant on public debt and public money—public money that comes from private money—and we cannot keep magicking public money out of the air, because in the end it leads to hyperinflation. Indeed, the shadow Chief Secretary to the Treasury, the hon. Member for Wallasey (Ms Eagle), made some link, which I could not follow, between our policies and the rise of the far right in the 1930s, which in turn led to the second world war. Hyperinflation certainly played a big role in nationalism among Governments, however, and it came about precisely because of the economic circumstances that we were moving towards recently.

I take issue with the hon. Lady when she says that we are attacking ordinary hard-working people. That is, quite frankly, a disgraceful comment to make. There is not a person on either side of the House who deliberately wants to attack the ordinary hard-working person, so let us just put down a few facts. We have just brought in an income tax cut for 23 million people and taken almost 1 million people out of income tax altogether. Let us compare that with doubling income tax for the lowest paid in society.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

indicated dissent.

[Alec Shelbrooke]

But you cannot deny that your Government doubled income tax for the lowest paid in society and destroyed pensions—not you, Mr Deputy Speaker, but the previous Government. The previous Government destroyed pensions, leaving many people whom we would class as the most vulnerable in society to take their pensions with fear and trepidation. At least we have brought in the triple lock on pensions, meaning that people should never again get the 75p rise in their pension.

--- Later in debate ---

[Stella Creasy (Walthamstow) (Lab/Co-op)]

If a week is a long time in politics, then a year—and perhaps some aspects of tonight’s debate—is an eternity. Yet a year ago, when we were all candidates and none of us was allowed to stand in this place, things were very different. The economy was beginning to recover, as unemployment was falling and growth was returning. Crucially for today’s debate and the provisions in the Bill, that meant that the deficit came in at £21 billion lower than was forecast. Well, here we all are, a year later, and just as the faces in the Chamber have changed, as have the sides that we are sitting on—some would say not for the better—so too has the economic picture. Given where we were last year, one would have expected the economy next year not simply to have recovered, but to have begun motoring; and yet now, thanks to snow it seems, it appears that the reverse is true. By cutting too fast and too deep, this Government are delivering slow growth and higher unemployment, which is why they will now have to borrow £46 billion more than they planned.

However, the question that this Bill raises is about not just whether to cut the deficit, but how we do so and who ultimately pays. Our national Exchequer certainly will: slower growth plus higher unemployment will make it harder to get the deficit down. As we pay out in jobseeker’s allowance, we will also lose out as families fear spending money that they do not have. That is what I want to highlight this evening. We have a duty to consider how the proposals will help or hinder the finances of families across this country, because it is not just the Chancellor who will have to go cap in hand for extra funds. Contrary to what the hon. Member for Elmet and Rothwell (Alec Shelbrooke) seems to think—I am sorry that he is not here; perhaps he is in the gym preparing for his wedding—public debt and private debt are linked. Although public debt is down by £43 billion, private household debt is up by £245 billion—five times as much.

The hon. Member for West Suffolk (Matthew Hancock) is a man for whom I have tremendous respect—both him and his pullovers. He lauds the role of the Office for Budget Responsibility, but like Rosencrantz and Guildenstern, he is hoist by his own petard, because the OBR forecast last June that household debt would increase from an average of £58,000 in 2010 to £66,000 by 2015. The OBR now expects the figure to be £77,000. That is the downside of the Chancellor’s deficit reduction plan. As taxes increase and public spending squeezes households’ disposable income, they will be forced to take on more and more debt in an attempt to maintain their living standards. In fact, the OBR’s March forecast shows household debt rising from £1.6 trillion this year to £2.1 trillion in 2015—or, from 160% of disposable income to 175%. The OBR reports that households will have to borrow more money than forecast in order to maintain their living standards. With the planned cuts in public spending, the only way the Government will see an improvement in the OBR’s forecast for growth is for that ratio to increase.

I know that many Members will be sick of hearing me talk about credit and debt. Many may also argue that it does not matter, because we are a nation that is comfortable with debt—something the hon. Member for West Suffolk talked about. We have always had a different approach to personal debt from many other countries. We are a nation comfortable with borrowing in ways at which other cultures baulk. It is no surprise that we have the highest level of personal debt in the G7. That is not a problem if it can be managed. Much of the money that this country owes is housing related, which reflects a culture in which mortgages are routine. The truth is, however, that the debt that families are now getting into is not related to such investment in their future or about luxury living; it is about the money that they spend on everyday items. That is what is missing from their family finances.

In the current economic climate, UK adults face an average shortfall of £165 each month, with 26% unsure whether they can pay their bills on time. Recent research shows that more than 2 million people have used credit cards to pay their mortgage or their rent. That is an increase of almost 50% in a year. Since the recession, nearly a third of Britons are now spending more than they have coming in each month, and 22% of consumers will carry a credit card debt throughout 2011, with 7% of people saying that they will still be paying for Christmas 2010 after June 2011. It is estimated that 5 million people are now permanently overdrawn, and that 18 million have gone into the red at some point in the past 12 months. Nearly 8 million of us failed to pay at least one bill in the past year.

It is not just the poorest consumers in our society who are affected. According to Experian, the biggest rise in insolvencies in 2010 was among the people whom it calls “suburban mindsets”, a consumer group comprising married, middle-aged people. That situation has not come about by chance. It is a direct consequence of how this Government have chosen to address the deficit.

[Matthew Hancock]

I do not wish to extend the love-in much further, but the hon. Lady’s arguments, which are being passionately put, would carry much more weight and credence if she were to disappoint her Front-Bench team and accept Labour’s role in bringing about this situation.

[Stella Creasy]

I am sorry that the hon. Gentleman has not been listening closely. Let me make it very clear: the figures from the Office for Budget Responsibility that I cited refer to this past year. Forgive me, but as far as I am aware, his party has been in power during that time and it has presided over this increase in the private debt that households are now taking on.

Let us talk about some of the things that are causing that increase. VAT is costing a family with children an extra £450 this year, on average, due to the rocketing cost of buying basics such as telephones and clothes and of getting a boiler or a washing machine fixed. That is before they even consider getting out and about to spend money. Many Conservative Members have talked about fuel prices, but the increase in VAT is adding £1.35 to the cost of filling up a 50-litre tank with unleaded fuel. The cut in fuel duty gives back only 1p, but the VAT increase costs us almost 3p a litre.

Those who are in work are finding it even harder to make ends meet as a result of the Budget. Since 5 April, 750,000 more workers have been dragged into the higher rate of income tax, and benefit recipients have lost £2.7 billion-worth of payments. Cuts to child care support have taken £1,500 a year from families. The £48 that people will get through the personal allowance increase in the Budget is barely a tenth of the amount that families will have to pay back through increased VAT. In two years’ time, 1.5 million families—including many in places such as Walthamstow—will lose all their child benefit. Credit Action has pointed out that, of the 45 changes to the tax and benefit system made in the Budget, 26 will have a negative impact on households.

There will also be fewer chances of getting a better-paid job, or of getting back into work, because unemployment is set to be higher in every year of this Parliament as a result of this Government’s actions.

[Jim Shannon (Strangford) (DUP)]

Those in the 16-to-25 age bracket who are unemployed will soon top the 1 million mark. Does the hon. Lady share my concern, and that of many other hon. Members, about what the future holds for them?

[Stella Creasy]

I absolutely agree with the hon. Gentleman. I have been a close reader of the work of Paul Gregg at Bristol university, who has shown how unemployment can scar young people and affect their earning potential for life. I am extremely worried about young people in this country who are facing unemployment and have little prospect of a place on a training scheme or in a university.

There is little sign that these pressures on family finances will ease. With the current wage squeeze expected to continue until at least 2013, average wages are expected to fall to less than £25,000, which is more than £1,800 lower than in 2009. People do not have the pounds in their pockets that they need in order to keep spending in the way our economy needs if it is to grow. If we add to that the anticipated rise in interest rates and mortgage payments, which has been one area of respite in the past few years, we can see that things are going to get a lot bleaker. As our newspapers warn daily, and as the Bank of England has pointed out, interest rates are likely to climb, piling pressure on the 60% of low to middle-income families who are already struggling to pay their bills.

It is no wonder that four in 10 people are worried about their current level of debt, with 4 million fearing redundancy and 4 million more having taken on debt in recent months. We know that the cuts that we have seen so far are just the beginning. The ones that families across the UK felt this month accounted for a mere 10% of the total savings planned before 2015 from changes in the tax credit and benefit system. More than 40% of the cuts kick in in 2013.

Loading debt on to households helps this Government to cut the deficit at the pace they desire, but it is the job of Opposition Members to challenge them on the cost and consequences to all of doing so. In an economy where jobs and growth are in short supply, such debts do not just mean lower consumer spending, higher levels of bankruptcy or repossessions. Nearly 30% of British parents admit they are arguing over their family finances and a third of parents are suffering the stress of sleepless nights because they are worried about money.

Such changes also directly impact on our chances for economic recovery. As the Bank of England pointed out,

“prospects for consumption…have an important bearing on the outlet for activity”,

but it added:

“Near-term prospects have weakened further over the month. The squeeze on households…was likely to dampen consumption materially over the next year or so.”

Even after a sharp reduction in its private consumption forecasts, that favourite of the hon. Member for West Suffolk, the Office for Budget Responsibility, expects British households to account for just over a fifth of economic growth this year and for almost a third next year. The truth is that if the average family is not willing to dig itself deeper into debt, those figures might have to be revised.

The Bill reflects the Government’s complacency about the challenge. There is no commitment to act on these problems—only a general sense of unease, summed up best by the Minister for Equalities, the hon. Member for Hornsey and Wood Green (Lynne Featherstone), who wrote:

“What is tough—and will get tougher—is losing jobs. People in work will mostly get by—somehow. People on benefits will mostly get by—somehow. But for those who lose their job—it will be devastating. The cuts were announced last year. Their impact has yet to fully hit. This budget promised growth. The proof will be in the pudding. And the question will be whether there’s a new job to be found within a time frame that can keep health, hearth and home together—and we need to keep a watch over that.”

Well, I want to do more than keep a watch over that, and I hope to answer a question posed by Government Members about what policies Labour Members could suggest.

Today, I argue that we could do more than squabble over Keynes or the Ricardian equivalence; we could do something to help those people in immediate danger of insolvency and bankruptcy. At present, this Bill is missing that. Given the large numbers of people facing financial difficulty, we should be deeply concerned about the strategies that families have to cope with these pressures and how the Bill could do something to help.

To cover costs, more and more people are turning to sources of credit, which might seem like short-term solutions but quickly become long-term problems. The number of people who say they are likely to use an unauthorised overdraft this month has nearly doubled since July last year—from 900,000 to 1.6 million. Similarly, the payday lending industry in the UK, with its 4,000% interest rates and more, has quadrupled in the past 18 months.

Being able to borrow in a way that does not leave a long-term scar on the family finances is the new dividing-line in our society. Those who can access mainstream credit might just scrape by in austerity Britain. Those with little option but the legal loan sharks, maxing out their credit cards or racking up unauthorised debt, could spend a generation or more trying to become debt-free.

This Government want to pretend that such kinds of personal debt are solely a private matter, but Opposition Members see the social and economic consequences and we must beg to differ. A lack of regulation of the high-cost credit market in comparison with other countries allows that industry to go unchecked in the UK. Recognition of the problems caused by casino banking in the City is widespread across the House, but that is only half the battle; we should not forget the financial needs of those in our communities. For the sake of our economic recovery and for the sake of those families, credit should not be lent in a way that is detrimental to consumers without those who profit from exploiting them being made liable for the consequences.

When this Government announced their Budget, I asked a simple question: how can they be so keen to show that they are so tough on national debt, yet so blind to the growing crisis of personal debt that their policies are stoking? Today, with this Bill before us, we are no closer to an answer, but thousands more edge closer to personal financial problems as a direct result. That is why I will table amendments to review whether the supplementary charge or the bankers’ levy could be applied in a way that would disincentivise negative, high-cost credit lending. It is time that this Government put the fortunes of every family first. Other countries have done that to protect their consumers, and I do not see why British consumers should be denied the same opportunity.

Let me offer an open invitation to Treasury Ministers to do what their colleagues in the Department for Business, Innovation and Skills have signally failed to do, and respond to the concerns of Members throughout the House. I invite them to meet us to discuss how we could cap the total cost of credit. Campaigners all over the country who support such action—Churches, trade unions, community groups and consumer associations—would thank them for taking it.

I hope that Members who share my concern about personal debt will support my amendments, and will join me in holding the Government to account for what they are doing to the personal finances of families in every constituency in the country.