Budget Resolutions and Economic Situation — Amendment of the law

Part of Oral Answers to Questions — Prime Minister – in the House of Commons at 5:20 pm on 22 April 2009.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury) 5:20, 22 April 2009

We shall have to do the sums later. I am trying to do the mental arithmetic: £1.6 trillion divided by 26 million households. May I ask the hon. Gentleman to intervene again in a few minutes once he has worked it out? That would be great.

The £1.6 trillion figure makes the time before the recession, when there was a national debt of nearly half a trillion, seem almost like a golden age of prudence. The problem is, however, that it was not. It was a housing boom built on a credit bubble. There was too much money in the system early in the cycle, and too much debt at the end of it.

We are responding today to a Budget statement from a Government who saw a million manufacturing jobs lost on their watch before the recession started, and 30,000 factory jobs lost every month since then. That makes it worse that the £500 million that they are trying to cut from the Scottish budget may undermine the vital efforts to save jobs and stimulate the economy in Scotland. Although unemployment there is lower than it is in the United Kingdom, and although employment is higher and economic inactivity rates lower, there has been a rise in unemployment as part of the rise to 2.1 million in the United Kingdom. There was a record rise of 138,000 in February, and 177,000 people became unemployed in the last quarter. That means that 2,000 people a day became unemployed under Labour in the last three months.

Those are frightening figures. We must not allow anything to happen that would undermine the ability to invest in a recovery, and in particular, to create jobs. However, it is difficult to see how many of the proposals in the Budget would do anything to create the million or so jobs that we need. Even today's measures to create green jobs, which I welcome, I am treating with some caution, particularly the announcement about carbon capture and storage, and some of the other green measures.

As the Minister will know, we have heard much of this before. In the 2005 Red Book, the then Chancellor, now the Prime Minister, said that the Government must examine

"how it might support the development of CCS in The Climate Change Programme Review".

In his pre-Budget speech in the same year, he said:

"Carbon capture and storage protect the environment from carbon emissions by containing them at source".—[ Hansard, 5 December 2005; Vol. 440, c. 612.]

In the 2006 Budget, he said:

"Following a joint study with the Norwegian Government, we have found that carbon capture and storage in the North sea can reduce emissions...by 80 per cent."—[ Hansard, 22 March 2006; Vol. 444, c. 294.]

In the 2006 pre-Budget report, he repeated and paraphrased that statement. In 2007, he said:

"The Secretary of State for Trade and Industry is announcing today that Britain will launch a competition to go ahead with our first full-scale carbon capture and storage demonstration."—[ Hansard, 21 March 2007; Vol. 458, c. 821.]

On 27 February 2007, the then Minister for Science and Innovation said:

"The pre-Budget report committed to making a decision this year, and I am advised that it is not incompatible with the Miller field decommissioning time scale."—[ Hansard, 27 February 2007; Vol. 457, c. 246WH.]

On the same day, the Secretary of State for Scotland said in the Chamber that the Government would make a decision "within months". On 23 May, following the Government's inability to make a decision, BP pulled out of the £500 million project at Peterhead, and the investment went to Abu Dhabi.

As Ministers will appreciate, we will look closely at the small print of the CCS proposals. Perhaps we will be told at some point how much money will be available, what the time scale will be, how the arrangements will work, whether there will be a consultation, and if so, when it will be launched. My colleagues would be delighted to hear the details.

It is difficult to see how the Budget will do anything to remedy the fact that according to the CBI's assessment, not only is cumulative output forecast to fall by 4.5 per cent., but manufacturing output is forecast to fall by 10 per cent. and investment to fall by 9 per cent. Given those figures, how on earth do the Government expect us to believe that we will be in recovery by the end of 2009?

I said at the outset that the Government were out of touch, and I think today's statement confirmed that. Last November they said the national debt would rise to £1.2 trillion; today they confirmed that the figure was £1.6 trillion. They said that the economy would be £78 billion in the red this year; we were told today that that sum is now £90 billion. We were told that the Government would have to borrow £300 billion over the next three years; we learn today that they were out by £138 billion. Governments used to be accused of being at sixes and sevens; I think this one are at billions and trillions, because that is how far out they are in their forecasts.

The Government's other dirty little secret is the private finance initiative. We assessed last year that the taxpayer's PFI liability had increased by £30 billion merely in the six months between the Budget and the pre-Budget statement. Today's Budget shows that up to 2033 the taxpayer liability remains over £200 billion, at £204 billion, much of it off balance sheet.

It is true that reduced demand has driven down the price of oil, but according to today's figures, the North sea will still generate £45 billion in revenue for the Treasury over the next six years, compared with £41 billion in the six years between 2002-03 and 2007-08. However, given that the Budget forecast is based on a price of $46.7 a barrel, whereas Merrill Lynch has forecast $62 a barrel for 2010, and delivery prices for 2015 are already sitting at $80 a barrel, the real price and revenue yield is likely to be far higher. Those future prices confirm that the Treasury will continue to take a great deal of money from the North sea, but they also indicate underlying inflationary pressures, which risk worsening an already appalling trade deficit as the costs of essential imports rise. Even with a 15 per cent. fall for the pound against the euro since last summer and a 25 per cent. fall against the dollar, today's Budget forecasts, and the forecasts published in the last week or so, show a staggering £44 billion balance of trade deficit and an extraordinary £93 billion deficit in the trade in goods—all the more reason to have a proper manufacturing strategy as soon as possible.

Today the Chancellor commented on many of the Government schemes designed to kick-start the economy. Many are not yet up and running; some, such as the enterprise finance guarantee scheme, have been the subject of complaints around the country; others, such as the VAT cut, have saved less than half the number of jobs that direct capital investment could have saved. However, having put those schemes in place, and having lauded President Obama for his stimulus package, we now find that the Government are intent on doing the opposite of what they were trying to persuade the rest of the world to do, by making a £15 billion cut next year, including a £500 million cut in Scotland.

At a time when the state of Maryland, whose population is a similar size to that of Scotland, will receive £2 billion extra to spend, mainly in 2010, in fiscal stimulus, this Government are planning to cut investment, which is the wrong thing to do in the teeth of a recession. Indeed, the £15 billion cut will take more out of the economy than the VAT stimulus put into it. Therefore, the Chancellor is risking delaying the start of the recovery and making that recovery more painful than it might be. I do not want anyone to misunderstand me: I think that belt tightening is essential. The year-on-year efficiency savings of the Scottish Government represent the right approach. We must squeeze every ounce of value out of every public pound spent, but in the teeth of a recession, with unemployment rising and output and productive capacity down, we cannot risk undermining efforts to restart the economy anywhere in the UK.

I do not expect the Government to listen to me or take my word for it, but they should listen to the Scottish Trades Union Congress. Its general secretary, Grahame Smith, has said:

"Cuts in funding for vital public services would be a disaster which Scotland's communities will feel for many years to come", and he is absolutely right. The Government have failed to take any responsibility for the economic mess, and bits of this Budget might compound that error, make recovery more difficult, stifle business growth and hit hardest the communities who most need help.

When the Leader of the House says that we cannot cut our way out of a recession, I suspect that at least some people on the Labour Benches might want to listen. When Rhodri Morgan says that the archangel Gabriel could not find such proposed cuts without damaging public services, more people on the Labour Benches should listen. It is not too late to protect jobs and the economy, but I am sure that if the Government are not prepared to take the right steps to continue reflationary tactics and the recovery stimulus now, the electorate will speak volubly in the June elections, and in the next general election, about how the recession should be fought and about how recovery should be progressed.