Economic Recovery and Welfare

Opposition Day — [18th Allotted Day] – in the House of Commons at 4:34 pm on 19th October 2009.

Alert me about debates like this

Photo of Sylvia Heal Sylvia Heal Deputy Speaker 4:34 pm, 19th October 2009

I inform the House that Mr. Speaker has selected the amendment in the name of the Prime Minister.

Watch this
Embed this video

Copy and paste this code on your website


Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee) 4:36 pm, 19th October 2009

I beg to move,

That this House
recognises the jobs crisis facing thousands of households as unemployment continues to rise with nearly 2,000 people a day losing their job;
regrets the UK's declining competitiveness;
further regrets the Government's failure to roll out effective recession schemes to offer support to the struggling small and medium-sized enterprises sector;
calls on the Government to do more to increase UK competitiveness through cancelling their planned increase in the small companies tax rate, reducing corporation tax, and restarting their stalled plans for better regulation;
further calls on the Government to tackle unemployment and long-term worklessness by replacing the Flexible New Deal, Pathways to Work and the various other New Deal programmes with a new integrated programme to provide personalised long-term support for people out of work, including those on incapacity benefit, and to make better use of private and voluntary sector welfare-to-work providers by paying them by results.

These are terrible times for British industry of all kinds, and certainly for more than 2.5 million unemployed people in this country. We are coming to the end of probably the worst recession that anyone living can remember, and I certainly hope that a weak and feeble recovery is at least on the point of starting now or during this winter. What we obviously need to do as a country is start straight away to recreate the economic and business conditions that can restore economic growth and employment opportunities to more normal levels, although I am afraid that it may take some years before we are able to do that. I agree with the latest quarterly report of the Bank of England, which foresaw a long and slow recovery ahead of us. I think it will be quite a few years before we get back to what we used to call "trend growth" in the British economy.

Unfortunately, because of political events, we face a winter in which all that is being presided over by a Government of the living dead, as someone once described them. They are a weak Government, who no longer have any particular policies and do not feel able to take any initiatives in any area. The Prime Minister, in particular, is obsessed by the day-to-day management of news handling and the press, and there is very little sign that anybody is determinedly trying to tackle the underlying problems, not least because that would require some startling changes of opinion.

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

I will give way in a moment, but I do not know whether my right hon. Friend read The Sunday Times last weekend. I am indebted to it for a short story showing that the Secretary of State for Business, Innovation and Skills is mainly concentrating on the branding of the confused range of schemes that he has produced, using the Government's party political slogans in various publications, which shows where that master of marketing's true priorities lie. At least on that he will be in full agreement with the Prime Minister.

Watch this

Photo of John Redwood John Redwood Conservative, Wokingham

In the economic competitiveness review that I and colleagues produced for the Conservative party, we said we thought the growth rate the Government were achieving was entirely artificial and built on excessive debt, which would have to be corrected. We said that the trend rate of growth was now unfortunately well below 2 per cent. Does my right hon. and learned Friend agree that not only will it take a long time to get back to the old rate, but that we might not do so because of the damage that the Government have done?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

I always used 2.5 per cent., but was always tempted to put it up because the combination of our supply side reforms and globalisation in the mid-1990s made me think that 2.75 per cent. might be possible. The Government finally started accepting 2.75 per cent. in the middle of a crazy boom, which they were taking credit for, but they have collapsed from that.

I must say that since my right hon. Friend Mr. Redwood carried out his review, I have not sat down and seriously thought what the trend growth is likely to be. He thinks 2 per cent. could be trend for some time. We have certainly destroyed a lot of capacity as the recession has gone on, and the important thing to realise is that although we all hope we are about to see at least the first statistics showing signs of recovery, it will be a long, hard road ahead and normality does not mean returning to the bubble conditions of two or three years ago. At that time, I was saying that any growth we were sustaining was entirely buoyed up by a sea of debt, both public and private. That has turned out to be the case. Many others said the same, and all the warnings were ignored.

We must face up to reality, but this Government will not do so. The Prime Minister thought that the boom was a triumph for his personal management of the economy and constantly took credit for it. When the crisis first came, he denied its existence, then he said it was caused solely by sub-prime mortgages in the mid-west of the United States, although the state of our mortgage market showed that something very similar had been flourishing here for some time and was indeed about to crash. When the crisis hit us, it was nothing to do with the Prime Minister, his handling of economy or the system of regulation that he put in place for the City, and the fiscal deficits that he was accumulating were quite irrelevant to the problems!

The recovery may start soon. The statisticians are on our side: the economy went off a cliff in autumn last year, so minuscule growth, compared with where we were 12 months ago, becomes, statistically, an increasingly likely outcome. When that tiny first shining growth comes, the Prime Minister will claim that he saved the world from calamity and that the recovery is under way, whereas we have seen him panic-stricken and overwhelmed by events throughout the crisis ever since it started.

It is therefore up to the country to start to look to what we can do to restore our economy. Now we need a Government who will face up to the reality of our problems honestly, and who will, with determination, restore our hopes for a quick return of confidence to businesses, followed by some recovery in economic activity in this country. Probably most important of all, we need opportunities for the army of unemployed people-not just for young people, but perhaps particularly for them because they are the innocent victims of the mad events of the past four or five years.

This is not an economic debate, but we must take into account the economic background to what we are talking about, which is obviously the main menace to business. Such recovery as we are achieving is, in my judgment, almost wholly dependent on the low interest rates and the printing of money in which the Bank of England has had to engage. Quantitative easing is probably necessary-I do not think I would terminate it rapidly, but that is a matter for the Bank-and probably must continue. However, we have no signs yet of a return to a private sector-led, confident recovery in the real economy.

Of course, what is happening at the moment, particularly the quantitative easing, cannot be sustained. It is altogether an experimental, emergency measure. The Government are able to finance their deficit only because the Bank of England "buys" the gilts that it issues. That is printing money to stop the money supply sinking into a black hole. As a short-term policy, I think we agree with it. I certainly think it should probably be continued for the time being and stopped as soon as possible. It is not a long-term basis for recovery. Even President Mugabe discovered that printing money is no way simply to meet ones obligations and Government debts, or to sustain the economy. That is the first reality.

What is keeping us going at the moment is a set of emergency measures, largely taken by the monetary authority. This is not a debate about the banks, and they are no longer looking as though they are on the point of total collapse, but we are not out of the woods yet. The banking and financial system is not back to normality. There are many issues that we must address before we can get back to feeling confident in and secure about British or any other international banking.

The main effect, in the short term, is that lending to companies is extremely weak. Credit remains a vital problem for many businesses, especially small and medium businesses on which the majority of employment depends. We are just reaching the stage at which larger companies are able to start going to the bond markets for some of their capital because of the abnormally low level of interest rates, but that route is not open to any of the small and medium businesses that employ the majority of our constituents. We all could compare the experience that we have in our constituencies- and, if we make visits, outside-of encounters with people who have viable businesses. Some of them need support to get through what they can reasonably argue is a temporary dip in demand for their goods and services, and others need ordinary credit for working capital. The atmosphere is not as bad as it was, but many perfectly good companies still cannot obtain credit or can do so only at rates that are vastly higher than those that would be regarded as normal.

Banks are weak-not surprisingly-and they have put up their margins in every branch of their business. Most of the banks are in such trouble that they prefer borrowers who are as secure as the Bank of England and who will pay miles above the rate that the bank has to pay to obtain money itself, to try to restore profitability and their balance sheets. The reality for the supply chain of many of our great industries and for all our small and medium enterprises is very bad indeed.

Watch this

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

Does the right hon. and learned Gentleman agree that in such a climate it would be very wrong of banks that have some state ownership to pay any sort of bonuses?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

Yes, I think I would. The publicly owned banks have to have regard to the understandable sensitivities of public opinion about bonuses. The important thing about bonuses is to make them long term and genuinely based on out-of-the-ordinary performance. They should be fully realised only when long-term improvements have been delivered and should be capable of being clawed back if those improvements turn off. That is the nearest we are to international agreement. No Government can control the level of bank bonuses, but any sensible bank should realise that a high level of bonuses will cause outrage to a wounded and fearful public and be almost impossible to justify. If huge amounts of taxpayers' money have had to be spent to rescue a bank, public sensitivity will be very strong. I do not personally believe that Governments, even acting collectively, can have a pay policy on payment for senior bankers, but shareholders and common sense should dictate that any bonuses are performance-related, reversible and based on long-term performance. I hope that regulators everywhere will ensure that.

Watch this

Photo of Tony Baldry Tony Baldry Conservative, Banbury

Does my right hon. and learned Friend agree that one of the many frustrations for small and medium businesses is that they hear Ministers announcing new funds for investment, but when they try to access those funds, they discover that that is not possible? For example, the strategic investment fund is not a fund that businesses can access, but a fund for other funds, such as the launch investment for aerospace, grants for business investment or the UK innovation investment fund. The Secretary of State just reels off press releases about funds, none of which are accessible by our constituents, but which give the impression that he is doing something. All he is doing is creating new names for funds that businesses cannot access.

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

There will be a wave of pleasure when I say that my hon. Friend has just given about the next 10 minutes of my speech, if I go at my ordinary pace. Having talked about the problems of accessing credit, I was going to make exactly that point and say what we would have done differently, and would still do, to make things more useful. However, I will first give way to my hon. Friend Mr. Binley, and then I will warm to the point.

Watch this

Photo of Brian Binley Brian Binley Conservative, Northampton South

I am listening to my right hon. and learned Friend's speech with great interest. I am sure he would have recognised the CBI's second quarter report, which stated that the improvement in credit is largely driven by

"the very largest firms with over 5,000 employees".


"small and medium sized enterprises...saw a...decline in...existing credit lines," and the CBI expects

"similar tightening over the next three months".

Why does the Secretary of State simply not understand this problem?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

I cannot answer for the Secretary of State. The problem is real and it is as described by my hon. Friend, but that reality has not been addressed properly, as my hon. Friend the Member for Banbury also said.

We have been quite clear for several months about what we believe should be done. We have proposed that £50 billion should be devoted to a loan guarantee scheme, whereby the Government would guarantee a large part of the risk undertaken by banks when extending credit to their normal customers. The banks would have to make a commercial decision that they were prepared to take some of the risk, albeit a much lower risk than they normally would, thereby making the risk of default used in the risk judgment so much less.

That would apply to businesses of all sizes. It would be a straightforward scheme and could have been put into operation rapidly. Our scheme is also a direct response to the point that the three hon. Members who have just intervened on me have illustrated only too graphically, particularly my hon. Friends the Members for Banbury and for Northampton, South. The problem was a lack of access to any kind of borrowing by businesses of all sizes, particularly small and medium-sized enterprises, and we would have facilitated it.

The Government dismissed that suggestion, for the reasons given by my hon. Friend the Member for Banbury. They preferred to have a system of multiple micro schemes, carefully targeted at different sizes of company and different segments of industry. I am afraid that I share what might otherwise be thought of as my hon. Friend's unworthy cynicism. Why did the Government choose that route? One of its attractions was that they could put the support into so many little packages and so many press releases. They could announce that things were being done instantly, when the officials in the Department were not clear about what was being announced and were not yet ready to start discussions with the banks on what the rules might be in the latest scheme, and there are many of them, some of which my hon. Friend described.

Let me choose as an example the working capital scheme. The scheme is meant to guarantee credit lines to ordinary-risk businesses with a turnover of up to £500 million-very similar to what we propose, but for those businesses with a turnover below a certain level-covering 50 per cent. of the risk on working capital. On 14 January the Government announced that no less than £20 billion was available under the scheme. The scheme was announced on 14 January and was planned to come into effect on 2 March.

The long history would take too long to relate. However, as the first tranche came round the scheme was not ready; indeed, it was delayed for months. As late as 2 March, the Secretary of State for Business, Innovation and Skills still said that

"the scheme will be operational in March as originally announced".

In March, the Leader of the House told the House that

"under the agreement with Lloyds and the Royal Bank of Scotland, £5 billion will now be released to business."-[ Hansard, 25 March 2009; Vol. 490, c. 297.]

None of that happened, and it fell to Ms Winterton, to say:

"We have signed £1 billion of guarantees with RBS and Lloyds for portfolios of £2 billion."-[ Hansard, 20 July 2009; Vol. 496, c. 1102W.]

Eventually, on 16 September-eight months after the scheme was first announced with its £5 billion of guarantees-the Financial Secretary to the Treasury said that

"£2 billion of guarantees have been provided to banks under the Working Capital scheme"-[ Hansard, 16 September 2009; Vol. 496, c. 2289W.]

The rest had apparently been diverted to other policies. In the few weeks that have so far elapsed, hardly any of that £2 billion has been available. There has been press release after press release and fanfare after fanfare. On one occasion, the Prime Minister told some gathering that the money was being distributed under the working capital scheme; it was an illusion, like the illusion that has surrounded so much that he has said.

There will be an overhanging effect on business's ability to access capital and the price it will eventually have to pay in interest rates because of the tremendous threat posed by the level of public debt. Again, this debate is not about economic policy generally-certainly not as far as I am concerned-but the background is that the Government have, in effect, had to privatise a huge amount of private debt that was previously the debt of the banks. That came on top of a huge fiscal deficit, which the Government were already piling up despite the fact that we were in conditions of growth and boom. That gave us the worst debt problem of any developed country in the western world.

A debate is now under way-it is quite crucial to confidence in the British economy and the confidence with which British business will eventually be able to access proper capital-about whether the debt and the deficit need to be tackled now. This is almost a farcical situation. It is by no means a secure situation for the British economy and it is worrying for anyone with the interests of British business and future employment in mind.

We have to record the historic date of 15 September 2009 when the Prime Minister's colleagues finally persuaded him to use the words "spending cuts". I have not observed him repeating those words since, and they have not yet produced a great deal of activity, but at least consciousness dawned for a moment.

Now, however, we are meant to be having a great political debate about whether we start tackling the deficit now or whether we leave it until later and, indeed, about whether it is not somehow essential to the Prime Minister's great plan for the recovery of the world economy that no item of public expenditure is touched until we get beyond a general election. That is a quite foolish debate, not least because the choice will not be in the hands of British Governments much longer if we try to exercise it. It is the markets and the need to sell gilts to finance the debt that will decide this.

The underlying deficit of-people's estimates vary -6, 7 or 8 per cent. of GDP is structural, which means that it would be there in normal circumstances unless we did something about it. That has to be tackled now, and the only reason there is still any confidence in sterling, the British economy and British Government bonds is that the Opposition parties are at least talking about tackling the structural deficit. [ Laughter. ] Oh yes. The Prime Minister's remarks-this is not all about the Secretary of State's remarks-would cause market panic if anybody thought he was still in control of events and certainly if they thought he would be after May.

Watch this

Photo of John Reid John Reid Labour, Airdrie and Shotts

I do not think there is anyone in the House who does not accept that we have to find a route back to prudence by cutting expenditure and increasing income. However, I hope that the right hon. and learned Gentleman is not dismissing as irrelevant the debate about when we do that cutting and how much we cut. Everyone agrees that trying to make significant cuts in public expenditure before a sustainable recovery is under way is like trying to shove a car into fourth gear at 10 mph, because we will stall and run into a second deep depression. Will the right hon. and learned Gentleman confirm that there is at least a legitimate debate to be had about when significant cuts should proceed?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

We have to start tackling the deficit as soon as possible; we have no realistic choice about that, and we will pay a great penalty if people begin to believe that we are not going to do that.

The background to the debate is that the Government have proceeded, despite our warnings, on the basis that they are going to carry on increasing public spending by about £30 billion next year. That is Mickey Mouse economics, particularly when it is defended as though any challenge to that figure represents a threat to the financial future of the country. This is left over from careless pre-election commitments to public expenditure, and it should be tackled in order to restore confidence in the British economy and ensure continued confidence in those to whom we are going to have to look to finance our debt. It is important that we make a start on tackling the structural deficit now. It is absurd to say that the Government are somehow free to postpone this for a year or two, and to wait until they judge the time to be right.

Watch this

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

Will the right hon. and learned Gentleman confirm that this means that his party's policy is to oppose the £5 billion of additional funding that we are putting in to help the unemployed this year and next, of which £2.9 billion is for the next financial year?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

With anything of that kind, we are going to say, "Where are you finding the money from?" I shall leave it to my right hon. Friend Mrs. May, who is winding up the debate, to describe the package that will be essential to tackle the real needs of the unemployed now and through this recession. We have addressed the question of how we would finance it and what it would cost, although we have the disadvantage of having only half a dozen very bright young people trying to work out the costs and helping us to put the policies together. The thousands of civil servants that the right hon. Lady has at her disposal have not enabled her to come up with quite the right answers on public finances so far.

Watch this

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

Just to clarify: we have increased the funding by £5 billion this year and next. It is discretionary additional spending funded by additional borrowing, and it is part of the wider support for the economy that the right hon. and learned Gentleman and his party repeatedly oppose. Will he confirm that he is opposed to that £5 billion of additional spending to help the unemployed?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

If I heard the right hon. Lady properly, she said that this was going to be financed by "additional borrowing". I must say that nothing causes me deeper dismay than to hear a Treasury Minister get to her feet- [ Interruption. ] She is no longer a Treasury Minister; I am sorry. Nothing causes me deeper dismay than to hear a distinguished former Treasury Minister get to her feet at the Dispatch Box in October 2009 and lightly trot out a policy, believing that she does not have to answer the question of where the money is to come from, but say merely that she will borrow it. This was indeed the policy of her Government two or three years ago, and it has contributed to the total disaster that the country is now suffering.

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

I have given way, and I will do so again in a bit, but I must make some progress. I am in danger of making one of my longer speeches in a debate in which there is a time limit for everyone else. Let me just get through the things that will be required to restore growth, apart from tackling the credit market problems and the problems of the public debt that loom so heavily over everyone.

When we look at what is needed to restore to this country a climate that is fit for business enterprise to get the country back to work, the first thing that we need to address is the taxation of business. Whenever I go to meetings with small and medium-sized business men, they can normally be relied on to raise the issues of taxation and regulation, so I shall begin by dealing with both those subjects.

The Government have raised corporation tax, and, in particular, they are in the process of raising the rate of the tax on small businesses. It has already gone up from 19 to 21 per cent., and in the Budget it was announced that it would go up to 22 per cent. in 2010. That is complete nonsense. To increase the burden of taxation on business-and on small businesses in particular-at the present time is folly. This was done at the time of the Budget in order to make the books look right and to put the cost on a corporate and collective tax that might not upset too many voters. However, it will upset voters when they see the consequences that the measure will have on small businesses in this country.

We have committed ourselves to bringing down the headline rate to 25 per cent., because we need a competitive rate, and to reducing the small companies corporation tax rate to 20 per cent. We have said how we will finance that-by abolishing the elaborate system of allowances, which has complicated taxation and can be used to finance the reduction in rates. We also strongly object to the other increase in tax on business, which is tax on employment. The Government have already put that into the pipeline and are going to raise national insurance rates. We would hope to be able to avoid that, and we would like to be able to give some relief, particularly to small employers.

Secondly, the Government have talked deregulation ever since they came to office. I actually think that Prime Minister Blair was a genuine enthusiast for deregulation and tried to infuse it into his Government. As all Prime Ministers probably find, and as he certainly did, he never had the time to apply himself to any of the detail, so it never really happened. The result so far of 12 years of stated commitment to deregulation was revealed by the latest PricewaterhouseCoopers global survey of chief executive officers, showing that more CEOs with businesses headquartered in the UK felt that their Government had failed to reduce the regulatory burden than any other country covered by the survey. We are losing competitive advantage.

Only a week or two ago, my hon. Friend John Penrose produced our latest and most detailed policy so far, on which we are still working. It is based, among other things, on regulatory budgeting-that is, before introducing a new regulation, having calculated the burden of compliance with it, another equivalent regulatory burden must be found for repeal. That, for a time, was the Government's policy.

When appointed to my current position, I was mystified to discover that the Secretary of State had stopped work on regulatory budgeting, to which the Government were then committed. No explanation has ever been given for dropping that commitment. The nearest I ever got to an insider piece of gossip about what went wrong was that civil servants in other Departments had constantly objected to it and tried to block it. Well, they would, wouldn't they? That is why we have prepared ourselves for regulatory budgeting, approved a sunset clause for regulatory bodies and supported other measures set out by my hon. Friend. The important thing is that we are preparing to ensure that, unlike the current Government, we will not only speak the language of deregulation, but actually deliver a change of culture in practice. That requires the processes that we are planning to introduce.

Watch this

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Will the right hon. and learned Gentleman provide us with three examples of regulations that he would abolish if he were in government?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

That is the question I use when people complain to me about European regulations! What I would repeal is the whole system that requires companies and voluntary bodies to go through a process of vetting the records of more than 5 million citizens if they are likely to meet children in the course of their work or their daily activity. I am thinking of recent examples; otherwise, the hon. Gentleman has defeated me with the same trick question that I sometimes put to others. [Interruption.] If the hon. Gentleman's point is that the process of regulation is not a burden, not a cost and only an illusion, that it is not true that managers are spending hours of their time complying with regulations imposed by different bodies, or that businesses are not subject to inspection by countless different inspectors, some of whom give contradictory advice about how to comply with those things for which they are responsible, I believe that I am nearer to reality than he is. Neither is this a problem only for private business, as the public sector suffers from the same process. Thus, a process of examining the regulatory burden will reveal the answer to his question. We are proposing such a process and we are not going to introduce new regulations until we get rid of the equivalent older ones.

Watch this

Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton

Let me return the right hon. and learned Gentleman to the most important thing he said-that a future Tory Government would engage in early cuts as soon as possible and that those would be big cuts. Is he aware that the President of the Japanese Government tried exactly that against the background of a precarious recovery at the end of the 1990s, only to precipitate a deeper slump? Is he aware that Roosevelt, having initially launched the new deal, then increased taxes and reduced public expenditure, which took America back into unemployment? Is it not obvious that what is needed is not public expenditure cuts on a large scale, but a massive investment programme in job creation in housing, infrastructure and manufacturing?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

Few things are certain and obvious in economic policy, and it is certainly necessary to have regard to historic precedent. We may consider Japan in the 1990s, the United Kingdom in 1981 and the experiences of the 1930s, although it is debatable whether what is now called President Roosevelt's Keynesian expenditure was actually the principal cause of recovery. Indeed, I think that that theory is very doubtful, although it is, I know, much loved by people in the labour movement.

What we must look at, however, are the realities of today. No two financial crises are exactly the same, and no two recessions are the same. What we have at the moment is a massive burden of debt, which is a major feature of the current problems and a major challenge to confidence. To pretend that the Japanese experience shows that there is no need to tackle it is to be under an illusion. We have a larger deficit, and we have seen a faster increase in debt in relation to GDP, than any other G7 country. Others can afford fiscal stimulus, but we cannot. It is my judgment that we must start cutting the deficit as rapidly as possible. We cannot simply point to one feature of the Japanese lost decade and say that it proves that Britain in 2009 must avoid taking that step.

Watch this

Photo of Tom Levitt Tom Levitt Labour, High Peak

Will the right hon. and learned Gentleman give way?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

I will not give way again straight away, although I may do so later. I will take too long if I keep giving way and dilating on these impossible subjects. Almost every Member in the House is briefer than I am, but the hon. Gentleman is a possible exception, and an exchange between him and me is a risk on which I will not embark at this stage.

The next specific question that we must address is why we lost our advantage in flexible labour markets. That is undoubtedly extremely important to getting employment going again, and we are going to devote some study to it. We believe that the Government have moved far too fast and gone too far in some instances, although they too seem now to be having doubts about the agency workers directive. We believe that it should not be implemented until the last possible date, and certainly should not be implemented on fiercer terms vis-à-vis employment than those adopted by other western European countries complying with it.

We must also consider how we can become better at converting the innovations devised by the best of British science, British engineering and British technology into exploitation by companies that are basing themselves here for the production, sale, employment, and research and development opportunities. This country is very bad at that. We have a history of innovations being made in our universities by our scientists and engineers, reaching a certain stage, and then being moved away to be developed by companies in the United States of America or Germany.

We must look at the whole question of manufacturing in this country. The Government have totally ignored all the warnings that they have ever received about the state of manufacturing. Almost exactly half all manufacturing jobs that existed when new Labour took power have subsequently been lost. Manufacturing still accounts for 13, 14 or 15 per cent. of GDP, depending on the source of one's figures, but that is far too small a part of an economy and needs to be rebalanced. No politician and no business man in the United States, Germany or Japan will accept the argument that a modern economy does not need manufacturing-that an economy can be successful without making anything.

Of course, what an economy makes has got to be different, and it is the high-value and high-tech manufacturing that we should be encouraging. A large part of that depends on skills and training. We would reform the system of training to produce the skilled people of whom the country has always been in short supply. We are particularly committed to the future of apprenticeships.

The main point about apprenticeships, which we are seeking to reform, is that we must be clear about what we mean by "apprenticeship". It has always been very popular for politicians to make speeches about apprenticeship, but what it should mean is training in the workplace-employer-provided training, obviously allowing some absence for necessary further education and training outside at the same time. It should also be of an acceptable level. It is no good re-badging what people are already doing and describing that as training. It is also no good saying an apprenticeship has been successfully completed by someone who has reached the level of national vocational qualification level 2. Real apprenticeship requires the support of employers; it has to be work-based training, and we have produced proposals to give support to that.

Watch this

Photo of Tom Levitt Tom Levitt Labour, High Peak

I would like to give the right hon. and learned Gentleman the opportunity to talk about creating jobs, as I think that must be an important part of any approach to dealing with the recession. He is a very reasonable man, and I am sure he acknowledges that the future jobs fund is in place to create sustainable, long-term jobs with Government help. I am sure that he will also acknowledge that many Conservative councils around the country have signed up for the future jobs fund and are delivering jobs through that means. Does he not therefore agree that it is a bit rich both that there is no mention of the future jobs fund in a High Peak Conservatives press release talking about how keen they are to help the unemployed, and that Conservative-controlled High Peak borough council is refusing to take part in that fund?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

Like so many such initiatives, it seems that the future jobs fund is not quite fully up and running yet. It reminds me of the community programme. These matters will be dealt with by my right hon. Friend the Member for Maidenhead, who will be winding up the debate. I hope the hon. Gentleman will be present for her speech. My right hon. Friend and I participated in putting together a whole programme of measures that will seek to find proper jobs for the unemployed with training and help; we announced that at our party conference.

The question enables me to respond to one of the myths that the Labour party so frequently expresses about the 1980s. I was a Minister at that time, and both then and now I have had to listen to repeated Labour speeches summing up that period as days of horror, desolation and the destruction of all that was finest in our British economy and society, whereas I personally regard it as the time when structural reforms were put in place that paved the way for us to be a modern economy. It is not true that we did nothing about the millions of unemployed. I was in the Department of Employment and the Department of Trade and Industry. We had project after project, all of them scorned by the Labour party. The future jobs fund is the community programme redesigned. It is all to be provided by local authorities on a temporary basis. The last time we had that, it rebuilt every village hall in my constituency. We have to move on from that policy, however. I will not discuss at length the youth training scheme-YTS-which Labour Members howl about, saying it did not provide real jobs and that people were not paid the union rate. There was also an enterprise allowance scheme to help the self-employed. We will modernise that, as we will all the schemes, but it worked very successfully. It got 100,000 people into working for themselves, and there are some very highly motivated people who cannot find jobs who could benefit from that.

All these schemes have been moved on, however. Unlike the current Government, who have gone back to the days of Lord Young and myself at the Department of Employment, and who are probably using some of the same officials to redesign all the various make-work schemes locally that we steadily refined when we were in office, we have put in a lot of work and have produced a full package of measures that we think are fit for the 21st century and will help a lot in the current situation.

I shall now take my last intervention, which will come from Frank Dobson.

Watch this

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras

The right hon. and learned Gentleman is harking back to his halcyon days in the Thatcher Government. I welcome his conversion to the idea of apprenticeships. Will he confirm that he was a member of the Thatcher Government who abolished them?

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

We can both relive our halcyon days if the right hon. Gentleman likes, but I do not remember him having hurled that allegation at me. The first policy attempt to set up modern apprenticeships was undertaken 20 years ago in the late 1980s by the Thatcher Government. In those days, in some circles it was considered that any work that did not involve people getting their hands dirty or belonging to a trade union was not a real job or real training. I suspect that lay at the heart of much of the debate we had then, but I do not think the right hon. Gentleman and I should relive the old days now as there are a lot of very young people who are unemployed-about 1 million of them. They want to hear about real programmes designed for today's economy and my right hon. Friend the Member for Maidenhead will be setting those out later. However, I hope we all agree now that high-value manufacturing is essential to our future.

Those are the kind of proposals we are putting forward. We have made a considerable advance in addressing what would be our overriding problem: not just tackling the public deficit but at the same time creating a climate in which we can get back to growth, which is eventually the best way of solving a deficit problem and the only way in which prosperity and jobs can be provided.

Meanwhile, I study the outline of business policy that comes from my opposite number. On the recent publication "New Industry, New Jobs", I think it will be left to us to create the new industry. I fear that the current Secretary of State, and perhaps even his No. 2, will be looking for the new jobs, and we will hope to assist them as well. The documents are platitudes. Even Lord Mandelson says they are not earth-shattering. He has produced something that I hope T he Sunday Times is wrong in inferring is designed simply to badge speeches, advertisements and publications over the next few months. He seems desperately anxious to prove that he is somehow "interventionist" and activist. If that is meant to be an ideological statement, I at least give him the mitigation of not thinking he is genuinely either-if by that we mean interventionism in the classic, social democrat sense; he obviously has not been that so far.

Unfortunately, what Lord Mandelson is producing is not delivering very much but press releases and it is doing little to improve the business climate. He delivers it through an absolutely enormous number of agencies and quangos, as well as all the initiatives and programmes he produces. Unfortunately, the real business man out there finds when he tries to source or address any of these things that it is all sound and wind, signifying nothing and not available to the business man in the midlands who is stuck for credit and facing difficult times, or even to the entrepreneur with a new type of business that he wants to get under way.

When we come out of the recession, it will not be the same as it was before. Not only will there not be a return to the crazy bubble for which the Government enjoy taking credit, and which I sometimes think they wish we could go back to. Was it not nice then-when house prices, business growth and the share stock market were all soaring, everybody was happy and one could simply benignly brush aside warnings from Jeremiahs in the House of Commons and elsewhere and take credit for it? We are going to have a new type of economy. In Britain, it will have to be rebalanced and not be so dependent on financial services. We are going to have to invest more, export more and manufacture more, and we are certainly going to have to provide a great deal of new employment.

We are working on the task. We are frustrated by a winter of having to watch a Government wondering how they can re-badge themselves one last time to survive after May and perhaps tackle the problems. Twelve years of new Labour have proved very bad for British business. We need a Conservative Government as soon as possible to make Britain open for business again.

Watch this

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee 5:23 pm, 19th October 2009

I beg to move an amendment, to leave out from "House" to the end of the Question and add:

"welcomes the Government's decision to support families and businesses during the current global downturn;
believes it is vital the Government takes an active role to support recovery and build future economic strength;
notes the authoritative view of business leaders and leading economists against premature withdrawal of the support for the economy;
commends the Government's leadership in co-ordinating the international action, through the G20, to support jobs and growth;
further welcomes the Government's decision to invest an extra £5 billion to help people back into work and provide the Young Person's Guarantee, increased numbers of Jobcentre Plus staff, 150,000 Future Jobs Fund jobs and an offer to all jobseekers at six months;
calls on business and the voluntary sector to support the campaign Backing Young Britain;
further welcomes the introduction of the Employment and Support Allowance, the accompanying Work Capability Assessment, the expansion of Access to Work, and the Flexible New Deal delivering tailored support with providers paid by results;
further believes that it is the right judgement by Government to encourage investment by small and medium-sized enterprises through the Enterprise Finance Guarantee and other support;
further welcomes the successful car scrappage scheme;
further welcomes the help for over 150,000 businesses through giving more time to pay tax bills;
and commends the Government's new industrial activism, which, combined with the real help now being offered, will help secure the country's future prosperity.".

I very much welcome this debate on economic recovery and welfare. Responding to the global recession of the past 18 months or so has tested Governments right around the world. When the world was faced with a collapse in credit, the seizing up of the banking system and a steep decline in trade, Governments had to step in to stop a catastrophe for people and economies throughout the world. Of course, it is not just Governments who will be judged by their response to the crisis; it is Opposition parties, too. For in those moments when intervention had to take place-in those times when we sought to stabilise the banking system; to put more money in people's pockets; to launch schemes to support industry, such as the scrappage scheme, which we have just extended; and to stop recession turning into depression-the judgment of all politicians was tested. Time after time, we have found that the judgment of the Conservative party has been called into question. From the Conservatives' opposition in the beginning to the nationalisation of Northern Rock-the shadow Chancellor said that he opposed that "full stop"-to their opposition to the fiscal stimulus, they have proven time and again that they would not have been up to the task of responding to the grave economic situation in which we have found ourselves. That judgment problem continues to haunt them as the issue becomes not response to recession, but how to foster and sustain economic recovery.

Perhaps we should not be surprised about that, because people of my generation, who grew up in the 1980s, know about the Tory response to recession; I have gently to disagree with Mr. Clarke here, because I remember very well the times when communities were torn apart by swathes of job losses, with little or no real assistance in place to help them recover, when there was long-term unemployment and when child poverty doubled. The Leader of the Opposition says that he is angry about poverty. He should be, because his party created enough of it when it was last in power.

Watch this

Photo of David Davies David Davies Conservative, Monmouth

I am of the same generation as the Minister, and I remember the previous financial shenanigans from the 1970s. Does he have a sense of déjà vu as, once again, the economy collapses at the fag end of a long Labour Government?

Watch this

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

I do not have a sense of "déjà vu, once again", as the hon. Gentleman puts it.

I do not wish to dwell on yesterday. It is today and tomorrow that really matter and there, more importantly, the Opposition have got the judgment calls wrong time after time. This Government knew that when faced with the biggest worldwide economic contraction in decades, we needed to act to ease its effects and help the economy get through it. That meant taking action to stabilise the banks to protect people's savings and keep credit moving. As I said, the shadow Chancellor opposed the renationalisation of Northern Rock and proposed amendments to the Banking Bill, the effect of which would have been to make the rescue of Bradford & Bingley impossible too.

Following the action that we took on the banks, we launched a fiscal stimulus, which included bringing forward capital spending, tax cuts to put more money in people's pockets, and support for business. Some of that included the VAT cut, which I believe the right hon. and learned Member for Rushcliffe said was an option that he supported, although it was attacked by many in his party. The Centre for Economics and Business Research said:

"The figures are clear; the VAT cut is working."

The Institute for Fiscal Studies said:

"The temporary cut in the standard VAT a better stimulus measure than its critics suggest."

More broadly, fiscal stimulus measures were supported around the world, although not by the Conservative leader, who said in April:

"We were against the fiscal stimulus...when it came to"- the decision

-to oppose the VAT cut and the so-called fiscal stimulus, I didn't consult a focus group or an opinion poll I just knew it was the right thing to do."

Watch this

Photo of John Redwood John Redwood Conservative, Wokingham

Does the Minister not see that the Government are squeezing the life out of the private sector to pre-empt all the money into the public sector? Can he tell us what he thinks the long-term rate of interest will be in this country when they stop printing it?

Watch this

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

I am certainly not here to predict the interest rates for the future. We have a system for setting interest rates, which the right hon. Gentleman well knows.

As the Leader of the Opposition said, he opposed the fiscal stimulus, whereas right around the world Governments of left and right were coming to the opposite conclusion. While the Conservatives opposed what we were doing, countries came together at the G20, here in the UK, to agree that co-ordinated action to support our economies was necessary. For example, the managing director of the International Monetary Fund said at the height of the crisis:

"If there has ever been a time in modern economic history when fiscal policy and a fiscal stimulus should be used, it's now".

The contention of the Opposition, apart from saying that they opposed the stimulus, was that Britain "could not afford it." However, the real issue was whether we could afford not to support the economy, given the situation that we faced.

Watch this

Photo of John Reid John Reid Labour, Airdrie and Shotts

Lest my right hon. Friend feels isolated, may I speak for the generation before his? We went through this, too. We saw unemployment of 25 per cent., and the distinction between the way that the Conservatives addressed the last big economic crisis and what is happening now can be expressed in three words-"judgment", "action" and "balance" between economic, fiscal and financial stimuli and social protection. Those three things-judgment, action and balance-were dramatically missing during the last recession.

Watch this

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

While we are having this wander through history, may I move on to the rewriting of history? I opposed the fiscal stimulus of the VAT cut when I was a freelance Back Bencher-before I was on the Front Bench-on the basis that we could not afford it. The British Government have gone in for less fiscal stimulus than almost any other developed country because of the state of our public finances. They have gone for far less than, say, the Germans have gone for, because they cannot afford it. The IMF has said of Britain that it needs to take faster action to tackle its fiscal problems-that was its comment on the Budget this year. The idea that we have been leading the way in fiscal stimulus is a myth-fortunately, because had we tried any real fiscal stimulus in this country, the long-term problems of our deficit and debt would be enormous. We are sustained by low interest rates and quantitative easing, not by any illusory fiscal deficits.

Watch this

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

I think that the right hon. and learned Gentleman will find that with both the discretionary measures and the automatic stabilisers, the stimulus adds up to some 4 per cent. of GDP. That is a substantial stimulus. My point is that Governments of left and right from around the world engaged in similar action while his party said that it opposed it. His leader said that he opposed it because that was the "right thing to do". In fact, Nobel prize winner Joseph Stiglitz said:

"You're fortunate that you have had a much more responsible government over the last eight years than we have had in the United States...We look to Britain as an example in times of which the economy was good, you did the right thing, we didn't."

Watch this

Photo of Gordon Banks Gordon Banks Labour, Ochil and South Perthshire

My right hon. Friend is taking us by the hand and guiding us through the Conservatives' inability to tackle today's economic crisis. Does he get the same uneasy feeling as I do when I read today's motion? We are not talking about history, but about the here and now-it condemns the Government on what they have done for business and employment. I am speaking from a business background, and this Government have done a lot for business and employment, all of it in the face of the Opposition. May I bring to my right hon. Friend's attention the funding for 50 jobs in Clackmannanshire that was delivered last week through the future jobs fund? In the last recession, we did not get jobs in Clackmannanshire, we lost jobs.

Watch this

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

I know that my hon. Friend comes from a business background. There has not only been help with the 50 jobs in Clackmannanshire; help has been given on a wider basis. For example, the time to pay initiative that we have extended to business has led to agreements with 150,000 businesses to spread more than £3.7 billion in business taxes to help them during the course of the recession.

Watch this

Photo of Brian Binley Brian Binley Conservative, Northampton South

The Minister is always most kind in giving way, and I am always grateful. If the Government have been so generous to the private sector, why has the private sector shed 1 million jobs over the past 15 months while the public sector has increased by 300,000 jobs?

Watch this

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

We will talk more about welfare and unemployment in this debate. Of course, unemployment has risen as a result of the global recession. However, my argument is that our response to dealing with that unemployment contrasts with the hon. Gentleman's party's policies in the past and the policies that it espouses today.

Watch this

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

I want to make some progress.

After countries came together to support their economies, we had the party conferences. After an unprecedented co-ordinated international action in the face of the gravest economic contraction that we had seen for decades, what was the target of the Leader of the Opposition's speech at his party conference? Was it the irresponsible financial practices that had got us into this situation in the first place? Was it the market failures that had forced Governments around the world to act? No. In 2009, after everything that had happened, his attack was on big government.

After the first great economic crisis of this century, when the actions of Governments were absolutely critical in preventing things from being far worse than they would have been, the right hon. Gentleman's attack was on big government. Let us be clear: we did not intervene in the markets because we wanted to replace them. We intervened, because a market failure of that magnitude meant that Government had to act to ease its effects and to offer help to those who lost their jobs as a result. If the Conservatives made the wrong judgment call on the recession itself, the critical question now is the recovery and what the future holds for the British economy.

Watch this

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

The difference between our position and that of the Conservatives on fiscal stimulus is that we agreed with the Government that it was necessary. The amount of money released by the VAT cut is a substantial sum, but does the Minister accept that a lot of tiny cuts-50p off a phone bill, a small amount off something else-do not stimulate the economy as much as spending the same amount on, for example, an injection of cash into a green recovery programme, which would be labour-intensive and which would help infrastructure in the long term?

Watch this

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

We combined a tax cut with capital spending-there is not necessarily a choice between the two-and the overall effect of the VAT cut was to put about £1 billion a month into the economy that would not otherwise be there.

The question is, is recovery in place and how strong will it be? There are some encouraging signs. For example, the CBI's most recent output expectations index for manufacturers shows improvement on its predecessor. The Bank of England's summary of business conditions reports that demand for consumer services has increased. Those signs are welcome, but it would be a rash politician who claimed that recovery was in place, embedded and not under any threat. If there is a recovery at all, it is a fragile one and it is very capable of being set back if we make the wrong judgments and the wrong decisions.

The right hon. and learned Member for Rushcliffe mentioned the importance of regulation. I can tell him that the World Bank's most recent ease of doing business survey raised Britain from its position as the sixth-best place in the world to the fifth-best to do business, so on that international measure we are heading in the right direction. As I said, it would be complacent to assume that the recovery will take hold come what may, or that there is no need for further Government help for the economy, yet that is precisely the advice offered by the Opposition, much of which centres on the discussion of debt. Of course, stimulus has meant a build-up of debt, which must be paid down in future. There is no argument about that, and we have set out a plan to cut the deficit in half over four years. However, when we start paying down debt, what is the time scale and what are our priorities as we do so? On those issues, there is a real difference between the parties. If we withdraw the stimulus too soon, we risk choking off recovery and sending the economy backwards, not only increasing the human pain of the recession but impairing the country's long-term ability to pay down the debt that the Opposition say that they are concerned with in the first place.

Watch this

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I have a sneaking suspicion that what the Opposition are trying to do is frighten the Government into trying to reduce debt now, which would increase unemployment and help them to win the election. I think that my right hon. Friend would do well to ignore them.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

As I have said, it is important to have a credible plan to reduce debt, but there are major choices to be made between the parties.

Photo of Tom Levitt Tom Levitt Labour, High Peak

My right hon. Friend will agree that it is absolutely crucial that employment is maintained at as high a level as possible during the recession and that jobs are created. Is he as surprised as I am that Mr. Clarke did not mention in 45 minutes anything to do with job creation? Is that perhaps because, if we read the Conservatives' work programme for tackling Britain's jobs crisis, we can see that it is a pale imitation, and a regurgitation, of what we are already doing to provide jobs?

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

My right hon. Friend the Secretary of State for Work and Pensions will have more to say later in the debate about our plans to ease unemployment and get people back to work, but my hon. Friend Tom Levitt is right that we must not abandon the unemployed and must do everything we can to support employment in the economy.

I return to the question of the stimulus and when it should be withdrawn. The former member of the Monetary Policy Committee, Professor David Blanchflower, said:

"If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach 4 million."

Just a few weeks ago the director general of the CBI said:

"The economy is too fragile right now for massive cuts in public spending."

On the question of employment just raised by my hon. Friend, Kevin Green from the Recruitment and Employment Confederation, when asked about the fiscal stimulus last month, said:

"We certainly don't want it to be switched off early. We actually need it to continue."

Yet a premature end to the fiscal stimulus is precisely what the Opposition are advocating. The Leader of the Opposition said in his party conference speech:

"The longer we leave it, the worse it will be for all of us."

But the fact is that in the present economic situation, that is not true. His attack on big government is driving him and his party to an economic stance that endangers the recovery and threatens to choke it off before it has been properly established. That is what happened in Japan in the 1990s, with the result that the downturn there lasted years and impacted even more severely on debt levels. The judgment failures that led the Conservatives to make the wrong judgments during the recession are being repeated, just as we see fragile signs of recovery.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

We will not take risks with the recovery. We know how essential it is for the recovery to be supported so that it takes hold properly. We are determined to pay down debt, but we will not withdraw support at the precise moment when the economy needs it.

I give way to the Chair of the Select Committee.

Photo of Peter Luff Peter Luff Chair, Business, Innovation and Skills Committee

I am grateful to the Minister. As Select Committee Chairman, I have no wish to engage in partisan politics with him. Does he agree that it is not just what the Government do, but the way they do it? In that context, why did they choose to end their showcase fiscal stimulus programme, the VAT reduction, during the January sales, immediately after Christmas, causing maximum disruption for the retail sector?

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

We always said that that tax cut was a temporary one, and we gave notice of that when it was announced, so I do not think there is any surprise about that.

Let me turn to the question of individuals, as well as the economy as a whole. When the economy has contracted as much as we have seen, when trade has fallen around the world, of course people lose their jobs. No Government can say to their people that they can be protected entirely from unemployment, given the economic circumstances that we have been through, but we will not abandon the unemployed. The Government are determined to ensure that unemployed people get the help and assistance that they need to help them find another job, and we are devoting particular effort to ensuring that we do not have a repeat of the 1980s experience, when long-term unemployment left thousands-sometimes tens of thousands-out of touch with the labour market for years, and sometimes for ever.

So we have put in place £5 billion in total to help get people back to work over this year and next year. That involves, for example, an extension of the rapid response service even before redundancies take place; after six months unemployed, help with training; help to people to set up their own business; incentives for employers to hire people; and after 12 months a guarantee of training or employment for young people aged 18 to 24, as well as other measures, such as funding for 20,000 internships, which can be a hugely valuable bridge into work for many people.

That activity stands in stark contrast to the way in which the Conservatives approached the issue when they were in power. And today, while we are putting in £5 billion to help the unemployed, the Conservatives-the right hon. and learned Member for Rushcliffe repeated this during his speech-have called for £5 billion less public spending during the recession. If that is their approach, I have to ask Mrs. May which parts of our help package for the unemployed they would withdraw. What training opportunities, what incentives to employers or other help would they abandon? Finally, for clarity, do the Opposition support the £5 billion package for the unemployed? Unemployment has risen during the recession, but we are determined to give people a second chance and to do everything that we can to stop it becoming permanent for those affected.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

There is a gulf between what the Minister is saying and what is happening in Wellingborough. Unemployment has doubled in my constituency since the Government came to power, and while I have been in the Chamber today I have received a note about another company going bust. The Minister's measures are just not working.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

I must ask the hon. Gentleman to think about his constituents and how much worse unemployment would have been for them if we had not had the fiscal stimulus, the support that I have talked about or the expansion of apprenticeships. The right hon. and learned Member for Rushcliffe talked about apprenticeships, but there are four times as many apprentices now as there were when he was in power. To withdraw help for the unemployed would increase the risk of that situation becoming permanent and simply repeat the experience of people who lived through the recessions of the 1980s and 1990s, and we will not go down that road. This debate is important, because our responses to the recession and its human cost are issues upon which we will be rightly be judged, and judgment is just as important in the recovery as it is at the height of the recession.

On future industrial policy, Britain needs a Government who will support the economy's emergence from recession and help business to seize the opportunities that technological and industrial changes present-whether that is the transition to low carbon, or the advancement of digital technologies and biosciences. We have made it clear that we believe in an active role for government in helping Britain to make the most of those opportunities.

The right hon. and learned Gentleman said that our policy was just words and branding, but that is not the case. In recent months, we have put financial backing into aerospace, wind and wave power, the scrappage scheme extension and a number of other areas. When it comes to industrial policy, however, my criticism of the Opposition is not so much that they attack big government, as that they have nothing to say at all: nothing to say about Britain's industrial future, and nothing to say about the national capabilities that they believe that we should have. The problem for them is not so much big government as no government at all, and that is not good enough. Government may not create the jobs, but it does create the environment for employment and industry to grow. If the concern is debt, the best way to pay it down is through growth, and the best way to obtain growth is to work with industry to take advantage of the opportunities of the future.

As recovery takes hold, it is absolutely critical that we work with industry to ensure that it can take advantage of such opportunities. That is why we have put in place the strategic investment fund and allocated funding to the projects of which I speak-because we want Britain to have a recovery that makes the most of our industrial future. We believe that government has a vital role to play in that.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Does my right hon. Friend share my surprise that the Opposition's motion refers to "reducing corporation tax" but not to the other half of that policy? Mr. Clarke did refer to it, and the reduction of corporation tax by the Conservatives would be funded by slashing capital allowances by about £3.5 billion a year. That would have a disastrous effect on British industry-particularly on manufacturing, and particularly on manufacturing in the west midlands.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

Absolutely. My hon. Friend makes a very good point. The right hon. and learned Gentleman talked about the business man in the midlands, but I recommend that he ask a few west midlands manufacturers what they think of the withdrawal of capital allowances for investment at this point in the economic cycle. That allowance is precisely the help that business needs to make investment decisions so that we can take advantage of the industrial change that I have described.

This debate is valuable and important, because the country faces a real choice about who offers the best path to recovery. Through the choices that the Conservatives have made, they have placed themselves against the co-ordinated action that Governments took and in favour of early withdrawal of support for our economies, and they have been silent on our industrial future. They have failed the test of judgment time after time, and through the stance that they have adopted they have shown that they would fail the test again if they had the chance to put their proposals into practice. For those reasons, I shall ask my colleagues to reject the Opposition motion and to support the Government's amendment, which offers an altogether better route to economic recovery for our country.

Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills) 5:49 pm, 19th October 2009

I, too, welcome this debate, as these are extremely important issues. I particularly welcome the opportunity to discuss unemployment, which is the most pernicious effect of recession.

It is right to discuss not only what should be done in a crisis-what emergency measures are required-but what could and should be done to deal with unemployment in the longer term and what can be done in better times to increase employment. There are two different strands to that. The first and most obvious is to assist in the creation of sustainable jobs, which will be done only by businesses. Businesses, not Government, create jobs, and it is up to Government to assist in that process and not to get in the way. It is equally important to help to increase the employability of those who are unemployed and the productivity of the work force. Liberal Democrat Members have long recognised the need to confront unemployment and its social ills, unlike the Conservatives, who for 18 years felt, as Lord Lamont famously put it, that it was a necessary price to pay; I think that his actual words were "a price worth paying". We have a strong commitment to tackling the scourge of unemployment.

Notwithstanding what I regard as something of a Damascene conversion on the part of the Conservatives, I will support the motion and ask my hon. Friends to do likewise, because it is clearly important to support those who are out of work and, in particular, to ensure that enterprise is encouraged. However, I am not at all certain that the policies advanced by Mr. Clarke would deliver on the sentiments expressed in the motion; in fact, during his speech I almost changed my mind, but I will stick with where I started.

The current rise in unemployment is a direct result of the recession, which was caused by the banking crisis. Returning the economy to growth, restoring faith in the banking system and recreating financial stability are essential precursors to improving the economy and employment. It is impossible to have a debate on employment without alluding to the wider economic problems, as the right hon. and learned Gentleman and the Minister did. The first step was clearly to rescue the banking system. The Government made a reasonable job of that and deserve credit. Nevertheless, when the Minister castigated the right hon. and learned Gentleman for not agreeing on the nationalisation of Northern Rock, I could not help but noting that my hon. Friend Dr. Cable said that that was the correct course of action four months before the Government got round to it. I suggest to the Minister that there was recalcitrance on both sides of the House at that stage.

The real test is how the recovery takes shape, particularly in the financial system. To use the metaphor coined by my hon. Friend the Member for Twickenham, the financial system has had a massive heart attack, has been in intensive care and stabilised, and is now in the recovery room, but whether the patient makes it back on to the streets and returns to a full and active life will very much depend on whether we accept that we should go back to the old model-a course of action that I would not hold with-or have a different model. The old model has clearly failed. It failed to act with reasonable prudence, failed to curb the excesses of lending and remuneration, and failed to distinguish between innovation and speculation. That system cannot be allowed to return; business as usual in the City is simply not an option.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

Does the hon. Gentleman think that the Government missed a trick in that when the share subscription agreements were drawn up for £39 billion, they did not put any restriction on the pay of bankers?

Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

I do, and I am even on record as having urged the Government to do that, although it may have been in the Treasury Committee rather than in the Chamber. The Government were, to a degree, taken by surprise, and the resource at the Treasury was not sufficient to undertake a great deal of extra work, so some of those details were missed out.

There is an argument-I will not go into it in detail-for narrow banking. Suffice to say that it is not about a difference between casino banking and utility banking but between the need to have commercial banks on the high street acting with prudence while allowing investment banks the freedom to take appropriate risk. Those two cultures do not sit sensibly in the same organisation, and they both work better if they are apart.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Gentleman is echoing a proposition that was often put forward by Dr. Cable and I caution him as regards the bifurcation of the banking system. The broad consensus around the world is that, of the banking systems in advanced industrial countries, the one that survived the best and that is the most robust is the system in Canada, where there is no such bifurcation. The major banks there are in rude good health and work on both sides of the street, so to speak.

Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

The hon. Gentleman tempts me into a debate on Glass-Steagall, but I will not go into that given the time available. Canada is an interesting example to study, not least because of the banking problems that it had already suffered and the regulatory changes that it had made. There are as many people in favour of narrow banking as there are those who take the opposite view. It is a valid discussion to have, but this may not be the place for it.

Photo of John Redwood John Redwood Conservative, Wokingham

Can the hon. Gentleman then explain why narrow banks-three mortgage banks-got into deep trouble? On the basis of his argument, they should not have got into trouble at all.

Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

Indeed I can, but I will not be drawn into that debate when there is much else to say. I suggest that the right hon. Gentleman take a look at the Treasury Committee's report on the subject, which explains it extremely well; it is to do with the banks' business model and the functioning of the capital markets.

The purpose of financial services is not to spin round in self-interested speculation, but to serve commerce and industry by acting as an efficient channel between those who need investment and those who wish to invest. The argument that the City can simply go back to business as usual does not hold; its fundamental flaw is that the resource of capital has been wasted on speculation and needs to be applied to investment in sustainable growth. If we wish to grow sustainable employment, capital-both equity and debt-is required to be invested in sustainable enterprise.

The Government-no doubt their heart is in the right place-have put forward a positive blizzard of schemes. However, they range from what can only be called rank failures-the automotive assistance scheme is one of those, and the credit insurance top-up scheme has not done much-to the enterprise finance guarantee scheme, which is muddling along after a shaky start and has failed to reach many of the people that it should have done. No doubt that is because of the inherent Catch-22 that the people who turned businesses down for credit in the first place are the people who get to reassess them for it in the second place. I argued this time last year for an improvement and remodelling of the small firms loan guarantee scheme, which I believe would have been an appropriate response at the time.

Finally, the Government have put forward targeted assistance schemes such as the scrappage scheme, which have been successful. Overall, however, there has been a blizzard of schemes, and the hallmarks of them have been the press release announcing them, the lack of money spent and the failure to reach the businesses that need them. They have been at best sticking plasters, when perhaps stitches were required. I note from talking to the many companies in my part of the world that, interestingly, the single most effective measure has actually been the devaluation of sterling, which has set the economy working faster and better than anything else. Of course, that was unplanned by Government and carries with it distinct long-term risks.

There are other question marks to consider about the speed with which growth will resume. Not the least is quantitative easing and at what point the laxative should be taken away and the Imodium applied. Another question relates to the timing of the reversal of the fiscal stimulus. It is important that the stimulus is not removed until such time as the economy is capable of taking it. A third factor is the 17.6 per cent. cut in capital investment that will take place next year as a result of all the projects that were pulled forward to this year. I ask seriously whether the economy is ready for that.

Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Innovation and Skills), Member, Labour Party National Executive Committee

The hon. Gentleman has just said that he is not in favour of the fiscal stimulus being removed and that he is a bit worried about the trajectory of capital expenditure. Where does that sit with his party leader's support for savage cuts?

Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

My party leader has pointed out, very honestly, that we cannot sustain the level of public expenditure to which this Government are committed over the long term, and that if we are to deal with the structural deficit, we will almost certainly need to cut public expenditure. Furthermore, he and my hon. Friend the Member for Twickenham have set out a range of possibilities as to where those cuts may come. It is wholly appropriate for those of us engaged in politics to say those things honestly to the people out there, rather than try to pretend that there is not a problem that needs to be dealt with over the piece. In my judgment, the electorate are far more intelligent than that and can well understand the problems that we face.

Notwithstanding the question marks that I have mentioned, we are indeed seeing the first glimmers of growth, and we need to make that growth sustainable. I wish to mention in particular the sector of small and medium-sized enterprises, which are the incubators of the future. We are a nation of innovators-we innovate and invent very well, whether in our universities and research laboratories, our workshops or the garden shed. We do innovation very well as a nation, but we do badly in converting innovation into enterprise. We are not very good at converting ideas into commercial success.

One of the top points, if not the top one, made in every survey of SMEs, at least until the taxation issue came up, was that access to capital was the single biggest barrier that they faced. Some 51 per cent. gave that response in a 2006 survey. Sorting that out tops the list of requirements, because if we can get investment to the businesses that can deliver jobs, that will deliver growth.

I have made a proposal on that matter, which is based on three simple premises. The first is that in most parts of the UK, if not all, there is quite a lot of individual private wealth whose holders would really rather like to invest in enterprise, particularly locally, but lack the mechanism to do so. The second is that investment decisions are best made by investors and those in whom they wish to invest, rather than by Governments or officials. The third is that there is, however, a key role for Government to play in facilitating the creation of the mechanism for that. I have put forward a proposal for a local enterprise fund that would work on exactly those lines.

The second problem cited by SMEs is regulation. Since this Government came to power, the total regulatory burden falling on firms has grown by some £77 billion. It falls most heavily on the SME sector, and proportionately most heavily of all on the micro sector. To respond to the intervention by Rob Marris on the right hon. and learned Member for Rushcliffe, I could give three examples of regulations that I would abolish, but they would all be agricultural. I should not be drawn down that route.

Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

Well, I would get rid of the regulations to do with the water directive, because of the impact that they have on whisky in particular; I would get rid of the sheep tagging regulations that are coming down the track and I would improve the system; and I would amend the slaughterhouse regulations to allow more British slaughterhouses to operate. The hon. Gentleman has succeeded in making me rise to my own fly, so I would not make a very good fish.

Actually, the problem is not particular regulations or the number of them; it is the burden that regulations place on a business to undertake administrative functions for the Government. The real burden has come from all the matters that were dealt with by Government 15 or 20 years ago but now require form-filling and all sorts of other things by businesses. The real benefits can come from working out the impact of that burden.

Photo of Gordon Banks Gordon Banks Labour, Ochil and South Perthshire

There has been a lot of talk this afternoon about the number and value of regulations, but surely the point is that regulation must be measured against risk.

Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

Absolutely, and one of the most pernicious things in our culture at the moment is the fact that people seem to have failed to understand that risk is made up of two factors. It is the severity of the consequence multiplied by the probability of its occurrence. If that consideration were applied properly, many of the risks that people are asked to mitigate, at great cost, might well not affect them. I will happily discuss what has happened in my businesses with the hon. Gentleman after the debate.

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

My hon. Friend speaks clearly about the disproportionate burden of regulation on small and medium-sized businesses. Does he agree that we might wish to balance the amount of risk with the size of a business? By definition, a small business will not be able to generate the same sort of volume as a large one.

Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

My hon. Friend is absolutely right. A number of European countries already have that enshrined in their legislation. When I was running a business in Paris 20 years ago, there were clear distinctions between businesses that had fewer than 50 employees and businesses that had more. I would happily see that principle adopted.

My party made three proposals to deal with the problem in a policy paper that was published about a year ago. The first proposal is to strengthen the protocols on regulatory impact assessments to ensure that they are proper and robust, so that we have a real idea what costs are being introduced. Furthermore, to ensure that they are accurate, we should back them up with a post-implementation review to audit them.

The second proposal is to introduce sunset clauses on all regulation, so that as a matter of course regulations come back to Parliament to be debated again. Within that is a proposal for a strict concept of one in, one out, so that the overall burden does not increase.

The third proposal is to ensure, particularly for small businesses, that there is a single point of contact rather than a plethora of different inspectors arriving on different days. The right hon. and learned Member for Rushcliffe mentioned similar ideas. As he has so few researchers, may I suggest that, rather than reinventing the wheel, he just copies the ideas off our website?

Photo of Gordon Banks Gordon Banks Labour, Ochil and South Perthshire

I am not against the hon. Gentleman's suggestion-there is a real need for small businesses in particular sectors to know directly what affects them-but does he agree that it means that there would have to be sector points of contact as opposed to individual business points of contact?

Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

That is a possibility, but it really depends on where we are to put the point of contact. I cannot believe that it is beyond the wit of man-I know of examples of this happening in other countries-to have, at local government level, somebody who is the basic point of contact. With the vast bulk of regulation, it is not terribly difficult to assess whether someone is generally compliant. If someone had a serious problem, they could be referred to specialist help, but the vast bulk of people are compliant. How much easier would it be if they had one person coming to see them to deal with everything, rather than having to disrupt their business on several days.

On taxation, which is a core part of the motion, I regret the increase in corporation tax for small businesses. I do not for one moment think that this is the time for that measure and I concur with the aspiration to lower headline tax while removing some of the ways in which it can be avoided. It is interesting to note that the average tax rate paid by FTSE companies, which can, after all, afford to pay for a great deal of advice, is some 7 or 8 per cent. below the headline rate. That comes not from capital allowances, but from double dips through Delaware partnerships and strategically placed Jersey companies. The removal of some of those avoidance schemes would allow a lowering of the overall rate and probably, at the same time, an improvement to revenue. That would benefit everybody, particularly companies at the middle level, which cannot afford the same advice as other companies or take the action that they take.

The final part of the motion relates to benefits. I am afraid that I do not have the luxury of leaving it to a colleague to inform the House what the Liberal Democrats think about benefits, and therefore must do it myself. The concepts of an integrated approach to helping people back to work and the use of private sector companies were both put forward by my hon. Friend Steve Webb in a policy paper published two years ago, which has been put through our conference. Again, I welcome the conversion of the right hon. and learned Member for Rushcliffe to our ideas. However, as so often, the Conservatives grabbed the headline and missed the content. I cannot help but observe that it was the last Tory Administration who, for example, put the majority of those involved on incapacity benefit. The shift back is an interesting full circle to have travelled. I warn him that simply hoiking people off incapacity benefit and sticking them on to jobseeker's allowance is not at all likely to lead to savings in the longer term, and that there are better ways of getting those.

As I said at the outset, dealing with unemployment has two clear parts: ensuring that jobs can be created and that enterprise can flourish, and creating effective pathways for those who are out of work, to give them the best opportunities to return to work. The Liberal Democrats have long recognised both and have made detailed proposals, some of which I have been able to outline this evening. As those proposals coincide with the sentiment of the motion, we will support it.

However, the right hon. and learned Member for Rushcliffe began by calling for truth and honesty. I agree with the importance of those, so I say this to him: I well remember running a business in the last recession, over which his predecessor as Chancellor presided, and I must say that I see little change in the Conservative party today to make me believe that it has either the appetite or the conviction to implement the aspirations in the motion. In my mind, these are technicolour problems that cannot be dealt with by monochrome headlines. Businesses need stability and support, and the Liberal Democrats would certainly give that them that.

Several hon. Members:

rose -

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

Order. I must remind the House that Mr. Speaker has placed a 15-minute limit on Back-Bench speeches, which comes into operation now.

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras 6:17 pm, 19th October 2009

It would appear that today's debate has confirmed what was said at the Tory and Lib Dem conferences. The Tory answer to the black hole that the bankers have blown in the public finances is to cut public investment now and keep on cutting, and the Lib Dems turn out to be not much better-they want to savage public servants' jobs and freeze the pay of those who survive. Both the Government's main opponents are committed to slashing vital public services, which would throw more people on the dole. Those policies are neither sensible nor popular.

The Labour Government are right to spell out the truth of the situation and the principles that they are applying and will continue to apply. The truth is that the public finances are in a particularly bad way because of the money that taxpayers had to fork out to save the banking system, and because the recession caused by those bankers has slashed the amount of tax that is being paid into the Exchequer. For example, each person thrown on the dole costs the taxpayer at least £12,000 in benefits paid out and tax not taken in. Adding to unemployment adds to rather than reduces the debt. That is why it is necessary for the Government to ensure that they do not introduce any measures that cut spending at the moment.

In the end, the only sound, long-term way to deal with the deficit is to maximise the production of goods and services, which we are not doing at the moment. Some reductions in public spending may be necessary, but not until unemployment is falling significantly. However, debt can be reduced by increases in taxation and-dare I say it?-by inflation, which nobody likes to mention but which will be deployed against deficits by every Government in every developed country.

Here in Britain, the Government's response to the credit crunch has been exemplary. They set an example that has been followed by every country in the developed world. As Mr. Clarke denounced the Prime Minister, I can outdo him by quoting Paul Krugman, winner of the Nobel prize for economics, who said of the Prime Minister that he had acted with

"stunning speed" and that his actions had

"defined the character of the worldwide rescue effort with other wealthy nations playing catch up".

Mr. Krugman also said that the Prime Minister's

"combination of clarity and decisiveness hasn't been matched by any other Western government".

Photo of John Redwood John Redwood Conservative, Wokingham

Will the right hon. Gentleman give way?

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras

I will certainly give way so that the House can contrast what the right hon. Gentleman says with the wisdom of Paul Krugman.

Photo of John Redwood John Redwood Conservative, Wokingham

I was merely going to ask the right hon. Gentleman which taxes he thinks should be put up to tackle the deficit.

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras

I assure the right hon. Gentleman that I will get on to that issue later in my speech.

We now need further exemplary steps. For a start, we must get away from this mad idea which dominates the news media, and dominated the Tory party conference, that the primary function of the Government after the forthcoming general election will be to reduce the deficit. Some even seem to believe that the only function of the Government will be to reduce the deficit. The deficit is large and it will need to be reduced. But the function of the Government is to run the country; to provide safety and security for our people at home and abroad; to provide jobs; to encourage investment; to continue improving schools; further to enhance the care and treatment of NHS patients; to promote research and innovation; to develop a sustainable economy that reduces our contribution to global warming; and generally to promote peace abroad and prosperity at home. Against those functions of the Government, the need to reduce the deficit admittedly represents a problem and a constraint, but it is not by any stretch of the imagination the primary objective of the Government. That is why it is necessary to spell out further what would be different under Labour.

The answer must begin from a recognition that despite such Labour efforts as the minimum wage and tax credits-opposed by the Tories and the Liberal Democrats-and other initiatives such as Sure Start and nursery places for all, we still live in a society that is scarred by inequality. As Richard Wilkinson and Kate Pickett have demonstrated in their seminal work "The Spirit Level", inequality is a major cause of practically every ill that afflicts our society. These range from reduced life expectation through ill health, crime, violence, teenage pregnancies and reduced social mobility to general distrust and dissatisfaction, and they harm almost everybody, not just the people at the bottom of the pile.

Labour's public spending and tax policies must be designed to avoid the increase in inequality that would be caused by the Tory and Liberal Democrat policies-

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras

No, I want to make progress and other hon. Members wish to speak.

Indeed, we must go further and take this opportunity to try to make our society fairer and more equal. The present situation presents us with a golden opportunity, because the overpaid bankers, currency speculators and tax-haven beneficiaries have never been as unpopular as they are now. Nearly everybody in the country knows that the City slickers have been paying themselves too much and that this should not be allowed to continue. Most believe that we should block the tax loopholes of the rich, and that everyone should pay their fair share. So tackling these inequalities, and the way in which the rich manage to fiddle their way out of paying their fair share of tax, would be swimming with the tide. When the Tory party opposes the necessary changes, as it inevitably would, it would simply confirm what we have always known-that the Tory party is not the party of the poor. It is not even the party of small businesses and real entrepreneurs. In reality, the Tories are, and will remain, the political wing of the finance industries. We should press for a worldwide levy on financial transactions, a Tobin tax, and devise ways to raise-

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras


We should devise ways to raise the present negligible taxes paid by hedge funds and private equity outfits. I will give way to any Tory who can tell me the name of any hedge fund that pays tax to the British Exchequer. No one stands up, because there is none- [ Interruption. ] No, if they cannot name a hedge fund that pays tax, they have no right to be here, unless they acknowledge that what I am saying is absolutely right.

In the meantime, a windfall tax on the financial profiteers is the least we must do to satisfy the people of this country- [ Interruption. ] There may be mocking laughter from those on the Tory Benches, but I am willing to go to any of their constituencies and advocate what I have just advocated. It would go down a lot better than any defence they could put forward on behalf of the people whom they really support. But we cannot stop there. We have to pluck up the courage to reject the neo-classical economic mindset of the financial establishment-the people who believed that markets always work, who rejected restraints and regulation and who said bankers could do no wrong. Those are the people who said that the state could do no right-as the Tory leader said in his speech to conference. What did those financial geniuses do when things went wrong? They immediately started sponging off ordinary taxpayers the world over to rescue them from the consequences of their own greed and stupidity. Besides grabbing too much for themselves, the finance bosses diverted, and continue to divert, capital from useful investment in the production of goods and services into speculation in worthless derivatives. They ended up destroying wealth, not creating it. Governments have to start representing the views and interests of the people who earn their living by providing useful goods and services, instead of acting like subsidiaries of the finance industries.

The credit crunch and consequent recession were not caused by the pay of dinner ladies, shop assistants, car workers, nurses, street cleaners or social workers. They were not caused by the pension entitlements of teachers or-dare I mention them?-postal workers. So it simply will not be acceptable to make them, and people like them, pay the price of the recession while those in the finance industries-the ones who did cause the recession-continue to coin it. We will all have to take some of the pain, but that will be tolerable only if the pay of the fat cats in the finance industries is substantially reduced, not just now but permanently. The people who caused the rest of us all this trouble should pay the price-the full price-of their failure. We must step up regulation nationally and internationally to ensure that the bankers, the auditors, the ratings agencies and the regulators never get us into such a mess again.

Photo of Peter Luff Peter Luff Chair, Business, Innovation and Skills Committee 6:29 pm, 19th October 2009

I am now very glad that I came to this debate. Hearing the speech by Frank Dobson has certainly taken me back a few years, that is for sure. How reassuring it was to hear an old voice reasserting itself in the Chamber. I have one simple question to ask him: who has been in power for the past 12 and a half years? Some elements of his analysis were right-for example, the ratings agencies have much to answer for-but who could have put that right over the past 12 and a half years? It was not us on the Opposition Benches; it was him, when he was in the Government, and his colleagues on the Government Benches.

Photo of Peter Luff Peter Luff Chair, Business, Innovation and Skills Committee

With pleasure, but by the way, the reason why I did not intervene when the right hon. Gentleman asked his question about hedge funds was that I cannot name a single hedge fund. It was a pass, not a negative.

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras

Can the hon. Gentleman give a single example of anyone from the Tory Front Bench calling for more regulation of the financial services industry in the past 12 years?

Photo of Peter Luff Peter Luff Chair, Business, Innovation and Skills Committee

I will happily send the right hon. Gentleman some of the excellent speeches by my hon. Friend the shadow Chancellor of the Exchequer, who calls for better and more effective regulation of the banking system all the time. Indeed, to jump ahead in my remarks, it was the incompetent reordering of the financial services system by the right hon. Gentleman's Government that contributed to the mess in the international economy, for which he has dared to have the cheek to criticise us.

Photo of John Redwood John Redwood Conservative, Wokingham

My hon. Friend might like to remember that in our economic policy review in 2007, we called for stronger cash and capital regulation of the banks and said that a massive credit excess was very evident.

Photo of Peter Luff Peter Luff Chair, Business, Innovation and Skills Committee

It seems that some of us were more prescient than members of the Government. That report was produced at the request of those on our Front Bench and they paid great attention to it. I am afraid that the right hon. Gentleman is wrong. However, I am glad that he took us back. I do not know how far-probably to the heady days of nationalisation in the post-war period.

Photo of Peter Luff Peter Luff Chair, Business, Innovation and Skills Committee

It was to the 1930s, 1940s. I am glad that the right hon. Gentleman took us back, because in his opening remarks the Minister sought to take us back to the 1980s. I am an old man, it seems, in parliamentary terms. I was brought up not in the '80s, but in the 1970s-a book published today by my good friend Lionel Zetter implicitly describes me as a grizzled veteran of the Major years. My formative experience was of the 1970s. I remember why the 1980s were so painful: it was the result of the mess that that lot on the Labour Benches made of the economy in the 1970s.

I remember being at university in Cambridge in the 1970s and being told that there was no future left for this country. There were too few producers and no manufacturing industry-the nation had gone to rack and ruin. It was the Thatcher years, painful as they were and mistakes made as they were, that saved the country. It is about time that the Government stopped criticising those years and instead gave thanks to a Government who saved this country from economic damnation.

I am probably being a little partisan for a Select Committee Chairman, but it is objectively true that, economically speaking, we face two huge crises in our society. First, unemployment is catastrophically high, as it always is towards the end of a Labour Government. Indeed, it has doubled in my constituency in the past year. Unemployment was not something that we had to worry about in Mid-Worcestershire, but now we do, thanks to the Government's incompetent management of our economy in recent years.

Secondly, the scale of the debt burden facing our children is truly horrifying. Indeed, it is a problem that will hang over the House of Commons for years to come. However, it is not down to the reasons that the right hon. Gentleman gave, but down to structural problems-that is, the constant seeking to spend and spend on things that people wanted over many years. That is the underlying problem. What Tony Blair's Government used to call the bills of economic failure-the bills for unemployment, debt interest and so on-will be massively higher in the next Parliament than those that he had the cheek to criticise us for back then. Therefore, I will take no lectures on debt either.

One of the two great deceptions practised by this Government has been to say that this recession has its roots entirely in the United States of America. It is true that the American economy is five times bigger than ours, so any problem on that side of the pond will necessarily have an impact five times bigger on the world economy. However, it is also true that all the mistakes made in the United States of America were made here as well. An excessive reliance on debt, sub-prime lending, poor regulation-all those mistakes were made here as well. This is a recession made in the UK and the USA. I therefore regret very much that the Government still seek to hide behind that pathetic excuse.

What is more, and what is so tragic, is that the Government pretended that they had ended boom and bust. That lured many innocent folk into making decisions about their investments that they would not otherwise have made-bankers tell me this endlessly. If there is one phrase that should act as the sad epitaph of this Government, it is "an end to boom and bust." Those of us who are students of economics know that that is absolutely impossible. That is the nature of the way the world works-it has been for centuries and it always will be. "An end to boom and bust" was an impossible claim, but it lured people into making very bad decisions.

Let me say in brackets that one thing that my right hon. and learned Friend Mr. Clarke said in his opening remarks puzzled me. He said that this was not an economic debate. However, I see it very much as an economic debate. Indeed, it is a great shame that we have so few economic debates in this place. I do not yet know whether the Government have announced a date for the pre-Budget report, which will presumably come after the Queen's Speech. I appreciate that announcing dates in the next Session poses challenges, but I hope that there will be a debate this year on the pre-Budget report, which there has not been for many years. The Government are committed to such debates and it is important that they should be held, because scrutinising the economy is one of the two most important challenges facing our society-the other, in our view, is addressing our broken society. I therefore urge the Government to keep to their previously declared pledge to have debates on the pre-Budget report.

The Government often hide behind headlines, one of which is Britain's relatively high standing in the World Bank's "Ease of business" table. It is true that we have risen a place in 2009-10, from sixth to fifth, which superficially looks like a cause for cheer. However, the detailed breakdown of the figures that underpin that result show that a lot of the things that are done better are things for which the Government can take little short-term responsibility. However, where we have got worse is, for example, on employing workers. We are now the 35th easiest country in the world for employing workers. That is a terrifying statistic. We are slowly but surely crawling down the league tables-on starting a business, for example, we were ninth last year, but now we are 16th. On the measures that are under the Government's control, therefore, we are getting worse in that ranking table.

What is more, we are being caught up by some worrying countries that understand exactly what is necessary to do business effectively. I went to Saudi Arabia with my hon. Friend Mr. Binley earlier this year, where we heard about the phenomenal attempts being made by the Saudis to move up those business tables. We need to watch out, because some unlikely countries are snapping at our heels. In 2004, Saudi Arabia was the 67th easiest country in the world to do business; in 2009, it had become the 15th. Now it is the 13th and it expects to be in the top 10 next year.

The world is changing fast. We have to move fast to adapt to it. Many of the old platitudes offered for years in this Chamber-about the need to deregulate, for example-can no longer be treated as platitudes. They have to be acted on with the utmost urgency.

Having said all that-and perhaps reverting more to the role of a Select Committee Chairman-I am also anxious that we should not talk down the success of what has been achieved. We still have a successful manufacturing sector in the United Kingdom. I would argue that it could have done better under different policies. Indeed, our manufacturing sector would be stronger if the Government had not fallen so in love with the financial services sector, but there we are: we are where we are. However, the manufacturing sector has grown consistently in most years. We produce more as a nation than we have ever produced, notwithstanding the current recession.

As my Committee pointed out in our recent report-a report that attracted no attention at all, because it was entirely constructive and often praised the Government-the UK is

"the world's sixth largest manufacturing nation...the eighth largest exporter of manufactured goods," and in 2006,

"25 per cent. of those goods were high-tech".

Indeed, we have the highest proportion of high-tech exports of any of our major competitors. In many ways we are doing extremely well. However, we need to criticise the Government objectively and fairly when we think that their policies fall short.

It is always disappointing when the Government react in a knee-jerk way to a Select Committee report. For example, the Secretary of State for Children, Schools and Families owes us more explanation of his reasons for rejecting the recommendation of the Select Committee on Children, Schools and Families than he gave in answer to today's urgent question.

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

My hon. Friend makes a powerful point about the need not to talk down the success of British manufacturing and about whether the UK manufacturing base would be doing better under different policy conditions. He will be aware that the manufacturing sector has been haemorrhaging jobs, with almost 2 million lost over the lifetime of this Labour Government.

Photo of Peter Luff Peter Luff Chair, Business, Innovation and Skills Committee

I want to caution my hon. Friend about this jobs argument, which is a double-edged sword. Sometimes those jobs are lost because of improvements in productivity. We are still producing more. That kind of talk risks a self-fulfilling circle of decline, which I am rather nervous about-indeed, that is one of the major themes of our report, which I shall come to in a minute. There are huge and exciting opportunities for young people in manufacturing, if they had them explained to them properly, but if we talk it down too much, our young men and women will not choose careers in those industries. I am therefore nervous about the jobs argument. It is not quite as strong as Opposition politicians have sometimes thought it was, when the main parties were on other sides of the Chamber, or as some think it is now.

On dismissing Select Committee reports, my Select Committee on Business and Enterprise produced quite a constructive a report about the automotive assistance programme. Strangely, that is not part of the Government's amendment, and I will explain why that might be if I have time. However, it was a constructive report, although one has, of necessity, if one is to get coverage these days in our rather simplistic media, to emphasise the negative, and we perhaps did that in our press release. The result was that Lord Mandelson told BBC News 24 on the day of publication:

"I am afraid the Committee don't know what they're talking about...Well, I'm equally astounded these MPs don't have a clearer idea of what's going on on the ground."

I was a little dismayed because I had hoped that he would regard our report as a constructive contribution that suggested ways in which the AAP could be improved.

My judgment was vindicated by the Government's formal response, which was published in September. It stated:

"The Government welcomes the Business and Enterprise Select Committee's report-The Automotive Industry in the UK...This is a valuable contribution to the discussions now taking place about the best way to support this critical part of the UK's manufacturing sector now and in the future...The Government thanks the Committee for their positive comments about this work and the commitment of Ministers".

That shows the danger of knee-jerk reactions, and I hope that the Minister will take back to Lord Mandelson, who I wish could be more accountable to this House, my slight warning that he should read things a little more often before he comments on them.

The Committee likes to give praise where it is due, and we have done that in our report. However, we have one warning, which echoes the words of today's Opposition motion. We say:

"Over the last year, the Government has produced a succession of strategy and policy papers related to innovation and industry. Their proposals cannot be implemented by the Government alone. All those involved now need to ensure that the emphasis is on the actual delivery of policies designed to support innovation, rather than producing further policy documents."

I sometimes feel that the Government think that saying the right words will achieve the right ends, but that is not always the case.

Often, by the way, the best schemes cost little or nothing. I am in favour of schemes that support industry, and many guarantee schemes never cost a penny or certainly cost very little. Even the scrappage scheme-it is a very good idea, and I argued for its extension-will cost the Treasury very little, because of the tax revenues that it generates. The best schemes therefore often do not need to spend large sums, and the debate about fiscal stimulus and supporting industry often echoes old and tired politics.

Sometimes, clever interventions cost very little. One example is the enterprise finance guarantee scheme. It is too limited, and the Conservative party's national loan guarantee scheme would have been a better and more generous option. It would have been easier to administer and would have had very few public expenditure implications, but, to be fair to the Government, their scheme has broadly worked. Expectations were perhaps raised a bit about how it might work in practice, but it has been quite a targeted scheme, as Baroness Vadera explained to the Committee at an interesting evidence session. Broadly, the scheme is delivering the goods after a slow start. That is certainly the conclusion of our report.

The Department for Business, Innovation and Skills has been effective in its dealings with the aerospace sector. The establishment of the Technology Strategy Board is a welcome step forward, as long as the board can remain reasonably focused on its core tasks. On the other schemes, however, the warnings about trade credit insurance have been continuous and vocal. Where are we with it now? The Financial Times has described the take-up as "paltry". On 27 August, it said that just £7 million of cover had been provided to 52 businesses. On 9 September, the answer to a written parliamentary question showed that the Financial Times figures were correct. On 26 July, a survey of 100 members of the Construction Products Association-construction has been one of the hardest-hit sectors in the recession-found that just one had taken advantage of the scheme, which the association's members had found

"very expensive with very limited cover".

That is an example of a well-intentioned scheme that was delayed for far too long and then implemented incompletely and imperfectly.

As for the automotive assistance programme, which does not feature in the Government's amendment, I suspect that the Government are a bit embarrassed about it. It was announced with a great fanfare of trumpets in January as a £2.3 billion scheme. That sounds like quite a lot of money, but under cross-examination from my Committee last week, the Department's permanent secretary admitted that it was actually a £400 million scheme, because that was the amount of the loan guarantee available to support the £2.3 billion of lending that the Government hoped would come forward. What is more, most of that £400 million should never be spent, because it is a guarantee-a liability. The scheme's actual expenditure is nugatory. So far, by the way, only one scheme has been advanced under the automotive assistance programme. It is for a loan-not a loan guarantee-of £10 million. Therefore, a £2.3 billion scheme advanced in January has provided one £10 million loan in the middle of October, which is extraordinary and extremely disappointing.

The Government perhaps did not think about the scheme properly before they introduced it. There was a gap between the AAP's £5 million lower level and the £1 million upper level of the enterprise finance guarantee scheme. The Government have now closed that gap, acting on a recommendation from my Committee. Their response to the Committee hinted at that new flexibility and things such as lower thresholds. Last week, however, the permanent secretary confirmed to our delight that the gap had been closed and that the AAP applied from £1 million up. The Government should be trumpeting that much more.

Whatever one makes of the merits of using taxpayers' money in effect to subsidise the private sector, and there are arguments about that, the French and German Governments moved much more rapidly to support their automotive sectors than the British Government did. The treatment of Jaguar Land Rover is still a matter of serious concern. The Government hold it up as a triumph that the company has gone back to the private sector for its finance, but the time and effort that it spent negotiating in good faith with the Government suggests that it was driven there by desperation rather than need. However, we are where we are, and I hope that JLR-a very important company-will now survive.

The AAP is an example of a scheme that was, in many respects, well intentioned, over-promised and late in delivery and which did not deliver as it should have done for a crucial sector. Equally, however, there are some good things in it, and I am grateful to the Government for their constructive response to our report, notwithstanding Lord Mandelson's initial reaction.

I still have high hopes for my own small measure for small businesses-the Small Business Rate Relief (Automatic Payment) Bill. I have a meeting with a Minister in the Department for Communities and Local Government on Wednesday, when she will explain the Government's latest thinking. I am still convinced that that is the kind of measure that would help small businesses, for which the odd £500 here and £1,000 there makes a big difference. I can see no overriding reason why the Government should not embrace my Bill. I warn the Government that the Conservative party is explicitly committed to embracing it in government. If the Government want to give the small business sector some good news, they should embrace it.

This is an important debate, and I hope that there will be more such debates. Some of the Government's schemes are very effective, but some are not. It is time for the Government to acknowledge the failings of those schemes and to address them.

Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton 6:46 pm, 19th October 2009

This must be one of the most remarkable run-ups to an election in recent history. We have the biggest crisis in British politics alongside questions about how to handle a deep and continuing recession, what caused it and how to prevent any recurrence. Yet, most people believe that the policies that are obviously required are still not being pursued or even debated.

As we all know, the country has been held to ransom over the past two years by the City of London-I am glad to see Mr. Redwood nodding at that. The City's members and institutions spent two decades blowing up the most reckless, greedy and self-seeking financial bubble, and when it burst, they demanded a bail-out and guarantees against the failure of their speculation from the Government and taxpayers. That burst bubble could still cost the country up to 10 per cent. of its GDP.

What is worse, now that the crisis has eliminated a good deal of competition in the banking sector, bankers and the finance sector are rewarding themselves, as we see every day, with bonuses that use Government bail-out funds. The situation is stoked further by the Government's ultra-low interest rates, quantitative easing and the huge market for Government gilts.

In that context, the Conservative party has launched one of the most audacious displays of the game "blame the victim" and is demanding that the poor, the homeless, the unemployed, single parents, public sector workers, the elderly and the ill pay for the disaster through cuts in public spending. However, it should reflect on the fact that the private sector depends heavily on public spending for its own recovery.

That fixation afflicts both parties. Of course, the Tories have made it clear that they will clobber public services and shrink the state, and the financial crisis has given them the perfect excuse for doing what they always intended to do anyway.

Photo of John Redwood John Redwood Conservative, Wokingham

Will the right hon. Gentleman explain why the Government gave all that subsidy to the banks and bailed them out when they should have told them to toughen up and sharpen up, acting as lender of last resort only in extremis?

Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton

As the right hon. Gentleman knows very well, a crisis of global proportions developed almost overnight as a result of the error that was made in September 2008 with the dismemberment of Lehman Brothers. Credit should be given to the Prime Minister, who came forward with a plan that other world leaders and world economists have agreed was necessary. That is why that happened, and I think that it was right.

I was saying that the Tories want to pursue the policies that we always knew they would pursue. Sadly, the Lib Dems-or, at least, their leader-have called for a policy of savage cuts. Even the Government are now trumpeting the fact that they have a plan to halve the deficit over four years. That appears to mean a cut of up to £80 billion, which is roughly one sixth of total Government expenditure. And the International Monetary Fund, which has always advocated increasing the privatisation of health services in the UK, is now demanding cuts in public health care and public pensions. Not for the first time, we have the extraordinary situation in which all the political parties and international supervisory institutions are, sadly, united in pursuing policies that most people see as wrong and misguided.

Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton

I will; this is the second and last time that I will do so.

Photo of Stewart Jackson Stewart Jackson Shadow Minister (Communities and Local Government)

Is not there a void at the heart of the right hon. Gentleman's argument? Over the past 12 years, he has consistently voted for increased expenditure on public services, knowing that the compact that the Government had made with the City and banking meant that the tax revenues would continue. He was happy to vote for an increase in that tax revenue to fund public services, yet he is now criticising the generation of that wealth in the City.

Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton

I think that the hon. Gentleman might be overstating the contribution of the City of London; many people do. The value of the capital gains tax and corporation tax revenues from the banks is about £25 billion. That is a lot of money, but, set against total Government revenue, it is relatively small. Furthermore, if the consequences of supporting and underwriting the banks when the bust occurred are what we are now seeing, that will have been an extremely poor investment.

Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton

No, I will not, because I would be cutting into my own time. Much as I respect the hon. Gentleman, I prefer, now that I have the floor, to keep it.

There are two ways of tackling the deficit, which is, of course, reducing Government revenues through rising unemployment and increasing Government expenditure through social benefits, including the so-called automatic stabilisers. Those activities are in turn ballooning the budget deficit. We all know that that is the problem. One way of dealing with the deficit is to tackle the supply side of the equation by drastically cutting other Government expenditures across the board. The other way is to tackle the demand side of the equation by initially spending more, not less, in order to put in place massive public investment programmes across the country, to get a large and increasing proportion of the population back into work. That is clearly right.

The first way was the policy that was ruthlessly pursued by the Bank of England under Montagu Norman in the infamous 1930s. The second was the approach adopted by Roosevelt in his 1933 new deal and, increasingly, after the war, by western Governments across the spectrum until it was discarded by the Thatcher-Reagan neo-liberal counter-revolution in the 1980s. That is the capitalist model of market fundamentalism, which is now bust. The second policy is unquestionably right, for several reasons. At the most basic political level, people are asking why the public sector, which contains many of the poorest workers in the country, has to take any hits at all, when the credit crunch crisis was caused exclusively by the bankers and the super-rich. I imagine that even Conservative Members have had that question put to them.

There is another, much more profound, reason on which I prefer to concentrate, however. The real economy-main street, as opposed to Wall street and the animal spirits in the City of London-is still sinking, as revealed by the fact that joblessness, repossessions and bankruptcies are continuing to rise, albeit more slowly. This continues to reduce the overall level of demand throughout the economy, and in these circumstances, further massive cuts in public expenditure will simply turn a bad recession into a deep slump. That is the fundamental point that Labour Members continue to press very hard.

There are two crucial considerations to confirm this view. First, there is ample historical evidence of the consequences of following a budget-cutting policy. As I said in an intervention on Mr. Clarke-who gave a long historical discourse but did not answer my point-the Japanese Government, against the background of a precarious economic recovery at the end of the 1990s, raised their sales tax and made cuts in public expenditure in order to lower their budget deficit. That is exactly the argument that is being made today. That precipitated a second, deeper slump, which is, sadly, still in place in Japan today.

Even more relevant is the example of Roosevelt, who came to office in the US in 1932 and launched the new deal, involving a massive public works programme that initially brought down unemployment quite significantly. People do not often remember, however, that he was instinctively a balanced budget man, and, in 1935, he lowered public expenditure and edged up taxes, with the result that unemployment started to rise again. He was then forced to reverse engines. The only thing that finally brought down unemployment in the United States was war expenditure.

A crucial point that has not yet been mentioned in the debate is that the current ratio of Government debt to gross domestic product in the UK, although high, is still the second lowest-after Canada-in the G7. That indicates that there is certainly no cause for a panicky, counter-productive orgy of cuts. The IMF estimates that, even in 2014, when gross debt might peak-we shall see-the UK debt-to-GDP ratio will be 87 per cent. It estimates that that of France will be 89 per cent., that of Germany will be 91 per cent., that of the US will be 106 per cent., that of Italy will be 129 per cent. and that of Japan will be 234 per cent. I could add that, during the second world war, Britain's debt-to-GDP ratio rose to 250 per cent. I do not think that anyone disagreed with the proposition that that was necessary at the time. By the 1950s, however, it had fallen to below 50 per cent. without any programme of systematic cuts. Indeed, that was achieved by a huge programme of public expenditure expansion to promote employment.

So, what is obviously needed is a huge public investment programme of job creation in housing, which has been terribly neglected, in infrastructure such as rail extension, which I hope we are now getting round to, in manufacturing, in energy conservation, in skills training, in public services, including social care of the elderly-which would certainly offer a lot of employment-and in the greening of industry. That would turn around a budget deficit far faster and more effectively than hugely painful cuts in public services. I am sure that Opposition Members do not believe me, but perhaps they will pay attention to Martin Wolf, the financial guru at the Financial Times, who said recently in the FT that the public debt crisis was a myth. He said that a normal economic recovery would resolve the problem, and that widespread cuts would create a crisis. Amen to that.

So how do we pay for this? That question has already been raised. Now that the City has gone back to business as usual, with its paying of bonuses and its colossal profiteering, a windfall tax could be levied on its ill-gotten gains, as my right hon. Friend Frank Dobson has said. I think that the vast majority of people in this country would agree with that.

Also, let us be honest, we will need to cut public expenditure where it is ineffective, wasteful and unnecessary. That is why we should cut the £75 billion Trident renewal programme, which even the chiefs of staff now admit is irrelevant; the £10 billion-plus-whatever it is-ID cards that are not, according to their originators, "fit for purpose"; and the vast Government IT databases, which are costing tens of billions of pounds and are constantly leaking. We need to add a real crackdown, which the Government are starting to do, on the hyper-rich individuals and mega-corporations that squirrel away a sum that even the Treasury admits is somewhere between £13 billion and £25 billion a year.

At present-I have to say, by contrast-economic policy making has got rather stuck in a groove. Both new Labour and the Tories, for the same ideological reasons, have refused to nationalise the banks, which would have been far cheaper than bailing them out at a potential cost of nearly £1.5 trillion, and would have been a far more effective way of achieving control over the banks and their functions. Both new Labour and the Tories-again, for the same reasons of "hands off the banks"-have opposed forcing them to lend to businesses and home owners, which was of course the ostensible reason for bailing them out in the first place. Both parties refused to impose any significant regulation on the banks-here I very much agree with my right hon. Friend the Member for Holborn and St. Pancras-even though their greed and recklessness has nearly capsized the entire world financial system. Now, to cap it all, it seems to me that both parties are competing in this fixation on public sector cuts-mugging the victim, not the culprit.

What is really needed in order to shorten the recession and prevent unemployment rising even beyond its current 15-year ceiling of £2.5 billion is to require the banks-requiring them is something that we have not done; I simply cannot understand why not-to switch from their current policy of consolidating their balance sheets, which they have already done to a significant degree, to raising their lending substantially to businesses and home owners. It is the lack of credit for businesses, particularly small businesses, that is at the continuing root of rising unemployment.

The Government's own M4 money supply figures, which measure lending, show a catastrophic fall from annual growth of 20 per cent. in early 2007, just before the credit crunch, to nil today-indeed, they are actually negative, which means that the banks are now extracting more from their business clients than they are lending to them. The top management of the part-nationalised RBS and Lloyds groups should, in my view, be instructed to make that change as an immediate priority, with published quarterly reports to demonstrate that the policy is working, particularly in respect of lending to small businesses. That is the one area where I have some sympathy with the terms of the Opposition motion, as we need to do more in that respect. The best way of doing so is the way I am suggesting. I believe that any failure to comply should lead to a change of management. That, plus a huge public investment programme, as I have said, would absorb a very large number of the unemployed.

What is certainly not needed is a fire sale of public sector assets or the shadow Chancellor's pay freeze for 5 million public sector workers, which will again lower aggregate demand and prolong the slump. What really takes the biscuit is the gall of the Leader of the Opposition, who told the Tory party conference that it was "more government" that has got us into this mess. Well, anyone-surely even a Tory, even him-can see that what got us into this mess was market fundamentalism, the doctrine that the market always knows best. [Interruption.] The Government had a role in preserving the banks and the economy, and it was actually the Government who ensured that global capitalism remained. To dismiss the role of the state, as the Leader of the Opposition did, is an extraordinary perversion of the truth, which will be noticed by many people in the country.

Several hon. Members:

rose -

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

Order. Having done some simple mathematics in order to be as helpful as possible to hon. Members, I propose that, after the hon. Member I am about to call next, the time limit comes down to 12 minutes.

Photo of John Redwood John Redwood Conservative, Wokingham 7:04 pm, 19th October 2009

I remind the House that I am involved in business in a global manufacturing company and I am an investment manager of a company, but I am not, of course, here to speak for those companies.

Like most Members, including my right hon. and hon. Friends, I come here because I want my country to be prosperous. I come here because I want there to be more jobs, not fewer. I come here because I am appalled by the tragedy of unemployment that we see in our streets in our towns and villages today. I am appalled by the devastating impact that both domestic and global errors of policy have made on our economy and our country.

What I find most difficult to accept is hearing Government Members suggest that Conservative Members are here to argue the case for the banking industry, that we take great delight in having to cut public spending or that our motive is to have more people out of work or to make the poor suffer more. On the contrary, we are here because we want more opportunity and we are here because we want a wealthier and more prosperous people. Our recommendations to the Government come from the heart and from our experience. Surely Government Members can see that it is they who have messed it up: they should be a little more contrite; they should listen more and lecture less; and they should understand that this country needs many changes in order to give more of our people more of a chance.

We have heard a lot from Government Members about Japan, but they have misunderstood the history and the economics. They say that Japan cut spending, which created a 19-year recession, yet Mr. Meacher said that Japan has the biggest accumulated Government deficit and biggest stock of public debt in relation to the size of its economy of any major country he spoke about. Quite right. It does, and the reason it does is that it has had fiscal stimulus after stimulus year after year for 19 years-and they have not worked. Labour Members need to ask why they did not work. They did not work because that country did not mend its banks. If the banking system is not mended, throwing more money into public capital and into public works does not create a prosperous economy with many more people at work; it creates bigger problems.

If Labour Members cared to look at Canada, they would see that the country got into such a public deficit mess some years ago that it had to put through massive cuts on a scale that none of us would like to see. After that was done, however, the economy performed extremely well. The Canadian economy has got through this world crisis so much better than the British economy in part because its public sector is in better shape and making fewer extraordinary demands on its economy. If we look at the Australian economy, there has been no downturn at all. Again, sound public finances are part of the Australian response to the crisis.

Even the United States, which some people very stupidly try to blame for the whole thing-when, as my hon. Friends have said, this is a British problem made in Britain as well-has had a gentler downturn than the UK's over the last year, largely because of the strength and depth of the American economy and the Americans' refusal to go to the extremes of policy response that the British Government have adopted. The American Government did not subsidise and put as much public money at risk in their banks, relative to the size of the economy, as we did.

The problem Britain faces and the reason we are doing so badly relative to many other countries around the world at this time of danger and difficulty is that we have the worst treble crisis of all the major countries. Yes, we have the excess credit from the easy money days, the bad monetary policy days, of 2003 to 2007, when policy mistakes by the Government and the Bank of England allowed and fuelled a mighty boom in private sector credit. Yes, we also have the worst problem of all major countries with our Government deficit. On top of the over-borrowing in the private sector, we are now heaping unbelievable amounts of extra debt on taxpayers through the public sector. We then have the third deficit-the banking deficit-where, quite wrongly I believe, the Government decided to force the effective nationalisation of two of our largest banks when they could have seen them through at much less cost and risk to the taxpayer.

Again, I deeply resent the way in which, in the past, some Ministers have tried to suggest that I wanted to bring the banks down, as if that would be a good thing to do. Of course no sensible person would have wanted our major banks to go down. What we wanted-what I wanted-was for Ministers to do a better deal and to be ahead of the game. We wanted them to regulate the banks effectively when they could have been pulled back from the brink, rather than taking them over the brink and then lumbering the taxpayer with so much risk and so much extra cost.

We did not need to draw Lloyds into HBOS, but the Government decided to do that. We did not need to allow the mega-mergers that created RBS, but the Government decided to do that, perhaps for Scottish reasons. We did not need to go public with the view that the banks were weaker than they should have been, which was bound to starve them of access to money markets and capital markets-the access that they needed-and then force them on to the taxpayer, who now carries far too big a burden.

In order to create the jobs that I think any sensible Member of Parliament wishes to see, and in order to ensure a recovery in the United Kingdom that is much more vigorous and faster-not as fast as the recovery in China, which has been in progress for many months and is doing extremely well, and probably not even as fast as the recovery in more broken America, but faster than any recovery that we are likely to see at the moment-the first thing that the Government need to do is go back and help to mend the banks. Nothing will work properly in this country until the banks are sorted out.

We have two mighty banks with combined balance sheets of £3 trillion-twice our national income-which are hobbled. They are hobbled by the regulations imposed on them, because, most extraordinarily, the Government and the regulator have decided to tighten the cash and capital rules at the bottom of the cycle, having failed to tighten them when some of us asked them to do so as we approached the top of the cycle. So we have pro-cyclical regulation. We are making the problem worse at the peak by making it too easy, and we are making it worse at the nadir by making it too tough.

In my opinion, the reason for that asymmetric regulation is quite clear. The Government are following an election strategy, not a recovery strategy. The election strategy is about spending as much as possible in every way in the public sector while knowing that that cannot be sustained beyond the election. It is about assuming that a future Government, if there is a change of Government, will obviously have to make cuts because that level of spending is not sustainable. If by some miracle the Government got away with it, they would say "Of course we had to make some adjustments, because the Treasury officials suddenly told us that none of the arithmetic worked."

Far from fuelling a better recovery-far from offering hope to all the people who have lost money and jobs in the private sector-that strategy is doing the opposite. We have a completely lopsided economy. We have a public sector that is still taking none of the hit and none of the pain, and a much bigger private sector that is suffering, anaemic, emaciated and under pressure because the banks cannot lend it the money that it needs, and there is not the necessary demand to create that money through the turnover in the businesses.

Photo of David Taylor David Taylor Labour, North West Leicestershire

The right hon. Gentleman says that the public sector is taking none of the hits and none of the pain. Which parts of the public sector does he think should take some of the hits and some of the pain? Could he identify one or two of them?

Photo of John Redwood John Redwood Conservative, Wokingham

I should like to see it start from the top. The fat cats in the public sector, the excessive bureaucracy, the regulation that does not work, the unnecessary quangos, the people on the six-figure salaries: that is where we should start to slim down the public sector, because it is an affront to everyone else who sees the very different standards that apply to the private sector and the public sector in this world.

I am not someone who believes that it is a case of "public sector bad, private sector good"-although a fair number of Labour Members seem to believe that it is a case of "public sector good, private sector bad" in every instance. The world is much more complicated than that, and, like many Members, I am proud of many of the great public servants and public services in my constituency and elsewhere in the country. But if the Government still cannot see that the public sector overall is inefficient, bloated and in need of substantial treatment, they really are not fit to govern. Their own Ministry of Defence recently produced a damning report describing how much waste and incompetence there is in defence procurement, and that is the only Department on which they have put any downward pressure over budgets in recent years.

The biggest cuts in public spending that I want to see are cuts in welfare payments because people have gone back to work. We cannot afford the welfare budget at its current level. We need a much more active policy-which I am sure my right hon. and learned Friend Mr. Clarke will recommend-to enable us to spend the money more wisely, so that we can get more people into jobs more quickly and do not have to sustain this massive burden.

Another big cut that I want to see is a cut in interest rates. The interest rate burden is escalating out of control. If we are not careful, the interest programme will not just be bigger than the defence budget, but will be bigger than the budgets of some of the even larger and more important Departments of State that are more valued by members of the Government. We should be very worried about the way in which the interest rate burden could so easily get out of control.

There can be no sustained and sustainable recovery unless we ensure that there is a fairer balance between the public and private sectors. There can be no sustained recovery while people continue to be alarmed by the scale and rate of the increase in the deficit. That has an impact on confidence: it means that people hold back from business investment or spending. They know that there are tax increases around the corner from this Government, because the deficit is so implausible. They know that there will be rises in interest rates, because once the Government stop the quantitative easing-once they stop printing the money that they are now spending in their public sector-interest rates have only one direction in which to go.

People are going to say "We do not think we should lend to the Government at 1 per cent. for a short term, or at 4 per cent. for a very long term." Given the risk posed by the Government-given the enormous scale of the deficit if it is not curbed and controlled-they are going to want a much higher rate of interest. The Government may then reach a point at which their interest rate costs and programme become completely out of control. The rates will rise not only because they are borrowing too much new money, but because each time they re-finance their debt they are re-financing it not at 3 per cent. or 4 per cent. but, perhaps, at 6 per cent. or 7 per cent. The arithmetic then becomes quite shocking and terrible.

So what should the Government do if they really want a recovery? First, they should change the regulation of the banks so that the banks have some scope, given their current capital and cash position, to lend to the private sector. Yes, that will mean laxer regulation for a bit while they get the thing going again, but there will be no problem with that, because the two weakest banks are state-aided and state-supported. People would not lose confidence in them if they took such action, and it is the sensible thing to do now. As my Front-Bench colleagues have pointed out here and at the party conference, allowing the banks to lend a bit more to the private sector means having to start adjusting the deficit in order to create a bit of room and a bit of balance between the public and private sectors in our economy.

How do you mend banks? Well, Mr. Deputy Speaker, as you own two of them-you and all the rest of us, and the Government as our representatives-it is much easier to sort them out. As shareholder, as the dominant influence on that bank, it is the Government, as our representative, who hire and fire the directors and senior executives. It is the Government, as the shareholder representative, who should be monitoring the cash and capital, and ensuring that they are happy with their rather ill-founded investment on behalf of the taxpayers.

What would I do if I were the Government trying to sort out those banks? First, I would go in tomorrow and tell them that there would be no bonuses for senior executives and directors until they became profitable and were returning to the private sector. I would tell them that I did not want to return Royal Bank of Scotland and Lloyds HBOS to the private sector in their current forms. I would tell them that they would be split up, and I would want plans on my desk as soon as possible to create half a dozen banks in the United Kingdom out of the two massive banks that we have. If they did not like it, I could say "In that case, we will negotiate with you the withdrawal of all subsidy and support from the state, because we do not accept this position. We think that there is not enough competition and choice in the banking sector, we think that you cannot run such a big organisation as this, and we think that we need to split it up and make it work rather harder for its living."

There was not enough competition in the banking market before the problems that the authorities helped to create in 2007 and 2008. Now there is even less, because of the actions that they took over Lloyds HBOS, and the actions that they took over the three mortgage banks that they failed to regulate properly and that also got into considerable difficulties. The Government should be alarmed that there is so little competition in the banking market, because without that competition there will be no loans for anyone who wants to run a reasonable risk-there will only be loans for people running practically no risk at all-and there will be no loans at sensible prices for the private sector. I do not know whether Ministers are aware of this, but interest rates and charges have gone through the roof because these banks, knowing that they now have oligopoly in the market, know that they can get away with charging the earth and nobody can stop them. All the time that position remains true there can be no virile, decent, strong recovery in Britain. All the time that remains true, our trend rate of growth will not be the 2.5 per cent. that we always said, or the 2.75 per cent. peak of the market forecast from the Treasury. It will not even be 2 per cent. I hope there is a recovery in the next few months-there may well be as the figures we are comparing with are so bad it would be stunning if there were not-but in no way will we get back to even 2 per cent. growth unless the Government mend the banks and sort out the public sector.

Photo of Sally Keeble Sally Keeble Labour, Northampton North 7:20 pm, 19th October 2009

The title of the debate is "Economic recovery and welfare". So far, there have been a lot of history lessons about the economy but not much attention has been given to the welfare aspect of the debate. That is what I want to talk about, however, because as we come out of this recession it is becoming clear that it has changed social attitudes and the reality of life for lots of families, and I want to look at some of the policies needed to meet the challenges.

Before doing that, however, I wish to address a few other points, in particular some made by Mr. Redwood. He was completely wrong to pit the public against the private sector as there is now a recognition that both sides of our economy and society must prosper for the whole to prosper. The days are gone when people might say, "The public sector must bear the pain like the private sector has done." Most people recognise that in the current difficulties the public sector is providing a welcome cushion for many families. They also accept that there has been substantial investment in the private sector, both through the variety of schemes that have been introduced-and which the right hon. Gentleman criticised-and the intervention in the banks, because that has also been support for the private sector.

The right hon. Gentleman's analysis of the banks is also completely wrong. I do not want to discuss that in detail as the Select Committee has produced a report on it. However, hearing him talk about what he would do in respect of the banks made me think that he should be sitting on the Labour Benches because his recommendations sounded like old-fashioned nationalisation and intervention by big Government, whereas what the current Government have rightly done is set up an arm's length mechanism to run the banks in the private sector. One of the criticisms from the Select Committee is that it has not been arm's length and independent enough. I would like United Kingdom Financial Investments Ltd to be much clearer about its mandate and the way it deals with bonuses, but I think the Government approach to dealing with the banks is right.

Photo of John Redwood John Redwood Conservative, Wokingham

How can the hon. Lady justify to her constituents paying multi-million pound bonuses out of loss-making businesses subsidised by the taxpayer?

Photo of Sally Keeble Sally Keeble Labour, Northampton North

I have just said that I would like UKFI to give a much clearer mandate on issues such as bonuses. However, I have defended to my constituents the fact that if the Government had not stepped in to support the banks when they did and the banks had collapsed-some people did say, "Let them go to the wall"-my constituents would now be in a much worse position. I am happy to argue that out, while also, of course, arguing about the need for tighter limits on bonuses and other action in that regard.

The public debate on the current recession has been remarkably different from that on previous ones, such as in terms of the idea of unemployment being unacceptable. John Thurso said he thought this was a conversion on the part of the Conservative party. I think that that conversion was driven by the fact that it saw where public opinion had moved to, and decided it had better move there as well, and quickly. All of us saw in the recessions of both the 1980s and the 1990s people being shipped wholesale out of work and on to the dole and being told that that was a price worth paying, and the only debate was about how much they should receive in social security benefits. The welfare state became a sort of opium of the masses. Rightly, the debate is now about how we stop people becoming unemployed in the first place. I applaud the steps businesses in my constituency have taken to keep people in work, recognising that that is a national priority. Pressure is bound to come on the public sector, and I hope that when that happens public sector organisations and employers will be as creative and inventive in making sure that they keep people in work. They should look at shift patterns and different ways of flexible working to maintain employment in the public sector.

The situation is the same in respect of housing. There are fewer repossessions now than there were in the 1990s recession for the same reason. Mortgage providers have been forbearing in taking action over arrears. The Government have also provided some support, and while there has not been huge take-up of some of their measures, the total effect has been to keep people in their homes, and there has been a recognition that that is where the national interest and priority lies.

The situation is also the same in respect of training and what happens to young people. It is now accepted that we need a high-skill work force and that that involves young people staying on in education. We have the education maintenance allowance to support them in that. That has led to a quantum leap from what previously happened to young people.

I want to talk about the future, and I shall do so by discussing the findings of a report entitled "Northampton families and the recession"-I shall give Mr. Binley a copy if he does not already have one. It picks up on some research that I and others did in my constituency and looks at what has been happening to families and at what kind of welfare state and welfare system we need as we move out of recession. I shall pick up on a few points from that. I also hope that I might have a meeting with Ministers to talk about them.

The first point is that as a result of the recession more women are moving into full-time work while men are moving into part-time work. The women are saying they are the breadwinners, and men are becoming more involved in supporting families and child care. One of the consequences of that is a need for a different approach to flexible working so women can in some instances pursue their full-time careers while men are supported if they are more involved in child care at home. It must also be ensured that women being the breadwinners is a wholly good thing, rather than this really being a consequence of employers laying off expensive men and employing women at a lower rate. We need to understand what is happening and make sure women are getting paid at the right rate.

Another factor the report brought out was that the fear of losing jobs and of unemployment is not the only big problem for families in the recession, but so too is losing working hours-losing shifts and overtime rates. The impact on family incomes is more substantial than the unemployment figures-tragic though they are-would lead us to believe.

Another fact that came out of the report is just how many families are dependent on tax credits. The Conservative party position on this issue is completely wrong. Several hundred families took part in the survey, and 60 per cent. of them were dependent on tax credits. That is an astonishingly high proportion. As we move out of recession, we need to ensure that we have policies that support families in employment-in different patterns of employment-and that we can maintain living standards for families who are facing loss of work hours.

The report also found that people were hugely concerned about what would happen to their pensions. As women move into full-time work and men into part-time work, their pension entitlements cross over, and people understandably therefore become concerned about their future security of income in retirement. I hope the Government might look at some way of allowing people to pool their pension entitlements in the way they can pool their working hours so they get their tax credit entitlements. This is a complex point, but perhaps I could discuss it with Ministers after the debate? It is about couples being able to save for their pensions together just as they might pool family incomes and working hours for tax credit purposes.

Overall, the biggest concern that families had was about their children and specifically youth unemployment. Their worry is that, once the economy picks up, their children will be the last to get back on to the employment ladder. One issue that arose was children's ability to stay on at school, particularly when their parents are hit by unemployment. The education maintenance allowance, important though it is, is based on the parents' income over the last year. If their income has gone down in the last year because they have lost their jobs, such families cannot get EMA just when they most need it, to keep the children on at school. I hope that my hon. Friends on the Front Bench will look at a way of ensuring that EMA can become a real-time benefit based on families' present, rather than past year, incomes, so that we can ensure that people do not feel anxious about whether they can afford to keep their kids on at school and whether they can get the qualifications they need and the jobs they want.

The shape of the global economy and of the banks will of course change. I do not agree that we should break up the banks, but they will undoubtedly change. We also need to realise that as a result of this recession, just as happened with previous ones, the situation for our families will change and they will look for a very different kind of society. It is important that all our policies-not just economic, but welfare and education policies, for example-are changed to support families in what will be a very different society and economic age.

I hope that my hon. Friends on the Front Bench will deal with some of those points and look more closely at some of these suggestions. They came out of the direct experiences of families in my constituency, which were examined over a six-month period so that I could understand this issue and explain exactly what impact the recession has had on them.

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons) 7:32 pm, 19th October 2009

I am grateful for the opportunity to speak in the debate. In terms of welfare support-how we protect individuals and families and prevent them from slipping through the net during what I believe will be a long, slow slog back to the robust conditions that can create jobs in the private sector and sustain economic confidence-the recession is going to throw up major challenges for our country.

I do not believe that this Government have much to offer the people who are currently hurting. Do not take my word for it, Mr. Deputy Speaker: I recall the words of the former Labour Minister, Mr. Field, speaking in this House on 17 March during Third Reading of the Welfare Reform Bill. He said that the Bill

"totally ignores the new poor: people who are already registering at jobcentres and who are desperate for work, scrambling for jobs, and willing to downsize in terms of the jobs and the wage packets that they accept because they think that work is so important. What does this Bill offer them? It offers them nothing."-[ Hansard, 17 March 2009; Vol. 489, c. 874.]

This Government have little to offer those newly unemployed and newly hurting in this recession-those who know the value of work and who might never have had reason to go into a jobcentre in their lives before. What, too, about the millions of people living in households where there has been no history of work for perhaps two or three generations, or the people who come back in front of jobcentre staff time and again, caught in the revolving door of moving between work schemes and benefits, and back into temporary work and then to benefits once more?

Even before this recession, the British economy was labouring under a truly massive welfare burden. In the past 10 years, the cost of welfare spending has spiralled upwards by close to £100 billion, with millions of people who could be working and creating wealth not doing so. We are talking about the millions of people often living on housing estates blighted by educational failure, worklessness, dependency on benefits, crime, and antisocial behaviour and substance misuse. In Britain today, more than 2 million children are being brought up in households in which no one works, and many of them when they reach 16 will join Britain's expanding pool of NEETs-those young people not in education, employment or training: the ones who slip through the net and are doing nothing constructive with their lives. This is Labour's lost generation of young people-nearly 1 million of them aged between 16 and 24.

One of the fundamental reasons why I believe this Government have nothing to offer both those groups-the newly unemployed or "executive unemployed", as they were referred to in Work and Pensions questions earlier today, and the millions of people in communities of worklessness and long-term unemployment-is that they are in denial about the scale of the profound and deep-seated problems in our labour market.

Photo of Jim Knight Jim Knight Minister of State (the South West), Regional Affairs, Minister of State (the South West), Department for Work and Pensions, Minister of State (Regional Affairs) (South West), The Minister of State, Department for Work and Pensions

We are not in denial about the scale of the problems being faced. The hon. Gentleman is unusual in this House, in that he represents a constituency where unemployment has fallen, where youth unemployment has fallen, where long-term unemployment has fallen, where incapacity benefit claims have fallen, and where last month, the number claiming jobseeker's allowance fell. Does he celebrate all that?

Photo of Stephen Crabb Stephen Crabb Opposition Whip (Commons)

On many occasions in the past four and a half years since being elected, I have stood up in this House and welcomed the fall in unemployment in my constituency. I grew up in it and I remember times of high unemployment. I am not going to decry and object to improvements in the labour market locally, but unemployment in my constituency has increased by more than 100 per cent. in the past 12 months. That is a fact.

We have seen the same pattern in this debate and in Work and Pensions questions: denial on the part of Ministers of the extent of the problems here and now, and a retreat into historical revisionism, going back to statistics from the 1980s to throw up a smokescreen to avoid having to engage with the issues and the difficult challenges that we are discussing.

I want to focus my remarks on my home country of Wales, which faces the double whammy of a delusional Labour Government in both Cardiff and Westminster. In Wales, the pain of the recession is being felt acutely. There was a view popular among some Welsh Labour politicians about a year ago that, because of the relatively high level of public spending in Wales compared with other parts of the UK, it would be in for a soft landing during the recession-that somehow, the relatively large size of the public sector meant that Wales would be insulated during the recession. Professor Niall Ferguson, who owns a home in Wales, expressed that view to a newspaper, and those comments were seized on by Welsh Labour MPs and some sections of the Welsh media. The view was backed up by Ieuan Wyn Jones, Economic Development Minister in the Welsh Assembly, who said:

"Wales will fare relatively better."

Brian Morgan of the enterprise centre at the university of Wales Institute, Cardiff objected to that. He said that Wales would suffer worse than other parts of the UK and that, as one of the poorest parts of the UK, Wales is trying to absorb a recession from a weakened position, and the Government could not borrow indefinitely to prop up the public sector.

It is Professor Morgan who has been proved right. In the past 12 months, unemployment in Wales has soared. It has been increasing at one of the fastest rates anywhere in the UK. In the three months to August 2009, unemployment in Wales hit 130,000-a rise of 24,000. The rate now stands at over 9 per cent., one of the highest of any of the UK regions. Almost 100 people lost their jobs every day in Wales in the past 12 months. One in every three people in Wales on the dole has been claiming it for more than six months, and one in 10 has been doing so for more than a year. Long-term unemployment has not been abolished or solved-certainly not in Wales-as some Ministers have claimed in the past.

We need to get back to focusing on private sector job creation. In the past 10 years there has been a phenomenal increase in public sector jobs. I welcome employment in the public sector-it is great to see people working, whether they are in the public or private sector-but we need to increase the wealth-creating component of the economy and see jobs created in the private sector, not just the public sector. We need to return to focusing on how we create incentives for private sector employers to recruit more workers and to hold on to them during the recession.

It is estimated that since Wales won objective 1 funding from the European Union at the end of the 1990s, its public sector has grown from accounting for about 50 per cent. of its gross domestic product to about 54 per cent. In England, the public sector accounts for about 40 per cent. of GDP. Thus, one can see that the public sector is significantly larger in Wales, relative to the other proportion of the economy. Many of the employers in my constituency talk to me about their frustrations at the barriers that they come up against in trying to recruit new workers, and many of those employers will do anything that they can to avoid taking on more workers unless it becomes absolutely necessary. It is a shame that so many small business men and women regard employing more people as a headache-they should see it as a sign of growth and it should be a wonderful thing for them to be able to recruit more people-because of the regulations attached to hiring workers and the personnel difficulties that many of them face.

Manufacturing has been touched on, and I wish to echo some of the remarks made. We need to speak up for British manufacturing. I represent a rural constituency in west Wales, where manufacturing is a very small sector of the economy, but even down there we have some success stories that we need to celebrate. For the past 10 years, manufacturing trade associations, the CBI and the chambers of commerce have been warning consistently about the erosion of competitiveness of the UK manufacturing sector and about the loss of jobs-almost 2 million have been lost from UK manufacturing in the past 10 years. As the overall employment level was increasing during that period, Ministers did not have to engage fundamentally with the difficult challenge of a loss of private sector manufacturing jobs. That is one reason why I say that Ministers are guilty of being in denial and of being complacent about the loss of jobs in the UK economy.

Finally, on the question of young people, hon. Members and organisations outside the House have been warning about the profound long-term problem of youth unemployment. I have even heard a Minister say that youth unemployment has been abolished under this Government. What an arrogant thing to claim, given that one can go to any town centre up and down this country in the middle of a working day and see young people simply doing nothing constructive with their lives. Youth unemployment has not been abolished; we face deep-seated challenges. Unless there is honesty on the part of all parties in the House and, in particular, the Ministers who are running the show at the moment about engaging with the issue and recognising how deep-seated the problems are, we will not make much progress.

Last week, I went to a reception held on the Terrace that was put on by the Salvation Army Housing Association, where I met some of the young residents of the foyer schemes that it runs. These were young people from Rotherham, in the north of England, and young people from the south of England who were getting supported accommodation provided by the SAHA and training. Those young people had been rough sleepers on the street, and some of the young ladies had been sex workers-I am talking about people with profound problems. It is organisations such as the SAHA, which are at the coal face of working with the hard core of unemployed young people, from whom Ministers need to learn. They should engage with those outside organisations, because they have something special to offer. The young people whom I met downstairs last Wednesday afternoon are a testament to the expertise in these organisations. I am thinking about not only the Salvation Army, but the Prince's Trust, Fairbridge and so on; a range of organisations have been doing such work for a long time. When I talk to my regional Jobcentre Plus and to Ministers, I sometimes think that they should engage more with some of those organisations and learn from their expertise.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 7:43 pm, 19th October 2009

It is a great pleasure to speak in this debate. First, I thought that the speeches made by my right hon. Friends the Members for Holborn and St. Pancras (Frank Dobson) and for Oldham, West and Royton (Mr. Meacher) were brilliant-I need not add to anything that they said, because I agreed with every word of it. However, perhaps I might fill in a few gaps and express a few of my own views.

The Conservative motion is pretty feeble. It just contains footling supply-side changes and a coded reference to squeezing benefits, and it proposes a little bit of tax advantage for business. That does not really address the major problems that the economy must face over the coming years. Mr. Clarke again came with the old canard of flexible labour markets and driving down wages, which would just deflate demand even further and would not solve any of the problems.

The motion refers to competitiveness, which is important. I have argued for a long time that the pound was substantially overvalued relative to other currencies, particularly the euro and the dollar. One of the good things that has happened over the past year is the severe depreciation-a serious depreciation-of sterling to a more reasonable level, and we have started to improve our competitiveness on that basis.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I agree entirely with the argument that the hon. Gentleman is making, but would it not be better if the Government said from the Dispatch Box tonight that they will drop their policy of joining the euro, so that we can continue to have a currency that devalues.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I did not know that we had a policy of joining the euro, but I think that the most sensible thing that the Prime Minister did in his years as Chancellor was not to join the euro-I applaud him for that. Had we joined it, we would have the same problems as Ireland, which has a massively overvalued currency, so what he did was very sensible.

The other component of competitiveness is, of course, investment. Private companies invest when they can sell things. If demand has been deflated in the economy and they cannot sell anything, they will not invest. Thus, the crucial component, beyond having an approach that ensures an appropriate value for one's currency, is to have a good market: a good level of demand in the domestic economy, as well as the international one.

Photo of Brian Binley Brian Binley Conservative, Northampton South

I am listening to the hon. Gentleman with great interest. Does he understand that in order to invest, companies, particularly small and medium-sized enterprises, need working capital, and they are being starved of it at the moment?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I thank the hon. Gentleman for his intervention. I would have supported the policy that I fought on in the 1983 general election, which was to nationalise the banks at that time and introduce a thing called the "alternative economic strategy". Had we done that, we would not be in the mess that we are in now but, unfortunately, we followed the apostles of neo-liberalism and the free market, who are so evident on the Conservative Benches-sadly, some in my party also followed that misguided route-and we have arrived at this situation. Those who still speak in favour of globalisation, liberalisation, privatisation, marketisation and deregulation have had their day and it brought us to the edge of a catastrophe.

We must go back to having a more regulated world, where we manage our economies sensibly, we ensure that they work and we guarantee full employment, above all. Between 1945 and 1970-before the post-war world collapsed-we had heavily managed economies and they worked. I can remember that as a young man-Mr. Binley and I may be of similar age, so perhaps he also remembers these times-one could walk alongside a row of factories and see vacancies in every single one. One could almost go into any one of them and be given a job. That is the world that we used to have, and it is the one that I want to have now for all the young people in my constituency in Luton who cannot get a job. A range of jobs, both skilled and semi-skilled, were available, and there were apprenticeships by the thousand. That is the world that we had, but we have thrown it away because we fell for this foolish world of neo-liberalism. I think that we will rebuild back towards that world one day.

Investment comes about through having a good market in which to sell things. The Government amendment, which I strongly support, refers to the "new industrial activism", and I applaud that absolutely. The Minister for Business, Innovation and Skills, who spoke from the Front Bench on behalf of Labour Members at the beginning of the debate, has had a role in helping to save the Vauxhall plant in Luton-I am extremely grateful for that. I thank him for his work there, together with the Secretary of State, who has also visited Luton and done a good job for us. So, the Government are doing something for manufacturing.

As Conservative Members have said, we have fine manufacturing companies in Britain-that applies in my constituency. They have had difficulty in selling because of the overvaluation of our currency, but they represent superb quality manufacturing. The problem is that we do not have enough of it. We have had a massive trade deficit for a decade and more simply because of the overvaluation of sterling. Since the depreciation, over the past year-from the second quarter of last year to the second quarter of this-our trade balance in goods has improved by £1 billion a month. I hope that that continues and that we improve even further. We still have a big deficit, but we are moving in the right direction and there is a real opportunity for manufacturers to take advantage of the new situation.

Photo of Lee Scott Lee Scott Conservative, Ilford North

Does the hon. Gentleman agree that at the very time that small businesses need investment and need the help of their banks, the banks are not doing what the Government have asked them to, which is to help small businesses out in these troubled times?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I have to say to the hon. Gentleman that I am a traditional socialist and that I would be much more interventionist than even my splendid comrades on the Front Bench. I would order the banks to do that and would have Government representatives at a management level in those banks, too. Indeed, I think that that is where we ought to go. I do not appreciate this arm's length approach; I do not accept it. I would have a much more interventionist approach with the banks and would ensure that the investment funds were forthcoming for companies of all sizes. If this were the situation in Germany or France, they would make sure that those things happened.

Let us consider Germany-it has its problems, like we do, but the Germans have managed to protect, defend and advance the manufacturing sector through a collaborationist approach between unions, management and Government over a prolonged period. They made sure that German manufacturing was strong with a high level of investment. Can anyone imagine Germany allowing BMW to be bought by Rover? No, but we just gave away Rover for a pittance-for £400 million-because British Aerospace wanted a bit of extra cash. That is utterly irresponsible and, I would say, unpatriotic too.

Photo of David Drew David Drew Labour, Stroud

One of the ways that the consensus in Germany, in particular, works is to ensure that people are able to stay in jobs in the downturn. That is very important, because when we get to the upswing, Germany will have people in manufacturing, ready to be employed. Sadly, in this country we will not, which is an argument for wage compensation.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

There are so many differences on which I would like to focus, but in the short time available one cannot do that.

The point on which I want to focus is the attempt by the Conservatives to frighten us about the size of our debt. The point has been made very strongly by my right hon. Friend the Member for Oldham, West and Royton: historically and internationally, our gross national debt is not high. It is not a problem, even for those who manage the debt. Mr. Robert Stheeman, the chief executive of the Debt Management Office, was reported in a newspaper only last week as saying that there is

"a 'remarkably strong' appetite for UK Government debt".

There is no problem about borrowing from the money markets-they are keen to lend to the Government, especially as we are going ahead to ensure that the economy recovers and that they will get their money back in due course. There is not a problem there.

Let me move on to some of the reading that I have done. John Kenneth Galbraith wrote a wonderful book called, "The World Economy Since the Wars". In that, he pointed out that the American economy borrowed massively during the second world war but finished up at the end of the war with the strongest economy in the world and full employment, and beat all the competition. The Americans borrowed massively and invested massively during the war and had a strong economy at the end of it. We did the same. Indeed, in a fully employed economy the debt repays itself over time. The key to it all is ensuring that we create and sustain full employment.

I used to be chair of a group called the full employment forum-a party organisation-and as employment rose we wound the group up, because it seemed that we were getting towards full employment. However, I think that we need to revive it. The economic policies that we had-guided to a large extent by John Maynard Keynes between 1945 and 1970-worked. What has happened since has not worked. We have had instability, high unemployment and, overall, a lower growth rate than we had at that time. We have made some terrible mistakes, and we have had a warning with this massive economic collapse. We are now, I think, in a good place to recreate the policies of the past and to avoid the catastrophe that so nearly befell us.

Photo of John Mason John Mason Spokesperson (Work and Pensions) 7:54 pm, 19th October 2009

There have been a number of speeches so far and I probably agree with quite a few things that have been said. I would like to come at the subject from a slightly different angle and, not surprisingly, to speak from a Scottish perspective.

First, our economy-either the UK's or Scotland's-should not be where it is. Other countries went into recession better prepared. The country that I want to compare Scotland with is Norway, as they are of a similar size- [ Interruption. ] If somebody wishes to intervene, I am happy to give way. Norway built up an oil fund worth $400 billion or thereabouts and has therefore hit the recession with the savings ready for a rainy day. Its forecast surplus for next year is $84 billion, which compares with the UK deficit of $56 billion. Unemployment in Norway is 3 per cent., whereas in the UK it is somewhere in the region of 7.9 per cent. Seeing that Ireland and Iceland have just been mentioned in the same breath in sedentary comments, it is worth noting the IMF figures for gross domestic product on purchasing power parity for 2009. Of those four countries, Norway is at 52,700, Ireland at 39,300, Iceland at 35,700 and the UK is bottom of the four at 35,200.

Photo of Brian Binley Brian Binley Conservative, Northampton South

I am slightly concerned about this comparison. Does the hon. Gentleman feel that Scottish citizens would be willing to pay about £6 for every pint that they have? That is the level of taxation that has been necessary to keep Norway going.

Photo of John Mason John Mason Spokesperson (Work and Pensions)

I thank the hon. Gentleman for that intervention. He is touching on the completely different issue of a minimum price for alcohol, which is also our party policy. As he probably knows, alcohol is a problem in Scotland. I think it used to be more of a problem in the Nordic countries, but that has been dealt with by controlling supply and minimum pricing-which I assume that he is supporting. However, it has to be said that Norway has been more careful with its oil money and that is the main reason why it is so much better off-it is not to do with alcohol pricing.

I agreed with the emphasis that Mr. Clarke placed on debt right at the beginning of the debate. Despite some of the reassurances that we have had from Government Back Benchers, I think that debt has been a problem in recent years-and not just Government debt, for that matter. Public sector debt, private sector debt and certainly individual debt have been an accepted part of life in this country, and wrongly so. As we go forward, we must have less emphasis on debt and more on savings-not least savings for pensions, which were mentioned earlier by a Government Member. One of the problems at the moment is that the low interest rates, although they are great for borrowers, discourage future savings and penalise those with modest savings. I have constituents who had a small amount of savings, which were really important to top up their modest income, and they have now virtually lost them.

We need a balance between manageable debt that is acceptable and excessive debt, which we have had. Individual mortgages and prudential borrowing for local authorities are worthwhile things. We also need to consider where we are trying to go. Let me quote my right hon. Friend Mr. Salmond, who spoke in Inverness at the weekend. Some hon. Members might not have had the opportunity to hear that speech, so I just thought that I would read it-although I shall not read the whole thing. He said that we need a contract with

"the people in communities across our nation. A contract based on our social democratic values-wealth created and wealth shared"- if I were going to underline one bit, it would be the words "wealth created and wealth shared". He went on:

"The creation of wealth is important when times are good. It is imperative when times are tough. The sharing of wealth is important when times are good. It is a moral imperative when times are tough."

He went on to talk about

"the economic choices which we as a society must make in tough times" and

"the political decisions that we as a country must take if we are to protect and defend the fabric of our communities."

He also said that we must

"put the people of this nation first-creating a rich country and rich society."

That is certainly my aim for Scotland. He went on:

"Our objective is a Scotland free to reach its full potential-a Scotland that is more prosperous, fairer, a voice for peace and reconciliation in the world".

I realise that not everyone in the Chamber would accept that. Some people have said that it is the wrong time to talk about the constitution, but I want to argue that it is certainly the right time to do so. The constitution, the economy and welfare cannot be separated. I am fascinated that the title of the debate should be "Economic Recovery and Welfare", yet scarcely one member of the Conservative party has talked to any extent about welfare.

Photo of John Mason John Mason Spokesperson (Work and Pensions)

I look forward to that.

Those issues are inextricably linked, and it is because of the constitution that Scotland is where it is. We have suffered unnecessarily because we are part of the UK. The constitution affects the way in which we spend the money that we have, and we have to prioritise. We should judge expenditure by the way in which it affects jobs, and whether it is sustainable.

Photo of David Taylor David Taylor Labour, North West Leicestershire

The hon. Gentleman has just said that Scotland has suffered unnecessarily because of its association with the UK, and earlier in his speech he acted as John the Baptist for the messiah from Banff and Buchan. However, does he not recognise the effect of the Barnett formula on 5 million people in Scotland and on a similar number of people in the east midlands of England-similar demographically, geographically and in all sorts of ways? Public sector spend in Scotland is 20 per cent. or more greater than that of the east midlands. That should not be allowed to continue, and when the hon. Gentleman gets independence, he will have to cut the supply of southern taxpayers' money.


So are you David Taylor in favour of scraping the unfair on England Barnett formula?

Submitted by Kevin Wells Read 1 more annotation

Photo of John Mason John Mason Spokesperson (Work and Pensions)

Our income is so much higher than that of the people of the midlands or any other part of England and we could afford to spend it if we were not spending it on what I am going to refer to next. Does Trident really have to be a priority? Many people-even people who support nuclear weapons-would say that it is not a priority at this time. If we are thinking of how to spend £75 billion, £100 billion or whatever the figure is, we should consider where it would create the most jobs. I suggest that it would not create the most jobs if we spent it on nuclear submarines-we could use the same money for more jobs in roads, housing, schools or similar.

Photo of John Mason John Mason Spokesperson (Work and Pensions)

It is the probably the last time that I shall do so, as I wish to continue.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

The hon. Gentleman has been most generous in giving way. David Taylor made a different point, as he was trying to say that it is the imbalance that is wrong. My constituents each have £2,000 less public money spent on them than people in Scotland, yet we pay the same taxes. Is that fair?

Photo of John Mason John Mason Spokesperson (Work and Pensions)

The hon. Gentleman reiterates what has been said before, and I reiterate my reply: we consider that we are subsidising the rest of the UK with oil money, which we should be able to use as our own income. It is not that our expenditure needs to be cut-it is more the case that the public sector in the rest of the UK needs to come up to the Scottish level.

Photo of John Mason John Mason Spokesperson (Work and Pensions)

I said that I had given way for the last time, but I will do so again for my hon. Friend.

Photo of Hywel Williams Hywel Williams Shadow PC Spokesperson (Education), Shadow PC Spokesperson (Work and Pensions), Shadow PC Spokesperson (Health), Shadow PC Spokesperson (International Development)

I hope that my hon. Friend would accept that the gross imbalance in development in England, the huge spending in the south-east, and the deprivation of areas such as the east midlands are not a reason to fail to look at fiscal autonomy for Scotland and a fairer share of the money for Wales.

Photo of John Mason John Mason Spokesperson (Work and Pensions)

My hon. Friend makes a good point. We certainly believe-and I think some Government Members do so-that expenditure should follow needs. The other argument, apart from Scotland's income, which is extremely healthy, is that we end up being one of the few countries in the world that discovered oil but became poorer as a result.

In my constituency, which is one of the poorest, and in the neighbouring constituency of Glasgow, North-East, which will soon hold a by-election, people do not understand why they are suffering so much when we apparently have so much wealth. The constitution affects Scotland's ability to borrow. We have talked a great deal about borrowing in this debate, and I have said that I agree with a sensible level of borrowing. The UK Government borrow-whether that is sensible is another question-and local authorities are allowed to borrow. It is absolutely incredible that Scotland-and Wales, I believe-are not allowed to borrow and to get out of the recession in that way. It would boost the Scottish and Welsh economies, and necessarily the UK economy, if we were allowed to borrow wisely and more freely. The Scottish Government are doing very well with the limited powers that they have. Abolishing business rates for small businesses has provided a real boost to that sector.

Finally, moving on to the welfare side of the equation-as I said, I have heard very little about that-I am afraid that I see very little difference between Labour and the Conservatives. Some Labour Back Benchers have spoken well on the issue, but I fear that they are not typical of their party, especially those on the Front Bench. Since coming to the House a little over a year ago, I have seen the introduction of the Welfare Reform Bill, which was supported by both the large parties, but I still consider it a harsh piece of legislation, with lots of sticks but very few carrots.

The Bill contains some interesting words, including "personalised", which also appears in the Conservative motion and was mentioned many times by Government Front Benchers when we discussed the Bill. In practice, however, I see very little evidence of personalisation, as there are too many rigid hurdles that trap ordinary people, preventing them from getting back into work or even from just increasing their income a little. Recently, a constituent came to see me, as he was limited by the £20 earnings rule. If my memory serves me correctly, he worked for Asda, which had a bonus scheme and wanted to give him £21. That caused a huge problem for him, and he had to come along to my constituency surgery for the sake of £1. That kind of rigid response is the exact opposite of personalisation, and I want a lot more reassurance that either major party is thinking seriously about the issue.

We have an extremely rigid system, and I think, to be fair, that that has been recognised. I have been reading the report from the Centre for Social Justice entitled "Dynamic Benefits", which highlights the rigidity and the marginal tax rate that keeps people out of work. Taking into account tax, national insurance, losing council tax and housing benefits, people can sometimes get an extra £1, but lose 90p. There is something very far wrong with that-whether it is 50p or some other limit, we need to address the issue.

Another obvious incentive-it has not been mentioned today, and is not always mentioned when we discuss welfare benefits-is the question of minimum and living wages. If someone or a family cannot live on the minimum wage that is paid, their money is topped up with working tax credit. That is a good thing, and it is better than what we had before, but we must realise what it means: we, the public sector, are subsidising the private sector in many cases to pay wages on which people cannot live. How can that be considered right, and how can it be considered a good use of public money? By raising the minimum wage to something like £7, we would increase the incentives for people to get back to work, and there would be a saving in working tax credit, as well as simplicity in a bureaucratic system.

I have a few final comments on the motion, which mentions the private and voluntary sectors. I am very much a fan of the voluntary sector, but there are certain core functions that the state should carry out. Prisons should be in the public sector, as should health, the police, the mail service and, I suggest, welfare. The motion talks, too, about "effective recession schemes", but I wonder what that means in practice. The Government are planning to cut the Scottish budget by £500 million. [ Interruption. ] I do not know if we have seen a comparative figure from the Conservatives, but I assume that it is similar to the Government's cuts. I see very little difference- [ Interruption. ]

Photo of John Mason John Mason Spokesperson (Work and Pensions)

I see very little difference between the two Front-Bench teams or between what they have got to offer. I feel sorry for the people of England, who have to choose between those two parties. At least we in Scotland have a wider choice.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

May I remind hon. Members who make an intervention that it should be just an intervention? That means that brevity is required. I call Mr. Tony Baldry.

Photo of Tony Baldry Tony Baldry Conservative, Banbury 8:09 pm, 19th October 2009

My mother's name is Oina Paterson. As one would guess from that, she is a Scot. My grandfather served with the Highland Light Infantry and my great-grandfather was a Gordon Highlander. I find the speeches of hon. Members such as John Mason so desperately depressing because Scotland is a much greater nation than is articulated by the nationalists in the House. As it is rare that I speak of Scottish nats, I shall get this off my chest-I find their Poujadist politics awfully depressing, and I hope that at the next election the good people of Scotland have the great sense to send Mr. Salmond, and all of them, packing, and recognise that Scotland is all the better for being part of the Union, and the Union is all the better for having Scotland as part of it.

We have to recognise that Britain has something of a jobs crisis. This year has seen the highest increase in unemployment on record, with more than 2,000 people a day losing their job. What we have heard from those on the Government Benches today has been incredibly complacent.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

Is it not amazing that in a debate on unemployment, there is not a single Labour Back Bencher in the House, whereas there are about a dozen Tories present? What a change in times.

Photo of Tony Baldry Tony Baldry Conservative, Banbury

If and when the Tories get back into government, on past experience I would expect the Government Whips to make sure that there was a good turnout for such a debate. It is amazing that those on the Treasury Bench cannot manage to get a single Back Bencher other than the Parliamentary Private Secretary to support the Treasury Bench team on a debate as important as one on the economy, welfare and unemployment in the run-up to a general election. It is tragic. It is pathetic.

Labour Members ought to be in the Chamber to listen to the fact that there are 3.3 million households-that is, 17 per cent. of all households-where no adults are in work. Britain has a higher proportion of children growing up in workless households than any other European country. In Work and Pensions questions today, when I asked the Secretary of State whether she could give an example of a single other European country that had a higher proportion of children growing up in workless households than Britain, she weaved all around the question and I think we eventually ended up in Moldova, but that came as a helpful suggestion to her from Labour Back Benchers.

It is a disgrace that so many children in this country are growing up in households where there are no adults in work. This year the Government expect to spend £36 billion on benefits for those out of work. Jobcentre Plus can just about manage to keep up with ensuring that people receive the jobseeker's allowance to which they are entitled, but it is not managing to help get people back into work. The average amount of time that one has for an interview at a jobcentre is 3 minutes. That is not a criticism of the staff. They have to deal with the fact that so many people are losing their jobs.

For every £3 raised in tax, £1 is being spent on social security and debt interest. That is just not sustainable. We have a duty of care to try to ensure that no one is left behind, and that we help those who are out of work while they are out of work and help them get back into work as speedily as possible. We have a moral and an economic case for doing that.

Photo of Brooks Newmark Brooks Newmark Opposition Whip (Commons)

One of the interesting statistics in Braintree is that the jobseeker's allowance roll today is about 2,700. That is a trebling of what it was six months ago. More important, a fifth of those-27 per cent.-are between the ages of 18 and 24. It is the young people I am most concerned about, because we do not want to end up in a vicious cycle with a generation permanently on benefits.

Photo of Tony Baldry Tony Baldry Conservative, Banbury

My hon. Friend is right. The young unemployed today, if we do not get them back into work, will be the long-term unemployed of tomorrow-unskilled, unqualified, long-term unemployed.

I am pleased that the Opposition have presented a clear, integrated welfare to work initiative, the work programme. In the past couple of years people have been saying, "It looks like the Conservatives may well win the next general election, but we don't know what your policies are." During the summer we made clear what we intend to do. We intend to provide help for entrepreneurs, offering business mentors and loans to would-be entrepreneurs. We will have a programme to connect people to volunteering opportunities in their area. We will help youth unemployment through youth action for work, which over two years will provide 200,000 additional apprenticeships, 100,000 additional FE college places, 100,000 work pairings and more than 40,000 additional young apprenticeships. That is a well costed and brilliant scheme.

The complexity of the present system is such that it is very difficult for young people to know what is available to them. The area director of the Learning and Skills Council kindly came to see me the other day to explain all the various courses and routes available to young people in my patch. By the end of an hour and a half, it was Nurofen-inducing. It was not his fault; there are just so many schemes. Some are age-related, some are rather like a bus-once they are full up, there is no room for anyone else till it comes round again. On paper the scheme exists, but when people apply for a placement, they are told, "Terribly sorry, but you have to wait till next year."

It is crazy that for the youth cohort going to university-about 50 per cent. -matters are relatively straightforward: GCSEs, AS-levels, A-levels, university application. To the cohort not going to university we give all the complexities. Do they stay at school and do a diploma, do they leave school and do an apprenticeship, and who advises them? What is the quality of Connexions in many of our constituencies, and how much access do young people have to that service?

We need to improve the working of the job market considerably. I want to share with colleagues the experience in my constituency. We were determined that no one should be left behind, so we set up two job clubs, with everyone involved in them. It is not rocket science. We are now getting employers such as Sainsbury's coming along to the job clubs to recruit. What is sometimes not realised is that traditional recruitment methods are very expensive. It costs on average £7,000 to fill a vacancy in the public sector and takes on average an eye-watering 156 days. That is an incredibly long time. We are trying to make sure that vacancies that come up are filled much more quickly.

I commend to the House the new website, which has geospatial mapping, drawing down every job in the country that is known about and mapping it so that people can go on to a website and start to access jobs much more quickly. We must use new technology so that jobs that can be filled quickly are filled quickly, and those who need greater help to get into employment, perhaps because they have a disability, can be given the support that they need. That is what we are doing at the job clubs. We are trying to ensure that we can get people back into the world of work as speedily as possible. We are giving them financial and benefits advice, and help with their CVs. Nowadays most employers want job applications to be done online, so we are determined that people in Banbury and Bicester will be able to have help doing their CV online. It is all good, straightforward stuff.

We are determined as a community to do what we can to ensure that people get back into work as quickly as possible, but in talking to employers I find that, although they are enthusiastic about what we are doing to try to make the labour market locally work more efficiently, they are frustrated, as I said to my right hon. and learned Friend Mr. Clarke at the start of the debate, trying to work out which Government schemes are real and which are press releases. Employers spend more time trying to work out whether they are real schemes or press releases.

I shall repeat the example that I gave earlier. I, like every other Member, sit in the Chamber, listen to Ministers from the Treasury Bench giving information about new programmes and think, "How does that affect my constituency?" So I table parliamentary questions and the answer arrives. One such query was about the strategic investment fund. I tabled a question on 16 July, and it took the Secretary of State until 12 October to answer, but hey-ho. Lord Mandelson wrote in a letter:

"The SIF is not a fund that is open directly to companies. It is a resource that the Government is using to increase investment through existing measures-like Launch Investment for aerospace"- a press release-

"or Grants for Business Investment"- yet another press release-

"or the UK Innovation Investment Fund. Our extra support for business is delivered through these measures, not directly from the SIF."

It is like one of those crazy Russian dolls-various funds that all interrelate. However, if we ask businesses in our constituencies, "How many of you have actually managed to access any funding from any of these Government schemes?", we find that the answer is very few indeed. That is why my hon. Friends on the Front Bench are absolutely right to bring forward proposals that are much more straightforward and sensible, with three or four focused points that everyone can understand. Everyone can see where we are going and what we intend to deliver. They are going to tackle youth unemployment, make the labour market work much more efficiently and give business the support that it needs to get Britain back to work.

Photo of Brian Binley Brian Binley Conservative, Northampton South 8:22 pm, 19th October 2009

I shall concentrate on one issue only: the plight of the small and medium-sized enterprises sector. I am sure that it will not surprise many of my hon. Friends, but that is where I am and that is where I stay. I do so for three reasons. First, the sector has the greatest potential for jobs growth-given the right support-in the country. The House will know that in 10 years, the sector put on 2 million jobs, while UK plc shed 1.5 million. That makes the point about the sector's potential. Secondly, 70 per cent. of British creativity comes from the sector, and if ever we need creativity it will be when we need to pick up the green shoots and run with them. Finally, 94 per cent. of the people who work in the private sector in my constituency work in the SME sector, so I have a personal interest in the situation.

The point that I really want to make, however, is that the sector is still suffering as it was six months ago, and people in the sector do not think that the Government understand their problem. Those people feel rather let down, and that the spin that the Secretary of State for Business, Innovation and Skills is putting on the recovery suggests that his only thought is about party political advantage, not about encouraging a sector that is so important to our economy. In fact, they do not believe his spin, because they do not see it or feel it. Indeed, nor does the civil service, and that is quite alarming. I noticed that Jonathan Baume, the general secretary of the senior civil servants union, warned that mandarins were getting nervous about it, and that Mike Eranett, former head of Government information services, accused Lord Mandelson of abusing public money with "outrageous political sloganeering". Of course, the Opposition have never trusted Lord Mandelson, and with good reason. Indeed, the sector has not trusted him. One man from the sector told me the other week that its members felt that he was as slippery as a bag of eels-a good old fen-country saying. When civil servants begin to agree, however, it is surely time for the Government to take notice, and I hope that they will.

Let us inject some reality into the debate. I can tell the House about company after company that complains that banks are not dealing with them and money is not getting through. Every time I argue that point, however, I get the feeling that I am not being listened to. It might be because I am so repetitive or because I am boring, but for the sector at least I urge the Minister to take real account of its concerns, because its members are massive opinion-formers, if nothing else. They come into contact with customers day in, day out-more than UK plc does. I should have thought that the Government would have had some motivation for understanding the plight of the SMEs, but they do not seem to.

Trade is still declining in the sector. The latest survey from the Federation of Small Businesses shows that 40 per cent. are still experiencing decreasing trade, and that many others are treading water, waiting for something to happen. Aged debt is still lengthening, too. The survey notes that 33 per cent. say that they are still being paid late and many others have seen little improvement. Insolvencies are also still increasing: in the second quarter, there was a 39.1 per cent. increase on the same period one year ago, and an increase of 2.9 per cent. on the previous quarter. Insolvency agents are also taking too big a cut of the money in the first place. I am told that they charge up to £700 an hour. No wonder small businesses do not get paid when other businesses go to the wall. Perhaps the Government ought to think about that. Worst of all, unemployment continues to rise by 2,000 per day.

I could talk at length about the relationship between the public and private sectors, but I shall refer to only one set of statistics. In the 15 months up to June, the private sector lost 1 million jobs. In the same period, the public sector put on 300,000. If ever the Government's priority were made clear, it was in that set of statistics. The sector is not foolish, however; it understands exactly what is happening.

Photo of John Mason John Mason Spokesperson (Work and Pensions)

I am interested in the hon. Gentleman's comparison between cuts in the private and public sectors. Would he go so far as to say that if there were a 5 per cent. cut in the sales of Coca-Cola, there should be a 5 per cent. cut in education?

Photo of Brian Binley Brian Binley Conservative, Northampton South

The hon. Gentleman misses my point. I said that there was a cut in the private sector and an increase in the public sector. The balance is out of kilter.

Photo of Brooks Newmark Brooks Newmark Opposition Whip (Commons)

The point that John Mason seems to miss is that the private sector should be the engine of growth and job creation for the young people of this country. The private sector pays the taxes that help to pay for the public sector, and that is why we should help SMEs as much as possible.

Photo of Brian Binley Brian Binley Conservative, Northampton South

I am most grateful to my hon. Friend for his contribution. He makes my point with greater clarity than I was clearly able to.

For every person who becomes unemployed, two or three other people fear for their jobs, and that adds to a tremendous feeling of uncertainty. It means that less money is circulating, which adds to financial constrictions-and therein lies another problem.

Photo of John Howell John Howell Conservative, Henley

Does my hon. Friend accept that, as others have said to me, one or two job losses in any particular company in the SME sector have a devastating effect because of the size of the company, whereas one or two in a bigger company might not?

Photo of Brian Binley Brian Binley Conservative, Northampton South

That is absolutely right. It is the same with regulation-such things impact much more heavily on the SME sector than on any other, particularly on the smaller businesses.

Let us look at the credit crunch and financial constrictions. The CBI's report said that the second quarter of this year showed an improvement in credit, although it was largely driven by the largest firms with more than 5,000 employees, and that the SME sector saw a decline in existing credit lines and expects similar tightening over the coming three months. The Bank of England said that the flow of net consumer credit was negative in July and that it expects the negativity in credit lines to increase over the coming three months. Credit insurance is being withdrawn from the system, which is a remarkable thing for the Government to allow to happen.

"Trade credit insurance remains a pressing concern...availability had worsened over the past three months", says the CBI, which is quite an authority; one might think that Lord Mandelson would pay some attention and stop spinning. We cannot talk to Lord Mandelson very much, so I want Government Front Benchers to tell him what is happening in the sector: cash-flow difficulties are increasing; more companies are going to the wall; unemployment is rising; and, most importantly of all, companies are finding it increasingly difficult to get credit from the banks. I want him to concentrate on those facts and forget the spin. He is not employed by the Labour party-he is employed by the people of this country to do a job, and it is about time he got down to it.

I could give many examples of the difficulties faced by business after business, but I will not bore the Minister because I am sure that he has read them all. I am certain that in surgeries he faces the same thing that I do-business people coming to him and saying, "I can't get money from the bank." A survey by the business school at the university of East Anglia noted that 33 per cent. of people said that there were cuts in the availability of capital, 55 per cent. reported a reduction in investment finance, and 60 per cent. cited a decrease in funds available for mergers and acquisitions.

Two things have gone wrong. First, Government schemes are not performing: it is as simple as that. The plethora-the shoal-of initiatives that Ministers have created, clearly for public relations purposes, as I now understand, are not working. The enterprise finance scheme announced on 14 January 2009 has provided for 4,132 accepted loans-6.3 loans per constituency. I want 100 loans in my constituency to keep small businesses going. On 12 October, only five businesses had received investment from the capital for enterprise fund, as revealed in a written parliamentary answer. Only one firm so far has received assistance from the automotive assistance programme, which was shouted to the heavens as the great saviour of the British automobile industry. Finally, there was the trade credit insurance scheme, announced in the April Budget. Do you know how many insurance covers have been issued to businesses?

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. May I remind the hon. Gentleman of the correct parliamentary language to use; I am sure that he is aware of it.

Photo of Brian Binley Brian Binley Conservative, Northampton South

I am grateful for your correcting me, Madam Deputy Speaker, but you know that I get carried away because I am so excited about this subject.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

I hope that now you will be calmer and therefore keep within the rules.

Photo of Brian Binley Brian Binley Conservative, Northampton South

I will do my very best.

Do hon. Members know that only 52 businesses have been covered by the much-vaunted trade credit insurance scheme? That is one for every 13 constituencies. I hope that you have one in yours, Madam Deputy Speaker, because the chances are that I do not have one in mine. That is a total indictment of this Government.

Photo of Brian Binley Brian Binley Conservative, Northampton South

No, I will not. My time is running out, and I have been rather generous.

The Government schemes are not working and the banks are not lending. I referred to examples that I could have used, which I will send to the Minister. Why are banks not understanding the problems of small and medium-sized businesses? It is very simple: because the guy in the middle at area and regional level is getting two messages. One is from the director for small business loans, saying, "Lend to small businesses." The other is from the guy responsible for building up assets in the bank, who is saying, "Don't risk money." There is a conflict at area and regional level. Businesses at the coal face tell me that when they talk to their local branch there is encouragement, but of course every decision is made at regional level and that is where it all stops. The bank asset guy wins out, which is why we get higher interest rates, high renegotiation fees, shorter overdraft facility periods and many more personal guarantee demands. It is all about building up bank assets, which is taking massive preference over supporting the SME sector.

What should the Government do? First, they should get out there. Sadly, they do not have much business experience on their Front Bench. The Secretary of State for Business, Innovation and Skills himself has never worked in the private sector, so perhaps that is not surprising, but the very least that they ought to do is get out there and find out what is happening. If they are doing that, they are missing the point. If they are not, as I believe, they do not understand the point. I see heads shaking on the Government Front Bench, but I come from the sector, I talk to people in the sector every day, and I tell you, you need to take the message on board-

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. Once again, the hon. Gentleman-

Photo of Brian Binley Brian Binley Conservative, Northampton South

I meant to say Ministers need to take the message on board, Madam Deputy Speaker. SMEs are suffering. They are not getting the money, and all the Government promises in the world do not count for aught in the sector. We want to see action, which means these people in the Government getting out to understand what it is all about.

Photo of Christopher Fraser Christopher Fraser Conservative, South West Norfolk 8:36 pm, 19th October 2009

May I just say first that to see the Secretary of State for Work and Pensions, who is to respond to the debate, only just arriving in the Chamber to listen to Back-Bench contributions is a great shame? I do not say that with any malice or for political reasons, but this is an important debate for us all, and it was important for her to listen to all the contributions, if she could. Perhaps she will assure us that she will respond personally to each and every Member who made one of the contributions that she did not listen to, so that the issues that they raised are taken seriously by the Government.

This debate is about the economy, the recovery and welfare, as has been mentioned. It is now a year since the Government announced their multi-million pound rescue package for struggling banks, hoping to get credit flowing once again. How much has changed since then? We talk of recovery, but people on the ground in my constituency are still having hard times. Throughout the summer, businesses were telling me that the banks were simply not lending. People are being forced to cut college or training courses because of a lack of funding, and most importantly people are still losing their jobs. That is key, and unemployment is still at a very high level. The latest figures released by the Office for National Statistics show that unemployment is at a 14-year high and the claimant count has increased. Moreover, and importantly, almost 1 million 16 to 24-year-olds are out of work.

I do not wish to be overly pessimistic, but does the Secretary of State agree that it is complacent to talk of recovery? The full recovery is still some way off, and we should talk up that fact, so that the proactive strategy that we have to undertake is understood by all. Does she recognise the problems that I have listed, and what are the Government doing to remedy them? In constituencies such as South-West Norfolk, we have suffered immeasurably. Unemployment in my region is currently at 7.5 per cent., and the number of jobseeker's allowance claimants has increased by almost 70 per cent. in the past year in one local authority area in my constituency and by 60 per cent. in another. Yet last year, in the midst of rising unemployment, the Government pressed ahead with their jobcentre closure programme.

People in South-West Norfolk have their own particular struggles. The rural nature of my constituency means that there are great distances between training courses and the remaining jobcentres. Public transport is scarce, and it is no option for many people. As for the 2p rise in fuel duty, which was implemented last month, it has not helped matters at all. In fact, it has made things worse for those who are out of work and trying to get a job. There is no doubt that that tax rise has hit many people in rural areas.

Like my hon. Friends, I am always keen to speak out in support of businesses, and particularly small businesses, because of the vital role that they play in rural constituencies, such as South-West Norfolk, and in the rest of the country. In a thriving economy, Governments do not create the jobs; businesses do. It is the job of government to create the environment in which businesses can thrive and a thriving, private enterprise, business economy makes the public sector work better, because taxes are paid, rather than artificial state subsidies and handouts.

UK businesses want to play a central role in the recovery of our country. Small firms generate more than half our national income and employ some 13.5 million people. They are enormously important sources of employment in these difficult economic times.

Photo of Andrew Pelling Andrew Pelling Independent, Croydon Central

The hon. Gentleman is speaking out very loudly on behalf of small businesses and is quite rightly saying that the Government should not distort the market. However, the Government have a role in regulation. Many big businesses are doing well in tapping the capital markets, but small businesses are not able to do so. Would it be better if the Government were less demanding in trying to get the banks to increase capital, and if they tried to slow down the rate of deleveraging, so that small businesses, which can recover our economy, can improve employment in constituencies such as South-West Norfolk?

Photo of Christopher Fraser Christopher Fraser Conservative, South West Norfolk

I hope that the Secretary of State listened to that comment. I concur that small businesses are penalised disproportionately by what the Government are doing.

The economic downturn has had a profound effect on businesses of all sizes as a result of falling revenues, rising energy costs, lack of credit and, most importantly, the burden of Government red tape. I make no apologies for repeating something that I have said in the House many times: during the '80s and '90s, SMEs were the backbone of our economic success and it is incumbent on the Government to create the same conditions in which they can flourish today and in future. However, too many small businesses in my constituency believe that the Government are failing them by-this is how they put it to me-over-regulation, wrong judgments about how they operate and a complete lack of understanding of the rural economy.

For example, let us look at the transitional relief scheme that expired in April. The scheme ensured that big increases or decreases in business bills due to revaluation were balanced and phased in gradually over a number of years to mitigate the impact on businesses, so why did the Government not put together another suitable scheme during a time of intense difficulty for businesses of all sizes, particularly when business rates have increased by 5 per cent.? Ministers had four years to do that and the deferral schemes have come too late for too many small businesses, because the Government did not implement the legislation early enough. Many companies will already have paid six months' worth of sky-high bills. What assessment has been made of the effect of that failure to act on the UK's ability to overcome the economic downturn, particularly on small businesses?

What about small business rates relief? Many small firms and shops are not claiming what they are entitled to, because they do not know how to go about the process of claiming or because they find it far too complicated. I urge all small businesses to check whether they are eligible for rate relief, which could save them thousands of pounds. If the debate advertises one thing, it must be that there is an entitlement to such relief. It is up to the Government to ensure that all small businesses can apply appropriately. What assurances can the Secretary of State give that the Government are looking to apply the rate automatically to small firms, rather than small firms having to apply?

The Secretary of State will no doubt wax lyrical about schemes that the Government have introduced to support businesses through the recession, as my right hon. and hon. Friends have described this evening. One example is the enterprise finance guarantee scheme. Not only have local businesses in South-West Norfolk told me that they have not been able to access capital through the scheme despite appearing to fit all the necessary criteria, but figures taken from a recent written question clearly demonstrate that the value of loans offered to companies should not be mistaken for the value of loans that have actually been drawn down. Does the Minister recognise that although loans may have been offered to firms, the success of the scheme can only be judged on the amount of capital that ends up in the system?

Businesses want to help this country to recover, but they feel constrained in doing so. For example, some of the best apprenticeships programmes are so over-subscribed that there are more applicants for them than there are places at Oxbridge. The Government have imposed so much costly and burdensome paperwork on firms that want to offer apprenticeships that there is no incentive for them to do so. Why have the Government failed on their promise to reduce excessive red tape and bureaucracy? Do the Government accept that they have missed targets on apprenticeships? Research undertaken by the Prince's Trust shows that young people without qualifications are twice as likely to claim JSA before they are 25 as those with qualifications. In the light of that, the Government should make it easier for firms to offer apprenticeships, not harder.

Historically, manufacturing has been an important constituent of the economy of Thetford and the surrounding area in my constituency. It has been a vital source of employment, but the Government have presided over a decline in manufacturing in the past 12 years that has hurt towns such as Thetford. The numbers speak for themselves, as my hon. Friend Mr. Crabb mentioned in an earlier intervention. In 1997, the manufacturing sector employed more than 4.5 million people, but today the figure is just over 2.5 million. Why have Ministers allowed the manufacturing sector to deteriorate? In Norfolk and East Anglia, the manufacturing base wants to employ people, take on apprentices and make a contribution, but it is stifled by the Government's actions.

Can the Minister assure me that the rural economy, which is suffering as a result of rising unemployment, and the east of England, which has lost out under this Government at every turn, will get their fair share of help? That will mean supporting businesses, not penalising them. For those in South-West Norfolk, it also means understanding the needs of businesses in rural areas. We also need a proper roads infrastructure as a matter of urgency to ensure that Norfolk-the only county in England that does not have a dual carriageway linking it to a national trunk road network-can reach its economic potential and participate fully in the future success of the United Kingdom.

Small business closures do not make the news. Instead of the hundreds or thousands of redundancies that we see when big firms go bust, only a few people are let go at a time. But every one of those job losses is a personal and family tragedy, and the numbers quickly mount up. I urge the Government to take this maxim to heart and start giving small businesses the help that they need so that our economic recovery can be assured.

Watch this

Photo of Peter Bone Peter Bone Conservative, Wellingborough 8:48 pm, 19th October 2009

It is a great pleasure to follow my hon. Friend Christopher Fraser, who made a powerful speech. I recognise many of the points that he made, especially those about loans to small businesses and the fact that they are just not getting through. He is also right to say that just one or two redundancies in each firm mount up to large job losses throughout a constituency.

I can think of no better way-and I genuinely mean this-to spend my birthday than in the Chamber and in your company, Madam Deputy Speaker. There can be no more important issue than the economy and the recovery. I remember a catchy tune-I shall not sing it, because I am an appalling singer and Hansard would not be able to record it properly-called "Things Can Only Get Better". I think that Tony Blair commissioned it. People voted Labour because they thought that things could only get better, but somehow that went wrong in my constituency- [ Interruption. ] Did the Government Whip wish to intervene? Things did not get better in Wellingborough, if they got better anywhere in the country. I can remember the Prime Minister telling us that there would never be another bust, because it would always be boom. We never had the boom in Wellingborough, but we have had the bust.

While I was sitting here this evening, listening to some very powerful speeches, I jotted down some of the things in my constituency that are different now from how they were in 1997. We had a secondary school, which is now demolished. The higher education college was promised millions of pounds for further investment. It spent £1 million on the research for that investment, only to be told that it could not have it. The motor test centre closed. The sewage works are now at capacity.

We have fewer policemen and women on the beat now than ever before-only 10 per cent. of their time is spent on patrol. We have had closures of local police stations and our local police chief has been moved. We have almost the worst ratio of police to population in the whole country. Twelve post offices have closed. We have potholes that would look good in Zimbabwe. We have the worst-funded primary care trust in the country. We have no NHS dentists. We have seen the closure of an out-patient facility. We have no hospital. The tax office is closed and, more importantly, unemployment is up.

I will say a little more about unemployment in a moment, Madam Deputy Speaker, but in Wellingborough in 1997 you could have gone to school, you could have taken your driving test, you could have seen a policeman on your street, you could have had your teeth fixed, you could have gone to a hospital, you could have driven your car without wrecking the wheels and, what is more, you could have gone to the toilet without fear of it being blocked. How did things get better under Labour? They have got worse and worse.

However, the most devastating statistic is that unemployment has doubled in my constituency. I thought that Wellingborough was perhaps the exception, but 11 constituencies have had a bigger increase in unemployment. I can remember debating with the Prime Minister when he was in denial about this issue. He claimed that my figures were wrong. However, I think that he has come round to accepting that unemployment is not only worse in my constituency, where it has doubled, but worse in the whole country.

It is a matter of fact that unemployment has been higher under every Labour Government when they have been thrown out of power than when they came to power. There is no question in my mind, and there should be no question in the mind of the electorate, but that the Labour party is and always has been the party of unemployment. The reason unemployment has gone up is that the Labour party always believes in spend, spend, spend, borrow, borrow, borrow and tax, tax, tax. Labour Members think that the way to protect jobs is by having a bigger public service. What they do not realise is that it is the private sector-the SMEs-that creates the jobs.

Photo of David Taylor David Taylor Labour, North West Leicestershire

I see the hon. Gentleman as a friend, as well as a political opponent, but does he really believe what he has just said about the Labour party being tax, tax, tax, compared, I guess he was implying, with the Conservative party? Does he realise that the proportion of GDP taken by taxation in the 11 and a half years of Mrs. Thatcher's rule in this country was six full points more than it was in the 10 years when my right hon. Friend the Prime Minister was the Chancellor of the Exchequer? That is true, is it not? How can that be tax, tax, tax?

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I recognise the hon. Gentleman as one of the very best Back Benchers in the House, but it strikes me that there will be a clear difference when we go into the general election. There will be a Government saying, "We can get by by borrowing more and not cutting expenditure and raising taxes," and another party saying, "You have to make real-terms cuts in public expenditure." The Leader of the Opposition and my hon. Friend Mr. Osborne have given us an extraordinarily brave policy. In all the time that I have been involved in politics, I can never remember a party going in with such honesty and saying to the public, "Elect us and, in the short term, you'll be worse off in many regards, but in the long term the future will be better."

If we tell the public, "We are going to be honest with you. We are going to bring forward the year in which the retirement age increases. There is going to be a public sector freeze," that is brave and honest. That is what people out there want to hear-they want to hear the truth. I am immensely proud to be part of a party that is going into the election telling the truth and not pretending that there will be no cuts in public services. In their figures, the Government happily admit that welfare benefits and the interest on our debt are going up, but they cannot say that they have to cut departmental expenditure because of that. I think that the Chancellor would be brave enough to say that, but he cannot get the Prime Minister to say it.

In the limited time that I have, I want to move on to a couple of points. One, which has not been touched on very much, is the effect on markets of the fact that sterling has devalued because we are not tied to any other exchange rate. That is good news for our manufacturers because it makes their products cheaper in overseas markets and overseas manufacturers' products more expensive in this country. That can occur only because we are not part of the euro. Earlier, I challenged a Minister to pop up at the end of the debate to say, "We will no longer consider ever joining the euro." That is the Government's policy at the moment, but if they scrap it tonight, everyone in business will feel a lot better.

The other issue that I want to discuss has not been mentioned at all-it was not mentioned by my right hon. and learned Friend Mr. Clarke, by the Minister or by the Liberal spokesman, John Thurso. Next year, this country will pay the European Union an additional £4 billion compared with last year. That is not £4 billion in total-the total is £6.5 billion-but an increase of £4 billion. We paid £2.5 billion last year and we will pay £6.5 billion next year. There can be no possible justification in the middle of a recession for handing over British taxpayers' money to subsidise Greek, Spanish and Irish farmers. That is wrong. That is not an anti-EU point-it is just plain common sense. If you agree to increase your contributions as a percentage because you believe, and you are told by the Prime Minister-

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. Can I just remind the hon. Gentleman again about the use of the word "you" in Parliament? Please do not bring me into the debate.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

Sorry, Madam Deputy Speaker. I did not, of course, mean you-I meant the Prime Minister. The previous Prime Minister rightly said that he would surrender Mrs. Thatcher's rebate if the European Union reduced its budget, so our overall contribution would not increase. Unfortunately, he was fooled. The European Union's budget has continued to grow, and our contribution is going from £2.5 billion to £6.5 billion. I do not think that a single citizen in this country believes that that is right. Why are we giving such a sum to the European Union when we will have to cut Territorial Army training and the number of teachers and police officers?

Photo of Christopher Fraser Christopher Fraser Conservative, South West Norfolk

Does my hon. Friend agree that what really affects people is losing jobs in the real world and not getting support back home in our constituencies from the Government? Every single job lost in our constituencies means that a life is blighted, regardless of what Europe might do.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I entirely agree. My constituency has seen unemployment double, and it cannot be right to make public sector cuts when we are paying more to the European Union.

Finally, I should like to make a plea about the unemployment levels in my constituency. If Wellingborough had had a large manufacturing company that had gone bust, we would have had enormous help from the Government. Because smaller businesses have gone under, however, the overall total of people being made unemployed is greater than if a big company had gone under. One of the best known retailers in my constituency is currently in a consultation process that will probably lead to its closure, and a major logistics company has laid off 100 people this week. While I have been in the Chamber today, I have received a note to say that another company in my constituency has gone under.

I have a lot of respect for Labour Members, but when they start talking about unemployment, I do not think that they really understand the situation. They should not try to say that it is not happening. They say that we have all these wonderful schemes that are putting it right, but they are not putting it right. Until they recognise the problem, they will never find a solution.

Photo of Charles Walker Charles Walker Conservative, Broxbourne 9:00 pm, 19th October 2009

We live in an age of historically low interest rates. They have not been this low for hundreds of years, if ever. At this time in our economic crisis, low interest rates are absolutely what we need. They are a very good thing, but who are they benefiting the most? I am not convinced that they are feeding through to mortgage holders and home owners. I am certainly not convinced that they are feeding through to businesses.

The LIBOR rate is now just a fraction over 0.5 per cent. That means that banks are borrowing money at 0.5 per cent. interest, but they are lending it out to young people who want to take out mortgages-not extravagant mortgages; just three times their earnings-at 5.5 per cent. That represents a 1,000 per cent. gross profit. If a business wants a loan, it might have to pay 11 per cent. interest, which represents a 2,000 per cent. gross profit for the bank. Most businesses would be lucky to make a gross profit of 12 to 15 per cent. The interest on a credit card could represent 3,000 to 4,000 times what the bank is borrowing the money for. Banks are using that money to strengthen their balance sheets, and perhaps that is not a particularly bad thing, because we want strong, vibrant banks. My concern, however, is that the benefits of low interest rates are not being shared around fairly.

My right hon. Friend Mr. Redwood said in his excellent speech that we had a shortage of competition in the banking sector, and I agree with him. He are also pointed out that we are facing the prospect of banks that are propped up by the taxpayer paying out enormous bonuses. In essence, they are paying out taxpayers' money. I have a warning for the Government and the political class: the public-the electorate-will not stand for that at a time when many people in normal, ordinary jobs and earning normal, ordinary salaries in the private sector are seeing their take-home pay go down as a result of pay freezes or, often, pay cuts. They will not stand for it at a time when politicians are talking about public sector pay freezes, not for the fat cats who run quangos or who are at the very top of the Departments but for the people earning £18,000 or £19,000 a year. We have to accept that the people who will be bearing the real pain in the years ahead will just not accept bankers rewarding themselves with enormous bonuses.

I do not think that the plans for regulating bonuses will work. I do not think that we can regulate bonuses. I suppose that we could try to do it through the tax system. We could have a windfall tax on banks' profits. We could have special taxes on the bonuses awarded to bankers. I sincerely hope, however, that we do not reach that stage, because I do not think that that is what is needed.

I urge the banks please to exercise some emotional intelligence in the years ahead and recognise that many decent people will suffer as a result of their-the banks'- excesses over the past decade. That is my plea and my warning to banks. I never want to be in this place debating legislation to impose a windfall tax, which goes against almost everything that I believe in, but the ball is very much in the banks' court. They need to give this matter some very sober reflection.

Let me deal with a couple of other issues that have not been much touched on. I believe in equality and in a flexible labour market, but I also believe in innovation. I want to see many more women in senior jobs feeling that they can have a family. What we know-it is a fact-is that many companies, despite equality legislation being in place, are put off hiring women of child-bearing age. I think that that is a great mistake, but it is a reality. We in this place need to come up with an innovative solution to help companies to make the right decision.

I believe that we should look at having national insurance holidays, so that when a company hires a temporary worker to replace a female worker on maternity leave, the company will get a national insurance holiday. I think that that would be an incentive- it may not be a game-breaking incentive, but it may be an innovative way of ensuring that more companies make the right decision when it comes to hiring women, and do not penalise those women who want to have children.

I conclude my very short post-recess, post-hibernation speech with a quick critique of the welfare system. I am very proud of this country's welfare system, which I think marks us out as a civilised country, but I am very concerned that at times it may not be fair. Many Members-in fact all Members-will have been visited at their constituency surgeries by constituents who might have paid national insurance for 20 or 30 years, but when they are made redundant, the benefit system barely reflects it. Their benefits may compare not too favourably with those of someone who has chosen a life on benefits as a career option. I make this plea to all political parties: let us take a look at this issue. When people have a track record of paying national insurance contributions-not indefinitely, but certainly for a few months, perhaps a year-let us reflect that track record of contribution and responsibility in the payments we make to them. Being unemployed should not be a punishment or a cause for shame. We owe it to these people to be more innovative in the way we approach welfare and how we look after those people who are in between jobs, but desperate to work.

I have spoken for eight minutes, Madam Deputy Speaker, and I shall now sit down to let others have a turn.

Photo of David Davies David Davies Conservative, Monmouth 9:08 pm, 19th October 2009

We are all delighted to see that some Ministers have finally found the time to come back to discuss the shambolic state of the economy, which their Government have helped to cause. The Minister talked about déjà vu and gave us a little history lesson. I study history a little, so I know that every Labour Government have failed this country's economy-whether it be Ramsay MacDonald, who had to walk away from his own Government; Clement Attlee, who built his new Jerusalem on the back of American war loans; Harold Wilson, who told us that the pound in our pocket was going to be the same, even if he devalued it by about 15 per cent.; or Jim "Crisis, what crisis?" Callaghan, who left the place in a state of industrial anarchy. Every time it is the same, but this time Gordon Brown, who will no doubt be remembered for ever as the man who told us that he had eradicated boom and bust-

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. The hon. Gentleman must remember to address other Members of this House correctly.

Photo of David Davies David Davies Conservative, Monmouth

I am sorry, Madam Deputy Speaker, if I get carried away as I think about the chaos that has been wrought upon us. When we come to remember the Prime Minister for his comment that he had eradicated boom and bust, we should also remember that this was the Prime Minister who could not keep the books straight and was unable to spend just what he earned in taxation since the year 2000. All of us on this side of the House know that a nation or a company, a family or an individual, spending more than is being earned will sooner or later come to grief.

What did the Government do when they realised that they were spending more than they earned? They began selling off what assets they could. They made a bit of money-not very much at all-when they sold gold. They made a little more when they sold off the licences for the use of mobile phones and privatised air space. But, ultimately, they went back to doing what all Labour Governments do. Labour Governments tax and they spend and they borrow and they spend, and when all that fails-as, of course, it finally has-they print money, and spend it in the fashion of Robert Mugabe in Zimbabwe.

The people of this country will not be fooled, and they will not be fooled by excuses that it is all the fault of United States bankers. They can see for themselves what this Labour Government have actually done, and now they are looking for leadership. They are looking for a Government who can actually do something to support businesses and to get the economy back on its feet.

We could do a lot worse than listen to what Sir Terry Leahy said the other day about people leaving school. We are not discussing education here today, but let me put it in a nutshell. A large number of people-one in five or so-leave school completely illiterate and completely innumerate, despite the money that the Government have poured into education. Meanwhile, another slice of people pass every single exam, emerge with degrees in golf studies management, and are still unable to obtain jobs. What has happened to the apprenticeships? What has happened to the pride that we used to take in our manufacturing industry, in science and in technology? What has happened to the pride that we took in decent vocational jobs? Nowadays, our plumbers and electricians must come from eastern Europe.

I have done plenty of manual vocational jobs. I was once a long-distance lorry driver working for Lucas Girling. That is a productive job, and nothing at all to be ashamed of. After that I was a manager in my family's small haulage company, another productive job that was nothing to be ashamed of-and then I was elected to the Welsh Assembly. Well, we will say nothing more about that; but one of the things that I learned when I was running that small business is that there is no respect for the private sector in Government. The Government impose all sorts of rules and regulations on businesses which are not applied to companies in other countries, and those countries then happily export their goods to this country.

We have had to put up with the burden of legislation to deal with, for example, dismissal. It is a fact of life that some people are not very good at their jobs. Some people are lazy and do not turn up for work on time, some people are inefficient, and some people are dishonest. I had cause to suspend a person for dishonesty in my own office, someone who was stealing money, and do you know what? It was absolutely impossible for me to dismiss that person. I tried everything. I went to see the solicitor and said, "This person has been filmed stealing my money," and I was still not able to sack her. It is no laughing matter: it is virtually impossible. In the end I just about managed to get away with paying her off and having to give her holiday pay. That hurts me, and I know plenty of people in a similar position.

Photo of John Mason John Mason Spokesperson (Work and Pensions)

The hon. Gentleman suggests that it could be easier to get rid of people in this country, but I understood that in France and some other countries there was more protection for employees, and that therefore employees here could be sacked more easily.

Photo of David Davies David Davies Conservative, Monmouth

The point I am making is that people cannot be sacked easily enough. If someone does not turn up for work- [Interruption.] Oh yes, and it needs to be said. If people fail to turn up for work on time-as someone did in my office, day after day, week after week-it is impossible to get rid of them. If people start stealing money from the table in our offices, we find it hard to get rid of them. It is too difficult to sack people. They usually get paid off in the private sector, and in the public sector they usually get promoted. It is about time we did something to help small business people.

My hon. Friend Mr. Walker, in his usual tactful and diplomatic fashion, mentioned the fact that many people are afraid to employ young women of child-bearing age in the private sector. Of course they are, and who can blame them? It is not because people are sexist. Those in the private sector cannot afford sexism, racism or any other kind of ism: the best person for the job is the one who gets the job. Those who do not apply that rule will go out of business pretty quickly.

I always wanted the best people working for me. I did not give two hoots about the colour of their skin, their sexual orientation, or whether they were male or female. But I must admit that I was not the only one who worried that if I employed someone of child-bearing age, I would end up footing the bill for it. I know other people who will say quietly-not openly-that they worry about employing women, or even people who are black or Asian, not because they are racist but because they are afraid that if things do not work out, they will be taken to a tribunal. I condemn that attitude, but it is now the attitude of an increasing number of people in the private sector, and we all need to grow up a little bit and realise it.

The Government have wrought chaos on the economy of this country, but there is still one group of people in the British public sector who can be sacked: Members of Parliament. I look forward to seeing large numbers of Labour Members of Parliament being sacked at the next general election and being replaced by people who care about the economy, business and getting value for money for the taxpayer.

Photo of John Howell John Howell Conservative, Henley 9:15 pm, 19th October 2009

It is a great pleasure to follow my hon. Friend David T.C. Davies, whose passion came through eloquently.

I want to pick up on a comment made by the Ernst and Young ITEM Club: growth depends critically on recovery in exports. Despite the weakness of sterling, I have yet to be convinced that we are making the most of the opportunity that it offers. Indeed, 46 per cent. of manufacturing firms have said that export orders are lower than normal. Part of that can perhaps be explained by the state of markets overseas, but not all of it can be. In the 1990s and the early years of the current decade, I was greatly involved with UK Trade & Investment and its predecessor organisations as one of those international business men who were called in from time to time to help steer them and to provide advice. From that experience, I know of the huge potential for the UK in export markets. We should not underestimate the role of small and medium-sized enterprises in export. My personal experience in that regard is of being involved with an SME that managed each year to ensure that 50 per cent. of its turnover came from outside the UK.

We are missing out, and we need to ensure that the balance is right between promoting inward investment to the UK and encouraging trade promotion. Over the past few years, that balance has swung towards promoting inward investment. We need to ensure that that effort is effective. The problem with current activity is that it is not focused and has introduced an artificial competitive situation between the English regions. Why on earth do we need four-and-a-bit offices from different English regions in China? The level of that competition is illustrated by an anecdote told to me by somebody returning from China to the west midlands following a trade mission. He said, "The whole thing was an utter disaster." I asked why, and he said, "We couldn't get the Chinese to understand the difference between the east midlands and the west midlands." If we are in that sort of situation in our trade activity, we have an awfully long way to go. There is much need to target UKTI support on countries, sectors and companies where there is a real return on investment. It is about time that the Government stepped up their game.

The Minister for Business, Innovation and Skills danced around the topic of whether we were in a recovery-whether we were nearly in a recovery or how far we had to go. No one would be more delighted than me if we were now in a recovery, as that would clearly be in all our interests. The true picture is obscured, however, by the dust created by the whirlwind of Ministers rushing to gain credit for anything that looks remotely green and leafy. We do not know whether we are in recovery yet. We see statistics that go one way and others that go the other. More importantly, we do not really have a clear picture as to what is the "normal" that the Government are striving to achieve in trying to bring us back to normal. In fact, anyone who has listened to the debate would be forgiven for thinking that it might consist either of the normal that existed before the whole crisis started or-to some hon. Members at least-the normal that probably existed only in the myths of Labour party history.

Most of the good news that there is comes from surveys and anecdotal evidence. I accept that surveys can be a leading indicator, but they are difficult to judge and the attitudes expressed in them are volatile. That was brought home to me at a recent meeting of businesses in my constituency. Those present complained that there had been no real positive change in their companies despite their efforts to get into more selling and to get into e-business and improve their websites. In my constituency, at least, the situation is absolutely terrible for the Government, because not even Lord Mandelson's press releases are beginning to strike home. Awareness of business support schemes-such as they are-is extremely low, and businesses have taken to offering mutual support by providing each other with expertise and assistance in selling skills, rather than relying on Government schemes that simply do not deliver. The recovery that we are about to go into is anaemic at best; the hope of recovery is clearly running ahead of reality.

Let us contrast the Government's approach, consisting of a rag-bag of short-term measures with little thinking for the future, with the integrated plan for business, skills and welfare set out by my party's Front Benchers. I particularly welcome the emphasis on encouraging entrepreneurs and our Work for Yourself initiative. I am aware of the huge talent that exists, and of the huge help that such people need. Mentoring is useful because being a sole trader or entrepreneur is a lonely experience. I have great admiration for organisations such as the Prince's Trust, which provide mentoring. However, access to loans is also paramount for such businesses. There is certainly much lacking in that regard, and we will have great difficulty in taking matters forward unless that problem is sorted out.

There has been too much emphasis in the past few years on the difficulties associated with self-employment, which also brings enormous advantages. Such people are their own boss and have control over their daily workload, and their sense of achievement and personal fulfilment is enormously high. Their level of achievement cannot be controlled by anyone else-except perhaps by their customers-and there is complete recognition of their achievements and successes. I am pleased that that is part of the initiative for getting people back into work, and I look forward to seeing it develop over the coming months.

Photo of Theresa May Theresa May Shadow Minister (Women), Shadow Secretary of State for Work and Pensions 9:22 pm, 19th October 2009

I am pleased to reply to this important debate, which was so ably opened by my right hon. and learned Friend Mr. Clarke. He showed in his speech and in his responses to the many interventions that he took that he understands the nature and depth of the crisis facing this country, and the response required from Government, rather better than any of the Ministers do.

As I have said, this was an important debate and a number of Members welcomed the opportunity to discuss matters relating to the economy; however, it is striking that once again, a debate on the economy and specifically unemployment and welfare has been brought to this House not by the Government, but by the Opposition. It has been left to us to raise these important issues, which affect our constituents and matter not only to them individually but to the future of our country. It is shameful how few Labour Members were willing to contribute to this important debate or, indeed, even to come in and listen to it, striking as it does at the heart of the debts and jobs crisis that this Government have brought us to.

As my right hon. and learned Friend said, we live in terrible times, presided over by a Government of the living dead whose response is a plethora of packages and accompanying press releases, most of which have had little impact in the real world, but all of which are designed with one aim only in mind: to provide publicity for the Government and to try to improve their image. This was illustrated by my hon. Friend Tony Baldry, who referred to the complexity of the advice given to young people who are not going to university, and how confusing they find it to discover which Government schemes are real and which are merely press releases.

My right hon. Friend Mr. Redwood got it spot on when he said that the problem is that the Government are following an election strategy, not a recovery strategy. As he said with his customary force and passion, Conservative Members are here talking about this today because we want to see more opportunity for all and we want to do the best for our country.

There was real passion in a mixture of contributions from my hon. Friends. My hon. Friend Mr. Binley spoke with real passion about the problems of small businesses, as he does on many occasions in this Chamber. My hon. Friend Christopher Fraser showed a real understanding of the needs of rural areas. My hon. Friend Mr. Bone spoke, as is his wont, with real concern about job losses in his constituency. I know, as will the Minister for Business, Innovation and Skills from the correspondence that I have had with him about the redundancies at Nortel in my constituency, how devastating redundancy can be for many people, particularly when insolvency practitioners choose not to abide by the consultation rules set down in relation to redundancies. My hon. Friend John Howell has just spoken from real experience about promoting inward investment and about how this country needs to have a rather more strategic approach than that which is perhaps encouraged by regional structures.

At times, this has been an amusing debate, with a distinct flavour of déjà vu. That was notable in the contribution from Frank Dobson, who was ably assisted by Kelvin Hopkins and Mr. Meacher. They not only showed that old Labour is alive and kicking, but exemplified in their speeches one of the key reasons why this Government constantly get it wrong: they still believe that government always knows best and that it has the answer to every problem.

Indeed, the Minister for Business, Innovation and Skills, in his opening speech, attacked my right hon. Friend Mr. Cameron for what the Minister characterised as an attack at our party conference on big government. When will this Government understand that the relentless expansion of the public sector, fuelled by borrowing and sucking resources from the private sector, does not encourage economic growth, but stifles growth and wealth creation in the private sector? John Thurso said that businesses create jobs, not government, but of course this Government have been creating jobs in the public sector. One of the problems in recent years has been the imbalance of job creation between the public and private sectors. In the long term, that imbalance and disparity is simply not sustainable.

Ms Keeble made an interesting contribution, in which she referred to the use of flexible working to keep people in jobs. Like her, I hope that we will see a different approach to flexible working in the future, and I welcome the intervention of my hon. Friend Mr. Walker in relation to his ideas on how to improve the employability of women of child-bearing age.

References were made to the impact of the recession on families by, among others, my hon. Friend Peter Luff. In a well-informed contribution that drew on his role as the Chair of the Select Committee and the work of that Committee, he reminded us that the problem with the Prime Minister's claim to have ended boom and bust was that it was not just a political mantra; it led people to make decisions about their family finances that many have come to regret. The Prime Minister may have used it as a party political weapon, but it was deeply damaging and totally irresponsible.

My hon. Friend Mr. Crabb referred specifically to the problems faced in Wales. He said that the Government are in denial, which was illustrated by the Minister's opening speech. That speech contained denial about the Government's role in getting the country into this mess. Did the Minister open his speech by talking about the 2.47 million unemployed people, the 2.6 million people on incapacity benefit or the fact that this country has the highest level of youth unemployment in Europe? No, he did not. Less than a minute into his speech, he was talking about the Conservative party and its policies. By the way, he misrepresented our policies, by suggesting that we would withdraw help from unemployed people. In fact, our work programme and overall plans to get Britain working would help more unemployed people than the Government are helping, would help most of them at an earlier stage than the Government and would ensure that those people are helped into sustainable jobs.

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

Will the right hon. Lady clarify whether she supports the £5 billion that we have put into helping the unemployed this year and next? Yes or no?

Photo of Theresa May Theresa May Shadow Minister (Women), Shadow Secretary of State for Work and Pensions

The Secretary of State keeps coming up with this issue. The problem with her approach is that she thinks that one either supports everything that the Government are doing or one does not support doing anything at all. Of course, the answer is that we support doing something in a rather better way than the Government's proposals. We support giving people help in getting sustainable jobs. I can tell John Mason that that is a fundamental difference between us and the Government in relation to our welfare reform proposals.

There is a pattern to the way in which the Government provide so-called support for businesses and for unemployed people-they keep announcing schemes; they get the headlines; and they do not care whether the help works. We saw it with the new deal for young people, which was a revolving door for most young people back into benefits. Today, one in five young people cannot get a job. We have nearly 1 million unemployed young people and the highest level of youth unemployment in Europe. At least the new deal for young people intervened after the young person had been unemployed for six months. The flexible new deal leaves young people unemployed for a whole year before they are given that help, and even the much-heralded future jobs fund and young person's guarantee kick in only at 10 or 12 months.

We believe that a lengthy period of unemployment early in one's working life can have a devastating impact on that working life. We need to give young people help earlier, and that is why in our work programme we will refer young people to the specialist help provided by welfare-to-work providers in the private and voluntary sectors after they have been unemployed for six months.

Our work programme will give more help to young people and will also give help to a group of people who are out of work and who are being effectively ignored by the Government. Labour Members-we heard one or two of them tonight-are quick to complain about the number of people on incapacity benefit, but the Government have done nothing to get the many people on incapacity benefit who want to work into jobs. That is a damning indictment of the Government, who have abandoned too many people to a life dependent on benefits. Of course, some people on incapacity benefit cannot work and they should be supported, but under our work programme people on incapacity benefit who can work will be referred straight away to specialist help. We need to give them the support that will get them into jobs and help them to transform their lives and those of their families. We know that children brought up in a workless household-there are 1.9 million of them today-are more likely to become workless themselves. All too often, their performance at school is affected, too. Frankly, the Government should be ashamed of their failure to support to people on incapacity benefit.

Lots of schemes have been announced by the Government over the years-we have had new deal after new deal. There was even a new deal for musicians. Today, we have the flexible new deal, pathways to work, the invest to save pilots and the progression to work pilots-the list goes on. However, people do not want a complex multiplicity of schemes. They want a single integrated programme that will give them real help and that works. They do not want help into a short-term job; they want help into sustainable work.

Today, under the flexible new deal, a provider can get 40 per cent. of their money without getting anyone anywhere near a job, and they can get 70 per cent. of their money for getting someone into a job for 13 weeks. That is one of the problems with the Government's approach to welfare-they think that 13 weeks represents a sustainable job. For too many people, as we have seen under the new deals, all that happens is that at the end of those 13 weeks they come out of the job and go back on to benefit. The scheme has been a revolving door to benefits and there is every sign that that will happen again.

Under our get Britain working scheme, a sustainable job would last for a year and providers would be paid by results. Crucially, they would be paid more to help people who are harder to help into work. That is a real incentive to provide help to the long-term unemployed. When we provide incentives and pay people by results, there is a danger that they will help people who are easy to help into the workplace and will leave others to one side. The Minister for Employment and Welfare Reform is nodding, but if he agrees with me, why does the Government scheme signally fail to address the issue, as it pays the same for everyone with whom the welfare to work providers deal, so it is all too easy for them to give help to people who are easy to get into the workplace and, in the jargon, "park" those who are difficult to get into the workplace? That is another reason why, under the Government's proposals, we are unlikely to see any real help for people who are long-term unemployed.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

The right hon. Lady is discussing methods of prioritising different groups among the unemployed-helping people on incapacity benefit into work, and trying to help the long-term unemployed into work-but does she envisage that there is a larger pool of jobs for them to move into, or will they just take a different place in the queue for the same number of vacancies?

Photo of Theresa May Theresa May Shadow Minister (Women), Shadow Secretary of State for Work and Pensions

In the present circumstances, there is not a large pool of jobs for people to move into. It is important that we start the work now with those people who are long-term unemployed to ensure that when the jobs become available as the economy recovers, people have the skills and have been given training and support, so that they can take the job opportunities that are on offer. It would be shameful if the country came out of recession, and if more jobs were available, but those of the 2.6 million people on incapacity benefit who were able to work were still denied the help and support to get them into the workplace that could be given to them by the sort of scheme that I am talking about and that a Conservative Government would introduce.

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras

Will the differential aspect of the scheme mean that payment for getting someone into work in an area of high unemployment will be higher than for getting someone into work in an area of low unemployment?

Photo of Theresa May Theresa May Shadow Minister (Women), Shadow Secretary of State for Work and Pensions

The differential will be determined by the nature of the individual, the difficulty of getting them into work and how much skills training and other training they need. We will be able to offer this sort of support to long-term unemployed people, but the Government have not been able to do so, because Ministers from the Department for Work and Pensions have not been able to carry the argument with their Treasury colleagues. Underlying such a scheme is the ability to pay for programmes to help to get people into work from the benefits saved by getting them into work-in the jargon, the so-called DEL-AME switch.

It is a great disappointment that DWP Ministers have failed to take that argument to the Treasury, because this is not just about accountancy but about helping people to have a better quality of life by helping them to get into work. We must make sure that when this country comes out of recession, we have people who are trained, skilled and able to take the jobs that are available. We must make sure that we do not come out of recession with an increase in long-term unemployment, but sadly, under the Government's proposals, I fear that that is exactly what will happen.

Photo of Paul Rowen Paul Rowen Shadow Work and Pensions Minister

I have listened carefully to the right hon. Lady's argument. Will she confirm that employers who accept long-term unemployed will receive a proportion of the benefits as payment for taking them on under the Conservative proposals, and will she tell us at what level that will be set?

Photo of Theresa May Theresa May Shadow Minister (Women), Shadow Secretary of State for Work and Pensions

The payment for results goes to the welfare to work provider, who is providing the training and support to get people into jobs. Part of their job is to make relationships and partnerships with employers to ensure that they have the jobs available for the people whom they are helping and skilling.

My hon. Friend David T.C. Davies said that people want a Government who will support business. They want a Government who will be honest about the problems facing the economy. They want a Government who will face up to the tough choices ahead, and a Government who will give people real help. This Government are in denial: they are in denial about the depth of the debt crisis; denial about their role in bringing this country to the state it is in; denial about the state of the jobs crisis; denial about the failure of their welfare programme. It is time that they accepted-excuse my coughing.

Photo of Theresa May Theresa May Shadow Minister (Women), Shadow Secretary of State for Work and Pensions

I thank the Minister. I might just make it to the end without a sip of water, if she bears with me.

It is time that the Government accepted that the only Government who will give business the support that it needs and unemployed people the help that they need, the only Government who are willing to face up to the depth of crisis that the country is in and to make the tough choices to get the country out of the present crisis and give real help to people are the next Conservative Government.

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions 9:40 pm, 19th October 2009

We have debated this afternoon and this evening how we respond to the first world recession since the second world war, the fall-out from the biggest financial crisis for many generations. We had a range of contributions. Mr. Clarke gave us a meandering tour of several decades until he was floored by a question about which regulations he would remove. He has had plenty of time to think about that. He has promised us a review, so that is all right.

John Thurso said that he would vote for the Opposition motion, although he opposed most of the measures in it. He certainly opposed the early withdrawal of the fiscal stimulus, which was slightly confusing, but I guess that is the prerogative of the Liberal Democrats. Several hon. Members spoke about the difficulties still faced by companies in getting the finance that they need. The hon. Members for Northampton, South (Mr. Binley) and for South-West Norfolk (Christopher Fraser) spoke about difficulties-for example, for companies needing to get finance.

Photo of Christopher Fraser Christopher Fraser Conservative, South West Norfolk

Given that the right hon. Lady was not present throughout much of the debate, a point that I made earlier at the start of my speech, will she assure the House that she will write to all of us who made a contribution on all the issues that we raised, so that we can go back to our constituents and tell them that the Minister had listened, rather than being elsewhere this evening?

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

I can tell the hon. Gentleman that I listened very carefully to the points that he was making, which I plan to address now, and to many other hon. Members, including those whom I was able to watch on the monitor, as well as those whom I was able to hear directly in the debate.

It is hard for companies across the country who are still being affected by the credit crunch. The enterprise finance guarantee scheme means that 5,800 businesses have been offered loans totalling more than £585 million. The banks that are getting support from the Government have signed legal agreements to increase their lending, but world markets are still suffering from credit constraints. That is why continuing the support for the economy from the Government and the Bank of England, and from Governments and banks across the world, is so important.

Now is not the time to withdraw that fiscal and monetary support. The right hon. and learned Member for Rushcliffe seemed to suggest that it was the right time to withdraw that support. I say to all Opposition Members who were concerned that people were not taking sufficiently seriously the plight of their companies or their families that they should direct those comments to those on their own Front Bench, who seem to be arguing that we should withdraw the support just at a time when I think support is needed to sustain recovery.

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

I give way to the right hon. and learned Gentleman, who I hope will clarify that point.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

Apart from the automatic stabilisers, which we all accept and support, the only significant measure of fiscal support that I am aware the Government are giving is the VAT reduction, which they propose to withdraw at Christmas. Why is it right to withdraw the VAT reduction at Christmas, if any other reaction to the present fiscal deficit is a serious threat to our economy and the national future?

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

As the right hon. and learned Gentleman will be aware if he has read the Budget documents, as well as the VAT cut there are the additional public sector capital projects, which are being brought forward to increase and accelerate public sector investment. In addition, there is the £5 billion support for the unemployed, which all the Opposition Members have refused to support. Mrs. May has made the same mistake before. She says that that is the automatic stabilisers, but that £5 billion is not in support of unemployment benefit. It is additional investment in services to help the unemployed. This is discretionary additional spending, which the Opposition have repeatedly opposed. If they want to change their policies and provide support for the action that we are taking to help businesses and to help the unemployed right across the country, we would welcome them doing so. It would be a pretty massive U-turn, but I am sure the right hon. and learned Member for Rushcliffe would be happy to do that.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State, Chair, Tax Law Rewrite Bills (Joint Committee)

So far as I am aware, the only classic Keynesian capital scheme that has been advanced in the entire country is the dualling of a road in my constituency, and for that I am exceedingly grateful. The Government could not find any other shovel-ready schemes to put money into. This country has taken hardly any measures to introduce a fiscal stimulus to the economy, because we cannot afford it owing to the state of the public finances. On the biggest measure that the Government found, the VAT cut, they are actually going to end it-quite rightly-at Christmas.

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

I am afraid that the right hon. and learned Member continues to be wrong, because we are providing additional support throughout the country for primary schools that are having their repairs done. Furthermore, the £5 billion for the unemployed will include £2.9 billion next year to support the expansion of employment programmes and the expansion in job centres of the number of additional advisers who need to ensure that people continue to look for work.

There is additional support through the future jobs fund, too. Unfortunately, Opposition Members continue to oppose it. They continue to oppose every penny of that support, which is helping the economy. In fact, they go further: they do not simply oppose the fiscal support; they want to make cuts in the middle of the recession-something that would be so devastating for people, for families and for businesses right across this country, and something that economists, the CBI, business organisations, families and community groups oppose.

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras

Will my right hon. Friend take this opportunity to remind the Tories that they need to be consistent?

Photo of John Bercow John Bercow Chair, Members Estimate Committee, Speaker of the House of Commons, Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Chair, Members Estimate Committee, Chair, Speaker's Committee on the Electoral Commission

Order. Peter Luff is a very senior and celebrated Chairman of a distinguished Select Committee. He really must know how to behave a little bit better than that, and he can behave so much better when he tries.

Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras

Will my right hon. Friend remind the Opposition that when the reduction in VAT was announced, they said that it would have no effect whatever? They cannot really claim that its reintroduction will be damaging.

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

Interestingly, the right hon. and learned Member for Rushcliffe was one of the few people who did, at least temporarily, support the reduction in VAT.

The best way to help businesses and jobs right now is to ensure that we act to get the economy growing again as soon as possible. That is what we are doing; that is what we did last year when we stopped the banks going under; that is what the Bank of England is doing, backed by the Government through quantitative easing; and that is what we are doing by cutting taxes this year and increasing public capital projects and support for the unemployed. The International Monetary Fund says:

"The UK authorities policy response to the deep recession and global financial crisis has been bold and wide ranging... The aggressive actions by the authorities have been successful in containing the crisis and averting a systemic breakdown."

I disagree with John Mason, who said that he saw no difference between the policies of the major parties. In fact, there are major differences between the two main parties. Opposition Members want to rewrite history and claim that they supported all the action on the banks, but, in fact, that is not true. They opposed the nationalisation of Northern Rock. They saw that as "big government". The powers that we used to stop Bradford & Bingley collapsing were actually powers that Conservative Members voted against last year. Presumably those powers were "big government", too.

On fiscal policy, as we have said already, the call for cuts in the middle of a recession would be devastating. The shadow Chancellor, Mr. Osborne, said that

"the discretionary borrowing had to stop".

Let us just think for a moment what that means: not just no VAT scheme, but no car scrappage scheme, which has helped boost car manufacturing; no help for 150,000 companies that have been able to delay their tax bills; no help for the housing market or for families worried about their mortgages; no boost for the struggling construction industry from accelerating public projects; and, no £5 billion investment for the unemployed. That is suicidal economics. Professor David Blanchflower called it an economic "death spiral". He said:

"If spending cuts are made too early and the monetary and fiscal and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach four million.... If...there are substantial cuts in public spending in 2010, as proposed by some in the Conservative Party, five million unemployed or more is not inconceivable."

That is the testimony to the Conservatives' economic policies. [ Interruption. ] They do not like us quoting from Professor Blanchflower, but what about the former Conservative wise man and friend of the right hon. and learned Member for Rushcliffe, Roger Bootle, who is not known as a supporter of the Labour party? He said:

"A Conservative Government could cut too hard. They may put up taxes quite a lot and that could clobber the recovery."

The really irresponsible thing about the Conservatives' position is that cutting support for the economy will increase costs. As my right hon. Friend Frank Dobson said so clearly, pushing up unemployment pushes up debt. For every 100,000 people we take off unemployment benefit, we save more than £500 million. The Conservatives say that we cannot afford to help the unemployed; the truth is that we cannot afford not to, because otherwise we will pay the bills of long-term unemployment for many years to come, just as we did in the '80s and '90s.

Photo of John Redwood John Redwood Conservative, Wokingham

If the Government got everything right, can the Minister explain why there has been no recession in Australia, and why the decline of the economy in Canada and in the United States of America has been so much less than in the UK?

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

The right hon. Gentleman will know that, in fact, the Americans have been affected by the credit crunch and recession for a long time. They have had very serious problems with unemployment, which is higher than it is here, as it is in the average of the EU and OECD countries.

We need to do more to keep helping those who are losing their jobs and are affected by the recession. Getting people back into work is good for the public finances, but it is also critically important for the future of families and young people across the country who are being affected by unemployment.

Photo of Tom Levitt Tom Levitt Labour, High Peak

My right hon. Friend is right that the Conservative parliamentary party has been absolutely consistent in its support for suicidal economic policies, but is she aware that in local government some Conservative councils are taking up offers under the future jobs fund? Why does she think that some are seeing its benefits, but others, such as High Peak borough council, are still insisting on not helping the unemployed locally?

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

It is deeply disappointing that some local councils are not supporting the future jobs fund. The Conservative leader of the Local Government Association, Margaret Eaton, has said:

"The fund for local job creation will help to generate jobs, get local economies moving and help to prevent another 'lost generation' of young unemployed...Councils have thousands of small scale projects on the stocks and ready to go that will create tens of thousands of jobs in both private and public sectors and help to kickstart the local economy".

In fact, there is considerable support across the country for the future jobs fund and for the 150,000 jobs that it is creating-jobs that pay at least the minimum wage and include training and support. That is why it is so destructive of the Conservatives to want to pull the plug on such an important programme to help young people over the next two years. That would mean 3,000 jobs already planned for London, all cut; more than 2,000 jobs already planned for Wales, all cut; more than 700 jobs already planned for Leeds, all cut; more than 1,200 jobs already planned for Leicestershire, all cut; and more than 1,000 jobs already planned for Kent, all cut. What a shame that the Conservative leadership want to pull the plug on a programme that will provide support and job opportunities across the country.

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

I will give way to the right hon. Lady in the hope that she will now support the future jobs fund and reverse her party's policy.

Photo of Theresa May Theresa May Shadow Minister (Women), Shadow Secretary of State for Work and Pensions

The Secretary of State is making much of what an important move the future jobs fund is and how effective it is going to be. Will she therefore explain why the Government propose to cut it next year?

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

I am afraid that the right hon. Lady is simply wrong. In fact, we will increase support for the future jobs fund next year. It is right that we should provide that support at a time when the economy is facing considerable difficulties as a result of the worldwide recession. This is her chance to support that help and those opportunities for young people instead of trying to pull the plug on them and deny more than 150,000 people the real opportunities that the future jobs fund will provide.

We are increasing the local employment partnerships, which are getting 40,000 people a month into jobs. We are increasing training places and college places, with more than 50,000 more college places for 16 and 17-year-olds for this year-again opposed by the Conservatives. They are opposing training and job opportunities just at a time when they are needed most.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

May I suggest that my right hon. Friend give up her exhortations to the Conservative Front Benchers? They think that big government is the problem and what got us into the world recession. They want to use the state of public finances to cut government, and the clear implication of the remarks made by Mrs. May was that she and many of her colleagues think that the public sector is unproductive. That is complete nonsense. Where do they think literate workers come from? Most of them are educated in the state sector, although perhaps not in the Conservative party. Where does she think healthy workers come from-

Photo of Yvette Cooper Yvette Cooper The Secretary of State for Work and Pensions

My hon. Friend is right: many of the Conservatives' policies are, sadly, driven by ideology and by an ideological approach that big government is bad and Government action should be withdrawn, even at a time when markets have failed, showing the importance of Government action to support businesses across the country.

As a result of the action that we have taken, unemployment is not currently as high as people forecast at the time of the Budget. Then, the NAO-checked figure was a forecast of 2.09 million unemployed by the end of 2009. The September figure stands at 1.63 million. Half of all unemployed claimants are leaving benefit within six months, and nine out of 10 within 12 months. The most recent figures even showed a fall in some areas. However, we expect the situation to be difficult for some time, and we expect unemployment still to increase as a result of the recession. That is why it is so important to keep increasing the support, not cutting it, and to keep expanding the opportunities for young people and all those facing unemployment across the country. It is why it is important also to keep up our welfare reforms by working with the private sector, introducing the new assessment for those on sickness benefits and giving lone parents more help to look for or prepare for work.

I say to the right hon. Member for Maidenhead that her crocodile tears for those on sickness benefits simply will not wash. The number of people on incapacity benefit trebled under the Conservatives between 1979 and 1997. It has been coming down for the past few years as a result of the additional support and welfare reforms that this Government have introduced. That is why the right way to help people is to provide them with support and opportunities to get into work, not to do the kinds of things that the Conservatives want to do, such as cut the future jobs fund or the new deal for lone parents, which has helped 625,000 lone parents into jobs so that they can support their families for the first time. That programme is still working and still increasing the proportion of lone parents in work, even in the middle of a recession.

The Conservatives also want to cut the access to work programme, which is expected to help 35,000 disabled people this year, and which the Royal National Institute for Deaf People believes is

"the most successful current intervention in allowing disabled people to gain and retain paid work".

They want to abolish the flexible new deal, when it has just got going on the advice of Lord Freud, who said last year:

"The New Deals have been enormously successful".

What they are offering instead is simply a new report, which is just a con and a rehash, and which, importantly, has less money behind it than our investment to support the unemployed. They say that they will spend £600 million extra, but they cannot even make those sums stack up. While they want to offer £600 million that they cannot find, we are spending £5 billion extra-£5 billion that, time and again, Conservative Members and their Front Benchers have refused to support.

I say to the Opposition that using private sector providers still does not change the basic economics: if we cut the funding for programmes, we will not help people into work. If we cut support for the economy in the middle of a recession, there will not be jobs for people to go to. Welfare to work does not work if there are not jobs for people to find. All the private providers in the world will not bring down unemployment if the economy does not recover.

That is what it comes down to in the end-are we prepared to work right across the world, with other countries, Governments and central banks, to support the economy and build for recovery? Are we prepared to back jobs and support the economy, or are we so paralysed by an obsession with big government and an ideological approach that, in the end, government must always be cut back, and we cut support for jobs and the economy when it is needed most? That would be economic suicide and would be devastating for Britain. That is why we will not return to it, and that is why we oppose the motion tonight.

Question put (Standing Order No. 31(2)), That the original words stand part of the Question.

The House divided: Ayes 198, Noes 276.

Division number 225 Opposition Day — [18th Allotted Day] — Economic Recovery and Welfare

Aye: 198 MPs

No: 276 MPs