Finance (No. 3) Bill

Debate between Stella Creasy and Matt Hancock

Tuesday 26th April 2011 Commons Chamber

[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.