Jobs and Growth

Tobias Ellwood Excerpts

Thursday 17th May 2012 Commons Chamber

[Mr Tobias Ellwood (Bournemouth East) (Con)]

It is a pleasure to participate in the final day of the Queen’s Speech debate, where we focus on the economy. Occurring as it is just after the May elections, there is a tendency not only to look at the new policies that have come forward but to take stock of the Government’s performance to date.

An important match took place at the weekend—the Chancellor may have taken an interest as his constituency is not far away—which determined the outcome of the premier league. If we had taken the half time score to be the final outcome, we would have drawn very much the wrong conclusions. The same can be said of the economy. We must work towards a full programme across the Parliament, and at the moment we are halfway through that political cycle. Let us be fair: the 3 May local elections represented a tough result for the Government. I am sure that whole House will unite in delight at the re-election of Boris Johnson. [Interruption.] I am glad that everyone concurs. We look forward to his waving the Olympic flag once again, having seen him do that in Beijing.

[Paul Uppal (Wolverhampton South West) (Con)]

Does my hon. Friend agree that it is important that the Government are taking long-term decisions and looking at the long-term interests of UK plc?

[Mr Ellwood]

I am grateful for that intervention.

Labour Members may be rejoicing in their election results, but before they start measuring the curtains for No. 10 it is worth noting that they fell well below the magic number of 40%. That suggests that those results were more about sending a message to the Government of the day than voting for an alternative. Of course people are worried about jobs, the cost of living, rising fuel prices and generally making ends meet, and we must not lose sight of that. The results therefore reflect a backlash against the establishment which is having to implement these very difficult decisions.

Three observations can be drawn from the results. First, such backlashes are often witnessed. Back in the days of Margaret Thatcher, she went down to 24% in the polls but then continued to win general elections. Likewise, in 2000 the Tories managed to get 40% only to lose the general election in 2001. Secondly, the electorate should be cautious about listening to Labour’s alternative economic strategy of spending more, because it is that sort of irresponsible stewardship that got us into the financial crisis in the first place. Thirdly, the Government need to listen and must not be distracted by less important issues. They must focus on the priorities of the economy, education, welfare, reducing crime, and the NHS.

[Mr Stewart Jackson (Peterborough) (Con)]

My hon. Friend is making a compelling case. I know that he has a great interest in tourism and leisure. Does he agree that it is imperative that the Government make a decision soon on airport capacity in the United Kingdom, in particular in the south-east, to drive economic growth, jobs and the renaissance of our economy over the coming years?

[Mr Ellwood]

My hon. Friend makes an important point. This is a busy year for tourism in Britain and we must get those aspects right. This is not the first time that those points have been mentioned in this debate, and I think that the Chancellor has taken them on board.

The other thing I would like to point out about the local elections—this will be the same in future elections—is the deluge of news that has been thrown at us by the 24-hour news industry. We must think about how the message is managed, not just about the message itself. The Budget is remembered more for Labour’s sensationalist catchphrases, which have been heard again today, than for its game-changing announcements, such as the increase in the personal allowance, which will affect 24 million people; the largest single rise in pensions ever; and the cuts in corporation tax, which make us the most competitive country in the G8.

The latest phrase that Labour is peddling, which has leaked into the media, is “double-dip recession”. If I took my son, Alex, to the fairground and we went on a rollercoaster called “The Double Dip”, he would be pretty disappointed—even at the age of three—if the second dip was eight times smaller than the first. Labour is being disingenuous with the figures and undermines our economy by constantly peddling that phrase. [Interruption.] I hear Labour Members grumbling, so perhaps we should look at the figures. The Q1 results for 2012 were better than the GDP growth results for 2011, which suggests that the graph is going in the right direction.

[Mr Byrne]

The hon. Gentleman is certainly making a case. Will he tell us the cash value of the decline in GDP in the last quarter? How much did it cost our country in lost production?

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[Mr Ellwood]

I remind the right hon. Gentleman that the recession that lasted for five quarters, for which he was directly responsible, gave us a GDP growth figure of minus 2.3%. The figures that we are dealing with now are minus 0.3% and minus 0.2%. That means that we are heading in the right direction. It might technically be a recession of two quarters, but Labour is talking down the economy, which is not what the British electorate want to hear.

It is thanks to the measures that this Government are implementing that our economy is growing faster than that of the eurozone, twice as fast as Germany’s and three times as fast as that of France. Our borrowing costs have fallen to record lows, and thanks to the management of the deficit, we are able to retain our triple A rating. And yet, Labour are keen to peddle the idea that there is no plan for a recovery. That argument has just been put forward by the hon. Member for Leeds East (Mr Mudie).

I will give some examples of what the plan is. I have mentioned how we are managing the deficit so that borrowing costs are low. We are also creating one of the most competitive business tax systems in the developed world; cutting red tape by scrapping unnecessary and out-of-date regulations, which are costing UK businesses more than £350 million; and creating one of the most educated and flexible work forces in Europe by creating apprenticeship schemes and energising our schools system through the academy programme. Of course, we are also boosting investment and exports to rebalance the economy by setting up enterprise zones across the country, developing regional growth funds and replacing the regional development agencies with the more effective local enterprise partnerships. I certainly welcome the one that has just been launched in Dorset, which is already starting to release faster broadband and upgrade the county’s infrastructure.

[Karl Turner (Kingston upon Hull East) (Lab)]

What does the hon. Gentleman think the imposition of VAT on static caravans will do for jobs, growth and exports?

[Mr Ellwood]

Again, the hon. Gentleman is repeating a point that has been made by Labour and that the Chancellor has already heard.

To be fair to other Members who want to get in, I will conclude by saying that we need to remain firm on our plan. We need to focus on where we want to be in 2015. It was courageous of the Government to set out a plan for growth and I commend it to the House.

Budget Resolutions and Economic Situation

Tobias Ellwood Excerpts

Friday 23rd March 2012 Commons Chamber

[Matthew Hancock (West Suffolk) (Con)]

It is a great pleasure to serve under your enlightened chairmanship of this debate, Mr Deputy Speaker.

The debate has focused much on the immediate challenges and some specific measures, but I want to focus on the big picture. This Budget has seen a tax cut for 24 million working people and a wide range of measures to help Britain earn its way in the world. After all, this Budget was part of a series of Budgets to tackle the challenge of how to turn this country around after years of economic mismanagement. Some of that requires difficult and controversial decisions to be taken, but the fruits of these labours are not in the next day’s headlines, but in preparing our country for the world we live in.

My generation does not have the certainties of an economic world in which our main competitors were in the west—indeed, in the north-west of the globe and centred around the north Atlantic. We must compete against the growing tigers of the east and the growing and rapidly developing economies of the south, yet our economy was left unprepared for that. We all know that the fiscal situation was dire. Action has been taken over the past two years to deal with our debts, but we also need to ensure that we can earn our way in the world.

Understanding the international context might be helped by a few facts and figures, showing that we cannot any longer rely simply on trading with the old world to earn our living. Over the latest period, demand for UK exports by the European Union has been falling. Compared with January last year, the value of our trade with the EU is down £300 million, while exports to France fell by 14% and by 3.5% to Ireland. Those falls were more than offset by increases in exports to the rest of the world, however. Exports to the rest of the world are up 16% since January last year. Trade with China is up 30%, and trade to India is up 15%. There have also been rises in respect of economies with which we do not have much of a history of trade; our trade with South Korea, for instance, is up 145%. Our trade with our Commonwealth partner, South Africa, is up 57%, too. It is clear that our international trade patterns are changing rapidly, and we can no longer simply rely on Europe and north America to pull us through.

[Mr Ellwood]

My hon. Friend is making a powerful speech. Will he join me in congratulating both UK Trade and Investment on its work in promoting British industry and the Foreign Office on expanding our embassy empire, which had shrunk under the last Government?

[Matthew Hancock]

I compliment UKTI on the turnaround it is undergoing under Lord Green, the exceptional new trade Minister, who has vast experience and extensive contacts across the world. I commend the work he is doing both in the Department for Business, Innovation and Skills and with the Foreign Office, which is putting resources into the effort to increase our trade with the rest of the world, which has languished for so long.

I shall focus now on certain measures that I believe should be taken. Some of them might be controversial in the short term, but in the long term they will all prove to be beneficial and will change views. We must better inform people about the taxes they pay and the effects of those taxes. We also need a simpler and more attractive tax regime, to ensure that people want to create jobs in our country and international companies want to expand here.

We also need an active industrial policy. That is considered a controversial proposal by some of my party colleagues, but my argument is that the Government already put their imprint on the different sectors of the economy. Our financial services regulations are different from our pharmaceutical regulations, for instance. Also, Government decisions on where to put the roads that Opposition Members are happy to welcome has an impact on the rates of development in different parts of our country, and the development of High Speed 2 will, we hope, reduce the north-south divide. The Government have a sector-by-sector stamp, therefore, so we should use the power of Government where it can be a positive force, rather than simply say, “Government must get out of the way.”

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[Mr Tobias Ellwood (Bournemouth East) (Con)]

I am grateful that I was able to catch your eye, Mr Deputy Speaker, in this Hopperesque corner of the Chamber. It is a pleasure to speak in this debate on the Budget and the economy.

During the general election, I made a speech on the economy in which I said that if three MPs were asked the same question on the economy, they would give three different answers. I should confess that I added that if one of the three was a Lib Dem, there might be four different answers. Of course, we are now in coalition, so that joke is probably politically incorrect.

It is day three of the Budget debate and we are beginning to understand the detail of the statement and the impact that the component policy changes will have. Labour is starting to cherry-pick aspects of the Budget, probably to create a distraction from its contribution to the state of the nation’s economy and the inheritance that we received. I can retort by praising the tax breaks for the digital economy, which will help Bournemouth especially because it is thriving in that area; the funds for the Dorset local enterprise partnership; and the raising of the personal tax allowance, which will remove many low-paid workers in Bournemouth from the tax system altogether.

As important as those points are, we should not lose sight of the implication in the Office for Budget Responsibility report that the shadow of the recession that Labour took us into still looms. The eurozone crisis is not over. Oil prices remain high, and could climb higher. Although it has been about four years since the collapse of Lehman Brothers and the run on Northern Rock, we are certainly not out of the woods. We must not forget the scale of the financial mess that we inherited.

Labour’s approach for a decade was to borrow money that the Government did not have. It allowed the banks to do the same by over-leveraging and lending to people who could not afford it. It is all very well for Labour to blame the rest of the world and the state of the global economy, citing Fannie Mae and Freddie Mac, but there were issues here in the UK for which the Labour Government were responsible. Bradford and Bingley was offering 150% mortgages. That was a UK responsibility. It was happening over here. We cannot blame that on the Americans or on the state of the global economy. Even with the knowledge that the recession was under way and was likely to get worse, Labour kept on spending.

[Mike Gapes]

Is it not the case that, in opposition, the Chancellor of the Exchequer said that there was too much regulation by the last Labour Government?

[Mr Ellwood]

I do not agree with that statement at all. It happened under the Labour Government’s watch, and they were responsible. Their Chancellor, who later became the Prime Minister, inherited a stable economy. Indeed, in the first three years of the Labour Government, they actually balanced the books. Then in 2002, they overspent by £19 billion. By 2008 they had overspent by £68 billion, and by the following year they had ratcheted up a £152 billion deficit. That was after Lehman Brothers and Northern Rock. In their final year, they were still spending like there was no tomorrow, ratcheting up a decifit of £145 billion, taking us to an overall debt of close to £1 trillion. That is not good Government responsibility for the economy.

Not until we had a general election and an emergency Budget from our Chancellor, back in June 2010, was there some slowing down in Government spending. He introduced measures to protect the economy and set out a comprehensive strategy, including measures to control public finances and stimulate growth and tax reforms to increase our global competitiveness. Those measures were lacking under Labour, and the hon. Member for Ilford South (Mike Gapes) should ponder them.

I do not have time to go into the detail, but it would be helpful to break the Budget measures down into fiscal and monetary policy. Fiscal policy means the Government expenditure and taxation measures that have a direct effect on the distribution of income, demand and the level of economic activity. Two prime examples are the corporation tax cut, which will make us far more competitive, and the reduction in the top rate of tax to 45p so that Britain no longer has the highest rate in the G20.

By contrast, Labour introduced the 50p rate just before it left office, and it failed to raise the predicted revenues and undermined our competitiveness. Looking back in history, Labour seems to have had a love affair with high income tax rates over the past four decades. It was Wilson who put the top rate up to 83%, and Margaret Thatcher then reduced it to 60% in 1979 and 40% in 1989. What did Labour do when it came into office? It did not put the rate back up again; it kept it as it was. It recognised—certainly Tony Blair recognised—that to remain competitive, we had to have sensible tax rates.

I do not have time to dwell on monetary policy—the supply of money, the cost of money, the rate at which it is controlled, the price that the Government pay to borrow it and the total supply of money into the economy—but it has an impact on matters such as controlling our triple A rating and the price of borrowing. The Government have kept interest rates low and used selective quantitative easing, and that sound monetary policy is moving Britain forward.

This is a radical and reforming Budget that will help Britain earn its way in the world in continuing difficult times. Labour gave us a disastrous economic legacy, for which it is only now, sheepishly, apologising. It led to record debts and a halving of our manufacturing base, resulting in our coming within a whisker of losing our important triple A rating. The Government are at last balancing the books, reforming our tax system, supporting British business and staying on a course towards economic recovery. The OBR has revised upwards its growth forecast for this year. It is low, but nevertheless improving, and the OBR predicts that it will reach 2% in 2013. Labour has proved that we cannot borrow our way out of trouble. This Government are proving that we have to earn our way out.

Banking Commission Report

Tobias Ellwood Excerpts

Monday 19th December 2011 Commons Chamber

[Mr Osborne]

I would like to see them fall, which is why we are keen to get challenger banks out there. It is why we proceeded, as I have said, with the sale of Northern Rock, and why we want the Lloyds divestment to take place. As for what the exact market share of those banks should be, I do not believe, perhaps unlike my hon. Friend, in the command economy in which the Chancellor of the Exchequer determines every share of the market for every business. I will not prescribe exactly how much market share a bank should have; there has to be an element of the free market .

[Mr Tobias Ellwood (Bournemouth East) (Con)]

I welcome these recommendations for regulation. It might come as a surprise or, indeed, a shock to Members to learn that I was refused my first mortgage application. That happened back in the days when mortgages to first-time buyers were capped at two thirds of the value of the property. Under the previous Government, however, first-time buyers could get 100% or 125% mortgages. Will the Chancellor confirm that those days of irresponsible lending are behind us?

[Mr Osborne]

We have not much mentioned today the report from the Financial Services Authority, which is about ensuring that people can afford the mortgages they seek. The changes are important, as they get the balance right between not pricing first-time buyers out of the market even more than they are now and ensuring at the same time that people are informed and can get a mortgage that they are able to afford.

The Economy

Tobias Ellwood Excerpts

Tuesday 6th December 2011 Commons Chamber

[Ed Balls]

If the hon. Gentleman is quoting the figures for this year, they might be the result of the Chancellor’s policies. Let me return to concerns about Dover and Deal. While campaigning for a new hospital in Dover, the hon. Gentleman said:

“I am very, very concerned that Dover has not had and does not get its fair share of health care. I have taken this up with ministers and hammered home just how angry people are”.

Perhaps he should also hammer home with his Front Bench the failure of cuts in tax credits.

In last week’s statement, in today’s debate and in every interview the Chancellor has given, we hear him give excuse after excuse and blame anyone except himself. Earlier in the year he blamed the snow, the earthquake, the royal wedding and higher oil prices. America was badly affected by the snow, and every country was affected by the Japanese earthquake and higher commodity and oil prices, so why did Britain have slower growth than any other country in the G7 except Japan? Why do we have higher inflation than any other country except Estonia? It was the Chancellor’s decision to raise VAT in January that pushed up fuel and petrol prices, hit confidence and reduced real living standards for families. He then blamed the euro crisis, but the fact is that our economic recovery was choked off a year ago, well before the recent crisis.

The Office for Budget Responsibility has downgraded its growth forecast for Britain in 2011, but it has upgraded its growth forecast for the euro area. Only Greece, Portugal, Denmark, Cyprus and Slovenia have grown more slowly than Britain over the past year. As the OBR figures show, the fact is that it is the lack of domestic demand that has slowed down our economy. It is only net trade, the contribution of exports, that has kept us out of recession over the past year. If the eurozone countries fail to sort out their problems, that will of course have an impact, which is why it is important that they are sorted out. Far from the eurozone dragging us down this year, it is actually the euro that has been buoying us up.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

The right hon. Gentleman speaks of asking for, or demanding, an apology, but an apology is required from Labour Members. To give credit where it is due, however, I remember that when he was Secretary of State for Education he looked for savings in that area. But he did not do so right across the board. Page 15 of the OBR report shows that in 2008 borrowing went up to £68 billion, that in 2009 £152 billion was required, and that in 2010 another £145 billion was required: spending, spending, spending. It was not until this Government came in that such spending was halted.

[Ed Balls]

The hon. Gentleman makes an important point: there was a major financial crisis that hit Britain and all countries throughout the world. The Chancellor always wants to blame Labour, as he does the snow, the earthquake and the euro area.

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[Mr Tobias Ellwood (Bournemouth East) (Con)]

It is a pleasure to participate in this important debate. I hope that the usual channels will recognise the demand for and interest in it and perhaps provide more time in future.

I begin with a challenge to the Labour party about the observations made in the report by the Office for Budget Responsibility. I very much welcome the existence of that body and its report. If the Opposition accept the figures in the report, they must also pay heed to its analysis. I believe they have accepted the numbers, but not the reality behind them. The OBR does not predict a recession here in Britain, according to page 15 of the report, but there is a caveat that has been stressed by Members of all parties about what is going to happen in the eurozone. It is hoped that the right decisions will be made to bring confidence back to that area.

The report provides three reasons why the OBR has had to provide an updated position. The first is rising commodity and food prices, the second is that the scale of the boom and bust under the last Government had a greater impact on the economy than previously thought, and the third is that the euro crisis has increased instability and uncertainty, which has affected household and business spending.

There is also uncertainty about the liquidity of Europe’s banks, which a number of Members have mentioned. There is an irony there, because in 2008-09 it was Governments who were bailing out the banks, but today the banks are called upon to buy bonds and bail out Governments. However, many banks across Europe are unable to do that. They are desperately trying to repair their exposure to the debt, and bond issuance across Europe is actually dropping. In the past six months, just €17 billion was traded, compared with €120 billion in the same period in the previous year. Big decisions need to be taken about the role of the European Central Bank, eurobonds and so on if we are to create the stability that is required.

I am grateful that our Government are in a different position from others, because they acted to keep the deficit down, cut the size of the public sector and help the private sector to grow through active enterprise policies and a reduction in corporation tax. They also took difficult decisions about universities and tuition fees, to ensure that we remain competitive in the long term.

I turn briefly, in the very short time that I have, to the economic growth figures as measured by GDP. The shadow Chancellor is keen on suggesting that the economy is flatlining. He uses funny gestures to say so—I wish he would stop them, because he looks a little bit like a cross between a lazy cricket umpire and Mr Tickle. I do not believe he understands the difference between the economy flatlining and growth. It is like the difference between velocity and acceleration—if someone jumps out of a plane, they fall at 9.98 metres per second squared. That number does not change, but as anyone who has done it knows, they do accelerate. It is the same with economic growth. The economy is growing year on year, as long as the figure is above zero. Labour need to recognise that. If they accept the figures in the OBR report, they must also accept that the outlook is that we can expect to see growth of up to 3% by 2015. If the Opposition say the economy is flatlining, are they saying that China’s economy is flatlining with a growth level of 10%? Of course it is not; it is growing year on year.

My final point is about the national debt and the responsibility that the last Government ignored. That is the public sector net borrowing requirement—the difference between what we raise in tax receipts and what we spend on all the Government Departments. In Labour’s last year in office, the Government put £513 billion into the pot but took £670 billion out, leading to a deficit of £157 billion. That was just one year. In 2002, the books balanced and there was not a problem, but the year after they borrowed £19 billion, and then it went up to £30 billion. Year after year, they accumulated a massive debt, which led us to the position that we are in at the moment.

It was not until this Government came to power that we said, “Stop. We cannot keep adding to this debt crisis.” By the time the election took place, we were perilously close to losing our triple A rating, and we inherited the highest structural deficit of any major economy in the world. I am very pleased that we have got a grip on the economy now. Many quotations have been given in the debate, and I will give one final one, from Margaret Thatcher, who said that sooner or later, every Labour Government run out of UK taxpayers’ money to spend. That is clearly what happened under the last Government.

Global Economy

Tobias Ellwood Excerpts

Thursday 11th August 2011 Commons Chamber

[Mr Osborne]

In the spending review, we set higher capital budgets than those set out by my predecessor, the Chancellor of the Exchequer in the last Labour Government. Therefore, capital spending budgets are higher than they would have been under the plan the hon. Lady stood on in the last election.

On getting the construction sector moving, that is precisely why we are tackling issues, such as the planning delays, that have been so difficult, and why we made a number of tax changes in the Budget to help the construction sector. The construction index was also positive in the last couple of weeks. I just say to the hon. Lady that when we are running the highest budget deficit in the G20, it is not possible to abandon our fiscal consolidation plans and to seek someone out there in the world to borrow more money from. That would lead to markedly higher interest rates—we need only look at the interest rates in Spain and Italy at present—and we know that higher interest rates do particular damage to the construction sector.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

I congratulate the Chancellor on sticking to his deficit reduction plan, which has allowed us to keep our triple A rating, unlike some other countries, including the United States and possibly now France. If France were to lose its triple A rating, what would be the implications for the EU stability fund and the ability for eurozone bail-outs to continue in the future?

[Mr Osborne]

My hon. Friend asks a good question, which is being asked in the markets at present. I have to say that one of the causes of the instability in the last couple of weeks has been loose comments by Finance Ministers on issues such as that which he raises, so I will “take the Fifth” and not comment.

Oral Answers to Questions

Tobias Ellwood Excerpts

Tuesday 8th February 2011 Commons Chamber

[Mr Osborne]

I assume that the hon. Gentleman is referring to the request for additional support for the security situation in Northern Ireland. It is a request that I have taken very seriously, and we are interrogating the request properly—[Laughter.] I know that it comes as a complete surprise to Labour Members that the Treasury should actually interrogate spending requests from Departments, but we have decided that there is new management in charge at the Treasury, and that we should start doing that. We will treat the request with due diligence, but I am clear that security comes first. That will be my priority.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

T3. Is my hon. Friend aware of recently passed US legislation—the Dodd-Frank Wall Street Reform and Consumer Protection Act—that obliges oil, gas and mineral extraction companies listed on US stock exchanges to declare how much they pay directly to a Government for the rights to mine those resources? This has a huge impact in Africa in tackling corruption, increasing transparency and stopping the backhanders that end up being given to Heads of State. Would he agree to meet me to see whether we can introduce such legislation here in the UK?

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I am grateful to my hon. Friend for asking that question. Indeed, last week I had a meeting with representatives of leading non-governmental organisations on this matter, and the Government are actively engaged at a European Union level to see how we can progress it. He raises a fair point.

Oral Answers to Questions

Tobias Ellwood Excerpts

Tuesday 21st December 2010 Commons Chamber

[Mike Freer (Finchley and Golders Green) (Con)]

6. What estimate he made of the effect on public finances of the introduction of a graduate tax.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

14. What estimate he made of the effect on public finances of the introduction of a graduate tax.

[The Chancellor of the Exchequer (Mr George Osborne)]

A graduate tax would add billions of pounds to the budget deficit. That is just one reason why anyone in government, Labour, Conservative or Liberal Democrat, who has ever looked at the facts has concluded that a graduate tax is unworkable, unfair and unaffordable.

Autumn Forecast

Tobias Ellwood Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Osborne]

We have created the regional growth fund to look specifically at areas that need support and investment. We have been able to announce some significant transport investment in other parts of our country. The national insurance tax reduction, which the hon. Gentleman mentions, refers explicitly and only to job creation outside the south-east and east, and I have deliberately taken that decision to try to create a more geographically balanced economy than the one I found when I took this job.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

It is clear from the response that we have heard today that the Labour party is still in denial about the huge deficit that it created. I congratulate my right hon. Friend on coming up with a workable, viable and transparent plan that can take us out of this mess.

I take my right hon. Friend back to the permanent fiscal stability facility, which will not come online until 2013. What will happen if another eurozone country requires a bail-out? Will Britain’s involvement be kept to a minimum?

[Mr Osborne]

I thank my hon. Friend for his initial comments. I say this about any future action that we may or may not have to take. On the bilateral loan, I said last week that there were some very specific— I stress the words “very specific”—circumstances that would lead us to support Ireland because of the interconnectedness of our economies. I also said that the European financial stability mechanism, the EU fund, was something that the previous Government had signed up to, and that the UK could not block its use because it operated under qualified majority voting. I had to deal with that situation, but by finding now what I think is a way forward that means that the mechanism disappears in 2013, we have taken a bad situation and made it a lot better.

Capital Gains Tax (Rates)

Tobias Ellwood Excerpts

Wednesday 23rd June 2010 Commons Chamber

[Mr Darling]

No, I am going to make some progress.

The current context is a fragile recovery, with growth in Europe sluggish. Crucially, however, we cannot assume, as the Government seem to, that it is axiomatic that if we cut back on public expenditure, the private sector will come in and take its place. That is not guaranteed at all. We have seen that in Japan and other countries. Indeed, the private sector often relies on public sector spending in many ways, whether through investment and support or directly, because it supplies goods and services to the public sector.

As I have said, borrowing is too high and we need to get it down. As I said to the hon. Member for Bexleyheath and Crayford (Mr Evennett), our receipts from income tax and corporation tax fell, as did our stamp duty receipts when the housing market went down, but that would have happened—indeed, it did happen—to every other major economy. We are not talking about something that was confined to the United Kingdom. Of course, as unemployment goes up, social security spending goes up as well. Indeed, it is interesting that if we look at what has happened to other countries across the world, we see that the deficit this year in this country is about the same as it is in the United States. If we look at debt and the IMF comparisons that were published in 2009, we find that our debt was less than that of Japan, Italy, Germany and France, and, looking ahead to 2015, it will still be less than that of the United States, France, Italy and Japan.

The idea that we are talking about a particularly British problem simply does not stack up. It is not true, but it is used as a convenient excuse for what the Conservative party always wanted to do. The truth is that the Conservatives supported our spending plans right up until the end of 2008—the hon. Member for North West Leicestershire (Andrew Bridgen) might want to consider this point. Indeed, when the now Prime Minister was challenged—I think by some right-wing newspaper—as selling the pass, he said that those spending plans were “tight”. That was the word he used. He said:

“This is why we are sticking to Labour’s spending totals. Taken alone, these are tight.”

That is what he said in 2008, but now the Conservatives turn around and say that what happened would not have happened if they had been in power for the past five years and that things would have been completely different.

Let us be clear: we all want to see borrowing come down, and we need to ensure that that happens. It is also clear that we need to understand the consequences of what we are doing, so that we do not damage our economy or damage the social fabric of this country. However, to suggest that we should not have done anything to support our economy as we went into recession or that we should not have stepped in to prevent the banking system from collapsing—and it was hours from collapsing—is simply nonsense, frankly. Indeed, if we had not done what we did, the cost, in terms of increased borrowing and higher debt, would have been far higher even than it is today, so that argument simply does not stack up.

We need a sensible plan to get borrowing down, but if we get this wrong we will cause major problems, given the scale and speed of the Government’s action. Again, the Business Secretary said a few weeks ago that

“it would be foolish to rush in significant cuts now which take the economy down even further, which lead to an even bigger deficit problem”.

He was right when he said that, yet the view of the Government of whom he is now a member is rather different. To be fair to the Chancellor, he has been consistent. He has wanted to take this risk for some time, and he is now taking it in great style. Even better, from his point of view, is that he has got the Liberals to front it up. No wonder that, once they are out of this Chamber, Conservative Members are laughing at the very idea of getting the Chief Secretary to the Treasury fronting up the cuts last week in his boss’s constituency. That is indeed new politics; I just wonder how long it will last. All I can say is that if things get better, there is no way that the Conservatives will allow the Liberals to front up any good news when it comes.

I am concerned at this time that we run the risk of derailing the recovery, which is why I took a different view. I thought that we should halve borrowing over four years, rather than go further and faster. Looking at the Office for Budget Responsibility’s forecasts published yesterday, I am concerned that it has downrated the growth forecast for this year, which it published a week before, from 1.3% down to 1.2%, and that it has downrated growth in 2011 from 2.6% to 2.3%. The OBR therefore recognises that growth is going to be suppressed as a result of what is being done.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

Will the right hon. Gentleman give way?

[Mr Darling]

Yes, I suppose so.

[Mr Ellwood]

I am honoured that the right hon. Gentleman has taken the time to give me tuppence-worth of his attention. Will he comment on whether he supports the creation of the Office for Budget Responsibility, bearing in mind his own predictions? In March he stated in this place that the growth forecast for 2011 was 3.25%, but now the Office for Budget Responsibility says that the forecast is 2.6%.

[Mr Darling]

I am glad that I gave way to the hon. Gentleman, because the last time we touched on whether I supported the creation of the OBR, I think that the Chancellor said that I had always opposed it. However, I was careful before the election, and I think that I am right in saying that I did not oppose it as a matter of principle. The present Government decided to set up the OBR. If it works, it is worthy of support, so we will support the legislation in principle, but we will look at the detail. One interesting question is whether the OBR should be responsible to the Treasury or to Parliament—to this House in particular.

[Mr Ellwood]

It has rubbished your forecasts.

[Mr Darling]

Let me come to the forecasts. Forecasting, as I am sure the hon. Gentleman knows, is an art rather than a science. Let us just see, because as I understand it, the OBR is being advised by exactly the same civil servants who advise the Chancellor, and who advised me a few months ago. However, I note that when Sir Alan Budd announced the OBR pre-Budget report a week last Monday, he said that one of the reasons why he had changed his estimate was recent developments, including what is happening in Europe. As I said earlier, I am less optimistic now than I was three months ago about what is likely to happen to growth.

[Mr Ellwood]

Will the right hon. Gentleman give way?

[Mr Darling]

No, I think I have dealt with that point.

There will be some people who argue that the private sector would see faster growth and job creation if there was a swift consolidation that supported looser monetary policy. However, with inflation down, interest rates at 0.5% and bond yields coming down—they were coming down before the election, as well as after it—there is no evidence of suppressed private sector demand, so that argument does not stack up. I am concerned that we may see a situation when there are not the right conditions or the right confidence to bring forward business investment. I am happy to welcome the proposed reduction in corporation tax rates and other business help, but what governs whether businesses come forward with investment is whether they are confident that the economy is going to be growing so that people will buy their goods and services. That is what I am concerned about.

I am also concerned that the Office for Budget Responsibility forecast shows employment taking a hit of about 100,000 compared with what we had forecast previously. The Chartered Institute of Personnel and Development foresees unemployment rising and sticking around 3 million for this entire Parliament. The history of Japan in the 1990s—and, indeed, our own history back in the 1930s—provides a lesson in what happens if we get all this wrong. Wherever we sit in this House, we should all be concerned about rising and persistent unemployment. Not only is it an economic waste; it is also a social catastrophe, as we have seen on many occasions.

--- Later in debate ---

[Diana R. Johnson]

That is absolutely right. We have seen a political blind date, but we should not worry because it is clear that Dave agrees with Nick, and that Nick agrees with Dave, so perhaps it will be okay in the end.

There are a few measures in the Budget that I can support, such as the change to capital gains tax and the bankers levy, although I am surprised that the levy will raise only about £2 billion because I think we could raise much more. However, the broad thrust of the Budget is very bad news for my constituents. Hull North will see more individuals out of work, with people’s opportunities wrecked and a decline in their quality of life. The programme of fighting child poverty and inequality will go backwards, not forwards, and there will be big problems in health and housing. Most importantly, wealth creation and enterprise will suffer in Yorkshire.

I want to talk about four things in particular: the rewriting of the history of the economic situation by the Conservatives and Lib Dems; the dogma that drives the Budget; my constituency, and Yorkshire and the Humber; and Labour’s approach to dealing with the economic situation in which we find ourselves.

I am worried by the rewriting of the economic history of the recession and the falsification of the cause of the deficit. We know that the Prime Minister is familiar with airbrushing, and his deputy routinely airbrushes away more than 100 years of his party’s history when it suits him. The deficit was caused not by big government, but by big greed. Bankers and international speculators are at its root.

In 2006 and 2007, I was fortunate to be the Parliamentary Private Secretary to the then Chief Secretary to the Treasury, my right hon. Friend the Member for East Ham (Stephen Timms), whom I was pleased to see back in the Chamber today. During that time, early work was being carried out on the current 2008 to 2011 public spending period. We had enjoyed a decade of low inflation, steady growth and falling unemployment, and there was no serious deficit problem. At that time, the present Prime Minister and Chancellor used a soundbite about sharing the proceeds of growth. They also said that they wanted to match the Labour Government’s spending plans up to 2011, as they kept saying until the end of 2008.

We all realised at that time that the spending round would need to be tighter than the one immediately after the millennium, but the adjustment was not remotely on the scale of the deficit in the public finances that opened up from 2008. The events of the two years that followed came about because of the greed-fuelled banking crisis that tipped the world into the worst recession since the 1930s. It is wrong to airbrush out what happened, to blame the problem on big government, and to be oblivious to the fact that public services are important not just for fighting poverty and inequality, and for providing opportunity, but for an efficient, growing, modern economy. Since the middle of 2007, taxpayers have had to pay to rescue the banking system—and not just in Britain—but now hard-working families and public service workers are being asked to pay again because of the greed of the bankers and the speculators.

The Budget is driven by dogma, not good housekeeping. It cuts too early and too deep, and it will hold back growth, which my party saw as the main engine for cutting the deficit. We know that further cuts will follow, including departmental cuts of up to 25%, but I think that the coalition Government will make further cuts again and again, meaning that we have a spiral of cuts and debt.

When Labour was in office, the Chancellor berated our Government for not mending the roof while the sun was shining, but it now seems that he is up the ladder removing the slates as the storm clouds of a double-dip recession gather on the horizon. In Hull, we need public services and investment. They are important to the local economy. The coalition cuts, however, will harm our quality of life. The Tories said in the past—I think that they still say this—that mass unemployment is a price worth paying. The market zealots on the Government Benches who said for years that they wanted less regulation of the markets and smaller government are now getting their way.

[Mr Ellwood]

I am sad to hear the hon. Lady advocate a double-dip recession so early in a new Parliament. The public do not want to hear those sorts of words. We need to get behind the Government and allow the coalition to do its job. I would like to ask her who was responsible for allowing Bradford & Bingley to give away 125% mortgages? Who was responsible for removing regulations in the banking industry in the late 1990s and thus allowing banks to lend people money in ways that they did not understand and when the payments could not be afforded?

[Diana R. Johnson]

I remind the hon. Gentleman that Conservative Members vociferously argued in the House year after year that there should be less regulation of the financial markets. They criticised the Labour Chancellor and Government for the regulations that they introduced. The hon. Gentleman has a rather selective memory of his party’s position in the late 1990s.

I fear that Yorkshire and the Humber will bear the brunt of the majority of cuts that come out of the Budget. I am pleased that my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) is in the Chamber. She has been a powerful advocate for her city of Sheffield and wanted to ensure that the sensible arrangements that the Labour Government put in place for Sheffield Forgemasters went ahead. It is shocking that the coalition Government have refused to continue the process. Sheffield Members are making a strong case for the assistance, so it is a shame that the Deputy Prime Minister is out of step with his city colleagues.

--- Later in debate ---

[Mr Tobias Ellwood (Bournemouth East) (Con)]

I welcome you to your place, Mr Deputy Speaker. It is 20 minutes past 3, so I am surprised—but glad—to see you in your seat, because the England game against Slovenia has now started. I know that you have been to Slovenia many times, and it is great to see you here.

I pay tribute to the hon. Member for Strangford (Jim Shannon) on his passionate and balanced speech. I served in Northern Ireland and am aware not only of many of the challenges that hon. Members face over there, but of the opportunities. It is a pleasure to follow him, and I agree very much about the opportunities in the development and working of the cadets in bringing communities closer together. It is wonderful to see that initiative moving forward.

The hon. Member for Kingston upon Hull North (Diana R. Johnson), who has just walked out the Chamber, made an entirely negative speech. Yes, whichever party won the election would have faced challenges, but how can she stand there and simply demand more money for certain projects in certain parts of the country, without saying where it should come from? Labour Members have failed to understand the consequences of the election result. It was clear that nobody won, so why continue to look back at the manifestos of individual parties and ask, “Why are you now not doing this, or that?” We had to rise to the occasion and ask, “What is needed for the country?” We have to put aside our party differences and meet the challenge, which is to bring about stable government and leadership. The Liberal Democrats and the Conservatives were able to do that, but of course it meant a certain amount of compromise. So it is wrong to harp on about aspects of the manifesto and say, “Why haven’t you included this? Why haven’t you done that? You’ve gone against the people who voted for you.”

[Huw Irranca-Davies]

rose—

[Owen Smith]

rose—

[Mr Ellwood]

I see that that has prompted a reaction from Labour Members.

[Huw Irranca-Davies]

Does the hon. Gentleman accept that in the election there was a fundamental divide over the approach to the economic recovery, which was encapsulated in the manifestos of the two main parties that lost—the Labour party and the Liberal Democrats? The Tories did not win outright either, but those two significant parties both, at the time, agreed with Nick and Vince that we had to delay making the cuts until the recovery was ensured.

[Mr Ellwood]

I am grateful for that intervention because it gives me licence to underline the fact that, if we are to move into a coalition, there needs to be agreement, and it is a tribute to the parties and the leaders that in a short period they achieved something that, in countries such as Belgium, takes 100 days—forming a coalition grouping while all the horse-trading takes place. Yes, there are compromises and changes that were not expected during the election. However, according to the polls the country supports what we are doing.

[Owen Smith]

Does the hon. Gentleman think it a minor omission that, although the Conservatives’ manifesto said that they would not increase VAT, they have done exactly that and introduced an enormous, £13 billion tax? There was no mention of that before, so should we trust their manifestos in future?

[Mr Ellwood]

Rather than leave a curt note on the desk of the Chief Secretary to the Treasury, we have given an indication of the real situation in the UK. Again, I underline the fact that there are aspects of the coalition agreement we perhaps were not expecting—that should be understood on both sides of the House. I fear that it will remain a Labour tactic to go on about this, perhaps to try to drive a wedge into the coalition. That is dangerous, out of touch and wrong, because the nation said to us, “We don’t support any one party outright”, but it approves of a coalition and the leadership, and the stability that they and this Budget are providing.

My hon. and good Friend the Member for Harrogate and Knaresborough (Andrew Jones) made an excellent maiden speech. He mentioned Guy Fawkes wandering through his constituency, and I am sure he will make just as big a bang in this place as Guy Fawkes did. I cannot mention Harrogate without also paying tribute to Betty’s tea rooms. Those of us who have gone there for conferences will appreciate the delicacies that Betty’s provides—I only wish that could be emulated here in the House. The hon. Member for Hemsworth (Jon Trickett), who also is no longer in his place, made the most Marxist speech I have heard in this place for many years. I was waiting to see how long it would be before Maggie was blamed for what has happened over the past 13 years—and that is what we got from him. I was astonished.

This emergency Budget is tough but necessary, difficult but unavoidable. It is not the time for timid steps in the hope that we can tiptoe our way out of recession. We needed a bold statement of intent, mapping out a clear route to recovery and invigorating confidence in our businesses and markets. That is exactly what we got. Three main themes run through the Budget and Red Book. The first is one of responsibility in reducing the deficit over the next five years, mostly through spending cuts but also, yes, through some tax rises. That is the price we must pay for Labour’s incompetence and legacy.

Economic growth is the second theme. Measures taken in the Budget are designed to support businesses and stimulate growth, which will help to generate jobs as businesses are able to expand. That will mean cutting red tape, which will free businesses, because removing red tape is the same as introducing a tax cut but without reducing public revenue. It also means preventing Labour’s job tax through a rise in national insurance, reducing corporation taxes and improving our infrastructure.

The third theme is fairness. Of course, we are in a period of austerity, but every part of society must make a contribution to paying off our debts. At the same time, however, we must protect the least well-off. Listening to some of the contributions from Opposition Members, one might think that no such initiatives were part of the Budget. However, we have ensured that those earning less than £21,000 in the public sector will not be subject to the pay freeze. We will see a £1,000 increase in the personal tax allowance for low and middle-income earners; and finally we will see a re-linking of the basic state pension and earnings—well overdue and promised for years by Labour, but never acted upon. We will also see a £2 billion commitment to child tax credits for the poorest families, helping to ensure that there is no increase in measured child poverty over the next few years.

These are the tough decisions we need to take. We have to do this to secure our financial markets and ensure that credit agencies do not lose confidence in Britain. If we do not, interest rates and inflation will rise, and that is what would lead to the dreaded double-dip recession. I am glad that our triple A rating is now secured, thanks to the Budget.

I will give the Labour Government their due: they acted promptly and expeditiously when the Northern Rock issue broke. But then what happened? We have been left with one of the worst economic inheritances imaginable. They racked up one of the biggest budget deficits in Europe. If that is not shocking enough, our borrowing amounts to unheard sums of money. They continued to live beyond their means, borrowing £1 for every £4 they spent, which led to the doubling of the national debt. I well remember Labour’s last Budget, in March 2010. I was sitting in this Chamber waiting for the leadership, initiative and guidance to take us out of this mess. It was the Labour Government’s last opportunity before the election to get us out of the mess they created, but it was more about the political, rather than the economic, cycle. The previous Chancellor went as far as announcing £40 billion of cuts, but he did not say where the axe would fall, so he managed to ring-fence a black hole, which was a first in this House.

Significantly, the Labour party really had nothing to say yesterday. The acting leader of the Labour party was almost like a rabbit in the headlights. Labour Members rolled out the same old line, which we have heard time and again—I am sure we will hear it again in the summation today—about “the same old Tories”, thereby exhibiting an insane refusal to acknowledge the scale of the economic crisis. We have seen Labour Members attempting endlessly to promote and fight a class war with the Conservatives. That is the direction in which they are now trying to take us, avoiding any notion of mea culpa or of taking responsibility for the mistakes made in the lead-up to the current crisis. That illustrates how out of touch the Labour party has become.

Labour continues to argue that we cannot rip the money out of the economy—through the cuts, the increases, and so forth—and also achieve growth, but I believe that we can. We need to give business and the private sector the space to breathe by reducing national insurance and corporation tax. Those are the measures we need to take. That is what will help us to avoid going into a double-dip recession, allowing our businesses to thrive and employment to grow. Labour’s tactic—I am worried about this, because I understand that the unions bankroll Labour to the tune of 60%—is to fight the public sector cuts. That is what we will see as things move forward: these astonishing arguments why, unlike any other part of our society, the public sector should somehow be ring-fenced and not have to share some of the economic pain we are experiencing.

The unions are clearly looking for a fight. I pay tribute to the nurses, doctors, teachers, train drivers—all those who work hard—but let us look at who is now taking over some of the unions: Dave Prentis from Unison, who has pledged to fight the cuts; Christine Blower from the National Union of Teachers, who has enthusiasm for industrial action of some form, as she has made clear; and Paul Kenny from the GMB. Then there is the Unite leader, Len McCluskey—we have all seen what he has done to British Airways—who is seeking re-election. If he gets re-elected, the consequence will be strike after strike, because the public sector unions—not the members, but the unions—do not recognise that we are all in this together.

Labour’s tactic is to blame the global downturn. We hear this all the time: “It’s not our fault; this is because of what happened right across the world.” However, as I pointed out in an intervention, yes, we are exposed—perhaps more than other countries—because of the size of our financial services sector, which is one of the biggest in the world. That is accepted, but we cannot get away from the fact that the previous Government changed the rules, making it unclear who was responsible for the City back in the late 1990s. That is why we got into the position where banks were lending money they did not have to people who did not understand the situation, and in ways that meant that they could not pay it back. That is what led to the current position.

We cannot blame Freddie Mac, Fannie Mae or the sub-prime market for the fact that, even up to about two years ago, Bradford & Bingley was offering mortgages of more than 125% to people who clearly could not pay them back. I remember when I was at university wandering into Midland bank, as it then was, and seeking a mortgage. I was told that I had to cough up one third of the price of the house. What happened to that rule? It went, and that is why we ended up with more money than houses were worth being lent to people who could not pay it back. That is a British problem, not an international one, and that is what led to the crisis we face now.

I repeat my earlier point: I think Labour are going to adopt the tactic of trying to drive a wedge between the coalition by saying, “The Lib Dems said one thing in the election and the Tories said another.” The nation will get bored of it. People want direction—they want leadership and stability—not harping back to what happened prior to the election.

Let us look at the numbers. Our focus is to try to balance the books by 2016. We will cut the structural budget deficit to zero in the next six years. That deficit represents the hole in the public finances that is not expected to be repaired by the economic recovery. That is why we need to take the initiative that we have. Let us look at what the shadow Chancellor has done. I asked him in an intervention whether he supports the Office for Budget Responsibility. I am pleased to say that for the first time, he placed it on the record that he does. However, it is difficult to take anything that he or anybody else on the Labour Front Bench says seriously, given that the OBR reviewed his figures and revised his growth forecast for 2011 from 3.25% to 2.6%.

[Ms Angela Eagle (Wallasey) (Lab)]

As the hon. Gentleman is talking about the Office for Budget Responsibility and its forecasts, will he have the good grace to note that its recent deficit forecasts are considerably lower than those in the March Budget because more money has been collected in taxes? The deficit that the hon. Gentleman is obsessing about is actually 2% of GDP lower than the forecast in the March Budget. Will he have the decency to recognise the other side of the coin, as well as this side of it?

[Mary Macleod (Brentford and Isleworth) (Con)]

The structural deficit is higher.

[Mr Ellwood]

As my hon. Friend the Member for Brentford and Isleworth (Mary Macleod) says from a sedentary position, the structural deficit is actually higher.

Let me deal now with total borrowing as stated by the Office for Budget Responsibility. This is now expected to fall by 2.1% of GDP by 2015, or by £37 billion, which is exactly half of what Labour were predicting, and to reach 1.1% by 2016.

[Ms Eagle]

I wonder whether the hon. Gentleman was listening to the question I asked him. Given that he is quoting one particular forecast from the Office for Budget Responsibility, will he have the good grace to say on the Floor of the House that the size of the current deficit is now 2% of GDP lower than we predicted in the March Budget? The situation in which we find ourselves is not a lot worse than we thought; it is better.

[Mr Ellwood]

The hon. Lady has put her point on the record. My argument is that it is difficult for us to take what the shadow Chancellor says seriously when he has been looking through rose-tinted glasses for the last 10 years. Time after time, either he or his predecessor, the former Prime Minister, came up with growth forecasts that were well out of touch with what was happening. That is what led us down the path of thinking that the economy was doing much better than it really was. [Interruption.] If the hon. Lady would stop talking, she would hear what I am saying. She must understand that if the previous Government had not kept on expressing the view that the economy was on the mend when it was not, they would have recognised the position and put in place corrections to stop the spending. The first point I made was the fact that her Government were living beyond their means, yet the hon. Lady still sits there and argues, without even having the grace or the courtesy to say sorry to the nation for the mess we are in.

[Geoffrey Clifton-Brown]

Is it not a bit rich for the hon. Member for Wallasey (Ms Eagle) to claim credit for the deficit not being as bad as we thought it would be when Labour had proposed £40 billion of cuts, but not one pound of them had been costed?

[Mr Ellwood]

My hon. Friend is absolutely right and makes a powerful point. Let us not forget that we are quibbling—well, not quibbling, but the hon. Lady is making an argument about pretty small sums of money if we consider that this country’s total debt is £932 billion. That is a record across Europe, it really is. It currently stands at more than 62% of GDP and is forecast to peak at 70% by 2013-14 and finally to start to fall in 2015-16. This is shocking; it is a cost to the taxpayer to the tune of £43.3 billion in borrowing alone. That is more than the defence budget—an outrageous position to be in. Any business presenting figures like that would be labelled bankrupt.

The OBR forecasts that the UK economy will grow by 1.2% this year and 2.3% in 2011—not what was predicted, as Chancellor said. Unemployment is forecast to rise to a peak of 8.1% this year, while inflation is expected to peak at 2.7% by the end of the year before falling back to the 2% target. What has happened is that we have put in the initiatives to ensure that we keep a cap on unemployment, a cap on inflation and, most importantly, a cap on interest rates. As the markets and financiers agree, if interest rates were forced to go up higher, that is what would lead to the double-dip recession.

Let me deal briefly with Europe. The Opposition now claim that we should not look over our shoulder at what is happening in Spain, Portugal or Greece, but I think it is wise to recognise the folly of what would have happened if Tony Blair had had his way when Labour were in power. I am still astonished that it has taken until, I think, last week to close the office of preparation for entering the euro. That is absolutely barmy. It is worth pointing out that if we had wanted to join the euro club, the maximum budget deficit would have been 3% of GDP in any year. In 2009, Greece’s budget deficit was running at 13.6%. We came in at 11.2%, so there are some similarities.

It is recognised that the eurozone is in a mess because of trading patterns. After joining the club in 1999, Germany’s exports to Greece increased by 133%, and the Germans are no doubt delighted about that. However, Greek exports to Germany increased by only 13%, so the system is one way. Not all those exports have been paid for, and that is probably why Germany feels obliged to help with the Greek debt situation. Part of the problem is also that the Mediterranean countries are not as open as they should be, and skewed the stats in order to join the club in the first place. That is why we were wise to stay out of the eurozone. With such huge fiscal disparities, the 16 economies that share the single currency face a massive reality check. In its current form, the euro could be finished.

Let me turn to specific Budget measures. I am pleased that the Office for Budget Responsibility has been created. I am also pleased by efforts to restore the pension link to earnings. My constituency has many elderly people, as does wider Dorset, and we have called for the measure for a long time. I also want to dismiss a myth from the election campaign that the Conservatives would get rid of winter fuel payments and free bus travel. Such scaremongering was completely out of order, and I am glad to say that the provisions are still in place.

[Several hon. Members]

rose—

[Mr Ellwood]

Here we go again. I give way to the hon. Member for Ogmore (Huw Irranca-Davies).

[Huw Irranca-Davies]

I thank the hon. Gentleman for raising that point, because I heard his party on many occasions in opposition deride winter fuel payments, child tax credits and child trust funds as a waste of money. Therefore, it was reasonable for us to scare the horses, and it was right that the Prime Minister was forced to do a dramatic U-turn.

[Mr Ellwood]

The hon. Gentleman makes an interesting point. We all understand that things are said in the Chamber that perhaps cannot be said outside. During the election, however, the Prime Minister, my right hon. Friend the Member for Witney (Mr Cameron), made it very clear that we had no truck with the idea of getting rid of the winter fuel allowance or free bus passes. He even said that in the debate with the then Prime Minister, and yet Labour still put out scaremongering leaflets. When we get into election mode, let us have a bit more honesty. Does the hon. Gentleman wish to intervene again or has he given up?

I also welcome the freeze on council tax, and I am pleased that Bournemouth borough council has met the rules on that. It is important that there is a relationship to encourage local councils to take more responsibility for their own matters, but to get rewarded for that by Government.

I am pleased with the initiatives on small businesses. They make up 90% of our economy, and we need to look after them. In places such as the south-west and Bournemouth, tourism is important—it is our fifth biggest industry—and we do not do enough to support it. Benefit will come from the lowest ever corporation tax—the main rate has been cut from 28% to 24%—and the cut in the tax rate for small companies from 21% to 20%. There has also been an expansion of the loans guarantee system, without which many good companies were frustrated in getting money from the banks. I am pleased that the Treasury Front-Bench team has realised that.

Fat government will also be reduced. A 25% reduction over the next four years will be very difficult, but government became bloated and far too centralised under Labour. I look forward to a much simpler set-up that gives more power to communities.

This Budget is the most dramatic and far-reaching since the war. Balancing the books must be a priority, but even in these tough times the Budget promotes a cultural shift in Britain, encouraging the individual, the family, the community and the country to take responsibility. Ensuring that the banking sector and financial services are better regulated to avoid a repeat of the economic downturn is long overdue. This Budget is an ambitious effort to reduce the nation’s borrowing and repair the damage created by the last Labour Government. Labour will no doubt claim that many of these radical measures can be avoided, while secretly knowing that, had they miraculously won the election, they would have had to implement the very same changes themselves.

Let me end by congratulating the Chancellor and his team on producing such a comprehensive and robust Budget. While recognising the difficulties that it will impose on the entire country, I believe that it is appropriate and overdue medicine to expedite Britain’s way to recovery.

Government Spending Cuts

Tobias Ellwood Excerpts

Wednesday 26th May 2010 Commons Chamber

[Mr Laws]

It is impossible to pick a figure out of the air, but I can tell the hon. Gentleman—he will be delighted to hear this—that Treasury officials and the Governor of the Bank of England pointed out the beneficial effects of this package in keeping interest rates down and stopping the tax on jobs that would otherwise eliminate them. It is therefore likely that over time the net effect of taking such action will be to support employment and the economy rather than to eliminate jobs.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

The new shadow Chancellor shows some nerve coming here complaining about efficiency savings, given that he was responsible for so much waste. An example of that waste is the so-called national Potato Council, which costs the taxpayer £50 million a year. How much money was wasted there? I am glad to see it go, and I am glad to see other cuts being made as well.

[Mr Laws]

My hon. Friend is absolutely right. It is staggering that we have been able to find so much waste in Government expenditure, in spite of the state of the public finances and public borrowing. We would have expected the previous Government to have taken action to eliminate some of the waste. We are determined that the exercise that we have embarked on will be not only an efficiency drive, but one that delivers real cost savings in a way that some of the exercises under the last Labour Government simply did not do.