Cost of Living

Opposition Day — [15th Allotted Day] – in the House of Commons at 3:35 pm on 24th June 2008.

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Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons 3:35 pm, 24th June 2008

I inform the House that in both debates I have selected the amendments in the name of the Prime Minister.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury 3:45 pm, 24th June 2008

I beg to move,

That this House
expresses its deep concern at the rapidly rising cost of living;
recognises the pressures this places on wage-earners and pensioners, especially those on the lowest incomes;
acknowledges the danger to the UK economy of entrenching inflation through excessive wage claims in response to rising prices while understanding the concern of people who find their living standards squeezed;
and therefore regrets the inability of the Government to provide assistance and support to hard-pressed families because of what the OECD describes as 'excessively loose fiscal policy' pursued by this Government over the years of economic growth.

The cost of living is back at the top of the political agenda and on the front pages of all our newspapers. When I first became aware of political debate in my early teens, the economy dominated the agenda and the battle to control inflation dominated the economic policy debate. It influenced almost every aspect of that debate; it toppled Governments and shaped our national institutions. Indeed, for many of us, it shaped our perceptions for half a lifetime. Then, after the Conservative Government introduced inflation targeting in 1992 and the incoming Labour Government reinforced that move in 1997 by creating the independent Monetary Policy Committee of the Bank of England, it ceased, for a decade or more, to be an issue on the political radar screen.

How tempting it was, therefore, to believe the rhetoric of the then Chancellor, our Prime Minister, that the dragon of inflation had really been slain—that the sunlit uplands of endless economic growth, low interest rates and appreciating asset values had been reached without the unwelcome spectre of inflation spoiling the view. Indeed, the Prime Minister built his entire reputation on the claim to have been the man who delivered economic stability—who ended boom and bust. Well, not any more.

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Photo of Andrew Love Andrew Love Labour, Edmonton

Will the hon. Gentleman accept that the former Chancellor built his reputation on the independence of the Bank of England, which the hon. Gentleman's party did not support at the time, and that that has been a major weapon against inflation?

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

If the hon. Gentleman had been listening, he would have heard me say a few moments ago that inflation targeting was introduced by a Conservative Government and reinforced by independence of the Bank of England, which we, in turn, are now committed to reinforcing still further in a way that this Government have resisted.

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Photo of John Redwood John Redwood Conservative, Wokingham

Does my hon. Friend remember that, far from creating an independent Bank of England, the Chancellor gutted and filleted it, taking away debt management and nationalising it into the Treasury, and taking away day-to-day banking supervision, so that the Bank was blind and deaf in the money markets when the credit crunch hit? Is not that a major problem?

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

My right hon. Friend is absolutely right. As he will know, we have been arguing for some time that the responsibility for rescuing a failed bank under the proposed new system must lie with the Bank of England, not the regulator. We are delighted that the Chancellor appears at last to have come round to accepting the logic of that position.

The former Chancellor's reputation is unravelling before his eyes. The man who rode the Asian tiger of imported deflation bleats that what is happening in Britain today is all someone else's fault—from the credit crunch, to the fuel price at the pumps, to the soaring cost of food and spiralling home heating bills. He was the lucky Chancellor whose good fortune was to preside over the greater part of what the Governor of the Bank of England has called the NICE—non-inflationary, consistently expansionary—years, and whose misfortune is now to have his legacy exposed as a sham, because when the wind blew the economic house that Gordon built turned out to be made of straw.

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Photo of Angus MacNeil Angus MacNeil Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

The hon. Gentleman calls the former Chancellor the lucky Chancellor, but when we set his record beside those of Charlie McCreevy and Brian Cowen as Finance Ministers of the Republic of Ireland, we see that the growth that he achieved was only half what they achieved. He was not that lucky or that golden—in fact, I would contend that he was a bit rusty.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The hon. Gentleman makes a point. By "lucky Chancellor" I simply mean that he was riding the crest of a wave of imported deflation, which created many of the conditions upon which he built his claimed reputation. The hon. Gentleman is absolutely right to point out that UK economic growth, like UK productivity growth, has been poor over the past decade compared with many of our competitors.

The economy is firmly back on the agenda. Inflation is booming on the high street and the Prime Minister's reputation for economic competence is bust. The cost of a shopping basket of groceries has rocketed by 12.6 per cent. according to The Grocer—that well-known authority on grocery prices—while fuel and domestic energy prices are up 17 per cent. and 9 per cent. respectively, with a further increase of at least 40 per cent., or around £400, for an average household predicted in domestic gas prices for the coming winter. Worse than that, the cost of a basket of 40 essentials has increased by 19.8 per cent. over the last year, piling the pressure on the most vulnerable consumers—those on low and fixed incomes. Bread is up 29 per cent., eggs are up 48 per cent, butter is up 30 per cent. and transport costs are up 16 per cent. The Daily Mirror's cost of living index shows most people faced a rise of 11.6 per cent. over the last year, not the official 3.3 per cent. I think that even the Government are likely to agree that that is unlikely to be a Conservative plot.

A family that spent £100 a week on food or drink a year ago has to find an extra £1,000 this year for the same items. There are some positive consequences. Apparently, more people are growing their own vegetables—one in three of us according to a survey in The Daily Telegraph, with nearly half motivated by cost. But there are some not so positive consequences. Bargain hunters are moving away from fresh foods and resorting to cheaper options. Frozen fish sales are up 11 per cent. on a year ago. A survey of citizens advice bureaux in England and Wales suggests that a growing number of people are having difficulty in paying for, and are seeking help with, essential household bills.

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Photo of John Barrett John Barrett Shadow Minister, International Development, Shadow Minister, Work & Pensions

Does the hon. Gentleman agree that among the most vulnerable groups—those who are hit hardest—are disabled people, who have higher energy costs and often higher food costs as well? Inequality among the most vulnerable has widened.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The hon. Gentleman is absolutely right and I shall say something about that in a moment.

Ctizens advice bureaux reported a sharp increase in the number of mortgage arrears problems, which were up 35 per cent. in the first two months of 2008, compared with the same period in 2007. They also report a continuing increase in problems relating to basic essentials, such as gas, electricity, water, telephone and council tax debts. The CAB's briefing reports that the combination of big increases in household bills, especially fuel, and rising housing costs is putting additional pressure on people's finances when they are already stretched to the limit. Bureaux reported that they had dealt with 215,000 new debt problems in the first two months of 2008 alone and the report goes on to list examples that all have one thing in common: people on low or fixed incomes who are living at the margin of economic viability. For many people, the surge in living costs is turning a situation that is just manageable into one that is not.

We have tabled this motion to give the House an opportunity to debate the soaring cost of living and the Government's lack of room for manoeuvre in responding to it. The first part of the motion expresses the House's deep concern at the rapidly rising cost of living. To be candid, there are two reasons for that concern. The first, as the CAB report demonstrates, is a compassionate concern because inflation hits hardest those with the least bargaining power: pensioners on fixed incomes, the lowest paid in the most marginal jobs and people with long-term disabilities who are living on benefits. When an economic shock strikes, those groups, by definition, will be the least able to cope with it and the least likely to have any savings cushion. All of us in Parliament must voice their concerns and fears because they have little bargaining power themselves.

There is, however, a more calculating economic reason for the rising cost of living. Rapidly rising inflation also affects those with more bargaining power in the employment marketplace. Their response to the rapidly rising cost of living poses the genuine threat to our future economic stability, hence the second part of the motion, which acknowledges the dangers of a wage-price spiral.

As the economy slows and earnings stagnate while prices rise inexorably, the average family is already £400 a year worse off than it was a year ago. The current official retail prices index inflation is 4.3 per cent. a year, but the expectation of future inflation is as important as the level today in determining the behavioural responses to it. Every hon. Member knows from discussions with constituents that people's perception of price increases and their expectations of future inflation are far higher than the official data suggest—unsurprisingly, in view of the figures that I have cited.

Mounting evidence shows that rising prices are feeding into higher wage demands and settlements. Pay rises in the energy, water, chemicals and engineering sectors in the quarter to April were at or above current inflation. The recent Shell tanker drivers' settlement has subsequently added a further turn of the ratchet. The Incomes Data Services data, which were published this morning, show how many private sector settlements now include RPI linking, reigniting memories of the disastrous flirtation with indexation in the 1970s.

Yesterday's announcement of a vote for industrial action by local authority workers rejecting a 2.45 per cent. pay offer underlines the scale of the challenge that the Chancellor will face as he repeats his exhortation for pay rises to be kept in line with the Government's 2 per cent. inflation target, even as inflation looks set to reach double that figure. The prospect of a summer of discontent looms and Conservative Members wait with interest to see how a Labour Government, desperate for cash from the unions to save the Labour party from bankruptcy, will deal with the new militancy on wages on top of the already aggressive demands for further competitiveness-eroding employment legislation.

Last week, the Governor of the Bank of England gave a frank appraisal of the threat to Britain's economy from the rising cost of living. With consumer prices index inflation up from 1.8 per cent. to 3.3 per cent. in the past nine months and a raft of further price increases to feed through, the Governor warned of the dangers of a wage response, which would mean that the jump in food and oil prices was embedded in our economy through an old-fashioned wage-price spiral, with wage earners trying to compensate themselves for rising prices, thus ensuring the further erosion of the value of their wages.

Let me take the opportunity to say from the Dispatch Box that the Governor of the Bank of England is right. Given that growth is slowing significantly below the Treasury's Budget estimate, if the inflationary pressure that has surged through into the index in the past months is reflected in future wage rises, Britain risks revisiting the 1970s, with entrenched inflation and stagnant growth—stagflation in all its horror. By warning of his determination to stick to the Chancellor's inflation target, the Governor is effectively throwing down the gauntlet to the unions, with the clear threat, "Go for the inflation-matching wage rises and I will bust you with growth-killing and unemployment-creating interest rate increases." They should listen to the Governor of the Bank of England.

We will support the Government when they do the right thing on pay restraint, as my right hon. Friend the Leader of the Opposition said yesterday. However, after two years of stagnant real wage increases, let us be clear about what the Chancellor is demanding. As with taxes, so with wage policy—let us have an end to stealth and a new openness; an explanation of policies, tough or tender, up front and without spin. I put it to the Chief Secretary that the Chancellor is demanding a cut in living standards—is not that the essence of a demand for below inflation wage settlements? Is not the legacy of the Prime Minister's 10 years in the Treasury falling living standards for British workers? Yes, inflation has to be controlled, so that Britain can maintain its competitiveness and be in a position to respond when the upturn comes. That means difficult times ahead. The truth is that the Government are in no position to help out and soften the blow of this painful adjustment to economic reality.

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Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

Obviously our country faces great challenges, and the hon. Gentleman is right: people are hurting. He talks about openness of policy, so could he tell the House the extent to which he thinks any Government can alleviate the sorts of difficulties that our country faces, and what his party's policies are to address them? The Conservative party motion puts forward no policies, whereas the Government amendment sets out four of the steps that the Government have taken to try to address the issues. If we are to have open debate and openness about policies, for which the hon. Gentleman calls, could he tell us his party's policies?

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The hon. Gentleman asks what the solutions to the problems that we face are. He is right in one sense: there are no easy or quick solutions and no magic wands. The essence of our argument against the Government is that we have entered this downturn—and it is a downturn—uniquely ill prepared to deal with it. The Prime Minister did not fix the roof while the sun was shining, and the British people will pay the price for the lack of preparedness of the British economy.

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Photo of Michael Jabez Foster Michael Jabez Foster Labour, Hastings and Rye

What the hon. Gentleman says is exactly what he and his hon. Friends keep saying. What particular cuts would have been made by a Conservative Government in the past 10 years? What expenditure would not have been incurred, to make the savings that would have achieved his objective? [ Interruption. ]

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

My hon. Friends behind me are throwing out a few suggestions: the refurbishment of the Ministry of Defence headquarters, identity cards and money wasted on computer systems that never work. If the hon. Gentleman thinks back, he will remember that my party's manifesto at the last election set out some clear proposals for cutting costs and waste in government. However, we want to look to the future and talk about the policies that we need to adopt to prevent a repetition of this situation, so that we never return to this position again, by setting out a long-term policy to share the proceeds of economic growth, so that in future we do not borrow through a boom and leave ourselves unable to respond to the kind of situation that the Government now face.

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Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

The incoming new Labour Government promised my constituents, particularly the low-paid and those living in isolated rural areas, that they would be wise spenders, not big spenders. Those people feel absolutely let down by a Government who were supposed to be there to look after the least well-off, when it is the least well-off who are paying the highest price for that Government's failure.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

My hon. Friend expresses eloquently the concerns of his constituents and those of many other of my hon. Friends' constituents.

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Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

Does my hon. Friend also share my concern about the sheer levels of national debt that the socialists have incurred over the past 10 years? We now owe more than £700 billion, which has obviously put them in a straitjacket, which means that they cannot inject liquidity into the economy when we face a recession.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

My hon. Friend is right. I will return to that issue in a moment, because that is the essential point. Although we agree with the Government about the need to avoid a wage/price spiral and the need for wage restraint, they have put themselves into a position in which they simply do not have the tools available to respond to the pressure that families and businesses are feeling.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I will in a moment, but I want to make a little progress.

The Government have no room for manoeuvre, because they did not act prudently during what the Governor of the Bank of England called the NICE years. Fiscal policy is now alarmingly loose and monetary policy very tight in response—the classic hallmarks of a basket-case economy. Yet the Government still seem to be displaying just the tiniest bit of self-satisfied complacency. In their amendment to the motion, the Prime Minister invites the House to note that

"unemployment, inflation and interest rates" are

"all at historically low levels".

But what matters to people now is that interest rates are the highest in the G7, unemployment is rising and the inflation rate is double what the Government inherited 11 years ago. Their amendment boasts about the measures that they are taking to support families and business, including increased tax allowances and winter fuel payments, yet those are the very measures that the Chancellor was forced to concede to buy off the rebellion on his own Back Benches over the 10p tax rate.

Interestingly, the amendment describes the extra winter fuel payments and increased tax allowances as measures that the Government

"will continue to take to support families and individuals".

At first they said that they could not reopen the Budget, but then they did. Then they said they had no money, but when the political chips were down, they found some. Then they told us they would not announce until the pre-Budget report whether the additional winter fuel payments and increased tax allowances would be ongoing. Now they have done so, in this amendment. When the Chief Secretary to the Treasury responds to the debate, will she confirm that this is a policy announcement, and that the extra winter fuel payments and increased tax allowances are measures that the Government will continue to take to support families and individuals? And if that is the case, will she tell us what the cost will be for next year and the year after?

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I keep hearing from the Conservatives the mantra that the Government should have fixed the roof when the sun was shining. Will the hon. Gentleman comment on this quote from Michael Portillo, the then shadow Chancellor, in 2000, when the budget surplus was at its height and the sun was shining most strongly? This is what he said:

"Conservatives will tax less, spend better and deliver more...We will cut taxes on business, so that they can compete and create prosperity and jobs. We will reform Labour's taxes on entrepreneurs...We will encourage savings...We will help pensioners and hard-working families. We will restore a married couple's allowance. We will cut the duty on fuel. That gives you a flavour of my budgets!"

He did not sound as though he intended to put a lot of money aside for the lean years.

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B

"We will encourage savings"

Surely this is putting money aside for the lean years?

Submitted by Ben Hoskin

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The gentleman in question went on to try his luck, lose and depart from these Benches. The Conservative party, too, has moved on in the past few years. We are always happy when Labour or Liberal Democrat Members offer quotes that merely serve to emphasise the extent to which my right hon. Friend Mr. Cameron has changed the direction of the Conservative party.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

No, I want to make some progress.

Where did it all go wrong? The Prime Minister must ask himself that question every morning when he wakes up. It went wrong because he swallowed his own line on boom and bust. He started behaving as though the good times—the NICE years—were here for ever, and there were no rainy days to prepare for, and no roof to fix while the sun was shining. He borrowed through a boom, apparently oblivious to the need to prepare for the possibility that it would not be perpetual. Now he can stick "inappropriate pro-cyclical fiscal policy" on his mantelpiece next to "post-neoclassical endogenous growth theory"— [ Interruption. ] I think I said it okay, didn't I? For seven consecutive years he predicted that the deficit would turn into surplus three years out, and for seven consecutive years that target was rolled forward. He offered jam tomorrow, like putting a carrot in front of the donkey. While competitors and trading partners such as Australia, Sweden, the Czech Republic, Denmark and South Korea used the worldwide boom in trade and economic growth to pay off their public debt—making them well placed to weather the slowdown—he rolled out more, right the way through the good years.

So, as a third of OECD countries face the economic slowdown with their budgets in surplus, Britain, with over 3 per cent. of GDP, has the largest public sector net borrowing requirement of any country in the world bar Hungary, Egypt or Pakistan, making Italy look like a paragon of fiscal virtue.

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Photo of Jim Cunningham Jim Cunningham PPS (Mr Mike O'Brien, Minister of State), Department for Work and Pensions

We all recognise that we have economic difficulties, but I noticed that when the hon. Gentleman responded to my hon. Friend Rob Marris who asked about alternatives, he started to talk very vaguely about ID cards and that sort of thing, and in response to Mr. Browne he mentioned the manifesto. All that he talked specifically about was cutting waste—an argument that is always used. May I remind the hon. Gentleman that in 1997 we inherited a situation in which 50p in every pound went to pay off debt? The hon. Gentleman did not touch on those things. The Conservatives borrowed their way through the '80s and the '90s, so what is their solution to the problem now, as it is worldwide?

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I am not really sure that I understand the point of that intervention, but I would say this to the hon. Gentleman. We have set out a very clear policy of sharing the proceeds of economic growth and we want it to go forward. It is a rule that will prevent us from getting into the same kind of trouble that the Prime Minister has got this Government into. I shall explain in a few moments, if I may, what I think has gone wrong.

The Prime Minister swallowed his own line on boom and bust. He apparently believed that the good times would never end, and instead of putting something by for the more difficult times that were bound to come, he just went on spending and borrowing right the way through the boom.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I want to make some progress.

Britain, with 3 per cent. of GDP as a net borrowing requirement, is going into an economic slow-down in a very serious fiscal position. In 1989-90, the Budget was in surplus as we moved into a period of economic slow-down. Where the Government have led, the consumer has followed, piling up a mountain of debt on the back of asset price inflation, with 175 per cent. of personal disposable income in household borrowing—the highest ratio in the world. The Government cannot help households because they have over-borrowed, and households cannot help themselves as the squeeze tightens because they have over-borrowed as well.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Let me make my point, and then I will.

As well as being unable to help people, the Government are actively reinforcing the inflationary pressures and thus the risk of a wage response. Consumer prices index inflation at constant tax rates is 3.1 per cent., which means that if taxes remained at the rates prevailing at the beginning of this year, inflation would be 0.2 per cent. lower than it is today.

The issue of diesel prices has moved up the political agenda. That is hardly surprising, because the figures show that before tax the UK has lowest diesel prices in the EU, but after tax is added they are the highest. With inflation expectations so important, the Government must look again, as they surely will be forced to do by their own Back Benchers, at the swingeing road tax increases for next year and the year after, which are doubling the road tax for about a million older cars and raising it on the overwhelming majority.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

What the hon. Gentleman is failing to point out to the House is that at the beginning of the 1997 cycle, Conservative debt was more than 41 per cent. of gross domestic product. Under Labour in this cycle, it is less than 37 per cent. The cost of servicing that Conservative debt was 9 per cent.; now it is less than 6 per cent.—a saving of around £23 billion to put into services each year. The hon. Gentleman may be shaking his head, but the truth is that debt levels under the Conservatives were astronomical compared with debt levels today, and he should admit that fact.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

We have to remember that nowadays there is a huge concealment of Government debt off balance sheet, through the private finance initiative and other mechanisms. What I remember of 1997 is rising economic growth, falling unemployment, falling youth unemployment, falling inflation, and inflation half the level it is today. That is the legacy that I remember, which the hon. Gentleman's Prime Minister has squandered.

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Photo of Brooks Newmark Brooks Newmark Opposition Whip (Commons)

To clarify the point that my hon. Friend is making, may I add that the figure is, I believe, not 40-odd per cent. of GDP but about 110 per cent., if we include all the debt that this Government have put off balance sheet?

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

My hon. Friend is right. If we strip out the Enron accounting we will get to some very different figures, which few Labour Members will want to quote back at us.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I want to finish, as many hon. Members would like to speak.

There are other practical steps that the Government could take to help, such as promoting greater awareness of the best tariffs available from gas and electricity suppliers, adopting the proposal made by my right hon. Friend Mr. Cameron, the Leader of the Opposition, to include in gas and electricity bills information on average consumption levels of similar properties and a roll-out of smart metering to help people to manage their energy consumption better. However, the sad truth is that the Government have boxed themselves in. Excessively loose fiscal policy has left the UK, in the words of Alan Greenspan, "more exposed" than the US and facing difficulties that, in the words of the OECD, will be "larger than elsewhere".

So here we are, with a Labour Prime Minister who for the last decade has been lecturing his neighbours on the continent on how to do it, now being slammed by the OECD for excessively loose fiscal policy, disciplined by the EU for the size of our deficit and, more importantly, unable to take action of the kind that more prudent Governments are taking to help their citizens and businesses when they most need it, not just because Governments are there to help their citizens, but because that is the best way to counter the pressure for inflationary wage increases.

With the cost of living set to go on rising as growth stagnates, there are just two possible outcomes: either real living standards will fall in the immediate future or inflationary wage rises will defer the moment of pain, and in the process risk destroying Britain's competitiveness, and thus its prospects beyond the current downturn. The Government need to be frank with the electorate about the situation. Either way, the British public will know who to blame: a Prime Minister whose sole legitimacy was the claimed ability to manage the economy, but whose economic incompetence has left Britain and its citizens so ill prepared for the economic slow-down that we now face.

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury 4:17 pm, 24th June 2008

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:

"notes the significant increases in world prices, with the oil price rising 80 per cent. and food prices up 60 per cent. in the year to May 2008;
notes that the Governor of the Bank of England's letter to the Chancellor dated 16th June 2008 said that 1.1 per cent. of the 1.2 per cent. increase in inflation over recent months was due to world food and energy prices, and that the Government was right to tackle the rises with action on an international level, including urgently looking for a successful conclusion to the Doha round of negotiations in the World Trade Organisation and examining the impact of biofuels on food production;
supports the Government's global leadership on these issues;
recognises the pressure that these increases in world prices put on family budgets;
further notes the measures that the Government will continue to take to support families and individuals, including pensioners and businesses, throughout the UK, including through extra tax credits, increased tax allowances, winter fuel payments and increases in child benefit;
further notes that the most important support for working families is a strong and stable economy;
and supports the Government's actions that have delivered unemployment, inflation and interest rates all at historically low levels, helping millions of families into stable home-ownership and sustainable employment."

This is an important debate at a time when families across the country face pressure from rising world food and fuel prices. Those prices are going up across the world, not just here in Britain. Oil prices have nearly doubled in a year. Whereas a barrel of oil cost $10 a decade ago, a few weeks ago the price rose by that much in one day alone. That puts up the cost of petrol at the pump, as well as the cost of gas and electricity bills, which have themselves risen by 15 per cent. and more than 12 per cent. respectively in the last 12 months.

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Photo of Angus MacNeil Angus MacNeil Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

The Minister mentions the rising price of oil in world markets, but my constituents face prices per litre for diesel and petrol that are 30p more expensive than in the Irish Republic. Will she accept her responsibility and that of her Government in relation to the pump prices that people face?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

Right across the country, there are pressures that people face—at the petrol pump, but also with their utility bills. There are also different parts of the country that show disparities in the prices that they face, which do not appear to be justified by ordinary economic factors. We are keen to look further into that. Discussions have taken place on the issue.

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Photo of John Redwood John Redwood Conservative, Wokingham

If people could still get petrol at £1.15 a litre, 70p of that would be Government taxes, which have been going up this year when the Government claim to be worried about the plight of the motorist. Why do they not simply get their tax down, because that is the dominant part of the price at the pump?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

As the right hon. Gentleman knows, we have delayed the fuel duty increase, and fuel duty has fallen in real terms over many years as a result of the decisions that we have taken. The issue that faces people at the petrol pump is not fuel duty, but the fact that we have seen such substantial increases in the price of oil, which is affecting countries right across the world.

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Photo of Robert Key Robert Key Conservative, Salisbury

The Chief Secretary is a reasonable person, and knows that hundreds of thousands of people across the country, in every part of the economy but notably in the national health service and social services departments, are subsidising their employers every time they fill up their cars with petrol that they use in the course of their work, because the approved mileage allowance payment scheme, set in 2002 at 40p a mile for the first 10,000 miles, has not been upgraded. Last year there was a review, which has not been published. I have tabled a parliamentary question asking the Department to publish that review, and have not been answered for three weeks. If she wants to take us into her confidence, could she not publish that report so that we can see why the Treasury has refused to take the simple step of upgrading such mileage allowances so that some of the poorest people in society no longer subsidise their employers?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

I am happy to look into the point about the review and to write to the hon. Gentleman about it. Again, however, the fundamental problem faced not just by this country but right across the world is the soaring price of a barrel of oil. Fuel duty is 16 per cent. lower in real terms than it was in 1999. Every country in the world is facing problems. Egypt, Haiti and the Philippines have had riots over food prices as a result of the pressure on commodity prices. In Spain and Italy, major protests have taken place about the cost of petrol. Countries right across the world are affected, and that is feeding into domestic inflation in this country too.

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Photo of Stewart Jackson Stewart Jackson Opposition Whip (Commons)

On that point, is not the pertinent issue that other countries, particularly the United States, have in their armory fiscal policy to alleviate the credit squeeze? They are in a position to do that, but we are not, as a result of our Government's fiscal management.

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

I want to come on to that point, because it is important. As a result of changes to tax credits, tax allowances and so on, we are putting money into the economy this year, and such support is right. The record of the hon. Gentleman's party on fiscal policy and debt management, however, was atrocious. Under this Government between 1997 and 2007 public sector borrowing was 1.2 per cent of GDP, whereas under the last Conservative Government between 1992 and 1997, public sector borrowing was considerably higher at 6 per cent. of GDP, and that is why debt was also considerably higher. He is therefore in no position to provide lessons on management of fiscal policy.

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

I will give way on one last point, and then make some progress.

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Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

The Chief Secretary has referred repeatedly to the price of petrol and diesel. What plans does she have to help essential users such as road hauliers and those in the farming industry in the short term, to help them to overcome the petrol costs crisis?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

As the hon. Gentleman will know, such users can claim back VAT, and there is support in place to do that. We must recognise, however, that such price increases are having an impact across the economy, on businesses as well as on households. That is why it is important that sensible decisions are taken not just in this country but globally, to try to get through the problems that we face as rapidly as possible.

The problem affects not just oil, but food. Global food prices have also risen by over 40 per cent. in the last year, with basics such as rice and wheat hitting new highs. The increased price of bread and eggs in the shops has an impact on families. The Governor of the Bank of England has said that the inflation increase that we have seen is accounted for by

"large and until recently unanticipated increases in the prices of food, fuel, gas and electricity."

Those components alone account for 1.1 percentage points of the 1.2 percentage points increase in the CPI inflation rate since last December.

The price rises are having an effect across the world. Those on fixed incomes, and particularly pensioners, who are often on fixed incomes and might be on lower incomes than households across the board, face particular pressures when they look at their gas and electricity bills and worry about prices as winter approaches.

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

I shall be happy to give way after I have made a little progress.

The world economy faces rising prices, and at the same time we are having to deal with an ongoing global credit squeeze that is having an impact on mortgage lending. As a result the British economy faces tougher times ahead, and like other countries we will need to respond to that. However, we face these challenges in a much stronger position than our position in earlier decades. Overall inflation stands at 3.3 per cent.; the Governor of the Bank of England has said that he expects it to rise to 4 per cent. before falling again towards the target next year. Our inflation rate is still lower than the rates in the United States and the eurozone, and very different from the rate in the 1980s and 1990s.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The Minister says that we face these pressures in a stronger position than other countries, but Alan Greenspan says that the United Kingdom is more vulnerable than other major economies. I understand that Alan Greenspan is, or was, an adviser to the Prime Minister. Is he wrong?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

Last month's report from the International Monetary Fund stated:

"For over a decade, the United Kingdom has sustained low inflation and rapid economic growth—an exceptional achievement...the fruit of strong policies and policy frameworks, which provide a strong foundation to weather global" challenges.

Let us examine the position from which we start, compared with that of previous decades. While the CPI inflation rate is now 3.3 per cent., it was 8.5 per cent. in April 1991, and for nearly two years it was more than twice as high as it is now. The retail prices index inflation rate is now 4.3 per cent. It peaked at over 20 per cent. in 1980 and averaged 6.4 per cent. from 1979 to 1997, compared with an average of 2.8 per cent. since. We should now be supporting the pensioners who experienced the breaking of the link between pension and earnings, cuts in their pensions and persistent high-inflation problems throughout the Conservatives' time in office, rather than listening to lessons from the Conservatives, whose record on both inflation and the management of public finances is one of which they should be ashamed.

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Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

Does it not occur to the Minister that the hostile public sentiment being directed at the Government is partly due to the fact that, while everyone understands that big global problems are affecting the economy at the moment, during the good times for the Government over the past 10 years they never observed that they were being assisted by benign economic conditions throughout the world, but tried to take the credit for all that was going well?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

I certainly think it worth reflecting on some of what has happened over the last 10 or 11 years. There have been benefits from world commodity prices, largely thanks to developing countries. There have also been significant benefits as a result of our making the Bank of England independent—a decision which, as the hon. Gentleman will recall, was opposed by his party—and there have been changes to support more competitive and global markets across the board. During the same period we have dealt with global challenges: for example, the bursting of the dotcom bubble and the events of 9/11, which pushed other countries into recession. Over the past 11 years other countries have experienced recession, while the United Kingdom has continued to experience strong economic growth throughout. We have weathered global storms before, and have done so better than other countries.

The particular challenges that we face at the moment—the dual challenges of increasing world prices and a global credit crunch—are also posing considerable challenges to every other country in the world, but over the last 11 years income per head of population has grown faster in this country than in any other G7 country. In 1997 we were bottom of the G7 prosperity league; now we are second to top. We begin this period with employment at a record high, rather than the record unemployment that we experienced in earlier decades.

None of that should cause us to underestimate some of the challenges that we will face as a result of these global problems, and the need to respond to them. No national Government can act alone to stop a global slowdown, and no national Government can act alone to solve problems caused by rising world commodity prices. What we can do, however, is work with the rest of the world—with our global and European partners—and take action here at home to support the economy and the families who face difficult times.

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Photo of Douglas Carswell Douglas Carswell Conservative, Harwich

Pensioners in Clacton face a fall in their standard of living. Their incomes are by and large fixed, but the costs of energy and utility bills and council tax bills have shot up. Apart from offering pensioners free swimming, what does the Minister think can actually be done to try to help their situation?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

As the hon. Gentleman will be aware if he has talked to pensioners in his constituency, we have increased the pension credit, as a result of which some pensioners are £2,000 a year better off than they would have been in 1997. We have also introduced the winter fuel payment, which will be increased this year by £50 for the over-60s and by £100 for the over-80s, particularly because we know that pensioners will be facing winter fuel bill pressures as a result of rising oil prices. We have increased the pensioner tax allowance this year as well. We have, therefore, already done a lot to support pensioners. [Interruption.] My party colleagues on the Back Benches are reminding me of other measures, such as concessionary fares, free bus passes and the Warm Front programme to help pensioners insulate their houses. [Interruption.] Yes, TV licences, too, and free eye tests. This Government have introduced a whole series of measures that the Conservative party did not introduce in order to help support pensioners. We want to continue to support pensioners, because we recognise that pensioners on fixed incomes face the greatest pressures.

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J

As a pensioner in Douglas Carswell's constituency, I find the assumption and tone of Yvette Cooper's regrettable. Mr Carswell has talked to pensioners and while she is right in some aspects of her reply, the increased tax allowance does not compensate me for the massive increase in my tax HM Treasury arranged when they removed the married-persons' allowance. The so-called free bus passes are funded from increases in the community charge I have to pay. I don't get a free TV licence:not old enough yet. The £50 increase in winter fuel payment will nowhere near meet the rise in the costs of gas and electricity this winter. So the only gain I have had against the massive rise in costs from my fixed...

Submitted by J H Hall Continue reading (and 1 more annotation)

Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

I have given way to Mr. MacNeil once already, so I shall give way to my hon. Friend Mr. Cunningham instead.

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Photo of Jim Cunningham Jim Cunningham PPS (Mr Mike O'Brien, Minister of State), Department for Work and Pensions

My right hon. Friend lists what we are doing for pensioners, and I am sure that the Government understand that there are both fuel and economic problems. Will she also mention what she is doing for women between the ages of 60 and 64, because that is important, too, and people are concerned about it?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

My hon. Friend is right. As well as the winter fuel payment increase, we have increased the tax allowance; my right hon. Friend the Chancellor announced that.

It is also worth pointing out that the Conservative party's own research document on the cost of living was forced to admit that since 2001-02 pensioner couples are in real terms £30 a week better off and single women pensioners are £21 a week better off. Those are not our figures; they are the figures that the Conservative party produced on the impacts on pensioners.

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Several hon. Members:

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

Members will appreciate that I have given way a lot, and I know that many Members want to speak, but I shall give way to my hon. Friend Michael Jabez Foster.

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Photo of Michael Jabez Foster Michael Jabez Foster Labour, Hastings and Rye

I am grateful to my right hon. Friend. May I remind her of the deal she has done with the energy companies? The poorest pensioners in my constituency are getting 15 per cent. reductions in their fuel bills as a result of the social tariffs she has brought about.

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

My hon. Friend is right. After this year's Budget, we held discussions with the utility companies, and as a result of working with them they have agreed to treble the amount of investment they are putting into assistance for the most vulnerable households—those on the lowest incomes, and those at greatest risk in terms of fuel poverty—in order to help them with their fuel bills this year. That is hugely important, and it needs to be seen alongside work to reduce the demand for electricity and higher heating levels by improving insulation through the Warm Front programme and also the requirement on the energy companies to put more money into insulating people's homes.

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Several hon. Members:

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

I must make a little progress before giving way again. I will take more interventions later, if I can.

The fundamental problem is that the world is not producing enough food or energy to meet rising demand, particularly with the growing demand from developing countries as well. We need to act at international level to help increase production in the short term. That means working with international partners to remove some of the barriers preventing increased supply. On food prices, the UK will work with other countries to put forward proposals for increasing agricultural production at next month's G8 summit. We have already committed to doubling investment in agricultural research to help improve efficiency and production over the next five years. We are continuing to press for reform of the common agricultural policy, because it is unacceptable that the EU continues to apply high tariffs to many agricultural imports, particularly at a time of such high prices.

On oil, we are pressing for the removal of barriers that are preventing an increase in supply. This weekend, the Prime Minister was in Saudi Arabia making the case for greater transparency in the provision of data on oil supply and demand.

We are continuing to press for further energy market liberalisation in the EU, so that consumers and businesses do not lose out as a result of inefficient and expensive gas and electricity markets. Of course, in the medium term we need to do more to reduce our dependency on oil and gas both in Britain and across the world, for the sake not simply of the world economy but of the planet. That is why we will be setting out further proposals on renewable energy later this week.

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Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

On the rising price of oil, a claim is being made in the US that some of this increase is due to speculation in the oil futures market, and the Fed lays considerable blame for this on the London oil futures market, which it claims is under-regulated and wants greater regulation of. Will the right hon. Lady comply with that?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

The Financial Services Authority has been looking at this issue, and there are different views on speculation. There is also an underlying view that there are long-term problems here, regardless of the impact of short-term speculation, which mean that we are overly dependent on oil and gas not simply as a nation, but across the world. We need to do more to address that and to improve energy efficiency, while also recognising some of the pressures in the market that prevent increasing responsiveness to price signals in the energy market but also in food production.

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

I will, but then I need finally to make progress.

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Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

I am grateful to my right hon. Friend. She has read out a long list of what the Government are trying to do to assist in this difficult situation. Does she agree with me that the official Opposition are not fit for government, given that they cannot put forward any policies? They decry jam tomorrow when in fact, all that they are talking about is proceeds of growth, which is a "jam tomorrow" policy if ever I heard one. They are the ones who caused the roof to be leaking in the first place, which we fixed literally and metaphorically around the country. They say that we need to tighten fiscal policy, but they do not even say whether they will put taxes up or cut spending. With a rhetorical flourish, Mr. Hammond sets out his policy to address the huge problems associated with the cost of living—smart metering. That is their policy.

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

My hon. Friend is right—there was a distinct absence of alternatives and proposals from the Conservative party that would actually help either the UK economy or the global economic situation.

We will continue to support the Bank of England through the monetary policy framework, and we are urging a responsible and disciplined approach to pay on both the private and public sectors. From the boardroom down, people do need to recognise the importance of this, of avoiding a return to the destructive wage spirals that we saw in previous decades, and of the Bank of England's being able to respond within the monetary framework. That is why we have welcomed the three-year pay deals in a series of areas in the public sector.

Mr. Hammond was keen to protest the Opposition's strong support for wage restraint, probably in some determination to correct Mr. Osborne, who told the BBC,

"I'm not against opening negotiated pay deals", sending a much looser signal about their commitment to support for wage restraint at a difficult time. We are increasing borrowing to support the economy, and that is the right thing to do at this stage in the economic cycle. We have delayed the increase in fuel duty, and we have increased tax credits and allowances for pensioners and cut the basic rate of tax. In addition, the Chancellor has increased the tax allowance for this year not just for those affected by the 10p rate, but for all basic rate taxpayers, putting £120 into the pockets of some 22 million people. The overall tax burden, which is less than it was during most of the 1980s, is set to fall this year.

The impact of all this is that families with children will see their tax bills fall, in many cases by several hundred pounds a year, giving them more support at a time when there are difficulties in terms of pressures on the cost of living.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I am listening carefully to what the right hon. Lady is saying. Will she answer the question that I put to her? Will she confirm that, in asking people to settle for wage increases lower than the rate of inflation, the Chancellor is asking them to take a cut in living standards?

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Photo of Yvette Cooper Yvette Cooper The Chief Secretary to the Treasury

I should point out to the hon. Gentleman that his own party's research document has recognised that in real terms, since 2001-02—even in advance of some of the most recent changes that we have set out—families with children are better off than they were in 1997, or in 2001-02. They are seeing real improvements in their income and their support. For example, lone parents are £12 a week better off and couples with children where one parent works full time can be more than £700 a year better off. That is why we are also providing people with additional support through tax credits. I should point out to the hon. Gentleman that this extra support being provided through tax credits, and by increasing child benefit in the next year and the winter fuel payment this year, is funded by the increase in alcohol duty that Conservative Members have opposed. They are opposing our measures to provide additional support to families at a time when people are under pressure, particularly from their winter fuel bills.

It is worth reflecting, as my hon. Friend Rob Marris suggested, on what the Conservatives' remedy might be. They have said that they would not put up alcohol duty and would have lower borrowing—not that they can point to any kind of historical record to support their position. We must remember that this is a party that has never proposed lower borrowing. Instead, it has repeatedly proposed spending increases and tax cuts at the same time—that would push borrowing up. Over the past 12 months alone, the Conservatives have called for £10 billion of extra spending on unfunded tax cuts. At the previous election, just at the time they now say they would have cut borrowing, they were actually calling for billions of pounds in extra borrowing—the independent Institute for Fiscal Studies costed their tax and benefit plans alone at an extra £5 billion. In 2005, they were also planning billions of pounds of extra spending on top of that, on things such as the pupil passport and the patients passport for private care, not to mention defence, the right to buy, tuition fees and offshore processing centres for asylum seekers.

At the 2001 election it was the same story: a £3 billion unfunded tax cut on savings, which would help those on the highest incomes, but billions of pounds more spending on asylum seekers' reception centres, defence and other areas. The Conservatives would not have cut borrowing; instead, they promised again and again to dig themselves a massive black hole for the public finances. So much for telling us to fix the roof; they promised to dig up the foundations.

This Government did invest in fixing the roof. Not only did we mend the hospital roofs, the school roofs and the council house roofs that the Conservative party neglected and abandoned, but we invested in the infrastructure and skills that the British economy needs. We have been operating within our fiscal rules to bring down debt substantially and to cut the bills of the economic failure and high unemployment that we inherited from the Conservatives. That is why we have the flexibility to support the economy right now.

Britain, like other countries, is facing a difficult time as a result of world economic problems. Families across Britain are facing the pinch. They are facing higher prices as a result of increasing world food and fuel prices, but these world economic problems need a serious response—with substance, not just showmanship, and with serious policies not just spin—to help households and businesses through the more difficult times. That is why the House should reject the posturing of the Conservative party and back the Government amendment.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer 4:43 pm, 24th June 2008

Mr. Hammond gave a clear and forceful critique of Government economic policy, much of which I agreed with and so do not need to repeat. I am thinking in particular of the sense of hubris that derived from the claims about there being no more boom and bust and about the best economic performance since the Hanoverians, and the contrast with today's reality.

There is one commodity that is not in scarce supply at the moment, and that is criticism of the Government, so I do not need to add to a glut in the market. I shall concentrate instead on scrutinising more closely what the Conservatives are offering as an alternative economic strategy and the terms of their motion. I think that there is a genuine interest, both positive and negative, in what an alternative Government might have to offer. Perhaps I could start by dealing with the phrasing of the motion, by which I am genuinely a bit confused. The first five lines seem eminently sensible and fair, but the motion then goes on to talk about "excessively loose fiscal policy" with approval. The correct policy response to excessively loose fiscal policy—this is presumably what the Conservatives think the Government should have done, and is what the Conservatives would have done and would now do—is to use a combination of higher taxes and reduced spending. That is the opposite to loose fiscal policy. But the motion does not say that. It says that what the Government should have done—what the Conservatives would presumably have done—is to provide assistance and support to hard-pressed families, which involves cutting taxes and increasing spending. Within the same sentence, we have two diametrically opposed macro-economic policies—

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Photo of John Redwood John Redwood Conservative, Wokingham

Was the hon. Gentleman asleep when the Conservatives produced endless proposals for getting better value for money and having fewer administrators, fewer targets, fewer quangos, fewer ID cards and all the other claptrap that has wasted billions?

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

I was not asleep: I was assiduously reading "The Cost of Living Under Labour" and I shall address the seven-point plan that the Conservatives propose to deal with the situation. It is possible plausibly, and perhaps wisely, to argue for fiscal austerity and for crowd-pleasing tax cuts and spending measures, but to advance them at the same time completely lacks credibility. I will proceed through the seven points, and I hope that my argument will begin to stack up.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I have great respect for the hon. Gentleman on these issues, but does he accept that "excessively loose" was not our description of the Government's fiscal policy—it was the OECD's description? Does he agree that if the Government had adopted a less excessively loose fiscal policy during what the Governor of the Bank of England called "the NICE years", they would be in a stronger position now to provide support and assistance to hard-pressed families and businesses and thus to draw the sting from the pressure for inflationary wage increases that they now face?

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

That does not follow at all. The hon. Gentleman said in his speech that the main emphasis of policy has to be on monetary policy and if interest rates have to fall—which I think is what he wants to happen to deal with the slow-down in the economy—fiscal policy would have to be tightened. There is a problem with fiscal policy, as the OECD identified, although it is less extreme than the hon. Gentleman claims. Were we to go into a period of slump, or of prolonged stagnation as they had in Japan, it would be very difficult for the Government to embark on strikingly Keynesian policies, because of the erosion in the fiscal rules that has already taken place. But that is not what the motion says. It gives the impression that we can simultaneously have fiscal austerity and crowd-pleasing measures of assistance and that is a fundamental contradiction.

I shall go through the seven proposals. The first is to give 1.8 million couples an extra £2,000 a year, addressing the couple penalty in the tax credit system. That is a good policy, and I applaud it, but the concluding sentence makes it clear that the change

"will be implemented as savings are generated through our radical programme of welfare reform."

In other words, it may happen, but it would take time and it certainly would not provide much relief to hard-pressed families in the short term.

The second proposal, which interested me particularly, was shifting the burden of taxation away from families. It talks about

"our commitment to increase the proportion of taxation raised through green taxes by rebalancing taxation away from taxing 'good' things, like jobs and investment, towards taxing 'bad' things, like pollution and carbon emissions."

When I read that, I felt like a member of the General Medical Council reading an essay by Dr Raj Persaud. I felt that I had read that somewhere before and, in fact, I wrote it. The Conservatives have lifted our green tax switch policy of several years ago.

As a candid friend, I can tell the Conservatives in strict confidence that adopting Liberal Democrat policy in that respect would not be without problems. There are two ways in which that Conservative policy—I take it as a compliment that they have borrowed it from us—could be delivered. The first is to have a carbon tax, which in reality is a tax on household fuel, and even I am not brave enough to argue for that. The second is to increase taxation on transport fuels. A bit can be raised from aviation taxes, but the green tax switch, which is the third element in the Conservative proposals, in fact involves increasing taxation on the motorist.

I do not know whether the editor of the Daily Mail has been told yet that the Conservatives are campaigning to increase taxes on the motorist. I am not even sure that the shadow Chancellor has been told, because he told The Daily Telegraph last week that he was committing himself to not increasing the 2p rate on duty on petrol in the autumn, which struck me as an extraordinarily silly and impetuous thing to do. It might be that the Government will not increase it, and that might perhaps be the right thing to do, depending on conditions at the time. We do not know what the Government's fiscal position will be in the autumn. We do not know what the oil price will be. Any sensible person would wait before making such a commitment.

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Photo of Stewart Jackson Stewart Jackson Opposition Whip (Commons)

Being lectured by the Liberal Democrats on tax policy is rather like being lectured by a eunuch about an orgy. The only two discernable fiscal policies that the Liberal Democrats have had are the 50p top rate of tax, which was unpopular, and the local income tax, which is completely unworkable. Apart from that, the Liberals are doing well. Has the hon. Gentleman any other ideas on fiscal policy that he will be putting in his next manifesto?

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

I was actually talking about one of our policies, which the Conservatives are talking about introducing, and I was explaining how they could do it. I am not sure what the hon. Gentleman's problem is.

As I say, the shadow Chancellor has committed himself to the 2p tax reduction—at least, he has made that commitment to the readers of The Daily Telegraph blog, although it might not have gone any further yet. The implication, of course, is that the family fund that the Conservatives propose to establish to help cut taxes for families starts with a deficit of £1 billion a year. That is a problem.

The third element of the programme involves cutting stamp duty for first-time buyers, but to do so at this stage of the housing cycle is not just economically foolish but positively unethical as that is trying to draw people into the housing market at a time when house prices are falling. Be that as it may, I agree that stamp duty needs to be reformed. In particular, it needs to be reformed not for people at the bottom end but for those who are paying more than £250,000 for a property, who pay the 3 per cent. slab. There is an argument for reforming stamp duty to shift the burden on to much higher value houses from those in that price range.

The interesting thing about the proposal—perhaps the Conservative spokesman can clarify it—is that that policy depends on the assumption that the tax change will be paid for in full by the fixed levy on foreign non-doms. My understanding is that that levy is going through the Budget, but once the Budget has been completed, will that policy lapse or will there be a second levy on foreign non-doms? That is a legitimate question and I hope that at some point we might get an answer.

There is another set of Conservative proposals to do with personal debt. I am very interested in the subject and have spoken a lot about it, and the Conservative suggestions are quite sensible if extremely modest. The one specific suggestion concerns illustrative scenarios for credit card users, and the only problem with the policy is that it is already happening. I believe that the Office of Fair Trading ruled three years ago that such illustrative scenarios for credit cards should be introduced. They have been introduced and they do not work because they are not comparable. The policy seems to have limited value, although it is perfectly sensible—

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

No doubt we are going to hear what the hon. Gentleman's policies are in due course.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

The hon. Gentleman mentions our policies, but it is not our Opposition day. We had an Opposition day three months ago in which we set out some detailed proposals on the housing market and repossessions. I am happy to repeat what I said then, but this is not our Opposition day. The Conservatives have set themselves up and I hope that they would accept that it is reasonable to scrutinise what they have to say.

Finally, I want to draw attention to the proposals on council tax, because they are fair. The Conservatives rightly point out that the doubling of council tax since the Government came in has been a major contributory factor to the pressures of the cost of living on low-income families and pensioners. It is a regressive tax that bears very little relation to current property values, and the Conservatives should know that because they introduced it. What I am puzzled about is why they have ignored some perfectly sensible reforms. We have argued that council tax should be abolished, but it does not have to be. The Lyons report contains some perfectly sensible reforms for increasing the take-up of council tax benefit, but they are not even mentioned by the Conservatives. Instead, they suggest that there should be a referendum to deal with excessive increases in council tax, and on page 18 of their document they list five councils that have imposed such increases.

The unfortunate problem is that four of those councils are Conservative led—indeed, two of them, Birmingham and Leeds, have benefited from a joint administration with the Liberal Democrats. They are clearly not bad councils, therefore, but they appear to have been singled out for a referendum on the council tax.

I am genuinely puzzled about how the referendum would work in helping people with the cost of living. What question would be asked? If people vote no to a proposed council tax increase, does that mean that councils would have carte blanche to cut their education budgets? Would they be free to use their reserves without being subject to the present constraints? The policy is extremely badly thought out, yet it is at the centre of the Conservatives' proposals for dealing with the cost of living.

In the few minutes that remain to me, I want to concentrate on what I think are the two key elements in the increased cost of living that, in reality, we face. On the front of their report, the Conservatives have helpfully included a summary of the main contributory factors to what they describe as "Gordon Brown's Disaster". Those factors are nine price increases—seven of them in food, and the other two in fuel.

What is the Conservatives' proposal for dealing with those nine price increases? Indeed, what can anyone do about them? Three of the price rises relate to dairy products—butter, milk and cheese. What is the failing in Government policy in respect of the dairy industry? How could the Government be expected to mitigate the problem? I have sat through years of painful Department for Environment, Food and Rural Affairs questions, in which the main challenge from both Conservative and Liberal Democrat Members has related to the poverty and poor returns of dairy farmers.

That problem has been rectified through the market, so are the Conservatives suggesting that dairy farmers are now being paid too much, or that the market should not be allowed to work? I do not know, but we are talking about part of "Gordon Brown's Disaster", so I presume that the Conservatives have some idea of how the problem should be rectified.

A much bigger problem exists, of course, and I agree with the Government motion in that much of it has to do with world trade in food. I should be intrigued to know how the Government have responded to last weekend's insane rant from President Sarkozy criticising Mr. Mandelson. I think that he suggested that Mr. Mandelson was responsible for millions of children dying of starvation because he was failing to support French protectionist food policy. That is completely idiotic, and I hope that the Government will make it absolutely and publicly clear that they do not subscribe to that sort of nonsense.

The main contributor to inflation in the short run has been the price of energy. It is worth devoting some time to looking at how that problem has arisen. We might also consider some possible solutions to it, and whether any party has any answers.

The rise in energy prices is partly a function of world prices but, as Mr. Redwood correctly noted in an intervention, another factor is the way that the economic rent from oil is divided between Governments, consumers and producers. For the moment, though, I want to focus on the problem with world prices. It is clear that the Prime Minister thinks that he has a role to play, as he went to the middle east in an attempt to influence the producers.

It is important to say that some foolish myths are circulating. The Government—and the Prime Minister personally—have been responsible for the first of them, as they have argued that the price of oil in world markets is being forced up by members of the OPEC deliberately withholding supply. That is complete nonsense: there is less than 2 per cent. spare capacity, and there are serious production problems in countries such as Nigeria and—because of the war—Iraq. The price rises are not due to the malicious withholding of supplies, and the Prime Minister is totally wrong to have created that impression.

The other myth in circulation is that the price rises are something to do with wicked speculators. It may seem odd, coming from a Liberal Democrat, but I disparage that argument. It has become a fashionable argument; indeed, the leader of the Conservative party was advancing it yesterday. However, there is not a shred of evidence that there are accumulated oil stocks or that futures markets have systematically pushed prices in their current direction. Those markets affect the level of volatility, but not long-term trends.

Speculators are clearly not the issue. There is a policy problem, on which the Prime Minister reported yesterday: there is a shortage of investment in the oil industry. I would like to have raised two issues with him at the time, and I will communicate them to the Minister. If the oil producers are so negligent in failing to attract foreign investment in the oil industry, why was the one OPEC country that has welcomed foreign oil companies—Iran—threatened with sanctions the moment it did so? Foreign oil companies were only too happy to invest in Iran, but they have been told that they will be penalised if they go there.

I am sure that the Saudis and others have made another point to the Government, who should reflect on it. The Saudis and others would ask, "Why are you criticising us for not investing, given that you have increased additional corporation tax and petroleum tax levies on the North sea oil industry, making the west of Shetland fields completely financially unsustainable?" Through its own policies, Britain has as much responsibility as the oil producers for failing to produce a supply.

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Photo of Siôn Simon Siôn Simon Labour, Birmingham, Erdington

Will the hon. Gentleman say a few more words about the speculation question? Is he saying that there has not been a big shift of capital from a weak dollar into oil—perhaps perfectly legitimately, and not necessarily in an abusive or speculative way? Is he saying that there has not been such a shift of capital, or simply that the shift has been legitimate rather than abusively speculative?

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

There is a complicated argument, and we could spend the day on it. I am trying to understand other people's arguments. When people complain about speculative pressures, I think that they are saying two different things. One is that futures markets do not function properly, although I do not think that there is any evidence for that—those markets may be volatile in the short run, but they do not cause enormous shifts over periods of years.

The other thing that such people are saying is that a lot of people who are nervous about investing their savings are putting them into commodity-based securities. That is the argument that the Conservative leader advanced yesterday. However, the actual magnitudes of money involved in those commodity securities is trivially small in relation to the turnover of oil markets. It is difficult to explain what has happened in any way other than through the fact that world oil demand has been rising unsustainably and that supply is fixed in the short run. That is the problem.

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Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

In that context, will the hon. Gentleman reflect on his party's policy of an 80 per cent. cut in CO2 emissions in the United Kingdom by 2050? World demand for oil is increasing, and the suggestions that he seems to put forward in respect of bottlenecks because of lack of investment are a policy for increasing oil output. The rest of the world continues to use oil. The macho gesture politics of 80 per cent. cuts in the United Kingdom—probably in isolation from almost all the rest of the world—are ridiculous, given that demand for oil is increasing and will continue to increase. I urge the hon. Gentleman's party to reflect on that; otherwise, it will go on asking UK residents to undergo a painful transition, which will not prevent climate change.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

This is a complicated argument, and we are getting a bit off the cost of living. However, I refer back to the excellent report produced by the Cabinet Office in 2003, under the original editorship of the then Prime Minister Tony Blair. It suggested that a very large shift to renewable power could be achieved without nuclear power and at reasonable cost within the time arrangements that we are talking about.

The challenge to all parties is to face a few home truths about oil and energy prices. The first is that oil prices, and energy prices generally, are likely to remain high. It is important that they should, for conservation and environmental reasons and because of the need for long-term security of supply. There is no argument for pandering to populist demands to cut oil prices to the final user; that would make very little sense. Although there are real problems for people in remote rural communities, which is why we have argued for a derogation for them, motorists' costs have risen less rapidly than costs for public transport users, and that remains a basic feature of transport policy. Moreover, although British diesel prices are exceptionally high because of diesel taxation, which is one of the truckers' grievances, and a reasonable one, British petrol prices are not out of line with western Europe—they are pretty comparable with those in France and Germany and lower than those in Holland, Belgium and the Nordic countries. The one European country that could, if it wished, offer its residents low petrol prices is Norway—a major oil producer that has much higher taxes and prices than the United Kingdom. Perhaps those are the truths that should be spelled out when we are talking about the high cost of motoring and the high cost of petrol.

The one area where the Government could sensibly intervene to reduce the cost of living in relation to energy prices is gas. The Conservative document has some sensible comments to make about the wholesale market in gas, although it does not go nearly far enough. There is a lot of evidence that there is a case for a Competition Commission reference as regards the gas and electricity producers. Social tariffs are far too ungenerous in relation to the prices that companies offer to their direct debit users. As my party leader has been arguing over a period of weeks and months, there is a case for using the windfalls that producers are earning as a result of the non-auctioning of licences under the European trading scheme to ameliorate the problems faced by poor gas users, particularly pensioners. The Government could do something constructive and useful about that in the short run.

The Government have been staggeringly complacent about the growing problems facing the economy. The Conservative alternative, at least as it has been set out today, is either feeble, in many respects, or dishonest in others. Perhaps they owe us a little more explanation of what they would do faced with this very difficult situation.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South 5:07 pm, 24th June 2008

It is a pleasure to speak after my right hon. Friend the Chief Secretary to the Treasury. I should like to express some interest and concern about, and to give a view on, why the Opposition have initiated this debate. I am reminded of what Nye Bevan said when he was Housing Minister after the war and the Conservatives proposed a vote of no confidence. He congratulated the Opposition on their concern for the public weal in introducing a motion on a subject so embarrassing to them—and today's subject is certainly embarrassing for the Conservatives.

The favoured cliché among the Conservatives at the moment is that not enough was done to fix the roof while the sun was shining. It certainly was not shining during the Conservative years, nor was it shining for the other G7 economies after 2001. As they went into recession and negative growth, we—month after month, quarter after quarter, and year after year—experienced continuous economic growth because of the sound policies adopted by this Labour Government. It is one of those metaphors that repays close study, because in fact we did fix the roof. There were a lot of roofs to fix—in our hospitals, in our schools, in our police stations and elsewhere. The legacy of leaking roofs in our hospitals was such that we had to provide 100 new hospital schemes, as well as 2,850 new or improved GP surgeries. The hospital buildings were needed to cater for the investment in training that Labour put into the 83,000 extra nurses, 35,000 extra GPs and 33,000 extra consultants. That is why we are achieving 600,000 more operations a year. Far from whistling while the sun was shining, we were doubling investment in our national health service to a total of £90 billion. We were fixing the leaking roofs in our schools, with 800 new or rebuilt schools to house the 35,000 extra teachers.

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Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

The hon. Gentleman mentioned Nye Bevan, who said sarcastically that what the Labour party needed as a leader was a desiccated calculator. Do Labour Members, such as the hon. Gentleman, who thought that they would get such a desiccated calculator, realise that they now have a leader who is desiccated but cannot count?

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

I am sorry, Mr. Deputy Speaker, but I am being drawn into a debate here. We have a leader about whom only the most narrow-minded apologist of a woeful Conservative record would dredge up such a question. Our leader is responsible for all of the achievements that I have spelled out, along with our previous Prime Minister and colleagues in my party, but with no thanks at all to the hon. Gentleman, who voted against some the key policies involved.

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Photo of Jim Cunningham Jim Cunningham PPS (Mr Mike O'Brien, Minister of State), Department for Work and Pensions

My hon. Friend was in his place when I intervened on the Opposition spokesman, who seemed to suggest that he did not grasp my point. My point, with which I am sure my hon. Friend will agree, was that one of the first things we did when we got into power in 1997 was prepare for a rainy day by cutting the debt repayments. If we were not preparing for a rainy day by doing that, what were we preparing for?

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

My hon. Friend could not be more right. National debt is now far lower than it was under the Conservatives. The Tory debt was 41.1 per cent. of GDP at the start of the 1997 economic cycle. Labour has cut that to 37 per cent., which is a lower level of national debt than in the United States, the euro area or Japan. Debt levels in every year to 2013 will be lower than the Tory debt we inherited in 1997.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Will the hon. Gentleman touch further on the argument made by the Conservatives, which, as I understand it, is that the Government are spending too much, taxing too much and borrowing too much? However, the Conservative shadow Chancellor, speaking on the BBC's "Breakfast" on 3 September—less than a year ago—said:

"The Conservatives will spend the same as Labour—if there is a Conservative Government there will be real increases in spending."

I understand the criticisms made of the Labour party, and they are legitimate. What I do not understand is why the Conservative party is determined to ape it.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

They mention desiccation, but these are the coconuts. That is a mad policy that has absolutely no credibility. I make this prediction to the hon. Gentleman and the House: when the scales come off the eyes of the press and media about Conservative party policies, they will see, as clearly as even the Liberal Democrats can, the shallowness and superficiality of those policies. But I want to return to the leaking roofs that are part and parcel of what was done and not done when the sun was shining.

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Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

On the leaking roof analogy, does my hon. Friend agree that it was a pity that Thatcher did not thatch, and that the previous Conservative Government sent the national debt through the roof?

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

Absolutely right. My hon. Friend puts it as eloquently and wittily as ever. It is the roofs of council houses that I want to talk about next. The investment made by the Government in those, when the sun was shining, was considerable—a 66 per cent. increase in real terms. There were leaking roofs in stations as well; we have had 39 new or replaced railway stations. We have tripled spending on our railway system, with 1 billion journeys being made, which is the highest number of journeys since 1961. We have had 1,900 more buses a year, and the biggest replacement of rolling stock in history—40 per cent. of rolling stock has been replaced in the past seven years.

What about a subject that Conservatives used to claim as their own, but now have no credibility on: crime?

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R

This is a slight exageration. If you have a fleet of 11,000 vehicles with a 30 year service life, you will replace around 360 a year. In the 10 years before privatisation British Rail ordered 4,000 carriages - 400 a year. In the 10 years after privatisation the rolling stock companies bought 4,400 vehicles - so 10% more. Complicating the situation was the decision post privatisation, taken by the Office of Passenger Rail Franchising not to replace the 'slam door' stock south of...

Submitted by Roger Ford Continue reading

Several hon. Members:

rose —

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

I will give way in a minute.

The Conservatives ensured that police numbers fell year after year and crime doubled. We have had 13,000 more police officers in the past 11 years, with a record number of 140,000 police.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

I am delighted to give way to the hon. Member because he will want to tell us about the budget of Edinburgh's Liberal Democrat council and justify its closing schools, cutting £2 million from organisations that cater for disabled people and its priority of enabling Liberal councillors to buy ermine robes—

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Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. That is well off the subject of the debate, so I trust that John Barrett will not follow it up.

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Photo of John Barrett John Barrett Shadow Minister, International Development, Shadow Minister, Work & Pensions

I will take your advice Mr. Deputy Speaker. Will the hon. Gentleman comment on a serious matter that is happening in our city and relates to the cost of living and the housing market—impending redundancies in the house building industry? Will he revert to the substance of today's debate and get away from the knockabout?

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

I understand why the hon. Member does not want to respond to my points. Of course, people are having to examine their individual budgets and I am sympathetic about that. However, without the economic stability and considerable growth that we have enjoyed, which no other G7 or advanced industrial country has experienced, people would not today enjoy a standard of living unparalleled in history—we all want to co-operate to protect that. Of course, I want young couples to access the housing market. I realise that people have suffered problems and I am therefore delighted by the two thirds increase in real terms investment in local authority housing. That has been paralleled by more people than ever owning their own homes.

Even the amount of repossessions today is a fraction of the 250,000 that happened under the Conservatives in the three years at the beginning of the 1990s.

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Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

Does the hon. Gentleman share my concern about the Government's calculations? When the Government examine the cost of living in their statistics—the consumer prices index—they conclude that average families spend more on hotels and restaurants than on their homes in the cost of housing, water, electricity, gas and other fuels. Families on lower incomes therefore face a much higher increase in their cost of living than the official statistics recognise.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

I do not accept that. [Hon. Members: "Why not?"] I will explain in a moment. I am about to read from the letter of the Governor of the Bank of England, which explains the precise reason. I would have expected all hon. Members to read it before the debate. The letter, which directly covers the point, states that

"in the year to May world agricultural prices increased by 60 per cent. and UK retail food prices by 8 per cent.;"— there is obviously a discrepancy there—

"oil prices rose by more than 80 per cent. to average $123 a barrel and UK retail fuel prices increased by 20 per cent; wholesale gas prices increased by 160 per cent. and UK household and electricity and gas bills by around 10 per cent."

Bills have gone up, but the hon. Gentleman will accept that the price of retail items such as electrical goods has dropped as China and other countries have stepped up their production. The prices of other goods have also fallen. I therefore do not accept the full implication of the hon. Gentleman's comments—that the average is higher. That is not the case.

The Labour Government have ensured that even more money is to be given to those over 60 for the winter fuel payment this year because of the rise in fuel prices. The Chancellor keeps that under constant review. Although current prices are worrying for families, in the early 1990s inflation peaked at 10 per cent. and unemployment reached 3 million. That caused great hardship and problems. The position today is far from that.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

I wish to make some progress.

I want to consider some other premises of the previous Conservative Government. We have dealt with the national debt, but we also need to consider borrowing, which we are all concerned about. The Government have halved borrowing as a proportion of national income, reducing it from 3.4 per cent. between 1979 and 1997 to half that and less now. Tory borrowing peaked at 7.8 per cent. of national income in 1993, which is equivalent to £110 billion today. Borrowing next year will be well under half that, at around 3 per cent. of national income. Labour's highest borrowing is less than the average borrowing between 1979 and 1997.

The reason we have been in a good position to weather recessions that have affected countries and why, without in any way being complacent, our economy is well placed to weather the global problems that are affecting us, with higher food and oil prices, is that we have worked with business to ensure that, at 28 per cent., our corporation tax is the lowest in the G7 and that our tax rate is the most competitive of any major economy. We have made three cuts in corporation tax since the Conservatives set it at 33 per cent.—a full five points higher than it is under this Labour Government. That is one of the reasons we have 750,000 more firms operating than we had 11 years ago. Those are important facts, which the Opposition spokesperson chose to ignore.

What else made those years, in the Governor of the Bank of England's parlance, the NICE years? The reason is partly that more people are now in work than at any time in our history—I think that the figure is 29.5 million. We can be proud that in the NICE years we took 700,000 children out of poverty.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

It is nice, too, that we took 1 million pensioners out of poverty. I am pleased at that, but I know that we have got much more to do. It is good that we have put well over 1 million people into work through the new deal and it is great that 1.5 million people have benefited from the national minimum wage. I just wish that the whole House had supported those nice policies in the NICE years. It is great that we have got the extra police, the extra nurses and the extra consultants.

If the Conservative handling of the economy during those 18 years was so wonderful, why are all the figures that I am quoting paralleled by figures going in the opposite direction during those years? Not only were those years not the NICE years; they were the nasty years. They were the years when the Conservatives thought that they way ahead for people was by investing in a private health service and in private health care, not the NHS. They despised people who sent their children to state schools, and few people believe that they have genuinely reversed those policies.

The Conservatives presided over the two worst recessions since the war. Unemployment doubled, hitting 3 million not once, but twice. Interest rates rose to 15 per cent. The Conservatives should not lecture us about inflation. Inflation under the Conservatives was 10 per cent., with mortgage rates averaging 11 per cent. More than 1 million people were in negative equity and 250,000 people lost their homes. One in five families had no one in work and one in three children grew up in poverty. Yet in spite of the makeover, the Conservatives would still scrap the new deal. They opposed tax credits, which have helped both families and senior citizens, and they would divert money from public services. That is their real agenda, and that is why I—

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Photo of John Redwood John Redwood Conservative, Wokingham 5:25 pm, 24th June 2008

The Chief Secretary to the Treasury and the Government make a pathetic case. They say that the rising inflation rate is entirely down to world events that they cannot control, although occasionally the Prime Minister, in his Canute-like mode, goes into embarrassing overseas meetings fatuously to lecture people who are not as guilty as he is over the price of petrol and diesel at the pump. The Government also seem to resent the fact that many millions of formerly very poor Asians—Indians, Chinese and others—are at last able to get some purchasing power in the world so that they can have a greater fraction of the standard of living that we take for granted, by buying more energy and better food products.

We are saying to the Government that it was eminently forecastable over the past 11 years that there would be a big increase in demand for food and energy from Asian sources. That is very welcome. We were all extremely grateful that the Asian economies did so well in supplying us with an ever-increasing volume of very competitively priced goods, which kept our inflation rate down despite the errors being made in inflation policy in this country. Now, however, the Government are saying that it is all the Asians' fault for daring to buy all these other things with the money that they have earned buy selling us those cheaper goods, even though the Government did absolutely nothing for 10 years to increase our capacity in agriculture or energy, when they should have been making a contribution to the world situation.

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Photo of Siôn Simon Siôn Simon Labour, Birmingham, Erdington

The right hon. Gentleman is noted for being an intelligent and erudite Member of the House. If he has a case to make, surely he can do better than to use Aunt Sallies and say that the Government are blaming everything on the Indians and the Chinese. That is ridiculous. If he has a case, why does he not put forward a proper argument instead of all that sort of nonsense?

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Photo of John Redwood John Redwood Conservative, Wokingham

If the hon. Gentleman had been here for the Chief Secretary's speech, he would have heard her say that the increase in demand was all down to world circumstances, and that it had come not from Europe but from India and China and other much more successful, faster-growing economies in Asia. The hon. Gentleman has failed to make his case.

Over the past decade, the Government could have made the decision to allow the private sector to develop the marginal fields in the North sea instead of taxing it to the hilt and putting it off. They could also have made decisions on renewable energy, nuclear energy or other kinds of energy that do not require carbon. Instead of having to have the great debate now on new power, we could have had new power stations already up and running. We have had 10 wasted years under this Government, and we now have higher energy prices as a result.

On agriculture, instead of constantly agreeing with everything that comes from Brussels, the Government could have put some substance behind their rhetoric of reforming the common agricultural policy. Instead of having years and years of big subsidies for set-aside to prevent farmers from growing the grain that the world needs, we could have had a policy that actually promoted the growing of grain in order to make a contribution to the world scarcity of grain, both for direct eating by human beings and for eating via the animals that are increasingly in demand in the Asian countries.

That is where the Government have gone wrong, but they wish to take every credit for the cheap goods coming out of Asia, which they say is down to their economic management. Now, they wish to take no blame for the scarcity of basics that is driving prices up, and with which they have singularly failed to help.

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Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

Nigel Griffiths did not seem concerned about the fact that families on lower incomes were more dependent on basics, or the fact that, while the consumer prices index shows a 10p in the pound spend on food and non-alcoholic beverages, and 12p in the pound on housing, water, gas, electricity and other fuels, it also shows a 14p in the pound spend on restaurants and hotels. Does the right hon. Gentleman share my view that we should examine how families on low incomes are affected by Government policy?

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Photo of John Redwood John Redwood Conservative, Wokingham

That is what I and my party have been saying, and it is one of the reasons behind this debate. Nigel Griffiths is as remote from the reality of modern Britain as those on his Front Bench clearly were during the Crewe by-election. They seemed to have no idea that the retail prices index basket—let alone the consumer prices index basket—does not reflect the reality of low-income households, which are spending a much bigger proportion of their income on food, energy, heating their homes and trying to get some transport. The Minister admitted that those costs had shot up, and those are the people whose incomes are being most tightly squeezed.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

If the right hon. Gentleman is so sure of his case, why has he not persuaded those on his Front Bench to make a statement saying that they are going to cut duty on fuel?

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Photo of John Redwood John Redwood Conservative, Wokingham

I am well known for believing that because there is such a rip-off at the pumps in this country and a rip-off on North sea production, we should be reducing the rates in order to keep the amount of tax coming in at the forecast level rather than over it. I suggest that Nigel Griffiths contain himself; who knows, my Front Benchers may well come up with such a proposal in due course, but we are interested in the Government's proposals. It is their problem; they created it. They have the power to say to the House today, "We are very sorry. We are collecting far more revenue at the pumps and from the North sea fields than we forecast we would in the Budget. This is a rip-off. We will give some of it back to the public."

About £500 million of extra revenue came in from oil and petrol in the first six weeks of the financial year, but what are the Government doing with it? They have not told us how they are wasting that £500 million, but we know that they have wasted billions on computerisation, unneeded regional government in England, ID cards, too many officials and administrators and too many external consultants coming in to do the jobs that officials do not seem to be able to do so that we are paying twice for everything that goes on in the Government. That amounts to massive waste, which the Government's own Gershon review admitted, as confirmed by Conservative party work.

At the core of the debate there should, I think, be a serious examination of one of the most misleading soundbites of the past 11 years—the soundbite that the Government created an independent Bank of England, which dealt with the inflation problem and gave us economic stability. The House should remember that the Government almost lost their Governor of the Bank of England when they shoved through their bodged reforms of the Bank in 1997-98. Far from making the Bank independent, they stripped it of its responsibility to manage public debt and its responsibility to have day-to-day supervision of the clearing banks.

When the credit crunch and the crisis hit, the Bank of England was blind and deaf to its own money markets and did not know minute by minute what the Government's debt position was—crucial to the functioning of the money markets—and it did not know minute by minute what the clearing banks' position was, when they were clearly extremely short of funds. That meant that at the crucial point where the Bank needed to be expert at running the money markets to enforce the rates laid down by the Monetary Policy Committee, it was not able to do so. There was a complete collapse of monetary control across the August through to October period as they lurched from boom to bust in their handling of the economy. It was a failure of the Treasury, as well as the Bank of England; it was the tripartite system, led by the Chancellor, that led to the run on the Bank—a disgrace in an advanced economy that makes its living primarily out of financial services through export markets. It was a disgrace that this Government presided over such an embarrassing situation when all previous Governments had been able to keep the banking system just about liquid enough, even in bad times, so that there was never a run on the banks for more than 100 years.

All that happened because of those bodged reforms. The Monetary Policy Committee is alleged to be independent. The Government's best case is that the MPC was made a bit more independent; clearly, the Bank of England was very badly damaged by being made less independent, as it lost big functions. Even the MPC was not really made independent, however. Let us remember the record. Before the 2005 election, the Government clearly wanted lower interest rates, so they fiddled the target. They replaced the retail prices index target—the RPI is used in all the index contracts; the RPI is used for wages and indexed debt—and substituted the consumer prices index. Why did they do that? They did it because they knew it would go up less quickly, which would mean easier money and lower interest rates. I see the Economic Secretary shaking her head, but she is an intelligent woman and she knows that that is why they did it, and the adjustment to the target rate was not sufficient to take into account how big the gap was between the more truthful RPI and the less truthful CPI in respect of the prices that people were having to pay in our economy. We had that damage.

There is also the problem that we were never told why some members of the independent MPC were reappointed and others were not. I tabled questions asking about the criteria for reappointment. I asked whether there was some external test for reappointment, whether the voting record was examined and whether only the dovish ones who would vote for lower rates before elections were reappointed. No answer was forthcoming from the Treasury. This Government, who introduced the Freedom of Information Act 2000, will not even tell a Member of this House of Commons why they reappointed some MPC members but not others. They will not even tell me what the criteria were for trying to create some independence for that committee.

When the crisis struck in August and September, the MPC was as much use as a bunch of people having a tea party but no control over the financial markets. There is no point in setting independent bank rates if we cannot enforce them in the market. The Bank needs to have enough control over the money markets and enough knowledge and skill within those markets that its rate is the crucial rate. It lost control and the damage was there for all to see.

We have a Government who mis-sold the proposition that they created an independent Bank. They have mis-sold the proposition that they created stability as they created instability. They have still not got a grip on this situation. We had the big lurch from too much liquidity and low interest rates between 2003 and 2006 to interest rates being too high and too little liquidity in 2007. We had the run on the Rock. We then had a welcome reduction in that illiquidity. Money was belatedly injected into the markets and interest rates were lowered a bit, because the Government suddenly realised that fighting slowdown or recession was more important than fighting the inflation that they had already created.

More recently, we have had a lurch the other way. The Bank and the Treasury seem to be worried again about the inflation, which they cannot control because it relates to their past mistakes. This lurch is happening at exactly the point where the housing market is in collapse, the property market is in collapse, there is a second phase to the credit crunch and there are problems with mortgage banks and others because of the extreme squeeze that the Government are putting through. The price of that lamentable failure of monetary policy, the botched reform of the Bank of England and the lurch from boom to bust and from boom to bust again in credit and money markets will be severe for people in this country to pay.

My hon. Friend Mr. Hammond, the shadow Chief Secretary, valiantly tried to get the Chief Secretary to say something true from the Dispatch Box. He said to her that the adjustment to the credit crisis and the inflation crisis triggered by the Government must surely come through lower living standards. That is what the Chancellor's policy is all about when he says that people cannot have RPI-matching pay awards. He has said that public sector pay should go up by considerably less than RPI and is now trying to talk the private sector into exactly the same position. Perhaps he has not realised that a lot of the private sector came to that conclusion a long time ago because it is struggling to remain competitive in an extremely competitive and difficult world.

I hope that the Economic Secretary will remedy the defect created by the Chief Secretary and admit to the House that, yes, it is now Government policy to squeeze individuals and families for at least a year to try to deal with the excesses that the Government have put into our economy. Looking at what the Government have been doing for the last couple of months, it is quite obvious that they have no intention whatever of the public sector making any contribution to reducing the excess spending and credit in our economy, which desperately needs to be sorted out after the boom years—the years of neglect, the years in which the Bank and the Treasury so singularly failed to stay married to prudence and to keep things under control.

I have often pointed it out in the House that I believe that the Government balance sheet—the nation's balance sheet—has under this Administration seen a ballooning of debt, but not of £550 billion or £700 billion. If the unfunded pension liabilities, which would be on any company balance sheet, the private finance initiative, the public-private partnerships, Northern Rock and all the other promissory notes that they have issued, as well as all the debt that they are now adding to the balance sheet were all added in, the true figure would be about £1.5 trillion.

I am beginning to feel that I have underdone it, because on no occasion has a Minister rushed to the Dispatch Box to say, "The right hon. Gentleman is over the top. The actual figure is so and so." The Government have never put out a press release countering my blog's exposition of this. The Economic Secretary looks downwards, so I suspect she is saying, "Gosh, we've got away with it. He thinks it's only £1.5 trillion."

Let us say that the figure is about £1.5 trillion. That is colossal. It means that the IOU cupboard will be full to bursting by the time the new Conservative Government get in and try to sort things out. It means that we have no room for manoeuvre because the Government have been so wanton over the past few years, yet in the past few weeks they have found £2.7 billion of extra borrowing to try to impress the voters of Crewe. Didn't they do well? They have found a lot of extra borrowing for transport systems in Manchester and the north-west, presumably because they are worried about their position in that region. They have found a lot of extra money to win the 42-day vote, and might have to find a lot more to win that vote all over again, assuming that their lordships disagree.

This Government are now on a rake's progress—they have not merely divorced prudence but fallen in love with a much wilder lady who clearly believes that the public sector must have everything, however much has to be borrowed, putting more and more pressure on the individuals and families whom we all represent.

The charge against the Government today is that their reforms of the banks failed; their monetary policy failed desperately badly in '07 and is still wobbly today; they do not have a grip on the money markets and the interest rate structure, let alone the inflationary consequences; they have absolutely no grip on public spending, which is why all the pressure will be on individuals and families; and they do not seem to care about the way in which our constituents are having to suffer.

If the Government want to solve the long-term problems, as they always say in their rhetoric, will they please make some decisions, even at this late stage, to get some transport capacity and energy capacity in, and to move away from such a strong dependence on inefficient carbon-burning machinery in both sectors? That is the way to do something about energy costs. Will they please go to Brussels and get some change to the common agricultural policy, because we need a policy that promotes and generates much more agricultural activity? We need to see the plough moving up the hillsides out of the valley beds. We need much more land brought back into use. The world needs food, and we need to make our contribution; it is no good blaming the Chinese and the Indians.

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Several hon. Members:

rose —

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Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. If I am to be fair to everyone who wants to speak in the debate, I should now reduce the time limit to 12 minutes. With any luck, and without too many interventions, we might be able to ensure a complete tally of the hon. Members who wish to contribute.

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Photo of Sally Keeble Sally Keeble Labour, Northampton North 5:42 pm, 24th June 2008

It was interesting to listen to the speech of Mr. Redwood, because his critique included points that I have never heard him raise previously. During all the time that the CAP was being renegotiated to decouple subsidies from food production, I never heard him make the point that we should use the CAP to increase food production. Nor have I heard him argue previously for increased support to ease the pressures on low-income families. More of his critique was based on his profound disagreement with this Government's overall economic policies—that is clear, as he is in a different party and has different priorities.

Today's debate touches on one of the most fundamental issues affecting our constituents: their family finances and budgets. A lot of the debate is fairly self-evident. It is obvious to anyone that the cost of living is going up, and that there are differential increases between the rise in the costs of fresh food and in those of manufactured food and manufactured goods generally. For example, the cost of clothing, which is an important factor for many households, has gone down by 6.7 per cent.

It is also clear to everyone that the cost of fuel has gone up. If we examine the details, we see that we are in the third phase of very large fuel price increases. In the first, in 1973, oil prices quadrupled, producing sharp inflation. In the second, in 1989, oil prices went up two and half times, which was a major factor in a massive recession. Since then, oil prices have gone up from $30 a barrel to about $140, and those costs have substantially been managed and absorbed, albeit that we now see the pressures. It is also clear to everyone that apart from fuel prices, a major factor in the cost increases is the increase in commodity prices. People have seen food riots happening in countries around the world.

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Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Lady is making some good points about the impact of food prices on her constituents. Can she explain why no other Labour Members want to hear about that? Do they not understand it?

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Photo of Sally Keeble Sally Keeble Labour, Northampton North

They probably decided to leave it to me, in the sure knowledge that I would make a good job of it. This issue of is of concern to me because it is of profound concern to my constituents, and I think it right for questions about it to be dealt with. There is also the impact on family households of the credit crunch, which, although it may not be immediately apparent to some of them, is felt through pressures on house prices and house building.

I have to say that I disagree with the detailed analysis presented by the right hon. Member for Wokingham. Having sat in the Select Committee and listened to explanations from the Governor of the Bank of England and others, I have not heard them blame the restructuring of the Bank in 1997 for the credit crunch, although there have been arguments about the tripartite arrangements. Most of my constituents probably realise that whatever mistakes were made in that regard, much more profound mistakes were made by the board of Northern Rock and much more substantial problems arose in the sub-prime market in the United States, which continue to affect our lives and those of our constituents.

What my constituents probably want to know, much more than they want to hear tit-for-tat arguments between the political parties, is what will happen in the years to come, and which party has the policies to take them through what everyone knows, and what the Governor of the Bank of England has said, will be a difficult time for quite a while. He said it would be difficult until next March or April, and I am sure he is right. This has to do not just with how much the cost of living goes up but with what happens to family incomes, and ours is the party that provided a safety net for family incomes through the minimum wage.

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Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

I am sure the hon. Lady knows, through her membership of the Select Committee, that real disposable incomes have not risen for many years, except for those at the very top of the pile. What my constituents want, and what traditional Labour supporters want, is a Labour party that cares about the incomes and costs of living of those who have least in society.

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Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. I cannot allow two Members to be on their feet at the same time arguing with each other. The hon. Lady gave way to the hon. Gentleman; now it is her turn again.

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Photo of Sally Keeble Sally Keeble Labour, Northampton North

Thank you, Mr. Deputy Speaker.

What the hon. Gentleman has said about earnings is completely untrue. In fact, there are two issues. During the last big recession, when wages fell, the hourly rate for people doing basic jobs, such as grass-cutting, in London fell to £1.20. There was no minimum wage; it was a case of "How low can you go?" The union members who are now arguing for pay increases were then struggling to get wages raised to £1.20 an hour for key public sector jobs in the capital. People were being bussed into London to do those jobs. Now we have a minimum wage that provides a safeguard for people, and they know that whatever the cost of living, they have that protection—a protection given by this party in government.

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Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

According to the Institute for Fiscal Studies,

"Real income growth... was close to zero" across most of the income distribution

"between 2005—06 and 2006—07. Only incomes towards the top... showed...growth" much above zero.

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Photo of Sally Keeble Sally Keeble Labour, Northampton North

The hon. Gentleman is talking about only a couple of years, and about different sections of the pay scale. If he were to look at the figures over a period of time, they would be quite different from those he has quoted.

People facing difficult times want the reassurance that however much prices increase, their incomes will be safeguarded. If they have a family, they will also want to know that the party in government understands that having children costs more, and that those costs need to be covered. That is why this Government were right to increase child benefit and to make changes to the tax credit system to ensure that in difficult times people know that some safeguards are built into the system for their children. That has been a hallmark of this Government, and the Conservatives have consistently opposed it.

I must add that the Liberal Democrats have also consistently opposed that, too. Their attack on the Conservative party during the debate has been disgraceful, because I am sure it is mostly to do with the Henley by-election, after which they will resume normal business and criticise us instead of the Conservatives.

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Photo of Sally Keeble Sally Keeble Labour, Northampton North

I am grateful to the hon. Gentleman for his support on that subject.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am extremely flattered that the hon. Lady thinks that anything I say in this Chamber will influence the vote in Henley. The point that I and other Liberal Democrats have consistently been making is that, given that Labour has presided over such a mess in our economy, it is extraordinary that the Conservative party has chosen to adopt Labour party economic policies lock, stock and barrel.

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Photo of Sally Keeble Sally Keeble Labour, Northampton North

If the Liberal Democrats care about what happens to people during these difficult economic times—we must all accept that we are currently going through difficult economic times, and that they will continue for a while—they should be committed to policies that protect those on low pay and families, and give people the chance to rebuild their families' finances, and help to build the UK economy.

This Government's other big commitment is tackling child poverty. I am sure that Mr. Stuart will produce some recent figures showing an increase in the number of children living in poverty. However, if he looks at the Joseph Rowntree report produced last year, he will see that the big increases in child and pensioner poverty both occurred during the '80s. It is widely recognised that the current Government's policies have served in particular to increase the incomes of families with children and those of pensioners, which is why much of the recent debate about the tax credit and the 10p tax rate focused on the single working poor. When my hon. Friend the Minister winds up the debate, I hope she will say what the Government will do to make sure that the incomes of people in that group are protected as well.

I have a few further points to make about those policies of ours that will particularly stand my constituents in good stead. I well remember that during the last recession the nutritional value of the food consumed by some of the children in our capital city deteriorated to an unacceptable extent. The Government have done good work on food for schoolchildren, such as making sure that schools have kitchens and that children have free fruit, and similar support will be important now. That is a crucial element of this Government's commitment to protecting people on low incomes. Another is the winter fuel allowance. That replaced the Conservatives' awful cold weather payments, which in fact left most people cold during the winter.

One of the biggest changes—and one of the major ways in which the Government have equipped people to withstand recession—is the strong commitment to employment and job creation. That, above all, will make it possible for people to manage, although there will be problems with pay and the cost of living. In particular, it will make it possible for them to maintain their mortgage payments and keep their homes, which is extremely important.

When my hon. Friend the Minister responds to the debate, I will be grateful if she deals with the following points in particular. What steps will the Government take to support single working people—particularly young people—who will face difficult times in the coming period? Secondly, might the Government extend some of the fuel poverty provisions? We have been incredibly generous to pensioners with winter fuel payments, but might that be extended to people with disabilities and people with young children, who will also find it difficult to pay their fuel bills if prices increase further and their income does not? Will she also think about driving costs, which particularly affect people such as my constituents who live in an area that does not have very good public transport to take them to work, and many of whom work shifts? In particular, will she consider the Council of Mortgage Lenders proposals for providing some support for families who get into financial difficulties with their mortgages, so that they do not have to wait nine months to get relief? I am sure that that will be an increasing pressure for some families, and I would be grateful if she addressed that point.

Finally, let me repeat that I believe that people will see that it is our party and our Government that have the policies to carry them through the difficult months ahead.

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Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon 5:57 pm, 24th June 2008

A Department for Communities and Local Government report released this April measured according to seven indices of deprivation. One of them was "Barriers to...Services", half of which consisted of geographical barriers. This is the index of deprivation that measures distance from a GP surgery, a general store or supermarket, a primary school and a sub-post office. England was divided into 32,000 areas, and the wards of Bridestowe, Forest and Milton Ford in my constituency are in the top 100 most "geographically deprived" areas in the country, while Walden, Two Rivers and Broadheath are in the top 200, and no fewer than 21 parishes in my constituency are in the top 1,000 of those 32,000 wards.

In a rural area such as my constituency, the key indices of the cost of living include in particular heating oil, which has doubled in price in the last year. On 25 June last year, the price of heating oil across the country averaged 32.5p a litre; today the price is 60p a litre—and some research undertaken by my office proved that in my constituency a bulk order of 500 litres of heating oil costs on average 62.3p a litre. How is a pensioner household in a small village or hamlet in Torridge and West Devon, or in the rest of rural England, to cope with a doubling in the cost of heating oil, which in rural areas is usually the only choice people that have for heating their home?

The diesel price in the south-west has risen by 27 per cent. since 2005. It cost 97.6p per litre, on average, in June 2007. It is now selling in my constituency at £1.349 per litre, and that was just yesterday. These rises in costs fall oppressively hard on those who live in remote and isolated rural communities. They have no choice but to travel from their village into the nearest market town, and often that is 15 or 20 miles—a 40-mile round trip.

The burden of my short speech today is this. If, as we all acknowledge, the cost of living is rising—and if, as the Government say, many of the causative factors are to be laid at the door of the global situation, rather than being a result of the Government's action—why on earth are the Government about to make the situation worse? Why are they to load more tax on diesel? Why are they to increase the operation of motor cars in rural areas?

Let me give you, Mr. Deputy Speaker, and the House a reason why that burden falls more heavily on the rural dweller than on the city or the town. In my constituency car ownership is very high, but that is not because the residents of Torridge and West Devon—Torridge being the most deprived district in Devonshire and one of the three or four most deprived districts in the south-west—are rich. It is not because they gratuitously indulge themselves, like Toad of Toad Hall, in a casual drive on a Sunday afternoon. It is because they need a motor car to get to the nearest service. It is because they need it to reach a doctor or a pharmacy. It is because they need it to reach an essential service that they require.

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y

Aside from the pensioners who always get freedom of the press to publicise their plight, how are the unemployed supposed to cope with electricity, oil and gas increases when they try and exist on just £52 per week??

Submitted by yvonne hadley-jones

Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

I will not just for the moment; time is short.

A rural dweller in a countryside community of the type that I represent needs a motor car, and often those motor cars will be old. Frankly, they will just about be roadworthy. With a bit of sticking plaster and a bit of tender loving care, they will have passed their MOT, but they will not be Rolls-Royces or limousines such as those in which Ministers sail into this House of an afternoon; they will be older cars. And what have the Government done to those who cannot afford the rich cars—the Jaguars and the BMWs? Why, they have decided to double vehicle excise duty on older cars. So not only do such people experience difficulties buying the diesel and the heating oil that they need to live; on the motor car that, by scrimping and saving weekly, they manage to keep on the road—just about—the Government are about to double vehicle excise duty to hundreds of pounds more. Ministers look upon that with indifference. I see them smiling. The inhabitants of the rural communities whom I represent have no cause to smile. An extra couple of hundred pounds a year will be a serious burden on these people. It is a keenly felt axe upon their quality of life.

What else do the Government do to improve the lot of the communities whom I represent? They close their post offices.

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Photo of Brian H Donohoe Brian H Donohoe Labour, Central Ayrshire

Will the hon. and learned Gentleman give way?

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I would like Brian Donohoe to live...

Submitted by yvonne hadley-jones Continue reading

Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

No, I will not give way; time is short.

Twenty post offices in my constituency are to close. In 20 small rural villages, hamlets and communities, 20 post offices are to close, and of that 20, seven are the last shop in the village. Where are the villagers to go for their essential supplies? Why, they have to climb into their old car or their disability buggy and travel all the way to the nearest market town. How is it consistent—

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Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

No, I will not give way. Many people want to speak, and I am going to be quite brief.

The position is this. The Government, at a time when the axe of the cost of living is falling keenly on the people whom I represent, are going to increase their costs with taxation and by withdrawing their services from rural communities. It is no laughing matter to the communities whom I represent to close post offices that are the last shop in the village.

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Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

No, I will not give way.

Those people will have to climb into their cars and drive miles, at great expense, given the heightened cost of fuel, to reach the essential source of supply that village shops and post offices represent. But the Government are not going to stop there. They are saying in their White Paper that they are going to close doctors' dispensaries in small villages within a few miles of a market town. So again, the elderly, the infirm—those who otherwise would not have to travel into a town to get their prescriptions and repeat prescriptions—will have to go into a town to visit a pharmacy, rather than having on their doorstep the service that they require.

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Photo of Brian H Donohoe Brian H Donohoe Labour, Central Ayrshire

Will the hon. and learned Gentleman give way on that point?

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Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

No, I will not.

The withdrawal of these services will cost extra money, at a time when the cost of travel, heating and fuel is rising exponentially. Water charges in the south-west have risen by 27 per cent. since 2005. We have the most expensive water charges in the country. The nearest average water price is £100 lower, in Wales. The truth is that those charges are falling heavily upon rural dwellers.

I listened with incredulity to Nigel Griffiths, who gave us the most astonishing apology for the Government's behaviour over the past 10 years. Not for the first time, I felt that I was inhabiting a different world.

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Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

Well, we will let the people of the country decide who is living in the real world and who is not, but I tell you what, Mr. Deputy Speaker: I represent a shire county, and the people whom I represent know that they are not living in a Labour area. They know that they do not have new hospitals and new roads; they know that they do not experience the same investment. They know that there are two Englands—the England represented by the Labour party, and the England represented by Conservatives and even—God help us!—by Liberal Democrats. People there do not get that type of investment. The south-west has suffered again and again from neglect, indifference and failure to represent communities in the areas that I represent.

I do not want to go on for long, Mr. Deputy Speaker, but I do have a constructive suggestion. Why does the Minister not say now to the people and communities whom I represent that the Government will not introduce their proposed 2p a litre fuel price rise at all? That would at least cause a sigh of relief to break out in all the areas of the south-west of which I speak. Why do the Government not abandon the vehicle excise duty proposals, which will fall harshly on those whom I represent? Why do they not stop the post office closure programme, so that people will not have to travel 15, 20 miles and more to the nearest market town?

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Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

No.

Why do the Government not speak to the GP surgeries, from whose patients I am receiving hundreds of letters expressing worry about the removal of their dispensary, because that is where they need to go and it saves them money to do so? If the Government were seen to be consistent, rather than contradictory—if they were seen to be uniform in their approach to these problems, thinking them through in a coherent fashion—the people whom I represent might be less disenchanted, less cynical, less sceptical and, frankly, less disbelieving in this Labour Government's credentials to govern. But since the Government seem committed to proceeding upon their current damaging and destructive course—since it seems, as the hon. Member for Edinburgh, South demonstrated with enormous clarity, that they are about as removed from this planet as the current NASA lander on Mars—I suspect that the people will wait, biding their time for another 18 months or so, until they have the chance to eject this Government and bring in something new. Let us hope that that happens as soon as possible.

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Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham 6:09 pm, 24th June 2008

My favourite expression in politics is that business is the workhorse that pulls the social welfare cart, and I feel desperately passionate about that. A lot of my politics is geared toward thinking about how we can create a good environment for business—be it large or small—to thrive in this country, to compete in a global world and to produce the prosperity that we all desire for our country, which can then be shared with the public services and the public sector. The problem we have is that over the past 10 years the Labour Government have not constructed the ideal environment for those companies. Many Shropshire business people say to me, "We are still here only because we think with our hearts, we are proud Salopians and we have a duty to our workers. If we were thinking with our minds, we would have shut up shop and started our business somewhere else in the world where it is more economically viable to allow a business to thrive." Such a situation is very damaging.

It was Ronald Reagan, when he was standing for election against President Carter, who asked the American people:

"Are you better off than you were four years ago?"

They clearly were not better off, which is why Ronald Reagan beat President Carter. The same thing will happen when Britain has a general election in 2009 or 2010, because we will ask the British people whether they think they are in a better position than they were in 2005. It is commonly accepted that things are going in the wrong direction.

Many people have spoken about the cost of fuel increasing, and that is the biggest threat faced by rural communities such as Shropshire. My hon. and learned Friend Mr. Cox has mentioned the problems that rural communities face in respect of petrol price increases. I met a delegation of 50 Shropshire haulage industry operators the other day, and they are appalled about what is happening to their industry. They are on their knees and they do not see how they can see out the year if petrol prices remain at current levels. One thing that would cost very little would be for Ministers to impose a tax on foreign hauliers using our transport system. That would be a relatively cheap measure for them to introduce, but if we are to save Shropshire's and England's haulage industry, it is pivotal that the Government undertake it.

I do not mind saying that, again, the Labour Government are pouring money into certain inner-city areas at the expense of the rural community, and I have every sympathy with the comments made by my hon. and learned Friend the Member for Torridge and West Devon. The Government's grants to Shropshire county council are so minute that volunteers who undertake extremely important work, be it providing meals on wheels or another type of important voluntary activity, come to my surgery to tell me that the mileage allowance that they are paid by the council does not even cover the cost of operating their motor cars to undertake those vital services on which people in remote rural areas and villages depend. That is an absolute disgrace, and I hope to hear from the Minister on that issue.

In last week's European debate, I called on the Prime Minister to go to Saudi Arabia, and as chair of the all-party group on Saudi Arabia, I am glad that he heeded my advice. He tried to say that the ball is in the court of the Saudis and the Organisation of Petroleum Exporting Countries and that they must start increasing production in order to lower the cost of petrol. However, as has been said on many occasions throughout this debate, he is responsible for massively ramping up taxation on petrol in this country. We might want to convince the Saudi Arabians and others to increase production, but friends of mine in Saudi Arabia say, "Your Government have to start by cutting their taxation on petrol before he will convince us to take the issue seriously."

As my hon. and learned Friend the Member for Torridge and West Devon aptly said, the Government are exacerbating the problem. He mentioned the post offices in his constituency that are threatened with closure.

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Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

Certainly not to the hon. Gentleman, because he has been a total apologist for the socialists throughout the entire debate, and this is all about scrutinising the Government.

I would like to talk about the post office closures in my constituency. As my hon. and learned Friend mentioned, many rural villages totally depend on post offices.

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Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I think the House gets quite irritated when Members have indicated clearly that they have no intention of giving way, yet Members constantly seek to intervene; there is a point when that is possible, but there is also a point when it is really not a good idea.

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Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

Thank you, Mr. Deputy Speaker.

The post office closures will just exacerbate the problem that I have been describing. In addition, my county council does not receive enough money for providing bus services. Bus service 557 in my constituency is being discontinued simply because not enough subsidies are being given to my council. Not only are the post offices being closed, but the vital bus routes that take people from rural villages to the county town of Shropshire are being cut.

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Photo of Brian H Donohoe Brian H Donohoe Labour, Central Ayrshire

If the hon. Gentleman had been present at this afternoon's meeting of the all-party group on light rail, he would have heard Brian Souter, the chief executive of Stagecoach, saying that, after doing a survey across the whole country, he has never known a time when the bus industry has been on such an upward trend as it is today—the same is true of the railways. Indeed, that applies not just in the city centres and town centres, but in the rural areas. Would the hon. Gentleman not accede to the fact that the way forward when petrol prices are high is for people to transfer from their cars to the buses?

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Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

I must tell the hon. Gentleman that the experience in Devon and Shropshire is very different. I am only sharing with the House what constituents are saying to me. A delegation of pensioners from Pontesbury who came to see me in my surgery were incandescent about the fact that these rural bus services are going to be cut.

My hon. and learned Friend the Member for Torridge and West Devon mentioned the cost of heating oil, which is also an important point in Shropshire. Rural villagers depend on heating oil to heat their homes. I, too, undertook some investigation into this matter. On 18 February 2007, heating oil cost 39.9p a litre, whereas today it costs 58.75p a litre, which is an increase, in Shropshire, of 147 per cent. Everybody will be paying an extra £340 for a tank load of 1,800 litres, and as certain families normally use up to two tanks, we are talking about an additional cost of £680 for heating oil. Those figures were provided by Oakley's Fuel, a company in my constituency. The Minister should, of course, be providing grants for individuals to have microgeneration and heating pumps in their homes, rather than have people being dependent on heating fuel. I saw such things being used in Sweden in early 1980s, so they are relatively old technologies, and we should be using them.

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Photo of Anne Main Anne Main Conservative, St Albans

My hon. Friend is making a very valuable point about fuel poverty, on which the Government have been completely missing their targets. It affects many constituencies, including mine, and the Government have been sorely lacking in terms of giving lots of ways to tackle fuel poverty. I am thinking of not only financial means, but advice and helping people to insulate their homes.

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Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

Yes, I have many problems with the Warm Front scheme, which is not operating properly in my constituency. The largest organisation in my constituency is the Shrewsbury senior citizens forum, which has more than 5,000 members, many of whom are extremely upset about the lack of help from Government on heating allowances.

The reason why the Government will not be providing individuals with grants for heating pumps and other technologies to heat people's homes is because of the financial mess into which they have got our country. There is no doubt about that. We are now more than £700 billion in debt. That is the figure I always use, although my right hon. Friend Mr. Redwood suggested that the real figure could be up to £1.5 trillion. The levels of debt are extraordinary. This year alone, the socialists have borrowed more than £40 billion just to keep the economy afloat.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

You are in favour of the same level of tax.

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Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

I have said that I will not take interventions. If the hon. Gentleman seeks to intervene, I shall say no, so I do not know why he is making any points.

The problem we face is that there is absolutely nothing in the kitty to kick-start the economy as we are going into leaner times and our constituents are finding it difficult to make ends meet. One can always think what one likes about the American Government, but they have injected massive liquidity into the economy and given huge tax rebates to their constituents. They see the inherent danger of the coming recession and they want to help individuals to start spending again so that the economy picks up. That cannot happen here, because the Labour Government have borrowed and borrowed. They even had to borrow to sort out the 10p fiasco.

I shall give the Minister the example of a lovely couple who came to see me; they are happy for me to share their details. He is 84 and she is 83, and they live in the village of Dorrington, where they have to run a bed and breakfast to make ends meet. They cannot afford to live on their pensions, so they have turned their home into a B and B. That is astounding in what is allegedly the fourth largest economy in the world.

One reason our economy is not growing as quickly as it should is that hardly anyone in the Labour Government has any experience of business. The whole debate has involved criticising what the Conservatives did in the 1980s or 1990s, without even a flicker of thought as to how the Government could improve their management of the economy, or what they could learn for the future. It has been very disheartening, especially the speech by Nigel Griffiths. I have never heard anything like it. For the people who are watching this debate on their televisions—

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Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

There are only three of them because they are so disheartened by the appallingly low quality of the debate, especially from the hon. Member for Edinburgh, South, whose speech was very arrogant.

I jumped at the chance to speak in this debate. The cost of living is very important to my constituents, be they young families or senior citizens, as it relates to how much they pay at the pump, or for their food and everything else they need to keep their households going. This debate is far more important than so many other debates that we have, and for the Labour Benches to be so bereft shows how out of touch the socialists have become. They do not see living standards as being of any importance.

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Photo of Mark Field Mark Field Conservative, Cities of London and Westminster 6:22 pm, 24th June 2008

Having so recently heard the sermon from the heart of Devon, I almost feel a little guilty, as an urban Member, for saying a few words. I appreciate that the Minister's constituency contains both rural and urban areas, and I hope that she has taken on board the strength of feeling about fuel duty and the cost of living for many rural constituents.

The issue of the cost of living has not just come to the fore in the past few months. It has made the front pages of newspapers and been the lead headline in many news bulletins in only the past six to nine months, but the increasing cost of living has been a fact of life in London for some time. It was one of the main reasons why we had the largest swing in the country at the last general election.

I share the alarm of many of my hon. Friends at the complacency of the Government, as shown in the speeches by the Minister and by Nigel Griffiths. This Government were happy to take undue credit when things were going well for the economy, but over the past 12 months they have argued that the problems are due to global causes. There are some global issues, and it would be wrong to deny that entirely, but the public have been so hostile because the Government sought to claim that the days of boom and bust were gone and to take credit for the economy being in such an apparently strong position.

I confess that I used to sigh with depression whenever the then Chancellor of the Exchequer—now Prime Minister—and other members of the Treasury team would compare our economic performance with that of France, Germany or other G7 countries. The reality of the global world is that the competition we face is from India and China, those two economic superpowers of the 21st century. With 2.5 billion people, they will make far more important competitors than many European countries, and if we do not learn how to adapt our economy—as we evidently have not learned over the past decade—we will all suffer.

One of the biggest issues connected with the cost of living is the high levels of income tax paid by the poorest in our communities. The very fact that people start paying income tax when they earn barely £105 a week is a nightmare. It is an especial problem in London and the south-east, where even people doing the worst-paid, part-time jobs pay income tax. The Government will no doubt point out that tax credits make a difference, but Ms Keeble was very complacent. She gave undue credit to the implementation of the minimum wage. It has made a difference to many of the less well-off in our society, but there is a price to pay for that, and we are beginning to pay for it as the economy slows down.

In London, there is a thriving—indeed, an over-thriving—black economy. We rely on many thousands of immigrants being willing to earn relatively small amounts of money, often paid in cash. One of the biggest indictments of some of the broader aspects of this Government's policy is that London now has the highest level of unemployment—a total inversion of the position in decades gone by. That is in part because too many Londoners lack the aptitude or the skills to hold down even the most basic jobs. They often live in social housing, which is very scarce, and that has the makings of some serious social unrest in the years ahead.

It is very rare in any bar or restaurant in my constituency—or, I suspect, any of the other 73 London constituencies—to be served by a British national. The servers will be Lithuanians or Poles, or from some other far-flung country, doing some of the relatively unskilled but important jobs in the hospitality sector. That has the makings of a disaster in the future, as unemployment rises. It will not be those who come here short term, to earn some money and learn the language, but our indigenous British who end up unemployed without the skills or aptitude to hold down a job.

The motion refers to the Government's "excessively loose" fiscal policy, and some fair points were made by Dr. Cable when he said that we would have to ensure that public spending fell or taxes would rise. The state of the public finances is dire, and my right hon. Friend Mr. Redwood rightly pointed out, with some trepidation, that he had said that the overall burden was £1.5 trillion, but he had had so little negative comment on that that he suspected that the situation was even worse.

Only last year, the Government made it clear that they reckon that this year we will be in hock to the tune of £43 billion. Add to that the £2.7 billion for the Prime Minister's get-out-of-jail-free card for the 10p tax band, and the other £1 billion or so that will be paid for Manchester's Metrolink, and I suspect that the outturn will be significantly worse, not least because the figure of £43 billion was put forward at a time when the economic clouds had not darkened in the way that they have over the past few months. There are some problematic times ahead.

Above all, I have had the opportunity to speak in this House on many occasions about the long-term problems, as I see them, in relation to private finance initiatives, public-private partnerships and all the off-balance sheet financing. They are a disaster in the making and the complacency of the hon. Member for Edinburgh, South was breathtaking. He can talk about the new hospitals and schools, but where is the money coming from? It has not been paid by this generation. It is effectively jam today to be paid for by generations to come. Our children and our grandchildren will foot the bill.

I would not tend to use the word "socialist", as my hon. Friend Daniel Kawczynski does, but in many ways the genius of the idea from the Prime Minister's point of view is that the room for manoeuvre will be limited for any future Conservative Government, just as, in many ways, the success of privatisation was irreversible once the Labour Government came in to play. Even railway privatisation, which happened in 1996, was not reversed in 12 months when the Labour Government came in to play. The same will happen, I fear, but in reverse, with the increase in public expenditure that is a requisite part of the PFI burden. That tax will have to be paid during the course of the next two decades and that will make the room for manoeuvre more limited.

I fear, in a way, that we might have an election in the next 18 to 24 months, because we will have to take on an economic inheritance that will lead to an appalling state of affairs.

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Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

No. The state of affairs will be far worse than it was in 1979—at least at that point we had had two and a half years of monetarism courtesy of the International Monetary Fund, after the Labour Government had to go cap in hand to the IMF. As we have already seen, there is little doubt that the Government seem set on effectively borrowing against the bank and they keep on borrowing and spending. There are only two ways in which they can possibly get out of the political hole in which they find themselves. One is to make borrowing grind to a halt and the other is to keep on spending to ensure that the cost of living problems to which we have referred will seem to be better for the purposes of an electorate who, they hope, will be grateful come election time.

This country has some severe problems ahead, I fear. The cost of living is an issue that the Government, in their arrogance and complacency, might have thought that they had put on the back burner over much of the past decade, but it will be the leading issue in relation to not only off-balance sheet financing but day-to-day costs. The real worry, which I hear when I speak to constituents who are perhaps slightly older than I am—in their late 40s and early 50s—is that they worry that the situation for their children will be a lot worse than it has been for them. They worry that they cannot pass the standard of living that they have come to take for granted for themselves on to a future generation. Outside wartime, I think that that is roughly the first time in history that that has happened. That would be the worst indictment of the Government's complacency. The past decade was the best of times. So much should have been invested rather than frittered away. We will see, I fear, the disasters of those years in the decade or so to come.

I thank you, Mr. Deputy Speaker, for allowing me to make a brief contribution to the debate. It has been an important debate and I am sure that we will return to many of the themes, as we rightly should, in the months and years ahead.

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Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness 6:34 pm, 24th June 2008

This has been an interesting debate, in so far as we have had sober, thoughtful speeches from MPs on the Conservative Benches, who, like me, spend every weekend on the streets talking to people in their constituencies.

Every Saturday morning, I try to run a street surgery, as I call it, on a street corner in one of the four towns in my constituency, whether on Toll Gavel in Beverley, on Newbegin in Hornsea, in Withernsea or in Hedon. Week after week, people come to speak to me, take me aside and talk about the difficulties that they are having in meeting their basic bills. I have been struck—and pleased, as someone who wants to see a Conservative Government and believes that that would be good for this country—to find that people say, "I've always voted Labour, but now I'm going to vote Conservative." When we look at the context in which people say that and at the weight of their disappointment and despair, and when we consider how much they believe that they were promised and how little they believe has been delivered, we realise how serious the situation is.

Yesterday, a constituent from Withernsea wrote to me to say that their family have a modest family car, but they are selling it because they can no longer afford to run it. Withernsea is a town and has a relatively large number of services, but residents are dependent on other services elsewhere. Other constituents of mine, who do not live in a town but in one of the many villages across the constituency are in a similar position financially but cannot possibly do without a car because of the dearth of public transport and the difficulties that that causes.

When my constituents speak to me at the street surgery, they are pleased to have that opportunity because it at least allows them to feel a connection. Someone from Withernsea, on a very low income, sees certain services withdrawn and needs to feel a connection. They need to feel that there is some way in which they can influence those in power so that they can cause change. When they hear a debate such as this about the cost of living and when, as lifelong Labour supporters, they recall that the Labour party was founded and led by people such as Keir Hardie precisely in order to represent the working poor—the working class, as it traditionally was—they see, instead, a Labour party that has lost its sense of mission. Hundreds of Members—all of us here—are on very high wages compared with my constituents, with high expenses support, too. When those people discover that Labour Members no longer judge participation in such important debates as relevant, their disappointment is compounded further. When they hear speeches such as the one given by Nigel Griffiths, who we all know is extremely close to the Prime Minister, and hear his master's voice speaking with such a level of complacency while the traditional supporters of the Labour Government are suffering and struggling, not least in rural areas, their sense of disappointment is palpable.

I wish I could feel triumph as I sense the political ground shifting as people come over to support the Conservatives, but Labour Members like to say that that shift is not so much a positive endorsement of the Conservatives, and they have a point. In fact, people are turning to us because they want to believe that there is a positive alternative and my right hon. Friend Mr. Cameron is offering one.

Most of all, it is the failure of the Labour party and its representatives to stay connected with its original core support that is the problem. A former Labour leader and Prime Minister said, I think, that "the party is a mission or it is nothing"—I might be misquoting him, but that was certainly his point. Where is the sense of mission on the Government Benches? Where is the commitment to do something about those with least in our society?

What has happened to the poverty rate over the past three years? It has increased each year for three years. What has happened to child poverty for the past three years? It has increased. What has happened to fuel poverty? It has increased. Where are the Labour voices speaking up on behalf of the people who they were traditionally here to represent? I could not believe that a spokesman for this failing Government could mention Nye Bevan—he would be spinning in his grave to think that a Labour Government could so let down those with least in our society.

I shall not be able to match the eloquence and power of the speech from my hon. and learned Friend Mr. Cox. His was one of the best speeches that I have heard in this House for some time. He has some rhetorical gifts—perhaps that is a professional requirement—but his speech's power mostly stems from the fact that, like me, he speaks to people who are living the reality of this Government's policies. He is reflecting their passion when he stands up and demands a response or some sense of feeling from Ministers.

I apologise, Mr. Deputy Speaker, for the word that I am about to use, but the Minister in question used it in his blog. He asked, "Why is everyone so bloody miserable?" That from a Minister who is driven around in a chauffeur-driven Prius—

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

It does not get any better than that!

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Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

The hon. Gentleman may think that a laughing matter, but my constituents can no longer afford cars. They see their bus fares going up and their services being cut.

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Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 6:40 pm, 24th June 2008

The argument at the centre of the debate is that we are about to face a period of prolonged inflation above the 3 per cent. target, as the Governor of the Bank of England made clear last week. As a consequence, families will find it increasingly difficult to make ends meet.

However, at the very time when families are under such pressure, the Government, because of their mismanagement of public finances, can do little to lift the burden. That is why people are not turning to the Government for a solution to their problems, but are asking how they can get higher pay increases. The pressure for higher pay would be less if the Government were in a position to help.

Before I elaborate on that, I shall comment on some of the speeches in the debate. The Chief Secretary to the Treasury offered a prime example of the Government's approach to the economy. They want to take the credit in the good times and blame someone else in the bad—an approach evident time and again in her speech. She talked about global pressures, but did not mention the deterioration in the exchange rate over the course of the past year, or the impact that that has had on inflation.

In his letter to the Chancellor last week, the Governor of the Bank of England said:

"Price inflation of imported goods rose to its highest since 1995, in part reflecting the substantial depreciation of sterling...A key factor...has been sterling's 12 per cent. depreciation since July 2007."

The markets have spoken on this Government's economic policies and found them wanting.

Dr. Cable tried to make a point by misreading our motion. When they came to office in 1997, the Government were prudent in their management of the public finances and followed our spending plans, and we have made it clear that they would be in a much better position to help families in difficult times now if they had continued to do so.

Only two Labour Back Benchers spoke in the debate, and the first, Nigel Griffiths, made a remarkably arrogant speech. He gave the game away when he responded to an intervention by saying that people will realise how marvellous this Government are when the scales fall from their eyes. There we have it—it is the people's fault that the Government have their lowest poll ratings in 11 years, and their fault that they cannot understand what the Government are doing. But I credit the people with more sense than that: they have seen through the Government, and they have worked out that the Government have failed the people of this country.

My right hon. Friend Mr. Redwood identified opportunities that the Government had had to make decisions in the long-term interests of the country. He said that they could have made some significant choices that would have reduced our dependence on oil. When the Economic Secretary responds to the debate, I hope that she will admit that the Government's policy for tackling inflation over the next couple of years is to cause a real decline in people's living standards. The Governor of the Bank of England was brave enough to admit that, although no one on the Treasury Benches, including the Chief Secretary, has been able to accept it. Perhaps the Economic Secretary will be refreshingly candid when she concludes the debate.

Ms Keeble asked the Government to take more action to tackle problems of fuel poverty and the cost of fuel. When she tries to explain the Government's actions to the electorate, her problem will be that the mismanagement of the public finances over the past 11 years has left little money in the coffers that could be used to help her constituents and to lift the burden from them.

My hon. and learned Friend Mr. Cox, and my hon. Friends the Members for Shrewsbury and Atcham (Daniel Kawczynski) and for Beverley and Holderness (Mr. Stuart) spoke eloquently about the problems for people in rural communities who face an increased cost of living. My hon. Friend Mr. Field highlighted the impact that income tax rates will have on people on low pay. The reality is that it was the protest against the scrapping of the 10p rate that led to the Government having to increase personal allowances for one year only. However, even that will not compensate the lowest paid for the losses that they have suffered as a result of the abolition of the 10p rate.

In his Mansion house speech last week, the Governor of the Bank of England was frank in his assessment of the times that we are in when he said:

"This year our real take-home pay will rise at a slower pace than national productivity. Rising fuel, gas, electricity and food prices mean that average real take-home pay will stagnate this year. It will not be an easy time, and I know that some families will find it particularly difficult."

He is right: families will find it particularly difficult. In difficult times, families instinctively turn to the Government for help and support but we know that, because this Government failed to prepare for economic uncertainty, they have little to offer. As the OECD pointed out, the Government's loose fiscal policy during the good times means that they have little room for manoeuvre in the bad times. International league tables show that this country has one of the largest budget deficits among all the industrialised nations. Other Governments' more prudent management of public finances means that they are able to cut taxes on families and businesses, but what have this Government done? They have put up taxes on cars, small businesses and successful entrepreneurs.

It is a sign that the Government have run out of road at home that they are forced to place their trust in global initiatives and summits in the hope that there might be some relief. The Government's amendment reflects that, and shows that they hope that OPEC and the Doha trade round will come to their rescue.

Only in their second terms do Prime Ministers usually find international gatherings more attractive than domestic politics. However, this Prime Minister has not reached even his first anniversary of coming to office before deciding that he will receive a warmer welcome in Brussels and Jeddah than at home.

We believe that the long-term solution to the Government's mismanagement of the public finances is to share the proceeds of growth. In that way, although public spending increases in real terms, its growth will be less than the rate of growth for the economy as a whole. That will create the resources to reduce borrowing and help support families and businesses.

That was the approach that the Prime Minister rejected when he was Chancellor, but he has been forced through necessity to adopt it in the current spending round. His problems with managing the public finances mean that families facing a squeeze on their living standards also know that they cannot expect the Government to help them because the Government failed to prepare for difficult times.

The Government did not fix the roof when the sun was shining, and families are now faced with a challenge. The Government are saying, "We can't help you because we can't afford to help you", so do people sit tight and wait for things to get better or do they push for higher wages?

People are economising and finding it difficult to make ends meet, and we have heard examples of that in the debate. I think that there will be pressure for higher wages, and the risk is always that higher wage rates will entrench inflation in the economy. That would put further pressure on the Bank of England to respond with higher interest rates.

The Government call for wage restraint for the public and private sectors, but their biggest challenge lies with the heavily unionised public sector. The Government are in hock to their paymasters, and how they handle the public sector trade unions will be their big test. Yesterday, local government workers rejected a 2.45 per cent. pay increase. The general secretary of their union, Dave Prentis, said his members were

"fed up and angry that they are expected to accept pay cut after pay cut while bread and butter prices go through the roof...Most of them are low-paid workers, who are hit hardest by food and fuel price hikes".

Over the coming months, the Government will come under increasing pressure from their union paymasters to soften their position on pay—but will they be tough enough to withstand the pressure from the unions, when they know that Labour Party funding depends upon trade union contributions?

There can be no guarantee that this Prime Minister will stand firm. Anatole Kaletsky said recently that the

"biggest worry has been Mr. Brown's surprising combination of weakness and short-termism since he became Prime Minister. If he responds to minor hiccups such as the 10p tax row by giving away £2.7 billion, one wonders how he would react to a genuine challenge to his authority on the scale of the Winter of Discontent?"

Will the Prime Minister find the courage to stand up and face down the trade union bosses, or will he yet again show how weak he is by caving in to their pressure?

The Government have failed to provide for a rainy day, and that is why they now have to increase taxes on families and businesses rather than help them by reducing the burden of taxes. Because of that pressure, families will look for greater pay increases, and that is where the danger lies for the economy. That danger could have been avoided if the Government had prepared the economy and public finances for the challenging times, rather than mismanaged the public finances, putting the future of the economy and of families at risk.

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Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury 6:50 pm, 24th June 2008

This debate is about an important subject and I have enjoyed listening to the speeches of the hon. Members who have contributed. As we have heard, people across the country are concerned about the cost of living. They feel the effects of rising food and fuel prices across the world. The doubling of world oil prices has led to rising bills at the petrol pumps as well as to increases in gas and electricity bills. At the same time, the price of basic foods has gone up.

However, as we look at that combination of facts, it is important for us to remember that since 1997 Britain has benefited from relatively low inflation, which has been on average half what it was in the previous 20 years. Even now, inflation is far lower than in the past. It rose above 20 per cent. in the 1980s and above 10 per cent. in the 1990s. Families are rightly— [Interruption.]

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Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The House must allow the Minister to respond to the points that have been made.

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Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

They obviously do not want to hear the facts of the matter.

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Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

I shall give way in due course, but in the time available I wish to answer the specific points that have been raised.

Families will be concerned by the increases at supermarkets and petrol stations and in their energy bills. To address those concerns, we have to tackle the root causes of the higher prices. Those causes are international. We are not alone in saying that; the Governor of the Bank of England also says it. He said that 1.1 per cent. of the 1.2 per cent. increase in inflation since the end of last year has been due to international circumstances. We have to work with our international partners to find the right response and we must respond to the ongoing impact of the global credit squeeze, which is contributing to the challenging economic times that we face.

As I listened to the opening speech from Mr. Hammond, I found it interesting that he did not at any point indicate that the problem was international or that the solution lay at an international level. At no point did he urge us to work through OPEC to raise oil production; neither did he urge us to work with our EU partners to liberate the global food market. I can only presume that when his party was in power, it had an empty-seat policy at EU level; its record gives it no credibility on the international stage.

It is important to work with our international partners to address what is an international issue; at the same time, domestically, we must provide families with support when they need it. That is what we are doing, through the increases in personal allowances this year, the additional payments that we are making through the winter fuel allowance and the delay in the fuel duty increase that was due this April.

I turn to some of the specific points raised in the debate. Disparaging remarks have been made about the speech made by my hon. Friend Nigel Griffiths. I enjoyed his excellent and factual contribution. He pointed out that the roofs of the schools, hospitals and railway stations have been fixed under this Government. The investment in public services—extra police, doctors and nurses—has been widely welcomed. In the past 10 years, real pay has gone up by more than 20 per cent. in each of those sectors, and we are rightly proud of that.

By contrast, Mr. Redwood said that we should have made earlier decisions about nuclear power. What—like his party, which deliberately said that it would defer the decision, despite the long lead time required to invest in this low-carbon technology? He also said that we should try to reform the common agricultural policy, but in many ways we have succeeded in doing that.

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Photo of Kitty Ussher Kitty Ussher Economic Secretary, HM Treasury

We have, with the shift from pillar one to pillar two of the common agricultural policy, and we continue to make our case. The party of the right hon. Member for Wokingham, would not even engage on the European stage; if it were still in power, we would not have achieved that progress.

In an intervention on the right hon. Gentleman, Mr. Browne pointed out that the Conservative party—far from anticipating what it now says was the need for a different economic policy during what the Governor calls the non-inflationary consistent expansion, or NICE, years—went into the last two elections explaining how it would spend more while cutting taxes. It would, apparently, have surfed the wave of economic prosperity—in a way that would have created even more of a problem, given the black hole in its finances.

That gets to the core of today's debate. On the one hand, the Conservative party says that it will match our spending; at the same time, it tries to imply that it will return money to the British people by sharing the proceeds of growth. I do not know where that extra money would come from. I can only presume that the Conservatives are hoping that the black hole in their finances will suddenly spew out pound coins for them to distribute liberally throughout the economy.

That all relates to what we have seen in this Opposition day debate. The Conservatives are trying to imply, in a salesman-like way, that there is some huge problem with the Government's record on the cost of living. At the same time, their own words in their own research document show that the standard of living has risen under the Government. Since 2001-02, pensioner couples have been £30 a week better off in real terms under Labour, say the Conservatives; single women pensioners have been £21 a week better off under Labour, say the Conservatives; and couples of whom one partner works full time and one works part time are £14 a week better off under Labour, say the Conservatives. The Conservatives say that lone parents are £12 a week better off and that on average everybody is £9 a week better off because of our policies. I will take no lessons from the Conservative party about the cost of living under Labour.

As always, my hon. Friend Ms Keeble made a helpful and well informed speech. In response to an intervention from Mr. Stuart, she pointed out that real wages have risen under the Government. Using Institute for Fiscal Studies data, the hon. Gentleman seemed to try to imply that incomes had fallen. I have read that report, which is extremely credible. However, the authors admit that the specific figure that he cited was within the scope of the margin of error, so it was not appropriate for the hon. Gentleman to use.

Perhaps we should look at the report resulting from the survey of households of below-average incomes. It shows that the incomes of the poorest and richest 20 per cent. of households have risen by 2 per cent. a year since 1997 and that real household disposable incomes across the board have risen by 27 per cent. Let us put it all into context: from the 1980s until the mid-1990s, the real incomes of the poorest 20 per cent. of households rose by less than 1 per cent. a year, while those of the richest 20 per cent. rose by about 2.5 per cent. a year. It is absolutely clear that the tax credit, benefit and welfare to work policies of the Government have arrested the relative increase in income disparities that happened under Conservative Governments.

My hon. Friend the Member for Northampton, North urged me to continue to focus on the needs of the working poor in our future policies, and we will of course always do that. On fuel poverty, I should point out that we have got the six major energy suppliers to increase their spending on the most vulnerable by £225 million. The Warm Front programme has been rolled out under the Government and it has had a huge effect, particularly in constituencies such as mine, which have a high proportion of old terraced housing. Driving costs are 16 per cent. lower under this Government than they were under the Conservative Government. [ Interruption. ] I do not know why hon. Members are muttering among themselves. I can only presume that it is because they do not want to listen to the facts and are attempting, by spin and innuendo, to imply to the country that we have not made the enormous inroads that we have, as everybody knows from looking at their own standards of living compared with 10 years ago.

We continue to work closely with the Council of Mortgage Lenders to find out what more can be done to reduce the burden on people who are having difficulties with their mortgage costs.

We face some genuine issues that need to be addressed internationally as well as through domestic policy, and we are doing that. Today's debate has shown that Conservative Members have absolutely no ideas and no policies.

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Question put, That the original words stand part of the Question:—

The House divided: Ayes 189, Noes 297.

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Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments), and agreed to.

Mr. Deputy Speaker forthwith declared the main Question, as amended, to be agreed to.

Resolved,

That this House notes the significant increases in world prices, with the oil price rising 80 per cent. and food prices up 60 per cent. in the year to May 2008; notes that the Governor of the Bank of England's letter to the Chancellor dated 16th June 2008 said that 1.1 per cent. of the 1.2 per cent. increase in inflation over recent months was due to world food and energy prices, and that the Government was right to tackle the rises with action on an international level, including urgently looking for a successful conclusion to the Doha round of negotiations in the World Trade Organisation and examining the impact of biofuels on food production; supports the Government's global leadership on these issues; recognises the pressure that these increases in world prices put on family budgets; further notes the measures that the Government will continue to take to support families and individuals, including pensioners and businesses, throughout the UK, including through extra tax credits, increased tax allowances, winter fuel payments and increases in child benefit; further notes that the most important support for working families is a strong and stable economy; and supports the Government's actions that have delivered unemployment, inflation and interest rates all at historically low levels, helping millions of families into stable home-ownership and sustainable employment.

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