Amendment of the Law

– in the House of Commons at 4:53 pm on 27 April 2009.

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Debate resumed (Order, 22 April).

Question again proposed,


(1) It is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.

(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

(a) for zero-rating or exempting a supply, acquisition or importation,

(b) for refunding an amount of tax,

(c) for any relief, other than a relief that—

(i) so far as it is applicable to goods, applies to goods of every description, and

(ii) so far as it is applicable to services, applies to services of every description.

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills 5:04, 27 April 2009

As Britain recovers from the impact of the world recession, it will be British business and the skills of the British people that will ensure that the upturn comes as quickly, as strongly and as sustainably as possible. Today's Budget debate is about the best way of supporting British business and the British people this year, next year and in the years to come. It is about whether we invest for growth or undermine recovery with ill-conceived cuts. It is about whether we identify the parts of the economy in which we have real strengths and the potential to have global leadership, or refuse to support them effectively.

The debate is also another opportunity to set out the gulf between the main parties on how we respond to the global downturn. I believe that that gulf has become increasingly clear over the past few days. There are three defining issues for today's debate, on which the Opposition first show that they do not understand the problem, secondly propose policies that would make things worse and thirdly do not understand what needs to be done. That is what this debate today is about.

Photo of Desmond Swayne Desmond Swayne Parliamentary Private Secretary To the Leader of the Opposition

Is that really what this day's debate is about—the Opposition? Is it not extraordinary that the Government begin with an attack on the Opposition rather than with an exposition of their own case?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

There will be a good deal more of that before I have finished, but I will of course set out precisely what the Government propose to do for business and the British people to develop their skills and bring about recovery. However, this is a Budget debate, and it is important to understand that there are choices to be made between the approach that is being taken by this Labour Government and the approach that is being put forward by the Opposition. I make no apology for setting out the key issues on which that choice has to be made.

The Opposition believe that the challenges facing Britain are more or less a uniquely British problem, created here and with answers that lie solely in Britain. They are wrong. What started with the fall-out from sub-prime mortgage lending in the US has spread quickly around the world, turning into the credit crunch, which in turn has hit businesses in all parts of the economy in every part of the world. What this country is experiencing is the first global recession since the end of the second world war, and what is happening to us is, in essence, happening to all comparable countries.

Photo of Ben Wallace Ben Wallace Shadow Minister (Scotland)

Given that the Secretary of State mentions the world "comparable", if things are happening comparably to all of us in this environment, why are we worse off than comparable economic powers in the G20?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

The interesting point is that the fall in UK gross domestic product in the last quarter of 2008 was the same as the fall in GDP in the eurozone as a whole and in the United States of America. In Japan, GDP fell by 3.2 per cent. in the year to February 2009, and Japanese exports fell by 45 per cent. So in fact, I am right to say that the experience of similar economies is broadly comparable to our own. It is because our challenges are broadly similar to those of other countries that our response needs to be broadly similar. That means maintaining investment in the economy and avoiding cuts in public spending in the middle of the recession.

Photo of Bernard Jenkin Bernard Jenkin Conservative, North Essex

I apologise to the Secretary of State for missing the opening moments of his speech—it is ironic that a ten-minute Bill does not always have to last 10 minutes.

Can the Secretary of State explain why this global downturn has occurred, whether it started here and what has caused it if not policy mistakes by this Government and a number of other Governments around the world?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

I have to say that the ten-minute Bill that preceded the debate was one of the best timed that I have experienced. I think that Mr. Baron ended some three seconds short, so that is a poor excuse for turning up late for the beginning of the debate, when I explained how what happened in the United States of America in the sub-prime market and its link to the various financial instruments around the world have affected the real economy. The key point is that many countries are affected and we have to examine the responses that are being made.

The response around the world, which I believe to be right, is that Governments should maintain investment in the economy at this time and that they should avoid cuts in public expenditure in the middle of the recession. The G20 summit was about international action to get the global economy back on track—countries around the world introducing a huge fiscal stimulus and more resources for the International Monetary Fund and for developing countries.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

The Secretary of State said that he does not believe that public expenditure should be constrained in the recession, yet the Budget introduced a cut of nearly £1 billion in education and more than £2 billion in health. I wonder whether he can square those two points.

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

I said that public expenditure should not be cut in the recession—that is the Conservative party's policy. The Budget sets out clearly that public expenditure will continue to grow—certainly not as rapidly as in the past 10 years, but it will continue to grow. That is a different approach from the Conservative party's insistence that we should cut public spending now.

The main Opposition party makes its second defining mistake because it does not properly understand the nature of the problems that face this country. It perceives our problems as uniquely British and therefore turns its back on important international action. The Conservative party says that all that matters is action now, here, to reduce borrowing and cut spending. For that reason, the Conservatives proposed a series of policies which, individually and together, would make things worse.

Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

The Secretary of State suggests that one should not cut in the teeth of recession. That is sensible, and it is therefore disappointing that the Government are doing that. Even if we assume that their figures are right, if we find that, towards the end of the year, we have not recovered and the independent forecasters who forecast negative growth next year are correct, will we look forward to a pre-Budget report in which the Government reverse the damaging cuts planned for next year?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

The Government are setting out plans to maintain public spending on front-line services to grow them in future. I am not about to set out a different Budget from that which my right hon. Friend the Chancellor introduced last week. That Budget defined the key choice that voters in this country must make between a strategy of maintaining investment and growing our way out of recession and Conservative party policies, which would make things worse.

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

In a moment, I will set out exactly why those policies would make things worse, but first I shall give way to the hon. Gentleman.

Photo of Tony Baldry Tony Baldry Conservative, Banbury

Will the Secretary of State confirm that, from 2011, according to the Government's figures, Government spending will grow at 0.7 per cent. a year? Will he also confirm that, in Margaret Thatcher's toughest year when Prime Minister, public spending grew by more than 2 per cent.? This Government will have to cut harder and faster than ever happened under Margaret Thatcher because of the huge public debt that they have incurred.

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

That is an extraordinary intervention for the hon. Gentleman to make, when his party demands massive, real cuts this financial year. The Budget sets out real growth in public expenditure and the efficiency savings that will be necessary to ensure that we maintain spending on front-line services. It is interesting that the hon. Gentleman asks a question that is designed to divert attention from the policies, with which I am sure he does not agree, of Conservative Front Benchers to do enormous damage to our economy through cuts.

The Opposition's record is very clear. They opposed the fiscal stimulus set out in the pre-Budget report last November. The immediate victims of their policy would have been the families whose incomes would immediately be cut today by tax increases. However, the money from that fiscal stimulus is now feeding through to benefit British business. The Opposition have proposed spending cuts of £5 billion in this financial year. They have never said where that would come from, but they have none the less promised cuts now. The shadow Chief Secretary to the Treasury has promised to repay £6 billion of debt next year. Again, he has not said where that would come from or how that payment could be made, but we should take what the Opposition say at face value.

Photo of Mary Creagh Mary Creagh Labour, Wakefield

I was out in my constituency on Saturday and met a constituent who had lost his job on Friday and whose wife had had a baby on Wednesday. I was pleased to be able to inform my constituent that he could get a career development loan and that his family would be able to apply through the tax credits system on the basis of changes in their circumstances. That constituent was optimistic about his chances of finding work in this recession. Will my right hon. Friend join me in congratulating our right hon. Friend the Chancellor on the VAT cut and will he challenge the Opposition? We cannot leave a generation unemployed through this recession.

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

I agree with my hon. Friend. The approach taken by the Opposition when they opposed the fiscal stimulus is one that would have been designed to hammer the sort of family she met in her constituency last week, taking away the support that is now being offered through tax cuts, which boost family budgets, and the support for people who lose their jobs. That is wrong at the level of the individual and the family and it is wrong at the national level, too.

Taken together, the policies advocated by the Opposition would take billions of pounds out of the economy now, and away from British business now, in the middle of the recession. It is the wrong time to do that, when a struggling private sector needs public sector support and investment. The Opposition make the wrong judgment today, as they did last year in the banking crisis. If we followed their advice, the recession would last longer, the recovery would be slower and the cost would be greater in the long run. It is a mistake to believe that their cuts would help us out of the recession. We have to invest and grow our way out of recession.

It is on that point that the Opposition make their third defining misjudgment, because they cannot offer British business and the British people the support that they need to grow this country for a more prosperous future. Our Budget builds on the measures that we have already taken to get lending and credit going again following the banking crisis, to boost the economy and to provide extra support for skills training for those who lose their jobs in order to get them back into work.

Photo of Bob Spink Bob Spink Independent, Castle Point

The Secretary of State is talking about support for individuals. Does he accept that people over 50 have suffered disproportionately during the recession from the loss of jobs and will he look into specific measures targeting help at them? May I also congratulate him on not sitting on his hands, but taking action to get us out of this recession?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

There are two ways that we help those whom the hon. Gentleman is concerned about. One is by having a fiscal stimulus and maintaining public expenditure, because that increases, with others, the number of jobs available in the economy. The second way is the measures that we took earlier this year to create more than 100,000 additional training places for people losing their jobs, so that there is support for those who need to retrain and reskill.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Is my right hon. Friend aware of any other major advanced industrial economy that is not pursuing fiscal stimulus policies and is not proposing to invest—or actually investing extra—in education, training and science?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

No, I am not aware of any country that is proposing to pursue the policies being advocated by Her Majesty's official Opposition. The reason is that in other countries the judgment is that opposition to a fiscal stimulus, opposition to necessary borrowing and an insistence on cuts would mean that those Governments would not be able to take the measures that need to be taken to support their businesses and families, and exactly the same would apply if we followed the strategy being advocated by the Opposition. If we did that, we would not be able to take the measures that we have set out in the Budget.

If we followed the Opposition's advice, we would not be in a position to enable more than 100,000 firms to benefit from HMRC flexibility on payment. We would not be in the position in which the Government have signed £1 billion of guarantees under the working capital scheme or in which nearly £290 million of applications from 2,500 small businesses were being dealt with under the enterprise finance guarantee. Nor would we be in a position in which the Government strategy in this Budget has enabled us to extend more support for businesses' short-term cash flow.

If we listened to the Opposition, we would not be in a position to enable businesses to spread this year's business uprating over three years. We would not be in a position to extend enhanced loss relief, allowing losses to be offset against tax bills due on the previous year. That alone will benefit 140,000 firms. We would not be in a position to introduce a top-up trade credit insurance scheme to help businesses to maintain their finances. Because we recognise the importance of the motor industry now and in the future, we are able to complement the £2 billion loan guarantees that we have made available with a time-limited vehicle scrappage scheme to boost sales and lower emissions.

The House and the country need to know that the Opposition cannot promise any of this support for British business. Their only proposal to date has been a national loan guarantee, but they set aside no money to pay for it—as ever. It was, of course, the shadow Business Secretary who said that the taxpayer would take a hit, but the rest of his Front-Bench team have refused to provide any finance for the scheme, and it was an empty promise.

While we are supporting business, we are also supporting individuals and families who have been hit by the downturn. Once again, the Opposition have to admit that their ill-judged economic strategy means that they could not match these measures. In total, the Budget provides an extra £1.7 billion to help people to get back into work quickly and to guarantee a job or training for young people. We have already begun to provide more than 100,000 retraining places for those losing their jobs; now, we will be able to invest an additional £260 million in training and recruitment subsidies to help young adults aged 18 to 24 who are approaching 12 months of unemployment to get the skills that they need to get into work or to guarantee them a job offer. A further £655 million of funding from the Budget will enable us to deliver more opportunities for 16 to 18-year-olds in schools and colleges next year. There will be more than 250,000 apprentices starting this year—nearly four times more than in 1997—and more students will be going into higher education than ever before: 40,000 more than two years ago.

Recognising that this year's graduates face a more challenging labour market, we have already announced 2,000 new paid internships supported by the higher education economic challenge fund, and we will build on that in the weeks to come. Following an agreement with my right hon. Friend the Secretary of State for Work and Pensions, graduates already claiming jobseeker's allowance for six months or more will be able to do a work experience internship for up to 13 weeks alongside claiming benefit and looking for work. We will continue to invest in Train to Gain. It is a hugely successful work-based training scheme that is popular with employers, and it will soon be training about 1 million people a year. It is typical of the Conservatives that they have already promised to scrap it.

The Budget commitment to an additional £300 million of capital spending for further education colleges in this spending review period, and a further £900 million in the future, will be widely welcomed. It will bring around £400 million worth of extra work for the construction industry in the next two years, creating jobs and apprenticeships.

The shadow spokesman for Innovation, Universities and Skills has already warned the colleges not to rely on the Conservatives to match even our previous spending plans for 2010-11. It is because they have made such a fundamental misjudgment about the nature of the challenge that they cannot match the measures that I have outlined. That is why the choice is so important. The Conservative party— [Interruption.] Mr. Evennett says from the Opposition Front Bench that I do not believe that. I believe it profoundly and absolutely: the choice between the political parties—between the Government and the Opposition—is more stark, more marked and more clear today than at any time in recent years.

Photo of Richard Burden Richard Burden Chair, West Midlands Regional Select Committee, Chair, West Midlands Regional Select Committee

While I entirely agree with my right hon. Friend that it is important that the investment in colleges takes place quickly—before the money would be cut in the unlikely, awful event of a Conservative Government taking office—may I put it to him that there is a more pressing reason for that? The investment in colleges is vital to economic recovery, as well as being vital to training—for example, the investment in the new college at the former MG Rover site at Longbridge. To make sure that those projects remain on track, will he ensure that that money gets through and does so as quickly as possible?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

My hon. Friend makes an important point. He will know, as the House does—we have discussed this before—that in 1997 the capital programme for FE colleges was zero. Even before last week's Budget announcement, we had a budget of £2.3 billion for investment in FE colleges. I know of his interest in the Longbridge scheme and the importance he attaches to it. We have asked the Learning and Skills Council to move quickly to consult the sector on the criteria to be used for prioritising the funds. I hope that it can give clarity and certainty to colleges in the near future, but the development of that capital programme is ultimately a responsibility of the LSC.

Photo of Ben Wallace Ben Wallace Shadow Minister (Scotland)

The Secretary of State says that the Conservatives do not care about FE colleges and funding, and that our record is woeful. This afternoon at 2.30, as he might be aware, I had an appointment with his colleague, the Parliamentary Under-Secretary of State for Innovation, Universities and Skills. That appointment was to discuss the failure to fund Blackpool sixth-form college's capital programme and Myerscough college in my constituency. It was cancelled. Subsequently, I have found out that the Minister then spent time in the gym. If he has time to spend in the gym, but no time to meet me to discuss the funding of colleges, does not that say a lot about the priorities of the Secretary of State's Department?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

My hon. Friend the Minister, who has responsibility for colleges, has met an enormous number of Members of Parliament, who understandably have had concerns about the FE capital programme. I am quite sure that if he was not able to meet the hon. Gentleman today, he will be able to do so in the not-too- distant future.

There is an even more fundamental flaw in the Opposition's thinking. As Britain recovers, we will need to grow an economy that is better balanced and more equitable. Yes, the finance sector will still have an important role to play, but we need to grow British businesses in all the sectors where we have the ability to compete and lead around the world—the digital economy, life sciences, renewable and nuclear energy, electric vehicles and low-carbon advanced manufacturing—as we move towards a low-carbon economy.

The huge potential is there, founded on the record doubling of investment in science and research over the past 10 years—this Budget maintains the science ring-fence on the research councils budget—but we cannot just hope to exploit our potential. We must make it happen and the Government have a key role to play—working with markets to ensure that British companies and British employees have the best chance of competing fairly but successfully, here and abroad, in those huge new markets.

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

I agree with the right hon. Gentleman that we need a balanced structure for taxation. Admittedly, the Government have scrapped VAT on a lot of bingo costs, but why have they decided to highlight bingo as an area of gambling to be more heavily taxed with the increase in bingo duty in the Budget?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

I am not even going to pretend to be particularly well equipped to answer a question on the taxation of bingo. I read far, wide and deeply to prepare for this debate on British business and skills, but I clearly and unaccountably failed to go into sufficient detail. Having slightly made light of the hon. Gentleman's question, I know from representations made to me and to many other Members of Parliament over the years that an important constituency interest is involved. I do not want to mock his question, so perhaps I may write to him on the matter, or encourage one of my Treasury colleagues to do so. I have tried to give a fair answer to his question.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I agree entirely with my right hon. Friend that we must have a more balanced economy in future, with a bigger emphasis on manufacturing and other sectors rather than just the financial sector. He talks about fairness in competition. Does he agree that it is necessary to have an appropriate exchange rate for sterling to ensure that we compete fairly, and not have the overvaluation that we have had for the past 11 years, leading to our structural trade deficit, which is now coming back into line, I think?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

Mr. Clarke can probably give a better lecture on the dangers of setting targets for exchange rates than I can. We tend not to set targets for exchange rates and steer well clear of that topic.

The reason for setting out the approach that we need to build areas of the economy where we have a competitive advantage is that it highlights another investment that we can make because of how we are responding to the global downturn which is available to us and not to others. The Budget has created a new £750 million strategic investment fund to support advanced industrial projects of strategic importance. Part of that is earmarked for crucial investment in low-carbon industries, which together with other public and private investment will create a £1.4 billion programme of targeted support for the low-carbon economy.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

I wonder whether the Secretary of State is disappointed that having spent nearly £1.5 billion a year on funds to encourage renewables, we are at the absolute bottom of the European league for the amount of energy that we get from renewables.

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

The truth is that because of the investments that we have made, we can prioritise that key energy sector, which is important to our national interests and also for its growth potential in British business, with the confidence that we do. The point that the hon. Gentleman should perhaps accept is that without the crucial investment that we have set out in the Budget, which would not be available from the Conservative party, the policy would not come to fruition. I am pleased that we are making the investment and that we are also creating a broader policy framework for the development of renewable energy. This country will benefit from it in future.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Will my right hon. Friend assure me and the House that this Government will also continue to stand by funding for pure research—pure science—in contradistinction to applied? Applied science is extremely important for jobs and prosperity, but for building the base of knowledge, sometimes with unexpected spin-offs, pure research is also extremely important and should continue to be funded.

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

Of course, my hon. Friend is right. I have set out my views on that and the assurances that he wants are in speeches to the Royal Academy of Engineering and others. The Minister with responsibility for science, my noble Friend Lord Drayson, has done the same.

It is important to maintain fundamental research, but that does not mean that we cannot ask questions about how we organise our research effort to ensure that we get the maximum economic benefit from it. That very important discussion with the research councils is actively under way.

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

Given the number of hon. Members who wish to speak in the debate, I want to make some progress, but I shall take two last interventions.

Photo of Robert Syms Robert Syms Conservative, Poole

Through the Secretary of State, may I thank the Under-Secretary of State for Innovation, Universities and Skills for meeting me about Bournemouth and Poole college? I would not like the House to be left with the opinion that he has not been meeting Opposition Members as well as Labour Members. In debate, exchanges get boisterous, and I am sure that there is a logical explanation of why the Under-Secretary did not meet my hon. Friend Mr. Wallace.

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

That is a pretty generous and characteristic contribution from the hon. Gentleman. I give way to Dr. Harris, in the hope of a very similar type of intervention.

Photo of Evan Harris Evan Harris Shadow Science Minister

I urge the Secretary of State to wait for it.

The right hon. Gentleman said that he is having a discussion with the research councils about reprioritising research. It is not clear to the House whether the decision has been made that the Government are going to use the science budget to reprioritise research, or whether they are asking the question whether they should. Either way, how does the decision in the Budget to reallocate, and to command the research councils to reallocate, £106 million of their budgets—part of the ring-fenced science budget—fit in with any form of consultation on that?

Photo of John Denham John Denham Secretary of State for Innovation, Universities and Skills

On the first point, the question has been asked of the research councils. We believe that we should have that discussion about how they organise research to ensure that we maintain fundamental research and get the maximum economic benefit from the substantial investment that we make in research. That is under way. It is not an if—we are doing it. It is a discussion that the research councils are having.

On the £106 million that the hon. Gentleman has identified from the Budget book, when we looked at the budgets in my Department as a whole, it was clear to us that further operational efficiency savings could be made. We are as a Department already committed to well over £1.5 billion worth of operational efficiency savings in this spending review. It did not seem unreasonable to seek another £100 million from the research councils. However, the crucial point about the ring fence is that that is not an efficiency saving to be returned to the Treasury. It is to be reinvested by the research councils in priorities to be identified by the research councils. It is right to have that type of discipline in the spending of public money.

I will draw my remarks to a close shortly because others wish to speak. Among the investment that we are able to make in this Budget is £50 million to enable the Technology Strategy Board to increase investment in innovation in other areas, as well as renewables, to derive future growth. As I set out with my noble Friend the Secretary of State for Business, Enterprise and Regulatory Reform and with the Prime Minister at the beginning of last week, we recognise that all actions of Government—what goods and services we buy, how we regulate, how policies on energy or health create predictable markets that encourage new investment—enable us to foster the best conditions for successful British companies to grow. As we implement last week's Budget and the industrial policy that was also published last week, we will make further changes to the skills and higher education system to ensure that growing businesses have the skilled people that they need to succeed at every level.

Britain has the skills, the resources and the knowledge to maintain its position as a world economic power. The Budget sets out how a Labour Government, making the right choices and setting the right priorities, will ensure that we do so.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform), Chair, Tax Law Rewrite Bills (Joint Committee) 5:37, 27 April 2009

I am delighted to follow the Secretary of State. I have been an admirer of his over the years. In my opinion, he was correct about the invasion of Iraq, and more than any other opponent of that folly he was very courageous about it, so I am delighted to see him back in office. I may be quite an admirer of his, but I must say that I was disappointed today. He took the classic current Brownite pre-election strategic line of a clear division between the parties. The ground is very carefully chosen. The Secretary of State is not Mr. McBride; he is not Charlie Whelan. The argument used was quite bizarre—a description of the amazing cuts that we propose now, as opposed to the Government's continuing generosity and fiscal stimulus, showing the clearest divide for a very long time. At one point the Secretary of State actually had the nerve to say that he believed it. I think better of him; I do not believe that he does. I was almost as shocked on discovering he had been to a gym, which I would never do in the course of a Government visit.

What we have advocated is that the process of efficiency savings should be started now. There is no policy advantage in continuing waste that one could avoid if one identified it, but we have not ever advocated fiscal tightening at the bottom of the recession. We have advocated spending the fiscal savings on help now for those unfortunate people leaving school and university. We have advocated a programme to provide masterships, to provide more training places and to do something to help those who need to develop their skills as, thanks to this recession, they will not get jobs. We proposed an easing of the tax on savings, because pensioners living on their savings, have, in particular, innocently been dreadful sufferers of what is happening.

We did allocate the money elsewhere, and our fiscal tightening comes later, unlike the Government's, which is cynical. They propose bigger figures for efficiency savings and appallingly tight public spending programmes—we do not know yet whether that will be adequate—but everything that they propose starts after an election, and this year there is to be inactivity. I shall not go further into that, but I should say that this is a bizarre attempt to conduct a serious debate if it is to continue all the way to the next general election, as is possible.

I wish to deal with the two serious questions that the Secretary of State asked— how we got here and what the problems are—because he accused the Opposition of not understanding the situation and how we reached it. He said that we said that this was a totally and uniquely British recession—of course it is not. It is now a serious global problem, but there are serious reasons why the British were heavily involved in its origins and why we will probably be more severely affected than others because of the policies of this Government.

I wish briefly to give my analysis, which I do not believe to be terribly controversial, of how we reached this situation. The most serious financial and banking crisis that anybody alive has seen hit the United States and the UK first of all, and that earthquake was followed by a tsunami effect, which is engulfing the real economies of other countries, including the exporting nations such as Japan and Germany, which thought that they would be immune to the collapse in their principal customers but have not been.

Let us just think that through. The financial and banking crisis was created in New York and in the City of London during the Blair-Bush-Brown years and had two causes, one of which was the folly of bankers and the abuse of the devices of securitisation, which enabled ever-mounting risks to be taken off the balance sheets. People believed that they were disposing of the risks by transferring them away from balance sheets and that traditional risk management did not matter—that happened on both sides of the Atlantic. We have heard a lot about sub-prime mortgages, which were the first symptom, but this was not some funny version of swine flu that broke out in the mid-west of America and spread. Nothing happened in the markets of New York that did not happen in the markets of London. In this country 120 per cent. mortgages and mortgages for five times people's earnings were given—sometimes those earnings were self-certified. We did not use the American jargon of "sub-prime mortgages" here, but we did have the financial folly.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform), Chair, Tax Law Rewrite Bills (Joint Committee)

I shall give way when I reach a natural break, as it were. On both sides of the Atlantic, but most importantly here, what I have described was coupled with the complete failure of the regulatory system even to address these macro-regulatory problems. The regulatory system that failed completely in this country was the creation of this Government. Their first dramatic act when they came into office, along with making the Bank of England independent, was to take away the Bank's regulatory function and give that to a new all-singing, all-dancing Financial Services Authority, which was a total failure. That was the origin of this. It is not a global origin—continentals would call it a failure of Anglo-Saxon capitalism. I am a defender of such capitalism, but it requires proper risk management in banks and it will require us to readdress a regulatory system to protect us against those risks in future. I shall give way now, before moving on to why I think that the situation will be worse here—again, it is because of the Government's folly.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I am interested in what the right hon. and learned Gentleman is saying, and I have some sympathy with it because I am a regulator, not a deregulator. But was it not his party that abandoned exchange controls, that started the process of deregulation and that, throughout the past 10 or 12 years, has been saying that it would deregulate more than this Government?

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform), Chair, Tax Law Rewrite Bills (Joint Committee)

The hon. Gentleman may be the last man living who wants to bring back exchange controls to the British economy, but I am astonished. When the Conservatives first took office in 1979, we abolished exchange controls, in the teeth of a lot of conventional advice, and that was probably one of the most successful policy steps we took. When this Government took office, one of their first steps was to set up the new all-singing, all-dancing FSA, which has landed our financial markets in this trouble because it failed and it was not able to cope with the regulatory problems with which it was faced.

Of course the world as a whole is suffering, to everybody's surprise—including mine, as I had not anticipated how far the problems would spread to Germany, Japan and the emerging markets. Other countries that have not indulged in financial creativity to the same extent as the UK are now at least as badly affected, but all the forecasts are that it is likely to be worse in this country. That is not just a party political point: there are some good reasons for saying so.

First, our unregulated financial services industry has grown to be a bigger proportion of the total UK economy than is the case in any other advanced country. It is overblown, but it is shrinking. Secondly, the housing price bubble was bigger in this country than in the US, in Ireland or in Spain—to cite the other three countries in which the worst excesses of the house price bubble occurred. Thirdly, the level of household indebtedness that accrued during Labour's years in office is higher than anywhere else in the western world. It is higher proportionally than in the US, which is the other badly affected country.

The fourth reason is that we were the only major developed country whose public finances were deteriorating and becoming unsustainable even in the boom years before the credit crunch. We were the only country that sailed into the whole crisis with a serious public debt problem, which is why we cannot afford even the modest fiscal stimulus that has been applied by the Government. It is countries in surplus that should apply a fiscal stimulus, not this one— [ Interruption. ] I am asked to name a country that has not applied a fiscal stimulus—Ireland and Iceland, which are suitable comparisons for a country that has been governed by new Labour for the past 12 years and had an acute fiscal crisis before the dip even started. That is what the Budget should have addressed— [ Interruption. ] If the Secretary of State is not careful, I will cite one or two examples of quotations of myself and the Prime Minister to show that I always believed that, while he was in denial.

The test for this crucial Budget, which I and many others set out repeatedly beforehand, was whether the Chancellor could set out a credible path back to a sustainable level of public debt eventually. The real failure of the Budget—as perceived in the widespread reaction to it outside this House—is that the Chancellor failed to meet that test. He ducked out of giving any workable plan for a path back to a sustainable level of debt—

Photo of Mary Creagh Mary Creagh Labour, Wakefield

Will the right hon. and learned Gentleman give way?

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform), Chair, Tax Law Rewrite Bills (Joint Committee)

In a second. The Chancellor described the reality of an enormous problem. The Budget has opened more people's eyes to the sheer enormity of the public debt problem that we will face over the next several years. The Budget offered no credible solution to that problem. All it offered was a return to boom in about 18 months' time that would miraculously make the problem go away or at least diminish to manageable size. That is not a sustainable approach.

For their last 12 months the Government will be incapable of dealing with the hard reality of the problems that the country faces, because their forecasts are fiction. The Secretary of State has just done the same thing—setting out a fiction in describing our political position. He said that if it were left to us there would be no schemes, but all the schemes he listed we have not opposed—we have merely complained that they were announced with a flourish months before any of them were to be put into effect. However, that is a point of detail. The absolute failure of the Chancellor to face the reality of how this problem should be tackled—either he could not or he was not allowed to do so—is obviously at the heart of the Budget.

Photo of Mary Creagh Mary Creagh Labour, Wakefield

I thank the right hon. and learned Gentleman for giving way—persistence does pay off. I want to give him the opportunity to state clearly whether he supports the Chancellor's VAT cut. He went on BBC television and said that he did support it, and there was some confusion afterwards, even among some of his fellow Front Benchers. I would welcome it if he took the opportunity to clear that up. While he is putting that straight, will he at least accept some part of his party's responsibility for what has happened— [ Interruption. ] No, I should be allowed to finish; I have waited 20 minutes for this. The deregulation bubble that led to some of this had its origins in the big bang—the massive deregulation of the City of London—which led to the use of increasingly complex financial instruments to finance all sorts of things, such as securitisation, hedging and so on. That meant that managers lost oversight and regulators did, too.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform), Chair, Tax Law Rewrite Bills (Joint Committee)

I will happily deal with both those points. First, on the point about VAT, I voted against the measure when I had the liberty of the Back Benches. I made a speech at the time, which one can look up, about why I voted against it. When I was asked by The Times—and not on television—what would be the best form of fiscal stimulus, if one went in for it, I said that in my opinion if it was affordable the best form was a reduction in sales tax, or VAT. That does not have an immediate effect, but when it is increased again after a temporary reduction it brings forward sales of big ticket items. That was my view at that time. I added the rider, as I emphasised in the interview, of, "If you can afford it." I do not think that deficit countries such as the UK can afford fiscal stimulus. Fiscal stimulus is for China, for Germany and for those who have managed their affairs so that they are in a position to give it. When I took part in the exchanges about the pre-Budget report, I put it on the record that, in my opinion, we could not afford fiscal stimulus and that however desirable it was, it was reckless. I voted against it when it was proposed.

I will not go into all the theories about whether this situation had its mysterious origins in our deregulation and the big bang. I have heard Mrs. Thatcher blamed. There are those in the banking world who say that it has all been got up by the newspapers. I thought that those theories were going out now, however.

Let me address what would have happened if we had carried on. It is highly improbable that we could have won an election in 1997. In the highly unlikely event of a Conservative Government's continuing, I am quite sure that we would not have got into this position. We would not have transferred responsibility for the regulation of the banks from the Bank of England to the FSA or anything like it. I had the misfortune to be the temporary occupant of this seat on the Opposition Front Bench, because we had just been defeated and did not yet have a shadow Cabinet, when the then Chancellor made his announcement on that point. I did not know what to say, because I did not know what on earth my colleagues were going to say that their policy was afterwards. It took me by surprise and took the then Governor of the Bank of England by surprise—he threatened to resign—because nobody knew anything about it until about 20 minutes before the present Prime Minister, who was then Chancellor, got up and announced it. That was a disaster, which we would not have introduced. Indeed, it never crossed my mind to do any such thing when I was in office.

More importantly still, we had fiscal rules of a balanced budget over the cycle, which we were sticking to, which we would have stuck to and which we would not have departed from. Indeed, the only period when this Government had a period of fiscal responsibility was when they at least honoured their election commitment to stick to my figures. They were prudent for three years, anchored by the fear that they would be accused of being old Labour if they did not stick to my figures on tax and spending. So, the public finances improved and they got into surplus. The dotcom bubble made them go into surplus—we would have achieved it, too, and we would have stuck to it.

The new Government's fiscal rules turned out to be fiction. Let me give one quote to show the Prime Minister's approach. The Prime Minister regarded his fiscal rules as a challenge to the Treasury and himself to produce some statistics to show that they were still abiding by them year in, year out, when everybody knew that they were totally discredited and were not being adhered to at all. Mary Creagh will remember that extraordinary process whereby the dates of the cycle kept changing every year when we had Budgets, in a ridiculous attempt to show that a tax-and-spend Chancellor who was accruing enormous debts, despite the fact that we were in the middle of a boom, was sticking to those fiscal rules.

It is no good saying, "I told you so", but I have quotes from 2002 and 2004. All Members, including me, like to quote themselves, but those quotes just show the folly during that period, which led us to where we are now. In the debate on the pre-Budget report on 6 December 2006, I told the then Chancellor that he was

"only extending our record-breaking period of growth and stability on a sea of mounting public debt and consumer debt".—[ Hansard, 6 December 2006; Vol. 454, c. 321.]

The answer I received was the most staggering of errors. He dismissed, as he always did, my mounting fears each year about where public debt was going and how sustainable it was. He said that I should be congratulating the Government on their achievement.

More recent examples show the unreality that afflicted this Government 12 months ago, when they said that we were unaffected. Unreality affects them when they concoct this curious division for their argument at the next election, but let me give a quotation from the present Prime Minister that is more recent than 2006—although I can go back to 2002, when he started ignoring my warnings and those of many other more authoritative people than me. He said:

"We keep borrowing under control and we also keep debt under control and I think the reason that we've had an economy where America's had a recession, Germany's been in recession, the Euro area's had very difficult times, Japan has had a terrible time, but we have managed to continue to grow sustainably and stably over the last ten years and continue to grow this year, and we're the fastest growing economy of the G7 this year".

He said that on the "Today" programme on 7 January 2008—a little over 12 months ago. Is it any wonder that the Secretary of State comes here, duly following the line that he has to take and living in a world of apparent unreality about the political debate, about where we are now and about where we are going? He is in a Government led by someone I increasingly believe now to be completely in a world of his own, and who has been in a very dangerous world of his own so far as our national economy is concerned for a very long time. The problem now is overwhelmingly debt and the effect that it will have.

I thought that we might hear of green shoots. That would have been a better aspect of the occasional stray line from Ministers than what we heard from the Secretary of State, but green shoots have been firmly removed from the line that should be taken so we did not hear of them from the Secretary of State. I hope that we have some green shoots soon. If it were possible to believe that we were going to see growth by the end of this year, which is where the Chancellor has shifted to, and we were going to have boom conditions, no one would be happier than me. Of course we need a revival of the economy, but I do not think that that will be the case.

As we go into this 12 months of inactivity and as the Government claim that they are saving the nation from the risk of a debt-cutting Conservative Administration, it seems to me that the objective view of what is happening now is that the rate of decline is decelerating. Things are still getting worse, but they are not getting worse at the same speed as they were during the two months after Christmas. That is a perfectly fair and objective description of where we are. The rate of unemployment is still going up, and what has horrified me about that since Christmas is that no one recalls unemployment going up this quickly. The figure has been higher and we do not where it is going on this occasion, but its rising at such a rate is a horrific thought. I hope it slows down.

The one good thing I can see is that there are some signs of a return to normality in the credit markets. Things have eased a little—let me not be a total Jeremiah—but they are nothing like back to normality and the recession will not start to turn in this country until ordinary credit at ordinary cost is available to a solvent business, which it still is not, but spreads are improving slightly.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Will the right hon. and learned Gentleman give way?

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform), Chair, Tax Law Rewrite Bills (Joint Committee)

I will, and then I shall explain why there are very sensible reasons, not just partisanship, for not expecting a rapid trampoline-type rebound from this recession.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I agree with the right hon. and learned Gentleman about his trampoline analogy and about deceleration—that things are getting worse but at a slower rate. Does he think that deceleration has anything to do with Government policies and if so, which policies?

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform), Chair, Tax Law Rewrite Bills (Joint Committee)

No, not really. The Government have done certain things. We supported recapitalisation of the banks. If the banks had completely upended it would have been a disaster. If there had been quicker action on credit it would have helped, but some of the schemes are coming through at last. That has had an effect, but we have just seen the first, acute crash. Things are still going down and we do not know when the turn will come. A lot is dependent on conditions elsewhere.

All recessions eventually reach the bottom and come back, but there are worrying reasons why this recovery could be particularly slow. Even if the credit markets and the banking system resolve themselves a bit, we are not out of the woods yet. I am not certain that we shall not have to do more to recapitalise the banks. Until we are certain there are no toxic assets on the balance sheets of banks in the UK and abroad, we are not out of the wood and the banking crisis may still have to be revisited by this Government and others. However, let us say that there might be a resolution. Even so, the recession will still leave a huge level of excess capacity in the near future. The OECD actually expects that, over the whole OECD, the amount will be 8 per cent. of gross domestic product by the end of 2010. We shall not be bouncing back quickly with that degree of excess capacity.

Unemployment will rise; we do not know how high, but it is still going up quickly. That is bound to have a dampening effect on consumer demand. There is no hope of consumer demand bouncing back quickly. Even in households where people are lucky enough to have a job, their mortgage may be cheaper and things are not going too badly—there are some—there is such a level of household indebtedness that sensible people will devote themselves to repairing their finances. The savings ratio will soar, with consequences for consumer demand, too. Restraining consumer demand means that there will be no quick surge in investment.

When we put on top of that the colossal level of public debt, the need for the Government to sell an enormous number of gilts, with the prospect that it will put up interest rates on gilts and thus throughout the economy, the squeezing-out effect of Government borrowing on private sector borrowing and the possible inflation consequences of the unconventional methods of boosting the money supply on both sides of the Atlantic, my fear is that there will be only a slow, and possibly feeble, recovery, which the next Government will have to nurture for many years to come.

These are the early days of this recession. We need as quickly as possible genuine prudence in the public finances for the foreseeable future, for the next Parliament at least. We also need a pro-business agenda to dominate affairs for the next Parliament at least, to encourage the creation of new business and new employment, the stimulation of investment and the rebalancing of the economy that the Secretary of State for Innovation, Universities and Skills rightly said has to occur so that we are less dependent on financial services and start looking to things such as high-tech engineering, design and other areas of our strengths so that we have a more balanced economy in the future.

I turn to the two Departments we are considering today. They are key Departments in the light of what I have just said. I shadow the Department for Business, Enterprise and Regulatory Reform and the Secretary of State speaks for innovation and higher education, which are at the heart of a pro-business agenda. However, I regret to say that although the Chancellor made the most of those bits of the Budget, in so far as he could given the limitations of his eloquence and the time he was able to take, they really are a rag-bag of measures. The Secretary of State and the Secretary of State for Business, Enterprise and Regulatory Reform had no doubt dragged them out of a Treasury that kept saying, "But we can't afford it", to every proposition they made.

In the lead-up to the Budget, the Business Secretary, Lord Mandelson, was wheeled out during the pre-Budget preparation that now goes on. When we were in office, leaks before a Budget led to the police being called in to make an inquiry. Ever since new Labour took over, however, Budget leaks merely leave one guessing whether it was a Minister or one of his aides and how accurate the spin was on what is coming. This time there was much trying to create an atmosphere and the unfortunate Secretary of State for Business had to produce a document called "New Industry, New Jobs" to describe his bit of the whole process—the pro-business agenda that is urgently necessary and will continue to be so when recovery starts. It is worthy waffle, but I have never otherwise read a more tedious collection of platitudes in my life. The unfortunate officials in the Department for Business, Enterprise and Regulatory Reform—no doubt Ministers on the Treasury Bench did their best to assist them—produced every platitude that anybody in their Department has produced in the past 20 years.

It was all held up as new activism. The hearts of the left wing of the Labour party were made to beat a little faster for a few moments—until they got the document; there was to be new active interventionism from a Secretary of State who in principle actually believes in market economics, globalisation and all the things I believe in, but he tried to make bricks without straw. Just to dampen down Kelvin Hopkins, for example, paragraph 1.18 of the document states:

"In most respects, the Government's business support will build directly on what we are doing already."

That just about sums up the document, apart from a bit of consultation. It notes:

"We need to start seeing industrial policy and our competitive strengths in a wider, strategic way."

They will not have much longer for that wider, strategic vision. There was no content at all. The best and most solid bit was:

"However, the way the Government sees its own role in the market needs to change in order to deliver a more coherent and effective approach. Government can promote investment, growth and jobs in Britain through more policy consistency across departments, greater regulatory certainty, smarter public procurement and a readiness to intervene where necessary. This involves Government acting creatively and pragmatically in new ways to supplement the market, not the Government substituting itself for the market."

Waffle. Platitudes. Those words could have been used by any Secretary of State in the Department for Trade and Industry or BERR at any time over the past 30 years, because it is not a bad statement—albeit a rather obscure one—of what they should be doing all the time. The Government have fallen down on several of those headings since they were in office. It was all to presage the fact that BERR would get nothing from the Budget—there would be nothing the next day.

To be fair for a moment, I welcome trade credit insurance. It should have been done earlier—we have been urging it for long enough. It may be too little, too late, but it was a worthwhile thing to do. The increase in capital allowances is worth trying. I approve of that. Doubling capital allowances for a year, however, is not likely to shift a lot, as it normally takes people more than 12 months to plan investment that they were not previously planning to make. Furthermore, at a time of falling consumer demand people will not be falling over themselves to go in for capital investment, regardless of the allowances.

I hope that the car scrappage measure works. We have never tried it before in the UK, although it has been urged quite a lot. Obviously, the Government thought they could afford the £300 million that will be available between now and 2010. It will almost certainly boost, or at least accelerate, the sale of small new cars, because if people with old bangers want a new car, they are likely to buy a small one, but we have never tried it here before, so we wait to see what will happen. The effects of such a measure in other countries have been variable. For example, the chief executive of Daimler-Benz in Germany warns that while such a scheme can bring forward purchases, that might be followed by a slump in purchases when it finishes. Apart from that, there was nothing in the Budget for BERR, and many things that had been urged were missing.

We have £750 million for the strategic investment fund, but that is like all the other schemes of the past six months. There are no details or any indication of when it will come in, just various broad purposes, and there are usually six months between announcement and reality with this Government. I am a bit nervous about a strategic investment fund because when I see the word "strategic" I think about picking winners in fashionable areas of industry and key marginal seats. When the details come out, let us hope that Ministers can convince us that it will not be a political slush fund for the 12-month election run-up, because it should be for a serious purpose.

I am left asking, especially because of the way in which the BERR document was paraded, "Is that all there is from this new business-friendly Government?" The Secretary of State said that the Government would nurture business and protect it against the risks that a more fiscally prudent Conservative Government might pose, so is that it? Not only was the document vacuous, but the measures were little indeed. The same is true for the Department for Innovation, Universities and Skills, but I do not have time to go through everything that the Secretary of State said.

The extra money for further education colleges will be valuable. When I was Education Secretary, I thought—I still do—that further education was one of the most vital parts of our educational system. It needs to be strengthened, but the money will merely correct a fiasco of the Government's making due to the ridiculous Learning and Skills Council. I congratulate the Secretary of State on scrapping the LSC, which his Government should never have created, although I wish that he would follow the prescription for the future of further education set out by my hon. Friend Mr. Willetts by going for a strengthened further education funding council, rather than returning FE to local government control, where it languished in the past. The money will repair some, but not all, of the damage caused by the fiasco of offering capital programmes.

Although I could say a lot about the area of DIUS, I do not have time to do that, so I will leave that for an occasion when my hon. Friend has the opportunity. However, when we consider skills and higher education, we again see 12 years wasted. Going forward, we will need to concentrate on skills, higher education, engineering and science, because we will have a knowledge-based economy in which we have to find new activities.

The most difficult problem, in which FE has a big part to play, is the number of young people not in employment, education or training. I know that there has been bizarre exchange of statistics about that, and that because the age cohorts have gone up, the Prime Minister says that there are now more young people in work in response to the assertion of my right hon. Friend Mr. Cameron that the number of NEETs has gone up. However, the proportion of young people not in employment, education or training has been rising under this Government. If we look to the future, the most horrific thing about the mounting unemployment figures is that 40 per cent. of the unemployed are under 25. A whole generation's prospects are being blighted, and they face a future of pain, debt and wondering where their pension will come from—that is the legacy of this Government. That is why knockabout politics is not suitable for these problems and why a better Budget was called for.

This country has the potential skills. Thanks to Thatcherite supply-side reforms, followed by globalisation and trading prospects that we had never previously had, we demonstrated that we could be a successful and modern industrial economy. After 12 years, the Government are trying to deny their responsibility for the wreckage, and they have no idea of where to go next. We face 12 months of the living dead; I hope that the country does not suffer too much during that time.

Several hon. Members:

rose —

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

Order. I remind the House that Mr. Speaker has placed a 12-minute limit on Back-Bench speeches, which starts now.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside 6:15, 27 April 2009

It is always a pleasure to follow a fellow pro-European in the form of Mr. Clarke.

The Budget and the Queen's Speech are the two moments in the parliamentary calendar that allow the Government of the day to define their priorities, restate their values and give political direction to their time in office. That is especially important in this year's Budget, which clearly sets the foundations leading up to a general election that is probably to be held in May or June 2010.

There is no doubt that this Budget has been the most difficult for a Labour Chancellor to introduce since we took office in 1997. In the circumstances, my right hon. Friend the Chancellor of the Exchequer has done an excellent job, with very little material to play with. Individual measures should be commended, especially the support that will be given to people under 26. Those people will not be left on one side as the innocent victims of an economic slow-down, as was the case when the Conservatives were in office. We, led by my right hon. Friend the Secretary of State for Innovation, Universities and Skills, are putting in place positive measures to offer training, support and assistance to those young people at exactly the time when they need it most.

The Government are to be congratulated on the fact that we have a carbon budget for the first time ever, and I hope that that sets a trend for future years. I also welcome measures to support further investment to get the remaining oil and gas from the North sea and support for pensioners, especially regarding savings and the winter fuel allowance.

Photo of Bernard Jenkin Bernard Jenkin Conservative, North Essex

How much does the right hon. Gentleman welcome the 50p tax rate?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

The hon. Gentleman will be delighted to hear that I will focus most of my contribution on the 50p tax rate. However, before I come on to that, I express my regret that not enough was done to address child poverty. I know that this has been a difficult Budget, with limited room for manoeuvre, but we had a clear target of reducing child poverty by half by 2010. We could have done an awful lot more in the Budget to achieve that objective. It is clear that the target will be missed, which is a matter of great regret.

There is much to talk about in the Budget, but in the 12 minutes that I have, I want to address specifically the 50p income tax rate which, rightly, has been the subject of a lot of comment and debate since its announcement by the Chancellor last Wednesday. I am told that when the proposal was put to the various focus groups that political parties use nowadays, it received broad support as a popular measure— [ Interruption. ] My hon. Friend Kelvin Hopkins is applauding the use of focus groups; this must be the first time that he has supported them.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I am applauding not the use of focus groups, but the wisdom of this particular focus group. Does my right hon. Friend accept that during previous years' Budget debates, I have proposed much more radical increases in taxation on the rich that would make our tax system more socially just and enable us to spend more on tackling child poverty?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

We can tackle child poverty in a number of ways, but I am not sure that my hon. Friend's prescription is the right way forward. I was about to make a point that reflects comments that he has made in the past: focus groups are not always right. On this occasion, over-reliance on such a popular measure for the moment—we understand the circumstances in which such a proposal is thought to be popular—might not be the right way forward.

All too often Budget proposals have been applauded on the day but have been regretted in time, and simply have not stood the test of time. Of course, there is a strong case for saying that in a spirit of fairness, and at a time of recession, those earning most should pay more, and I accept that. It has to be right that when we need to raise revenue, we should focus on those with more money, rather than less, but to raise significant amounts of money, which is what we need to do given the present financial circumstances, we need a broad tax base. The 50p rate for those earning more than £150,000 will apply to some 350,000 taxpayers in this country. They simply do not provide the broad base to raise the revenue that will be needed in our present circumstances. Indeed, for a variety of reasons coming together, the Institute for Fiscal Studies doubts that the 50p rate will raise any extra revenue at all.

That leads one to consider why the 50p rate was introduced in the first place. When one looks at the fact that it is being brought forward to April 2010, probably just a few weeks away from a general election, and when one considers that it targets a very small number of taxpayers, the only sensible conclusion to draw is that the 50p-rate proposal has more to do with political positioning and tactical manoeuvring than a principled, strategic approach to taxation and the raising of revenue.

Some people have said that the political motive behind the proposal was to provide an elephant trap for the Conservative Opposition to fall into, but the trap is so large and well-signposted that even the most myopic old tusker would have little difficulty avoiding it. There are many ways of describing the Leader of the Opposition, but a short-sighted elephant is not one of them, so for understandable political reasons, the trap has been avoided by the Conservative party. I think that many people in the Conservative party will be very disappointed that the 50p rate is, I understand, not to be opposed by the Conservative party, but I believe that it should be opposed, because in the long run it will be damaging for both the Labour party and the economy. First, and perhaps most importantly, the measure breaks a key manifesto pledge made by the Labour party not to increase the top rate of tax.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

Both the Prime Minister and the right hon. Gentleman wish that the Conservative party would oppose the 50p tax rate; I wonder whether that is the first thing on which the right hon. Gentleman has agreed with the Prime Minister for quite a number of years.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

That is simply not true, as the hon. Gentleman will know. I was making a serious point about the breaking of a key pledge in the 1997 manifesto. We repeated that pledge in 2001 and 2005, for good reason. For many years to come, the Labour party will regret that a manifesto pledge on tax was broken in such a way, and broken literally a few weeks before a general election. If the 50p tax rate is so important, why not bring it in during July next year—three months later? We would then have honoured the pledge that we made in 2005. However, we are not doing that. We are introducing the 50p rate in such a way for, I believe, cynical political reasons, and that simply will not work in our interests.

Secondly, the approach is mistaken because it fails to recognise that wealth creation and social justice are two sides of the same coin. We need wealth to be created if we are to provide the money to finance our social programmes. We need entrepreneurs to go out, work hard and take responsible risks. Given the difficulties that we have had in the banking sector, I know that it is difficult to make that case at present, but the "heads I win, tails you lose" approach of some in the banking sector should not be used to penalise genuine entrepreneurs.

I have heard that the argument for the 50p rate is one of fairness. That clearly must be a key part of any modern, progressive tax system, but the tax regime of a country such as the United Kingdom cannot be based just on fairness; there are other objectives that we need to achieve as well. We are still an important trading country. I take the point already made in this debate about an over-reliance on the financial services sector, but even as it diminishes, which it will, it will remain a key part of our economy in the United Kingdom. It will be a significant employer, and it will bring money into our country.

We are home to major international companies that recruit from around the world, and they have to make sure that they can attract the most talented people to work in the United Kingdom. The United Kingdom needs a tax regime that is not only fair, but internationally competitive and attractive. That will be of particular importance as the world economy begins to grow in the foreseeable future—in a year or two. To take full advantage of the opportunities that will come from that growth, we need talented individuals working in the United Kingdom. The danger is that the measures in the Budget will make the United Kingdom less attractive. That will mean that wealth creation will be slowed down, and that will have negative consequences for public spending. For those reasons, I do not think that the case for the 50p rate has been made.

It is unclear whether the 50p rate is to be a permanent part of our tax system, or whether it is a short-term measure to meet the particular needs of the recession. I have to say that Ministers have sent out mixed messages about that. The Chancellor, when being interviewed after the Budget, seemed to indicate that it was a short-term measure to raise revenue to meet the immediate needs of the economy. When the Leader of the House was asked about the matter this morning, she seemed to indicate that the rate would be a permanent part of our tax regime. It is vital that we get clarity on the issue, because it goes to the heart of the future political direction of the Labour party and this Government.

Photo of John Reid John Reid Labour, Airdrie and Shotts

My right hon. Friend is making a very interesting case. Is it not the truth that the key questions about the tax are: first, whether in the present circumstances it is to be regarded as a desirable policy objective on its own, or an economic imperative, particularly given the fairness issue; and secondly, whether it is to be regarded as indicative of a general strategic direction on taxation matters? Under those circumstances, and with regard to those questions, has not the Chancellor made it plain that it is an economic imperative, and a temporary expedient, rather than an indicator of general direction?

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

I hope that my right hon. Friend is right. That is why I am raising my concerns about the fact that there have been mixed messages from the Government. The Chancellor is clear that for him, the 50p rate is a short-term measure, not a permanent fixture of the tax regime. Other members of the Cabinet are saying other things. We members of the Labour party need clarity about the direction in which we are going. We need clarity from senior Cabinet Ministers, addressing exactly the issues that my right hon. Friend has addressed. We need that before this Budget debate concludes, because this Budget sets the framework for the general election campaign to come.

Photo of Stephen Williams Stephen Williams Shadow Secretary of State (Innovation, Universities and Skills) 6:29, 27 April 2009

We are having this Budget resolutions debate in truly extraordinary times. I first took an interest in politics as a teenager in the mid-1980s, at a time when unemployment was at an all-time high of 3 million. I hoped at that time that we would not see unemployment return to those levels again, yet that is now being predicted.

The year 1983 was when the Labour party was rejected emphatically by the electorate for its policies, especially its policy of full-scale nationalisation. Little could I have imagined that there would be a broad consensus now that some of the banks should be nationalised. I would have been staggered to be told that the public sector borrowing requirement, which was £12 billion in the mid-1980s and £50 billion when Mr. Clarke was Chancellor, would now be £170 billion.

The recession may well be global in its manifestation, as the Secretary of State for Innovation, Universities and Skills was keen to emphasise, but some of the origins of the recession being visited upon this country have their origins in the UK, and we are led by a Prime Minister who, as Chancellor, repeatedly ignored many of the warnings. We are in a national emergency that requires swift and meaningful Government action. What has been swift is the welter of announcements from the Government. The Government spin machine has been in overdrive, recycling many initiatives and promising money, some of which is deferred until well into the future.

The debate today is being led by the Departments for Business, Enterprise and Regulatory Reform and for Innovation, Universities and Skills. As the Conservative spokesman, the right hon. and learned Member for Rushcliffe said, Lord Mandelson was wheeled out last Monday to promote a document that I, too, thought was full of waffle about new industry and new jobs, to which was added a press release from the Secretary of State for Innovation, Universities and Skills. The press release and the document were full of hyperbole—for instance, that we should all look forward to the day when

"the world's economy . . . is set to double in size creating major new opportunities for British business."

As the right hon. and learned Member for Rushcliffe said, there is little in the way of tangible policies in the document or the press release accompanying it. One of the few specific pledges was to make the Technology Strategy Board, an estimable organisation with an important purpose, into a world leader, but in the Budget last Wednesday, what does the TSB get? Just an extra £50 million.

The document is certainly right in identifying a major problem in the British economy—the shortage of venture capital and long-term finance for innovation. As I know from my own meetings with the biotech industries in this country and with many university spin-out companies in Bristol and elsewhere, that shortage holds back British innovation. We will have to see whether the strategic investment fund announced in the Budget will make a long-term difference.

My favourite quote from the document and the release, which I am glad the right hon. and learned Gentleman did not quote directly, was that Lord Mandelson thought the Government should be a

"smarter, more joined-up Government that understands the importance of creating wealth".

The Government have been in office for 12 years. It shows what a parlous state they are in when, after 12 years, the Secretary of State for Business, Enterprise and Regulatory Reform, who had to be brought back from Brussels to rescue the Prime Minister, says that the Government need to be smarter and more joined up. Humility, at last, perhaps, but we did not see much of that humility reflected in the Chancellor's Budget speech.

We are in a tough business environment. Jobs have been lost in retail in all our constituencies. Whatever the differences about the VAT cut, it is not at all clear whether that has saved any retail jobs. Jobs have been shed also in the financial services industry. Last week Royal Sun Alliance announced the closure of its office in my constituency, Bristol, West, with the loss of 500 jobs. There is much uncertainty in Bristol about our financial services industry, and I hope that closure is not a warning of things to come.

We are in a tight professional jobs market. It will probably be the worse jobs market for graduates for over a decade, and I would not want to be a school or college leaver at present. For many young people, it will be their first experience of a recession. What has the Government's response been? In the Budget, they announced a precise sum, £260 million, for the youth guarantee for skills and employment for 18 to 24-year-olds, but only if they have been unemployed already for at least 12 months.

It is not clear what that £260 million is intended to fund. People up to the age of 25 are already entitled to have their level 3 training costs funded in full. It appears to rely on a subsidy for charities or local authorities to take on young people. Again, despite the fact that it is a precise sum, the outcome seems rather meaningless. It would have been much better to remove the remaining fees charged for further education college courses that apply to those over the age of 25, or to fund fully the off-the-job training costs of young apprentices.

All those skills are delivered in the further education sector, and the fiasco of the FE capital expenditure budgets has already been mentioned. College building programmes are at a standstill around the country, together with the standstill in the housing market and the commercial property market. There are cranes all over the city centre of Bristol that have been idle for months, and people in the property market have been laid off.

Photo of Lorely Burt Lorely Burt Shadow Minister (Business, Innovation and Skills), Chair of the Liberal Democrat Parliamentary Party

Does my hon. Friend agree that the industries involved in construction and those that hold properties that are currently empty are suffering badly? The Government's failure to enhance the empty property rate relief has been unfortunate. In my constituency of Solihull, people pay rates of £15,000 on a broom cupboard. That is one measure through which the Government could have made a substantial improvement for very little cost.

Photo of Stephen Williams Stephen Williams Shadow Secretary of State (Innovation, Universities and Skills)

I thank my hon. Friend for making that important point. Not only does the relief that is currently available need to be better promoted, but it is a relatively modest sum, which could perhaps be extended in order to make a difference.

In the construction industry, redundancies have increased fourfold over the past 12 months, and there has been a 5 per cent. contraction in its sectoral GDP, yet in the Budget the Government announced only an extra £300 million for the college building programme—nowhere near enough to meet the pent-up demand. That sum appears to have been raided from the budget allocation for next year, 2010-11, and in the Secretary of State's letter to the sector, there is an "assumption" of extra money for 2011-12 onwards, but nothing concrete for the future. Colleges deserve better, and the construction industry could certainly do with a boost.

In higher education we saw last week, with the release of the latest statistics from UCAS, that there has been a large rise across all age groups in applications to universities. In England, for the traditional age group of under-20-year-olds, there has been a 6.5 per cent. increase in applications to study at English universities. For those over the age of 25, there has been a 17 per cent. increase in applications. There is obviously a developing pattern of young people choosing—rightly, perhaps—to go into higher education in order to shelter from the recession. When people are offered places, or later in the summer when they get their A-level results, there will not be sufficient supply to meet the demand.

A year ago the Secretary of State promised 15,000 extra places for higher education. Then there was the fiasco of the overspend on the grants budget, and that pledge had to be cut back from 15,000 to an extra 10,000 places, despite the fact that the Government raided £100 million from the equivalent or lower qualifications budget, supposedly to fund new opportunities for first-time study. It is clear that thousands of young people will lose out on a university place this summer. Clearing, for many years a feature of university applications, will probably not occur this year. Will the Secretary of State give a commitment that the Government will fund those places for all the young people who achieve their entry standard offers?

For those who have graduated, the only initiative that we have heard about from the Government was more than six months ago, on the interns programme. We had to wait until this week before we finally got the detail of how that will work. All it seems to amount to is that if a graduate has been unemployed for six months, they can continue to receive their jobseeker's allowance without any deduction, if they enter an internship scheme. That is a paltry response to a dire situation faced by some of the best educated people in our country.

The Budget is a balance between fiscal stimulus and the rescue of the public finances, and Mr. Byers, in a remarkably candid Blairite blast, rightly described the 50p tax rate as a political manoeuvre, a sentiment shared by the Liberal Democrats. As the Institute for Fiscal Studies said, the measure will achieve very little revenue raising to bridge the bulging gap in the public finances. It would be much better to return to a situation in which the taxes charged on income and on capital gains were aligned as they were in Nigel, now Lord, Lawson's 1988 Budget, and to close the loopholes that enable the very rich to escape such taxes. If we raised the threshold on income tax to at least £10,000, we could lift 4 million people out of taxation all together.

The Budget's other fiscal stimulus was the VAT cut, which, in terms of debt repayment, will cost us all £12 billion. That money could have been much better spent now on capital projects to fund a green road to recovery. It could have funded local rail schemes, of which there are many around my constituency in Bristol, more home insulation and social housing. It could have ensured that the colleges and universities building programme was fully funded, and it could have given an immediate boost to the construction industry and to those who need their jobs to be secure.

I hope that there will be many more green jobs in the future, but, if we are to achieve that target and our 2020 climate change targets, we will need many more young people who are technically skilled in science, technology, engineering and mathematics subjects, and who leave our universities with degrees in such subjects; otherwise, we simply will not be able to build the solar, wind and wave power projects that will deliver our 2020 targets. If Lord Mandelson really wants joined-up government, the Government must join up our energy targets with our educational failings, otherwise we simply will not succeed.

We are in an emergency, but Budget measures and Government announcements do not offer any real help now. Graduates will have to wait six months before they can continue to receive their jobseeker's allowance while on an internship, and the young and unemployed will have to wait 12 months before they can get a training package—and it is not immediately clear what that will comprise. Capital expenditure is needed now, but the Government instead prefer to spend £12 billion on small-scale price reductions in our shops.

In the long run, we need to re-think our business model. We need not only a green and sustainable future, but a more ethical dimension in business and a bigger presence for social enterprises. Those long-term changes to our business model are a subject for another day, but, today, Britain needs a Government who understand the current crisis and how to respond. Those who are currently in office have failed to understand the crisis and failed to apologise for their role in getting us into it. The sooner they go, the better.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central 6:44, 27 April 2009

I should like to comment on a few specific areas of the Budget. I do not intend to detain the House very long.

In his opening remarks, Mr. Clarke made an interesting point about what I think he called a sea of debt, and about the origins of the financial crisis being partly in the sub-prime mortgage market in the USA and this country's mortgage problems. When he was challenged by Government Members about how far back the origins of the crisis go, he did not reflect on this country's obsession with home ownership, which started when his Government encouraged people to purchase council houses, and led to this country being far more concerned with home ownership than other countries that he mentioned, such as Germany, Japan and so on, where rental sectors still exist. Perhaps this country's obsession with home ownership and, to some extent, profiting from home ownership through buying and selling has led to that sea of debt and the encouragement of the ridiculous 125 per cent. mortgages to which he referred. In the weeks to come, perhaps we will debate that point further.

My right hon. Friend the Chancellor of the Exchequer has had a difficult time in producing a Budget in the current financial climate, and the Budget deficit, being so high, has constricted him. It has also overshadowed some issues that we would normally debate after the Budget and during the Finance Bill—particularly excise duties and so on, which I hope to mention in a few moments.

I have been concerned, particularly over the past few weeks, about the Building Colleges for the Future programme. It is well documented that my constituency has suffered greatly from the programme's funding squeeze and the Learning and Skills Council's obvious mismanagement. Barnsley college has a four-phase redevelopment programme: two phases are already complete, and the third is under way. The buildings have been demolished in anticipation of new build, but the funding has stopped, so, in the centre of Barnsley, we are looking at a big white fence surrounding a demolition site, and there is no guarantee that funding will be reinstated to complete the project. The fourth phase relates to sixth-form provision, which looks pretty uncertain unless funding is guaranteed. However, the phase is still at the planning stage, so, if it is considered as a newer application, there will be considerable doubt about whether it will go ahead.

I know that my right hon. Friend the Secretary of State for Innovation, Universities and Skills has written to Members, explaining that, following Andrew Foster's report, a committee will be put in place to decide which projects go ahead, but I urge Ministers to accelerate the decision-making process. I met the head of the learning and skills council for Yorkshire and Humber a few weeks ago, and he anticipated that, by the end of April, the decisions would have been made, yet, we are looking to May for the establishment of a committee to begin to consider which projects go forward.

My right hon. Friend the Chancellor mentioned allowing companies leeway in paying their tax liabilities, and in difficult times many companies have benefited from being able to defer taxation payments. In my constituency, however, two companies, DTS Environmental and Martello Piling, paid their taxes, albeit, unfortunately, a few days late. DTS Environmental's tax instalments were paid a few days late on five occasions, and as a result it has lost its gross payment status, meaning that Revenue and Customs will deduct tax in advance. Before that, when it had gross payment status, it kept the money. The matter relates to other contractors, and to tax liabilities that are owed to HMRC.

The condition of keeping gross payment status is, as I understand it, that payments are made on time, but, for the sake of a few days, this status has been lost and a huge financial burden has been imposed on companies in my constituency. They, unlike companies that are being helped, do not owe any taxation; their tax payments were all paid and up to date. Yet, they have been penalised to the point where HMRC commissioners pursued them to commissioners' hearings, which upheld the decisions. The Revenue gave the companies no leeway in relation to gross payment status. I hope to be able to pursue this through correspondence with Ministers over the next few days and weeks, because I am told that it has a substantial effect on the future progress of such companies.

Another industry that will suffer as a consequence of the Budget—this was flagged up for many weeks by a great number of Members—is the pubs and clubs industry, with the increase in alcohol duty, which is now subject to a 2 per cent. escalator over and above the rate of inflation. Last year, duty on alcohol was increased by 9 per cent.; in November, it was increased by a further 8 per cent. in the light of the reduction in the VAT rate. Those substantial increases were imposed at a time when the economy was not in such a bad position as it is now; it was performing much better, as was the leisure industry. I understand perfectly well that the Government want to target the consumption of alcohol and eradicate irresponsible drinking, binge drinking, or whatever one wishes to call it, but ultimately the mature or responsible drinker is being attacked at the same time as the irresponsible drinker. Rural pubs and pubs on the edge of town centres are closing at the incredible rate of 40 a week.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

Very quickly, because I am not going to be allowed injury time.

Photo of Lorely Burt Lorely Burt Shadow Minister (Business, Innovation and Skills), Chair of the Liberal Democrat Parliamentary Party

Does the hon. Gentleman agree that many of the difficulties that pubs face arise from very cheap alcohol being sold in supermarkets? Would he support the Government's adopting a policy of minimum pricing?

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

I am on record as supporting minimum pricing and attacking supermarkets. I entirely agree with the hon. Lady's comments.

In reality, alcohol consumption among young people is falling. In 2008, alcohol consumption fell by 4 per cent. among males and 22 per cent. among females. It is argued that it is not just beer duty that is causing pubs to close, and there are a number of other reasons: high rents, difficulties with leases and the smoking ban have all contributed. However, the one area where the Government could have assisted the industry would have been by restricting the increase in alcohol duty. The profit to licensees in the pub trade, or pub owners, from the price of a pint of beer is one penny, while the Government take 39p.

In pubs, drinking is regulated and a code of practice is imposed by the pubcos and the brewers; outside the pub—at home, for example—drinking is unregulated and excessive quantities can be consumed because of the cheap alcohol that is sold by supermarkets, as Lorely Burt said. It is no coincidence that on Budget day last year some well-known supermarkets reduced the price of a bottle of whisky by £5 while the Chancellor was still on his feet. That is an indication of how much the supermarket industry thinks of his decisions on alcohol duties: it is simply ignoring them. We must do something about supermarkets. Why cannot they be rated differently on the basis of the area that they give over to the sale of alcohol? Why do not the Government enforce VAT on supermarkets' sales at below-cost prices? It has been well documented that many supermarkets are selling beers, wines and spirits at below the cost at which they obtained them. As a consequence, the Revenue is losing VAT payments, but nobody appears to want to look into that to try to redress the balance. I hope that the Treasury will reconsider the issue.

I want briefly to mention bingo duty and the double taxation of bingo; I think that we will return to that during debates on the Finance Bill. As many Members know, bingo is taxed on gross profits as well as on the pursuance of the game, through VAT. It is taxed at two levels, whereas forms of harder gambling are not. For example, there is no tax on a bookmaker for horse-race betting or on online betting, but the softest form of gambling in the country has been attacked again through the increase in bingo tax in the Budget. I hope that the Government will reconsider that during the passage of the Finance Bill.

Photo of Alex Salmond Alex Salmond First Minister of Scotland, Leader, Scottish National Party 6:55, 27 April 2009

It is a great pleasure to follow Mr. Illsley, my old friend from the Select Committee on energy all those years ago. It does not surprise me in the slightest, given his close connections with his constituency, that he knows more about the iniquities of bingo tax than Government Front Benchers did a few minutes ago.

I have been in the House for 22 years, and I have seen many Budgets and many Chancellors. There have been good Budgets and bad ones, and they have happened at various times of the year—often, annoyingly, during the Cheltenham national hunt festival—but one thing is invariably true: all the Budgets that I can remember have had a good reception on the day and have then been gradually deconstructed, attacked and ripped to pieces over the succeeding days and weeks. This Budget was being deconstructed before the Chancellor sat down last Wednesday. Of course, he had little room for manoeuvre, but I suspect that he, and indeed the Prime Minister, would have hoped that a Budget strategically to address the questions facing this country in the greatest economic crisis in living memory might have lasted longer than the weekend before it was totally ripped to shreds and deconstructed, growth forecasts spending objectives and all.

When I served on the Select Committee with my friend from across the Chamber, that was the last time that a Government were projecting real-terms cuts in public spending. There was an air of total unreality about the Secretary of State's introduction to the debate. I was trying to work out whether I had been reading a completely different Red Book as he outlined his vision of investment in public services with the new Labour party, as against cuts in public expenditure from the old Conservative party. The Red Book does not set out investment in public services—it sets out cuts that start next year and intensify, in an unprecedented way, through the forecast period that it lays out, climaxing in real-terms cuts in expenditure for each Department. The variable expenditure at the discretion of a Department of State, or a Government in Scotland or Wales, is undergoing real-terms cuts that, according to the Institute for Fiscal Studies, may reach 2 to 3 per cent. a year—greater than even at the high point of the Thatcher cuts of 1981-82. That is the reality of what is in the Red Book.

I want to argue against the Budget and make an appeal for a change of course, a change of heart or a change of direction—any change to the short-term response to the economic situation we face and to the strategic choices that will have to be made about what matters as regards public spending. On the fiscal stimulus, I try to give the Government as much credit as I possibly can; after all, this is a Government who are living on credit, in every sense of the word. This year, between the pre-Budget report and the announcements in the Budget, there is a substantial fiscal stimulus of some £21 billion. It is not as massive as the fiscal stimulus in the United States of America—Obama's $787 billion—and nothing like the Chinese stimulus. China certainly has access to the necessary funds, while the United States has the convenience of a reserve currency and can therefore print money or sell bonds to finance its stimulus. None the less, a significant fiscal stimulus is taking place this year. We might quarrel about how it is being introduced, and I believe that it would have been far better to choose capital spending instead of a VAT cut, because that would have worked its way through the economy, created more jobs and left behind capital assets that the VAT cut will not, but there is undoubtedly a fiscal stimulus this year.

However, the situation will change totally next year, because the balance of the measures in the pre-Budget report and the Budget is to have not a stimulus in the economy next year but a contraction of £4.675 million. We will have a reverse stimulus next year, and I cannot see for the life of me how it can be correct at this moment in our economic affairs to plan a cut next year instead of a continuing fiscal stimulus.

The position will be affected by the so-called efficiency savings of £5 billion across the Departments, which will have a £497 million effect on the Scottish budget. According to the Scottish Government's input-output model, the impact will be the loss of 9,000 jobs, which will be hugely important and damaging in 2010. The various measures that we have been able to take in Scotland over the course of the current recession—the capital investment acceleration, the European budgets that we have also accelerated, the prioritisation of housing budgets—amount to the creation of about 20,000 jobs in Scotland. That is what we have been able to do by throwing every possible pound of expenditure at this recession. We have created 20,000 jobs, which is valuable. In a single afternoon last Wednesday, the Chancellor waved away 9,000 of those jobs with the projected cuts in public spending next year.

Let no one be in any doubt that we are talking about cuts. We have an efficiency savings project in Scotland, and those savings are reinvested in the Department or the local authority that makes them. That is the very process, incidentally, to which the Secretary of State for Innovation, Universities and Skills applied such approval when he talked about the science budget. However, these planned cuts are not efficiency savings; they are top-slicing from departmental or governmental budgets in Scotland, Wales and Northern Ireland.

As well as the impact of the cuts that are being projected for next year, I resent the way in which they are being described. The Chancellor said on Wednesday:

"Some have argued that we should cut public services immediately, rather than invest and grow our way out of the recession...that would be the wrong thing to do."—[ Hansard, 22 April 2009; Vol. 491, c. 245.]

But that is precisely what the Chancellor is doing from 2010 onwards. That would be bad enough if we were confidently expecting an economic recovery from 2010.

Photo of Alex Salmond Alex Salmond First Minister of Scotland, Leader, Scottish National Party

I have always wanted to say this: I give way to the chairman of Celtic football club.

Photo of John Reid John Reid Labour, Airdrie and Shotts

I have never before been nonplussed in response to the right hon. Gentleman. I take his point, but is he not conflating two time scales? The truth of the matter is that during the early stages of a recession, we have to expand and maintain expenditure, demand and investment through the public sector. He would be the first to accept that that requires a degree of borrowing, and that we also have to show the path back to equilibrium on that borrowing by cutting public expenditure and increasing taxation. Does he accept that there will be a stage—he might disagree about when—at which we should turn from an increase in public expenditure in the short term to a return to equilibrium in the medium term?

Photo of Alex Salmond Alex Salmond First Minister of Scotland, Leader, Scottish National Party

I am grateful to the chairman, because he helpfully outlines the very basis of my speech. I am outlining the economic argument and the timing. The Chancellor forecasts 1.25 per cent. growth next year, although many independent forecasters are forecasting much more pessimistically. Even if there were 1.25 per cent. growth, it would be a faltering recovery next year and it would not be the time to undergo even the cuts envisaged in the Chancellor's heroic forecast. The right hon. Gentleman's second point is about exactly the subject of the second part of my speech, which is the long-term choices that will have to be made about the public spending profile.

As I said a few minutes ago, the Institute for Fiscal Studies, looking at the Red Book, forecasts that the discretionary elements of public spending will decline by 2 per cent. or more in real terms. There will real-terms cuts in discretionary spending the like of which we have not seen, except in one year during the period of high or low Thatcherism, depending on our point of view. Make no mistake; those cuts will have a direct impact on key public services. I have here the projection of the £5 billion of efficiency savings for next year. In the case of the UK Departments, £3 billion of those savings will have an impact on either health or education, so those are the budgets that we are talking about. I hope that we will not face a developing flu pandemic, as is currently feared, but even if we avoid that fate, there is an indication that health expenditure will come under serious pressure as we meet this or any other emergency that develops. Health and education budgets are the very last things that we want to be subjected to such pressure.

What other budgets would give us the public spending savings that are undoubtedly required? When Mr. Byers was climaxing his speech, he was about to make another attack on Government policy. I hope that I am not wrong in anticipating what it might have been. I was very interested to see him quoted this week in The Observer, which stated that he

"has long supported both identity cards and the nuclear deterrent but said he could not justify to vulnerable constituents the respective £5 billion and £70 billion bills when basic public services were threatened by the economic crisis."

He was not content with the one attack on the Budget that he was able to make in his speech, and I applaud the other one he was about to make before he was so rudely interrupted by the chairman of Celtic.

Photo of Stephen Byers Stephen Byers Labour, North Tyneside

In fact, I was about to launch a separate attack, not that particular one.

There is a serious point to be made about public spending. The thrust of the speech that I made on Saturday was that it is the responsibility of all political parties, before the upcoming general election, to be clear about where spending reductions will fall, and that it would be a fraud on the electorate to fail to do that. It was a challenge to the right hon. Gentleman's party, the Conservatives and my own party to be clear about our spending priorities post-2010, when we know there will be considerable restraints on our spending.

Photo of Alex Salmond Alex Salmond First Minister of Scotland, Leader, Scottish National Party

I am delighted to say that in the right hon. Gentleman's hat-trick of attacks, there is at least one about which I thoroughly agree with him—the substantial savings to be made by coming to terms with reality on the Trident programme, ID cards and other prestige projects that, patently and obviously, this Government and this country can no longer afford.

Photo of Alex Salmond Alex Salmond First Minister of Scotland, Leader, Scottish National Party

If the hon. Gentleman will forgive me, I will not; I have only three minutes left.

We are talking about serious money. I have with me an estimate from Public Finance magazine of 23 March 2007 of the total new system costs of Trident, which were between £60 billion and £86 billion, with total potential costs over the lifetime of Trident of £65 billion to £90 billion. Serious money and resources are being devoted to that programme, and in my estimation they would be far better devoted to key public services such as health and education, which will come under substantial strain in this economic recession.

There is a figment, an illusion, behind the Red Book figures. It is as though the only public spending budgets that will come under pressure are the social security, employment and automatic stabiliser budgets. The recession and the substantial increases in unemployment, never mind unforecastable events such as the health challenge that we might now be undergoing, will have an impact on education budgets as we try to keep people in training or education to prepare for the future. They will also have an impact on health budgets, and those great public services will come under huge pressure. It is therefore entirely legitimate for us to say that we would target Trident and ID cards and protect health and education budgets, for the betterment of the people of England as well as the people of Scotland, Wales and Northern Ireland.

In summary, we should not deflate in the teeth of recession. Even according to the Chancellor's ambitious, optimistic and heroic forecast, the recovery will be, at best, faltering next year. The times are unprecedented, but there are, none the less, some analogies. We can understand—and know—that monetary policy by and of itself will not necessarily yield the results in a recessionary climate because of the lack of confidence to invest. We know that fiscal measures will have the desired effect if carefully chosen and applied. We should not deflate in the teeth of recession in 2010.

Secondly, we should choose health and education over Trident and ID cards. Those are the real, hard choices that have to be made.

Lastly, we are in unprecedented times facing unprecedented challenges, but some things that we know about our society, economy and the approach of the Government are intensely valuable. The Government should not go for the quick trick, the quick fix or an attempt to wrong-foot the Conservative party. The issues are more important than that. The priorities in which we believe—public investment and preparing for the recovery, which will come—should be much higher in the scheme of things than the Budget displayed last Wednesday.

Photo of Parmjit Dhanda Parmjit Dhanda Labour, Gloucester 7:11, 27 April 2009

May I say at the outset how much I enjoyed the speech of Mr. Clarke? It is a shame that he has left the Chamber. He gave a virtuoso performance, tottering from one Hush Puppy to the other, regaling us with some charming quotes. However, he made one interesting comment, which I will remember. I paraphrase slightly, but he said that, if the Conservatives had won the election in 1997, everything would be okay in the economy. That is extraordinary.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

I think that my right hon. and learned Friend was making the specific point that he would not have allowed the Financial Services Authority to take over banking supervision from the Bank of England.

Photo of Parmjit Dhanda Parmjit Dhanda Labour, Gloucester

I think that Hansard will state otherwise, but we will leave that to the record.

The right hon. and learned Gentleman made other interesting comments. When challenged, he talked about his position on VAT. He said that, when he was on television or when he was quizzed, he always made it clear that he supported the reduction in VAT only with caveats. I can recall seeing him on television, supporting the VAT cut without caveats. Perhaps I am wrong—it is up to the commentators to decide. I dare say that Andrew Neil and many others around the world will look at their tapes, and I will let them be the judges.

The right hon. and learned Gentleman also mentioned the under-25s and expressed, rightly, fairly and understandably, his concern about the number of young people who face unemployment. I share that concern and one of the best aspects of the Budget is the measures to tackle unemployment for young people. We in the Labour party must not forget the measures in the past 12 years, which have made a huge difference—in my community in Gloucester, youth unemployment decreased by 75 per cent.

I also welcome additional support for those in danger of losing their homes, and there were other measures, which we now perhaps take for granted on Budget days: the increases in pension credit and in tax credits as well as widening the threshold for pension credit. Those are all welcome.

There are some things that I would have liked the Budget to contain, but it did not, and I will discuss them in the next few minutes. The Chancellor was right to talk about efficiencies and the need for them. I would have liked to hear more. I would have liked him to be more specific because I thought that it was a golden opportunity. Whether Departments take a closer look at what the efficiencies could be made and report back in the coming weeks or whether measures are announced in the Queen's Speech, I hope that those on the Treasury Bench will consider some of the thoughts that I will outline.

After discussions with the Library, especially about local government, I was interested to realise how many two-tier authorities still exist in this country. I have always championed unitary local government. The Budget at this time afforded a great opportunity for the Chancellor or Departments to say that they would press ahead with that. Why should they do it? Is it worth doing? According to the Library, there are 24 two-tier local authorities in this country. The savings from authorities moving from two tier to unitary are between £15 million and £20 million a year. If the other 24 authorities, including mine in Gloucestershire, became unitary, the savings would be around £500 million a year, every year —£1,500 million in a comprehensive spending review period.

Photo of David Taylor David Taylor Labour, North West Leicestershire

As my hon. Friend knows, I admired his ministerial skills at the Dispatch Box and regret that he is not there now. However, my county of Leicestershire is a two-tier authority, and there is a paucity of evidence, after a long time, that replacing two tier with unitary produces any long-term savings, when one considers the overall costs involved. I disagree with my hon. Friend.

Photo of Parmjit Dhanda Parmjit Dhanda Labour, Gloucester

My hon. Friend is a good friend and we will not fall out over the matter, but I believe passionately in the point that I am making. There is strong evidence for it, supported by people of all political parties. For example, Shropshire is a Conservative authority, with a Conservative leader who drove the process because he believes that £15 million a year will be saved. Another example is Cheshire, where I believe £17 million of savings will be made. It is also common sense. In a two-tier authority, one authority is responsible for the roads and the other is responsible for the road humps; one is responsible for the pavements and another is responsible for the shrubs on them.

Photo of Parmjit Dhanda Parmjit Dhanda Labour, Gloucester

I will not turn today into a discussion purely about unitary authorities, but I am happy to take the hon. Gentleman's intervention.

Photo of John Howell John Howell Conservative, Henley

Does the hon. Gentleman accept that the £15 million that he mentioned is a projection and that one cannot tell for at least 10 years after two-tier authorities have become unitary whether there are any savings? When those changes have occurred, there have been no significant savings.

Photo of Parmjit Dhanda Parmjit Dhanda Labour, Gloucester

That is simply not the case. I urge the hon. Gentleman to take a look at the Library paper that I have. I cannot find the figures right now, but it mentions far quicker returns—in two or three years—for local authorities.

Photo of Parmjit Dhanda Parmjit Dhanda Labour, Gloucester

Everything is predicted when it has not actually happened, but it is common sense to politicians and, more important, to the people we serve. The system is simpler.

I recall that, when I was a Minister, I responded to debates, in which Members—I will not name them, but hon. Members can find them if they go through Hansard—talked about changes and said, "Oh my goodness, if I lose my district authority, I cannot lobby it on this issue", when the county rather than the district authority was responsible for the matter. Two-tier authorities cause genuine confusion, among not only our constituents, but many politicians.

Again, I can give an example from my time in office. I saw some of the great work that happens in the fire and rescue service. In places such as Lincoln and the south-west and in many areas, more and more co-responding is happening, whereby retained firefighters, especially in rural areas, do a terrific job in ensuring that they are first on the scene of an accident. They have saved countless thousands of lives, including in Leicestershire, in recent years. However, the system has not been rolled out effectively throughout the country. I would like a much stronger protocol between the Department of Health and the Department for Communities and Local Government to roll out co-responding.

Let me give a specific example. My wife was with our two-year-old at Hucclecote library near my home, where, on a Tuesday morning, there are nursery rhymes for the kids. One Tuesday, a whole group of young mums and their children were there. One of the mums felt faint and collapsed. The child, understandably concerned for its mother, was beside itself. The group of mums looked after the child and called 999. It took some time—I think in the order of 20 minutes—for an ambulance to arrive, but there is a fire station just round the corner and they are all fitted with defibrillators these days.

We need closer working between the Department of Health and fire and rescue services to make use of the fact that—again, according to the House Library—the ratio of fire service staff to ambulance workers is some three or four to one, with 42,324 full-time equivalent firefighters in this country and some 17,000 ambulance workers. If we cannot get the two Departments to agree a good protocol on that, it would make sense to move fire and rescue services to a different Department. If we moved the fire service to the Department of Health, we could bet that the linkages between the fire and ambulance services would work much better. We would save far more lives, as well as saving a lot of money. We can reform our public services, making them better and saving money and lives as well.

Finally, a couple of weeks ago I wrote a piece for ePolitix in the run-up to the Budget. I was asked what I would like to see in the Budget. A range of MPs will have put forward their ideas, but one thing that comes up in my surgeries quite a lot is this. I have constituents who are frustrated because their parents are going into care, but the care system is very expensive and their savings are drawn down, which means as a consequence that what will be handed on to the next generation is reduced. The care system is becoming more expensive as our demographics change. In 30 years, we are likely to have four retired people to every working person in this country.

I would like the Government to consider—and, come the Queen's Speech, even introduce—a Bill that allows for tax relief or grants for those who would like to create granny annexes in their homes to look after elderly relatives. Not only would that make a difference through savings for the Government, which it undoubtedly would, but it would help to create a more caring society.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Would it not be simpler just to accept the royal commission recommendation of 10 years ago that all long-term care be made free of charge and paid for out of taxation, just like the national health service?

Photo of Parmjit Dhanda Parmjit Dhanda Labour, Gloucester

My hon. Friend makes a good point, which we could probably have a debate about on another day—indeed, it is probably a debate that he himself may wish to have with those on the Treasury Benches.

The point that I am making in all three examples is that the Chancellor is quite right. He is right to invest and right to talk about efficiencies in the years to come. I would like the Government to go even further and spell out some of those efficiencies, because I think that we can indeed find efficiencies. We can improve our public services and save money, and we can do that by investing in better government.

Photo of Nicholas Soames Nicholas Soames Conservative, Mid Sussex 7:23, 27 April 2009

May I warmly endorse the sensible and humane idea put forward by Mr. Dhanda about building on facilities for elderly people, so that they may be better looked after? Indeed, I am sure that some such step will inevitably be taken in the future and that it will be much welcomed in all parts of the House.

I warmly congratulate my right hon. and learned Friend Mr. Clarke on a magnificent, sparkling, "three rounds with the heavyweight champion of the House of Commons" speech. I also congratulate Mr. Byers on making an extremely courageous and important speech that will be much commented on in the years to come as—to steal a quotation from my hon. Friend Mr. Wallace, who is sitting behind me and who I am sure was going to use it—a eulogy for new Labour.

We live in a precarious age. We are going through one of the greatest financial crises—indeed, the greatest—for generations. To bring that home, we all have families in our constituencies—there are certainly many in my constituency—and local firms that are paying a serious and high price for the failings of this Prime Minister and this Government. Of course it would be wrong to say that the Government have achieved nothing. There are considerable achievements to their name, and so there should be, given the amount of money that he has spent. However, if one looks across the years, one sees the most terrible evidence of taxpayers' money being wasted and the grossest incompetence in the public sector.

It has taken this Prime Minister just 12 years to squander what really was a golden inheritance, which he seized in 1997. Our economy is truly in near ruins. The pensions of many of our people have been pillaged and our reserves have been sold. Three hundred and ninety-five tonnes of gold were sold at an average price of about $270 an ounce, which was a terrible, terrible mistake. He has presided over a decade and more of grotesque financial mismanagement.

I found a quotation that I used in the Budget debate on 23 March 2006, in those golden days, as they seem now. I quoted an article in The Times by Lord Rees-Mogg, who is incidentally the father of not one, but two Conservative candidates at the next election, both of whom I propose to carry into this Chamber on a shield when they are elected. This is what Lord Rees-Mogg said about the then Chancellor and now Prime Minister and how he had debauched the British pensions industry. He said that the Chancellor

"took all the big decisions on pensions. He has wrecked the system of private pensions. He has wrecked the system of public pensions. He has destroyed the system of savings. He has tapped pensions by deliberate stealth.

He has impoverished generations of old people, past, present and to come. The Chancellor's pension policy has been one of the great scandals of British financial history. He should be ever held responsible."—[ Hansard, 23 March 2006; Vol. 444, c. 470.]

I have news for the House: he will be held responsible.

The Prime Minister has borrowed for the future on a huge scale, but has little to show for it, except for having left many of my constituents terribly burdened by debt. Tax receipts have now collapsed by £50 billion and the Government are already planning to spend £80 billion extra a year. How can that make sane economic sense, when the conditions are as they are?

Restoring prudence and good financial order will, of course, be the work of the next Government, but it will make life very hard. Presumably the Prime Minister is trying, in a highly partisan Budget—no one should be under any illusion that it was not one—to make a poison pill, so that it is harder for everyone concerned and much worse for the future Government.

Photo of Nicholas Soames Nicholas Soames Conservative, Mid Sussex

No, I will not. I do not mean to be rude, but I have a short amount of time and I must press on.

Indeed, for the Budget to be denominated as "Building Britain's future" is, to my mind, a seriously disappointing joke. We are left with the biggest peacetime tax burden in our history and the most complex tax system in the world, having recently overtaken India for having the longest and most complicated tax system. The truth is that personal balance sheets are heavily over-borrowed, that bank balance sheets are seriously over-lent and that the Government's balance sheet is in a truly desperate state.

Even if we leave aside the Chancellor's fiscally ludicrous growth assumptions and his other obviously unreliable forecasts, the Government have failed in this Budget in so many areas—areas where we need to succeed in the 21st century and take those steps that will repair and reinforce our economy in a global world, which the next Conservative Government will deal with.

Going back to that Budget debate of 23 March 2006, in which I was responding to the Paymaster General, a large chapter of that Budget was called "Meeting the productivity challenge". The Government have failed dismally to meet that challenge. We must strengthen the skills base of this country. The United Kingdom is woefully bad in that regard, and there is nothing in the Budget that will seriously drive forward our competitiveness. There are not enough of the necessary skills available to our companies, and we compare very poorly with our competitors. Too much of good people's talent is wasted.

The science and innovation base in this country, although improved, is nothing like good enough. Nowhere near enough was done in the Budget, and an important opportunity has been missed to improve this vital sector, and to help our competitiveness and productivity. The Budget also did nothing to improve the framework for Britain to be a successful enterprise economy. This Budget was indeed a bad day for Britain's place in the economic world. We have people of great talent—business men in companies of all sizes—but the Government simply put too much on their shoulders. The entrepreneurs and business men of this country are asked to bear too much.

The Government have really hindered our movement towards a greatly simplified tax and regulatory regime. In a globally competitive and highly mobile environment, that is very bad news. I also see no evidence anywhere of strategic thinking on planning and infrastructure. There is no evidence in the Budget of the Government taking a more active role in supporting high-tech manufacturing and engineering, as advocated by two of our greatest industrialists, Sir John Rose of Rolls-Royce and Sir James Dyson. They both, quite rightly, advocate that we create a more balanced and productive economy that is not so reliant on the three motors of finance, property and public spending for its future growth.

There is nothing in the Budget to suggest that the Government understand that the economy of the future must be built on the more solid foundations of savings and investment, as my right hon. Friend the Leader of the Opposition so powerfully set out yesterday. This Budget does indeed fail the test of time. It fails to rise to the level of events. It does nothing to improve our position in the global context, and nothing at all to improve the dismal condition of our skills base. It does very little to improve the knowledge-based economy. Worst of all, it sends a terrible message about our competitiveness and our productivity.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 7:33, 27 April 2009

It is a pleasure to follow Mr. Soames, although I am afraid that I have a slightly different view of the world from his. However, he was right to say that we should have a more balanced economy. I would suggest that we need a bigger focus on manufacturing in particular.

Photo of David Taylor David Taylor Labour, North West Leicestershire

Does my hon. Friend regret, as I do, that in the minutes available to Mr. Soames he declined to take an intervention in which I could have pointed out that the proportion of gross domestic product taken by the Conservatives in taxation in the 11 and a half years from May 1979 until the fall of Mrs. Thatcher was six clear percentage points higher than it was in the 10 years when the present Prime Minister was Chancellor?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I thank my hon. Friend for that interesting intervention.

For the past 11 or 12 years I have been a critic of the Government's economic policy, and I have spoken about it many times. Indeed, in my maiden speech I said that I had come into Parliament to oppose neo-liberalism, among other reasons. I have done that fairly consistently since then, and I think that I was right to do so. The globalisation and neo-liberal deregulated capitalism that we have experienced have caused the desperate problems that we are now facing. The system is inherently unstable, and has promoted inequality within and between nations. We need to focus on the world economy, and to look again at what we have been doing for the past 30 years.

Neo-liberalism also slows growth. Between 1945 and 1970, when we had full employment, the rate of growth was higher on average than it has been since then. We have also had four major recessions since then, which we did not have in that more regulated, faster growing world immediately after the second world war. The Chancellor's early, gloomy prediction that this might be the worst recession for 100 years—perhaps even worse than the 1930s—were right. That is still the case. This is certainly the biggest recession that I have experienced, and I am sure that that is true for everyone else.

It was a terrible mistake to abandon the post-war arrangements that were hammered out at Bretton Woods. That included abandoning national economic controls, especially on international financial flows. When I taught economics at a modest level, I used the water analogy to explain the circular flow of income. I am sure that those Members who have studied economics will remember that. I also used a water analogy to illustrate the world economy. I would portray the world economy as a large tank of water. Without any constraints, water could be moved about very quickly, which could result in big waves that could wash over the sides and even tip the tank over. If we construct baffles within the tank—the boundaries of nation states can act as baffles—we can slow the rate of movement between the different parts of the tank so that it does not tip over and we do not get the tsunami effect that we are now seeing. National economic restraints have to be re-imposed. Indeed, I believe that they are being re-imposed as we speak. We need to rebuild that more sensible world that actually worked in the post-war era, in which, I am happy to say, I grew up. We had full employment and many other beneficial features of society.

The Chancellor has made some forecasts, but he was perhaps unwise to do so because some of them have already been challenged and some might even be wrong. It is hazardous to make forecasts at a time such as this. Even now, we still do not know how bad the American banking crisis is going to get. In recent days, I have read leaked reports about stress tests that have been carried out on American banks, and they are really quite frightening. We are certainly not out of the woods yet, and even now there could be further massive destabilisation in world finance.

What is astonishing about recent forecasting is that no one in the Treasury or the Federal Reserve saw the crisis coming. I have to say that I did see it coming; it was not very difficult. I used to write a monthly column in a left-wing journal called Socialist Campaign Group News, which sadly no longer exists—

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

It was not required reading for other Members, I guess. Nevertheless, writing a monthly column for 10 years without a break was a good exercise in ensuring that I was thinking through what I was talking about on economics. Long ago, I predicted that building economic growth on an asset-priced bubble and a mountain of credit card debt would fail badly. It might also interest Opposition Members that in 1990 I predicted—and wrote about—the collapse of the exchange rate mechanism strategy. That was just before we joined the ERM, and I got that prediction exactly right as well. I am sure that those Members who now regret our joining it realise that that led directly to the election of a Labour Government, which I am sure they also regret.

Whatever the forecasts, it is necessary to take the right policy steps. After years of resisting some of those steps, I believe that they have now moved in the right direction in some respects. Interest rates have been cut, for example, and the Monetary Policy Committee has finally caught up with the correct predictions of David Blanchflower, who, sadly, is leaving the MPC this week. He was on his own in saying that we had to cut interest rates because we were facing a serious recession with mass unemployment on the horizon. He was absolutely right, and that was only a few months ago.

The sterling exchange rate has fallen after its 11 years of over-valuation. The evidence that it was overvalued is the persistent structural trade deficit that we had through that period. We are starting to see the trade deficit turning round and some improvement in our trading position as a result of the recent depreciation. So, we have started moving in the right direction in some respects.

Also, the nonsense of the golden rules on public debt has been abandoned and measures are starting to be taken to sustain economic activity—not enough and they are late, but we are pointing in the right direction. Even at a gross Government debt of 80 per cent. of gross domestic product, which is what is forecast, the UK would still be below the average for advanced economies as a whole, which is quite astonishing. The economic contraction in Germany and Japan will be greater over the next two years than that in Britain, so this is a world crisis and it affects some countries more than others. The countries that are particularly affected are those with trade surpluses, because they are starting to lose export orders. We are the other way round and we do not have that problem; we have others.

Let me come to taxation and public expenditure. The bleatings of a handful of the mega-rich and their media friends about the 50 per cent. top rate are, quite frankly, pathetic and— [Interruption.] Indeed, and their friends, wherever they may be. They are pathetic and contemptible. I may say, too, that if a handful of ageing pop stars and money-grubbing bankers leave the country as a result, I say good riddance. Seriously, my concerns are about the jobless and the poor, who will really suffer from this recession.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

I remember looking through last year's Red Book and being struck by the fact that the largest single tax remains income tax. Of that, 40 per cent. is paid by just 5 per cent. of taxpayers. An old socialist such as the hon. Gentleman will see that as an illustration of how unfair a society this is, but it struck me that if two of those five left the country because of overly high tax rates, the poor in my constituency and his would suffer as a result.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I thank the hon. Gentleman for his intervention, but in the Budget debates of last year and the year before I suggested much more radical tax changes that would reach further down, with tax rates on the mega-rich higher even than those suggested by the Government. We should go back perhaps a little way towards where we were in 1979—not all the way, as I do not want to tax him at 98 per cent., but a 60 per cent. rate on him would not be that punitive.

I believe in progressive taxation. Our taxation is not sufficiently progressive and I like to think that, one day, our Government will move again in that direction, travelling back a little way to where we were in the more just society we had in the 1970s, 1960s and 1950s, when there was a Conservative Government who did not resile from that approach.

We should consider the Conservatives and their right-wing friends. I am afraid to say that the Institute for Fiscal Studies is no longer the neutral organisation that I used to think it was. The International Monetary Fund criticises Government policy, but when has it ever got it right? The last time the IMF criticised a Government who tried to do something about their economy in a recession was when it refused to accept measures taken by the Malaysians during the far east economic downturn of 10 years ago. The Malaysians were told, "Whatever you do, don't put on exchange controls." Well, the Malaysians put on exchange controls and devalued their currency. Their economy bounced back immediately. When has the IMF ever got it right?

This Budget is the beginning of a move in the right direction, but it is still early days. We will have more Budgets and they will be much more serious than this one. We will have to spend more, borrow more and tax more if we are to get out of this mess, but I believe that we are starting to address the economy seriously, rather than playing games. Over the past 10 years, I have seen those on the three Front Benches cosying up and stroking each other over neo-liberalism, saying how much they all agree. At long last, we are starting to see a divide. I want to widen that divide, because the approach from the left—from a democratic socialist perspective—is the only way forward. If we move back towards at least a social democratic consensus of the kind that we had in those post-war years, we will do better.

We have protectionism now in a number of respects, but we are moving towards a world in which it will grow. That will enable all economies to be stimulated without fear of being overwhelmed by imports or whatever. We are moving towards a world that worked and away from one that has caused catastrophic problems—not just for the developed world, but, more importantly, for the poor world. Those people have suffered.

Our economy is seriously imbalanced. The financial sector was given its head and that has not worked. It has brought desperate problems for us and we must reinvest in manufacturing in particular and all those other areas of the economy in which we can do so well. I could say a lot more, but perhaps I have said enough for the time being.

Photo of Desmond Swayne Desmond Swayne Parliamentary Private Secretary To the Leader of the Opposition 7:45, 27 April 2009

As a neo-classical liberal, I could not disagree more profoundly with the world view of Kelvin Hopkins. Indeed, I wonder whether we grew up in different worlds. He described, through rose-tinted spectacles, the 1970s. My recollections are so different: revising for my O-levels by candlelight because of the chaos engendered by the social democratic ideal that he described.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The 1970s were following the end of that post-war era, when it all broke down. The first big recession came about in the 1970s directly as a result of the breakdown of the post-war world.

Photo of Desmond Swayne Desmond Swayne Parliamentary Private Secretary To the Leader of the Opposition

They were the result of it—the stagflation and everything that went with it, although however much I might disagree with the hon. Gentleman, it is a privilege to follow him in the debate, because he is assiduous in this Chamber, courageously doing his duty to hold the Executive to account. For that, we should all be grateful.

I hope that, at some stage during the debate on the Budget resolutions, we will get a full exposition of the Government's growth forecasts and how they were arrived at. Perhaps the Minister plans to give us that exposition when making the winding-up speech from the Treasury Bench. It is important that we get it, because, to be charitable, those forecasts have proved controversial. However much the hon. Member for Luton, North might disparage the International Monetary Fund's forecasting, it was noticeable that, within minutes of the Chancellor sitting down last Wednesday, the IMF came up with a very different set of forecasts. That is important because this is the post-dated Budget.

All the important decisions on what is to happen are not in the next financial year. How we are to deal with the enormous, crushing deficits is not to be decided in the next financial year. That has all been put off for future years and decisions. Therefore, the forecasts become ever more important than they were in the past. That is why it is important that those on the Treasury Bench should give an account of those forecasts.

The way in which this debate began was, of course, ridiculous—with the Secretary of State for Innovation, Universities and Skills announcing that it is about what the Opposition propose, rather than the Government's Budget resolutions. The reality is exactly as I said: this is the post-dated Budget, the do nothing Budget, the Budget that will not tackle the elephant in the room—the huge deficit. It is extraordinary that the Government had so little to say about their forecasts and the deficits that will build up. It is extraordinarily important that those should be dealt with. I would of course prefer that those deficits were dealt with in the next financial period. Let us take it on the chin now, rather than have the economy flinching, knowing that the blow is to come, as that will be so damaging for confidence in the future and, in particular, as we attempt to recover.

I want to say a few words about the New Forest. We had high expectations of what might come out of the Budget because we had been hit so hard by the recession. In fact, the growth in unemployment in my constituency has been higher than almost anywhere else in the country since the end of last summer. I put that down largely to the fact that so many people have commuted to financial services industries in and around Bournemouth and Southampton and that we have headquartered a disproportionate number of construction companies. Principally, however, I put it down to the enormous number of small businesses in the industrial estates around the market towns. They have been very hard hit by the credit crunch.

The world that the Secretary of State described of the real help that is being provided now to small business and getting credit flowing again does not bear any relationship to the reality faced by small businesses in my constituency. I am approached every Friday at my surgeries by small businesses that have viable order books; they are good businesses, but are experiencing enormous cash-flow problems. Their difficulty is that they are still being serviced by zombie banks, which are still withdrawing credit or providing it only on impossible terms.

Photo of Lorely Burt Lorely Burt Shadow Minister (Business, Innovation and Skills), Chair of the Liberal Democrat Parliamentary Party

Does the hon. Gentleman agree that it is most unfortunate that while the Government have poured billions into the banks, there has been no finance for non-bank lending? None of that type of finance—lease financing and financing for the buy-to-let market, for example—is available for the small business entrepreneurs to whom he refers.

Photo of Desmond Swayne Desmond Swayne Parliamentary Private Secretary To the Leader of the Opposition

I agree that those are important avenues, but I still support the initial banking rescue and the second banking rescue. They were both necessary, but far from sufficient. The problem is this: were I a prudent and risk-averse banker—I wish we had had more of those over the past 10 years—I would be arguing against making loans to the very small businesses for which I am demanding action now. That is the irony. The banks' balance sheets are stuffed with an enormous amount of high-risk assets—toxic assets, if you like, Mr. Deputy Speaker. The last thing that a prudent banker should do is to start taking on more high-risk lending—and let us face it, lending to small business in a recession is relatively high risk. Given the state of their balance sheets, banks should be averse to taking on more of those assets and to making more of those loans to small businesses.

The Government's second banking rescue attempted to deal with the problem of toxic assets by saying, "Right, we're providing a guarantee—a form of insurance." That was necessary, but it was not enough, because that guarantee does not cut in until the banks lose virtually all their capital base. The prudent banker will still hoard his cash and try to rebuild his balance sheet rather than make loans to the small businesses in my constituency that desperately need them. If we are to deal with that problem, and to stop the banks being zombie banks and get them lending again, we have to deal with the new loans that we are encouraging them to take on. We have to provide the guarantee and the insurance to that new business rather than dust the old toxic business that already pollutes their balance sheet. That is why we have been asking since well before Christmas for a much more ambitious loan guarantee scheme. All the schemes that the Government have announced have not delivered a single loan to constituents in the New Forest. That is the difficulty that we face: credit is not flowing, and it has to if we are to recover from this recession.

I want to conclude by saying a bit about the Government's monetary policy. I would have thought that the Budget statement and debate ought to have at least focused on elements of that. I support, by and large, the main plank of monetary policy, which is a significant reduction in interest rates, however painful that may have been to a very high proportion of savers in my constituency—hon. Members should bear in mind that I have, I think, the second-highest age profile of any parliamentary division. Those people have saved all their lives and done the right thing, but they are now suffering very much in order to see interest rates reduced for people who often enough have not done the right thing. The Budget should have been much more generous to those savers to compensate them in other ways for the important policy of reducing interest rates.

However, it is the other aspect of monetary policy, which is scarcely mentioned, that concerns me more—the whole business of quantitative easing. I would have thought that the Chancellor would have given us an exposition of precisely where we are with this key departure from conventional monetary policy. It is extraordinary that the Bank of England has created bank deposits to a significant proportion of our national income—printing money, as the euphemism goes. We have not had a vote on that. We have not had a statement on it. We have not even debated it. It is extraordinary in a free Parliament that is supposed to have its finger on the pulse of Government policy that that has gone so unmentioned.

I am not saying that I am against the policy. I know that economists such as Tim Congdon believe that it is right, but there is a series of questions that we ought properly to have scrutinised—how much, when, when do we stop, and where are we in the cycle? All those issues have never been discussed or scrutinised. I begin to wonder whether that might after all provide some part of the explanation for the extraordinary growth statistics that were brought before us last Wednesday, with the so-called trampoline bounce. Could it possibly be an inflationary bounce? Could it possibly be a bounce that will destroy the savings of those who still have some left?

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury 7:57, 27 April 2009

This Budget has been given at a time of unprecedented turmoil in the economy and of great uncertainty about the future. The figures that we learned last week on levels of Government borrowing remind us of the seriousness of the economic situation. The road ahead of us will be much tougher than the road behind us, but even if spending slows in the immediate future, the huge investment in public services over the past decade will provide a lasting legacy for our country.

Thanks to that investment, my constituents are benefiting from a new hospital at University College hospital, £1 billion to rebuild Barts hospital and new investment in the Whittington hospital. All Islington's secondary schools are substantially or entirely being rebuilt, youngsters are benefiting from substantial investment in the buildings that contain our primary schools, and we have many new children's centres. That, of course, is not to mention the £157 million that has gone into bringing social housing in my constituency up to decent homes standards. Those are the many dilapidated roofs that we fixed and new roofs that we built while the sun was shining. Now we are faced with a challenge on a very great scale, and I believe that any Government would be failing in their duty if they did not act boldly and bravely at such a time. In their response to such hard times, politicians can now show what their true priorities are and where they lie.

When I left university in the early 1980s—

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

Oh yes.

We used to wait for the milk round to come with various employers, but in 1982 it did not come. No one wanted us. I went into the unemployment centre in Poplar and said, "I'm here. I'll take any job. What jobs are available?" The guy behind the desk laughed.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

So my hon. Friend had to become a barrister.

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

So I went back into education and carried on studying. Eventually, I managed to get employment as a barrister, but for a time, on leaving college, I faced not knowing what future I had and what chances I had—frankly, moving from university straight into employment was not one. Therefore, I remained in education until I was able to get another job, but it was desperately frightening, and many other people in my generation did not have the opportunities that I ended up having.

Now as a Labour MP, I am supporting a Government who will not allow the generation that is now leaving college and school to face a decade of unemployment, of no future and no hope. A generation of working people, pensioners and families will not go to the wall, as they were allowed to do in the early 1980s.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

That is exactly what is happening now. At the end of 12 years of this Labour Government, more 16, 17 and 18-year-olds are not in education, employment or training than when the Government came to power. More people under 25 are unemployed. A whole generation is at risk of the very thing that the hon. Lady is talking about. She should face up to that reality.

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

The reality is that the assistance that is available now to young people leaving college and school would not be available to them if we had a Conservative Government.

This Budget is first and foremost about protecting people in the downturn. A Labour Government's instinct in a recession is to protect and support, not to step back and let the invisible hand of the market take its cruel and arbitrary toll.

I welcome the £1.7 billion for Jobcentre Plus to help to tackle the rise in unemployment. In particular, I believe that the Government's job guarantee for under-25s out of work for a year shows state intervention at its best and most necessary.

Beyond the immediate effects of this recession, this is a Budget about the future, and I welcome that, too. I welcome the bold plan of the Secretary of State for Energy and Climate Change to end atmospheric carbon emissions from coal-fired power stations. Many of my constituents are very concerned about the high emissions from coal-fired power stations operating here and around the world. It seems that in Britain there is a new generation of such stations about to step into production, and there is clearly concern about what that will mean.

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

No, I will not give way again.

The fear among environmentalists has been that our short-term energy needs may lead to a massive carbon footstep backwards. I therefore welcome announcements made in the Budget that no new coal-fired power stations will be given permission unless and until they show that they include carbon capture and storage facilities on that plant. Although of necessity such facilities will be small scale to start with, as the technology develops, coal power stations will be expected to extend CCS to the whole plant. Environmentalists such as me have been seeking such assurances and I am grateful to the Secretary of State for his assistance and commitment to that issue.

The Budget introduces many other welcome moves towards a low-carbon future: the increase in landfill tax, our continued commitment to the fuel duty escalator, the sustained momentum on vehicle excise duty, the money available for better energy efficiency for small business, public buildings and homes, and the increased investment in renewable energy generation, particularly from offshore wind. I am pleased that the Budget marks the world's first legally binding carbon budget.

The increased funds available for housing are also welcome, but I urge the powers-that-be to ensure that that money goes to areas of greatest need such as Islington, where 13,000 families are languishing on the waiting list for social housing. I give hon. Members an example of a particular development. On the Holloway road in my constituency, there is a development above the Tesco's with 60 units, only 10 of which are affordable units. Exactly why the Lib-Dem council thought it was appropriate to allow only 10 out of the 60 to be affordable is another debate for another time. Lo and behold, 50 of those units remain empty. It seems to me that that sort of development is a great candidate for public ownership to allow families to have somewhere to live.

I urge the powers-that-be to build large units, because for every five-bedroomed flat that they build, they will be able to move an overcrowded family from a four-bedroomed flat into that five-bedroomed flat, and then a family in a three-bedroomed flat into the four-bedroomed flat, and a family in a two-bedroomed flat into the three-bedroomed flat. That is just from building one five-bedroomed flat. We need to look carefully at what we are building.

I welcome the Government's long-standing commitment to ending child poverty and it is a shame that they have been unable to devote more resources to measures that would make a big difference. It is unfortunate that we have not been able to consider the possibility of introducing London weighting for tax credits and benefits.

I appreciate that there is not much money around, but I believe that there is one pot of money that I urge the Government to use to fund their priorities. I believe that £76 billion, which we could use to end child poverty, is being wasted on building, renewing and maintaining Trident. I appreciate that I am in somewhat unusual company in this. It seems that my right hon. Friend Mr. Byers and Mr. Salmond agree with me on the matter, but that does not necessarily make it wrong—it makes it right. At a time such as this, we need to reorder our priorities. It seems to me that at a time such as this all our constituents would appreciate it if we no longer wasted our money on something like Trident.

As we know, many banks are trading today only as a result of money paid into them by the taxpayer. Many members of the public have been completely and understandably outraged at the perception that public money is paying the bonuses of those who have failed. Although we appreciate that legal and contractual difficulties have resulted in our not being able to stop them claiming that money, I was hoping that the Budget would provide an opportunity to claw back those unearned bonuses. I was hoping that we would be able to find a way to tax payments over and above the basic salary paid to the bankers at 100 per cent.

I appreciate that as a Back Bencher I am free to make such suggestions. It is not for me to develop the necessary mechanisms to put those ideas into action. However, although it may be difficult, if anyone can, Alistair can. I ask him to look at that matter again. I welcome his bold move in introducing a 50 per cent. tax rate for the top 1 per cent. of earners. I believe that that is fair and right. It is not a tax for tax's sake—the same old scare story that Tories and Liberals like to bandy around. That tax rate has been brought in because we need money to get this country through the downturn. I believe that it is right for that money to come from those who are now in a position to be able to pay—those who have benefited most from the good times of the past 10 years.

I recently surveyed my constituents through my annual report, and 80 per cent. of respondents agreed that a higher rate of tax on those earning more than £150,000 was justified. [Interruption.] I suggest that Opposition Members listen to this. The higher contribution from those on higher incomes is a policy that only Labour supports—the Liberals have abandoned it and the Conservatives have an obvious distaste for it. However, it is popular among our constituents because they know that it is fair.

More generally, the Conservatives' response to the economic downturn has revealed what really makes their hearts beat faster. Despite the rhetoric of the past few years, the current crisis has unmasked the Thatcherite zeal of so many in the Conservative party, including David Cameron. The Tories are inherently queasy about spending, and they are suckers for cuts. We saw them go to their weekend conference with a real spring in their step. They think that they do not have to bother with compassionate conservatism any more and that they can go back to small government. At the weekend, David Cameron said:

"with a Conservative Government, if ministers want to impress the boss, they'll have to make their budgets smaller, not bigger."

He said that the Government should have reduced spending in 2008 and should now reduce planned spending in 2010. No one denies that repaying the borrowing will mean tough decisions, but it is inconceivable that a Labour leader would ever wear the badge of service cuts with such pride as David Cameron clearly wishes to wear it. We will protect—

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. I remind the hon. Lady to use the correct parliamentary language when referring to Members.

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

It is inconceivable that a Labour leader would ever wear the badge of service cuts with such pride, as Mr. Cameron clearly wishes to demonstrate. We will protect people during the recession, and when we build the economy of the future, public services will always come first—as they always do with Labour. The Tories' aim is similarly clear: cut some now, and cut some later.

Photo of Ben Wallace Ben Wallace Shadow Minister (Scotland) 8:09, 27 April 2009

It is always a pleasure to follow Emily Thornberry, who has one of the loveliest voices in Parliament—it is a like that of a narrator of a fairy tale and one can listen to it for a very long time. Unfortunately, she is living in a fairy tale and is in complete denial about the high proportion of NEETs—those not in education, employment or training—in this day and age; right now, those very young people are in the process of losing some of their future. It is no good harking back to the '80s. She said that no milk round came to her university then, but that cannot be substituted with a milk round made up of quangos and local authorities; it must be substituted with one made up of wealth creators.

I do not wish to dwell on the macro-economics of the Budget or the general issues that have been discussed over the past few days and will doubtless be mentioned tomorrow. My right hon. and learned Friend Mr. Clarke covered those issues comprehensively and he pretty much demolished the Government's case. Interestingly, the opening half, at least, of the Secretary of State's speech focused very much on the policy of Her Majesty's official Opposition and did not sing from the rafters the so-called solid policy of the Government—that tells us a lot about the state that the Government are in today and about the level of disappointment that the wise Secretary of State, who is one of the most capable in the Cabinet, feels in private about the Budget having been a missed opportunity.

I wish to discuss a number of the Budget's retrograde steps and, in particular to deal with the attack on those earning £150,000 and above through the 50 per cent. tax rate and the break of the principle in respect of taxing pension contributions. Although Mr. Byers is not from my party, he comprehensively put into words the importance attached to personal taxation and why new Labour had been such a vote winner in 1997 and beyond: it understood the needs and aspirations of people in the wealth-creating sector. The Government have fallen into their own trap, by automatically assuming that the only high earners are bankers—the enemy of the day—and those who belong to private equity houses. In my constituency, and throughout the north-west, there are plenty of wealth creators, be they in small businesses, in the aerospace industry, in manufacturing or in the sciences. They do earn quite a lot of money, but they create wealth. The phrase "creation of wealth" was remarkably lacking from this Budget. If we do not create wealth in the UK economy, we will definitely not be able to get out of the dire state that we are in and the shoulder the huge debts that we have today and that are sure to come in the future. It is clear that this Chancellor's economic growth forecast is fantasy, and the previous Chancellor, who is now the Prime Minister, indulged in that fantasy too; I am not sure that he ever got the tax receipts right in any one of his predictions since he came into office in 1997.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I must admit that I am getting rather tired of the implication that wealth creators are all rich people and that wealth creation is not about working class people, who do daily work. On this argument about tax, I must point out that some of the most successful economies in the world are those of the Scandinavian countries and France, which have much higher tax takes than Britain does, but are not witnessing the end of civilisation as they know it—they are doing very well with relatively high taxation levels.

Photo of Ben Wallace Ben Wallace Shadow Minister (Scotland)

Someone who thinks that France is doing very well because of its relatively high tax burden, despite having 12 per cent. unemployment, could make that argument, but I do not agree with it. I think that the UK has become wealthier because it has embraced enterprise and encouraged people to come here to create wealth and exploit innovation and technologies. That was actually what new Labour recognised all those years ago, but now seems to have abandoned. I understand that people work in the private sector and contribute to creating that wealth, but innovators need to be rewarded and incentivised. I do not think that I will ever earn £150,000, but that does not upset me or motivate me to go out to stop other people making that sum. I hope that if I can encourage people to be rewarded for their innovation, that will create wealth for this country and contribute to the coffers that pay for the vast public services that we all enjoy—I support public services and I do not want them to be reduced or cut.

Nothing in this Budget reversed the effect of some of the anti-saving mechanisms introduced during this Government's past 10 to 12 years: the taxes on pensions and the clear signals from the Prime Minister that borrowing was far more important than saving; time and again, the mantra used to be about, "The lowest mortgage rates since the war." That came out of the then Chancellor's mouth every time, and it was really telling people that they ought to be borrowing, not saving. We could pave the way to ensure that one of the ways out of this mess is to instigate saving again as the first rule of good fiscal policy, not the last.

I wish to deal with the thrust of my argument, which is about research and technology. My working background was in Britain's biggest research and technology organisation, QinetiQ, as it was known then. I also have the privilege of representing Lancaster university, which recently featured as having the United Kingdom's top physics department for research. Importantly, it will be our research, both pure and applied, that will get us out of this mess, and it will be the exploitation of intellectual property, especially in the sectors where Britain leads the world, that will help us to catch up in respect of the competitive impediments that we face.

I look with interest at the strategic investment fund of some £750 million that has been announced, £250 million of which will focus on low-carbon work—that is fine because that is in line with a Government policy; it is also a policy of ours to encourage alternative energy supply. Some £50 million will go to the Technology Strategy Board, the work of which I examined today and found that although it carries out a number of measures, I remain unsure whether such a body is needed to deliver such things; it has the right impetus, but it does not have nearly enough money as it should have.

I cannot quite account for where £450 million of the money is going—the Budget contains no detail about this, and I hope that the Minister who sums up offers a breakdown of that figure. Some £10 million is to go to UK Trade and Investment to promote British technology abroad, and that is welcome. When I used to deal with UKTI or the DTI—deter trade international—as it was then, it put so many bureaucratic barriers in our way when we tried to do business overseas that it was simply often not worth doing business with it.

We have missed the opportunity to strengthen or broaden the research and development tax credits measure, which was a good measure introduced by the Prime Minister when he was the Chancellor, and it is something for us to build on. In the Budget we should also have examined regional development agency reforms, as huge budgets are involved and they should be used to assist with pure and applied research. Amazingly, in my constituency, the physics department at Lancaster university is developing research that will help Britain in the short, medium and long-term, and when it faces pure education funding cuts, we should look to the RDAs to support that work, because it keeps scientists and top innovators in the country. It is a missed opportunity if we keep the work of the RDAs too far apart from that of some of our higher education institutions.

Amazingly, the most successful sector in which we exploit and develop intellectual property and research has not been mentioned—the aerospace industry. It exports roughly £20 billion of exports, employs 170,000 people up and down this country, is a world leader in many sectors, such as those associated with materials, applied technologies and engines—one thinks of companies such as Rolls-Royce—and it employs 2 per cent. of all the UK's apprentices. The reason it is not mentioned is that within the Ministry of Defence budget, defence research and development has been cut this year alone by 7 per cent. The Government have cut funding in the most successful sector in terms of our job and wealth creation—in those high-end competitive technologies—by 7 per cent.

That is not the only contradiction in the Government's small ambitions for job creation, because it abolished the Defence Export Services Organisation last year, which helped export the great inventions and technologies that defence put together. The aerospace industry helps to support the north-west and Lancashire as it is one of the biggest job providers in the region and in my county. It could be argued that abolishing DESO last year will provide more money for UKTI this year, but it has not made much difference. A bit of money has been moved from one place to another, but DESO was very successful.

Table 6.1 of the Red Book shows the efficiency savings made in all the Departments, and almost all have made cuts in sectors that are key to employment generation and the creation of a competitive economy. For example, the British Council has been cut by £18 million, but it is a long-term generator of customers and partners for the UK. If we prevent people from learning English in other countries or stop promoting cultural exchanges, they will not come and do business with Britain. They will go elsewhere.

The Department for Innovation, Universities and Skills has cuts of £118 million and £106 million linked to the research councils. The jargon that accompanies the table is waffly in the extreme, promising to save

"£118 million through increasing the effectiveness of research activities funded by the Research Councils by reducing administration costs and refocusing spend on new research priorities".

Any hon. Member with a university in his or her constituency will know that we have already had one of those rounds. We have already seen organisations such as Jodrell Bank face cuts.

The Department for Business, Enterprise and Regulatory Reform promises

"£1.4 million savings from the Competition Commission Council's fundamental review of the Competition Commission including through reducing burdens on business."

So the Government will cut the study that may help to reduce red tape on business and that would help business get us out of this mess. The Department for Environment, Food and Rural Affairs promises to save £44 million by putting the cost of animal disease monitoring and compensation on to farmers and rural businesses—and we should not forget that it was a Government lab that spread foot and mouth last year. That will not help our farmers in this economy.

To see the seeds of recovery, we have to sow the seeds of recovery. That means focusing on productivity, red tape and over-burdening employment legislation. The Government have avoided doing that in the Budget. Instead they have sown the seeds of uncertainty by pushing aside all the real economic truths, so that a certain new Government will have to pick up the pieces in 12 months' time.

Photo of Tony Baldry Tony Baldry Conservative, Banbury 8:23, 27 April 2009

It is a pleasure to follow my hon. Friend Mr. Wallace, but it is also worth observing that here we are, halfway through the Budget debate, yet there is not a single Labour Member in the Chamber to defend the Government's record. That is a dismal situation—

Photo of David Taylor David Taylor Labour, North West Leicestershire

On a point of order, Madam Deputy Speaker. I request that Tony Baldry corrects that statement. My hon. Friend Rob Marris is waiting to defend the Government loyally.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

That is not a point of order for the Chair.

Photo of Tony Baldry Tony Baldry Conservative, Banbury

Rob Marris has spent most of the debate outside the Chamber. Even if he had spent most of the time here, it is pathetic that Labour's huge majority is reduced to one. It is so inefficient of the Whips that they cannot organise a rota of Members to defend their own Budget—

Photo of Tony Baldry Tony Baldry Conservative, Banbury

It is no good the hon. Lady jumping up and down. The only thing that she learned at the Bar was how to make a decent plea in mitigation. That is all that we heard from her earlier.

Last November, the Chancellor of the Exchequer said that the Government would need to borrow £118 billion next year. In last week's Budget he upped the amount to £175 billion. The increase of £57 billion is bigger than any of the Labour Government's previous Budget deficits. Borrowing that amount in the current financial year will be the highest level of borrowing since the second world war. Experts think that even those desperate figures are too optimistic. Hardly had the Chancellor sat down than the IMF contradicted his forecasts. It said that the British economy would contract by 0.4 per cent. next year as opposed to the Chancellor's prediction of growth of 1.25 per cent.—itself a desperate figure in any other circumstances.

After the Budget, everyone has to accept that, as a consequence of this Government's mismanagement of the economy, national debt will climb to about 80 per cent. of national income. Let us be clear that that indebtedness is the result of decisions made by this Government. They entered the recession, as the Governor of the Bank of England has said, borrowing too much and with little room for manoeuvre.

The overwhelming reality that everyone now must recognise is the complete mess into which the public finances have descended. The challenge now is how to control state spending before it destroys national solvency. There is no way in which the Government can any longer pretend to spend and borrow their way out of the hole they have created. There is no more money to spend. As for borrowing, the figures are nightmarish. This year, the Government were already planning to sell a record £220 billion of bonds—gilts—followed by more than £240 billion in 2010-11 and £250 billion in 2011-12. In all, over five years they plan to sell some £900 billion of gilts, or twice the size of the entire UK Government bond market. What happens if overseas investors decide not to buy UK gilts? They are under no obligation to hold gilts and they have no reservations about selling them, especially as there will be competition from other countries wishing to attract lenders. What will happen if overseas investors seek higher yields elsewhere?

The reality is that before us lie at least two Parliaments of pain as we repair the damage caused by this Government's financial mismanagement and the resulting £90 billion a year black hole in the nation's coffers. The Institute for Fiscal Studies has estimated that it will take more than 22 years for the national debt to drop back to 40 per cent. from the nearly 80 per cent. that the Chancellor forecasts. Hamish McRae said in The Independent last Thursday:

"We have both a fiscal catastrophe and wild swings from boom to bust. You can blame this government in general and Gordon Brown in particular for that failure".

This Budget was also fundamentally dishonest on a number of counts. First, the Chancellor sought to give the impression that a black hole in the public finances could be sorted out by increasing the higher tax rates. Even if the 50 per cent. rate of tax were to bring in the Treasury's most optimistic yield, it would bring in only about £7 billion. To put that into context, the Government are planning to spend up to £4 billion on recruiting management consultants for the public sector over the next four years. So, £7 billion will not necessarily go a very long way and it is also a long way off meeting the £175 billion needed. Last week the Institute for Fiscal Studies also noted that raising the higher rate of tax, even to the 45p in the pound that was first thought of, might lose the Treasury money as it moves the wrong side of what economists call the Laffer curve after the economist who pointed out the tendency of punitive taxation to yield diminishing returns.

It will, of course, be a footnote to the 2009 Budget that it marked the death of new Labour when the Chancellor said the words,

"the new rate will be 50 per cent."—[ Hansard, 22 April 2009; Vol. 491, c. 244.]

Was it not the present Prime Minister who, when he was Chancellor of the Exchequer, said on the "Today" programme in January 1997 that

"we will leave the basic rate of tax unchanged and we will leave the top rate of tax unchanged"?

That pledge was explicitly repeated in the 2001 and 2005 general elections—a tax promise that we were told reflected the spirit of new Labour and a commitment not to punish success. I suspect that the speech that we heard earlier this afternoon from Mr. Byers, a former Labour Secretary of State for Trade and Industry, which condemned the 50 per cent. tax rate, will be well worth reading and re-reading.

It is dishonest of the Government to try to pretend that higher taxes can meet the need to sort out public finances. No Government for 30 years have sustained tax receipts above 37 per cent. of GDP, yet the Government are proposing that spending should rise to 48 per cent. of GDP, almost as high as in the mid-1970s, when the IMF came in.

The Budget was also dishonest in its basic assumptions about the economy's likely performance. That point was tellingly made on Friday when official figures showed that in the first three months of this year the British economy contracted at the fastest pace for 30 years, with a slump in manufacturing that was the worst since records began 61 years ago.

To my mind, the greatest dishonesty of the Budget was that it deliberately postponed until after the next general election any difficult decisions about public spending and controlling public spending. From 2011, public spending will grow in real terms by just 0.7 per cent. a year. Even in the tightest years of Margaret Thatcher's first Government, public spending increased by more than 2 per cent. in real terms. When I raised those points with the Secretary of State earlier in the debate, he accused me of raising a distraction. I shall say it again: the Government propose, after the next general election, a tighter level of public spending than we ever saw under Margaret Thatcher. However, we have not had a scintilla of a suggestion from any Minister about where they expect to make savings.

Disingenuously, Lord Mandelson toured the radio stations on Friday, challenging us to say how we would reduce spending. That was disingenuous because his words sought to give the impression that a Labour Government could and would maintain high public spending while the figures are there for everyone to see in the Budget. From 2011, public spending will grow at just 0.7 per cent. a year, which will inevitably result in some serious re-approaches to public spending. The country deserves better than a year of pre-election name-calling and a year of the Government of the living dead. We must all sort out sensible processes to engage everyone in an honest debate about how we can restructure the state. We need an honest acknowledgement that together we need to get a grip on Government spending and public spending and we need to decide how we can best achieve that. The Government will not even tell us how the vast amount of borrowing will be repaid. By next year, the Treasury expects Government debt interest payments alone to equal spending on education and defence combined.

At present, many of my constituents are understandably concerned about the taxes on the many that this Budget introduced: the increase in fuel duty, the reintroduction of the fuel duty escalator and the increased tax on beer. Those were all unwelcome, regressive moves. The ongoing challenge of this Budget—the reality to which every right hon. and hon. Member in this House has to face up—is the question of how we most effectively reduce public spending while, at the same time, maintaining decent public services. We need a grown-up and honest debate that engages everyone from now onwards.

We cannot simply spend the coming year between now and the general election catcalling at each other. This issue is far too serious. If we are to maintain decent public services and get our public finances in order, that will require sensible, proper, grown-up and mature debates. I think that the country expects no less of us all.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness 8:34, 27 April 2009

It is a great pleasure to take part in this debate and to follow my hon. Friend Tony Baldry. I am a company director and I refer the House to my entry in the Register of Members' Interests.

Many memorable Budgets have been announced in the House over the years: Lloyd George's people's Budget immediately springs to mind; the great reforming Budgets of the late 1940s and, more recently, Geoffrey Howe's famous 1981 Budget. Those were great speeches, delivered in times of social and economic unrest.

The 1909 Budget paved the way for radical social reform, including the introduction of the old-age pension and the first foundations of Britain's welfare state. In the post-war period, universal health care, full employment and a cradle to grave welfare state were introduced—far-reaching reforms that have stayed with us to this day. Geoffrey Howe, battling against recession and record inflation, took the politically brave decision to reduce Government spending and increase personal and indirect taxation. In the process, he created the confidence and paved the way for a decade of economic growth and prosperity.

This Budget could have taken its place alongside some of those greats. Certainly, the current situation demanded that of it: unemployment rising faster than ever before and record debt and borrowing—the worst recession for more than 60 years. We needed a Budget that looked to the future and offered a compelling vision for a better Britain. Instead, we had a Budget that was all about the Prime Minister's short-term survival and little else. Spin, re-announcements and political dividing lines are all we ever get from the Government, and the Budget was loaded with all three.

The single thing missing from the Budget speech was a narrative for getting us back on to the straight and narrow. That is what great Budgets do; they tell people the facts about the scale of the problem and set out clearly how the country can recover. Unfortunately for the Prime Minister, he is incapable of doing either of these things. For months he denied there was a recession at all. Then he said it would be less severe than the 1990s. Then he said it would be over by June. Now he is trying to convince us that in the midst of the worst economic downturn for 60 years or more, the economy will grow by 1.25 per cent. next year and a miraculous 2.5 per cent. by 2011. Last November in the pre-Budget report, he told us that growth would be minus 1 per cent., but last week he had to downgrade that figure to minus 3.5 per cent.—one of the biggest and quickest downgrades in the history of forecasting.

The Prime Minister's problem is that nobody believes him any more. Not for nothing has The Economist called the Budget

"a dishonest piece of pre-election politicking."

The managing director of the International Monetary Fund says that the Chancellor may have set out deliberately to mislead us. More than 50 per cent. of those polled by a PoliticsHome survey said they did not believe the Government's economic forecasts, which is hardly surprising when we consider what the Chancellor conveniently failed to mention in his speech in this Chamber.

The Chancellor did not mention the £45 billion black hole in the nation's finances, the equivalent of £1,430 for every family living in Britain. He did not mention the spending cuts worth 2.3 per cent. a year for each Department from 2011, as was so powerfully explained by many colleagues on both sides of the House.

Today, the Budget has been torn apart by speakers on both sides of the House, whether the powerful speech against the 50 per cent. tax rate made by Mr. Byers, the tour de force by my right hon. and learned Friend Mr. Clarke, the speeches by other colleagues on the Conservative Benches or, perhaps more powerfully still, the almost robotic reading out of the line to take by the Secretary of State for Innovation, Universities and Skills and Emily Thornberry. Both of them are honest and decent people; no wonder their heads were down as they read those lines so insincerely to the House.

The many, not the few, will ultimately suffer from the recession. There are already 2.1 million people in the dole queue. The increases in national insurance contributions will hit those earning more than £20,000 a year. The rise in fuel duty will hit motorists every time they fill their car's tank. Every drinker in every pub will have to fork out yet another rise in beer tax. Cuts to departmental spending will ultimately affect the most vulnerable in our society.

We have already seen the impact over the past few months—for example, on further education colleges, as Mr. Illsley pointed out so powerfully earlier when he described how there was simply a fence around what was almost a bombsite at his FE college. We are waiting to see whether the Government can put right the mess they have made. Although the Chancellor pledged an extra £300 million, it will help only a small number of colleges.

Meanwhile, however, the Government's historic target of halving child poverty by 2010 will be missed because the Chancellor could not afford to give anything more than an extra £20 a year for child benefit. As the right hon. Member for North Tyneside said, that is profoundly regrettable. Social justice was to be this Government's guiding light. It was why members of the Labour party fought to bring this generation of Ministers to the Dispatch Box. They had the noble ideals and aspirations of improving the life chances of those with least, narrowing the gap between the haves and have-nots, and trying to create a fairer society, but instead we see the situation to which I referred earlier in the debate. There is no better measure of the failure of the Government's education policies than the number of young people not in employment, education or training—NEETs. That number is increasing by the day as a direct result of the Government's failure on education and the economy.

The truth is that poverty is still entrenched in too many communities. Social mobility itself has proved immovable. The circumstances into which a person is born still have an overwhelming influence on all aspects of their life. In 2007, the Sutton Trust funded a report to examine the educational achievements of children born between 1970 and 2000. It found that those born in the poorest fifth of households, but in the brightest group at the age of three, dropped from the 88th percentile for cognitive tests at age three to the 65th percentile at the age of five. On the other hand, those from the richest households who were least able at the age of three moved up from the 15th percentile to the 45th percentile by the age of five. As that trend continues throughout the early years, children from affluent households are likely to overtake their poorer counterparts by the age of seven, and that is happening at the end of 12 years of a Labour Government who promised that they would focus on education, education, education.

In 2007, the OECD concluded that the UK had the lowest levels of mobility of the 12 advanced countries studied. In 2006, the organisation placed Britain bottom of a ranking of 54 nations for the closest relationship between school test scores and parental background. No one on either side of the House can be happy with those statistics.

My hon. Friend Michael Gove has set out in detail the extent of the challenges and problems that the country faces in encouraging academic excellence among those from less-affluent backgrounds. Some 55 per cent. of secondary schools in the most deprived parts of England do not achieve the expected benchmark of 30 per cent. good GCSEs, compared with just 3 per cent. in the least deprived areas. Pupils who are eligible for free school meals, but among the top 20 per cent. for ability, are about half as likely to go to university as their wealthier peers.

The Budget will do nothing to address those tragic failings. The child poverty target is set to be missed by some 600,000. The Chancellor was unable or unwilling to provide the necessary funding to narrow the gap further, despite the Joseph Rowntree Foundation saying that lifting children out of poverty could save the country at least £25 billion a year.

Regardless of who is in power in future years, money will be extremely tight for the Department for Children, Schools and Families. The Prime Minister's pledge—do we remember that?—to match the funding of state schools with that of private schools will not be realised. Perhaps this was the right time for the Chancellor to talk about school reform. Reform should be the new buzz word for Government as they talk about getting value for money, but we heard nothing new about the flagship academies programme. Under this Prime Minister, the Government have stepped back from the freedoms and hope that they offered to those with least in our society. We heard nothing about the continued disparity between the best and worst-funded local authorities, and nothing about getting more and better qualified teachers into the classroom, which is a key driver for pushing up standards.

The Government could have made the tough decisions that would have put this country back on the right track. They could also have made some critical short-term decisions that would have benefited the economy enormously. If they had recognised that the VAT cut was a monumental waste of money and had postponed it, it would have saved the Exchequer £8.5 billion, which could have been targeted elsewhere or used to pay off debt. Cancelling the identity card scheme would have freed up billions; introducing a proper credit guarantee scheme would have helped large and small businesses to get credit moving again.

The Government could have increased personal allowances for pensioners or scrapped income tax on savings for basic-rate taxpayers, rewarding those who have tried to do the right thing. They could have been up-front with people about where the axe will fall with regard to public spending. Unfortunately, the Prime Minister is incapable of being straight with people. He is incapable of thinking long-term, or of putting the interests of the country before his interests or those of the Labour party. New Labour has squandered the greatest economic legacy in living memory. When Gordon Brown entered the Treasury in 1997, inflation stood at 2.6 per cent. Growth was strong, and Government borrowing—

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. May I remind the hon. Gentleman about referring to Members of this House by their constituency or proper parliamentary title?

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

I apologise, Madam Deputy Speaker. Growth was strong and Government borrowing was coming down. The Prime Minister will leave Downing street having presided over the worst economic crisis for more than 60 years, having left us with the worst borrowing figures in our history, and having wasted a once-in-a-generation opportunity to reform our great public services. That is the true cost of 12 years of Labour.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 8:46, 27 April 2009

I think that we are inching our way there as a House. We are at a big fork in the road, and the details are important. Following on from the closing remarks of Tony Baldry, and the speeches that I heard in the Chamber on Wednesday by my right hon. Friend Mr. Field, and Mr. Taylor, we need to look at the big picture.

As I say, our society is at a big fork in the road. That was hinted at somewhat in the exchanges between the Conservative and Government Front Benchers today, but neither of them went far enough. My right hon. Friend the Secretary of State for Innovation, Universities and Skills opened the debate with a solid speech backing up the Budget and the reasons for it. Mr. Clarke, speaking for the official Opposition, gave a slapdash but polished performance in his usual way. His speech was witty and good, but it did not even tackle what I think is the big picture.

We all know, as constituency MPs, that when our constituents approach us requesting that the Government do something, whether at national, regional or local level, it is almost invariably—but not always—to do with spending money. There are those who come to us and say, "Don't spend our money on identity cards" or "Don't spend our money on Trident." That would save money, but that is not what motivates them to come to us. In my experience, and from talking to hon. Members over the years, I know that that is what constituents say. They state, "The Government ought to be doing this", and the "this" to which they refer costs a lot of money.

Both today and earlier in the debate on the Budget, Conservative Back Benchers have quite properly raised their concerns about social issues, child poverty and so on, and have decried the Government for not having had more success on those issues. They have implied, and sometimes explicitly said, that they want a Government to spend more money on those sorts of things. However, as human beings, residents of the United Kingdom and politicians, we all know that resources are finite. That is why we are at a big fork in the road.

People in this country and around the western world face a growing debate on the size of the state. Should the state consume 30, 40 or 50 per cent. of resources, or more, as happens in some countries? Should the state be shrinking or growing? Those are the kind of big-picture public debates that we do not often have in this House. Nor do we often have the sort of debate that I am talking about—I am not an academic—in our society. People do not ask, "How big should the state be? How big are we comfortable with it being? If it is bigger, what do we get in return for a bigger stake? Is that what we want?" We do not have enough of those debates. Such debates may sound overly academic and philosophical, but they are intensely important to the future of our society and the future of our economy.

Photo of Desmond Swayne Desmond Swayne Parliamentary Private Secretary To the Leader of the Opposition

Those are precisely the debates that we used to have when I was a student. It was healthy that there was that political divide and argument on those points. The problem is that we have arrived at the current situation with an enormous proportion of the national income being consumed by the Government, particularly in the future as the debt grows, not as a consequence of any thought-through, discussed or debated action, but purely by accident and incompetence.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I disagree with the hon. Gentleman in that regard. We have come to this pass partly by happenstance—my word, not his—because of changes in the world that are reflected in our country, and contributed to by certain actions in the large financial sector in London, but we have also come to this pass in terms of the size of the state, which has been growing in recent years, because of a political decision by the Government, which I support. That was to expand the size of the state and to increase state spending. We increased borrowing to pay for part of that, and we quite nakedly increased taxation to pay for part of that, and I think we were right to do so.

It is a charge levelled today, and it was certainly levelled by Mr. Cameron when he responded to the Budget, that Labour failed to fix the roof when the sun was shining. I reject the second half of that charge, inasmuch as there has been massive capital and social investment by the Government in the past 12 years, but I recognise the first half of it. In spite of the "golden legacy" rhetoric that we got from the right hon. and learned Member for Rushcliffe today, those on the Conservative Benches, by using that phrase repeatedly, accept the fact that the roof was leaking in 1997—[Hon. Members: "No, it was not!"]

Had the right hon. and learned Member for Rushcliffe, when he was joking about Members going to the gym, told me that he had been to the gym earlier, I would have been astounded, as I was by his gall in extolling the virtues of the FE sector. I remember that in his final year as Chancellor of the Exchequer, the capital spend allocated for FE was nil. That takes some brass neck. The roof needed fixing, and we have gone some way to doing that in the past 12 years, but we need a broader debate about the role and the size of the state. We need a debate about wealth creation.

Photo of David Taylor David Taylor Labour, North West Leicestershire

My hon. Friend is rightly introducing a philosophical dimension to the debate by talking about the size of the state and the fact that it has grown. Would he link to that the need to review more closely the democratic accountability for some aspects of the public sector spending increases that we have seen, such as in relation to the Learning and Skills Council or the inevitable private finance initiative, where there has been relatively little responsibility and accountability for politicians in any council or in Government?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

My hon. Friend has the advantage of sitting next to me—

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

He can see on my notes, which he says he was not looking at, that PFI and quangos are the next part of my speech.

I return to wealth creation for a moment. Wealth creation is sometimes posited by conservative—and Conservative—commentators as stemming from the private sector and not from the public sector. There is a myth that the private sector creates wealth and the public sector spends it. Mr. Wallace seemed to be intimating that. He then rushed on to extol the virtues of the university in his constituency, what it was doing for research and what that would do for wealth creation. I may be wrong—perhaps there is a private university in his constituency, but the university of Lancaster is a public institution.

An accountant came to see me in my constituency a while ago, pushing the same nonsense line. I asked, "Are your staff literate?" "Of course," he said. I said, "Who do you think taught them to be literate? Did they all go to private schools?" "Oh no, they didn't," he replied. I asked, "Do they ever get sick?" "Yes, they do," he said. "Well," I asked, "do they get treated by private medicine or the NHS?" "The NHS," he said. So I said, "Don't tell me it is only the private sector that creates wealth."

Of course the private sector is a major driver of and contributor to wealth creation in this country and should be fostered for that, but when we are having a discussion on the size and role of the state, we should remember that the state itself, through the public services that it provides, has a role in wealth creation. One of the big factors that is tipping General Motors and Chrysler over the edge—it has not yet tipped, and we hope will not tip, Ford Motor Company over the edge—is the huge amount that they have to pay out for health insurance. Ironically, the big corporations in the United States of America now say to the Federal Government under President Obama, "Bring in some kind of national health service; we can't afford to pay all this stuff." The NHS in the United Kingdom has a role to play in wealth creation, and we should never overlook that when we discuss the role and size of the state.

There are problems with the role of the state, as my hon. Friend says. I have always been very dubious about the private finance initiative, and I must say to my right hon. Friend the Financial Secretary to the Treasury that I am surprised that we are continuing with it and, in fact, bunging it £2 billion to dig it out of a hole. It seems to me to be a contradiction in terms. Under this Government, sadly, quangos have proliferated, so I am glad that the Learning and Skills Council, which my hon. Friend David Taylor mentioned, will be abolished. I have been pressing for that for several years.

The state has a fantastic role to play, but there is a price. If, unfortunately, there is to be a change of Government, the figures for Government borrowing in the ensuing years will still be very similar. This year, there is a debt of £175 billion, or 12.4 per cent. of GDP; next year, it shrinks to £173 billion, or 11.9 per cent. of GDP; then to £140 billion in 2011-12, or 9.9 per cent.; and, in five years' time, we will reach a £97 billion deficit. Those are huge figures and, when we talk about such big figures, we as politicians and as citizens must ask: what are we getting for it, are we getting what we want, how big a stake do we want and what do we want the state to do?

Some of that debt is inherently supportable by me and, I suspect, many of my constituents when it is invested in bricks and mortar. The majority of my constituents who buy a house, like the majority of people throughout the country, do so on a mortgage; they borrow money to invest in bricks and mortar and, 25 years later, when they have paid it off, they have something to show for their money.

We will also be borrowing money to pay benefits, however, and I support that. I do not want it to be a long-term thing, but I do not want people starving in the street or in poverty. We are borrowing money for education, and the state has a huge role to play in education. The state should provide free education in school; subsidise universities—as it does to the tune of about £10 billion—and further education colleges; and provide the national health service. When economic times are tough, that requires borrowing money to keep people alive—literally, in the case of the NHS. There should be a big public debate.

There is another big public debate that we have not had, or have had only tangentially, about the role of taxation in social change. I hear the figures bandied about—about how the 50 per cent. tax rate will drive people out the country, about the Laffer curve and about how the tax take will go down. Of course, one has to be aware of that issue, but there is also a basic issue of equality. Professional footballers in this country earn in two weeks more than the Prime Minister does in a year.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Somebody says, from a sedentary position, "They deserve it." Come on, let us have a mature debate.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

No, I do not have time.

We need a mature debate about our society's inequalities, which have increased under this Government, as they did under the previous Government. I find that regrettable. A 50 per cent. tax rate may be counter-productive in terms of revenues, but it says something to me about the kind of society in which I want to live, and about what that society stands for in terms of equality. The tax system and tax revenues have a role to play in social change on international development—in stopping people starving throughout the world. Taxation has a role not only in the revenues that it raises, but in the messages that it sends about child poverty and the position of pensioners in our society. There is also a role for it in trying to address the tremendous environmental problems that our society and the world face. The way in which we use those levers, and the goals that we seek to achieve with them, however, do not get discussed enough at a philosophical level in the House. Instead, we charge on to the fine print. That can be extremely important in matters such as the rise in beer duty, which is causing a big problem in my constituency, where there is a big brewery; I think that the Government have got that wrong. However, if we concentrate too much on the micro picture, we miss the macro picture. This House, of all places, should be debating the kind of society we wish to have, how we are going to get it, the role and amount of taxation that gets us to that goal, and the role, efficacy and procedures of the state in that overall picture.

I would caution Conservative MPs on this issue. Most of the progressive policies that we have had in this country in the past 100 years did not come from Conservative Members but are now supported by Conservative Members. One of the most recent examples is the national minimum wage. Apart from the Disability Discrimination Act 1995, every single piece of anti-discrimination legislation, which is now widely supported across the political spectrum, was brought in by a Labour Government. That also applies to measures on basic workers' rights—health and safety at work and so on—progressive income tax, greater equality in our society, and tackling poverty. I would say this to Conservative Members: be careful where you are today, lest you again get left behind tomorrow.

Photo of Robert Syms Robert Syms Conservative, Poole 9:01, 27 April 2009

I declare my interest in the Register of Members' Interests as a director of a family business.

In the market system—the capitalist system—there are always ups and downs. Recessions are very much part of the system; the trick is to ensure that the ups are high and the downs are very modest. For the past decade or so, the Prime Minister, when he was Chancellor, lectured us about abolishing boom and bust. A lot of the problems that we face today arose because the then Chancellor believed his own phrases. I have never seen a Government totally abolish boom and bust. At a time when the economy was growing, and when it was clear that that was not going to continue because of imbalances within the economy, the Government did not make preparations for more difficult times ahead.

The spending that the Government undertook was predicated on a tax take that was heavily skewed towards the City. We talked about bonuses earlier. In terms of tax take, the Government were one of the biggest beneficiaries of the very large City bonuses. We have seen a major housing boom, which generates stamp duty and the other associated tax revenues. It is a pity that the Government did not heed the warning signs and start to run surpluses, as in the German economy. The German economy entered the difficult times with a 3 per cent. surplus, whereas our economy had a 3 per cent. deficit. That is why we are now talking about a figure of 12.4 per cent., on the Government's forecasts, and that could be far worse if the IMF is right, if growth does not spring back as rapidly, or if the spending plans are not met. We are therefore more prone to the ups and downs and storms of a world economy. The charge against the Government is not that they could have avoided some of the difficulties that the global economy is causing, but that because they spent so much the British economy is more vulnerable to what is going on. As a result, we are in for a very difficult time over the next two or three years, certainly in terms of unemployment and what that will mean for many of our constituents.

I am not sure whether the Government growth forecasts will be met; I hope so, because that is key. I suspect that with devaluation, with quantitative easing, and with reflation in the United States and in China, next year the Government will be more right than the IMF, but I am a little more sceptical about 3.5 per cent. for the year after. It takes quite a long time to unscramble a financial crisis. Some households are better off because of lower interest rates and mortgage payments, but they will initially choose to pay off credit cards and car loans, and to save money. The question is when they will feel confident about their own jobs and their own position and start to spend money again.

Growth would be the easiest way out of this problem, but I suspect that whoever wins the general election in 2010, the reality is that there will be very difficult decisions to be made about spending and tax. There has to be an honest debate about what the state can do and how we can raise the money that is needed. Unless we deal with the budget deficit, particularly its structural elements, our children and grandchildren will pay a very high price for many years.

Because we have ended up running into the recession with Government spending too high, and because in the Budget 12 months ago and the pre-Budget report the Government took rather too optimistic a view of the economic prospects, their room for manoeuvre has been rather limited. We have now had a modest Budget with the Government taking a few eye-catching measures, but their inability to do much more has been clear, particularly after the strictures of the Governor of the Bank of England.

It is a pity that the Government invested money by cutting VAT by £12 billion. Rob Marris was absolutely right that wealth is generated by both the public sector and the private sector, but it depends on what the public sector invests its money in. To take the example of California, its private sector wealth was generated by the universities and the highways, built largely by Governor Brown in the 1960s and Reagan in the 1970s. That allowed Palo Alto, Silicon valley and other business areas to develop, on the basis of the knowledge economy and the fact that people could drive around. There was a good climate for development. Part of the problem with the debt that we will have is that not enough of it is going into building houses and roads, which have a long-term legacy, and rather too much into paying people who are unfortunate enough to lose their jobs. I cannot see any way around that, but I join in the criticism that many of my colleagues have made that some cuts in investment are having to be made to accommodate those who are losing their jobs and need support through this difficult time.

The level of debt will be difficult, and every child could be born owing £22,500, so that needs to be dealt with. We have heard about the importance of the savings ratio. I think that it will rise because of the circumstances, but as a nation we need to develop more savings. Our banking system collapsed because there were too few savers and too much money was being borrowed on international capital markets.

There are a number of things that the Government could have done in the Budget. The unified business rate on empty properties was mentioned earlier, and it is causing people a lot of difficulty. If we are not careful, we will go back to people taking roofs off properties to avoid paying tax.

We are in for a very difficult time as a nation over the next two or three years. Generally speaking I am an optimist, and although at the moment it is very difficult to be anything but pessimistic when we look at the figures, if the economy starts to grow and the hard work and innovation of our nation kicks in, I am sure we will get through it. Those of us in politics owe it to our constituents to be honest about the choices that people face and their alternatives, because in the long term it does us no good to pretend that the world is a different place from the place that it is.

Photo of John Howell John Howell Conservative, Henley 9:08, 27 April 2009

It was interesting to hear in the opening remarks of the Secretary of State for Innovation, Universities and Skills that he is clearly one of those who believe that the verb "to cut" is one of those irregular verbs in the English language—I make efficiency savings, you cut, and presumably he undermines the whole British economy.

Over the past month I have held a series of events in my constituency to help local businesses, especially small and medium-sized enterprises, in the recession. The reasons for doing that are pretty obvious. First, the help had been extremely fragmented, so no one had the total picture, and what information there was had been slow in coming forward and was incomplete. To follow on from the comments of my hon. Friend Mr. Swayne, none of the Government help has reached any of the businesses that came to those meetings.

The formula for putting the meetings together was the fairly simple one of getting all the help providers and the companies in the same room for the first time. At the first meeting, we needed more than 20 stands for help providers in order for businesses to get a complete picture. More than 200 people attended and two messages clearly emerged: whatever the Government have promised, none of it is getting through; and, although the Government appear to recognise that there is a problem, there was general mirth about the view that the approach was coherent or co-ordinated.

The drying up of loan finance is the real problem, exacerbated by the punishing charges that the banks impose and the lack of social responsibility that they have shown. There are several examples of that. An engineering company with a long history of excellent cash and debt management, which had made little if any use of its overdraft, suddenly found the facility withdrawn. An important safety net had been removed, with huge risk to that company's reputation. Another company asked why, if the Government were so keen for the banks to show social responsibility, its overdraft had been renewed with an increase of 1,000 per cent. on the bank charges. Perhaps the ultimate summing up came from a company that said:

"This does not reflect the urgency and support for SMEs that the Government is encouraging the banks to adopt."

For many companies, the individual measures for business in the Budget may or may not be fine as far as they go, but as my right hon. and learned Friend Mr. Clarke pointed out, they are largely peripheral to the main issue. They show the pretence of action when none is happening. Restoring supervision to the Bank of England is more likely than anything else to change banks' behaviour and inject some social responsibility into them. The companies that attended my events expressed huge doubts about whether they can access any of the money that it is suggested is available, or whether the Government or the banks can disburse it.

The Government have been quiet about business deregulation. Yet, when times are hard, it is all the more important to get regulation right so that it does not add unnecessary bureaucracy. Business deregulation has been downgraded—perhaps the Financial Secretary will comment on whether he has genuinely downgraded its importance. What happened to regulatory budgets? They appear to have been quietly shelved. Responsibility for the matter seems to have been shuffled off to a new better regulation sub-committee of the National Economic Council. What a humiliation for an important agenda, once chaired by Tony Blair, to be relegated in that way.

Much has been made of the fact that we are considering a Budget for jobs. The Government may have been thrashing about, trying to predict the rise in unemployment, but it was clear from my visit earlier in the year to the European Commission that it already had projections of unemployment hitting 3 million. I would have more faith in the Government's ability to and sincerity about tackling unemployment if they had not wasted five months before recognising the impact of the stock of long-term unemployed on the recession.

In October, the Work and Pensions Committee heard evidence from the Social Market Foundation that the stock of long-term unemployed was expected to rise substantially—to three or four times the current number. By December, the Minister for Employment and Welfare Reform told the Committee in reply to question 194 in evidence to the "DWP's Commissioning Strategy and the Flexible New Deal" report that,

"despite the most virulent horror stories of doom and gloom from some, there are no projections that say that the pool of longer term unemployed is going to grow along the same sort of trend as unemployment is at the moment."

In February, Ministers serving on the Welfare Reform Public Bill Committee said that they were taking precautionary measures because of a belief that the stock of long-term unemployed could increase three or four times and that they were consequently reviewing the flexible new deal contracts. It is not unreasonable to expect the Government to have anticipated that earlier, but it would, of course, have blown the myth of the end of boom and bust.

Several hon. Members mentioned the VAT cut, and I want to comment on that expensive and time-consuming measure for business. That error has now been compounded by the timing of the increase at one of the biggest sales periods of the year and the cut generating its own bureaucracy, as we see from the anti-avoidance provisions that will be introduced in the Finance Bill.

I could not believe that the Government tried to claim that the VAT decrease had worked. Strictly speaking, of course, it will never be possible to say with certainty that it has worked, because a direct comparison with the counter-argument—that is, what would have happened without it—cannot logically be made. We are therefore reliant on proxies, looking for a surprisingly large increase in the sales of items subject to VAT relative to those that are not subject to VAT. Any claim by the Government relying on the fact that non-food sales, which attract more VAT, have done better completely obscures the fact that they are based on volumes rather than values, so the cut is unlikely to account for any deep discounts that we saw over that period. Such data are unclear anyway, with so many factors playing a part, such as postponed purchases finally being made and the effect of interest. Any Government claim that the VAT decrease has done its work is largely no more than wishful thinking and spin.

The International Monetary Fund identified 64 banking crises around the globe between 1970 and 1999. It showed, as did other studies, a similar pattern in many of the crises. What burst the bubbles was different in each case, but it is right to ask why the Government did not recognise that sequence. One is tempted to answer the question by saying that the Government were so confident that they had ended boom and bust that they did not believe that a crisis would happen in the UK and had actually started to believe the spin of their own fiscal rules. As a result, the appalling economic state of the country has now been found out and we are all paying the price in this Budget of despair.

Photo of Bernard Jenkin Bernard Jenkin Conservative, North Essex 9:16, 27 April 2009

Before I start my remarks, I want to return briefly to the disarming honesty of Rob Marris, who gave us a speech of philosophical exploration that might have been more appropriate at the beginning of a period of Labour Government than towards the end of one. As I reflect on his extolling of the virtues and the role of the public sector in the social and economic life of our country, it occurs to me that I would have greeted his speech more sympathetically if the huge increases that we have seen disbursed on public services, notably education and health, had produced commensurate increases in the quality and output of those services. However, although school buildings may have improved, for example, educational standards have continued to decline.

Let us look at the state of the health service, which is awash with money in my constituency, with the primary care trust desperately disbursing money on this and that little project at the end of the financial year in order to get rid of it. The public sector is apparently completely isolated from the reality that is engulfing the rest of the economy, including the small businesses and wealth creators in my constituency. Having nearly doubled public expenditure on the national health service over the period of this Government, we have hardly seen any commensurate increase in the productivity of the health service. Yes, there have been improvements in health outcomes and in wages in the health service, and an enormous increase in manpower. However, that increase has not produced the improvements in outcomes, treatment or experiences for patients in the health service that we always expected to see.

As speaker after speaker on the Conservative Benches has demonstrated, and as my hon. Friend John Howell has just ably and articulately described, the Budget is not a best judgment about growth, spending and taxation, reflecting the best interests of this country and our people. It is not even just a missed opportunity to start the rescue of the public finances and restore economic competence. Rather, this Budget is the last, desperate throw of the dice by a Government who are simply playing for time.

Everyone was aware before the Budget that the public finances were in a dire state. The Budget should have provided a clear path to balancing spending and taxation, but it does not do so. The Chancellor has put off such decisions until after a general election. The Institute for Fiscal Studies has devastatingly confirmed that the scale of the deficit next year will be far bigger than the merely cyclical deficit that occurs during a downturn in the economy. Much, if not most, of this deficit is structural.

For years, many Conservative Members warned that the Government were living beyond their means, and urged Ministers to rectify the situation, only to be met with the usual cries about Tory cuts. We heard that again from Emily Thornberry this evening. The fact is that the UK and US Governments became convinced that any recession threat could be averted by lowering interest rates, and that it was therefore permissible to go on borrowing against the economic cycle indefinitely. Low interest rates, low inflation and steady growth disguised the unsustainability of the structural debt and the massive trade imbalances that had built up in the global economy.

This was not the crisis of high interest rates and inflation of post-war experience; it emerged in the financial sector that was regulated by the US and UK Governments. Its first symptom was the credit crunch, which might have emerged in America, although the first bank to fall over was Northern Rock, over here. Certainly, the United States Government were responsible for the structural failures in the American financial system, but those failures were replicated in this country in even more extreme form. The UK banks were even more highly geared than their American counterparts. This is a crisis of Anglo-Saxon economic management, as my right hon. and learned Friend Mr. Clarke adumbrated, but it is one for which British and American politicians stand jointly responsible, based not least on the utter hubris of their belief that politicians could abolish boom and bust.

Reliance on the City and the financial sector as a driver of economic growth and a source of taxation blinded both Governments to the dangers of the unsustainable bubble in property and house prices and of the level of debt of households, corporations and the Government. After living beyond our means for so long, the public finances could not cope with even a modest recession, let alone with the catastrophe that we now face.

I would say to the hon. Member for Islington, South and Finsbury that this is not the consequence of Thatcherism. Mrs. Thatcher was elected to 12 years of government after coining the phrase that we cannot spend more than we can earn. That mantra was studiously ignored by the present Prime Minister when he was Chancellor. According to Citigroup, even in the second quarter of 2008, the United Kingdom had debts worth 400 per cent. of gross domestic product. If we compare that with our G8 competitors, we see that France comes nearest to that, but it has only 176 per cent.

The Government failed to control borrowing, which was used to fund consumption. Every year, the then Chancellor's forecasts on borrowing were wrong. In 2003, he said that borrowing for 2003-04 would be £24 billion, but the outturn was £37.5 billion. His borrowing projections in that Budget for the next four years—2003 to 2007—even in a period of stable growth, were wrong again, by £52.5 billion. The present Chancellor is now planning to borrow £269 billion more over the next five years than he was in November, just a few months ago. That damages market confidence that the Government can service their debts and manage the economy effectively. Far from "entrenching a low-debt economy", as the Labour manifesto laughably promised, Labour will have doubled the national debt to £1.4 trillion, and that is leaving aside all the unfunded and off-balance-sheet liabilities such as private finance initiatives, pensions and so on.

Every child born today assumes a notional debt of £22,500, which is rather more than the Chancellor has put into their child trust fund. For all the commitment of Labour politicians to the growth and sustainability of public spending increases, the fastest-growing public spending programme in recent years has not been education or health, but debt interest. The cost of debt interest is now nearly as large as the entire defence budget, and nobody in their right mind can regard that as a suitable allocation of the national resources. It is paying for today by borrowing from tomorrow, and it is one of the reasons why the British people are so angry with this Government.

Any new Government will have to choose from only three options available to address national debt: inflate our way out of it, tax our way out of it or reduce public spending as a proportion of national income. We have heard many siren voices advocating a dose of inflation, but they invite many more dangers than solutions. The pain of defeating inflation is etched on the memory of this House and this nation, and we do not want to go there again.

I applaud my right hon. Friend the Leader of the Opposition for not ruling out further tax rises, and some will probably be necessary, but he will be all too aware that the scope for further tax rises is limited if we are not to continue to damage the supply side of the economy and the recovery itself. Let us take as an example the 50 per cent. top tax rate, now proposed, and the devastating critique that we heard from Mr. Byers. The 50 per cent. rate is having immediate effect on City salaries, as employers negotiating to recruit people from overseas will have to offer more than they would have done before the Budget to attract that same person to come to the City of London to work in our internationally competitive financial services sector. In the longer term, it will drive businesses to relocate elsewhere, to lower tax environments.

It is all very well saying that some Scandinavian countries have high personal taxation, but they do not have the internationally competitive financial services sector that we thrive on in this country. They would not attract business of the kind on which so much of our economy now depends; nor would we if we were to set similar tax rates. By all means, the hon. Member for Wolverhampton, South-West can start that debate, but I reckon he is about 30 years behind the curve, unable even to convince the former Secretary of State for Trade and Industry, the right hon. Member for North Tyneside.

The idea that that one tax change will yield an extra £5.3 billion over the next three years is utter moonshine. As business and high earners take flight, Labour has forgotten one of Ronald Reagan's mantras, which was taken to heart by new Labour in the old days, "You do not make the poor richer by making the rich poorer." The former Prime Minister, Tony Blair, is reported to be in despair about that particular choice in the Budget.

That leaves spending cuts. The Leader of the Opposition is right to say that in future Departments must be judged not by how much they spend but by how much they save. The real tragedy will be unemployment. A new Conservative Government must make it absolutely plain that any pain inflicted by tax increases or spending restraint is to restore the growth of the economy and of jobs in this country. Once again, a Labour Government will be leaving office with unemployment higher than that which they inherited—

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. The hon. Gentleman's time is up.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury) 9:29, 27 April 2009

It is a pleasure to make a winding-up speech in today's Budget debate. Remarkably, this Budget has unravelled even more quickly than other Labour Budget disasters of recent years. Friday's gross domestic product figures laid bare the Chancellor's recklessly optimistic growth forecasts, which had been made less than 48 hours earlier. With the economy contracting at its fastest rate in 30 years, forecasters and observers were left with little choice but to agree with the Conservatives' initial reaction to Wednesday's Budget: the Government are betting the shop on there being a trampoline recovery. Given the dire state of the patient, the recovery they are seeking or predicting appears almost bionic in proportion. With growth projections of 3.5 per cent. for the recovery, they are predicting that in 2011 and two years beyond, the economy will be growing as fast as it is currently shrinking. Given the fact that the shrinkage is at its highest rate in 30 years, we all have to question that forward growth assumption. Given that those forward growth forecasts for two years did not even last two days, we must register our severe our doubts.

Today we heard a few Labour Members setting out to blame Baroness Thatcher for the current recession. We heard reasons such as the big bang, right to buy and encouraging home ownership. We even heard about her abolition of currency controls as being one reason for the current recession.

One Labour Member did not blame Baroness Thatcher for the recession—Mr. Byers. In a devastating speech, he asked about the 50p tax rate, warning that focus groups may sometimes be wrong. He called the rate "more to do with political positioning" than raising revenue, an extraordinary and significant attack on the Government. He reminded everyone of the breaking of the Labour manifesto pledge. I recall Tony Blair standing at the Dispatch Box and attacking the Liberal Democrats many times for proposing a 50p top tax rate. That will come back to haunt the Government.

We heard from other Labour Back Benchers. Mr. Illsley attacked rises in alcohol duties and the tax on bingo, to which I shall return. On a rare occasion, we heard from Mr. Salmond. I thought for a moment that perhaps he was clocking in a few weeks too early and was not up to date with the news that the scheme has been scrapped. In a good speech, he talked about Labour's "reverse stimulus", and predictably he attacked Trident. However, he seemed to be saying that Labour is spending too little, which was interesting.

Mr. Dhanda started off with a number of erroneous claims about my right hon. and learned Friend Mr. Clarke, although he balanced that with some criticism of the Budget. I share the opinion of many in the House that the Prime Minister was wrong to sack the hon. Gentleman last year. I happen to know quite a bit of the background of the case, because it was over a planning application in my constituency. I think that the hon. Gentleman made the right call on that, and the Prime Minister made the wrong call to sack him.

My hon. Friend Mr. Soames gave a packed but excellent speech, describing an economy in ruins. He offered a comprehensive critique of the past 12 years of Government policy on pensions, borrowing and tax complexity and of failures in manufacturing.

Although the calls by Kelvin Hopkins for national protectionism, exchange controls, even more debt and even more punitive taxation will get marks for bravery, I am not sure that they will find much favour on any Front Bench.

We had an excellent and passionate speech from my hon. Friend Mr. Swayne, who called the Budget post-dated. He described the harsh reality facing small businesses in his constituency, made a plea for savers and called for more scrutiny of quantitative easing.

Emily Thornberry talked about her early career as a barrister, which started in Poplar job centre. I thought that she could be a role model for some in her constituency during this particular downturn, reminding us that miracles do happen.

My hon. Friend Mr. Wallace made a detailed speech on the importance of innovation, intellectual property, and science and technology, especially in the aerospace industry. We had another excellent speech from my hon. Friend Tony Baldry, who pointed out that almost no Labour Members were here to talk about the Budget. He concentrated on public finances and reminded us what the IFS had said about the two Parliaments of pain that are expected to come. He gave Labour Members some home truths about their dishonest Budget. My hon. Friend Mr. Stuart also pointed out a number of dishonesties in the Government's Budget, and put this terrible Budget in to its proper historical context.

Rob Marris made a thoughtful speech on the size of the state, the importance of wealth creation and whether we are getting value for money from our public services. Conservative Members would certainly welcome that debate.

My hon. Friend Mr. Syms drew some interesting international parallels with Germany and California. Interestingly, he was the first speaker in today's debate to use the phrase "boom and bust". Not so long ago, "boom and bust" was normally the phrase that started each Budget debate. It was used by the then Chancellor, the current Prime Minister, who claimed that he had effected its abolition.

My hon. Friend John Howell made an excellent speech mainly about SMEs. He reminded me, and many others, why we campaigned so hard for him to be elected to the House more or less a year ago today. My hon. Friend Mr. Jenkin analysed the deficit and the debt in some detail and rightly called the Budget "a desperate last throw of the dice". It has been a fascinating debate.

Very few businesses will have been fooled by the very few goodies that they were offered on Wednesday. Most will have been left reeling at the thought of how much business taxation might have to rise to pay for Labour's profligacy. The Chancellor set great store by some of those measures, but each of them was dwarfed by the appalling borrowing figures. He announced in just 93 words the borrowing of £703 billion, yet it took more than 2,500 words to outline the new sweeteners.

Some of those measures were long overdue. We heard about the £50 million on forces' homes, the £100 million to local authorities for energy-efficient homes and the £500 million in incentives to the construction industry. That dwelling on the good news and the covering up of the bad news has been a characteristic of new Labour Budgets, but let us dwell for a moment on the relative sizes of the good news and the bad news. For every pound earmarked for the construction industry in the Budget, £1,400 was announced in new borrowing. For every pound on energy-efficient homes, we heard of £7,000 in borrowing. For every pound earmarked for much needed forces' accommodation, £14,000 was announced in new borrowing.

The main story of this Budget is debt, and I want to dwell on that particularly in my remarks—some of the dangers to which the UK economy is exposed by these massive levels of borrowing. When the Government announced £703 billion of new net debt on Wednesday, with £220 billion to come in gross debt this year, the market more than shuddered. There is an assumption in Government circles that the ability of the market to absorb debt is infinite. I worked for a large part of the '80s and the '90s in the fixed income markets. It is true that Governments are less likely to default on payments in their domestic currency debt than many observers in the press might think, but that does not stop the market from making it extraordinarily expensive to borrow, and at the moment, it is expensive to borrow.

Although absolute levels for gilt yields are not high by the standards of some previous recessions, the yield curve is incredibly steep. Anyone who has worked in fixed income knows that interest rates are best viewed proportionally, rather than linearly. In other words, a rise from 0.5 per cent. to 1 per cent. can be as significant as a rise from 10 to 20 per cent.

The current gilt yield curve sees rates rising from 0.5 per cent. to 4.5 per cent., which means that long-term rates are an incredible nine times as high as short-term rates. We know that all world yield curves are currently steep, but none is as steep as the sterling curve. Some implied forward interest rates are truly astronomical, which means that the market is saying that borrowing costs in the future will be very large indeed, especially real borrowing costs—in other words, relative to inflation. Those high borrowing costs will have an impact on taxation and spending in future years.

Let me give one example from a local authority where the opposite happens, my own council of Hammersmith and Fulham. A large part of the reason that we have been able to reduce council tax is that, by repaying £20 million of long-term debt, we have been able to save around £1.7 million each year in debt interest payments. Therefore, it is not just the ability of the gilt market to absorb all of this paper. We need to ask the question: what will the market charge for the borrowing?

Let us think for a moment about some of the potential buyers of that £703 billion of new gilt issuance. As the Leader of the Opposition told us on Wednesday, borrowing in the next two years will be more than was borrowed by every previous Government combined. We are dealing with absolutely huge numbers.

Many have been tempted to assume that foreign investors will take up some of the slack, and on that I wish to turn to the related question of the strength of sterling, which curiously received no attention in the Chancellor's speech—the word "sterling" did not appear at all. Foreign investors may take some of this huge level of new issuance, but it is worth somebody in the Treasury noting that foreign investors have just taken a 20 to 25 per cent. hit on the foreign currency value of their existing gilt holdings just last year—these foreign investors might well be once bitten, twice shy.

Thanks to Labour's economic policies, sterling is already very weak—UK visitors abroad will feel that this summer. Some of the effect will be camouflaged by the move by favourite continental holiday destinations to the euro, but those who, as I do, remember over many years getting 10 French francs or three deutschmarks to the pound would be amazed to learn that they would now receive 7.35 and 2.24 respectively. There are other reasons to be concerned over the future prospects of sterling. One of the consequences of the otherwise welcome recent reductions in UK interest rates is that it is now very easy to short sterling; sterling is very cheap to borrow in the short term. The famous Yen carry trade—borrowing in a low-yielding currency to invest in a high one—can now be done with sterling. The risk with the Yen carry trade was always that the Yen would appreciate, but it is harder to see that risk occurring with sterling. That is where I see some of the forthcoming risk.

I just wish to mention two or three other things in the short time available. First, I believe it to have been an anti-London Budget. I can tell the House that when I headed back to my constituency on the tube last Wednesday evening, I saw some long, drawn faces in the carriages; anybody who was talking, had only one topic of conversation: how awful the Budget was—that was even true of the Chelsea fans on their way to the stadium. The Evening Standard called this

"a budget on a wing and a prayer" and

"a hugely irresponsible missed opportunity".

Remarkably, given that that was its initial view, its opinion actually hardened over the following days. On Thursday, its conclusion was that

"the capital's taxpayers will bear the brunt of paying off the country's massive debts" and that

"this 50 per cent. is a tax on London."

Respected commentator Tony Travers implored:

"Don't push London too far or you will kill off your golden goose."

Perhaps the Government have already written off London politically—today's Standard reports a 9.5 per cent. swing against Labour since 2005—but they cannot afford to write off the capital economically.

Changing tack completely, I wish to ask the Financial Secretary to the Treasury about bingo, which was also mentioned by the hon. Member for Barnsley, Central. The Financial Secretary told us on Thursday that

"the announcements in the Budget on the taxation of bingo are welcome to the industry."—[ Hansard, 23 April 2009; Vol. 491, c. 434.]

However, Investec, for one, is calling his raising of bingo duty from 14 to 22 per cent. a "Budget hit" on the industry, as the offsetting cut in VAT is on parts of the industry that may not be subject to VAT in any case. I would be grateful for a clarification of those comments.

To conclude, I wish to take the House back to the start of the current financial crisis in Autumn 2007, when Ministers attacked Northern Rock for having a so-called "flawed business model". We were told that Northern Rock was excessively dependent on the continuation of strong growth in credit, and in the associated strength of the financial and property sectors. It is clear to all of us, 18 months later, that the UK's public finances shared precisely that same weakness. I agree with The Wall Street Journal, which said on the day after the Budget:

"'Building Britain's future' is the optimistic title of the UK Government's latest budget. 'Burying Britain's future' would have been more accurate."

This awful Budget can be summarised as follows: we are in the longest recession since world war two; we have the fastest-rising unemployment on record; the economy is shrinking at the fastest rate in 30 years; and we have the worst public finances in the G20. This Government's management of our public finances has been lamentable. They seem to be unwilling or incapable of taking charge, and it is about time that they gave way to others who can and will sort this mess out.

Photo of Stephen Timms Stephen Timms Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills) 9:44, 27 April 2009

We have had a good debate, on the whole. The backdrop, of course, is the worst crisis in the world economy since the 1930s. The world economy is forecast to shrink this year for the first time since the second world war. No one is under any illusion that this will be easy, but the economy is now benefiting from a great deal of support—the lowest interest rates ever, whereby many people are paying less for their mortgages, and additional support from quantitative easing. Indeed, I agreed with some of the points made by Mr. Syms about the extent of support for the economy and the stimulus measures in the pre-Budget report before Christmas, including the cut to VAT, which several hon. Members mentioned.

I draw the House's attention to a report two weeks ago by Doug McWilliams of the Centre for Business and Economic Research, who used to be described as an adviser to the Conservative party—he may well still be, for all I know—and its headline:

"Credit where credit's due—the VAT cut is working."

The report points out that retail sales have been remarkably resilient, unlike in previous recessions. In his lively speech, Mr. Clarke reaffirmed his view that if we are to have a fiscal stimulus, a VAT cut is the one to go for. The report says:

"The figures are clear; the VAT cut is working. There was an immediate boost to the volume of retail sales after the cut was introduced on 1 December."

It goes into some detail about how it reaches that conclusion and estimates the net cost of the VAT cut to the Exchequer, and the likely boost to retail sales, and concludes that the VAT cut is

"good value for the taxpayer".

The VAT cut will continue to work throughout this year. Indeed, as the National Institute for Economic and Social Research has pointed out, the cut's stimulus impact will increase as the date for the return to the original rate approaches at the end of the year.

Support for the UK economy has been co-ordinated with others. We have learned the lesson of the 1930s. Co-ordination then was too little and too late, and the result was a catastrophic depression. Through our presidency of the G20, and this month's London summit, we have ensured co-ordination that is substantial and effective. It has delivered the biggest macro-economic boost that the world has ever seen—across the G20, an additional $5 trillion will be put into the economy by the end of next year, raising output by perhaps 4 per cent. and saving or creating millions of jobs.

The Budget builds on that support. It will give businesses and households the temporary support that they need in the short term, and it reaffirms the Government's commitment to taking action that will support the economy and help it to emerge sooner and stronger from the downturn. The Budget maintains the support that we have already provided, for example, to ease the cash flows of UK businesses, and builds on it in a carefully targeted way.

The Budget is not just about delivering support through the downturn; it starts to look beyond current problems. The next few months will clearly be very difficult, but in preparing the Budget it was very important to ensure that we are in a position to make the most of new opportunities that will come with the recovery.

Photo of Stephen Timms Stephen Timms Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

The right hon. Gentleman is right: we are preparing for a consolidation once the upturn is in place. That has to be done. It is right at the moment to support the economy with additional borrowing, as we have repeatedly made clear, through the stimulus measures that I have outlined and through the application of the automatic stabilisers, but beyond that a consolidation will be necessary, and we have set out clearly in the Red Book how we will achieve that and put the public finances on a sustainable track.

At the heart of this year's Budget is our ambition to build for the future. The Budget sets out a framework for major investment in infrastructure to support long-term success in the UK economy, including a £750 million fund to achieve the strategic approach to industry policy announced by Lord Mandelson last week. We have ambitious targets for broadband, which I very much welcome, that look towards the deployment of new higher speed services. There will be investments in further education, transport and funding for housing projects, as well as support for low-carbon energy efficiency referred to by my hon. Friend Emily Thornberry. Those measures will all give an important boost to the economy, protecting thousands of jobs and acting as catalysts for the changes to the economy that we will need in the years ahead.

Photo of Bernard Jenkin Bernard Jenkin Conservative, North Essex

How much do the Government now regret massaging their fiscal rules in order to carry on borrowing through the years of growth rather than paying down much more debt during the good years? That is why when an economic downturn came, as might have always been inevitable, the public finances were not better prepared than they are today.

Photo of Stephen Timms Stephen Timms Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

Of course, a very strong feature of our position coming into the recession was that the levels of debt and borrowing as a proportion of GDP were the second lowest in the whole of the G7. That was a consequence of the decisions that we took in government. The fact that we had a low level of debt has given us room to manoeuvre that others have not had. It is one of the reasons we are in such a strong position to take the right actions.

Photo of Stephen Timms Stephen Timms Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

No, I need to make a little more progress. I will gladly give way later in my speech.

The Budget also focused, in a very difficult time, on ensuring that we live within our means over the next few years. It includes higher tax contributions from the highest earners—the 1 or 2 per cent. who are best able to contribute—which will help return the public finances to balance in the medium term. My right hon. Friend Mr. Byers, who, I am glad to say, welcomed a number of aspects of the Budget, strongly opposed that measure. He was right, I think, to accept the principle that those who can afford to do so should contribute more. I would say to him that the world has changed very dramatically over the past 18 months. The economic outlook now is quite unrecognisable from the one that applied two years—or certainly four years—ago. It was absolutely right that in making decisions on this Budget we should have reflected that change.

Stephen Williams asked what the £260 million for the job guarantee scheme would buy. The answer is 70,000 extra training places, the cost of training allowances to support young people while they learn, and recruitment subsidies attached to young people as they join their new employer. He will recognise that in previous recessions thousands of young people have been allowed to become detached from the prospect of work, with devastating economic and social consequences. We announced an overall package of £1.2 billion that will mean that from next January every 18 to 24-year-old who has been claiming jobseeker's allowance for 12 months will be offered at least six months of activity—a job, a work placement or work-related skills training. We will provide funding for local authorities and voluntary sector organisations to take forward the creation of 100,000 new jobs in socially useful activities, 10 per cent. of which will be green jobs.

The guarantee will also offer new training courses and community work placements. Specifically, the "care first" initiative will offer 50,000 traineeships for young people in the care sector. Providers will receive a subsidy for sustained employment and training for young people who have been out of work for 12 months, giving them the skills and experience they need for a career in that growing sector. We are determined to ensure that we do not repeat the mistakes of the Tory years, when, twice round, a generation of young people was left and abandoned to become completely detached from the labour market. We are still dealing with the problems that resulted from that neglect. We are putting that right with the guarantee that is in place.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

There are more NEETs now than there were in 1997. I want to press the Financial Secretary not on his tax on the rich, which he likes to emphasise, but on the taxes that are falling on those on normal incomes, such as the increased national insurance payments for those earning just £20,000 a year. May I also press him on bingo? Will he answer the question that he was asked? Some £105 million more will come from bingo players over the next three years—how much of that is offset by the VAT reduction?

Photo of Stephen Timms Stephen Timms Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

I am delighted to respond to both the hon. Gentleman's points. First, he is not taking into account the increase in personal allowance for income tax, which has led to a tax cut for basic rate taxpayers of £145 this year. If he compares this year with a couple of years ago, he will see that that more than offsets the increase in national insurance to which he refers. Secondly, as well as the change in bingo duty to which the hon. Gentleman referred, the Budget removes VAT on participation fees. That reduces the overall rate of tax on bingo from 25 to 22 per cent., thus providing support.

As we heard in the debate, one of the biggest obstacles facing UK businesses is lack of accessible credit. The initiatives we have put in place over the past six months to improve the availability of finance to credit-worthy businesses are delivering, as the right hon. and learned Member for Rushcliffe, the shadow Business Secretary acknowledged—I think his phrase was "beginning to deliver".

We have introduced a range of measures to support cash flow and capital. The HMRC business payment support service allows businesses to spread tax payments over a period they can afford. Last week, I spoke to the executive chairman of one medium-sized chemicals business; he told me that the service was "brilliant". His worry was that it was about to be withdrawn, but I reassured him that it certainly was not. In fact, we extended it in the Budget so that companies can offset expected future losses against tax bills due now on past profits. In the five months to 19 April, the service had taken 175,000 calls and agreed 112,000 time-to-pay arrangements for the deferral of tax worth almost £2 billion with more than 100,000 businesses collectively employing more than 600,000 people. We are providing the support the economy needs.

The debate has made clear once again the utter vacuity of the Conservatives' position, which is that it is a bad thing there are problems in the economy—what to do about it, however, not a clue. Last month, we were told that their No. 1 priority—I think it is still their only firm commitment on tax—was to raise the inheritance tax threshold to £1 million, or £2 million for a couple. That would be an average tax cut of £200,000 for just 3,000 of the richest estates, giving no benefit at all to the remaining 96 per cent: a tax cut not just for the few, but for the infinitesimal few. That is the Conservatives' only firm commitment on tax. Beyond that, the public have been told absolutely nothing.

Where would the £5 billion spending cuts this year fall? There is not a word from those on the Opposition Benches. Would levels of spending, tax and borrowing under the Conservatives be more or less than those set out in the Red Book? We have no idea at all. Is it that they do not know, or just that they will not say? Whichever it is, the time has now come for them to level with the British people and to recognise that their do nothing approach to the economic downturn would, if put into effect, have catastrophic consequences, just as it did when they applied it in the '80s and '90s.

We are certainly in the grip of the worst global economic conditions for decades. Developed economies everywhere are seeing dramatically reduced growth, lower levels of trade and investment, and unemployment on the rise. The Government will not sit back and do nothing. We will take the action that is needed to secure financial stability, to safeguard jobs and to rebuild growth. We are determined to help businesses and households through these difficult times. The Budget provided the right foundation for the future—supporting households and businesses through the recession, putting in place additional targeted help to provide the support businesses need at this particularly difficult time, returning the public finances to balance in the medium term, setting out the measures and the trajectory that will secure that objective, and preparing to make the most of the new opportunities ahead. I commend the Budget to the House.

Ordered, That the debate be now adjourned.— ( Ms Diana R. Johnson.)

Debate to be resumed tomorrow.