Budget Resolutions and Economic Situation — Amendment of the law

Part of Oral Answers to Questions — Prime Minister – in the House of Commons at 6:02 pm on 22nd April 2009.

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Photo of Ian Taylor Ian Taylor Conservative, Esher and Walton 6:02 pm, 22nd April 2009

It was in the red; now it is white. It pretty much says, "We're putting up the white flag." We are in a desperate state, and the Government need to admit that they have to take the blame. Having said that, I must say that, although we are in such a bad state to start with, some of the Government's actions during the recession have been sensible. One thing that I give the Prime Minister credit for is his recognition that this is a global problem—although he got it the wrong way around: he said that he was here to save the world; actually, the world is here to save us. What I mean by that is that the globalised impact that has affected all the advanced countries of the world—and caused collateral damage, of course, in the less developed world—has shown that we cannot adjust an economy only by taking measures internally. We learned that during the banking crisis. I do not think that the American Government entirely understood what they were doing in allowing Lehman Brothers to collapse. They did not understand that the certificates securitised on the back of the mortgage industry not only involved Lehman Brothers in New York, but were spread—we still do not know how widely—around the world. Everybody in the world was therefore suddenly affected by the American Government's decision.

In a different context, we have understood that it is no good having a currency that falls in value if there is nobody to buy our exports, which would normally have benefited from the situation. In a different context again, the German Government suddenly understood that although they had felt that their domestic economy was doing well, they forgot that their whole economy depended on their tremendous historic success in the export markets; other countries needed to reflate if the German economy was to survive.

The Government got it right in another way. In a recession, there is a temptation—an obligation, almost—on the private sector to save, or reduce its borrowing. If that is the case, it is essential that the Government do the opposite; otherwise, the recession will be deeper and longer. The Government stimulus was the right move. The criticism might be that they did not handle their VAT reduction well. The timing was not good because all the Christmas sales were on at the same time, and it was difficult to get a 2.5 per cent. reduction on VAT of 17.5 per cent. across to the public at that stage. However, I suspect that the cut has now begun to stimulate the economy, as certain independent bodies have begun to say. That is a belated bonus.

The overall stimulus package was right, however. I disagree with what I think Alan Simpson was saying. Of course it was essential to protect the banking sector, because without it there would not have been ecological activities at any level—let alone the levels that he would like. How we protect the banking sector is a detailed matter, which Select Committees can investigate for weeks on end, but what I am saying is that the Government were right to introduce the stimulus package. That stimulus has been allied to the stimuli that have taken place in other countries. In the end, the stimulus in Germany turned out to represent a bigger percentage of GDP than our own. The American stimulus is an extremely important event. There are criticisms that it has gone too far, and Congress has ample ability to add in a few pork barrel opportunities, which will probably distort the package. Nevertheless, the overall thrust is right.

The collective effort of the world has been such that I think that we can now see the beginnings of the end of the worst of the recession—although sadly, as always, the bad news is still to come out. Unemployment in this country will rise towards 3 million because of the economy today, even though the country may see a turn in its overall economic prospects. Those prospects have changed because there has been collective action around the world, although it has been difficult. As long as the measures agreed are applied in practice, the G20, which is actually the "G28" in this sense, was rather effective.

There is a lesson to which we should pay attention in this country. It is that we are one member of the "G28", but things are beginning to change in the world. Washington and Beijing regard the real determinants of how the global economy rebuilds as being down to the "G2"—China and America regard themselves as being the two that determine how it goes. Why is there not a G3? Because the European Union has not been as effective as it needs to be. It will not surprise some of my hon. Friends if I say that it is in the British national interest that the European Union is more effective, because by ourselves, however much we try, we will not make our voice heard within the G28 at the level at which we have traditionally thought that it would be heard. Our influence therefore has to be exerted through a collective role for the European Union in what would then genuinely become a G3 rather than just a G2.

With all that is happening, we have seen that the world economy has a chance of recovering. I would like to share some of the thoughts expressed by my right hon. Friend David Davis in what was an extremely good and quasi-philosophical speech. We have to accept that just hoping for recovery will not be sufficient, and that it is about time that we started to think about what sort of economy we really want. It must be open and global, yes—for the reasons I have stated, it is almost impossible for it not to be so. Certainly, the old capitalism based on the individual and—to employ a word used by the hon. Member for Nottingham, South—avarice will not do. The public will not buy it: they want something more.

We have to be slightly humble in this country and try to work out what others have tried to formulate in different ways—a concept of social democracy and Christian democracy rolled together, where the reason for prosperity is that it means we can help each other and help people who are vulnerable. If that is the purpose of growth, profit and expansion, they are worth having and worth striving for. We want to rebuild the financial community, we want London to regain its status as a financial global centre, we want to build up business again to be profitable, and we want the banking community to start lending. That is not because we want to give people back their bonuses or give them the opportunity to make money and have bigger cars, but because it is the only way that we can have enough wealth to share with other people. That vision makes it absolutely crucial that we start to rebuild now. If we can provide that moral leadership, we can begin to influence not only people in this country but those in a wider sphere. That has been lacking in the debate so far. We have been agonising about this or that isolated issue, such as whether the automobile industry is going to recover. All those things are important, but they provide no context as to what we are trying to do.

I hope that the Government and my own party will try to put our current circumstances into context. There is a desperate hope that the Government have got their growth forecast figures right. For goodness' sake, if they had made those forecasts as a public company, they would have been de-listed from the stock exchange and banned from ever being a director again. Somehow, we can get away with such forecasts in politics, but people cannot get away with it in business. We have to hope that growth returns, but if the public are to go through the pain of the almost inevitable increases in taxation as well as the impact of restraint in public expenditure over the next few years, they have to know what it is all for—why we are trying to rebuild this society and this economy, what we are trying to do as part of a structure, and why we are trying to help people who are most vulnerable. It is because without doing that, we will have instability in society.

Another vision is very important; it is, in a sense, a parallel vision to that of the hon. Member for Nottingham, South, but more general. It is about the importance of creating a society that is capable of solving some of the problems that we as individuals face, which means meeting the need to spend more money on science, research and innovation. That is partly because there is a competitive world economy, and if we do not do it in this country, other countries are doing it. President Obama has put an enormous amount of money into science and research in the US. His stimulus budget is about $22 billion. But what is required is not just sums of money but a vision. In the great depression, Roosevelt had that vision and launched a crusade to try to change the infrastructure, science and ecological environment of the south of the United States, with tremendously positive results, and galvanised people in the process. We have lost that in this country.

Today's Budget picked off a few things that were honourable, admirable or whatever we want to call them, but they did not cohere. There was not the drive for ecological change for which the hon. Gentleman and I share a desire, with different emphases. There was no understanding that this is an opportunity to consider unleashing medical science to solve some of the big medical problems. The Cooksey report gives us guidelines as to how we might go about that. We could try to unlock some of the scientific problems that will determine the quality of life in this country.

In my own report to my party's Front Benchers, I have proposed an innovative projects agency, which would start with £1 billion. It has some similarity with what the Government have started today, but it would be intended to take ideas beyond the point of discovery. We have huge admiration for our scientists who come up with brilliant ideas from basic research, but we are less good at pulling those ideas through into practical application. We cannot expect the private sector to do that by itself. There has to be collaboration in that grey area between discovery and proper application. The Government should be doing those things, and they should engage the public more in why they are being done. It is not about picking winners; it is about stimulating opportunities for the economy, which can then provide benefits for other people. I could go through a list of areas in which I would like that to take place. Last night I became the chairman of the all-party parliamentary and scientific committee, and I hope to make many more speeches in the House on these matters, so I shall not get down to specifics now.

At a time of real depression, when there has been a Budget that contained extremely depressing figures, we need an uplift. The Minister of State, Department for Environment, Food and Rural Affairs, is smiling, and that by itself is an uplift for me, but I think that the public will probably be a bit more demanding. They want not just some context to the pain that they are going through now—believe you me, even in my constituency in Surrey there are plenty of people in pain—but to know why they will have to bear the pain in the future. What are we really trying to do? What can we do to make society cohere so that it comes out of this stronger? Then they will understand why they might have to pay a top rate of tax of 50p in the pound. People are more generous-spirited if they know why something is being done. I did not get that from today's Budget, and I wish that I had, because it is in the national interest that we should.