Finance Bill

– in the House of Commons at 4:23 pm on 6th July 2010.

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Second Reading.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury 4:31 pm, 6th July 2010

I beg to move, That the Bill be now read a Second time.

The emergency Budget takes tough action at a critical time for the British economy. The Bill implements many of the necessary measures in the Budget. As my right hon. Friend the Chancellor of the Exchequer said in his statement:

"The coalition Government have inherited from their predecessors the largest budget deficit of any economy in Europe, with the single exception of Ireland. One pound in every four we spend is being borrowed." -[ Hansard, 22 June 2010; Vol. 512, c. 166.]

The gap stands at £149 billion for this financial year alone. Yet the previous Government left us with no credible plans to reduce their record deficit. Nothing at this time is more urgent for Britain than setting out a tough, realistic and fair plan that demonstrates how we will regain control of the public finances.

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Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Would not a better plan be for the Government to try to collect some of the taxes that are not paid, rather than cutting the wages and jobs of people in the public sector?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for that intervention. Of course the hon. Gentleman will know that the Bill includes some anti-avoidance measures, to which I will come in my speech. I trust, therefore, that he will welcome those measures.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

The right hon. Gentleman just told the House that the previous Government's plans for a reduction were not credible, but how can he say that when the Office for Budget Responsibility's latest independent analysis found that the Labour reduction plan would have more than achieved the target to halve the deficit over four years from 11.1% in 2009-10 to 5% in 2013?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for that intervention. As the OBR set out both in its pre-Budget forecast and in the forecast published with the Budget, the comparison that the hon. Gentleman is seeking to make is based on interest rate assumptions that took into account market expectations under this Government's measures, not market expectations of the measures that the previous Government were taking. He should read the OBR report if he does not agree, because that is an accurate account of what it says. It is clear that, had the previous Government carried on with their plans, interest rates would have been different. The risks that we are seeking to avoid through the Budget are those of higher interest rates, lower growth and fewer jobs, which I believe would be the consequence.

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Photo of Clive Efford Clive Efford Labour, Eltham

In light of that answer, what are we to make of Sir Alan Budd's resignation today? The right hon. Gentleman puts much store by the OBR's reports, but did they not contribute to Sir Alan relinquishing his post? He said that this was the greatest challenge of his professional career. He must have an extremely exciting career that he can give up that post so quickly.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful to the hon. Gentleman for giving me the opportunity to place on the record my thanks and those of this Government to Sir Alan Budd for his superb work in establishing, in a short period, an independent Office for Budget Responsibility with a strong reputation. It was always known that he intended to move on after a short period-a few months-in his post, and that is what he is doing. In a short time, he has established greater independence of the forecasts that go with the Budget than the previous Government managed in 13 years.

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Photo of Chris Leslie Chris Leslie Labour, Nottingham East

Sir Alan Budd is leaving the Office for Budget Responsibility, so to ensure that that organisation is seen to be independent, will the right hon. Gentleman give the House of Commons the power to appoint the successor or is he going to keep that for himself as a Minister?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am not sure that that power ever rested in the hands of the Chief Secretary but, as the hon. Gentleman knows from the Gracious Speech, the Government intend to implement legislation to put the OBR on a statutory footing. He will have the opportunity to make that point in considering that legislation, and I am sure that he intends to do so.

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Several hon. Members:

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I would like to make progress.

We have considered the plans of the previous Government and it is clear that they left us open to the risk of ending up in an even more serious crisis than that which we currently face. Such a crisis could ask questions of the kind that some other European countries face today, with higher interest rates-I mentioned those to Mr Jones-more businesses going bust and higher unemployment. That is not a risk that we are prepared to take. The Budget takes the tough action necessary, but it does so with fairness, protecting the most vulnerable, including children in poverty and pensioners. In his emergency Budget, my right hon. Friend the Chancellor has set out clearly how we will pay for the bills of the past and start to plan for the future. This has already had an impact on the credibility of and confidence in the British economy.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

On fairness, it is clear that the measures that the right hon. Gentleman is enacting mean that the poorest 10% of people lose in percentage terms twice as much of their incomes as the richest 10%. What definition of fairness is he using when he says that that is fair?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am sorry, but I do not accept the figures that the hon. Lady set out. If she looks at the information presented in the Red Book, she will find that it shows that the richest 10% of the population pay the greatest contribution, both as a share of their income and in cash terms. That is what I mean by fairness, and that is what we have set out. It is worth pointing out to her that this is the first time that a Government have chosen to set out in detail in the Budget documentation the distributional impact of the Budget measures. That is not a measure that the previous Government took, for example, when the 10p tax rate was being abolished.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will give way to the hon. Gentleman and then to the right hon. Lady.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

I know that the right hon. Gentleman is doing his apprenticeship, but does he not understand the difference between the proportion and the actual tax take? Surely for a family in my constituency who are earning the minimum wage, the VAT situation alone will mean that the effect on the proportion of their income will be larger. If he looked at the research paper that has been ably produced in the House of Commons, he would find that it points out that fact.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I ask the hon. Gentleman to look at the tables on page 67 of the Red Book. I draw his attention to chart A2, which is on the

"Impact of all measures as a per cent of net income by income distribution".

He will find that it makes it clear that the impact on the top decile is the highest as a share of income. Other charts make it clear that it is the highest in cash terms and that the impact is broadly progressive across income distribution.

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

I am rushing to get to the ballot box -[Interruption.] The right hon. Gentleman is welcome to come to the ballot box too, if he so wishes. He will know that not only does chart A2 include the Labour measures from the March Budget, but it does not go beyond 2012-13 and does not include housing benefit. Is he also aware that the House of Commons analysis has shown that more than 70% of about £8 billion of direct tax and benefit measures introduced in his Budget are being paid by women? What figure does the Treasury put on the proportion of those direct tax and benefit measures being paid by women?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

There were a lot of questions there but not a single apology for the record of the previous Government. The single measure announced by the previous Government that is included in the charts in the Budget Book is the national insurance change. We have chosen to introduce that measure, so it is legitimate that we have included it in the charts. Other measures that affect people on higher incomes such as the increase in capital gains tax for higher rate taxpayers, which the previous Government never chose to introduce, cannot be included in the tables, so the impact on the wealthiest may even be greater than is illustrated in the charts.

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Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

Does not the Minister, like me, find it a bit rich that Opposition Members look only at part of the Budget, not the whole, after 13 years in which they did not once introduce a distributional table?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I agree with the hon. Gentleman. It is a bit rich coming from the Opposition, given that we have set out for the first time in any Budget its distributional impact.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I wish to respond fully to the intervention. I will come to the right hon. Gentleman in a little while.

We have taken a number of measures in the Budget, such as the earnings link with pensions, with a triple lock of earnings, prices or 2.5%, which the previous Government never managed in 13 years. That is a record of which we can already be proud. I give way to the former Chief Secretary.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I wish to pursue the question asked by my right hon. Friend Yvette Cooper. What is the Treasury's analysis of how much of the £8 billion in tax and benefit measures will be paid for by women?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

As I understand it, the House of Commons analysis does not include the impact of all the measures in the Budget. VAT is paid much more in cash terms--that has been accepted by the Institute for Fiscal Studies--so it is paid more by the wealthiest. The analysis that we should rely on is that which is presented in the Budget because it shows that the distributional impact of the Budget measures hits those on highest incomes hardest. That is the relevant measure and the one that I intend to draw attention to.

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Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

I commend my right hon. Friend on the fairness that he has ensured runs right through the Budget, especially in respect of pensioners, but may I draw his attention to one small potential unfairness that may have crept in? Pensioners who are on a modest works pension and the state pension will pay £100 more in tax this year than they did last year because of the difference in the thresholds. I am sure that this was inadvertent. Will he look again at that particular issue?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for that intervention. I am sure that my hon. Friend will have the chance to raise that point either in Committee or on the Floor of the House when the Bill is considered.

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Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Has the Chief Secretary analysed the impact of the Budget measures on women? If not, will he commit to doing so?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I can confirm that we have carried out an analysis of the Budget across the income distribution to evaluate its fairness. We have also conducted an analysis of the impact on child poverty, which is the most important aspect. We have ensured that, even in the toughest Budget since the second world war, there will be no impact on measured child poverty-something that could not always be said of the previous Government's Budgets.

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Photo of Ben Gummer Ben Gummer Conservative, Ipswich

Opposition Members like talking about apprenticeships. I am a relative newcomer to the House so can my right hon. Friend enlighten me? What happened to the gap between rich and poor under the previous Government? For my information, did it get wider or narrower?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

The hon. Gentleman is clearly not as much of an apprentice in this House as he claims to be. The gap between rich and poor got wider during the previous Government's term.

The measures in the Budget have already had an impact on the credibility of and confidence in the British economy. As the director general of the CBI, for example, has said:

"This budget is the UK's first important step on the long journey back to economic health."

The Fitch rating agency said:

"The path of deficit reduction and public debt projections set out in" the

"Budget statement are materially stronger than that set out in the March 2010 Budget."

On fairness, the chief executive of Barnardo's said:

"we recognise the Government has done what it can to protect the most vulnerable."

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Photo of Andrew Love Andrew Love Labour, Edmonton

Will the right hon. Gentleman give way?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will make some progress and give way to the hon. Gentleman later.

The Bill shows how the Government will carry out Britain's unavoidable deficit reduction plan in a way that strengthens and unites the country. The Budget and the Bill stand for three things. The first is responsibility-taking action to eliminate the structural deficit. The second is freedom-helping the businesses on which we all rely to rebuild our broken economy. The third is fairness-protecting the most vulnerable, while ensuring the contribution of all. Those principles are at the centre of the Bill before the House today and I shall address each in some detail shortly.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

The right hon. Gentleman mentioned fairness and businesses, and I would like to draw his attention to rural areas. He will understand that the increase in VAT will affect fuel prices in rural areas. Would it not be right to have a rural fuel derogation pilot in place before the VAT increase takes effect?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am very grateful for that intervention. The hon. Gentleman knows that we are investigating a rural fuel derogation of some sort-that was repeated in the Budget statement. Although I cannot make a commitment on timing, as he knows, I am personally very enthusiastic about such a measure and I will continue to work with my colleagues on it.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I want to say a word or two about the process of the Finance Bill.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I want to make some progress.

The Finance Bill before the House today seeks to ensure that the Government's key tax priorities as set out in the emergency Budget are put on the statute book as swiftly as possible. This year, however, we face exceptional circumstances owing to the timing of the general election, which resulted in a curtailed Finance Bill following the previous Government's March Budget and a relatively short timetable between our emergency Budget and the summer recess. There remain a number of minor and technical measures that we inherited from the previous Government and which must be legislated for before 2011. We shall therefore introduce those measures in a further Finance Bill in the autumn. Consistent with our aim of greater scrutiny of tax legislation, again set out in the Budget, we shall publish all those measures in draft for consultation before the end of July.

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Photo of Chris Bryant Chris Bryant Shadow Minister (Europe)

The right hon. Gentleman says that he is thinking about a derogation for rural areas in relation to VAT on fuel. May I point out that not a single house in the Rhondda is more than half a mile from a farm, so will he include the Rhondda in a derogation not only from VAT on fuel but from everything else as well?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

The hon. Gentleman has misunderstood what is being discussed, which is no surprise, given the previous Government's attitude to the idea, as Mr MacNeil knows. We are not talking about a VAT derogation; the proposal relates to fuel duty.

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Photo of Angela Eagle Angela Eagle Shadow Minister (Treasury)

I was involved when the Treasury last looked at that idea. As the hon. Member for Na h-Eileanan an Iar knows, there are real hardships and we were very sympathetic. However, the Chief Secretary must admit that there are difficulties with developing such a policy, not least because of the potential for smuggling and fraud.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

The hon. Lady says she was sympathetic-I attended a meeting where she expressed that sympathy-but no action by the previous Government resulted, despite the matter being pressed for a number of years. I am sure that my hon. Friend the Exchequer Secretary will look at all the issues as the question is investigated.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I hesitate to take further interventions, as we are somewhat outwith the scope of the Bill, but I will give way once more to the hon. Gentleman.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

I ask the Chief Secretary to consider this question. With rural fuel priced between £1.30 and £1.35 a litre, were a rural fuel derogation to apply in Na h-Eileanan an Iar, to where might we smuggle fuel? I would struggle to find anywhere where fuel is more expensive. That smuggling would be a problem is a ridiculous proposition. We had 13 years of nothing but sympathy from the last Government, with absolutely no action. I hope that this Chief Secretary does not make the same mistake.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for the intervention, in both senses.

Returning to the Bill, I should say that our plan stands first and foremost for responsibility, because a failure to deal with the deficit is the greatest threat to our economy and to the well-being of our nation. A failure to act now would mean higher interest rates hitting businesses, hitting families and hitting the cost of repaying the Government's debt. That would mean more business failures and sharper rises in unemployment, and it would risk a catastrophic loss of confidence in the economy. The Budget's forward-looking fiscal mandate will eliminate the deficit in five years and put us on track to have the debt falling by 2015.

The Office for Budget Responsibility forecasts that the measures in our Budget will lead us to meet that challenge one year early and the bulk of the reduction will come from lower spending, rather than from higher taxes. My right hon. Friend the Chancellor announced that the spending review will conclude with an announcement on 20 October and address precisely how we will bring down spending.

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

If the Budget is to meet the objectives that the right hon. Gentleman has in mind, where exactly does he expect growth to come from over the next five years?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I draw the right hon. Gentleman's attention to the Budget measures forecast, which the OBR published. It demonstrated significant growth in the private sector, based at least in part on measures, which I shall come on to describe, in the Budget and in the Finance Bill.

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Several hon. Members:

rose -

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I have given way already to the hon. Gentleman.

Let me turn to the first of the measures in the Bill.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I shall, as I have not yet given way to the hon. Gentleman.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

The Chief Secretary to the Treasury makes the point about growth, but he has not really answered the previous question. The OBR suggests that business investment will increase by 8% to 11% almost every year, but can he tell us of any period of two, three or four years when business investment grew by 8% to 11%-particularly given that we are coming out of the deepest recession that anyone in this Chamber has ever seen?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

Those are not my figures; those are the figures that the independent Office for Budget Responsibility produced. By the way, the figures that the previous Government put forward contained hopelessly over-optimistic forecasts for economic growth. In this Budget, we are taking measures to reduce corporation tax, to reduce the small companies rate of corporation tax and to tackle the Labour jobs tax on national insurance, all of which will help to support business development. Those measures, which I shall come on to if I get the chance during my speech, will all help to stimulate economic growth in the private sector, and that is the best way to lead this country out of the economic mess that we are in.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Perhaps I can help the Chief Secretary. There is a precedent for business investment matching the figures in the OBR's forecast: it has occurred once in the past 40 years. That is the rarity of the precedent on which he now relies for his future growth plan.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am not sure that the right hon. Gentleman can do anything to help me, given that he left the note saying that there was no money left, and that his decisions led the country to that position. I hope that in response to this debate he chooses to apologise for the mess in which his Government left the country.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

Will the right hon. Gentleman give way?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I shall give way once more and then make some progress.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

Precisely further to my right hon. Friend's point, can the Chief Secretary point to any five-year period in the past 40 years when 2.5 million private sector jobs have been created-any one period?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

My point is that that forecast was made by the independent Office for Budget Responsibility. In the previous Government's March Budget, their growth forecasts, which were not independent in that sense, were over-optimistic, and I am prepared to accept the forecasts of the independent Office for Budget Responsibility.

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Photo of Derek Twigg Derek Twigg Labour, Halton

Will the right hon. Gentleman give way on that point?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I am going to move on.

Let me turn to the first of the measures in the Bill. Given that the structural deficit is some £12 billion larger than the previous Government told us, we have to make difficult choices-whether to fill the black hole with yet more spending cuts or increase taxes. Further spending cuts would have made it impossible for the Government to protect the country's most essential services in the spending review. The only other option would have been to raise taxes on companies or on personal income, reducing the rewards for work at a time when hard work and endeavour must lead the recovery.

The VAT rise is unavoidable. As I said in the Budget debate, it is Labour's inheritance tax. Clause 3 increases the standard rate of VAT from 17.5% to 20% from 4 January 2011. Everyday essentials such as food and children's clothing, as well as newspapers and printed books, will remain zero-rated throughout the Parliament, protecting those on lower and middle incomes. Domestic consumption of fuel and power will remain subject to VAT at 5%.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I shall give way to the hon. Gentleman, as I did not do so earlier.

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Photo of Andrew Love Andrew Love Labour, Edmonton

Can the right hon. Gentleman point to any indication in the manifesto of either coalition party that there would be a VAT increase of the type he has just suggested?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No party proposed an increase in VAT at the election, and no party ruled one out. The Liberal Democrat manifesto- [Interruption.] If Opposition Members will listen, I will explain the situation. In the Liberal Democrat manifesto, we made it clear that we would seek to reduce the deficit through spending measures alone, unless, on grounds of fairness, it was necessary to increase taxes. That was a clear statement in our election manifesto. The rationale that I have just set out is based on the decision that we made. We felt that, given the £12 billion of extra structural deficit left us by the previous Government, the right decision was a rise in VAT rather than increased spending cuts.

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Photo of Kate Green Kate Green Labour, Stretford and Urmston

I am grateful to the Chief Secretary for explaining his approach to fairness. Can he explain why it is fairer to cut spending on public services, on which the poorest rely most, than to use a progressive system of taxation? Why does the balance have to be 20% in favour of taxation and a whopping 80% in favour of public spending cuts?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

In a way, the hon. Lady makes my point for me. The point that I just made is that given the additional £12 billion of structural deficit, as revealed by the OBR forecast, that was left us by the previous Government, we had to decide whether to make £12 billion of further spending cuts or to establish a tax measure to fill the gap. We made the right decision. The tables in the Budget book show that the overall impact on fairness-particularly for children living in poverty, which is a long-standing concern of the hon. Lady's and on which she has a strong track record-is minimised.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am going to make progress for a few moments, or the former Chief Secretary will never get a chance to have his say.

Clause 4 takes further action to tackle the deficit by increasing the standard rate of insurance premium tax from 5% to 6%. The higher rate of insurance premium tax will increase from 17.5% to 20% from 4 January 2011, to bring it into line with the new VAT rate. The increases are both fair and sustainable.

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Photo of Chris Leslie Chris Leslie Labour, Nottingham East

Is it fair to increase the higher rate of insurance premium tax to 20% on travel insurance, which is vital for many ordinary working people as they take a break and go on holiday? They may be able to do so for only one or two weeks a year. If they do not have travel insurance, that could leave them in significant jeopardy. Will the increase not prevent or deter people from taking out travel insurance?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am sure that the hon. Gentleman is right to exhort people to take out travel insurance. As he will know, when insurance premium tax was established, both its lower and higher rates were linked to VAT. It is therefore right that they go ahead together on the same basis.

We have inherited plans to limit tax relief on pension savings for the wealthiest. We have concerns about the complexity of the changes and their potential consequences for pension saving, UK competitiveness and the complexity of the tax system. However, given the state of the public finances, we cannot be blind to the £3.5 billion of revenue that the policy was set to raise. Therefore we have set out our commitment to protecting the public finances by pursuing an alternative approach that raises no less revenue than existing plans, potentially by reducing the annual allowance. We will therefore engage employers, pension schemes, experts and other interested parties to determine the design of an alternative scheme. To keep our options open, clause 5 provides the power to repeal the regime that was legislated for in the Finance Act 2010.

Secondly, our Budget stands for fairness. This is a Budget that protects the most vulnerable, especially children in poverty and pensioners, while ensuring that those with the broadest shoulders take the greatest share of the burden. As my right hon. Friend the Chancellor said in his Budget statement, it is a progressive Budget.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I hope that the hon. Gentleman will admit that fact.

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Photo of Derek Twigg Derek Twigg Labour, Halton

As regards fairness, is it fair to my constituents and to the construction industry that the Chief Secretary has already stopped £168 million of expenditure on Building Schools for the Future projects and postponed the Mersey Gateway project? Total expenditure on those projects would have been £500 million. How does that help the construction industry?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I think it was irresponsible to make commitments to those sorts of projects, which could not be funded on the basis of the previous Government's plans for halving capital spending over the next few years while building into their plans ever further, unsustainable commitments.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will press on, if I may.

As my right hon. Friend the Chancellor said, this is a progressive Budget.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am going to make some progress, but I will give way to the hon. Gentleman in a moment.

The Budget includes progressive measures such as increasing the rate of capital gains tax by 10 percentage points for higher rate taxpayers while keeping it the same for basic rate taxpayers. Clause 2 increases the rate of capital gains tax to 28% for higher rate income tax payers, but basic rate taxpayers continue to pay an 18% rate. The entrepreneurs' relief lifetime limit will be extended from the first £2 million to the first £5 million. That implements the commitment in the coalition agreement to provide generous exemptions for entrepreneurial businesses.

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Photo of Derek Twigg Derek Twigg Labour, Halton

Will the right hon. Gentleman give way?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am going to finish this section, and then I will give way to both hon. Gentlemen.

These changes-

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Photo of Derek Twigg Derek Twigg Labour, Halton

On a point of order, Mr Deputy Speaker. The Chief Secretary hinted a few moments ago that the money was not available for Building Schools for the Future projects in my constituency, yet the shadow Education Secretary has had a letter from the permanent secretary at the Department for Education saying that the money was available. Also, I know for a fact that the money was there for the Mersey Gateway project, yet the Chief Secretary said it was not. Can we have some consistency in the accuracy of answers?

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Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Chairman of Ways and Means

That is not a point of order. If the hon. Gentleman wants to intervene, it is up to the Minister to give way if he wishes.

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Photo of Jonathan Edwards Jonathan Edwards Shadow PC Spokesperson (Treasury), Shadow PC Spokesperson (Business, Innovation and Skills), Shadow PC Spokesperson (Transport), Shadow PC Spokesperson (Communities and Local Government), Shadow PC Spokesperson (Culture, Media and Sport), Shadow PC Spokesperson (Wales)

On geographical fairness, does the right hon. Gentleman agree with the recommendations of the final Holtham report, published today, which calls for an immediate Barnett floor to protect Wales from further convergence, the implementation of transition mechanisms towards a needs-based formula, and a place at the table for the Welsh Government in discussions on fiscal autonomy for Scotland?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for that intervention. I have not yet had a chance to read the second Holtham report, which is published today. However, in the course of a meeting with the Welsh Finance Minister, I undertook to meet Mr Holtham once he had published his second report, and I look forward to doing so and having a chance to discuss it directly with him. At this stage, I will not make any commitments of the sort the hon. Gentleman wants, except to note that on the path of public finances as they are at the moment, further convergence is not forecast over the next few years.

The changes to capital gains tax help to pay for further progressive measures such as our increase in the income tax personal allowance, which takes almost 1 million of the lowest-earning income tax payers out of income tax altogether. It also increases the incentive for people on low incomes to got a job. That is fairness.

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Photo of Ian Lucas Ian Lucas Shadow Minister (Business and Regulatory Reform)

Will the right hon. Gentleman tell me how many standard rate taxpayers paid capital gains tax in the past year?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

Approximately half the people who paid capital gains tax in the past year were basic rate taxpayers-

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I do not have the figure to hand, but I will happily let the hon. Gentleman know at a future date or write to him with the precise figures he is looking for.

The measures that we are taking, rightly, close the avoidance issue that arose under the system put in place by the previous Government, whereby someone who was taking a substantial bonus, for example, in capital gains could pay less tax than the person who cleaned their office. [ Interruption. ] I am being asked if that was fair. I certainly do not think it was fair-it was highly unfair. That is why we have chosen to try to reduce that avoidance risk. Ian Lucas will know that the yield from the measures that we have taken comes in large measure from income tax, which reflects the fact that that sort of avoidance was going on.

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

I thank the Chief Secretary for his generosity in giving way. I will give him one more chance to answer this important question: has the Treasury done any analysis of the direct impact of the tax and benefit measures on women, separately from men? Does he know?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am not sure that that analysis was carried out under the previous Government. We are the first Government to have published analysis of the impact across the income distribution, and we have conducted specific analysis of the impact on child poverty. It is notable that the House of Commons analysis assumes that women will be the only people affected by changes in benefits that are targeted on families. It does not make any allowance for the way incomes may be shared within the household, and as a result it may well exaggerate the impact of Budget measures on women's incomes.

The Budget includes a number of measures to ensure fairness for pensioners. For example, it locks in an annual increase in the state pension in line with earnings, prices or a 2.5% increase, whichever is the highest-the so-called triple lock-to the benefit of 11 million pensioners. It also enables individuals to make more flexible use of their pension savings. The Government intend to end the existing rules that create an effective obligation to purchase an annuity by age 75 from April 2011. Clause 6 provides interim measures to raise the age at which a person is required to purchase an annuity, or otherwise secure a pension income, from 75 to 77. That is to protect those who might otherwise be forced to annuitise before the new rules that we are seeking to introduce come into place. We will consult interested parties on the detail of that change later this month.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

I welcome the age increase to 77 to allow flexibility, but a constituency query regarding that matter has emerged in the past 48 hours. If someone has already reached 75 and their annuity was going to be so miserable that they chose not to buy it yet, will they be covered by the new rules or will they fall in a hole in the middle in which, if there is anything left in their pension pot in the future, it will be subject to inheritance tax?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

If the matter that the hon. Gentleman mentions is a constituency case, I suggest that he write to my hon. Friend the Financial Secretary, who will be able to address the matter in detail.

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Photo of Andrew Love Andrew Love Labour, Edmonton

Will the right hon. Gentleman give way?

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Photo of Andrew Love Andrew Love Labour, Edmonton

I thank the right hon. Gentleman. With regard to the triple lock, does he accept that under the rules setting out an increase of 2.5% or RPI, pensioners will lose out for the first two years? They will actually have a cut rather than an increase.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I do not accept that. In fact, the increase next year will be protected. According to the forecasts for average earnings, the increase in the following year, 2012-13, would have been 2.4%, so our floor of 2.5% will ensure that the increase in the second year is higher than that forecast by the previous Government.

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Photo of Andrew Love Andrew Love Labour, Edmonton

Will the right hon. Gentleman give way?

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Photo of Andrew Love Andrew Love Labour, Edmonton

May I urge the right hon. Gentleman to look at the figures? I understand that under RPI, in both years the increase would be 3.1%. Are pensioners not going to lose out?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I have looked at the figures, and I stand by my previous answer.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I am going to make some progress. I have given way a great deal and an awful lot of questions have been asked, and no apology has been heard from any Opposition Member for the dreadful mess they left the economy in.

Fairness in the tax system is also about ensuring that everyone pays their fair share of taxes due. Too many individuals and firms in Britain today exploit the tax system through tax avoidance, a practice that ultimately means the rest of us have to pay more tax. The Bill puts in place measures to protect about £200 million of revenues per annum from tax avoidance. Clause 8 sets out an anti-avoidance measure to prevent matched income and expenses from being derecognised in a company's accounts. That will ensure that income from financial instruments such as loans and derivatives can no longer be excluded from the accounts and go untaxed.

Clause 9 sets out a further anti-avoidance rule, building on section 47 of the Finance Act 2010 to prevent life insurance companies from avoiding tax on previously unrecognised profits. It will do so by ensuring that section 47 will be effective in cases in which life insurance business is transferred to another company. We will take further measures in future to tackle avoidance. In particular, a consultation on a general anti-avoidance rule was announced in the Budget.

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Photo of Kate Green Kate Green Labour, Stretford and Urmston

How will the welcome measures to reduce tax avoidance be squared with job cuts in HM Revenue and Customs?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

On the plans for HM Revenue and Customs, I am confident that the anti-avoidance measures are deliverable and can be expected to yield the amount that I described.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

No, I have given way nearly 30 times already. Thirdly, the emergency Budget stands for freedom because it frees businesses to go for growth. A genuine and long-lasting economic recovery must have its foundations in the private sector. That is where jobs will come from, and we will do everything we can to support their creation. That is why the Budget sets out a plan to open Britain for business once more.

We will open Britain for business by creating a more competitive system of corporation tax, reducing the rate from 28% today to just 24% over four years. It will give us the lowest rate of corporation tax of any major western economy, and one of the most competitive rates in the G20.

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Photo of Stephen Timms Stephen Timms Shadow Financial Secretary, Shadow Minister (Digital Britain)

Why does the Bill legislate for only one of those changes, not all four?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

It is good to see the right hon. Gentleman in his place; I welcome him back to the House after the experience that he had, for which Members of all parties feel enormous sympathy.

As I understand it, the practice in Finance Bills is to legislate one at a time for the changes that are needed in the following years. The Chancellor's commitment in the Budget speech was for year-on-year reductions, and we will fulfil it.

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Photo of Stephen Timms Stephen Timms Shadow Financial Secretary, Shadow Minister (Digital Britain)

I thank the Chief Secretary for his kind remarks.

I think the precedent was set in 1984, when the now Lord Lawson reduced corporation tax over a series of years, and the Finance Act 1984 legislated for them all. Why is that not being done in this Bill?

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I am grateful for the further intervention and it is interesting to hear the right hon. Gentleman cite Lord Lawson. I am not sure that the Labour party cited that example in its Budgets. There are various technical reasons, which have just been discussed, and which my hon. Friend the Exchequer Secretary will explain in his closing speech. The basic point is that our method is more business-friendly.

As a first step, clause 1 reduces the main rate of corporation tax from 28% to 27% from 1 April 2011. Consequently, the corporation tax of around 47,000 companies will fall. The Budget also supports Britain's small businesses by cutting the small companies rate of corporation tax from April 2011, reversing the previous Government's plans to increase the small companies rate. That will benefit some 850,000 companies. The Budget takes action to stop the previous Government's job tax by increasing the threshold for employers' national insurance contributions, thereby lifting 650,000 employees out of that tax. Of course, a separate Bill will deal with that.

Taken together, those measures offer a stable and consistent platform for a private sector recovery.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will not give way.

Clause 7 amends the tax rules for the expenses incurred by Members of Parliament, following the creation of the Independent Parliamentary Standards Authority. I know that that is of interest to many Members. The clause will broadly have the effect of maintaining the tax system and treatment that applied to similar expenses paid under the previous regime.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

I will not give way on that. The hon. Gentleman can make his points in the debate.

The emergency Budget takes decisive action to tackle the deficit that we inherited and to confront the greatest economic risk to our country. It is tough, but it is fair. We have set the course for a balanced budget and falling national debt by the end of the Parliament. We have to pay the bills of past irresponsibility, but in doing that, we have ensured that those with the broadest shoulders carry the greatest share of the burden.

The Budget and the Bill represent a break with past traditions. They demonstrate a genuine shift in approach from that of the previous Labour Government. Our decisions are in the best interests of the economic cycle; those of the previous Government were dominated by the news cycle. Our actions are based on hard facts and the real world; theirs were based on wishful thinking and, in some cases, complete denial of the economic reality. We have been guided by independent forecast, not political whim. We are acting responsibly; they remain in the mindset of profligacy, which led them to make spending promises that they knew could not be kept while they were in government.

The Opposition now say that they will oppose many of our measures, but without giving any indication whatever of what they would do instead-not a single suggestion. They are in denial; the Government are facing up to reality. The provisions in the Bill are fair. They will help to put our public finances on a solid footing and provide a strong platform for economic recovery. I commend the Bill to the House.

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Several hon. Members:

rose -

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Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Chairman of Ways and Means

Order. I should inform the House that Mr Speaker has not selected the amendment.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury 5:15 pm, 6th July 2010

May I begin by putting on record the Opposition's thanks to Sir Alan Budd for his excellent work in the short months that he has served the Government? May I also congratulate the Chief Secretary, who is rapidly becoming one of the Chancellor's longest-serving advisers? After his performance this afternoon, I think we can see why that is. He is pursuing what is now a noble Liberal Democrat tradition of fronting up some of the Government's nastiest and most regressive policies in the House. His speech was a Liberal Democrat defence of an emergency Budget-an emergency so great that the Chancellor could not be bothered to join us this afternoon to listen to the House's deliberations.

It is fair to say that since we met last week to debate the Budget, the economic horizon has darkened. British families and businesses fought so hard in the past year and a half for this country's recovery, but the Bill puts all that at risk. We can see from the Bill that the Chancellor would like us to believe that size is not everything-although it is very thin, it is none the less very dangerous.

We all enjoyed the Chief Secretary's summary of business opinion, but Opposition Members thought it odd that he missed some of the news that has appeared since the Chancellor gave his Budget speech. The truth is that, as we warned last week, the dangers in the global economy have become not less visible-they have not ebbed away-but, if anything, become more visible and more dangerous. This week, for example, the news from our trading partners and from the United States, which is our single biggest export market, has not been good. Factory orders in May dropped after eight consecutive months of improvement, and confidence surveys last week showed the biggest falls for some time-far bigger than expected.

Last week, we heard that the number of Americans in work has fallen by almost the largest number since 1995, and new figures for the eurozone show unemployment stuck at more than 10%. The news from new markets is likewise not great. China's stock exchange hit a 15-month low yesterday, and confidence surveys have reported the worst outlook for a year and a half. Therefore, we cannot blame British businesses, investors and exporters for being somewhat depressed. They know that the odds of success in the gamble on which the Chancellor has embarked are slim, and they know very clearly who will pay the price for his failure.

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Photo of John Redwood John Redwood Conservative, Wokingham

The previous Labour Government said that they would halve the deficit in four years. What spending cuts and tax increases would they have introduced if they do not like ours?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

The right hon. Gentleman has today put out a number of very constructive suggestions-for example, urging people hit by budget cuts to wear more clothes, to turn down the thermostat and to eat more vegetables-[Hon. Members: "Withdraw!"] I am merely quoting the Daily Mail, which is a source I trust-it is, of course, beyond reproach.

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Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Chairman of Ways and Means

Order. Obviously Mr Byrne used the Daily Mail. I am sure that it was not meant with intent, and that we can be a little more careful in the way that we proceed.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I will learn never to trust a word I read in the Daily Mail ever again-

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Photo of John Redwood John Redwood Conservative, Wokingham

The Daily Mail withdrew the article from its website because it was untrue.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Well, that rather proves my point- [ Interruption. ]

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Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Chairman of Ways and Means

Order. The right hon. Gentleman should withdraw that comment if it has been withdrawn from the website.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I am happy to withdraw comments published in the Daily Mail.

The point that I was about to make was that the business community, having had a chance to reflect on the Budget, has come to some conclusions, and I was surprised not to hear about them in the Chief Secretary's remarks. A fortnight ago, the Chancellor told us that the Budget was

"a balanced package that will send the signal that Britain is open for business."-[ Hansard, 22 June 2010; Vol. 512, c. 176.]

In the weeks since, it is fair to say that business has not been hanging out the bunting. The stock market has now recorded its worst quarterly fall for eight years, as it fell to its lowest point for 10 months. Goldman Sachs has warned that tighter fiscal policy now

"would make it hard to deliver improving growth for all, or possibly any" country. The chief economist of the British Chambers of Commerce has said that the scale and severity of the Budget

"inevitably increases the danger of an economic setback".

The Chartered Institute for Purchasing and Supply has said that its managers have

"voiced grave concerns that budget cuts and VAT will tip the scales and amplify the likelihood of the UK slipping back into recession".

The confidence of Britain's finance directors has fallen to a 12-month low-just one in four is optimistic, and two thirds say that tighter fiscal policy will hurt their business. Yesterday, the confidence of Britain's supply chain had its largest monthly fall since 1997. It is for those reasons that a wise man once said that

"the next government has to recognise the fragility of the economy and not take action which would precipitate a double dip recession leading to more unemployment and even bigger budget deficits."

That was, of course, the Business Secretary in April-once a prophet and now a lost cause.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does my right hon. Friend agree that one of the important sectors in the economy is the service sector? Has he seen the Markit/CIPS purchasing manager index this month, which has recorded its largest drop in confidence in the last 14 years?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

That news was somehow absent from the Chief Secretary's remarks. He and the Chancellor may now think that everything is fine. I know whose verdict I would rely on, and it is not the Chancellor's.

I do not want to depress the House unduly and I have a little bit of good news-

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Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Will my right hon. Friend confirm that the real point is that if we should slip back into a double-dip recession, the coalition's efforts will be null and void, because they will not have been able to address the deficit as a proportion of GDP?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

That is precisely right and I will have more to say on that in a moment.

I promised a ray of good news among all the bad news and depressed expectations from the business community. A command paper was sneaked out last week. It had barely a press notice-it ran to a grant total of six lines-and there was no written ministerial statement with it. What could justify such secrecy? All is revealed on page 52 of the public expenditure survey, published last week, wherein we discover that Departments under Labour's management underspent their budgets last year by £5 billion. Anyone would think that the Government wanted to keep that news secret. In a knee-jerk response yesterday, they decided to cover it up by announcing another £1.5 billion of spending cuts instead.

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Photo of Derek Twigg Derek Twigg Labour, Halton

In Halton, £168 million of the Building Schools for the Future project was cut yesterday. The Mersey gateway has been postponed, and if it is cut it will take the total loss of investment-in that one area-to £0.5 billion. In an area like Merseyside and Cheshire, which especially needs that investment, that will be a massive blow to the construction industry. Does not it also underline the fact that public expenditure provides private sector jobs?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

One of the great flaws in the Budget is that the Government are relying on a bounce-back in private investment, for which there is barely a precedent, and nor is there any evidence from the business community that it might happen.

Make no bones about it, since the Chancellor sat down a fortnight ago, the gloom has grown. However, the Finance Bill does not adjust the Government's strategy. All we have heard from the Chief Secretary this afternoon is a very clear economic credo: where there is worry, let us spread fear, and where there is risk, let us bring danger. Whereas the Labour Government planned to halve the deficit in four years-a plan that the Chancellor's own independent advisers said we were on track to deliver, and which the G20 said met its timetable-this Chancellor has added nearly £40 billion in new tax rises and spending cuts. He has locked us on a course to slash away come what may, and, in a world full of risk, he is now preaching to others to do the same.

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Photo of Jim Cunningham Jim Cunningham Labour, Coventry South

Do the recent figures for the motor car industry not show that the previous Government were on the right course for an economic recovery, and does my right hon. Friend not agree that a £360 million cut in Coventry's schools programme will have a devastating effect on the schools and construction trade there? I am sure he knows that the construction trade always leads economic recovery.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

My hon. Friend is right. One reason the British supply chain is now so worried about the Government's intentions is that it has seen these knee-jerk reactions, such as yesterday's decision, of which the Chief Secretary was so proud he did not dare come to the House to say a word about it.

I want to make a point that follows on from what my hon. Friends have said. Rather than balancing spending over the economic cycle, we now have, in the Budget, a plan to eliminate in just five years the structural deficit. However, the Finance Bill ignores the question of what happens if growth is weaker than expected. It is worth for a moment the House exploring the economic consequences of this Chancellor's proposals. If growth fails, the structural deficit as a percentage of our economy goes up, yet the timetable for its elimination remains unchanged, so the Chancellor's only course of action is to cut deeper and deeper. If growth falters or the economy shrinks, the Chancellor cannot stimulate the economy, but can only respond with cuts. It is not a plan to manage the economic cycle; it is a plan for an economic death spiral. Like some kind of self-flagellating penitent who believes borrowing is so morally wrong, he responds to any new urges with another bout of whipping. He might feel it gets him to heaven a little faster, but I am afraid it is no way to run an economy.

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Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I enjoy the right hon. Gentleman's thirst for talking down the economy, but how many independent economic forecasters are predicting the double-dip recession that the Labour party seems to constantly hope and pray for?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I note that the hon. Gentleman was so eager to participate in this debate that he missed the beginning of it. The words I used were not my words, but the words from a wide section of the British business community. [Hon. Members: "Who?"] Well, Goldman Sachs, the Chartered Institute of Purchasing and Supply, and the judgment of the stock market. This is not a perspective held by a narrow corner of the business community. The judgment on this Budget is widely shared across this country.

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Photo of Ben Gummer Ben Gummer Conservative, Ipswich

Will the right hon. Gentleman confirm whether it was Goldman Sachs or the chief economist at Goldman Sachs who made those comments? It is an important distinction.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Absolutely. Jim O'Neill is a very respected economist, he is chief economist at Goldman Sachs, and his opinion was echoed by the chief economist at the British Chambers of Commerce. So this is not a narrow perspective from any one particular corner of the business community. This view is widely shared.

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Photo of Phil Wilson Phil Wilson Labour, Sedgefield

We have to accept that the Prime Minister has kept one promise. He said that the cuts would affect the north-east of England the most, and that has been proved to be true. The Government have cancelled a new hospital, abolished One NorthEast and stopped nearly 100 Building Schools for the Future projects, which would have created many construction jobs in the private sector. Is it not a shame that the Prime Minister did not keep the other promise, which was that cuts would not affect the front line?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

My hon. Friend is absolutely right. Like so many words that we heard during the election from those now in government, those ones turned out to be rather empty.

Perhaps we would not be quite so worried about what we have heard from the Chief Secretary this afternoon if we did not know that the risk of failure for this Budget was so great. The Office for Budget Responsibility, which is supposed to know, has said that there is just a 40% chance of the Chancellor hitting his growth forecast for next year, yet the VAT increase in the Bill will tax consumption so hard that we will be forced to rely on a history-making burst of exports and business investment. Last week we heard that just once since 1966 have we had the kind of rise in investment and exports on which the Chancellor will be banking in each of the next three years. The House would therefore be right to ask what measures exist in the Finance Bill to help. On close inspection, there appears to be no help at all for exporters, yet the Chancellor needs Britain's exporters to grow their trade abroad by £100 billion for his plan to come true. That is the equivalent of our trade with America rising threefold, our trade with China rising by 20 times or our trade with India rising by 40 times. It is fair to say that that is not a bet that any of us would take.

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Photo of Kevin Brennan Kevin Brennan Shadow Minister (Business, Innovation and Skills)

Was my right hon. Friend surprised when he saw the Deputy Prime Minister in Germany-he is obviously fluent in German, but not in economics-persuading the Germans to cut their expenditure, when Germany is exactly the sort of market that we rely on for export growth?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Precisely. We need the German Government to contribute to growth right across the European area. One would have thought that the Deputy Prime Minister might have a word to say about encouraging the German Government to do more to help British exporters, but there we are-not a word about that from him.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

Although the right hon. Gentleman's excoriating attack on the coalition Government is pretty accurate so far, will he confirm that we had a balance of trade deficit in goods last year of some £82 billion, that Labour lost 1 million manufacturing jobs before the recession and that the impact on GDP growth was to suppress it every year since 2000? Just for the sake of accuracy, will he confirm that those figures are right?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I have not brought those figures with me to the Chamber, but the hon. Gentleman will know that exports from this country have grown strongly over past years. That is precisely why, as we came through the crash, we said that we needed to rebalance our economy, which is why we fought so hard for investment in companies such as Sheffield Forgemasters and why we said that we needed new investment in manufacturing-all investment that has now been cut back.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

No, I am going to make another important point, on which the hon. Gentleman might want to comment. The question of business investment is vital-it relates to the argument at the heart of the Budget-and I hope that we will have a good debate on it this afternoon. Business investment is the subject of clause 1, which offers, I am afraid to say, no salvation through investment allowances, which drive up investment and which manufacturers say make the world of difference. This is what the senior economist of the Engineering Employers Federation had to say about investment allowances:

"For smaller companies...there will be cashflow consequences ...that will hurt their ability to reinvest in their own competitiveness."

That is because the Government have withdrawn such allowances.

What, then, of corporation tax? We were promised in the Budget a four-year plan to bring down the rate of corporation tax to 24%, but clause 1 offers us just a one-year plan. We do not know whether that is a wheeze to avoid an unhelpful valuation of deferred tax assets-the Chief Secretary to the Treasury was silent on that point-but is it not more likely that the Treasury is simply hedging its bets? The Government promised us certainty on corporation tax, and all we have got is more risk. The truth is that business is not going to bet on a one-year deal when this country's recovery demands a longer-term planning horizon. The Chancellor might be a gambler, but Britain's business community is not.

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Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

The business community are not gamblers. In this Budget, they will see encouragement for the bedrock of our economy-namely, small and medium-sized enterprises. Measures in the Budget such as the small profits rate of taxation will help 800,000 small businesses across London and the south-east, and the small business rate relief will help 48% of the businesses in the region. Is that not the kind of investment that will encourage exports?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

It would be, but it appears to be absent from the Bill.

The economic gamble that the Chancellor has taken in the Budget is quite clear to the business community and, I think, to the House. There is also the question of who pays. The Chancellor is fond of taking the approach that we are all in this together. One writer called that the equivalent of a chorus line from "High School Musical". However, the Finance Bill disabuses us of any notion that that claim might actually be true. It is now quite clear that the price of this Budget will be paid by people's jobs, and that the greatest price will be paid by the poorest in this country.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

For the past five years, the poorest in my constituency were paying the highest level of tax per litre of fuel in the UK. Is the shadow Chief Secretary in any way embarrassed or ashamed that a Labour Government let that happen? Or does he now repent and support a rural fuel derogation?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I look forward to hearing the hon. Gentleman's contribution to the debate a little later. It was not quite clear whether he was talking about marginal deduction rates or other impacts of the tax system but, like me, he will have noticed table A3 on page 69 of the Red Book, which shows that the marginal deduction rates for people on a 90% deduction rate, for example, have not gone down as a consequence of the Budget; they have gone up.

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Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

We know from the note that the right hon. Gentleman left for the Chief Secretary that it clearly would not have been he who paid. Will he tell the House exactly where the £50 billion of cuts would have come from under a Labour Government, and how the deficit would have been reduced? Who would have paid in those circumstances?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Of course-I shall talk about that at length in a moment.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

Does the right hon. Gentleman accept that his attacks might just begin to be credible if Labour's record were not so dreadful? Inequality increased, the link between earnings and pensions was never delivered, child poverty was not reduced over the whole period of the Labour Government, fuel poverty increased and poor people on low incomes were not taken out of tax. Where is the credibility in that? This Budget will clearly deliver a fairer outcome than the one that his Government left us with.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I was empathising with the hon. Gentleman until his final sentence. As he will know, over the past 10 to 15 years up to 2006, just four countries out of the entire 20 or 30 members of the OECD succeeded in reversing inequality. They were Turkey, Ireland, Mexico and the United Kingdom. The attack on inequality was always a central mission for the Labour Government. Yes, of course we wanted to go further, but we were proud of our record of lifting 900,000 pensioners and 500,000 children out of poverty, of legislating to restore the earnings link and of introducing innovations such as tax credits. In constituencies like mine-and, I suggest, the hon. Gentleman's-which suffer from a high rate of unemployment, that help is beginning to make a difference. That is why we are so passionate in our objection to the attack on the poorest people in this country contained in this Budget.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

I respect the right hon. Gentleman for his constituency commitment to dealing with the poor. Over the period of the Labour Government-during which not everything was done wrongly-the greatest failure of all was that inequality was not reduced over the entire 13 years; in fact, it increased. The rich became richer, the very rich became very much richer, and the people at the bottom-pensioners in particular-did not have the protection from a Labour Government that history suggests they could have expected.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I look forward to the hon. Gentleman telling us later how the increase in VAT is going to support the argument that he is trying to prosecute. I hope that he will also reflect on the cost of this Budget to jobs. The official figures for job cuts as a result of this Budget are bad enough, but the real figures are even worse. We have already watched the extraordinary spectacle of the Office for Budget Responsibility tell the Chancellor that employment will be 100,000 lower as a result of Budget measures, but then the real figures were published in The Guardian-not in this House, but in The Guardian-from which we learned that secret Treasury papers say that the Budget will cost 1.3 million jobs over the next five years. When the Chancellor stood at that Dispatch Box a couple of weeks ago, he told us that he would not hide things in the "small print" and that he would give it to us "straight"; he was so straight and so open that he kept the Treasury advice out of the Budget altogether. Yet even that picture might not reflect the entirety of the Budget's impact.

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Photo of Toby Perkins Toby Perkins Labour, Chesterfield

Does my right hon. Friend agree that the Liberal Democrats' comments would have more credibility if they had not spent the six or eight weeks before the general election arguing very accurately and articulately against the very Budget they have just helped to deliver?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

My hon. Friend is absolutely right. Some Front-Bench Labour Members believe in redemption, and we have not given up on Simon Hughes. That is why we are looking forward so much to hearing his contribution later this evening. [Interruption.] I hope he is not going to dispel the image I have of his virtue and integrity.

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Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Chairman of Ways and Means

Order. I hope that we can stick to the Bill. We are getting carried off in many directions, and I am sure that hon. Members will not want to do that.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

May I say to the right hon. Gentleman and Toby Perkins that the four major proposals on tax, finance and equality with which we went into the election have been delivered in the Budget? The only one that was not delivered was value added tax. The right hon. Gentleman knows that there is concern about its increase, but he has heard me say that I believe that, in the event, rather than making further spending cuts, it was the least worst option.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I will cling on to my image of the hon. Gentleman's integrity and await his contribution a little later. I remain convinced that, for him, redemption is still possible.

I was about to say in response to my hon. Friend Toby Perkins that the reality is that the impact on jobs might be even worse than we saw in the Red Book, or even worse than we read about in The Guardian, because the Chartered Institute of Personnel and Development tells us that it forecasts that unemployment could continue to rise up towards 3 million.

This Finance Bill hits growth so hard-this is a point that I hope the hon. Member for Bermondsey and Old Southwark in particular will reflect on-that, buried in the back of the Red Book, we learn that the Chancellor has had to raise £9 billion of extra taxes to pay for the lost growth. That is not cutting public debt, but adding to it-in pounds and pence and in the unquantifiable misery of wasted human lives. It is, I am afraid, a philosophy that is all too familiar. It is a distant echo of 1992, when a Tory Chancellor told us that unemployment was "a price worth paying". Back in 1989, another Tory Chancellor, the now noble Lord Major-

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Quite right. Sir John Major told us:

"If it isn't hurting, it isn't working".

This Bill, and this Budget, will hurt all right-hurt the recovery; hurt families; hurt pensioners; and it will not work, as it will put people out of work.

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Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

Perhaps I am just confused, but I am looking at the OBR table C.2 and it seems that ILO unemployment and the claimant count will be falling over the course of this Parliament. Will the right hon. Gentleman confirm if I have misread the table?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

In preparation for this debate, the hon. Gentleman will have compared those employment forecasts with those in the March Budget and will have noticed, like the rest of the world, that they are now 100,000 lower.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does my right hon. Friend agree that the Chartered Institute of Personnel and Development not only made predictions on unemployment, but also said that the Government's targets for job creation were not achievable? Its chief economist, John Philpott said:

"There is not a hope in hell's chance of this happening."

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

My hon. Friend is absolutely right. Very few people in the country believe the Budget's forecasts for employment growth, which is not surprising given how hard the Budget is hitting growth.

I want to move on from the economics of the Bill, and the possibility that it may work, to a wider question that I know we will want to debate this afternoon.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I refer to the question of fairness, about which the Chief Secretary will perhaps say a word.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

The right hon. Gentleman began, quite rightly, by paying tribute to the Office for Budget Responsibility and the work that it has done. Does he accept that the OBR forecasts make it clear that over the period of the Budget, growth will rise and unemployment will fall? That confirms-if we are trading quotes-the view of the secretary-general of the OECD, who has said that the Budget

"provides the necessary degree of fiscal consolidation over the coming years to restore public finances to a sustainable path, while... supporting the recovery."

That is what the Budget does, and the right hon. Gentleman should be welcoming it.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

The Chief Secretary is a politician who is paid to go to work to make his own judgments in his and the country's best interests. He will have noted reference to the growth of business investment and exports in the OBR's report and its projections for the future.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

In a moment. He will know, too, that in only one year since 1966-which is when the Library started to compile figures for business investment-

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

In a moment. In only one year, 2005, did business investment grow by 1.7%.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I ask the Chief Secretary to be patient for a moment. The last year in which exports grew as a percentage of our economy in anything like the way that the OBR projects for the next few years was 1974. The Chief Secretary is relying on a unique combination of the business investment that we saw in 2005 and the exports that we saw in 1974. He is assuming that they will come together in perfect harmony in each of the next three years. I must say to the Chief Secretary, very gently, that that is a bit of a gamble for him to take.

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Photo of Danny Alexander Danny Alexander The Chief Secretary to the Treasury

Does the right hon. Gentleman accept that it is the independent Office for Budget Responsibility-which I think he welcomes-that forecasts that growth will rise over the current Parliament and that unemployment will fall? Does he accept that, yes or no?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

It is not a great triumph for unemployment to fall as an economy returns to growth. The point that I was making is that employment in this country is lower as a result of the Chief Secretary's Budget, that growth is lower as a result of his Budget, and that the Budget hits the economy so hard that he must raise another £9 billion of taxes, although the Chancellor refused to admit it at the Dispatch Box.

I now wish to turn to a question to which I hope we will devote quite some time today: the wider question of why this Finance Bill is so unfair. We now have the judgment of the Institute for Fiscal Studies, which tells us that the Budget is so regressive that its only redeeming features are Labour policies. Age Concern tells us-clearly, starkly, urgently-that it will put older people's lives at risk. The Child Poverty Action Group tells us that it will drive poorer parents into the arms of loan sharks. The House of Commons Library tells us that nearly three quarters of the £8 billion tax and benefits bill will be paid by our country's women-and that is before we get to VAT.

Clause 3 is the clause that deals with VAT, and I think it fair to say that it is the clause without a mandate. I have come to learn that, after nearly 30 years in the House, the hon. Member for Bermondsey and Old Southwark did not get where he is today without knowing what makes his party tick. I believe that when he said, a week before the Budget,

"I hope we don't have a VAT increase because it is the most regressive form of tax", he spoke for the majority of his party's voters and his party's members. Before too long, those words will come back to haunt the Chief Secretary and the rest of the occupants of the Treasury Bench.

Back on 7 April, the Deputy Prime Minister warned us about hikes in VAT. He said

"let's remember, it is a regressive tax".

He was right: it is a regressive tax, and we now know that he is a regressive politician for supporting it.

I think that it is fair to say-I feel that I can say this among friends-that I know a thing or two about writing something and regretting it later, but the Liberal Democrats did not just write a silly note. They unveiled a whacking great poster on a lorry saying, "Tory VAT bombshell". Little did we know that they would be the ones not only to prime it, but to set it off.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I will in a moment.

If Members go to the Deputy Prime Minister's website-for those who do not have the address, let me be helpful, it is nickclegg.co.uk; it is not a site that I visit quite as much as I used to-they will see that that famous poster saying, "Tory VAT bombshell" is still on the website, available to download. The Liberal Democrats cannot kick the habit of saying one thing and doing another.

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Photo of Anne McGuire Anne McGuire Labour, Stirling

Does my right hon. Friend share the astonishment of the 87% of the electorate in the Chief Secretary's constituency who did not vote Tory at the last election but see him fronting up a VAT rise to 20%?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Yes, and the electorate will hold the Chief Secretary to account at the next election.

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Photo of John Redwood John Redwood Conservative, Wokingham

Can the right hon. Gentleman explain why putting VAT up by 2.5% before the recession was scarcely over, as the Labour party did in government, was a good idea and did not destabilise the recovery, but putting it up another 2.5% to pay all the previous Government's bills, which Labour still will not tell us how it will pay for, is a bad idea?

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

Let me come to that point in a moment because- [Interruption.] I will answer the right hon. Gentleman's question after touching for a moment on some of the questions that we will raise in this debate and in Committee next week. We will want to press the Government on their clause without a mandate. We will want to know what studies have been conducted, as will many Back-Bench Members in the coalition party, on the impact of the new VAT on Britain's poorest families. We will want to know the impact on pensioners, children and child poverty. We will want to know whether all zero-rated goods will remain zero-rated for the course of the Parliament. We will want to know whether all exempt goods and services will remain exempt for the course of the Parliament. We will want to know how much the Chancellor has short-changed our pensioners by uprating pensions this September and then legislating for higher prices in January. We will want to know his estimate of the growth in black market trading through increasing the rewards for unregistered traders. We will press the Government on those questions during discussion of clause 3.

We will also want to know the answers to questions on other clauses. Why does clause 1 make corporation tax less certain when we were promised clarity? Why is the measure silent on the regime for North sea oil? Why does clause 2 complicate the tax system when we were promised simplicity? In respect of clause 4, what assessment has been made of the impact of insurance costs for low-income families? Will the reform of pension tax relief bring in as much as Labour budgeted for? Will the plan be as fair?

The great tragedy of the Budget and the Bill is that there is an alternative, so let me deal directly with some of the questions raised by Government Members. In March, my right hon. Friend the shadow Chancellor set out the fastest and clearest deficit reduction plan of any country in the G7.

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Photo of Liam Byrne Liam Byrne Shadow Chief Secretary to the Treasury

I hear what the hon. Lady says, but she has of course read chapter 6 of the Budget of March 2010 and, like me, she will remember that there was £3.5 million in savings by holding down public sector pay; there was £1 billion in savings through the reform of public sector pensions; there was £5 billion in savings through cuts to lower-priority programmes; and there was £11 billion in savings by revolutionising Whitehall. There was also the promise of a benefits bill that would have been £14 billion lower through falling unemployment, which was only possible as a consequence of growth. She will also remember the precision with which we set out £19 billion-worth of tax increases, which unlike this Bill, did not hit the poorest in her constituency or mine.

We know that Governments have to govern, so our opposition to the Bill will be careful, but Labour Members will stand up for jobs and for fairness. That is why we will vote against the Second Reading of the Bill.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party 5:54 pm, 6th July 2010

The Bill is short, and I will keep my remarks short in keeping with the Bill's size. This is a coalition Bill, just as the Budget was a coalition Budget. It incorporates Liberal Democrat policies such as our policies on capital gains tax, raising the earnings threshold and the restoration of the earnings link. It also incorporates elements of Conservative policy, which is right because that is what a coalition does. In some respects it is a bit like Hovis, which calls its mix of white and brown bread "Best of both". That is what we have in the Bill.

Among the Bill's main elements is the capital gains tax increase from 18% to 28%. The Liberal Democrat policy would have taken it further, but we could run into the law of diminishing returns. We need to be not only practical but fair. It is fair because the well-off, who pay less tax than those who clean their offices, will start to pay a lot more tax. That loophole was never closed by the Labour party, and the measure will make a big difference in fairness and in the level at which those well-off people pay tax.

The entrepreneurs relief should be welcomed by hon. Members on both sides of the House.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does the hon. Lady agree with the Deputy Prime Minister, who before the election, on the Radio 4 "Today" programme on 7 April, described VAT as a "regressive tax"?

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I am grateful to the hon. Gentleman for that intervention. I am dealing with entrepreneurs relief at the moment, but I will be pleased to deal with VAT, which I will speak about quite fully, later. I know that the Labour party has had great fun bashing the Liberal Democrats over VAT, so I look forward to being taken to task on that.

The entrepreneurs relief is the reward that business owners are due. They often put everything into building a business. That should be recognised. We greatly welcome the continuance of the 10% rate and the increase in the lifetime limit for gains from £2 million to £5 million.

On corporation tax, the reduction from 28% to 27% in 2011, the 1% reduction in each of the following three years to 24%, and the small business rate tax cut, contrast greatly with Labour's tax on jobs. It means that we now have the ability to stimulate business, which generates the wealth that we need to pay for the services that we need. We need secure growth for business. Business needs the confidence to invest in that growth.

I come now to VAT. I am sure that the hon. Gentleman-

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Will the hon. Lady answer the question put by my right hon. Friend Mr Byrne, who said that the measure in the Bill is for one year only? How will that give confidence to any business wanting to invest? It will have to take decisions on a one-year basis.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I am glad that the hon. Gentleman raised that point, and that I gave way to him. This is a commitment. The four-year commitment is in the statement. It is in the Budget.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

The four-year commitment is in the Budget itself. As the Chief Secretary said, the normal way of doing it is one year at a time. The hon. Gentleman can look forward next year, and the year after that and the year after that, to a further 1% reduction.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

The hon. Gentleman asked me about the regionalisation of corporation tax, but these are UK taxes so it is inappropriate to regionalise. He makes an interesting point that I have not considered before, but I am sure that my hon. Friends will take an interest in the idea if it has merit.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

My hon. Friend is right. I just wish to say to Jonathan Edwards that, as he knows, my party has been supportive of increasing autonomy and self-government in Scotland and in Wales. That has happened in Scotland and it is on the agenda for Wales, and he knows -[Interruption.] It is on the agenda for Wales; it is not agreed and it is not committed, but it is under discussion in relation to Wales. He knows that my party has always been positive towards the idea of allowing greater self-government, both in Scotland and in Wales, but that is different from the regionalisation of UK taxes such as corporation tax.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

On a point of order, Mr Deputy Speaker. Is it in order that the Liberal Democrats should now have two Front-Bench spokespeople on the Treasury? Is it completely out of order for Simon Hughes to be rescuing and answering on behalf of his party?

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Photo of Nigel Evans Nigel Evans First Deputy Chairman of Ways and Means

If I had seen anything out of order, I would have called hon. Members to order myself.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Thank you, Mr Deputy Speaker. Mr Jones has intervened on me twice, so perhaps he would like to join me on these Benches and make his contribution. I am sure that he will be making his speech later, and I will have the greatest pleasure in intervening on him then.

VAT is to increase to 20% with effect from 4 January 2011. This is another issue on which the Liberal Democrat bashing by the Labour party has been lengthy.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Perhaps the hon. Gentleman would allow me to make a little progress first. [Interruption.] I am not giving way now, but I promise that I will do so. I might even say something that he likes; one never knows. Like my hon. Friend the Member for Bermondsey and Old Southwark, I do not think that anyone on either the Conservative Benches or the Liberal Democrat Benches is filled with any enthusiasm for increasing VAT. However, I am not going to rehearse all those arguments, because we know that Labour left the finances in a far worse state than we originally anticipated. The structural deficit is £12 billion greater than we were led to believe, so whichever way we look at it, the options are invidious. A VAT increase has therefore had to be the least worst option, as my hon. Friend has said. There are mitigating factors, because the VAT rise will not come into effect until 2011. Therefore there will be a short-term boost; consumers who want to spend money, particularly on large items, will be able to do so before that increase comes into effect.

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Photo of Anne McGuire Anne McGuire Labour, Stirling

Is the hon. Lady seriously recommending that to mitigate the impact of the VAT increase to 20%, consumers should wander round Currys and all sorts of other places before Christmas buying up all the washing machines, tumble dryers, fridges and all the rest of it, just to salve her conscience?

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

The right hon. Lady answers her own question, although I was just coming on to this subject. When I had lunch with the manager of my local branch of John Lewis last week I asked him what difference the VAT increase would make to purchases at his store. He said, "Well, when it went down it didn't make a whole lot of difference to sales. When it goes up we don't necessarily think it'll make a whole lot of difference, either."

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Several hon. Members:

rose -

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I have given way previously, so I ask hon. Members to allow me to make a little progress. A lot of people want to speak -[Interruption.]

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Mr Deputy Speaker:

Order. The hon. Lady is not giving way.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Thank you, Mr Deputy Speaker. The other point that I want to make is that the purchases that represent more disproportionately a part of the income of lower-paid people tend to be zero-rated.

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Photo of Kate Green Kate Green Labour, Stretford and Urmston

It is clear that this is the story that we are going to hear again and again: we are going to be told that the items that the poorest need to buy are zero-rated, so the VAT rise does not hurt them. How can the hon. Lady say that essentials for families, such as saucepans and clothes for work, are items that the poorest do not have to find the money for? This is a regressive tax.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

The hon. Lady misunderstands me. I understand that people have to buy all those capital items, and I know that this is going to be regressive in that respect. [Hon. Members: "Oh!"] There is no question or doubt about that. I said to the House a moment ago that nobody likes the idea of having to increase VAT.

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Photo of John Cryer John Cryer Labour, Leyton and Wanstead

The hon. Lady says that the VAT increase is the least worst option. Could she list the worst options?

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Well, we could have some further job cuts; that would not help. We could just not stimulate business; that would not help. We could charge lower earners more income tax. Hon. Members should not forget that this is the coalition Government who have raised the level of tax for the lowest-paid earners-something that the Labour party did not do in 13 years of government.

Income tax is a very important area in addressing issues that Kate Green and several other Labour Members have raised. We want to ensure that people can keep more of their own money that they have earned. The raising of the income tax threshold towards our Liberal Democrat target of £10,000-it increases to £7,475-takes 880,000 people out of tax altogether and means that 23 million people will gain an average of £176. That is really important to local people.

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Photo of Iain Wright Iain Wright Shadow Minister (14-19 Reform and Apprenticeships)

Does the hon. Lady think that the coalition Government's policy on personal allowances for the over-65s is the right approach?

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

As I understand it, they are unaffected. I wish to say a word about pensions: is it not strange that in Labour's 13 years in government the earnings link was not restored? This coalition Government have introduced that in their first weeks in government. We have the triple lock: we have 2.5% or earnings or prices-

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I am going to make a bit of progress. Before Labour Members leap to their feet to criticise, they should reflect on the fact that they had 13 years in power and they leave a shameful legacy. It required this coalition Government to come into office to introduce that, and we are doing so in such a short period.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I have given way to the right hon. Lady already, so I shall give way to the hon. Gentleman.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

I have listened to the hon. Lady's arguments for accepting the VAT increase, but over the financial year the projected deficit fell by about £15 billion to £20 billion. Surely that blows apart the Liberal Democrat case for accepting a 2.5% increase in VAT.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

Yes, the hon. Gentleman is right in saying that, but at the same time we have since discovered that a lot more money is not available to us for use. It is not there. Therefore, in order to balance the books it has been necessary to increase VAT.

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Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party

I am not going to indulge the hon. Gentleman again, I am afraid.

We also welcome the postponement to 77 of when an individual can take an annuity, and of course we welcome the closing of loopholes and the anti-avoidance legislation; everyone should pay their share. That is something that we as a coalition Government will work hard to ensure.

We need tax to be simple and fair and to help us along the road to recovery. We need the stimulus for business, because business will be the engine that pulls us out of recession. We need fairness on income. We need to close the loopholes; they are already partially closed, although more work needs to be done. The least well-paid will at least be able to spend more of their own money. So we on these Benches support the Bill.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice) 6:11 pm, 6th July 2010

It is a pleasure to be able to speak in this House again after several years of being allowed to say only things like, "Beg to move" and, "Tomorrow". I crave the indulgence of the House, as I am not used to making substantial speeches any more.

I want to go back to what we have heard over the past few months from both the Prime Minister and the Chancellor. It has been a constant refrain of, "We're all in this together." Now that we have seen their Budget and the Finance Bill, we can see how hollow that soundbite was. What is taking place under this Con-Dem Government is very simply an attack on the poorest people in this country conducted by people who think poverty is not being able to afford the uniform for the Bullingdon club. It is an attack on working families on low wages conducted by people who are the inheritors of trust funds. It is an attack on jobs fronted up by two people-a Prime Minister who got his first job after a phone call from Buckingham Palace, and a Deputy Prime Minister who got into the European Commission because his next door neighbour knew the right man to ring. If only it was as easy for everyone else out there.

It is clear from a simple analysis of the Budget that the poorest are affected three times as much by the increase in VAT as the richest; that the poorest 10% of the population lose as a percentage of their income twice as much as the richest 10%. It is significant, when we look at the measures in the Finance Bill, that a private client partner from Ernst and Young was quoted in The Guardian as saying:

"the fiscal impact on the higher earners is largely restricted to the increase in CGT together with some fiscal drag caused by the freezing of the higher rate threshold."

That is what we are seeing in this Bill.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Has my hon. Friend seen the excellent Library note on VAT? Does she agree that the lowest 10% of households are worse off because they pay some 18% of their disposable income in VAT while the richest spend less than 10%?

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. It is often forgotten in the discussion on VAT that much of the spending of the richest households is discretionary, while the spending of the poorest households is necessary. That is what the Government propose to tax.

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Photo of Anne McGuire Anne McGuire Labour, Stirling

Given what my hon. Friend has said, and what my hon. Friend Mr Jones said about the Library note, was she not as surprised as I was that when I asked something similar of the Prime Minister, he tried to suggest that somehow the increase in VAT would not disadvantage the poorest 10% and that the top 10% spent more not only in real terms but as a proportion of their income in VAT? That has obviously been discredited by the Library note.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My right hon. Friend is absolutely right. That serves to show us the ignorance on the Government Benches of the lives of some of the poorest people in this country. I could forgive them if their Budget and Finance Bill were simply the product of ignorance, but they are the product of ideology. It is the Government's decision to take £40 billion out of the economy, to raise VAT and to cut investment allowances for business, and it is a purely ideological decision. They pin their hopes on an increase in growth, yet even their own leaked Treasury figures tell us that we will lose 1.3 million jobs as a result of these measures, not only in the public sector but in the private sector.

We know already the plans of the Government parties for jobs. They began early on by cutting the future jobs fund-118,000 jobs for young people, 18,000 in a region such as mine, wiped out. I want to quote what the Liberal Democrat candidate in my constituency, described on his leaflet as the strong local candidate, said before the election. He was so strong that he managed to come third in the parliamentary election and third in what was previously a Liberal Democrat council seat. He said:

"Lib Dems believe that if you are unlucky enough to lose your job you should be helped there and then to get another one."

Yet the measures in the Bill and the Budget will destroy jobs and introduce no measures to create them.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does my hon. Friend agree that the problem with the cuts announced yesterday in Building Schools for the Future and the massive cuts in local government is the belief "public sector bad, private sector good"? A couple of weeks ago, I met the Civil Engineering Contractors Association in the north-east, which told me that its members were relying on BSF and investment in roads. The cuts will have an impact not just on their businesses but on jobs in my constituency.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. The Treasury's own forecast shows a huge loss of private as well as public sector jobs. Many private firms depend on public sector contracts to keep going. More to the point, enterprise does not flourish when so much money is taken out of the economy that it becomes devastated. If the Government cut benefits, freeze wages and cut public sector jobs, that does not lead to a vital entrepreneurial culture but to a culture of fear in which people do not take risks.

Let me take one example of the way in which the Government have failed to consider the knock-on effect of the Finance Bill. They propose to increase VAT. That will have a damaging effect on the retail sector, yet that sector provides many entry-level jobs and jobs for women who wish to combine work with looking after children. It provides jobs for the women whom the Government want to get back to work when their children go to school. If those jobs are not there, where will those women go? There is simply no joined-up thinking here.

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Photo of Clive Efford Clive Efford Labour, Eltham

My hon. Friend has moved on from investment in the construction industry, but I wanted to point out that that industry accounts for 10% of our gross domestic product and public sector expenditure accounts for 40% of the activity in the construction industry. That shows up the regressive decisions made by the Government.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

I could not have put the point better than my hon. Friend has.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

In a moment-I will make a little progress first.

Something interesting is happening on the Government Benches. We used to hear from the Con bit of the Con-Dem alliance simple, open hostility to the public sector and the welfare state. Now, most of them are becoming a little more sophisticated and wrapping it up a little better. The Chancellor says constantly, "The things I'm having to do are dreadful. I don't really want to make these cuts. However, if I could cut benefits more, it wouldn't be so bad." It is an interesting exercise in shifting the blame. The implication is that responsibility lies not with the Government's decisions, but with those in receipt of benefits.

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Photo of Phil Wilson Phil Wilson Labour, Sedgefield

In the March Budget, the then Chancellor offered reform of housing benefit that would have saved about £250 million a year. This Government have brought in cuts of £1.8 billion. That is not reform; it is an ideological cut in welfare, which will hit some of the poorest people in this country. That proves that these are cuts of choice-they did not have to make them to cut the deficit.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is absolutely right, and I shall talk about the effect after giving way to the hon. Gentleman.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

I did not want to lose the hon. Lady's point about jobs. She is being neither entirely fair nor entirely accurate. If she reads the Office for Budget Responsibility report at the back of the Red Book-the independent assessment-she will see it clearly stated on page 82 that

"the more rapid increase in employment is sufficient to lower unemployment, so that the ILO unemployment rate falls to 6 per cent in 2015. Claimant count unemployment continues to fall throughout the forecast period."

The projection-not Government or party political-is that over that period unemployment will go down and employment will go up.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

If the hon. Gentleman is so confident about that, perhaps he will get his right hon. Friend the Chancellor to publish the Treasury forecasts that he is currently failing to publish. The OBR figures are based on forecasts of growth that I do not believe we will achieve because, to be frank, those forecasts have never been achieved in 40 years.

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Photo of Clive Efford Clive Efford Labour, Eltham

Does my hon. Friend find it as curious as I do that the figures leaked from the Treasury are produced by the same people who produced the figures for the OBR, and yet those figures conflict? Is she confused about that?

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

I am extremely confused and rather surprised that, although the Chancellor said that he would make sure that nothing was hidden in the small print and that he would show us all the figures, he declines to publish the Treasury's own forecasts.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

I want to finish my point first. We are talking about an attempt by the Government to switch lane by saying that what is happening is not a decision of the Government, nor the fault of the banks, which brought us into global economic meltdown because of their irresponsible lending and reliance on financial instruments that they did not understand. The Government's treatment of the banks compared with their treatment of some of the poorest people is significant.

The Chancellor made great play of his levy on the banks, which will raise £2 billion a year, but the big five banks alone will gain £1.6 billion from the changes he set out to capital gains tax. No attempt has been made to rein in City bonuses-in fact, rather than coshing the banks over the head, he tickled them with a feather duster. So good was the news for the banks that their shares actually went up.

Compare that with the treatment that the Chancellor has meted out to industry. We hear much about the fall in capital gains tax, although the Government are legislating that for one year only. What we do not hear is that that is being paid for by cuts in investment allowances, which hit manufacturing the hardest. There we have it: those who want to invest for the long term and capital intensive industries that want to create jobs in the future will be hit. This is a Bill for industries that are less capital intensive but that are making vast profits-industries that, as the Institute for Fiscal Studies said, are "typified by the financial sector". What we have here is simple: rewards for those wanting to make a fast buck and a hit for those who are interested in long-term investment. It is the Del Boy Bill-it could have been written by Trotter's Independent Trading. I am only sorry that Rodney has disappeared from the Dispatch Box.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does my hon. Friend agree that those same banks are continuing to build up their balance sheets by not lending to small businesses-precisely the businesses that need investment now to grow, if we are to achieve the growth forecasts? There is nothing in the Budget that will force the banks to make sure that vital capital is supplied to those growing industries.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

Indeed-that is correct. What is more worrying is that linked with that is the Government's failure to provide in the Bill any hope or assistance for British firms that want to compete in the global market and create jobs in the long term. It is a tale of two cities: on the one hand, there is the City of London; on the other, there is Sheffield-what the Deputy Prime Minister called throughout the election, "my city of Sheffield". Well, we have seen what he plans for Sheffield-absolutely nothing. The Government's attitude can be summed up in two words: Sheffield Forgemasters. There is nothing in the Bill or in the Budget that helps manufacturing industry in the long term.

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Photo of David Wright David Wright Labour, Telford

The problem with the Bill is that it is coupled with the total destruction of regional economic policy. It is not just Sheffield and the north-east that will suffer; every region will suffer because of the virtual destruction of the regional agencies that provide business support and advice and grants to businesses in communities such as Telford.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. The Bill goes with the destruction of the regional development agencies, which were vital to regions such as mine. As my hon. Friend Derek Twigg said earlier, it goes with huge cuts in programmes such as Building Schools for the Future, which were vital to the construction industry in our area.

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Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

As one of the three MPs representing the borough of Del Boy, may I say to the hon. Lady that we on these Benches are clear that the bankers' bonuses need to be curbed and reduced further and we will continue to press for that? The people who contributed hugely to our present troubles should pay the price to a much greater extent than anybody else.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

I am grateful to hon. Gentleman for intervening, because I want to say to him that his party is in government. If the Liberal Democrats want to do something about that, they can, but they have singularly failed to do so.

Let us consider the people who are paying the price of this Finance Bill-those who will be affected by the rise in VAT and who are already being hit by the cuts announced by the Government in their Budget. The Chancellor talks a lot about those on benefits. The implication, unstated but always there, is that they are all scroungers. Nothing could be further from the truth. Most people who will be hit by the cuts that he has announced are from hard-working families on low incomes. He has already announced that those on family incomes of a little more than £15,000 will see their tax credits cut. By 2012-13, anyone with a family income of more than £30,000-£15,000 each-will lose their tax credits. Child benefit has been frozen, which is an effective cut of £116 a year, but those people will have to pay the VAT increase that the Government have imposed on their spending.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Is my hon. Friend also aware of the fact-unannounced, I think, because it did not get many headlines-that the Government are going to cap mortgage interest relief for those who become unemployed? That will affect hard-working people who, through no fault of their own, become unemployed, and it will lead to evictions. That is in stark contrast with the previous, Labour Government, who protected those people.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

Indeed, and if my hon. Friend will permit me I shall come on to that issue in a moment.

Before I move on, I want to mention the cuts that will specifically hit families with young children, including the scrapping of the baby element of child tax credits and the scrapping of the new toddler credits for one and two-year-olds. That will cost an eligible family more than £1,000 a year, even before they start paying the price of the VAT rise.

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Photo of Helen Goodman Helen Goodman Shadow Secretary of State for Work and Pensions

My hon. Friend is absolutely right to point out the devastating impact on families. Has she looked at the serious impact of the cuts in housing benefit on households with people who are in work and households with old-age pensioners? From the housing benefit cuts alone, it looks as if 1 million people will suffer further reductions of between £500 and £1,000 in their incomes.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right, because some of the nastiest, meanest cuts in the Budget are to housing benefit and mortgage support. Mortgage interest support will be limited to the average mortgage rate, meaning many families will no longer be able to meet their payments. If someone is unlucky enough to lose their job and be out of work for 12 months, even if they have done their level best to find a job and applied for everything going, and even if there are no jobs, their housing benefit will be cut by 10%. That is not a work incentive, as the Government seem to think; it will lead to a spiral of repossessions, homelessness, family stress and breakdown, which will simply increase the cycle of worklessness.

Is that really what the Prime Minister meant when he said that this Government were going to be the most family-friendly Government on record? They will not be for families in my constituency.

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Photo of Lyn Brown Lyn Brown Labour, West Ham

Does my hon. Friend agree that it is not cost-effective to split up families and treat them in that way? The very circumstances that she describes actually cost the state more money.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. If families have to be split up, put into emergency accommodation or are trapped in the cycle of worklessness and poverty, because not having a home makes it much harder to get a job, that not only inflicts appalling circumstances on them, but costs the taxpayer far more money in the long run.

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Photo of Andrew Bridgen Andrew Bridgen Conservative, North West Leicestershire

I hate to bring the hon. Lady back to reality, but the previous Government halved the amount of manufacturing in our economy, from 22% to 11%. Under them, we built the least number of houses since 1922 in order to support the construction industry, and history will view many of their so-called investments rather harshly and, perhaps, as the biggest Ponzi scheme ever, because they did not stand up for long once the economic winds shifted against them. Will she please remember that? She will be pleased that one thing that we are not cutting is the health budget. As for those suffering from mental health problems, especially selective amnesia, I can see plenty in this Chamber.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

The hon. Gentleman ought to be wary of making jokes about mental health. I entered this House from a constituency where children growing up in 1997 had never known what it was to see someone in their household go to work. A Labour Government changed that and invested in decent homes, but Liberal and Tory councils constantly sold the pass on affordable homes by allowing developers to buy themselves out of their obligations, so we will take no lectures from him on employment or housing.

The National Housing Federation states that the Government's planned housing benefit cuts alone will put 200,000 more people at risk of homelessness and concentrate social and economic problems in the more deprived areas. It is the ultimate Tory nimbyism to want to move people out of city centres. They used to say, "Get on your bike and look for work." They now say, "Get on your bike and get out of my sight, because we don't want to know anymore."

Someone in London with rent of £350 a week would lose £35 in housing benefit if they were unemployed for 12 months. I ask Government Members what is the jobseeker's allowance for a single person? Anyone? No, I thought not. It is £65.45 a week. If those people meet the shortfall in their rent, they will be left with £30.45 to live on, to buy food and clothes and to pay for utilities and the increased VAT rate that this Government will impose on them. Not only is that not the mark of a civilised society, but it leaves those people with less money to live on in a week than many Government Members would spend on a meal-a lot less in some cases.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

My hon. Friend provides the example of London, but on Friday I met the chief executive of a local housing organisation who told me that she is unsure of what the cap will be on rents in Durham. If it is as low as £57 a week, which has been mooted, she says large numbers of individuals will have to make up the difference and some, including pensioners, will be evicted.

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Photo of Helen Jones Helen Jones Opposition Whip (Commons), Shadow Minister (Justice)

My hon. Friend is right. It will also cause huge damage to social housing providers, who will face more and more arrears. That is the problem with the Finance Bill and with the Budget. They do nothing to create the jobs that the Government tell us we need, and they squeeze the poorest.

Let us look at what the Government plan for disabled people. The vast majority of people with disabilities would like nothing better than to have a job, and the previous Government did much to get them back into work. However, this Government plan what they call a simpler process-something that they say will reduce dependency and promote work. But the major flaw is that getting people with disabilities back into work is not a simple process. What happens to those with fluctuating conditions or mental health problems? They cannot be assessed by a simple test; that is exactly the point. We are bound to conclude that it is simply an exercise in cutting the budget by £1.4 billion.

There will be no jobs if we go down the road suggested by the Bill. At the end of that road, we encounter the risk of a double-dip recession, billions being taken out of the economy, the poorest and their spending attacked and reduced, and major cuts in benefits. That will not support the economy; it will undermine the growth of the economy. I say to my hon. Friends that this Finance Bill risks devastating the economy, dividing communities and producing the kind of recession that we saw in the 1980s. That is not a risk that we Labour Members are prepared to take, and that is why we will vote against the Bill.

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Photo of John Redwood John Redwood Conservative, Wokingham 6:40 pm, 6th July 2010

I remind the House that in the Register of Members' Financial Interests I have declared that I offer business advice to an industrial and an investment company.

In this debate, the Labour Treasury spokesman wanted to talk the economy into a double dip. He was trying to create a mood of gloom and doom. He rejected the independent forecasts provided in conjunction with the Budget and the many independent forecasts put together by people outside the House, and sometimes outside the country, which all say that a recovery is expected for the British economy over the next five years and that that recovery will be led by investments and exports.

Obviously, the scepticism among those on the Opposition Benches arises because Labour Members have not understood one fundamental thing. The economy was so badly damaged and devastated by what happened in 2008-09 that it can indeed, I am pleased to tell the House, have a recovery based on higher exports, higher manufacturing output and higher service sector output-because the outputs were so badly hit in '08-'09. That does not mean that we will go into a new utopia or suddenly into overdrive with superbly high growth rates; it means that we will start recovering from a disastrous banking crisis and recession, which some of us felt were made far worse by the policies and antics of the Labour party when it was in office.

To try to buttress its double-dip case, the Labour party is now saying that the true Treasury forecast says that, far from there being a drop in unemployment, there will be 1.3 million job losses and that somehow my right hon. and hon. Friends at the Treasury are trying to conceal that. As I understand it, the leak to The Guardian was misjudged because it was a working paper with lots of errors in it. The proper expression of Treasury opinion was passed to the Office for Budget Responsibility, which is manned by people of independent judgment who could ask the Treasury for all the details that they wanted about its workings, and could use the Treasury's own models. They came to the perfectly sensible conclusion, shared by most other forecasters, that there will be nothing like that degree of job loss and that unemployment will indeed fall over the period of the forecast.

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Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The right hon. Gentleman has paid a glowing tribute to the Treasury. Was it not the Treasury that advised the 1979 Conservative Government, who drove us into a massive recession, with 3 million unemployed? Was it not the Treasury that advised the then Conservative Government to go into the exchange rate mechanism and cause 2 million to be unemployed? Did not the Treasury get things wrong time and again? Is the right hon. Gentleman not praying in aid an organisation that has demonstrated its failure over and over again?

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Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Gentleman is making my case for me; I am saying that the 1.3 million forecast figure was an error, and that it will be seen as such. He rightly says that the Treasury can make mistakes. On this occasion, we are pleased to say that an independent judge outside is reviewing all the facts and figures and the working papers and coming up with a forecast that reflects the views of many more people outside the Treasury.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

Given the right hon. Gentleman's admission that the OBR's forecast on job losses may be wrong- [Interruption.] Well, if he was not implying that, that is what I took him to be implying. Irrespective of that, I want to ask about the OBR forecast's and the leaked Treasury document's anticipation of increases in private sector jobs over the next five years. Given the right hon. Gentleman's long experience of economic matters, will he comment on the plausibility of that suggestion, given that during no period in the past 40 years has that volume of private sector jobs been created, apart from in the early 1980s-and then only through the fiction of the privatisations.

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Photo of John Redwood John Redwood Conservative, Wokingham

The point that I have been making for the Labour party's benefit is that I think it is possible to get a reasonable private sector-led recovery from here, because the private sector was so gravely damaged and battered, and the figures were so awful, in '08-'09. We are talking about rates of change from a very low base, so it is quite possible for things to get going.

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Photo of John Redwood John Redwood Conservative, Wokingham

I should like to finish my point.

At the moment, there are worries, reflected in the comments made by the shadow Chief Secretary to the Treasury, that the clouds may be gathering again in the international community, and we need to watch that. I suggest to those on the Treasury Bench that we need to do more work on ensuring that our banks are capable of lending in sufficient quantities so that all the private sector projects we need and all the private capital we need for the public projects as well can go forward as rapidly as possible.

We can encourage that to happen in many ways. An important part of the policy is that when we get some control over public spending and the public deficit, to instil confidence in the markets, we use those markets for a well financed private sector-led recovery, so that we can surprise on the upside in comparison with the fairly cautious figures given by the OBR. I am certainly not challenging the OBR figures, which are the best available at the moment. I would like to think that we could improve on them over the five years. If we do more about how the banks work and are regulated, so that we can accept that they have enough cash and capital for this stage of the cycle, and if we allow them to get on with the job of lending more money to businesses and worthwhile public projects, we can make progress.

We can also make a lot more progress in the public sector in respect of the public spending plans published in the Budget. Those public sector spending plans show public spending going up every year in cash terms over the five years to which the Finance Bill relates and is trying to finance. The increases are not very big, so if there were lots of wage increases and a lot of price inflation for the things bought by the public sector, and if there were the explosion in benefit claims that Labour is wrongly forecasting, there would of course be a big squeeze on much valued public services. We Government Members do not wish to see that any more than Labour Members do, and I wish that they would not keep pretending that somehow we want to cut the services, because we do not.

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Photo of Grahame Morris Grahame Morris Labour, Easington

Two simple decisions arose from the Budget: the new £464 million hospital north of the Tees and the £500 million Building Schools for the Future projects in County Durham were cancelled. All would have been built by the private sector. How will those cancellations assist the growth in the private sector, particularly in respect of jobs in my constituency?

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Photo of John Redwood John Redwood Conservative, Wokingham

As the hon. Gentleman should be aware, the outgoing Government's capital spending plans have not been changed by this Government. We have to accept the previous Government's plans for a modest increase in the capital stock of the state over a period of great stress in the budgets. But the cancellation of the Building Schools for the Future programme and its replacement with a programme that gives better value for money is exactly what we want. The trouble with Building Schools for the Future was that there were three years of delay and £10 million of consultancy costs before bricks and mortar or steel and glass could even start to be laid.

What my right hon. and hon. Friends rightly want to do is cut out all that nonsense, stop wasting all the money on the documentation, delays, consultancies and all the rest of it, and have a more straightforward approach, so that a bigger proportion of the inherited capital expenditure budget can be spent on bricks and mortar and bricklayers' wages, as the hon. Gentleman wants.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

Is the right hon. Gentleman worried in any way by the remarks, made during the radio discussion that he took part in this morning, about the £50 billion of contracts that would be taken out of the construction industry as a result of the cancellation of the Building Schools for the Future programme? Will that not have a detrimental impact on the economy-specifically, on jobs in construction?

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Photo of John Redwood John Redwood Conservative, Wokingham

Once again, the hon. Gentleman is not listening. I was explaining that the coalition Government have made no change to the capital expenditure line that they inherited from the outgoing Government. What they will do is get more bang for the buck-to get more spending on construction, relative to the total investment line in the Budget. On the radio this morning, I was able to satisfy the other people in the discussion; the independent forecaster's overall forecasts for the economy say that investment is going to rise. There will be an overall increase in investment because more homes will be built over the next five years than the pathetically low figure that was reached under Labour. There will be more investment in housing improvement, and more investment by the private sector. That more than offsets the decline in the investment programme in the public sector inherited from Labour.

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

The right hon. Gentleman's fantasy that there will be a continuation of or an increase in capital investment is completely belied by the OBR forecast on page 90 of the Treasury Red Book, which shows that net investment will fall from £49 billion in the current year to £21 billion in 2014-15. That is a colossal drop.

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Photo of John Redwood John Redwood Conservative, Wokingham

Those are Labour's figures for the public sector. I have just told the House that I am talking about total investment across the economy. Overall, the right hon. Gentleman will find in the Red Book that it is anticipated that the rises in investment elsewhere will more than offset Labour's cuts in the capital programme, which we have decided to live with. I should also tell him that he is quoting the net line when he should be quoting the gross line. In other words, he is knocking off the depreciation, whereas we are interested in the total spend-the gross line, which is much higher than the figures that he has inadvertently, I think, given the House in error.

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

How can the right hon. Gentleman believe that private investment will remotely compensate for this enormous fall in public sector net investment, given that household consumption is falling, particularly with the increase in VAT, the banks are not lending, and export markets are fading because of the situation in the eurozone? Why should the private sector invest in those circumstances?

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Photo of John Redwood John Redwood Conservative, Wokingham

That is what I have been explaining to the right hon. Gentleman. We are in this position because everything has been so awful. The private sector has just been through a couple of years when it has invested practically nothing because companies could not get any money and were not making much profit. Now, profit margins are growing, there is a bit more money around and they are getting more confident for the future.

It would be much better if Labour Members got behind their voters and constituents, who want the jobs that we wish to see created, got behind the recovery that everybody else is forecasting, and started to live in the real world. They presided over the collapse. Throughout their years in office, manufacturing fell, whereas in the Tory years before that, manufacturing rose. We want to get manufacturing rising again. From that point of view, the one good thing that they did was to preside over a collapse in the value of the pound. They probably allowed it to collapse a bit too much, and it is beginning to rise again under the new Government. That gives those in manufacturing a huge opportunity to make better profit margins, to invest more money, and to produce more. That is exactly what they are beginning to do, and there will be a beneficial effect.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

In the light of what the right hon. Gentleman suggests about manufacturing, is he not worried when he sees the prediction in the Deloitte manufacturing index that over the next five years our manufacturing will decline, not grow, and that we will shift from our admittedly low position of 17th on that index to 20th?

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Photo of John Redwood John Redwood Conservative, Wokingham

A shift in the relative position predicted by someone else does not necessarily mean that manufacturing is going to decline. The figures in the official forecast, and I think in most sensible forecasts outside, show that manufacturing will recover from the very low base that it reached in 2009-10. That is what is needed, and we need to have policies that do just that.

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Photo of John Redwood John Redwood Conservative, Wokingham

I am going to conclude, because many people wish to participate in this debate. Labour Members may want to be here until 3 o'clock in the morning, but they never used to when they were in the dock and did not allow us the time to debate these things properly.

The Budget is a necessary evil to clear up the mess inherited from the previous Government. This is a necessary task to instil confidence and to avoid interest rates going through the roof. Labour Members should look at what has happened in Ireland. Ireland had extremely big cuts-bigger, I am pleased to say, than those in this Budget. In the last quarter, the Irish economy started to grow extremely well, which is exactly what Labour Members are predicting cannot happen if one starts to get control of public spending.

I urge the Government and the whole public sector to work strongly together to ensure that these modest increases in cash spending translate into maintained and improved public services, as they can if we take the right action over pay rates, efficiency levels, improved process, investment in technology and so forth. I hope that we will get the banks working better by creating a more competitive environment so that we can then have the investment we need in the private sector to fill the gap and create the jobs. This is a doable task and a feasible profile, and it is backed by the independent forecaster. We need to be very sure that we are going to pump everything into that task, because recovery is what we all want.

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Photo of Vernon Coaker Vernon Coaker Shadow Minister (Education) (Schools)

On a point of order, Mr Deputy Speaker. Has the Secretary of State for Education indicated to you any desire to come to this Chamber to explain the situation that has arisen? Following the points of order that were made by me and two of my hon. Friends, a further list of schools affected by the Building Schools for the Future cuts was published this afternoon. That third list reflects 22 errors from the first list, which means that a significant number of communities up and down the country have been affected by the chaotic statement about schools made yesterday by the Secretary of State. Are we to expect a fourth list, given that there are still some concerns that even the latest list may not be totally accurate? If not this evening, then tomorrow, we should expect the Secretary of State to come and explain what on earth is going on in respect of the cuts that are being made to a programme that is welcomed in communities up and down the country.

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Mr Deputy Speaker:

I have not received any information as to whether the Secretary of State for Education wishes to make a statement this evening. I remember that in the hon. Gentleman's first point of order for me he said that he had not received any list; he now appears to have three. I understand that the Speaker has already made a ruling on this matter. I am sure that if the Secretary of State does at some stage wish to make a statement, this House will be informed.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury) 6:56 pm, 6th July 2010

I intend to finish my remarks by talking about the performance of the Chief Secretary, but I will start by commenting on what the shadow Chief Secretary said. He rightly pointed out that if the Government did not get the growth forecasts that they expected, the only option that they would have in meeting their deficit reduction targets would be to cut more. However, Labour's policy to halve the deficit, again in a fixed time scale, suffered from precisely the same problem. If the growth forecasts of 3.25% for four of the next five years had not been met-indeed, if there had been a downturn-there would have been no room not only for a fiscal stimulus but, perhaps, for the use of the automatic stabilisers. The Government's plans and Labour's previous plans have that problem in common.

Let me start by commenting on the things that we agree with in this very thin Finance Bill. I am pleased that the Bill seeks to bring down corporation tax. The phased reduction in the headline rate will provide an incentive for businesses to locate in the UK, although I am not convinced that paying for this through the changes to investment and other capital allowances might not yet prove to be a problem for growing businesses. As Helen Jones, who is not in her place, said, this may help businesses that are up and running, but not those that seek to grow. I am disappointed that she is not here, because if she were, I would have the opportunity to ask whether she now regrets the Labour Government's abolition of the industrial buildings allowance-another key allowance to help industrial investment that went some time ago.

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Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Gentleman and I made common cause against the previous Government for not adjusting for the cycle in their Budget plans. I believe that this Government have said that if things were to go wrong and we headed into another global recession, they would adjust the plans accordingly for the cycle.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

Indeed. It is worth making the point, though, that on paper there is a rigidity about this. I remain concerned that if growth forecasts, downrated sensibly, are not met, there will have to be these necessary adjustments.

I welcome the phased reduction in corporation tax, but question whether it makes sense to pay for it through changes to capital and other investment allowances. The Road Haulage Association has said:

"We are concerned about the reduction of the investment allowance for small firms to £25,000 from £50,000 which will have a detrimental impact on small haulage companies."

That trade body probably speaks for many in its approach to the change to the annual investment allowance.

I am pleased by the way in which the Government have handled the capital gains tax changes, keeping the rate unchanged for basic rate payers to encourage and allow modest investment but increasing the rate for higher taxpayers. Closing the gap removes a perverse incentive to take income that could be taxed as capital rather than through income tax, but keeps a sufficient distance between the rates of income tax and capital gains tax to encourage real investment. That was handled quite well.

I have a question, though, about the rationale for the increase in insurance premium tax. I heard the explanation that it has previously mirrored the VAT rate, but there is no reason why that should still be the case. It will bring in some £2 billion in additional tax over the next five years, and I can only hope that that decision does not come back to haunt this Government in the way that the abolition of advanced corporation tax on pensions came back to haunt the Labour Government. The Conservative party in particular has made a great many criticisms about how that pension change was made and the impact that it had. Indeed, it was a smash-and-grab raid that the Chancellor described as "disastrous" in Accountancy Age last year. I hope that the insurance premium tax increase will not be described in that way in future.

Incidentally, in the same interview, on 6 October, the Chancellor also stated his aim to get the country saving again, which makes it even more difficult to explain the coalition Government's intention to scrap the child trust funds. We have spoken about savings and savings ratios in the past, and the Red Book forecasts future ratios of just over 5%. However, that is about half the savings ratio that the Labour Government inherited and about the average through the whole of 2004 and 2005. It is not particularly ambitious, if the Government's intention was to get the country saving again.

However, the real damage in this Finance Bill, as many Members have mentioned, is the determination to put up VAT. That directly contradicts the stated intention of both coalition parties to create a fairer society. Although it may well be the case that in cash terms the wealthiest will pay more VAT, it is clear that the poorest 10% will pay nearly three times higher a percentage of their disposable income than the richest 10%. That is all because of the wrong-headed view, to some extent shared by Labour, that deficit consolidation must be achieved quickly. That is based, I believe, on a flawed assessment of the Canadian model, rather than a credible one perhaps based on the New Zealand model, which certainly worked. The consequence of the VAT changes, at least according to Save the Children, is that the VAT bill for the poorest could rise to more than £31 a week.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

The hon. Gentleman mentions the Canadian model, but does he agree that what we are seeing today is very similar to the Canadian model in that it was not necessarily just about deficit reduction, but was ideologically driven to reduce the size of the state in Canada?

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

I think that was certainly a consequence of the actions that were taken, but the reason I say that the assessment was flawed is that Canada sat on the northern border of a booming American economy, and its recovery was export-driven. That was a sensible approach to take. I would love our economy to be export-driven as well, but given that the European Union is our biggest trading partner with more than 60% of our goods by volume going there, I cannot see how an export-driven recovery can be achieved to the extent that is hoped for. I would love it to be, but from looking at the numbers, I cannot see how it will happen.

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Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The hon. Gentleman mentioned deficit reduction. Does he recall that in the post-war era successive Governments, Labour and Conservative, maintained a policy of full employment, which saw a gigantic deficit way beyond anything that we are seeing at the moment being seriously reduced? Does he accept that full employment, not cutting spending, is the way to reduce deficit?

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

I certainly agree that long-term, sustained and sustainable above-trend growth is the real answer, but that is not to minimise the problem of the deficit and the impact that it can have on market credibility and the cost of money. I am not one to say that we need deficit or debt at any cost; I am arguing for a credible deficit consolidation plan as opposed to a fixed-term plan that is inflexible and will not work.

The current situation has led to the VAT increase, and given that the poorest families may now pay more than £31 a week, I want to think about the impact on those families. Their unemployment benefits may be reduced in real terms, their tax credits cut and their housing benefit put under real pressure, particularly in areas where rented housing is expensive. That part of society will suffer most from the VAT rise. According to Shelter, nearly half of local housing allowance claimants are already making up a shortfall of almost £100 a month to meet their rent. Socially, a VAT increase for people who are that hard-pressed at the moment might be considered unforgivable.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

One of the fig leaves that the Liberal Democrats have used to accept the VAT increase has been the argument that they did not understand the nature or size of the deficit until they got into bed with the Conservatives. However, a glance at the pre-Budget report and the Budget shows that the deficit is actually £20 billion to £30 billion lower, thereby surely blowing holes in the Liberal Democrats' argument for accepting a 2.5% VAT increase, which will hit the poorest in our society.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

That is absolutely correct. It is a pity that there is merely one Liberal left in his place to hear that argument. My hon. Friend makes a very good point that the deficit forecast now is less than that forecast in the Budget and the pre-Budget report. That certainly confirms the case that we made for a fiscal stimulus. Another criticism that comes from his intervention is not simply that Liberals do not understand the numbers but that the Labour Government left the UK as one of only two countries in the G20 without a fiscal stimulus, fully withdrawing it in 2010 before recovery was secure.

To wind gently back to VAT, I said that the increase would perhaps be socially unforgivable. It also makes little sense in economic terms. The British Retail Consortium has described it as "disappointing", which was something of an underestimate given that it went on to state, bluntly:

"We didn't want a VAT increase. It'll hit jobs."

Simon Newark of UHY Hacker Young warned that the rise could push up prices on the high street by about 2%, which could have a significant impact on inflation. He went on to warn:

"Higher inflation could trigger interest rises, risking the spectre of the double dip recession."

Still others are warning that the rise will exacerbate cash flow problems.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

I wonder whether the hon. Gentleman read The Herald of Scotland this morning. He knows that I read the newspapers carefully. It states that because of the VAT increase, the Commonwealth games in 2014 will cost an additional £20 million?

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

That is absolutely right, and VAT will not just hit building and the purchasing of supplies for the Commonwealth games or the Olympics, and it will not just hit the private sector and families. It will hit the public sector, which buys VAT-rated supplies and goods of all sorts. It will effectively mean spending power going out of the economy and straight to the Treasury.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

As my hon. Friend says, it will mean £26 million extra on the bill to the NHS in Scotland alone. We can easily add up the figures for all the public bodies and find out what the real cost of the VAT rise will be area by area, but we know that it adds up to £13 billion in total. It makes up more than a quarter of the additional £40 billion of fiscal tightening that the Government wish to see in 2014-15. That is £40 billion in that single year, on top of the cuts and tax increases inherited from the Labour party that they intend to keep. There is a huge problem with the VAT component of this Finance Bill.

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Photo of Andrew George Andrew George Liberal Democrat, St Ives

By and large, I must commend the hon. Gentleman for a constructive contribution to the debate-we have not had many so far. Given the amendment that I tabled last Monday about impact assessments on VAT, what alternative would he recommend to fill the hole that would be left by not increasing VAT by 2.5%, or does he not recommend an alternative?

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

I suffer from the advantage of tabling many new clauses and new schedules to the Fiscal Responsibility Bill to establish a medium-term fiscal consolidation precisely to avoid the slash-and-burn approach of a massive hike in the most regressive form of tax. Instead of the VAT increase, I would not tackle the deficit and debt over a fixed term-certainly not a short fixed term such as the Government propose-but do it in the medium term, not least to benefit from the £50 billion of medium-term savings from cancelling and not replacing Trident. The Liberals appeared to be in favour of that midway through the election campaign, but were not towards the end, when it looked as if their leader would be in a position of some influence and power. I will stop there because the Liberals have had a hard enough time, but I will return to the subject shortly.

It is not simply what is in the Bill that causes problems, but what is not in it, and the missed opportunities that that represents. The reasoned amendment outlines those. For example, the Bill could have taken its lead from the second and final report of the Holtham commission-the Independent Commission on Funding and Finance for Wales-which repeated its call for an immediate "Barnett floor" on departmental expenditure limit payments to Wales. My hon. Friend Jonathan Edwards mentioned that earlier. That came a year after the commission's first report recommended that such a floor, which would prevent further convergence between Wales and the England average, should be a multiple of 114% spending in Wales for every 100% in England. The Scottish National party and Plaid Cymru were delighted that the Chief Secretary confirmed earlier that there would be no further convergence in funding for Wales in the next few years at least. I am sure that my hon. Friends in Plaid Cymru will hold the Government to that.

The Bill also missed an opportunity to deliver real progress on intergovernmental relations with Scotland. The Government could have ensured the release of the fossil fuel levy-nearly £200 million sitting in a bank account-without a corresponding cut to the Scottish block. Such a move would have been welcomed, and have provided a much-needed boost to the Scottish Government's attempts to secure economic recovery and kick-start jobs in the green economy. Better still, the Government could have moved to a position of full fiscal responsibility for Scotland, so that Scotland would make all its tax-and-spend decisions and find its own solutions to ensure that we did not enter another recession.

There was also an opportunity to deliver a fuel duty regulator-a fuel duty stabiliser-and fair play on fuel, not least for the haulage sector. Instead, the Chancellor plans to go ahead with Labour's inflationary package of three fuel duty increases in the next year. The Road Haulage Association's chief executive said that that

"will simply further widen the gap between UK diesel duty and that of our EU competitors."

As my hon. Friend Mr MacNeil said several times, the Government have missed an opportunity for a fuel duty derogation now for remote and rural areas. I hope that that idea has not been kicked into the long grass, never to be seen again, and that the Liberals in the Government might find a little steel before they are ground down completely, and deliver something beneficial to remote and rural areas throughout the UK.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does the hon. Gentleman agree that the proposals in the Bill for insurance premium tax will affect many of my rural constituents, who rely on cars as their sole form of transport? Youngsters will be particularly hard hit because they pay a larger percentage through high premiums than other drivers. Cars are not a luxury in rural communities; they are essential items.

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

They are absolutely not a luxury. Insurance not only on cars but on homes and foreign travel, particularly for those who are slightly frail, is a vital matter. Taking £2 billion out of that sector is damaging enough, but if it is a disincentive, which stops people taking out the appropriate insurance, we could experience all sorts of difficulties in future.

Let me revert to the fuel duty derogation, and read out a quote:

"The case for a fair fuel deal for remote and rural communities is absolutely clear. People face longer journeys, much higher pump prices and few if any public transport alternatives. A lower rate of fuel duty is already available for remote and island areas in many other European countries."

Those are not my words, but those of the Chief Secretary to the Treasury less than three months ago on 12 April. I hope that he reads today's Hansard, remembers those words and begins to deliver.

There was an opportunity, had the Government chosen to take it, to stick to their own recently published stricture in the Spending Review Framework,

"to protect, as a far as possible, the spending that generates high economic returns".

They could have done that by keeping tax relief for the video games industry, protecting more than 2,000 jobs and creating 1,400 new ones; saving £300 million in investment and encouraging £146 million more; protecting £282 million in revenue yield and increasing that by £133 million. However, they did not, and that is hugely disappointing for that sector and for growth in a modern industry in this country.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

My hon. Friend mentioned the rural fuel derogation. It is important that the House understands exactly why we in the islands in Scotland feel that we deserve it. We pay more tax per litre than any other part of the UK, and, therefore, for parity, equality and fairness, a rural fuel derogation might rectify the position till we approach something fair. I stress the word "approach".

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Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

Given that the Bill's Committee stage is three days on the Floor of the House, it is impossible to amend it as we have previously amended finance measures to introduce fuel duty regulators or derogations, but my hon. Friend is right, particularly when he talks of fairness, which is one of the alleged underpinning principles of the coalition-I hope that members of the Treasury Bench are taking note of all the matters on which they could deliver fairness, and for which they may yet be held to account if they do not.

The Chief Secretary was unconvincing in his opening speech. The Bill is thin and the VAT increase hits the poorest-that is unforgivable. Of course, the Budget may well prove economically foolish, risking inflation, higher interest rates and recession, and making tackling the deficit and the debt more difficult rather than easier. The Chief Secretary said that what was being done is unavoidable. None of this is unavoidable. It is a political choice. The proposals are political choices, and I believe that the Government have made the wrong choices. We in the Scottish National party and Plaid Cymru will oppose Second Reading.

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Photo of Stephen Barclay Stephen Barclay Conservative, North East Cambridgeshire 7:18 pm, 6th July 2010

Thank you, Mr Deputy Speaker, for the opportunity to make my maiden speech.

If hon. Members googled my name as a new MP, the first website they would find is that of Steve Barclay, the comedian and cabaret entertainer. I can assure the House that that is not me in an unregistered second job. My speech sadly lacks the zany comedy and musical backing that his performances offer, and the current headline on his website,

"Barclay storms the cabaret floor" is one that my local paper-the Cambs Times-will never ascribe to my performance in the House.

It is the custom to pay tribute to one's predecessor, but in my case, it is a real pleasure. Malcolm Moss represented the constituency of North-East Cambridgeshire for 23 years with great distinction. He served first as a town, district and county councillor before going on to defeat the talented Clement Freud. He was a Northern Ireland Minister in the previous Conservative Government before holding a variety of shadow roles, including playing a key role on the Licensing Bill. He was also a senior member of the Foreign Affairs Committee in the previous Parliament. Malcolm was widely liked in the House and locally and he will be very much missed.

North East Cambridgeshire stretches from the Lincolnshire and Norfolk border all the way down to the edge of Ely and Peterborough. It is the largest constituency in Cambridgeshire, which is the fastest-growing county in the country. It is perhaps better known by its former constituency name-the Isle of Ely-although it is better known still as the fens.

As I am sure all hon. Members will know, the fens were first drained in the mid-17th century to produce the fertile farming land we have today. It is a distinct landscape, with endless fields, and big skies hosting blood-red sunsets, beneath which traditional festivals such as the straw bear festival and the rose fair take place. Farming remains a crucial part of our economy, and as food security becomes ever more important, it is a vital national asset. Our fields and homes are protected by the work of the Middle Level Commissioners and the many internal drainage boards. I urge the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend Richard Benyon, not to interfere in those internal drainage boards, as proposed by the previous Government. That is currently under review.

I want to focus my remarks today on a second drainage that is taking place in the fens. This drainage leaves not fertile land, but barren areas, as more and more assets are centralised in our cities, paradoxically as houses are being built in rural communities. There is a misconception that all rural areas are rich. Eighteen of the 25 most deprived wards in Cambridgeshire are in fenland, and one in 10 people in my constituency have used the excellent services of the citizens advice bureau in the past 12 months alone, 43% of whom did so for advice on personal debt-the manager, Linda Hutchinson, does a formidable job. Prosperous areas mask pockets of deprivation in rural communities, and often float us above the aggregate score on which national funding is usually targeted.

The drainage of our amenities continues at a frightening pace: we recently lost our driving test centre even though it cost only £11,000 a year in rent; our new further education college was scrapped a month before building work was due to begin; and local pubs are closing. There is a battle on to save them, not least Claire Hammond's fight to save the Nag's Head in Eastrea. We now face the risk of the closure of our magistrates court, adjacent to which is our police station, the cells of which have already been closed. I will discuss this closure with Ministers in the weeks ahead. As a community, we pay twice as much to the Exchequer in business rates as we receive back in the local settlement grant. It is time that the funding imbalance between the rural shires in England and elsewhere in the United Kingdom is looked at again.

I want to resist the temptation today to focus on the previous Government's legacy. Anyone in any doubt can look at that temple of waste, the regional fire headquarters in Cambridgeshire, which was built at a cost of £23 million and stands empty because the emergency phone lines cannot be made to work. Instead of large regional projects, we need to focus spending much more effectively to deliver the jobs and services that we need in rural communities such as mine.

First, we need to target money more wisely. The Budget was painful but necessary. However, I still feel that there are areas where policy needs to catch up with the new reality. Constituents in North East Cambridgeshire are staggered that we borrow money simply to give it away to countries such as China and India, which can afford their own space programmes. Likewise, factory workers in my constituency in food packaging, who are on modest incomes, wonder why councils can put as much as 20% of their total income into staff pensions.

Secondly, we need a clearer distinction between investment and spending-the lines have been deliberately blurred in recent years. The fens are only 100 miles from London, yet they are held back by the chronic lack of transport infrastructure. Wisbech, the capital of the fens, has no rail line when it used to have two train stations. There is a single-carriageway road, the A47, which has not been improved in decades. Its port-the only one in Cambridgeshire-was more used even in Roman times than today, and some of our villages around Wisbech get just one bus a week.

Money needs to be focused on things that can deliver economic return, including transport and our further education college. We also need to use money where it will directly save lives. I commend the campaign of my constituent Graham Chappell, who has done so much work to highlight the issue of deep waterways adjacent to fen roads, where we have had so many fatalities.

Thirdly, we need to empower our small business base far more. North East Cambridgeshire is not just about farming. We have many small and medium-sized businesses, such as the high-value engineering firm Metalcraft in Chatteris. I am delighted that we are expanding the apprenticeship scheme, but grants can also have a positive effect. In the commercial world, the aim is always to make it easier for customers to access products, and the public sector needs to do the same. It needs to cut the duplication and time-consuming paperwork so that small businesses that do not have specialised staff can access grants.

In more than 80 years, my constituency has had just four Members of Parliament. I hope that it is a tradition my constituents will continue. I will speak up for this forgotten fen landscape, which is distinct and beautiful and is not currently getting its fair share of resources. We need to target Government spending more effectively, so that we can unlock the potential that the fens offer and deliver the growth our economy needs.

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Photo of Nicholas Dakin Nicholas Dakin Labour, Scunthorpe 7:27 pm, 6th July 2010

I compliment Stephen Barclay on an excellent maiden speech, which gave us a clear vision of the opportunities and challenges of his fenland constituency. His contribution was clear and measured.

I thank you, Mr Deputy Speaker, for allowing me to make my maiden speech just 23 years to the day after my predecessor, Elliot Morley, made his. What is more, 6 July appears to be a popular day for novice MPs from Scunthorpe-it was the day on which Michael Brown, who now scribbles so ably for The Independent, made his maiden speech. Elliot Morley served the constituency for nearly a quarter of a century as a respected, hard-working MP. He rightly gained a national and international reputation for his steadfast work on animal welfare and climate change. His record in helping to create a better world should not be lost in the wake of recent events.

I am the first MP for 80 years to represent the constituency after an adult lifetime of living and working in it. It is my adopted home town, and I love it. The first Labour MP for the area, David Quibell, was elected at the age of 50. He was born in Messingham, which still lies within the constituency boundary. A passionate early socialist who was active within the trade union movement and Independent Labour party, he, like me, knew the constituency inside out when he was elected in 1929 and took his place on the Labour Government Benches in an interlude between failing coalition Governments.

A contemporary of Quibell said:

"He was a revolutionary and a rough customer. If, at his meetings, anyone at the back interrupted, he would not think twice about getting down off the platform and thumping the interrupter."

You will be pleased to hear, Mr Deputy Speaker, that I do not plan to imitate Mr Quibell's style in that respect. My friends tell me that, if anything, I am too consensual in my approach. In that respect, I follow more in the footsteps of Ian Cawsey, who was the MP for Brigg and Goole until the election. Thanks to boundary changes, I inherited the village of Scawby from him. Ian demonstrated the power of cross-party working when he persuaded three other MPs-a Welsh Labour, a Scots Nat and a well spoken English Conservative-to join him in the band MP4. Out of those discordant political notes, musical harmony came forth, and I am told that their CD, "Cross Party", can be bought for just £10.99. It is still in stock in Oxford street's HMV, with all proceeds to Help for Heroes. I hope that hon. Members will not all rush off just yet.

I must also mention my friend, neighbour and mentor John Ellis, who represented Scunthorpe from 1974 to 1979. He does his level best to keep me on the straight and narrow, but has his work cut out, despairing from time to time at what he sees as my new Labour pragmatism.

The industrial garden town of Scunthorpe always surprises new visitors with its fine parks, green open spaces and magnificent floral displays. Its people are hard-working, neighbourly and welcoming. There is much to be proud of. It is home to the world-famous Corus steelworks, whose track record in producing high quality steel at competitive prices is second to none. There are vibrant businesses large and small, from the construction and logistics giant Clugstons to the organic farm shop, the Pink Pig, where you can buy, among other things, pink pigs-the soft, cuddly variety. All these businesses are witness to the innovation, hard work and enterprise of local people.

Scunthorpe boasts a Championship football team-up the Iron-and a rugby union team that achieved promotion to the national leagues this year, as well as a fine speedway outfit and a range of other great sports clubs. The area also has a vibrant arts, drama and musical community and is home to last year's BBC choir of the year, the Scunthorpe Junior Co-operative Choir. It has good schools and two high performing colleges, one of which, John Leggott, is renowned for the excellence of its education and which I have been privileged to lead as principal for the last four years.

In addition to those already mentioned, the constituency includes more fantastic towns and villages, Bottesford, Kirton, Redbourne, Hibaldstow, Gainsthorpe, Holme, Manton, Cadney and Howsham-all great places to live.

All of us, regardless of party or seniority, should have the humility to listen carefully to the people we seek to serve. The parties opposite are right when they say that Labour lost the election. We did, but let us be completely honest-no party won the election. Labour lost, the Conservatives lost and the Lib Dems lost. We all lost the election. Deals done behind closed doors put together the present ruling coalition, a coalition that-we were promised-would act in the national interest and be committed to protecting the vulnerable. Already, few believe that to be true. VAT destroyed that illusion. Stewart Hosie described the increase in VAT as "unforgivable" and has already mentioned the analysis of Save the Children. Only yesterday Flora Alexander of Save the Children said:

"VAT is a regressive tax, affecting those on low incomes disproportionately. The 2.5% increase will mean families living in poverty will be put under even more pressure."

Save the Children is calling for the poorest not to have to pay the price for the economic crisis.

Neither party opposite told the electorate, "Vote for us and we'll put up VAT to 20%, vote for us and we'll cut public spending by 25%, vote for us and we'll cancel Building Schools for the Future." My electorate in Scunthorpe was certainly not told this by my Conservative and Lib Dem opponents.

The argument that we need to cut fast and cut furiously, as if it were some virility test, does not have the support of the electorate. The electorate rejected this Conservative argument-which was well put by the Conservatives during the election-just two months ago, and instead supported proposals to tackle the deficit in a measured, proportionate way.

We should all have the humility to recognise that there is no mandate for the Budget proposals before us today, no mandate for fast and furious cuts and certainly no mandate for a huge rise in VAT or for the freezing of child benefit-measures at the heart of this unprincipled Government's approach. Both the Labour and Lib Dem parties made it clear-and the public agreed on 6 May-that the British economy is too fragile to bear these cuts without plunging us back into recession. That is why the electorate rejected the Tory offer at the polls. The public know full well that cuts in the public sector lead to job losses in the private sector. The public are not daft-they know that the private sector prospers when it is able to sell its goods and services. With Europe's economies contracting and the squeeze put on the UK economy, individuals and companies will stop spending and jobs will be lost in the private sector to add to job losses in the public sector. That is what the leaked Treasury papers said last week and that is what I fear-I hope that they and I am wrong. I would rather that the analysis of Mr Redwood were correct, but I fear that it will prove to be false and flawed.

There is no justification for what is about to happen. The well respected economist, David Blanchflower, has said:

"Economic policy in the UK is being run by a bunch of ideological amateurs who are destined to fail, at enormous cost to the British people."

The so-called black hole in our finances is an invented story to camouflage the truth and to wriggle out of promises made to the electorate at the election. It is a story that I have heard before. I heard it on North Lincolnshire council when the Conservatives briefly took control and went on about a black hole in its finances. It was not true then and it is not true now. It is a story, a figment, a fantasy. It is something to con themselves with-I think that they have achieved that-and then con everybody else. It cuts no ice with me, nor with the people of Scunthorpe. While at present it might resonate with some people, it will reverberate in a most hollow way if this Budget ends up devastating people's lives. I sincerely hope that it does not, because there is no mandate for this and there is no need for this.

I urge all Members of this House to vote in line with the manifestos on which they were elected just two short months ago. I urge all Members of this House to be true and faithful to their promises. I am immensely proud to have been chosen by the voters of Scunthorpe county constituency to represent them in this Parliament. I will carry out my duties in line with the promises that I made to them. To that end, I will vote against the measures in this Finance Bill and I call on all honourable Members to do the same.

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Photo of Ben Gummer Ben Gummer Conservative, Ipswich 7:38 pm, 6th July 2010

I should first of all pay tribute to Nic Dakin, who showed in his maiden speech that he will be a robust defender of his constituents, even though-if I may say so-his grasp of accountancy as it pertains to the Finance Bill and the proposals of the coalition Government bears similarities to that of his predecessor in his seat.

This is a vital Finance Bill: it is one of the most important Bills to come before this House in decades. The reason for that-contrary to the speeches that we have heard from Labour Members so far-is that it puts right the unsustainable spending that has been the characteristic of Government in the past few years. Not only that, it takes the opportunity-which presents itself rarely to Governments-to reshape the nature of the relationships between the state, families, individuals and communities. Such opportunities are rare, and it is clear from the votes cast at the general election that that is a move that the country wishes to see, whether the votes were cast for one party in the coalition or the other.

Many Members have not yet grasped the fact that not to use this opportunity would be to condemn future generations to the poverty of opportunity that all of us in our work here wish to eradicate. I ask, therefore, that everyone support those measures in the Finance Bill-of which I, for one, believe there are a great many-that are beneficial to the economy. I am not saying that this is a new problem, nor one that has not presented itself to this country before. One of my esteemed predecessors as Member of Parliament for Ipswich was a gentleman called Nathaniel Bacon, who was elected to the 1660 restoration Parliament. At that point, the town had two Members-one a cavalier and one a roundhead, which is a good simile for the coalition now assembled on the Government Benches. In his treatise on government, which was well thumbed at the time-it is less so now, but I recommend it to all Members-he wrote that

"it befalls some Princes, as other men, to be sometimes poor in abundance, by riotous flooding treasure out in the lesser currants; and leaving the greater channels dry. This is an unsupportable evil, because it is destructive to the very being of affairs, whether for War or Peace."

That was true then, as it is true now, because the investment we need to make now to ensure that our economy, locally and nationally, grows in the years ahead is prejudiced and put at risk by precisely the irresponsible spending that we have seen. That is because by increasing the amount of money we have to put into the revenue account, we deny the money that we should put towards capital expenditure. That is what I would like to address in my first remarks to the Front-Bench team.

Ipswich and elsewhere, including other parts of the east of England, need greater investment in transport infrastructure, as my hon. Friend Stephen Barclay said. Without investment in the road and rail infrastructure serving Ipswich, the many opportunities that the town has cannot be fully realised. This is about opportunity. I am not talking about the global sums in the Budget, with which I heartily agree, but I do seek to press Ministers as far as possible to do all they can to bear down on revenue spending, so that as much as possible can be released within the budget in the years ahead for investment in infrastructure.

Both side of the House agree on opportunity-something that Ipswich has in abundance. It is a famous manufacturing town, and was the origin of many of the tools and much of the machinery that brought about the agrarian revolution. Since then it has become a significant service centre with a beautiful medieval centre that describes well the town's historical importance. Most importantly, it has a significant and important spirit to succeed. It is a quiet, East Anglian spirit, but it is a spirit none the less-and it is one that I experienced during my campaign to save the local hospital, which I conducted throughout my candidature and which I hope is about to come to fruition.

In that campaign I differed from my predecessor, Chris Mole, to whom I pay tribute for bravely giving the ground to me, as a candidate, and allowed me to debate these things robustly in public when many other opponents would have denied me that opportunity. That showed determination and an interest in the democratic process that is entirely to his credit. Neither was that his only contribution as a Member of Parliament for Ipswich. He made many such contributions to the people of that town. He was a Minister of the Crown, he served on many Select Committees and, most importantly in my mind, he sponsored the Legal Deposit Libraries Act 2003, which enforced the digital deposit of records in the British Library, giving the nation an endowment of which he should be justly proud.

I am proud of how, during the campaign, we both led constructive and robust campaigns in which we discussed issues openly, without ever digressing into unpleasantness. That quality is present in this coalition, which is why I support it so wholeheartedly. Frankly, the great majority of the public, who have little interest in the eccentric mechanics of politics that interest us so much, cannot understand why we are so obsessed with bickering among ourselves. Through the mere act of overcoming our differences in the coalition, we are finding common cause on the many things in which we have a far greater interest: narrowing the gap between rich and poor, the re-establishment of the free market economy and all the other things that we are doing in the coalition. We are doing those things through mature discussion, and already my constituents and others to whom I have spoken are thanking us for that.

I like to think that Ipswich gives us a considerable precedent for the sense of amity between our parties. Not only do we have a Liberal-Conservative coalition on the borough council that has achieved considerable success, but we had two of Gladstone's brothers as Members of Parliament in the 19th century. One of them, John Neilson Gladstone, was described by a biographer-I could not resist this-as follows:

"He took no strong independent line such as would anger his father but accepted his minor role in the scheme of things."

I can assure the House that on the former point it should have no fear whatsoever, and on the latter point, I believe that all of us will succeed only if we show the independence and courage of our convictions-something that the coalition must show in abundance.

We have heard much over many previous years of the tough decisions that face us, but now is the time to take them, and no issue is more important, pressing or necessary than penal reform. The Secretary of State for Justice, my right hon. and learned Friend Mr Clarke outlined brilliantly and bravely last week a vision for sentencing and for the prison system that I, and many on both sides of the House, would wish to endorse.

Yet to achieve that, we need to find common cause on two things: the first is on the budget for the Ministry of Justice and prisons. It goes without saying that it is clearly a gross and offensive waste of public money to be warehousing prisoners in buildings of little utility save for the security they afford the public in incarcerating criminals, which in the end produce men and women who come out with a staggeringly low possibility of finding a job, succeeding in a relationship, building a family or contributing to society, and a staggeringly high probability-the highest in Europe-of going on to reoffend and contribute once again to the crime rate.

Opponents of reform must consider carefully whether it is right to continue with a system in which half of prisoners cannot read at the level expected of an 11-year-old, 65% cannot count at that level, and 82% cannot write at that level. I do not understand how they can possibly contribute to their communities, build relationships and sustain their families with that level of underachievement. Future generations will look upon our treatment of prisoners in much the same way as we now look upon how the Victorians established workhouses-as a near barbaric mechanism to deal quietly with one of society's problems without facing up to the real issues that it presents.

We can, I hope, overcome that problem in two ways. The first is to protect in the Ministry of Justice's budget the excellent plans, which we on the Conservative Benches have had for some years, for the complete restructuring of the prison estate. Hon. Members might wish to know that 16 prisons in the prison estate predate the reign of Queen Victoria, and there are many others that were built in her reign. Those prisons are not only completely unsuitable for rehabilitation, but consume massive amounts of manpower, which reinforces my earlier point about the unnecessary waste of money that goes on revenue spending, rather than on capital expenditure, which actually produces results.

The second thing that I would ask of hon. Members-and of the media-is to accept that it would be a good thing if we were to enjoy the kind of consensus that I have praised in the coalition, on the matter of penal reform across the House. Too often the sentiments expressed by the Secretary of State for Justice last week have been uttered by Members in all parts of the House, but they have fallen prey-because they are perennially vulnerable-to cheap political point scoring of a short-termist nature, which has done us enormous damage. I hope that those who wish to oppose the reforms that are necessary understand that to do so would be to condemn families, victims, perpetrators and communities to the repeated misery that we now have a golden opportunity to prise ourselves away from.

A maiden speech is a privileged opportunity to outline some of the issues that interest a new Member. It is a greater privilege, needless to say, to represent our constituents-in my case, the people of Ipswich. Almost all new Members come to this House lauding their new constituency, professing an ardour that I would not wish to impugn. All I would say is that I cannot claim to be Ipswich born, even though it is my local town and has been all my life, but I can increasingly claim to be Ipswich bred. It is a town that I have come not only to respect but to love. It is the most profound honour to serve the people of Ipswich, who put their trust in me in the election that we have just had. I shall do all I can in the coming years to repay that trust, and help us all to realise the considerable opportunities that lie-tantalisingly-ahead of us.

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Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton 7:52 pm, 6th July 2010

I pay tribute to the three maiden speakers whom we have just listened to: the hon. Members for Ipswich (Ben Gummer) and for North East Cambridgeshire (Stephen Barclay) and my hon. Friend Nic Dakin. I am always struck by how confident, forthright, quite often amusing and, on occasion, even inspiring maiden speakers are. I am sure that we shall hear a great deal more from them all. I also noticed that they all touched on issues of policy. When I first came to the House, it was a custom that maiden speakers talked about their constituencies and their predecessors, but skirted round any question of policy. I am pleased that that rule is obviously now more honoured in the breach, and I hope that we shall hear much more about policy from all the maiden speakers whom we have heard this evening.

On the Finance Bill, let me start by agreeing with what I can-this part of my speech will be very short. I agree that the deficit is too large and that it needs to be reduced. On every other issue-the size of the cuts, their composition, their impact on growth, the balance between tax increases and spending cuts, and the whole question of fairness-I think that the Budget judgment, as expressed in the Finance Bill, is fundamentally and manifestly wrong.

First of all, as some of my hon. Friends have also said, the Chancellor made great play of the idea that his Budget to eliminate the structural deficit within five years was unavoidable. That is absurd. Balanced budgets are the primitive 1920s economics of Montagu Norman in this country and Herbert Hoover in the United States, and in both countries they led directly to the great depression. Capitalism is driven by cyclical forces that need constant regulation, not balanced budgets irrespective of the economic cycle. The truth is that the Chancellor has gone overboard on austerity. The cuts are as tough as those that the IMF is imposing on Greece, which is on the verge of bankruptcy, which we certainly are not. They are also twice as tough as the Canadian measures that the Chancellor has repeatedly prayed in aid to justify what he is doing, three times as tough as Sweden's measures in the mid-1990s and much tougher even than the IMF measures in 1976.

Then there is the question of how the deficit should be reduced-as I have said, no one disagrees that it needs to be. There are three ways of reducing the deficit: not only through tax increases or spending cuts, but through economic growth as well. Before the Budget, the OBR estimated that UK growth this year and over the succeeding four years would be slightly less than 2.5% on average. As each 1% of growth adds an annual £15 billion to UK income, the OBR forward projections of economic growth imply an increase in UK income over the next five-year period-the perspective of the Bill-of between £150 billion and £180 billion.

Because all Governments take roughly 40% of any increase in UK income, those figures imply an increase of revenues to the Government of around £70 billion to £75 billion over this five-year period. That would be enough virtually to halve the current budget deficit over that period, which hugely reduces the need for spending cuts. I do not say that I am against spending cuts totally. Indeed, when it comes to Trident, ID cards and some of the extraordinarily wasteful Government IT databases, there is plenty of room for cuts. However, the figures that I have quoted raise starkly the question of whether the Chancellor's enormous spending cuts will squash out the growth-generating potential of the economy-something that, frankly, would make the cuts simply counter-productive.

Indeed, those figures also raise the central issue, which had something of an airing between those on the Front Benches in the earlier debate, of where the Chancellor expects the growth to come from over the next few years. Household consumption, which accounts for two thirds of national output, is now almost certain to fall, particularly with the increase in VAT. Any growth in wages after inflation is already weak and is likely to weaken further as unemployment rises, which it will. According to all surveys, consumer confidence is fading, while some 60% of UK exports go to the eurozone, which as we all know is in considerable disarray. So where exactly is the growth going to come from?

I give Mr Redwood credit for being the one Government Back Bencher who tries to make a case for the Budget, but he seems to have forgotten the prime rule of computer projections, which is: garbage in, garbage out. If we feed in dodgy premises, we get out dodgy conclusions. Government Members keep quoting the OBR as though it is independent-I do not think that Sir Alan Budd is actually independent, and the OBR is next to the Treasury, so it is not exactly independent-but that is not the point. The key point is that the OBR projections are based on certain premises that are--I say this without exaggeration-fantasy.

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Photo of Richard Graham Richard Graham Conservative, Gloucester

Given the strength of the right hon. Gentleman's views on the neo-Keynesian economics that effectively advocate keeping on spending because that is the only way to grow the economy, what does he think of the performance of the Irish economy? In 2009, Ireland managed to reduce state spending by 7% as a result of stringent measures involving public spending and public sector salaries, yet, in the first three months of this year, its economy grew by almost 3%. Does that not demonstrate to him and to other Labour Members that it is a false assumption to say that reducing public sector pay will shrink the economy, and that cutting back can in fact provide an opportunity for the private sector to grow again?

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

The opposite conclusion should be drawn from the Irish economy. The Irish Government made huge, swingeing cuts of 12 to 15%, which absolutely decimated that economy. Sooner or later, of course there will be a revival in all economies, but at a fearful cost. We shall very much be going down the route of the Irish economy if this Budget goes through. If the hon. Gentleman were to go to the Republic of Ireland and ask people's view of the finance budget of three or four years ago, I think that he would get a very different impression.

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Photo of Helen Goodman Helen Goodman Shadow Secretary of State for Work and Pensions

I support my right hon. Friend's interpretation of what has been going on in Ireland. The construction industry has been completely destroyed, and there are empty shells of houses all around the countryside. Unemployment is sky high and, for the first time in many decades, people are emigrating from the Republic.

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

My hon. Friend helpfully assists my argument.

I want to be fair and point out the Government's proposals on corporation tax and the small companies tax to get firms investing, as well as the national insurance cuts for firms outside the south-east to aid new hiring. That is all very welcome, but those measures will be more than cancelled out by the additional Tory spending cuts of £32 billion a year by 2014-15, and the additional £8 billion in tax increases. Let us take a highly topical example. It has been pointed out that the construction industry gets 40% of its work from public sector contracts. The 700 cutbacks in the schools building programme announced yesterday, and the nadir in house building, which is now at its lowest ebb since 1923, will almost certainly cost tens of thousands, if not hundreds of thousands, of building workers their jobs over the five-year period.

I shall give the House another example. According to the Treasury Red Book, the OBR forecast for public sector net investment is that it will be flattened from its current level of about £49 billion to just £21 billion in 2014-15. That is a staggering drop. It is not just a marginal change or a change in direction but a staggering reduction. So I repeat, where is the growth going to come from, especially as the banks are not lending? The Bank of England reported a fortnight ago that the flow of net lending to UK businesses was still negative. In other words, people are repaying money to the banks, rather than the banks handing out money to businesses. That compares with the situation in the first half of 2007, when there was annual growth of 20% in the relevant M4 figures for banks lending to businesses.

The great fallacy of the Bill-the fantasy black hole at the centre of the Budget-is that as the devastating public spending cuts take effect, the private sector will expand its hiring and investing to compensate. That is the Government's argument, but the premise is completely indefensible. Why should the private sector do that? The only reason that private businesses invest is because they see the possibility of profitability and expansion, but where will that come from when consumption is falling, when the banks are not lending and when export markets are fading? Where is the growth to come from? All the coming misery is allegedly unavoidable because there is a crisis in the bond market, which there is not, and because the UK is supposedly like Greece, which it certainly is not.

Many of my colleagues have pointed out the real risk involved in this deficit cutting fixation to shrink the state. Let us make no mistake, this cannot be justified economically; it has ideological motive. That is the fundamental bottom line in assessing this Budget. It will impale Britain on a very low growth path for years ahead, with rising joblessness and stagnant gross domestic product, even if the country does avoid a double-dip recession, although the Lord Chancellor and Secretary of State for Justice admitted the other day with typical frankness that that remains an open possibility.

Even in the Chancellor's own framework for the Budget, there remains the question of striking a balance between tax increases and spending cuts. The Chancellor chose an 80:20 ratio, but that is far more heavily weighted against public spending than in previous economic episodes of this kind, including under previous Tory Governments, such as that of the early 1990s. Poorer households will unquestionably be the main victims of the spending cuts, and even the tax increases-notably VAT-will of course impact most harshly on the poorer half of the population. This is anything but a fair Budget.

Even the two new taxes that impact directly on the rich will have little effect on them. The £2.5 billion bank levy will mainly be offset. There has been no mention of this, but it is fixed at the very low rate of 0.07% of eligible liabilities. One could hardly find a tax rate lower than that. One can be sure that it will be largely avoided through balance sheet adjustments away from short-term wholesale funding, together with other devices such a group restructuring and de-leveraging.

The second tax change that will have affect the rich is the increase in capital gains tax to 28%, but that still takes it only halfway to parity with higher rate income tax, which is where it ought to be, and where Nigel Lawson-Nigel Lawson!-left it in the 1980s. The change will still allow people with very high incomes to dress up their income as capital gains so as to halve the tax that would otherwise be payable. The idea that the rich are making an equivalent sacrifice and-to use the mantra that I think will come back to haunt the Government-that we are all in it together is nothing more than a sick joke.

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Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

I have some sympathy with what the right hon. Gentleman is saying, because the Liberal Democrats were also inclined to support a higher rate of CGT. But does he still support that proposal, given the evidence that it would raise less income and thereby impose harsher penalties on the public sector than if it were left at 28%?

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

I have never believed what some Laffer economists say, which is that increasing taxes on the rich results in a reduction in the net income. I believe that that is based on a false premise.

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Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Can the right hon. Gentleman explain why his Government failed to narrow the gap between rich and poor?

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

I regret that the Labour Government did not succeed in narrowing the gap between rich and poor. However, they did something quite remarkable in reducing the number of children in poverty by 600,000. No, it was not enough, and we fell below our target. I can tell the hon. Lady why the gap widened, however. To cite a phrase that was used early on in the Labour Government, new Labour took the attitude that it was fairly unconcerned about people becoming filthy rich. That was a serious mistake, and the increase in the wealth of the tiny top segment of the population has been enormous. That is the reason that the gap increased.

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Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I am interested to hear the right hon. Gentleman raise the issue of child poverty. Can he explain why in the last Parliament it went up by 300,000 on every single measure?

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

Indeed. The hon. Gentleman is wrong on the figure; the last figure available for when Labour were still in government suggested an increase of about 100,000. That, of course, was the result of a recession caused by the bankers. The Labour party protected the poor and the unemployed to a significant degree, as those groups are about to find out from the very different treatment meted out to them by this Government.

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Photo of Kate Green Kate Green Labour, Stretford and Urmston

I have no idea what statistics Charlie Elphicke is looking at. Over the period Labour were in power, between 1997 and 2010, child poverty fell by half a million on every measure. While it is true that it rose in one or two years, it still finished significantly lower than it had been at the beginning of the first Labour Government's term.

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

I think I must move on-and we must move on-from debating poverty between the parties. Since I have the privilege of speaking, however, I have the last word. The fact is that the Thatcher Government tripled poverty to more than 3 million over the period between the early 1980s and the end of the 1990s; Labour reduced that significantly, but did not, in my view, do as much as it could have done to reduce the enormous gains of the wealthy.

As always, it is the dog that did not bark in the night to which we should give most attention. There is nothing in the Bill about a financial activities tax on financial speculation, which is a domestic version of the Tobin tax. Considering that the banks' recklessness was a major contributor to the crash, that would have a significant reforming potential as well as being a major revenue earner. There is nothing for a really tough crackdown on tax avoidance, which is still estimated to cost the Exchequer some £25 billion a year, nor is any action being taken on the indefensible non-dom loophole. Nor is there any reference to a wealth tax, which might have seemed reasonable when, according to The Sunday Times rich list-not a trendy-lefty organisation-the top 1,000 richest multimillionaires, a minuscule proportion of the population, have nearly quadrupled their wealth over the last decade and a half by no less than £335 billion. This was all in The Sunday Times rich list two or three months ago. In the last year alone, their wealth increased by £77 billion. The fact that they are not being required to make any significant sacrifice at all, when everyone else is-

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

No, time is going on and I want to conclude.

The fact that those people make no sacrifice while everyone else is being hit extremely hard makes an utter mockery of any idea of fairness in the Budget. This is not an honest Budget or an honest Bill. It was born of an ideological fixation to shrink the state well below 40%. The facts and arguments have been massaged to fit around this preconceived idea, and the methods used-draconian cuts to produce a balanced Budget-remain a throwback to the reactionary and ultimately disastrous economics of the 1930s. It will fail, but the risk is that it will drag down Britain with it.

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Photo of Graham Evans Graham Evans Conservative, Weaver Vale 8:14 pm, 6th July 2010

I am grateful for this opportunity to make my maiden speech, and I offer you my belated congratulations on your new appointment, Mr Deputy Speaker.

Despite not being the first Member to represent Weaver Vale, I am the first ever to give a maiden speech. My predecessor, Mike Hall, had already given his maiden speech as the Member for Warrington, South five years before this constituency was created in 1997. Although it is conventional to pay tribute to one's predecessor in a maiden speech, Mike, who was never one for convention, said of his Conservative predecessor for Warrington South, Chris Butler, after what must have been a particularly bitterly fought contest, that

"it would be hypocritical of me to pass favourable comments on Mr. Butler."-[ Hansard, 6 May 1992; Vol. 207, c. 123.]

However, during my three years as a candidate trying my best to unseat Mike Hall, he was always extremely courteous to me, and I do not believe it would be hypocritical of me to pay tribute to the work that he did for the constituency. Although perhaps not the most high-profile of Members here in Westminster, he was highly regarded as a hard-working constituency MP for Weaver Vale. We shared similar interests in football and military history. Despite the views of his Labour colleagues on Halton council, we were in wholehearted agreement in our opposition to wind turbines being built on Frodsham marshes, as well as to the numerous incinerator applications across Cheshire. I was sorry to learn that Mike was forced to stand down owing to ill health and I wish him and his wife Lesley a long and happy retirement.

Weaver Vale is a rather unusual constituency in both its shape and character. Thanks to its ambiguous name, many Members have expressed a little confusion as to its whereabouts. The seat is located in the heart of Cheshire, focused around the River Weaver, a tributary of the River Mersey. It stretches from Northwich in the south-east to Runcorn in the north-west. It is a source of considerable pride that, on this side of the House, I am the sole representative on the Mersey estuary, although I am delighted that Mr Field is to be working with the coalition.

Weaver Vale has an impressive and proud industrial history. Northwich, the largest town, is based on salt mining, which started in pre-Roman times. Imperial Chemical Industries was started in Northwich and one of its founders, Sir John Brunner, was a former Member of Parliament for the area. While ICI may be no more, Brunner Mond is still based in Northwich, and the chemical industry is still going strong in Runcorn, as well.

While traditional heavy industry is very much part of the landscape in the constituency, we have the added benefit of a wide range of high-tech industries at Daresbury, including robotics and nanotechnology. Indeed, Global BioDiagnostics has just announced that it will be moving its research and development to Daresbury, making it the home of the global fight against tuberculosis. The laboratory and the science and innovation campus are at the cutting-edge of science, as well as an essential provider of local jobs.

I firmly believe that these genuinely wealth-creating industries, both old and new, are going to be instrumental in leading the recovery. With this in mind, I am delighted to be giving my maiden speech in this debate on the Finance Bill, following the emergency Budget which has already helped to restore considerable market confidence with the message that Britain is open for business again. In particular, the plans for a regional growth fund and the substantial reduction in employer national insurance contributions in targeted areas demonstrate that this Bill is good news for industry and for the north of England.

Besides its industry, Weaver Vale has some of the most beautiful countryside and picturesque villages anywhere in the country-villages such as Crowton, Acton Bridge, Kingsley, Norley and Manley. Most distinctive of all is Helsby Hill and the surrounding settlements of Helsby and Frodsham. However, Weaver Vale is also a seat of sharp contrasts. Besides vibrant enterprise and leafy villages, there are areas of severe deprivation. Within Runcorn alone, the disparity is breathtaking. In the Windmill Hill area, only 8.1% of pupils achieve 5 GCSEs including maths and English. Those pupils can expect to live for nearly 10 years less and to earn an average of £30,000 a year less than my constituents who live in the more prosperous parts of Runcorn.

The gap would be even wider if Windmill Hill were compared with some of the prosperous commuter villages such as Hartford or Kingsmead. After 13 years of a Labour Government, this is quite simply a disgrace and should act as a constant reminder to those on the Labour Benches, who have already begun looking back on their time in government as some sort of golden age in which poverty and inequality were abolished. Sadly, the truth is that, under Labour, the poor got poorer while the debt grew bigger. Labour Members will almost certainly be spending the next few years in hysterical opposition, attacking the Government for fixing the mess they created, completely oblivious to the reality that we cannot help the most vulnerable in society by basing the economy on debt. Without wealth creation, we cannot achieve the social justice that we all want.

Before I finish, I would like briefly to express my thanks to my constituents, who have sent me here to represent them. It is the greatest honour and privilege of my life to serve the people of Cheshire. It has been quite a long and personal journey here, as well. I was born on a council estate in Cheshire, as the youngest of four children. My father was a wages clerk, but he died when I was young, and my mother worked in a series of local shops and pubs to make ends meet. I left my local comprehensive school with few qualifications and got a job stacking shelves at the local supermarket, but I was fortunate to have the chance to study business at night school, and went on to have a successful manufacturing career working in sales. I should like to think that I was one of those slick salesmen whom Mr Brown liked to attack on such a regular basis in the last Parliament.

I have always enjoyed serving my local community, spending four years as a special constable in the Cheshire police and 10 years as a local councillor. I have no idea how long I will serve in the House-that will be up to the people of Weaver Vale-but I hope that if I am to leave this place sooner rather than later, I will be able to help, in a small way, to put the "great" back into Great Britain. In that vein, I commend the Bill to the House.

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property) 8:20 pm, 6th July 2010

Let me begin by congratulating Graham Evans and expressing some solidarity with him, given what he said about his background and experience of growing up on a council estate. I am sure that his constituents will be very well served by the effective way in which he makes his remarks.

In a few days it will be my birthday, and as I inch towards the fourth decade of my life, it occurs to me that the economic downturn that we are experiencing now is also my fourth. The truth is that I do not remember the first recessionary period in the early 1970s, but I have strong memories of the recessions of the early 1980s and early 1990s. I think back to what it was like growing up poor and black in my present constituency in Tottenham, and the hardship experienced by my family and many others at the time. I remember my father losing his business in the early 1980s, and the depression and the booze that followed.

Children do not always quite understand these things as they are growing up, but I remember, in about 1982 or 1983, coming to understand that there was far less money in the home. The fridge seemed much less full, and-although I do not want to suggest that my parents were not generous-the presents at Christmas were not what we might have seen in the commercials on television, and not what we might have liked. I think that the VAT rise had something to do with it. Although Margaret Thatcher had said that she would not change the rate before the election, she raised it from 8% to 15%. I also vividly recall the freezing of child benefit for successive years , and how hard that was for my mother. More than anything, however, I remember the restlessness, the fecklessness and the worklessness of the broader community and the explosion of violence that we experienced in my community as a direct result of that, leading to some of the worst images that this country has ever seen or experienced.

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Photo of Richard Graham Richard Graham Conservative, Gloucester

Does the right hon. Gentleman agree that, in that context, it is particularly regrettable that the Government of the last 13 years left us with more than 1 million unemployed young people-an absolute record?

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

Unemployment at that time in my constituency was running at 20%, and in some communities, particularly the black community, the rate was double that. It is because of the situation then that young people like me, growing up in constituencies like Tottenham, forged such a huge solidarity with colleagues and friends in different parts of the country. Although those areas seemed very different from Tottenham, the assault on manufacturing industry and the attitude to former mining and steelworking towns led us to forge a solidarity that remains on these Benches today.

In the 1990s I qualified as a young lawyer, but I did not go straight into employment because, yet again, the country was in recession and the employment was not there. I went to the local unemployment benefit office hoping that I might become a barrister, but not sure whether that would actually happen. My mother was now struggling on her own with a 15% interest rate, and the shops up and down Tottenham high road were boarded up because of bankruptcy. That was the backdrop in the 1990s. We experienced two recessions that had huge social consequences-social consequences that I deeply fear could be repeated as a result of this Finance Bill.

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Photo of Richard Graham Richard Graham Conservative, Gloucester

The right hon. Gentleman is very generous in giving way. Given his experience in the early 1990s, is it not an absolute tragedy that he was part of a Government who, having promised to abolish boom and bust, landed us with the largest recession not just in his lifetime, but in the lifetimes of three generations?

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

The hon. Gentleman paints a fantasy picture of history, and takes the banks out of context. I will return to that in a few moments.

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Photo of Phil Wilson Phil Wilson Labour, Sedgefield

I agree with 100% of what my right hon. Friend is saying. Back in the 1990s, 11% of young people were out of work; in the 1980s, the figure was 12%. As a proportion of the work force, the unemployment rate was much higher than it is now, and 40% of those people had been out of work for 12 months or more. That figure too is much higher than the figure today. In my own constituency the unemployment is just over 1,000, but at the height of the recessions in the 1980s it was 5,500. The main reason for the difference between what we have experienced over the last year and what we experienced then is what the Labour Government did to ensure that ordinary people up and down the country did not suffer.

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

My hon. Friend is absolutely right. That is why Members on the Government Benches should be reminded that employment in my constituency was running at 20% in the recession of the 1980s and at 28% shortly before we cane to power in 1997, and that although my constituency now has the highest unemployment rate in London, it is currently running at 9%. I say "currently" because it will surely rise as a result of this Finance Bill. The consequences-the social consequences -of what we are debating today, and what we will vote on in a few hours' time, will be so significant that it is hard to put words to them, but they will be real and stark.

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Photo of Andrew Bridgen Andrew Bridgen Conservative, North West Leicestershire

The right hon. Gentleman is speaking passionately about his opposition to unemployment. Surely he must be ashamed to be a member of a party that has formed Governments many times over the past 70 years and that, every time it has left office, has left unemployment higher than when it came to office.

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Hon. Members:

It is not higher.

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

That is patent nonsense, which is why so many hon. Members are shouting from a sedentary position.

What we see in the Bill is absolutely ideological. It is not the first time that the House has debated such ideological decisions, which have huge social consequences for people a long way from Westminster. On one side, we have an orthodoxy, a Conservative position, that says that we must reduce deficits at all costs, despite the social consequences. Behind that there is a desire to reduce the state and welfare at the same time. On the other side, consistently, over generations, we have progressive parties, and at the centre of those is the Labour party, which understands that the private and public sectors are co-dependent. They rely on each other.

There are times during difficult recessionary periods when the public sector must borrow to ensure growth. That is why I am hugely proud of the future jobs fund. That was a classic example of our Government borrowing £1 billion to create jobs and to ensure that the social plight that constituencies such as mine have seen in the past did not come to pass again. What an outrage. What a shame. How can hon. Members look at the young people of Tottenham, who now do not have that scheme and who will join the unemployment queues as a result of yet another catastrophic decision? We on the Labour Benches remember the failed youth training scheme, a joke scheme that was not really about jobs; it was about gerrymandering the figures, which started to look so bleak in the depths of unemployment in the 1980s and 1990s.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Does my right hon. Friend agree that the VAT increases that are in the Budget will make it worse for the poorest in his constituency-not only the unemployed but those on low pay and on limited incomes?

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

My hon. Friend is absolutely right. In the midst of a growth in unemployment, which has been predicted by the OBR, there is a VAT rise that will affect the poorest families.

In debating the Budget, we have to defend the hope and prospect that there is a different economic way. That is articulated not just by the usual suspects-economists such as David Blanchflower have been mentioned in the debate-but Martin Wolf in the Financial Times, Samuel Brittan and George Joseph Stigler. A number of economists are saying that this is the time for fiscal stimulus, for an FDR-type new deal, for an LBJ-type offer. This is the time for that big society that they dreamed about.

When this country lay in rubble after the second world war, we did not shrink back. The Attlee Government invested. We built the NHS, we built housing, we built schools. That is the example that we should be following. Instead we get this false smoke-and-mirrors game.

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

I will not give way at this moment.

Politically one has to applaud, in some senses, the Government for the way in which they have changed the debate that was about fiscal stimulus, support, opportunity and hope, despite these difficult times. The country had a focus on the banking sector in this country, in particular, but that has been turned into solely a debate about deficits; that is the only discussion taking place. I say, as a Labour Member who is proud of my party's tradition, that the discussion had not solely been about the recovery; it had also been about what had led us to this position. That was a discussion about materialism, consumerism and excess, but all we hear now is this emphasis on cuts, cuts, cuts and deficits. The Government are wrong, as was made clear in the G20 meeting and the letter that President Obama wrote shortly before it. They have taken the wrong position for ideological reasons, which will have grave social consequences.

The Government have said that this Budget is unavoidable, but of course it is not, for the reasons that I have set out. It is not unavoidable, because the previous Budget, in March, made it clear that we intended to cut the deficit over the next Parliament in a measured way. This Budget is not progressive. How can one describe a Budget that means that unemployment will rise and growth will shrink as "progressive"? This is a total twisting of the word "progressive". We have a dictionary on the table in front of the Economic Secretary, so I invite her to pick it up and look at what "progressive" means. It certainly does not mean what is in this Budget. This Budget is not fair to many people beyond this place.

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Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

Does the right hon. Gentleman think that taking nearly 1 million people out of income tax altogether, a measure of which the Liberal Democrats are immensely proud, is progressive or not?

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

The hon. Gentleman knows that this is robbing Peter to pay Paul-I am sure that his mother said that to him. One cannot give to people on the one hand and take a damn sight more in VAT on the other, and he knows it. I am talking about people such as the Uddin family, who live on the Broadwater Farm estate in my constituency. I am grateful to the TreeHouse charity for asking me to spend a Friday afternoon with a family in my constituency, dealing with the issue of autism. Because of the context of this Budget and the Finance Bill that flows from it, I was, of course, examining the wider issues that surround this family.

It was privilege to go to the Broadwater Farm estate, which I have known all my life, as I grew up and spent many years there. It was a privilege to go up the stairwell to the 15th floor to spend time with the Uddin family. In that two-bedroom flat was Mr Uddin and his wife, a family of five children and a niece. There were eight of them in this flat surviving on income support of £322 a week and struggling with a five-year-old autistic child. I was the bearer of bad news, because I had to explain to them that Mr Uddin, who cannot work as a result of an injury at work-he was a chef in an Indian restaurant and he had a serious back injury-would face a new medical test in order to get the disability living allowance that made up that £322. I had to explain to them that once again-I recalled this from my own background-their child benefit would be frozen. I had to explain to them that the price of living would go up because extra VAT would be whacked on their household goods and items such as school uniforms. I had to explain to them that the toddler element of the child tax credit and the element for their new five-week-old baby had been taken away. That was worth £1,000 to many families across the country. The Uddin family would be experiencing huge hardship as a consequence of this Budget.

It gets worse. What the Uddin family would dearly love of course is better housing. The prospect of better housing in London as a consequence of this Budget is dark indeed. That brings me on to the real test of what is progressive and what is fair. The cap on housing benefit will have the most pernicious effect in this city. Rents in London boroughs such as Islington, Camden and Westminster can run into the many hundreds of pounds, so there will inevitably be an exodus from zones 1 and 2 to zone 3. My constituency already has 20,000 on the housing list, more than 3,000 in temporary accommodation and, as I speak, more than 800 in emergency accommodation. It will become even more crowded. There will be no prospect of the Uddins moving anywhere, particularly when, as we would expect, Conservative local authorities in London continue to refuse to build. Guess what? Westminster council built just 200 affordable homes in the last year for which there are records. The Royal Borough of Kensington and Chelsea built just 100; Richmond built 127; Wandsworth just over 300. That is the record on affordable housing. It is very bleak indeed. The Mayor has made not one representation on the housing consequences of this Budget.

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Photo of Gavin Shuker Gavin Shuker Labour, Luton South

Does my right hon. Friend agree that beyond metropolitan areas such as London the Government's decision to take away the regional spatial strategies that allowed councils to work together to deliver affordable housing will have a profound effect on the way in which we manage the problem of affordable housing?

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Mr Deputy Speaker:

Order. That was wide of the mark. May I ask hon. Members from time to time at least to mention things contained in the Finance Bill.

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

My hon. Friend makes a good point, which I hope he will have an opportunity to develop later. I want to make it clear that, as a result of the housing benefit cap, there will be an exodus from zone 1 to zones 3 and 4 and areas such as mine. I predict as a consequence something similar to what we see in Paris-suburbs that are most often brown, black and other ethnic minority in complexion and are crowded, cramped and dangerous. The decisions made in the Finance Bill will lead to social unrest.

Liberal Democrat colleagues in London, especially the hon. Members for Hornsey and Wood Green (Lynne Featherstone), for Brent Central (Sarah Teather) and for Bermondsey and Old Southwark (Simon Hughes) should hang their heads in shame if they vote for the Bill tonight. Working people voted for them on the basis of the platform on which they stood. They know that people will suffer as a consequence because benefits will be cut and housing benefit will be capped. People who voted for them in good conscience will suffer.

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Mr Deputy Speaker:

Has the hon. Member finished his speech?

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Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

I am sure that if my hon. Friend Lynne Featherstone, who is being attacked in her absence, were here to defend herself, she would do a very good job of it. Does the hon. Gentleman accept that one of the consequences of very high housing benefit payments in central London has been, in effect, to line the pockets of private landlords with public money? Even if he does not accept the solution presented in this Budget and Finance Bill, does he not think that something needs to be done to address the problem?

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

I commend the hon. Gentleman for his defence of his hon. Friend, who, let us face it, is having a bad few days. This is not the moment to say that the private sector should step in. What are the chances of one of my constituents wanting to go into the private sector, as many of us have encouraged our constituents to do, given the uncertainty about what will happen to their housing benefit? None. The people who are in social housing will stay there, despite conditions such as those that I have described.

This is the time to walk the walk, I say to the Liberal Democrats. This is the time to demonstrate compassion, care and empathy-to walk alongside those who are poorest in our community. That is test of whether this is an effective Finance Bill, and it does not meet that standard.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

It will not only be private sector tenants who are affected. If a cap is introduced either in London or in my North Durham constituency and that cap is less than the current social market rent, the gap will have to be filled by the tenant. Some will be unable to afford it, and they will either be evicted or have to move out.

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Photo of David Lammy David Lammy Shadow Minister (Higher Education and Intellectual Property)

My hon. Friend is absolutely right. There will be a significant increase in evictions as a result of the housing benefit measures. Many Members will remember London in the 1980s and the early '90s. We remember what it was like walking under Waterloo bridge-sometimes it seemed as though whole families were living there, homeless. We remember the stories of "cardboard city". That is what we remember, and that is what we will see again as a result of this Bill.

To say it is fair if a Bill places a £2 billion levy on the banks but imposes on hard-working people cuts and VAT rises that combined in total come to £24 billion is to treat people like fools. Of course it is not fair. How could it possibly be fair? That is why I repeat that Members who know a lot better and who have relied on the votes of those hard-working people should be ashamed of voting for this Finance Bill. I urge them, in the time left as we continue to debate the Bill, to hear those voices in this place and beyond that say that this moment, as tough as it is for our economy, can be a moment of hope, can be a moment of growth and can be a moment of fiscal stimulus. I urge those Members not to line up alongside the ideological orthodoxy that always sees the opportunity not just to cut a deficit but to cut the state and to cut welfare, but to say once again, as we have in progressive moments in the past: no, we can act differently. I am proud and very lucky to stand here having grown up in a constituency such as mine was in the past, but there are many young men and women who faced years of unemployment and many who, sadly, spent too many years serving at Her Majesty's pleasure, as a direct consequence of decisions that were made about our economy at that time.

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset 8:49 pm, 6th July 2010

May I begin by congratulating hon. Members on a series of excellent maiden speeches? My hon. Friend Graham Evans spoke. I did not know that area of the country at all before he did so, and I feel much better informed as to its great beauties. Nic Dakin told the House, to its considerable relief, that he is not going to be a pugilist, as one of his predecessors once was, so I am glad to note that, if he disagrees with my speech, I may not end up with a broken nose- [ Interruption. ] I could not quite catch that, and I expect the Hansard reporters could not, either. My hon. Friend Ben Gummer, as Edmund Burke said of Pitt the Younger, is not so much a chip off the old block, as the old block itself. And finally, my hon. Friend Stephen Barclay told us that he was-on the internet, under the same name-a cabaret artist. I may be rare in the country at large, but in this House probably not, in that I much prefer a political speech to a cabaret artist, so I am very glad that we had the wrong website for the gentleman who spoke.

Let me come to the matter at hand, the Second Reading of this incredibly important Finance Bill. It is, like the one in 1981, of considerable controversy but great importance. We have heard at length, but interestingly, from Opposition Members that, actually, this is not a serious circumstance, and that, if we pay off the debt, though a bit too high, in dribs and drabs, all will be well. Sadly, that just is not correct. The deficit that we have faced has reached levels that in peacetime we have never had, and a key factor about the funding of the deficit last year has been missed. It was that almost all the gilts that were issued were bought by the Bank of England under its programme of quantitative easing. That programme has now stopped.

Even with this Finance Bill, we face an increase in the amount that the Government need to raise from £40 billion to £160 billion, and if we had stuck to the Opposition's proposals it would have been higher still. Where does that money come from? Who is willing to give this country £160 billion? As it is collected, who finds it harder to borrow? The answer is the very businesses that Opposition Members say find it difficult to make investment decisions. If we borrow and borrow, and the Government use up all the money, we force up interest rates for mortgage holders and squeeze out the investment that private companies need to make.

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Photo of Helen Goodman Helen Goodman Shadow Secretary of State for Work and Pensions

I am trying, but I am having great difficulty following the hon. Gentleman's train of thought. On the one hand, he says, rightly, that the deficit and the debt stock are too large, but he then connects that with extremely high interest rates. We do not have extremely high interest rates; we have record low interest rates at the moment.

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I am sorry to say that the hon. Lady left my train of thought at the wrong station. The point I was making was that, if we carry on issuing gilts at an even faster rate, long-term interest rates will rise, and it is on long-term interest rates that mortgages end up being priced. If we look at the gilts market, we see that the very thought-the prospect, the hope-of a Conservative Government saw it rally, therefore reducing the cost of borrowing to people in this country, whether Her Majesty's Government or private individuals. So yes, we have very low overnight rates, but the long-term rate set by the gilts market is more important for mortgages.

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Photo of Chris Leslie Chris Leslie Labour, Nottingham East

But surely the hon. Gentleman, as a sensible and grounded individual, will recognise that there is a world of difference between the Greek situation, to which some of his more hot-headed colleagues have compared our country, and the rather sturdy and well managed way in which we deal with our debt and gilts issuance in this country.

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I do not believe that I had mentioned Greece in the few words that I had spoken. I would say, however, that it is better to cut before getting into a Greek situation. I admire my right hon. Friend the Chancellor of the Exchequer because, in his foresight, he has brought forward action early. Countries in a Greek situation find that they can get no money from the financial markets and have to go cap in hand to the International Monetary Fund or the European Central Bank. How much better it is-how much more "prudent", to use a word once popular with Labour Members-to get our house in order before reaching that state of desperation.

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Photo of Kate Green Kate Green Labour, Stretford and Urmston

I am following the hon. Gentleman's argument, I think, thanks to the probing questions of my hon. Friends. Are we not talking about a balance between getting the long-term interest rates sufficiently low and not overreacting and over-dramatising, which I fear the hon. Gentleman is in danger of doing?

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

The hon. Lady ought to allow me to get over-dramatic before accusing me of being so. Her point is to some extent valid; of course we need to consider these things rationally and deal with them in a sensible and prudent fashion. That is exactly what we have done. The point that I am trying to establish is that the level of debt needs to be tackled urgently. I am not saying that the United Kingdom is bankrupt; there are studies that show that there has been no default on our debt since 1688. I do not believe that the situation was going to lead to a default on gilt-edged securities. We had not reached that stage.

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

However, I do not believe that it would have been impossible, purely because of our strong history, for us to have reached that stage if we had not done something early-sooner rather than later. Does Mr Jones still want to intervene? I shall be delighted to give way.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans)

Is it not the case that the average maturity of UK debt is some 14 years, as opposed to two years in Greece?

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

The hon. Gentleman is absolutely right. That is why, as I was saying, it is right to address the problem now, when we are in a strong enough position to do it and take the pain. Nobody denies that cutting is painful. It is always difficult.

Having, I hope, established the seriousness of the situation, I want to move on to the balance between tax rises and spending cuts and why I think, once again, that Her Majesty's Government have exactly the right balance. One figure has not been drawn out in these debates, but it is noteworthy. If we take net tax receipts and national insurance contributions as a percentage of GDP, we see that they will reach 36.4% in 2013-14. That level has not been achieved in any single year of socialist government from 1970-71 onwards. We are having the highest level of taxation as a percentage of GDP because of a Conservative Budget, of all things. Incidentally, the same figure was reached under the chancellorships of Lords Howe and Lawson. So the Conservatives are willing to tax when it is necessary to ensure the financial stability of the country.

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Photo of Owen Smith Owen Smith Labour, Pontypridd

Given the manifest command of economic history that the hon. Gentleman is showing, will he answer a question that the Chief Secretary to the Treasury could not answer when I asked him earlier today? It was about growth. Can the hon. Gentleman name one five-year period during any of the past 40 years when we have seen the level of growth projected by the OBR-in particular, the level of job creation in the private sector?

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

The hon. Gentleman asks the wrong question, for a very straightforward reason. I would happily ask a question back. Can he point to a deeper recession in the history of the United Kingdom? The fact is that recovery rates from very deep recessions are much faster than those from shallower recessions. That is the point that my right hon. Friend Mr Redwood made earlier. We get very strong recoveries after a very serious downturn, and the seriousness of the recent downturn goes back to the 1930s, as Mr Darling so rightly pointed out.

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Photo of Gregg McClymont Gregg McClymont Labour, Cumbernauld, Kilsyth and Kirkintilloch East

The hon. Gentleman asked whether it was possible to name any recession in which there has been such a recovery. What about the 1930s? I understand that it was only through rearmament that Britain recovered from the deepest recession of all.

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I do not believe that the hon. Gentleman is accurate about the recovery in the 1930s. There is a common misconception that the recession of the 1930s was the same in the United Kingdom as in the United States, but that is not correct. What really happened in the 1930s is that when we came off the gold standard, there was a gigantic monetary stimulus, and that led to the recovery. The one thing that is of crucial importance, but outside the strict remit of this debate, is that we must maintain a loose monetary policy, which will be supportive of the recovery, as it was in the 1930s.

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Photo of Gregg McClymont Gregg McClymont Labour, Cumbernauld, Kilsyth and Kirkintilloch East

I thank the hon. Gentleman for that answer. However, my understanding is that we had mass unemployment until the war took its course and we had to rearm. Am I not right in saying that the unemployment problem that emerged after 1929, and particularly after 1931, was not solved until rearmament and the war occurred?

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

The hon. Gentleman is absolutely right about the problem of unemployment in the 1930s, although the situation began to recover in the United Kingdom considerably earlier than in the United States. I accept that in the United States, rearmament led to recovery, but I suggest that in the United Kingdom the recovery resulted from coming off the gold standard and the boost to trade that that provided.

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

The hon. Gentleman has promoted me, but I will give way for the flattery.

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Photo of Adrian Bailey Adrian Bailey Chair, Business, Innovation and Skills Committee

I am sure it is only a matter of time.

Does the hon. Gentleman acknowledge that the diminution in unemployment that took place in the 1930s was largely a result of Government public spending, particularly on public sector housing?

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I think that Neville Chamberlain managed to balance the budget, so we had a Chancellor who was a Conservative doing quite a good deal of work in the 1930s. However, we may be getting a little abstruse and far away from the 2010 Finance Bill.

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Photo of Chris Leslie Chris Leslie Labour, Nottingham East

Can I ask one last question on the 1930s?

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I know that I am accused of being old-fashioned, but I do not want to conduct the whole debate in the 1930s.

Let us move back to 2010 and the need for the tax rises to be as they are, not higher. Clearly, at 36.4% of GDP, we are at a tax level that it is very difficult to surpass. I remind Labour Members who disparage the great Professor Laffer that when tax rates were at 83%, they still failed to get above 36.4% of GDP, so taxation is as high as it can be.

My final point is on spending. The problem with spending is that it got out of control post the period when Labour followed the Conservative plans for public spending. It is simply not sustainably to have Government spending at 48% of GDP when the tax base is 36.4% of GDP.

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Photo of Grahame Morris Grahame Morris Labour, Easington

If that is the case, why did the Conservatives support the Labour Government's spending plans until 2008? In fact, my recollection is that there were demands for more spending-more police numbers, more support for carers, and so on.

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

There were political reasons, I think it might be said, for supporting those spending plans. I was not a Member of the House at that time, and it is a bit harsh for me to be expected to take responsibility. I think a lot of people, not only in this House, held to the mistaken idea that the economy was going to carry on growing for ever. I have always thought that boom and bust is a fact of life. We always have booms and we always have busts, and we will have them again. One can look at studies of financial cycles going back to biblical times, so the thought that there would always be growth was simply wrong, and to try to match Labour's spending programme was a mistake. However, even Homer nods. The point is that spending was out of control and had to be cut, and taxation is at its limit.

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Photo of Tom Blenkinsop Tom Blenkinsop Labour, Middlesbrough South and East Cleveland

I know that the hon. Gentleman keeps quoting the figure of 36.4% of GDP, but is that not dependent upon what GDP actually is? According to the coalition Government's prospectus, GDP will actually go down.

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Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

The hon. Gentleman ought to bear in mind that we will achieve growth if we leave some money for business to borrow rather than it all being pinched by the state. That was the point that I was making at the beginning-if the state borrows all the money that is going, in the absence of quantitative easing, it crowds out private investment.

I know that Members do not want to listen to me all evening, so I shall-[Hon. Members: "No, more!"] Well, as I understand it, if I go on long enough tomorrow's business is forfeit, and that is an Opposition motion, so I will conclude.

We know that the situation is serious and that tax is as high as it can be, therefore spending must be cut, however difficult it is. I commend the Liberal Democrats for their courage in supporting that and facing up to the realities of government, which they have not needed to do for a few decades. If I were wearing my hat, I would take it off to the Liberal Democrats.

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Photo of Kevan Jones Kevan Jones Shadow Minister (Veterans) 9:06 pm, 6th July 2010

I congratulate Jacob Rees-Mogg on his contribution. I am really pleased that the Rees-Mogg family are all in this together with us in the tough times ahead, and I hope that the financial strain that the Rees-Mogg family will have to face will not mean that the hon. Gentleman's tailor is somehow deprived of business.

It is a pleasure to speak with you in the Chair for the first time, Mr Deputy Speaker. This is the first time that I have spoken in a debate in this Parliament, and it is an opportunity not just to recognise the dangers of the Budget but to pay tribute to the benefits that we in North Durham received from the 13 years of the Labour Government.

I congratulate Stephen Barclay, my hon. Friend Nic Dakin, Ben Gummer and my hon. Friend Graham Evans on their excellent maiden speeches. They all rightly paid tribute to their predecessors, and will be strong advocates for their constituencies.

This Finance Bill is a bit odd in that it is a two-stage Bill. Some of us have been used to having the Second Reading debate on the Floor of the House, and then the Members who had either upset the Whips or were financial saddos went into a Committee Room for several weeks for the Committee stage.

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