Vince Cable
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Amendment of the Law
Vince Cable Excerpts(10 years, 2 months ago)
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The Secretary of State for Business, Innovation and Skills (Vince Cable)
I have calculated that this is the 18th Budget to which I have responded in some capacity, and the fourth directly to the shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls). However, since he wrote many of the others, I was probably responding to him indirectly. Having heard the right hon. Gentleman over the years, I have picked up on some traits. First, he obviously has a capacity for a crunchy, memorable soundbite that often turns out to be wrong. I think he was the author of the phrase “No more boom and bust”, the consequences of which we are still living with. I also think he was the author of “triple-dip recession”, which of course we never had.
When we first had these exchanges a couple of years ago, the right hon. Gentleman had a very good football chant going on the Back Benches behind him: “Growth down, inflation up. Unemployment up.” Now of course we have growth up, unemployment down and inflation down. His current favourite is the “millionaires’ tax cut”, which I would find a little more persuasive had I not sat on on the Opposition Benches for 10 years being lectured by him and his boss that any increase in the top rate of tax above 40% would be counterproductive and damaging to the economy.
One feature of the right hon. Gentleman’s speeches that we all look forward to is the annual conjuring trick, and the 10 different ways we could use a bankers’ bonus tax. The rabbit out of the hat trick gets progressively more difficult because the rabbit gets bigger and the hat gets smaller as time passes, so I shall remind him of some of the figures.
When the right hon. Gentleman was City Minister and presiding over all of this, the total bankers’ bonus pool was something in the order of £11.3 billion, and it was £11.5 billion the following year when the Labour Government brought in a bankers’ bonus tax. According to the Centre for Economics and Business Research, which monitors these things, the bankers’ bonus pool was £1.6 billion last year. In the current year, it is estimated to be £1.3 billion. That is one-tenth of the size of the bonus pool on which the original tax was placed. We are then left with the question that is at the core of his fiscal policy: how is he going to get £3 billion in tax out of a £1.5 billion bonus pool? The charitable way to describe that is as a mathematical puzzle. We ought to refer it to the new Turing institute to investigate.
I should perhaps declare one self-interest. I do not have an interest in the millionaires’ tax, but compared with both the shadow Chancellor and the Chancellor I am more likely to take advantage of the relaxation in the annuity rules. It is worth recalling that over many years I came to this House on many Friday mornings, with Back Benchers from my own party and Conservative Opposition MPs, to try to achieve this reform. We were confronted with relentless stonewalling by the Labour Government of the day, of which the right hon. Gentleman was a part and in which he participated directly, with the very simple message that pensioners were far too stupid and irresponsible to be trusted with their own pension savings. This is one of the really big, major positive changes to come out of the Budget.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
I hope the Secretary of State can explain to me and my constituents, who have seen their average gross weekly earnings decline by £160 since the general election, when adjusted for the consumer prices index, how they will be able to afford to exploit the new annuities rules on pension savings?
Vince Cable
The hon. Gentleman poses an issue that I am coming on to immediately, which is why we are a poorer country. There are people who have saved and have annuities, and there are many middle-income occupational pensioners who will take advantage of that. The central economic question raised is this: why are we a poorer country and how has that affected our living standards?
The question goes back to the financial crisis, which occurred when the right hon. Gentleman and his colleagues were in government. The Chancellor reminded us yesterday of the brutal fact that the British banking collapse and rescue was the biggest in the world. It was the biggest collapse in our history, going back not just decades but centuries, and it has done enormous harm. It has made the country poorer. The immediate after-effects of the collapse were to reduce output in this country by 7.5%, which is more than in the great depression. Not surprisingly, that has affected living standards in a radical way. It has impaired our capacity to recover from the damage inflicted on the banking system. It has required our country and the United States, but particularly here, under the right hon. Gentleman’s Government and the coalition Government, to resort to very unorthodox monetary policy. That has had a major impact on savings—which the Chancellor is now trying to remedy—asset prices and other factors. Opposition Members are surprised and indignant when they tell us that people are poorer than they were before the financial crisis. What are they comparing it with?
Sheila Gilmore (Edinburgh East) (Lab)
The Secretary of State seems to be avoiding the fact that people are poorer not since the financial crisis, but since 2010. Changes to tax credits, benefits uprating and so on have, for the lowest paid workers, more than outweighed any advantage gained from raising the tax threshold.
Vince Cable
The distributional analysis, which I am sure the hon. Lady has studied, suggests that the biggest impact of this shock has been on the highest 10%. That may be surprising, but that is what has happened.
Vince Cable
Let me just take apart particular aspects of the argument that has been put forward: how it relates to jobs, production and earnings. Let me start with jobs.
Vince Cable
I have taken an intervention.
Let me start with employment. What could well have happened, as a result of the financial crisis and its aftermath, was mass unemployment of the kind we had in the 1930s. We could very easily have got up to 20% unemployment, but we did not. We now have the lowest unemployment of any major country except Germany—lower than France and Sweden. This is partly a reflection of Government policy, but it is mainly a reflection of the common sense and flexibility of British workers, who accepted that in this crisis it was most important to be in work. We are now seeing the success of employment policy in the fact that we have had an enormous growth in employment, with 1.25 million net of public sector job losses and a gross increase of 1.75 million. Roughly five private sector jobs have been created for every one lost in the public sector. These are predominantly, in fact overwhelmingly, full-time jobs. The Opposition’s argument has been, “Well, okay, there are lots of jobs but they are part time,” but last year, in 2013, there were 460,000 new jobs, of which 430,000—95%—were full-time jobs.
Tom Blenkinsop
Since this Government came to power, the number of zero-hours contract jobs has trebled to more than 500,000. In 2012-13, some 3.48 million people had an average national insurance liability of £172 and were earning less than the lowest income tax threshold. That is an indicator of the type of work that people are having to take now, and they are still having to pay national insurance contributions on income below the income tax rate.
Vince Cable
We are well aware of some of the problems that arise with zero-hours contracts. That is why, as the hon. Gentleman knows, some months ago I commissioned a full consultation on dealing with abuses. What has come out of that consultation suggests that it is actually a very complex story. A lot of workers benefit from being on zero-hours contracts and want them to continue. Many do not and do encounter abuse. I am sure that before the end of this Parliament, Members will have an opportunity to vote on measures designed to deal with those abuses.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Will the Secretary of State confirm what his colleague, the Chief Secretary to the Treasury, had difficulty in doing the other day: confirm that the employment rate is still below pre-recession levels?
Vince Cable
My understanding is that the employment rate, if the hon. Lady is talking about the total adult population in work, is now at its highest level ever—higher even than in the United States, which is famed for a flexible labour market.
I am surprised that Opposition Members feel that there are issues to pursue. [Interruption.] Somebody muttered “Immigration”. Last year, overwhelmingly the largest number—well over 90%—of jobs went to British workers. I do not know if they have studied those figures.
Mr Stewart Jackson
Does my right hon. Friend not think it disingenuous, given the Government’s inheritance of a 7% reduction in GDP presided over by the Labour party, for Opposition Members to categorise changes in personal allowances, which will affect 25 million people and take 3 million people out of tax altogether, as having nothing to do with the cost of living?
Vince Cable
Yes. I am delighted that the hon. Gentleman has raised that point, and I was going to dwell on it more later. It is a considerable achievement of this coalition that we have delivered, and indeed over-delivered, on the commitments I and my colleagues made before the previous general election. That helps people who are relatively low paid by lifting them out of tax, not just because they pay less tax but because it reduces the tax rate at the margin and provides a significant incentive to work.
Grahame M. Morris (Easington) (Lab)
Will the Secretary of State address the issue of youth unemployment? In my constituency, 825 under-24s are out of work and almost 200 of them have been out of work for almost a year.
Vince Cable
Yes, I will address the issue of youth unemployment and the hon. Gentleman is right to raise it. This is an issue that has, of course, been with us for many years, including under the previous Government when economic conditions were much more benign. Youth unemployment is currently at about 20%, but of course that includes many full-time students. The key trend is that youth unemployment is now declining rapidly. It is certainly less now than the level we inherited, and we have a whole set of policies designed to deal with it in a systematic way.
The shadow Chancellor put forward the idea of a youth guarantee. The problem that that presents is this: how can a job be guaranteed other than through the public sector? Of course guaranteeing a public sector job takes people off the dole, but it also creates a permanent need for subsidy and support. What we have done is create a route that allows people who are not going into full-time higher education to develop the preconditions for proper apprenticeships through traineeships, basic academic requirements and work experience, and then find their way into true apprenticeship training, which has been an enormous success: it has doubled since we came to office. The measures announced in the Budget statement yesterday will enable a further 100,000 people under 24 to be given apprenticeship training, and the quality improvements that we have made are driving up demand and supply at the same time. This is a much better way of dealing with young people who are out of work than creating artificial jobs.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Many Labour Members are very pleased about the improvement in the employment situation that has taken place over the last six months or so—indeed, over the last year or so. However, is not the big issue—apart from the caveats relating to short-time working and zero-hours contracts—the fact that the productive capacity of the economy seems to have shrunk, and productivity per worker has certainly shrunk? That is casting a very grave shadow over the length of the recovery that we might have expected. What are the Government planning to do about it?
Vince Cable
The hon. Gentleman’s analysis is spot on. Of course that is what has happened. We have managed to avoid mass unemployment, but the average productivity level has fallen. If we are to grow, and if living standards are to grow—that seems to be the focus of the debate—productivity must rise, which prompts the question of how we do it. We are currently doing it in an environment that is severely constrained. We must remember—and I think that the shadow Chancellor often forgets this—that one of the massive legacies of the crisis was the structural deficit. A deficit of that kind does not go away when growth increases; it is there, it is structural, and it will have to be dealt with. The structural deficit, defined as we defined it when we formed the coalition, has fallen from about 5.4% of GDP to 2.7%. We are nearly halfway, but we have to continue the job, and the next Government will have to continue the job. In that context, we must proceed with an agenda of raising productivity and growth.
Stephen Timms (East Ham) (Lab)
Does the Secretary of State acknowledge that a particularly serious problem is long-term unemployment among both young and older people, which, according to the figures released yesterday, has increased? Does not more need to be done to tackle that problem?
Vince Cable
It does, but the figures produced over the last year suggest that long-term unemployment is falling, along with unemployment in general.
Sir Edward Leigh
My right hon. Friend is making an excellent speech in favour of hard work. I read in the papers yesterday—so it cannot possibly be true—that the Chief Secretary had boasted that he had personally vetoed any indexing of relief for higher-rate taxpayers. Surely my right hon. Friend, who is pro-enterprise, cannot think it right that a police sergeant is paying higher-rate tax.
Vince Cable
I listened carefully to what was said, and I thought that there was an acknowledgement of the position of the people on the top-rate threshold. This is a modest increase, but there is a recognition that marginal rates of tax are beginning to bite on middle earners, and I think that that issue is now being addressed.
Mr Ellwood
My right hon. Friend has alluded to the important point that the figures for long-term youth unemployment—which was mentioned by the shadow Chancellor—include young people who are engaged in full-time study. Perhaps he will join me in congratulating Bournemouth, where Arts University Bournemouth, Bournemouth university and the Bournemouth and Poole college have doubled in size. Because of that, the figures suggest that long-term youth unemployment has indeed increased, which is not the case.
Vince Cable
I believe that about a third of the total number who are classified as “youth unemployed” are, in fact, engaged in full-time study. One of the big changes for which the coalition Government should take credit is the continued expansion in higher education: despite all the doomsday predictions from Opposition Members about the radical higher education reforms, the number of people going into higher education, particularly those from disadvantaged backgrounds, has risen.
Neil Carmichael (Stroud) (Con)
Does the Secretary of State agree that the issue of our productivity is linked directly to skills? Is it not rather ironic that the shadow Chancellor, who was Secretary of State for Children, Schools and Families, signally failed to help the nation to secure the right degree of skills—unlike us, with our long-term economic plan?
Vince Cable
Yes, indeed. I think that the apprenticeship model which we are now developing and expanding rapidly, in terms of both quality and quantity, is the remedy for the long-standing neglect to which my hon. Friend has rightly drawn attention.
Mr Robert Syms (Poole) (Con)
Is it not a fact that the British car industry will produce 1.6 million cars this year, and that Jaguar Land Rover alone will export 13.5 billion? Is it not also true that the Budget, with its help for manufacturing and exporters, is bound to help such industries and produce a good British success story?
Vince Cable
I had intended to say something about manufacturing incentives, but let me now emphasise a point that my hon. Friend has made very well. Some of our manufacturing industries, including the car industry, are expanding rapidly, and showing very high productivity and rapid export growth. The aerospace industry is another example. I was delighted to learn this morning that Hitachi, the leading Japanese company, is to establish the global headquarters of its railway manufacturing business in the United Kingdom on the basis of its existing investment in the north-east of England, and it is expanding and seeking business opportunities from the rail revolution that is taking place here. Manufacturing industries such as those, which were previously in decline, are now beginning to become resurgent in some key sectors.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Will the Secretary of State give way?
Vince Cable
That is not actually true. All recoveries tend to start with consumer spending, but lack of investment is a deep-rooted problem in the United Kingdom, and it is a problem with which we are trying to deal. However, if the hon. Gentleman studies the figures from the Office for Budget Responsibility, he will see that business investment increased by 7% last year, and the CBI projections for this year are higher than that. Business investment is beginning to take serious shape.
I think that, when we speak of growth, recovery and productivity, it is worth our while reflecting on some of the 18 Budget statements to which I have listened and responded in the past. For more than a decade, Budgets were introduced by the present Opposition, and there was a very positive story every year until we reached 2008. We had 2% growth, and there was enormous triumphalist cheering about the wonders of the brilliant Government economic policy that had produced that achievement. Comparisons were made with the past which suggested that this was the greatest economic performance, if not since the Victorians, probably since the Georgians, the Tudors or even the Romans. However, we had to go back to the Greeks to find the word that captured the spirit of those early Budgets. It was the word “hubris”, which encapsulated the Opposition’s simple inability to understand that weaknesses were building up during that growth.
Our Government are confident that we now have recovery. We are positive about it, and proud of our contribution to it. However, we acknowledge that there are some deep-seated historical weaknesses that now need to be addressed, and the Chancellor did address them in a systematic way in the Budget yesterday. The first and most important way of dealing with those weaknesses—and the driver of productivity—is, of course, higher levels of investment. That is why the extension of investment allowances, which will substantially increase the incentives for small and medium-sized companies, particularly those in the manufacturing sector—over time and in terms of scale—is such a big step forward, and is so welcome.
Gavin Shuker (Luton South) (Lab/Co-op)
The Business Secretary is clearly confident that he could have run the economy better than Labour during the 13 years during which it was in power, and I suspect that that enthusiasm and confidence have continued into the present Parliament. Perhaps the right hon. Gentleman could outline some of the ways in which the economy would be run differently if he, rather than the right hon. Member for Tatton (Mr Osborne), were Chancellor.
Vince Cable
I find that many of my ideas have been incorporated in Government policy, and I am very pleased about the progress that we are making in that respect.
Of course, increased investment depends on business confidence. Because we are approaching the election season, a danger is posed by some of the comments being made by the Opposition. Sir George Cox, who used to be at the Institute of Directors and is now an adviser to the Opposition, suggested recently that the business-averse policies of the shadow Chancellor and his leader were doing serious damage not to their own credibility, but to confidence in the country. I would underline that. If we have policies that appear to commit future Governments to energy price freezes that prevent new energy investment, we are undermining investment. Of course it is not just the Opposition; the people who want to take Britain out of the European Union and want to take Scotland out of Britain are also undermining investment confidence. Political certainty requires at least literate policies from the Opposition, which in the area of price freezes certainly is not the case.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I think the Secretary of State will know that that is not an accurate representation of what was said. May I ask him to comment on net lending particularly to small businesses, which is a concern? Why does he think that has continued to fall on his watch, and what is going to be done about it?
Vince Cable
Yes, there has been a continuing decline in net lending to small business. We think it is bottoming out, but it has happened and it is damaging. It is a consequence of the near-collapse of the banking system and the fact that some banks are now responding to much tougher regulation by being much more conservative in their lending. That is not true in all cases: Lloyds and Santander are increasing their net lending to small businesses, but many are not.
In response, the Government are establishing institutions, particularly the business bank, which are developing new flows and types of finance—internet-based lending, asset-based finance, invoice finance—in areas that hitherto were deficient, as well as supporting the establishment of new banks. About 20 new banks have been licensed over the last year, and that deals with the issue of bank competition that should have been dealt with when the last Government were in power and we had the Cruickshank report. That is now happening, however, and I therefore think we will begin to see the net lending trend becoming much more positive, but there is no underestimating the enormous damage that was done to the British economy as a result of the collapse of the banks, over which the last Government had responsibility for many years yet did absolutely nothing.
Vince Cable
The hon. Gentleman is right: compared with other institutions, RBS is particularly remiss in its lending policies, and that relates to the seriousness of its balance-sheet position and its failed attempt to become a big global bank. I meet the chief executive from time to time and I think he is trying to change the culture of the bank in a positive way, and move it in the direction of some of the other banks, such as Lloyds, which have already achieved that transformation.
The first priority has been to develop business investment and the Chancellor’s initiatives help with that. The second, and extremely important, priority, which has already been hinted at in interventions by Government Members, is in relation to manufacturing industry. It is important to take stock of the context here. We have had a catastrophic decline in manufacturing industry over a long period of time. Some of that is driven by technology and some of it is driven by international trade over which we have relatively little control, but certainly in the period after 1997 we saw the share of the British economy accounted for by manufacturing shrink from 20% to 10%, a decline that was even more rapid than in the mid-1980s, when policies were considered to be unfriendly to manufacturing. We lost 1.6 million jobs in that period.
Tom Blenkinsop
The Secretary of State will be aware that the work force at the Redcar steel plant in Teesside fell from 25,000 to 5,000 between 1987 and 1992, with several on-site plants being closed, but what is different now is the carbon price floor. Would the Secretary of State like to take credit for the Chancellor’s policy on that, which this Government brought in and which has led to the closure of Alcan in Northumberland and has put severe pressure on the steel industry in particular? In this context, will he bring the programme forward by two years so we do not have to wait another two years?
Vince Cable
The hon. Gentleman has anticipated the point I was about to make. One of the really positive announcements the Chancellor made yesterday recognises the difficulties facing the energy-intensive industries. I am aware that the Alcan smelter closed. I was there; I talked to the management about it and they acknowledged that although energy prices in the UK were one factor in their decision, it was by no means the only one. However, our energy-intensive industries are crucially important and it is not clever for them to close and migrate overseas, as we then simply get carbon leakage and do not do anything to improve the environment. It is therefore very important that they are protected from the increased costs that result from green taxation. The interventions the Chancellor made yesterday, which are very radical and meet the concerns of the industry, primarily centre on the renewables obligations and the feed-in tariffs and giving the industry effective compensation for those costs. I shall now be pursuing that with the European Commission, trying to ensure we get state aid clearance. The feedback we have had this morning from the engineering employers and other manufacturers suggests they are satisfied that the Government have taken a radical step that overwhelmingly meets their concerns.
Richard Graham (Gloucester) (Con)
The Secretary of State is making powerful points about the importance of supporting manufacturing. Under the last Government, the city of Gloucester lost 6,000 jobs. We have created 2,500 jobs since this Government came in, quadrupled the number of apprenticeships and seen manufacturing increase in a way that has not happened for about 30 years. Does the Secretary of State agree that the Opposition simply do not understand what manufacturing needs, and that the doubling of the capital allowance is a huge step forward?
Vince Cable
That is right, and the industrial strategy we are following across government gives particular priority to the aerospace industry, and I know my hon. Friend’s part of the country has benefited considerably from the development of the aerospace supply chain.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
The Secretary of State touched on the compensation scheme announced yesterday. For the sake of clarity, will he inform the House how much of the compensation scheme announced in November 2011 and which was due to come in in April 2013 has so far been paid to energy-intensive industries?
Vince Cable
The element that relates to the European emissions trading scheme has already been paid. The companies have already received the cheque. The sums are not large because the ETS scheme proved to be pretty ineffective, but none the less the compensation is being paid and it is now being extended to a wider range of costs. [Interruption.] The hon. Gentleman seems to be indignant, but I think he should talk to his local manufacturers who have expressed full satisfaction with what we are doing.
Chris Kelly (Dudley South) (Con)
The Secretary of State is talking about energy-intensive industry and there is still a great deal of that in my constituency. Does he agree we do not want these industries going offshore where environmental legislation may not be as stringently enforced as it is in the UK? We need to keep those industries here in the UK, and yesterday’s Budget helps us to achieve that. [Interruption.]
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. Before the Secretary of State answers the intervention, I should say that there are far too many conversations on the Back Benches. The House is getting restless. If the House does not calm down and let the Secretary of State get on with it, he will never come to the end of his speech.
Vince Cable
I am trying very hard, Madam Deputy Speaker, to take as many interventions as Members wish to throw at me.
In relation to Dudley and manufacturing, my hon. Friend is right that it is not sensible to lose manufacturing overseas as we will get carbon leakage and lose the production and the jobs. It is very much in our interests to stop that happening and we are doing so. There is a lot of evidence of the reshoring of production, including to the industries in the west midlands to which my hon. Friend refers.
The priority the Chancellor has given to manufacturing, to investment and the savings that lie behind investment, and to exports through the expansion of export credit are absolutely appropriate to getting long-term growth and the productivity that that entails. There is a lot more to be done. We still have serious constraints in terms of skilled labour. There are still problems in opening up business finance. We have to invest much more in science and innovation, although we are doing that. However, the themes that run through yesterday’s Budget of support for investment, for savings and for exports are absolutely right and they will take this country to the right place.