Autumn Statement

William Bain Excerpts

Wednesday 5th December 2012 Commons Chamber

[Mr Osborne]

I congratulate my hon. Friend on the campaign she has fought on behalf of her constituents, and on behalf of jobs in Thurrock and elsewhere. The junction 30 upgrade will help to secure the largest port investment in the whole of northern Europe—it is a fantastic thing for the area, it will create many jobs and she has played a real part in helping to deliver it.

[Mr William Bain (Glasgow North East) (Lab)]

With the average wage 7.9% lower in real terms than it was when this Chancellor took office, does he not share the sense of real disappointment across the country that he did not announce any new measures on child care, the cost of which is rising at twice the rate of inflation? Does that not constitute a significant barrier to work for as many as 1 million women and mean that for many households work does not pay?

[Mr Osborne]

We have announced new entitlements on child care, such as the entitlement for two-year-olds from more disadvantaged families to nursery places, which did not exist under the previous Government. We are also working on new proposals on child care, and I hope in the first half of next year to bring those forward.

Fuel Duty

William Bain Excerpts

Monday 12th November 2012 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

I was intrigued by the Economic Secretary’s arguments when he moved the amendment. He is no longer in his place, but wherever he is at the moment, I hope he can afford enough fuel to return to planet Earth, as that was not a place he was able to inhabit much during his contribution. He spoke of the fanfare of international approval for the Chancellor’s policies, yet the OECD says that this year demand in our country will be one tenth of that in the United States and in the lowest fifth among EU countries. He said this Government dealt in costed spending commitments, from the very Dispatch Box where a few weeks ago the Prime Minister caused chaos in the energy industry by saying every consumer would be on the lowest possible tariff. The Economic Secretary also boasted about taking action on high commodity prices on behalf of a Government who are blocking the enactment of a global Dodd-Frank Bill in line with the successful approach in the United States.

Last week’s election in the United States showed that for voters both across the Atlantic and in the United Kingdom the key issue is living standards. During the longest journey out of an economic slump in Britain for 140 years, living standards have declined at a more prolific rate than during the recessions presided over by the Conservative party in the 1980s and 1990s. As last month’s Office for National Statistics study of well-being showed, on the net national incomes measure, incomes in the second quarter of 2012 were 13.2% lower than before the start of the great recession in 2008. We should be under no illusion: a real economic recovery for millions of lower and middle-income people in this country will not happen until these trends show signs of being reversed.

[Mr Redwood]

Does the hon. Gentleman agree that the biggest fall in living standards occurred on Labour’s watch, when boom went to bust?

[Mr Bain]

Tax credits helped to sustain family incomes in that period, but that is precisely the part of the tax and benefit system that is under such great assault from the Government the right hon. Gentleman supports.

We need a long-term strategy to tackle declining living standards, but there are short-term measures we can take now that will help ordinary families. We can have a cut in VAT and not proceed with the 3p rise in fuel duty next January. Both those measures would help to restore growth to an economy that has been starved of it for a year, and which is smaller now than at the time of the Chancellor’s comprehensive spending review of October 2010.

Despite a decrease in the headline consumer prices index inflation rate from 5.2% to 2.2% since last October, costs of basic goods such as electricity and food are going up. Average electricity bills are up by £200 since the coalition took office, taking the average bill to £1,310 a year. Costs for childminders for the over-2s in Scotland have risen at nearly twice the CPI inflation rate this year. Living costs are, therefore, soaring for millions of people.

[Fiona O’Donnell]

My hon. Friend missed out one boast the Minister made, which was about the creation of private sector jobs. In my constituency, many of those jobs are for care workers on the minimum wage and on a zero-hours contract. Those workers need a car to be able to sustain even that level of employment.

[Mr Bain]

I entirely agree. Most of the jobs that have been created over the last couple of years have been part-time, insecure, low-hours posts. We have soaring under-employment in our country, with as many as 3.3 million people unable to secure sufficient working hours to make work pay. Nothing in the amendment would deal with that trend.

Combined with a VAT rise under this Government, fuel duty rises are particularly regressive. In 2009-10 the poorest quintile paid 3.5% of their disposable income in fuel duty, compared with just 1.8% paid by the top quintile. Overall, in the first year of this Government indirect taxes took 31% of the disposable income of people in the lowest fifth of earners, compared with just 13% among the wealthiest fifth of earners, and that was an increase from the previous fiscal year. According to the latest ONS study of factors affecting the retail prices index and CPI inflation measures, two of the major factors driving upward pressures were the price of clothing and footwear, which rose by 4.7% between August and September this year, and the rising cost of motor fuel, with petrol up by 3.9p per litre and diesel up by 3.5p per litre, compared with falls of 0.3p per litre in the previous year. These changes contributed 0.12% to the shift in the CPI inflation rate. In the year to this September, motor fuel costs alone rose by 2.8%. The case for action is therefore clear.

All these trends must be considered in the context of our low growth. The International Monetary Fund recently downgraded its estimate for UK GDP by 0.6% for this year and by a further 0.3% for next year. That is a crushing verdict, showing that the Government’s policies have sucked even more demand from the economy—as much as an additional £76 billion given the new evidence of the destructive multiplier effects of the Chancellor’s austerity measures. As the National Institute of Economic and Social Research has established, implementing the Government’s preferred rise in fuel duty in January would further weaken growth by 0.1% of GDP next year and keep unemployment higher than it needs to be some 48 months since the downturn began.

That is why I hope Members across the House will tonight take this opportunity to release some of the pressures ordinary households and businesses are facing by voting to postpone any rise in fuel duty until at least April.

[Mr Alan Reid (Argyll and Bute) (LD)]

The hon. Gentleman referred only to postponing the fuel duty increase. I want to put it on record that I think the Government should cancel the increase, and I hope they will do so. Why is the hon. Gentleman only in favour of postponing it? Why not cancel it?

[Mr Bain]

If the hon. Gentleman has the courage of the convictions he has just expressed, he should join us in the Lobby tonight. That will be the evidence his constituents will be looking for tomorrow morning.

On incomes, millions of ordinary people are under huge pressure because of the collapse in real wages, which has hit particularly hard since the onset of the current recession.

[Pete Wishart (Perth and North Perthshire) (SNP)]

Will the hon. Gentleman give way?

[Mr Bain]

I am running out of time, and I am sure the hon. Gentleman will have a chance to make his own speech.

Since 2007, real wages have declined by about 4% for the vast majority of ordinary people, damaging their spending power and weakening prospects for a consumer-led economic recovery. In my constituency, almost three in 10 workers, including half of all the 10,000 part-time workers, earn less than the living wage of £7.45 an hour. The increases in fuel duty have hit them especially hard. As the Resolution Foundation’s recent Commission on Living Standards report established, just 12p in every £1 of growth generated in Britain finds its way into the pay packets of workers in the lower half of the income scale. They need help on fuel costs tonight.

Britain stands at a crossroads. Without a change in policy, people will be no better off in 2020 than they were in 2001, but with the right kind of reforms on pay, tax and benefits, that can be reversed and we can see the gap between rich and poor falling once again. Tonight we can make our contribution to supporting growth and improving the living standards of our constituents over the next few months, by rejecting the Government amendment and boosting much needed job creation by cutting fuel duty.

Oral Answers to Questions

William Bain Excerpts

Tuesday 6th November 2012 Commons Chamber

[Mr Gauke]

The Government have increased stamp duty land tax on the most valuable properties. We have also increased the rate of capital gains tax. It is a question of balancing that with practicalities; we think that some of the proposals in this area may have a number of practical difficulties. But we have taken action on some of the taxes that have increased the burden on the wealthiest.

[Mr William Bain (Glasgow North East) (Lab)]

21. What recent assessment he has made of the effect on economic growth of the level of bank lending to businesses.

[The Financial Secretary to the Treasury (Greg Clark)]

As I said to the hon. Member for Sefton Central (Bill Esterson), the Government and the Bank of England are taking action to improve the flow of credit to business. The £80 billion funding for lending scheme is designed to incentivise banks to maintain and boost their lending to businesses and households.

[Mr Bain]

According to the Bank of England, net lending by the banks to small and medium-sized businesses fell by a further £2.4 billion in the three months to this August. Does not the Government’s failure to address that decline show exactly why the IMF downgraded GDP estimates for Britain by 0.6% for this year, and a further 0.3% for next year?

[Greg Clark]

The hon. Gentleman calls for action, but I would have thought that the funding for lending scheme was precisely the type of action that he wanted. The Bank of England has been clear that, in the absence of funding for lending, it was quite possible that rates and lending would have declined because of the turbulence and anxiety in the eurozone. Actually, it has been an important factor in getting money to businesses. I hope that the hon. Gentleman will welcome that.

--- Later in debate ---

[Danny Alexander]

My hon. Friend is right to highlight the work that we are doing to increase manufacturing through, for example, the advanced manufacturing technology institute and investment from the regional growth fund. We have had a number of representations from the north-west, not least from my hon. Friend the Member for Burnley (Gordon Birtwistle), who has made representations on capital allowances for businesses.

[Mr William Bain (Glasgow North East) (Lab)]

T2. Nearly three in 10 workers in my constituency, including half of all part-time workers, earn less than the living wage of £7.45 an hour. Does the Chief Secretary, unlike the Prime Minister, back the living wage? Is he not wrong to boast about a recovery that is not being felt in the pay packets of millions of people on low and middle incomes?

[Danny Alexander]

Labour Members had 13 years to introduce a living wage; if they believed in it so much they could have done something about it when they were in office. This Government are increasing the income tax personal allowance towards the goal of £10,000 set in the Liberal Democrat election manifesto. As of next April, the amount of income tax paid by someone working full time on the minimum wage will have been halved under this Government. I would have thought that the hon. Gentleman would want to welcome that.

Infrastructure (Financial Assistance) Bill

William Bain Excerpts

Monday 17th September 2012 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

The Chief Secretary today attempted to portray this Bill as a sign of the country’s economic strength, but instead these very limited and serially re-announced proposals are the strongest indicator yet of this Government’s weakness on jobs and growth. We should have had a Bill that put to work for productive investment the under-used corporate surpluses in this country and that brought forward more of the capital spending which has been back-loaded for later in this Parliament, but we have a damp squib set of proposals instead.

After two infrastructure plans have failed to deliver programmes on the ground, and after two failed attempts on bank lending—Project Merlin and the credit easing scheme—which have resulted simply in decline after decline in the pitiful rates of bank lending to small and medium-sized businesses over the past six quarters, the proposed plans could scarcely be more ineffective. The Government must know from the fact that two thirds of British businesses now believe that UK infrastructure will become weaker in the next five years that they must do substantially more to tackle the underlying issues that have diminished demand for bank lending, as well as its supply.

The Government pledged to grow the economy and cut national debt, yet in two years they have achieved the very opposite. Last week, Citigroup predicted that the Government’s borrowing will balloon by an additional £48 billion in 2015-16, a year in which the Chancellor is banking on 3% growth to come anywhere near his supplementary rule on debt falling as a percentage of national income. Citigroup also said that public borrowing may reach 90% of gross domestic product in the same fiscal year, as unemployment is much higher and growth is massively reduced from the original Office for Budget Responsibility predictions on which the Chancellor has staked so much of his fiscal credibility since June 2010.

Just a year ago, the Chancellor said that Opposition Members were joined only by the Hungarian communist party in believing that easing fiscal policy was necessary to create more output and more jobs in the economy, yet now the IMF, the OECD, the CBI and the British Chambers of Commerce all say that in the absence of growth the Government should change course on fiscal policy, and that in particular they should invest more in infrastructure. Even among the 20 leading economists who backed the Chancellor’s fiscal consolidation plan ahead of the 2010 general election, the New Statesman found only one who is now willing to support the Chancellor’s plans, and nine have urged him to change course and boost spending through increased infrastructure investment. As Roger Bootle said recently in his response:

“The key thing is to try and get the private sector to spend its money and that may require a bit of government spending to prime the pump.”

Oh that the Chancellor would listen.

We see from the latest British social attitudes survey, published today, that two years of the Chancellor’s reckless and self-defeating austerity has done more than anything else in the last decade to promote public support for additional public investment to boost the growth rate. As the chair of the Federal Reserve, Ben Bernanke, said on Friday:

“Monetary policy, particularly in the current circumstances, cannot cure all economic ills.”

Only this morning, Larry Summers, the former US Treasury Secretary, who knows a great deal about how to grow an economy while balancing a budget, called for slackening in the pace of fiscal consolidation in this country, saying that

“output lost from this British downturn in its first five years exceeds even that experienced during the 1930s.”

With evidence as powerful as that, what will it take for the Government to change course and boost infrastructure investment in a way that the Bill fails to do on the public side?

As the TUC has shown, for every £2 of cuts and tax rises imposed by the Chancellor, the deficit fell by only £1. His policy has failed even on its own limited and blinkered terms. We see 3.3 million people in our country in involuntary self-employment or part-time work because our economy is too weak to generate good numbers of effective full-time jobs. The TUC has also shown that with growth anaemic and consumer and private sector confidence at rock-bottom, by 2015-16 the Government could end up borrowing £175 billion more than predicted by the OBR in June 2010. It is the Chancellor who is now on the wrong side of the argument, and in failing to temper his austerity policies amid the continuation of weak demand with falling real wages and mass under-employment, he is now on the wrong side of history too.

Let me turn to the situation in Scotland. Tomorrow morning I will take part in a construction industry conference at North Glasgow college, which is opposite my constituency office in Springburn. There will be strong support for Government at all levels taking urgent action to support the construction sector. We face a social housing slump in Scotland, with a shortfall of 156,000 homes and according to Shelter Scotland a seven-year waiting list for a social rented property. In the second quarter of this year construction work fell in the rest of the UK by 6.14%, but in Scotland there was a drop of 8.91%. There was a 7% drop in Scottish output on repairs and maintenance, compared with the same time last year. Surely that provides the clearest support for the argument that the Opposition’s policy of cutting VAT to boost demand is the right one for jobs and growth at this time.

Ahead of their budget on Thursday, the Scottish Government, too, must bear their share of responsibility for a substantially weaker construction performance in Scotland than in the rest of the UK. In the 12 months to June this year the number of construction jobs in Scotland fell by 6,000, or 3.5%, compared with an overall UK average drop of 1.2%. Construction is doing worse under the policies that the Scottish Government are following. I must say that I am somewhat surprised; the Scottish National party is always very keen to show its support for shovel-ready policies, yet no SNP Members are in the Chamber today—perhaps an absence of shovel-ready speeches is the deficit they are struggling with today.

The SNP must also recognise that in following its plan to decouple fiscal policy from monetary policy it would be doing the very opposite of what Keynes said was necessary to counter a slump of such length and severity. With its potential plans to separate fiscal policy from monetary policy, emphasising short-term profit taking rather than long-term investment, through corporate tax cuts, it jeopardises long-term investment in infrastructure in Scotland.

The Government should change course now before they do permanent damage to the economy, to the living standards of ordinary people under the most unprecedented threat for 90 years and to the employment prospects of the long-term jobless and young people. The evidence is clear and the case for decisive steps now is overwhelming. If they do not act, they will be a Government who will be out of time, out of excuses and, at the next general election, will deserve to be out of office.

Banking Competition

William Bain Excerpts

Thursday 12th July 2012 Westminster Hall

[Mr William Bain (Glasgow North East) (Lab)]

It is a pleasure to serve under your chairmanship once again, Mr Chope.

I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on securing this important debate, which is of great interest and importance to all our constituents.

Our banking system is badly broken: Members of this House know it, the public know it and the industry knows it. Almost four years on from the collapse of Lehman Brothers and the part-nationalisation of two major banks in the UK, our banking system is failing to support the wider economy with the lending that is required to promote growth; there is still regulatory uncertainty over the mis-selling of derivatives; there is insufficient competition; and pay and bonuses in the banking sector are rocketing out of control. Last month, a major UK clearing bank could not even ensure that employees received their salaries or that businesses could pay their bills on time. The public are therefore right to demand further radical change and to seek new entrants to the banking sector.

Despite being given support—both directly and in guarantees from the taxpayer—on the awesome scale of £1.4 trillion during this crisis, and despite our central bank having printed £325 billion of new money since 2009 through quantitative easing, with up to another £50 billion on the way following the decision of the Monetary Policy Committee last Thursday, the banking system is failing to bolster growth or to provide a satisfactory supply of credit.

[Steve Baker (Wycombe) (Con)]

On that point, I notice that the banks are simultaneously failing to provide savers with a decent return. I am sure that the hon. Gentleman will agree that that is an astonishing failure of a system that is supposed to act as an intermediary between savers and those who wish to borrow money for productive uses. It is astonishing.

[Mr Bain]

Indeed. The hon. Gentleman makes a very powerful case.

Bank lending to businesses fell by 11% between 2008 and 2010 and it has continued to slump since, with bank lending to small and medium-sized businesses having fallen for five consecutive quarters. It is small wonder that in such circumstances economic demand in the UK is at rock bottom. In the G20 this year, economic demand is lower only in the eurozone, the Czech Republic and Hungary. As the Nobel laureate economist Joseph Stiglitz wrote about the financial system in an article in Vanity Fair in January:

“We have poured money into the banks, without restrictions, without conditions, and without a vision of the kind of banking system we want and need. We have, in a phrase, confused ends with means. A banking system is supposed to serve society, not the other way around.”

Sadly, the same is true of the financial sector in the UK too.

Studies by the International Monetary Fund and the European Central Bank powerfully demonstrate that financial systems in which there is more banking competition with institutions less dependent on wholesale funding are less prone to systemic shocks of the sort the UK and others experienced in 2008. The banking sector has expanded hugely in the past five decades. In 2010, the assets of the 10 largest UK banks had soared to 459% of GDP. Barclays assets exploded from 10% to 110% of GDP in the same period. That size, the implicit public guarantee and the resultant lower borrowing costs allow the big banks to maintain a large competitive advantage over any small competitors trying to enter the market. It comes as no surprise that business organisations such as the British Chambers of Commerce, the Federation of Small Businesses and EEF are calling for more competition in the banking system.

The European Commission found in its inquiry into the financial system in 2007 that the retail banking sector accounts for more than 50% of total banking activity, measured by the gross income indicator, but that banks face greater pressure on profits where consumers are more mobile. In this country, the Office of Fair Trading issued a report on the banks in 2008, finding that many consumers do not know the fees associated with their accounts, and that three quarters of them are not aware of the credit interest rate, because of both a lack of transparency in fees and their self-evident complexity. It also established that few consumers monitor the account market to switch to accounts offering better conditions. Only 6% of account customers had switched in the previous year and 61% of customers had held their main account for more than 10 years. It also found cross-subsidies from those consumers who incur insufficient fund charges, who are more likely to be in the socially or economically vulnerable categories, to those who do not—those on higher incomes or who have reasonable levels of savings with the banks—which create significant market distortions, as well as resulting in social unfairness.

On the structure of the banking system, the Independent Commission on Banking chaired by Sir John Vickers had a limited remit and was unable to consider the level of support that the banking system provides to growth in the economy, the existence of potentially criminal practices, the nature of the products being traded by banks, or the culture of greed exposed by excessive bonuses and pay. That is why we need to consider further whether the Vickers proposals for ring fences and higher capital buffers will be enough to protect against future scandals, or whether a complete separation of retail and investment banking services, or the break-up of those institutions, with the creation of new banks, is the only answer. As my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce) and the hon. Member for South Northamptonshire said, there have been recent additions to the challenger bank market in the form of Metro Bank, and Virgin Money’s acquisition of Northern Rock. The Lloyds Banking Group’s divestment of branches will bolster the role of the Co-operative bank as a stronger mutual institution, too, which I welcome.

The Bank of England revealed in a report in 2010 that the implicit taxpayer subsidy to the banks could be as much as £100 billion, and a further Bank of England study from this year emphasises that that is largely a transfer of resources from Government and taxpayers to creditors, staff and shareholders. The effect of that could be to allow the amount of risk adopted by protected banks to rise. A more comprehensive examination of the banking system would make it possible to determine the underlying issue of whether it currently offers sufficient value for that investment by the taxpayer. There is much evidence from the IMF and the London School of Economics that it has not done so, and that higher pay and profits have been the principal results, at the cost of a slower flow of credit.

Interest rate swap arrangements that were mis-sold could affect up to 28,000 small businesses in Britain. The LIBOR scandal will undoubtedly draw in other financial institutions, and create the potential for court cases involving billions of pounds in compensation awards. Morgan Stanley produced figures today revealing that the global cost to the banking sector of every basis point of LIBOR suppression could be $6 billion, or $400 million for every bank affected. Other countries have been better able to survive the financial crisis because their banking systems have more competition, more effective direction from Government, and more socially beneficial lending practices. In Germany, the state-owned investment bank KfW last year provided €11.4 billion in new loans to small and medium-sized enterprises, focused on exports and job creation. Because of their statutory duty to put the good of the local economy over the maximisation of profit, the local savings banks, or Sparkassen, continued to lend even in the depths of the 2008-09 slump in output. While the major commercial banks in Germany cut lending to businesses by 10%, the Sparkassen increased lending by 17% between 2006-2011. Three in every four SMEs in Germany have links with the Sparkassen. A system whose ownership and remit were more diverse would help SMEs in the United Kingdom, too.

In a very good discussion of the banking system on “Newsnight” last night, it was startling that Jim O’Neill, the investment banker from Goldman Sachs, powerfully made the case for a state investment bank in this country, to support economically important industries. A more comprehensive examination of the banking system, including its structure and competition, could also consider the case for making the bank balance sheet levy more progressive, as Duncan Weldon, the chief economist of the TUC, has recently proposed, and whether it should be larger for bigger banking institutions, while greater competition would be promoted through a lower levy for smaller banks.

Lack of competition is also leading to a culture of excessive pay and bonuses within the banking system. The work of the High Pay Commission last year exposed the fact that within Barclays, while the average pay of employees rose by 866% in the three decades from 1980, the pay of top directors in that bank rose by a staggering 4,899%. Top directors’ pay at Barclays and Lloyds Banking Group rose from 14 times that of ordinary tellers working in the bank’s branches to some 75 times that of an average Barclays or Lloyds employee’s pay by 2011. That is the extent of the culture of greed that has grown in our banking system.

In other countries, over the decades, the need for a wider examination has been clear. The Pecora commission, founded in the United States in 1932, under an independent chief counsel, led to the uncovering of the reasons behind the Wall street crash of 1929, and to radical legislation to separate retail from investment banking under the Glass-Steagall Act. It created new criminal penalties and re-regulated the stock exchange. The work of that commission safeguarded the US financial system for the next fifty years. Afterwards, in his memoirs, entitled “Wall Street Under Oath”, Ferdinand Pecora wrote of the ills of the banking system across the world in the 1930s:

“Had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker’s stoutest allies.”

It is our constituents, particularly the poor and working families with children, and most of all the growing army of unemployed and underemployed, who are paying the price for the recession—the longest since the 1870s—that has resulted from this financial crisis. They did not cause the recession, but they have been asked to shoulder the heaviest burden, while the super-wealthy at the top of the financial services sector have continued to enrich themselves, and our banking sector is being protected from the radical structural reforms we now need. The very least that we as parliamentarians can do is to give them the fullest account of why our banking system is so badly broken, why it lacks effective competition, and why it is failing to promote any kind of recovery or sense of responsibility from people at the top. Only then can we begin the task of creating a banking system that serves the people of this country, and not the other way around.

Green Economy

William Bain Excerpts

Thursday 28th June 2012 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

I congratulate the hon. Member for South Thanet (Laura Sandys) on securing this timely and important debate, and the Backbench Business Committee on granting it.

The OECD has estimated that this year in the UK total economic demand will be only a tenth of that in Japan or the United States. The fiscal stance adopted by the Chancellor towards the economy as a whole, and particularly towards the green sector, is disappointing, given that our green economy accounts for 7% of gross domestic product and is the sixth largest in the world. It sustains 900,000 jobs and is growing at a rate of 4.7% a year, whereas, as the Office for National Statistics established this morning, the economy as a whole has shrunk by 0.2% since the comprehensive spending review in autumn 2010, although the Office for Budget Responsibility had predicted that in the six quarters following June 2010’s emergency Budget, the economy would grow at 3.7%. It seems that the green economy is one of few areas in which there is any growth at all.

China and South Korea are investing hugely in the low-carbon sector, which, it is estimated, will be worth $2.2 trillion by 2020. China’s share of the low-carbon economy is set to rise to 24% by that year. The Chancellor’s lack of foresight risks leaving the UK in the economic slow lane. It is extraordinary that it is not only the Governor of the Bank of England who now writes letters to the Chancellor about the state of the economy but, we have learned, the Secretary of State for Environment, Food and Rural Affairs, the Secretary of State for Energy and Climate Change and, perhaps most surprisingly, the Foreign Secretary. Perhaps there is only 24 hours to save the green economy, based on their concern that Government policy is simply not going far enough to generate growth in an innovative sector that, after the financial crash of 2008, provides an opportunity to rebalance a growth model that many people believe has failed.

This morning, Paul Krugman and Richard Leyard set out in the Financial Times how we have become mired in the slowest climb out of a slump since the 1870s, largely because of a lack of productive economic output. We face endemic long-term unemployment and mass underemployment, with 2 million people forced into part-time or temporary work because not enough full-time jobs are being generated in the economy. Investment in the green sector is the key to ending that trend. Krugman and Leyard conclude in their powerful piece:

“Companies will only invest when they can foresee enough customers with enough income to spend. Austerity discourages investment.”

[Kelvin Hopkins]

I support everything that my hon. Friend is saying, but is he aware that in a survey recently reported by the CBI, 94% of employers wanted, above all, markets so that they could sell their goods? They were not concerned about regulation and all the other things that the Tories talk about.

[Mr Bain]

For many months, my hon. Friend has identified the real problem—a jobs and demand crisis, which is what fiscal policy and investment in the green sector must address.

Lack of confidence means that private sector surpluses amounted to £99 billion last year, and £700 billion of private-sector assets are not in productive use in the economy. In the first three months of this year, global green investment fell to the lowest level for three years, according to Bloomberg New Energy Finance. It is clear that Governments have to act quickly if they are not to find themselves in a classic example of what Keynes called the paradox of thrift, in which the pressure to save overwhelms the need to invest and grow.

Although they are somewhat more reticent in their self-promotion, it is worth remembering that this is the Government who asserted that they were “the greenest Government ever”. Regrettably, this year’s Budget did little to redress the lack of green investment. The principal failure was the failure to improve the capital and borrowing powers of the green investment bank. As a concept, the bank is quite unique. It draws support from the CBI and the New Economics Foundation. Before the Budget, James Meadway, senior economist at the New Economics Foundation, called on the Chancellor to bolster proposals for the green investment bank with higher capitalisation and earlier borrowing powers.

Ernst and Young estimates that £4 billion to £6 billion of public capital is necessary over the course of this Parliament for the bank to be effective in tackling the investment barriers in offshore wind, carbon capture and storage, and associated infrastructure. Lord Stern, a leading climate change economist, notes that that is not state aid or subsidy, as the institution is needed because of market failures in finance, particularly those associated with risk and policy risk. However, the green investment bank will not have borrowing powers until April 2017, which casts huge doubt on its ability to raise the £200 billion estimated to be necessary to meet the UK’s CO₂ reduction targets by 2020. While immediate borrowing powers are essential, so is timing. As the Environmental Audit Committee reported in March last year, investors may put off investment while there is uncertainty about how the bank will operate. A bank that is slow in building its balance sheet may not meet our emissions and renewable energy targets by 2020.

The London School of Economics recently issued a report showing the link between the effects of the current crisis of demand and the flailing prospects of the green economy in the UK. In its recent report on green investment and innovation, the LSE argues:

“Investment has slumped mainly because households, businesses, and banks are nervous about future demand and have responded by forgoing more risky investment in physical capital.”

That is the crisis that must be addressed now. The LSE also points out that the Government

“can still steer spending and investment through a mix of policies including pricing, regulation and institutional reform”

that need not cost more money now.

Consensus on this issue comes from a surprising source—the Foreign Secretary, who said in his letter of 19 March to the Chancellor that

“we could get more mileage from this without additional commitment of expenditure or fiscal risk.”

Uncertain economic times need not mean an uncertain approach to the transition to a green economy.

Sir David King, as the hon. Member for Brighton, Pavilion (Caroline Lucas) discussed in her speech, has argued that the quantitative easing programme could also be aimed at the green economy. In an article published in The Guardian this Tuesday, he wrote:

“This laissez-faire attitude that is gospel at the Treasury is not the right one at the moment. We do not have time to play about with this—we need to move quickly to get out of the financial crisis and the resource crisis”,

and he suggests that preference could be given to projects that promote environmentally responsible and sustainable development, modernising infrastructure and marking a shift away from the present high-carbon, resource-intensive economy.

In opposition, the Chancellor highlighted the need to

“bring to an end the stale argument that we have to choose between economic growth and the environment.”

In government he has so far, sadly, forsaken both, but this is the season for Treasury U-turns. The motion and this debate give him the opportunity to get serious and to generate real green growth and green jobs, so let us have the largest U-turn yet—a fully capitalised and properly borrowing green investment bank and proper levels of investment in the green economy.

Banking Reform

William Bain Excerpts

Thursday 14th June 2012 Commons Chamber

[Mr Hoban]

I think it is very clear that the emerging debate about a banking union flows from the problems we are seeing in the eurozone. It is important that the banking union helps resolve some of the problems in the eurozone, but it is a consequence of having a single currency, not a consequence of having a single market. It is important for the eurozone to move ahead in dealing with its problems and strengthening the banking regime within it. It is also important for the future of the City to ensure that there are proper safeguards over the functioning of the single market.

[Mr William Bain (Glasgow North East) (Lab)]

With a double-dip recession made in Downing street, bank lending having fallen for five consecutive quarters and businesses facing a shortfall of £190 billion in finance over the next decade, why are there no further proposals in the White Paper to diversify the range of banking institutions to make sure that finance gets into the real economy?

[Mr Hoban]

I do not know whether the hon. Gentleman has yet read the White Paper. If he had, he would have seen a section on competition that deals with encouraging diversity, making it easier for new entrants to come into the market and promoting switching. When the hon. Gentleman has read the White Paper, he might like to come back to me.

Amendment of the Law

William Bain Excerpts

Thursday 22nd March 2012 Commons Chamber

[Angela Smith (Penistone and Stocksbridge) (Lab)]

This is a millionaires’ Budget delivered by a Cabinet dominated by millionaires. It is regressive in what it does with tax, but it is equally a Budget that will do little, if anything, to deliver the jobs and growth that the economy needs. Exactly a year ago, the Chancellor told the House that he had just

“put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 966.]

He told us that we would see the economy turn the corner in this financial year, that positive growth figures were forecast, and that unemployment would stabilise as the private sector rose to the challenge as the public sector retracted.

[Mr William Bain (Glasgow North East) (Lab)]

Is my hon. Friend aware that the OBR is predicting that the effect of this Budget will be to increase unemployment by 100,000 this year and next?

[Angela Smith]

I agree with my hon. Friend; unemployment already stands at 2.67 million, and youth unemployment is at a record level.

Despite the Chancellor’s predictions a year ago, things have turned out very differently in the real world. As we enter spring 2012, it is clear that the British economy is flatlining, and the OBR is forecasting just 0.8% growth for 2012.

In effect, the economy will continue to flatline. The Government have conceded that they will overshoot their borrowing target by £150 billion. Consumer confidence is also at a record low. As people see their income squeezed while VAT increases push prices up and inflation runs ahead of wages, many are fearful for the future. VAT costs a family an average of £450 a year, and while the increase in personal allowances reduces tax for the low paid, that is completely outweighed by the VAT rise, cuts to tax credits and higher fuel duty—again, smoothed over by the Chancellor yesterday.

The major beneficiaries of this Budget are, of course, those 14,000 people earning £1 million or more, who are receiving a tax cut of more than £40,000 a year. Some 300,000—just 2% of earners in the UK—will benefit overall from the cut of the top rate to 45%, yet just 4,000 houses a year are sold for more than £2 million. That means that the vast majority of those who gain from this tax cut for the richest will be totally unaffected by the rise in stamp duty to 7%.

--- Later in debate ---

[Mr William Bain (Glasgow North East) (Lab)]

In the past 24 hours, many people have attempted to provide a description of this Budget. Some have compared it to Lord Lawson’s giveaway Budget in 1988, others to the orthodox Budget of Philip Snowden in 1931, but in entrenching the disastrous mistakes in fiscal policy of its two immediate predecessors perhaps this Budget will deserve to be known as the great stagnation Budget. Despite the measures unveiled by the Chancellor yesterday, the verdict of the Office for Budget Responsibility was that they will make no difference to the levels of growth in this country in the next two years.

[Angela Smith]

Does my hon. Friend agree with The Guardian, which said this morning that the Liberals will live to regret the fact that they have moved so far away in principle from the Lloyd George Budget of 1909?

[Mr Bain]

My hon. Friend is entirely right. Staggeringly, in that year the Liberals introduced one of the most progressive Budgets—the people’s Budget. This Budget certainly does not compare to that remotely; it is a highly regressive Budget, as the Institute for Fiscal Studies has confirmed this afternoon.

The effects of this Budget are likely to be 100,000 more job losses—20,000 more in the public sector; £150 billion more borrowing than that forecast in June 2010; and a substantial rise in inequality across the country. Having choked off growth in the past two years, and having weakened both public and private sector demand with austerity cuts that strip eight times more public consumption from the economy this year and nine times more next year than even the eurozone average, the Chancellor is presiding over the weakest recovery from recession since the 1870s.

In addition, as the OBR revealed yesterday, despite the Chancellor’s rhetoric on diversifying the economy and promoting manufacturing, his plan for growth is based on the share of private consumption more than trebling, from 12% to 37.5% this year alone; half of all the new growth in the next five years is forecast to come from consumption. This is not an export-led recovery, but debt-fuelled consumption to maintain stagnant output, at a time when consumer spending has fallen in the UK by 0.8% in the past year. Small wonder that the OECD has found that domestic demand in Britain has slumped. It rose by 2.7% in 2010, when Labour was in government, but fell by 0.2% this year, under this Chancellor. The figure is massively below the 2012 OECD average increase in economic demand of 1.4%. It shows the crisis of the lack of demand that is in our economy, which the Chancellor did not begin to tackle yesterday.

On growth, the Chancellor has given up on fiscal policy as a lever of driving demand, even when the credit ratings agencies, the International Monetary Fund and his US counterpart warn him not to. We face a jobs crisis, and in a crisis of this magnitude, we need fiscal and monetary policy to work in concert to grow the economy out of a slump.

[Angela Smith]

Is it not also the case that the current use of monetary policy to drive growth—quantitative easing—is driving the markets but not necessarily the growth that this country needs?

[Mr Bain]

That is precisely the point that many small businesses up and down the country are making. What we should have had yesterday was a facility to securitise loans to small businesses and have them indemnified by the Treasury. That would mean that the quantitative easing money could flow directly from the Bank of England into small and medium-sized businesses, and not simply on to the balance sheets of the banks. That would have made a huge difference. As many businesses have said, the credit easing scheme launched by the Chancellor with great fanfare on Tuesday will barely scratch the surface of the £190 billion shortfall in credit financing from which our businesses are suffering at the moment.

The Chancellor is refusing to learn the lessons from Japan in the 1990s. He is placing all his eggs in the basket of long-term low interest rates, but in Japan that led only to a decade of stagnation because of similarly catastrophic mistakes in cutting spending too far and too fast.

Even on its own terms, the Budget was a failure for business, with levels of business investment £48 billion below their peak of 2008 and business investment growth having been slashed from 7.7% to just 0.7% in the OBR’s latest forecast. There should have been innovative ideas about promoting long-term investment; there should have been plans for a national investment bank; there should have been plans to bring forward more infrastructure spending; there should have been plans to enhance and boost the borrowing powers of the UK Green investment bank, which will not have those until 2016 because of the Chancellor’s failure on growth. But in yesterday’s Budget, sadly, there were no ideas that would really make a difference to business.

Shamefully, the Chancellor never even mentioned, much less produced, a plan to tackle youth unemployment. With 1 million young people out of work across the United Kingdom and with the figure approaching one in four in Scotland, he should have announced measures for a proper national insurance holiday for small and medium-sized firms employing young people. He should have repeated the bank bonus tax to help to create 150,000 youth jobs. He should have announced a temporary VAT cut, which would have boosted consumer demand, and he should have cut VAT for home repairs and maintenance to give the construction sector a much needed lift.

The test on which this Budget is found most wanting is that of fairness. We are told that the wealthiest 3% of the population require massive fiscal incentives to reward hard work, but it is a different approach when it comes to those on lower incomes or pensioners who have saved for their retirement. The poor are told to work harder and do extra hours of work that are not available in the depressed economy, but 14,000 millionaires will receive a permanent tax cut of £40,000. This Budget is highly regressive and I urge Members to vote against it on Monday.

We are told that the Chancellor has advised the Prime Minister on matters strategic, instead of focusing on the crisis of demand made in No. 11 Downing street—a flatlining economy, slumping business investment, rising unemployment and soaring inequality. The country will not forget that yesterday was the day when the part-time Chancellor produced a bit-part Budget.

[George Freeman (Mid Norfolk) (Con)]

I congratulate the Treasury team on a Budget that I believe will come to be seen as an historic Budget that will put Britain back on track for sustainable economic recovery. I want to say something in the time available about the problem we inherited, because it bears repeating, about the challenge we face and about the opportunity that I believe we can and should be optimistic and ambitious in tackling. The problem has been well chronicled, but the views and ignorance displayed by Opposition Members in this afternoon’s debate suggest that we need to repeat it for them.

We have inherited from the Labour party the worst deficit and debt crisis in this country’s peacetime history; a structural deficit that would have been a crisis alone; an annual deficit from Labour’s historical explosion in public spending; a crisis in the situation with debt as a percentage of gross domestic product; and interest payments that are set to rise, if we have not tackled them, by £76 billion a year—£1 in every £4 the Government spend. As a result, there is a deep fiscal crisis, with tax increases and restraint on public spending hitting every family in the country, and a legacy of rising unemployment because of the credit crunch and bank financing for small businesses. Most powerfully of all, and most damningly after 13 years, there was the unsustainable economic model—a labour boom fuelled on cheap credit and cheap immigrant labour and a consumer boom that Labour knew was unsustainable. Worst of all, perhaps, there is a deep crisis of trust and confidence in political economy and in the belief and faith that the Government can do anything about it.

The challenge is to restore some credibility and confidence, first, in the capital markets through the coalition’s programme for tackling the deficit, and secondly in the boardrooms and businesses of Britain that are the only true mechanism for sustainable recovery. There is also a need to restore credibility and confidence in relation to the entrepreneurs we will need to take the risks to drive growth and the citizens and consumers of this nation so they can have faith again. That requires a new economic model, which my right hon. Friend the Chancellor spoke passionately about yesterday—a model for sustainable recovery. We cannot borrow and spend our way out of a debt crisis.

Recovery needs to be sustainable not just in terms of avoiding the mistakes of boom and bust. We must produce the things that people around the world want to buy and we must have a clean economy in terms of resources and the environment. Recovery needs to be sustainable in the sense that our public services must be financed in a sustainable way. Every pound that we in this place claim as government money has to be earned by citizens and businesses and taken from them, and we should never forget it. At heart, that means that the coalition’s programme for a rebalanced economy must shift from over-dependence on the public sector to the private sector, from London and the south-east to the cities and the regions and to the real businesses of this country that can drive sustainable growth. I congratulate the Treasury team on keeping interest rates low, paying off the debt and supporting business. We have the most competitive corporation tax regime.

[Mr Bain]

Will the hon. Gentleman give way?

[George Freeman]

I am going to plough on if I may. The move on the top rate of income tax from 50p to 45p has set a clear direction.

--- Later in debate ---

[Kate Green (Stretford and Urmston) (Lab)]

All Budgets have a tendency to create both winners and losers, but this Budget, unlike others, appears to create winners and losers in an inconsistent and illogical manner and without any clarity of guiding values or objectives.

[Mr Bain]

My hon. Friend is showing her customary generosity in giving way. I anticipate that she might make the point that 70% of the cuts in tax credits will affect people in the lower half of the income scale, but the Resolution Foundation determined yesterday that 70% of the gain from the change in the personal allowance will go to people in the top half of the income scale.

[Kate Green]

My hon. Friend does indeed anticipate my first point. Although there is of course an attraction in lifting more people at the bottom of the wage spectrum out of tax, it makes little sense to introduce a measure that still favours more men than women when women have already lost out under previous Budgets and spending announcements.

--- Later in debate ---

[Sheila Gilmore (Edinburgh East) (Lab)]

The altruism of the high-paid is remarkable. If they are not paying tax because of successful avoidance measures, their delight at the rate reduction requires some explanation. Perhaps they agree with the Chancellor’s statement that they will pay more tax as a result; if so, their delight is clearly because they are ready to pay more tax than they were previously.

[Mr Bain]

I wonder whether my hon. Friend has had an opportunity to consider what the Institute for Fiscal Studies has said this afternoon—that there is a one in three chance that the Treasury will recoup only 30% of the £2.9 billion in the Red Book that relates to behavioural changes and to people moving from the 50p to the 45p rate. Does not that bear out her point?

[Sheila Gilmore]

It definitely does.

Of course, that may not have been what people were cheering. They may have been cheering in relief at not having to do tiresome tax avoidance planning all the time. If the HMRC’s calculations are correct, high-paid employees are a bit like highway robbers who are holding a musket up to the rest of us and saying, “If you tax us, we are going to take our ball away and not play any more.”

Financial Services Bill

William Bain Excerpts

Monday 6th February 2012 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

This Bill makes certain changes to the supervision of the banking and wider financial services sector, and Opposition Members can give guarded support to them, but it falls far short of taking the much-needed action to regulate payday lenders and the total cost of credit, to secure growth and jobs as goals of the new regulatory bodies, and to make the necessary reforms in the banking sector’s excessive pay and remuneration, which was one of the key factors driving the financial crisis in the first place.

A growing body of research, from the OECD to White House economists, shows that societies with a smaller gap between the richest and the poorest achieve higher long-term growth. This Bill could have taken real steps to tackle inequality and the culture of high bonuses and pay in the financial services sector by implementing in full the recommendations of the High Pay Commission to put an employee representative on the remuneration committee of firms in the banking sector, to require the publication of the pay ratios between highly paid financial services staff and those on average wages, to ensure that all publicly listed companies in the sector produce fair pay reports, and to establish a permanent body to monitor high pay.

The High Pay Commission recently discovered that in Barclays, between 2009 and last year its top executives’ pay was 75 times that of its staff on average pay, and the ratio in Lloyds Banking Group was precisely the same. Since 1979 the pay of the top Barclays executive has gone up by 4,899%, to £4.365 million last year.

There appears to be a growing mood on the political right, particularly in the United States, to take the view that those issues do not matter, but in Britain they do, and the Government could have done far more in the Bill to show that they stand with the 99%, rather than with the top 1%.

The Bill could also have secured more justice for the young and poor in our society by introducing a tax on bank bonuses for the next two years—the first step in tackling the youth unemployment crisis, the scale of which the excellent report by the Association of Chief Executives of Voluntary Organisations exposed this morning. Youth unemployment costs the economy £10.7 billion, and the loss in tax revenues amounts to £2.2 billion per year. How disappointing that the Bill has not taken the first step to end that injustice today.

The Bill also wastes a golden opportunity to introduce controls on payday lenders and to impose caps on the total costs of credit. Shelter published research last month which found that almost 1 million people have taken out a payday loan to help pay their rent or mortgage in the past year, and that almost 7 million people rely on credit to meet their housing costs. The Bill could have limited the number of loans that a borrower might take out at any one time or on a repeat basis, as Consumer Focus recommended two years ago. Campbell Robb, the chief executive of Shelter, said on 4 January:

“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable. It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimately homelessness.”

On the structural changes to the supervisory framework for financial services, the Bill provides greater clarity through clause 57, so, in the event of a major crisis affecting the financial system, the Chancellor of the Exchequer will have the power to issue to the Bank of England directions on support for the financial system, including the use of Government funds. That is important in emphasising political accountability to this House.

The Bill is important to the people of Scotland. The financial services sector amounts to 7% of Scottish GDP, employs 150,000 people in Scotland and contributes £7 billion to the Scottish economy. Scotland has the headquarters of RBS, Clydesdale bank and Tesco bank, and it remains a key location for Lloyds Banking Group and other financial institutions. The future regulation of the sector is therefore critical in the momentous decision that the people of Scotland will soon make on their constitutional future.

The benefits of Scotland’s full participation in the UK financial system were keenly felt in 2008. The report of the Independent Commission on Banking made it clear that the total financial support, including loans and guarantees, provided to the banking sector throughout the United Kingdom during the crisis was of the order of £1.2 trillion. Two of the major beneficiaries of that support were banks based in Edinburgh.

There is a noticeable lack of clarity in the Scottish Government’s views on the Bill. It is unclear what their proposals for separation would mean for the protection of savings deposits in Scotland. There is a complete absence of detail on who the prudential regulator of banks based in Scotland would be if Scotland voted for separation and on the ability of the banking sector to sustain the levels of lending to Scottish businesses. The Scottish National party has said that it would still wish to receive the benefits of the Bank of England’s support for a separate Scottish financial system, but it has not been forthcoming on whether it would accept a continuing remit for the new Financial Policy Committee in the regulation of the banking sector.

Cross-border financial regulation is good for Scotland and for the UK as a whole. Our system would be weaker on all sides if RBS was split and regulated under one set of rules and institutions in Scotland and under another set of institutions here, along with the other major banks in the UK. Under its preferred post-separation model of establishing a currency union with the United Kingdom, with the Bank of England as lender of last resort, the SNP has not come clean on whether there would be a Scottish central bank, what its functions would be, what its relations with the Bank of England would be, or how banks in Scotland would be regulated in future. Would the SNP seek to regulate the banks and the financial services sector within Scotland, or would it leave that with the Bank of England? If it does plan to have a separate regulatory structure, what form would it take? There is a plethora of unanswered questions, and it is time that the people of Scotland had the answers from the Scottish Government.

The Bill has some satisfactory elements, but overall it does not meet the scale of the challenge of establishing a more socially responsible financial services sector. If it is to command support in the country, the Government will have to be open to amendments in Committee to restore confidence to the banks and credibility to the regulatory structure across the United Kingdom.

Banking Commission Report

William Bain Excerpts

Monday 19th December 2011 Commons Chamber

[Mr Osborne]

Actually, we are quite happy for the right hon. Gentleman to stay where he is, so I retract my previous comment.

In response to my hon. Friend the Member for Sevenoaks (Michael Fallon), we are confident that we will be able to do this within the regime of European Union law.

[Mr William Bain (Glasgow North East) (Lab)]

Has the Chancellor assessed the impact on levels of net lending to business of corporate deposits, estimated at £270 billion for RBS, Barclays and Lloyds, potentially lying outside the scope of the retail ring fence? Who will decide which corporate deposits sit outside the ring fence—the new Prudential Regulation Authority or the banks themselves?

[Mr Osborne]

A key part of the Vickers report was that the location of the ring fence would be flexible. Certain things would have to be in the ring fence, such as small and medium-sized business overdrafts and deposits and the overdrafts and deposits of individuals, and certain things definitely could not be in the ring fence, such as investment banking activity. However, corporate deposits could either be in the ring fence or not in the ring fence; that would be a decision for individual institutions, although of course they sit under the regulatory regime. That is what John Vickers recommended, having looked at this very carefully, and that is the plan that we are now implementing.