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Debate resumed (Order,
Question again proposed,
(1) That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(a) for zero-rating or exempting a supply, acquisition or importation,
(b) for refunding an amount of tax,
(c) for any relief, other than a relief that—
(i) so far as it is applicable to goods, applies to goods of every description, and
(ii) so far as it is applicable to services, applies to services of every description.—[Mr George Osborne]
For a fleeting moment, I thought that I was in the wrong debate. It is always interesting to hear proposals put before the House by Mr Bone.
Twelve months ago, at the time of last year’s Budget, unemployment was falling, growth was rising, inflation was low and stable, and we were on track to halve the deficit in four years. Indeed, because more people were in work, paying taxes and not receiving benefits, borrowing ended up £12 billion lower last year than was forecast the autumn before. However, there was still a long way to go. Following the biggest global financial crisis of the past century, we were getting back on the right track to get the deficit down and to restore our economy to sustainable growth.
One year on, the economic context for this Budget is radically different. Inflation is up to 4.4%, increasing prices for everyone and threatening a rise in mortgage rates. Unemployment, which was falling, is now rising to its highest level for 17 years. Consumer confidence has seen its biggest fall for nearly 20 years. Our economy, which was growing, has ground to a halt according to the latest figures. Just a few months ago in the autumn, we were told by the Prime Minister, among others, that the economy was out of the danger zone. However, on growth, inflation and unemployment, it appears that we are now re-entering the danger zone.
The question that families and businesses up and down the country will be asking is what changed over the past 12 months. Let me set out for the House what did change over the past 12 months. Yes, commodity prices have gone up. Yes, world oil prices are higher. Yes, we had a bad winter. However, other countries such as America, Germany and France have been similarly affected by higher oil and commodity prices and by bad weather, and their economies are still growing, unlike the British economy. Germany had worse snow than Britain, there was a big freeze in France and the US had the worst blizzards for decades, but their economies grew in the fourth quarter of last year. While our growth forecasts have worsened, theirs have improved. The German economy is forecast to grow more strongly than it was last year, as is the American economy. Growth in the world economy has been revised up. Which is the major economy that is now downgrading its growth forecasts? It is the United Kingdom.
Will the right hon. Gentleman accept and welcome the fact that the British economy is growing faster than the EU average, or will he continue to talk down the economy?
On the latest figures, the British economy was not growing at all—in fact, it had contracted by 0.6%.
I see the hon. Gentleman’s press releases regularly. They come across my desk two or three times a day. I want to give him some support. [ Interruption. ] I want to give him some support. The hon. Gentleman has a campaign to reverse the cancellation of funding for a dilapidated school in his constituency following the cancellation of Building Schools for the Future. I am right behind him. He has called for a new pedestrian crossing and to unblock the money for it, which is being blocked by a Tory council. I am with him. He has campaigned to keep his local library open. I am right behind him on that one. He wants to keep Thetford forest safe. Yes, I am with him on that one. He asks how we can deal with the pressures on the voluntary sector. I have to say, I think that he is in the wrong party.
Under Labour’s plan, the economy was set to grow strongly. [ Interruption. ] I have just given the hon. Gentleman more publicity than he had in three months from all those press releases.
On the Labour plan, the right hon. Gentleman said this morning on the “Today” programme that we went into the recession with a low deficit. Is an average deficit of 2.9% low in his mind, or was that a mis-speak?
I do not want to give the hon. Gentleman an economics lesson, but he needs to be able to differentiate his deficits from his debts. The fact is that we went into the downturn with a low deficit. We were borrowing to invest. Our national debt was lower than that of America, Germany, France and Italy, and lower than the national debt that we inherited from the Conservatives. We will not take any lectures from them on fiscal profligacy. Who was it who raised taxes 22 times in the 1990s?
Under Labour’s plan, the economy was set to grow strongly, unemployment was falling, and we were on track to halve the deficit in four years. Everything has now changed. But what changed? The change was the arrival of a new Conservative Chancellor who was determined not to halve the deficit in a Parliament, but to eliminate it entirely with an immediate hike to VAT, the deepest spending cuts our country has experienced in 70 years and the largest spending cuts of any major country in the world. America has a big deficit, but it is cutting it at a steadier pace and keeping its jobs programme in place. Its economy is now growing strongly and unemployment is falling.
In a second, but I certainly will.
In Britain, we have to make some tough choices to get the deficit down. That means fair tax rises and spending cuts, but the Chancellor’s policy is going too far and too fast, and we are paying the price in lost jobs and slower growth.
I take it that you have withdrawn the suggestion, Mr Norman. I accept that. Are you now going to pose a very quick question?
I am very pleased that WPP has returned to this country, and I am very disappointed about the 3,500 jobs lost at Pfizer in Kent. That is why we need to be careful about how we proceed.
I have to say that I have never in my life taken a hallucinogenic substance. I am happy to take any intervention from Government Front Benchers on that subject.
Why should we take any lectures from Labour on unemployment, when every single Labour Government have been kicked out with a higher level of unemployment than when they got into power, and when the last Government doubled unemployment in Wellingborough?
It is a bit rich to have a lecture from the hon. Gentleman, who used to say that the national minimum wage would cost millions of jobs. We, unlike Members on the Government Benches, do not think unemployment is a price worth paying.
The Chancellor is going too far and too fast, and we are paying the price in lost jobs and lost growth. That is because a vicious circle is now taking hold in our economy. If the economy is not growing and hundreds of thousands of people lose their jobs, then fewer people pay tax, more people claim benefits and it is harder to get the deficit down. By cutting too far and too fast, the Chancellor is not solving the problem, he is making it worse. That was why yesterday, we heard from the OBR that growth had been downgraded for last year, this year and next year; that unemployment was forecast to be higher in every year of the forecast period; and that up to 200,000 more people would be unemployed than the Chancellor said last summer. Our borrowing was coming in £20 billion lower, but the Chancellor has now been forced to revise up his borrowing over the next four years by £45 billion.
The Chancellor said yesterday that he would put fuel in the tank of the British economy. Is not the truth that, as a result of his Budget, it is confidence in the British economy that is now tanking, and he who is running out of fuel?
Because a year ago unemployment was falling, and now it is rising. [Interruption.] The Chancellor sits on the Front Bench and says, “This is so bad.” Does he mean growth being downgraded? Unemployment going up? I will take his intervention at any point he wants, but if he does not want to make interventions from the Dispatch Box, maybe he should not be doing it from a sedentary position. [Interruption.] If he wants to intervene, I will allow him. I have made my pledge.
None of what I am saying will come as any surprise to the Secretary of State for Business, Innovation and Skills. He warned of it a year ago. In fact, I remember standing with him on the green on Budget day a year ago, and he said:
“We must not cut Government spending too soon and risk plunging a fragile recovery back into recession. Cuts without economic growth will not deal with the deficit”.
Wise words, and how right he has proved to be. Even after the election, and even after his colleagues decided to bury their worries and go along with immediate spending cuts and a VAT rise, the Business Secretary was still warning of the risks to come. He said on “Newsnight” last May, after the general election, that the speed of the cuts had to be based on the condition of the economy. He said:
“These things will have to be judged at the time of the Budget, and of course I don’t present the Budget personally but I’ll make an input into it.”
He went on:
“Over the course of this Parliament judgments about the speed of cuts have got to take account of the changing conditions that are coming, and that is basic economic policy based on evidence, which is what I’m in favour of…We don’t know what the impact of these cuts will be on employment.”
Wise words again, and he was right. The cuts are too fast and too deep, confidence is tanking and unemployment is up. This Budget was the time to change course, before it was too late. Sadly, the Business Secretary has not been heard.
Does the right hon. Gentleman not accept that public spending is not actually falling but continuing to rise? The sad thing is that we all have to take our share in bearing more than £120 million a day in interest payments on the debt left behind by the last Government.
The hon. Lady is right—deficits went up. They went up in Britain, Germany, France, America and all around the world. They did not go up because spending or the national debt was too high in Britain. That is a Conservative myth put about to try to justify the Government’s cuts to police, the national health service and schools. The reason deficits became big was that we had the biggest global financial crisis in 100 years. If we had not let the deficits go up when the tax revenues went down, it would have been not a world recession but a world depression. It was only our actions—here in Britain and around the world—that saved our financial system from disaster. We nationalised the banks, let the deficit go up and got unemployment down—all of which was opposed by the present Chancellor.
The hon. Gentleman knows the answer. We went into the downturn with a deficit that was low and covered our borrowing for investment. [Interruption.] It was low. We had low national debt—lower than France, Germany or Japan. We then had a global financial crisis, which hit the American and British economies hard. Our economy had a larger financial services sector than others—that was precisely why we did not join the single currency in 2003—so of course America and Britain were harder hit than other countries by the financially driven recession.
If we had not let the deficit go up, which some hon. Members now seem to think we should not have done, the result would have been unemployment above 3 million rather than it peaking at 2.5 million. The economy would have gone from recession into depression. That is the economics of the situation. The question is, who did a good job of getting the deficit down? We had the deficit coming down, unemployment coming down and growth going up, but a year later we have unemployment going up, inflation going up and the economy ground to a halt. As a result, borrowing will be £45 billion higher, not lower.
My right hon. Friend may be able to assist me with some statistics that are missing from the Government’s document “The Plan for Growth”. I can see nothing in it about what has happened in the past 15 years. The chart showing growth under the last Government is missing. Similarly, there are no international comparisons showing what is happening to our growth compared with other countries, and what was happening under the last Government.
I noticed that the Chancellor did not choose to intervene with the answer that I was hoping for, but there we are. The fact is, when we came into government in 1997, we made the Bank of England independent and he opposed it.
We had a period of sustained growth and rising employment. The Conservatives said that the national minimum wage would cost jobs, but employment went up. Under the Conservatives child poverty doubled; under Labour it came down.
We had the longest sustained period of investment in the NHS since the second world war, but there was a global financial recession, which affected countries around the world. Who dealt with that? The British people should be thankful that it was not the Chancellor and his friends, because opposing nationalisation of the Royal Bank of Scotland and Northern Rock would have been a catastrophe for the British economy.
Although the right hon. Gentleman is right to say that there was global downturn, and he also rightly points out that there had been continued growth between 2000 and 2007, in each and every one of those years a deficit was being run up. That is our point—an unsustainable deficit was run up in the good times, before the global crisis began.
I have studied the Chancellor’s new fiscal mandate. He says that he wants to get the national debt on a downward trend by the end of the Parliament. We had national debt on a downward trend in 1997, 1998, 1999, 2000 and 2001. Before the financial crisis hit, our national debt was lower than the debt we inherited from the Conservatives. [Interruption.] Hon. Members are barracking—but let me answer the hon. Gentleman, because at least he asked a serious question, unlike some of the nonsense we have heard from other hon. Members on the Government side of the House. The second part of the fiscal mandate is to get the budget, excluding investment—the current balance—back into balance by 2015. Yet that is the golden rule.
The golden rule is getting, over the cycle, the current budget, excluding investment, into balance. That never happened in the 1980s and the 1990s, but it happened for a sustained period under Labour. However, it is true that, throughout that period, we borrowed to invest. Of course we did. Our infrastructure—our schools and hospitals—had not been invested in for 20 or 30 years.
Throughout the period before the financial crisis, national debt was below the level that we inherited from the previous Conservative Government.
If I remember rightly, our mistake was not to reverse the cancellation of the road-building programme that we inherited from the previous Government. We inherited an environment Department that did not want to build roads and a transport Department that had given up asking for transport investment. When we came into government it took time to build schools, because in the previous 18 years so few new schools had been built that local authorities had lost the capacity and the ability to build them. That is the reality.
I will make a bit more progress before giving way.
Let me return to the Business Secretary, because he was wise to say that those matters should be judged at the time of the Budget, based on the economic conditions. That is why we have argued that the Budget was an opportunity to change course from the reckless cuts. The problem is that the Business Secretary has not been heard. The blinkered Chancellor is ploughing on regardless, oblivious to what happens around him.
The Business Secretary needs to change tack. “Newsnight” is clearly not the way to get his message out. It does not get him on to the front pages; it does not make people listen to him. Why does he not do what he did last time? Perhaps he needs to call in some more young constituents for another candid conversation, another avuncular chat. It worked last time. The Chancellor certainly knew about his views on media ownership and News International. It is a pity he did not also share his thoughts on the risk to growth and jobs from the Chancellor’s reckless cuts.
The Business Secretary knows that the Chancellor is taking a massive and reckless gamble. He knows that it is the wrong thing to do, just as he knows that scrapping the future jobs fund and education maintenance allowances, hiking up tuition fees, raising VAT and cutting benefits for disabled people is wrong. It is one thing to want to be in power, but sacrificing one’s principles and beliefs for power is quite another. They used to call him Saint Vince, the wise economist. He had a reputation for telling it like it is. Why does he not tell us what he really thinks today? He knows that the economic strategy of the Government of which he is now a part is deeply flawed, misguided and unfair.
The right hon. Gentleman is right—the Business Secretary is very wise. He warned the right hon. Gentleman when he was a business Minister with responsibility for the City that there was far too little regulation for the banks. Does he now regret the fact that he said at the time that we should have light-touch regulation for the banks, which eventually proved so disastrous?
We all look back and say that we should have been tougher on the banks. Of course we should have been. The irony is that the Business Secretary is in government, sitting next to a Chancellor who criticised us in 2005 and 2006 for being too heavy-handed in our regulation of the banks. We were told that too much heavy-handed regulation from Europe was stifling the competitiveness of the City of London. The Conservative party called for light-touch regulation: that was the reality at the time.
As for the Business Secretary’s other regular critique, that we allow too much household debt in our economy, it was interesting to note from looking at the OBR Budget Book last night that household debt as a percentage of income is now forecast to rise next year, the following year, the subsequent year, the year after that and the year after that—five years of household debt as a percentage of income rising every year, while the savings ratio stays low and stable. He is part of a Government that are certainly not delivering what he said was the prospectus for the future.
I have not been silent at all. I said that there was a global financial crisis, which meant that our deficit and our debt rose, as it did in America, France, Germany and Japan. It is a good job that we went into the crisis with a lower national debt than we inherited, and a lower level of national debt than France, Germany, America and Japan. It is a good job that we did not listen to the Conservative party, or our debt would have been higher, our unemployment would have risen and we would still be in a depression.
Thank you. I am grateful for such widespread support.
May I draw the shadow Chancellor’s attention to page 8 of the Red Book? He referred to private sector debt, which rose from 200% of GDP to 450% of GDP when the Labour Government were in office. That fundamental instability led to our troubles. It was great while debt was rising—it led to full Government coffers—but it got out of control and that is the root cause of the problem.
As I said, the OBR says that subdued consumption outlook requires households to dip into their savings again in 2011, so the savings ratio continues to fall back from its post-recession peak. It also says that the savings ratio is now forecast to be historically low. Household debt as a percentage of income rises every year from 2010, even though it fell in 2009-10. Those are the facts.
Yesterday we needed a plan from the Chancellor to help hard-pressed families facing the squeeze, to get people back into work and to get our economy growing again. That is what we needed, and that is what we did not get. There was no change to a deficit reduction plan that is faster than that of any other major economy in the world. It pushes growth down and unemployment up. The Chancellor fails to realise that cutting too deep and too fast will make it harder to get our deficit down. He also failed to understand that while he gives the banks a tax cut this year, ordinary families are being hit hard now. It was a smoke-and-mirrors Budget.
I will gladly share our plan. First, the economy was strengthening and unemployment was falling—[Interruption.] The Chancellor’s Parliamentary Private Secretary shouts too loudly. Why does he not calm down a little? That may be how they do things in Chelsea and Fulham, but we do not do that in the House of Commons.
Unemployment was falling and growth was rising because we were halving the deficit over the four years. The Chancellor has gone from halving the deficit to trying to get rid of it entirely in four years, by implementing the largest cuts to spending and tax rises of any economy in the world. It is not working. In fact, we heard today that Moody’s, the credit rating agency, is looking at whether it needs to downgrade the British economy because of the threats to growth following yesterday’s Budget.
Secondly, Labour would repeat the bank bonus tax now, raise £2 billion for a second year, and use that to build 25,000 more homes and create 110,000 more jobs for young people who are now not going to get help from the future jobs fund. That was our second plan—and that option was entirely open to the Chancellor, but he chose not to repeat the bank bonus tax, but instead to give a tax cut to the banks.
Thirdly, we would have reversed the rise in VAT on fuel, because the Chancellor’s 1p cut in the Budget—there is still doubt whether that will actually get to motorists—is outweighed by the 3p a litre rise in fuel prices because of the VAT increase that he introduced just a few weeks ago. We cannot blame the Chancellor for the rise in world oil prices resulting from the middle east crisis. He made the right decision not to go ahead with the duty rise, and we would have done the same, given the level of world oil prices. However, the rise in VAT was a complete own goal. It pushed up inflation and prices and cut family budgets. It was a mistake. It was the wrong tax at the wrong time. The Chancellor should just admit that he got it wrong, go to his European partners and say, “Can I reverse this mistake before it’s too late?”
That is our plan, and the Chancellor—[ Interruption. ] Government Members shout, “Is that it?” but they do not understand the economics of this and the previous Budget. Halving the deficit over four years was ambitious but deliverable. Eliminating the budget deficit in four years means a massive fiscal contraction. Unless we suspend all the laws of economics, assume that no international evidence counts, and believe that fiscal multipliers do not count in our kind of economy, that kind of contraction in fiscal policy and its impact on the public and private sectors is crushing. Only Greece is trying to go faster. We have already seen the biggest fall in consumer confidence for 20 years, and unemployment is up before the cuts have really started to bite.
People are looking to the future and are worried, and the Chancellor is not listening. In his world, that is not a concern. He does not worry about what is happening out there in the real economy but for businesses and families up and down the country, the prospect of rising unemployment year by year, of slow growth last year, this year and next year, and of falling confidence, is a real concern. My advice to the Chancellor is this: take the blinkers off and look at what is actually happening in our economy. It is hurting, but it is not working.
We just heard that the shadow Chancellor’s plan is to halve the deficit over the lifetime of this Parliament. For clarity’s sake, will he tell us what the implications of that would be for the cost of borrowing? What advice has he taken on the yields on 10-year gilts, which would clearly move if we cut borrowing?
The hon. Gentleman needs to look at what is actually happening to the yield curve, the term structure and long-term interest rates. He will know that before the election, when the previous Government had a plan to halve the deficit over four years, the long-term interest rate level was pretty much identical to the rate now. That is the fact. Our debt maturity is long, our long-term interest rates are low, and there has been no problem getting our gilt auctions away at any point in the last two or three years. The idea that there was some big impending crisis is a myth invented by the Chancellor of the Exchequer and the leader of the Liberal Democrats to justify the biggest and most unfair U-turn on a manifesto that we have seen in the last 100 years of British political history.
I think the rise in VAT was a mistake, and I think the hon. Gentleman used to agree. I think that spending cuts this year are a mistake, and I think he used to agree with that too. I would halve the deficit over four years, and borrowing would have come in £20 billion lower—[ Interruption. ] I will answer the question. I set out more detailed spending cuts—in schools—than any other Cabinet Minister at that time. We said we would cut £1 billion from policing, and, for example, that we would go ahead with the disability living allowance gateway reforms. However, the scale and pace of the Government’s cuts are too deep and too fast, which is destabilising our economy. We were right to say, “Don’t make the cuts until the recovery is secure.
If you make cuts on this scale before the recovery is secure, what do you end up with? No recovery at all.” That is the situation today.
Let me turn to the detail of the Budget for a second more, but I look forward to hearing from the hon. Gentleman. I only read out five of his Labour campaigns, but maybe he will enlighten us on a sixth in a moment.
The shadow Chancellor was right to remind the Liberal Democrats that they once thought that a VAT increase would be a bombshell, but does he also remember the Prime Minister, when he was Leader of the Opposition, saying that VAT was a regressive tax that would hit the poor the hardest, and that he had no intention of increasing it?
I also remember the Chancellor saying that the Budget was progressive, and it turned out to be regressive, but my hon. Friend is being unfair to Liberal Democrat colleagues. They were not against a VAT rise; they were against a Tory VAT rise. Nick Clegg’s general election leaflets said, “Stop the Tory VAT bombshell,” and he never said, “Stop the Tory-Liberal Democrat VAT bombshell,” so my hon. Friend is being a little harsh on colleagues.
The hon. Gentleman needs to be careful with boastful interventions. Let me read out a quotation:
“The measures we have taken have been commended by international bodies such as the European Central Bank, the European Commission, the IMF and the OECD. They have also won the approval of the international markets.”
That is the financial statement of
The Chancellor said yesterday that this was not a tax-raising Budget and he did not need to ask for a penny more. However, when we study the details of the Red Book—in table 2.1 on personal tax, the tax cuts from the personal allowance and the tax increases from the switch to the consumer prices index, and changes to national insurance contributions—we find that the tax increases are bigger than the tax cuts. That is the fact. The increase in the personal allowance, which the Liberal Democrats boasted about with such enthusiasm yesterday, is completely crushed by the CPI increase: that is there in the Red Book. The Chancellor said that he would not come along and mislead the House in his Budget, but that is exactly what he did.
We also found out that because the Government changed the indexation of national insurance and the personal allowance, and because many people in our country—disproportionately women—are in part-time work and on low wages, and pay national insurance but not income tax, yesterday was a tax rise for 400,000 of the lowest-paid workers in our country, disproportionately women and part-time workers. That never made it into the Chancellor’s speech, nor did he say that the personal allowance changes were worth £48 a year, but the VAT rise will cost the average family with children £450; that never cropped up in the speech either. Nor did he point out that the upgrading of the GDP deflator—the inflation measure—means that despite the Prime Minister’s promises last year that NHS spending would rise in real terms year by year, it will actually fall year by year. That is another broken promise from the Prime Minister.
Many business people will be asking, “Why didn’t we have a Budget that did a bit more for growth?” It looks as if I was right in Treasury questions on Tuesday when I suggested to the Chancellor that his growth strategy was so flimsy he needed to beef it up, because he has now cut corporation tax by 1p, which is welcome, and is paying for it through measures on tax avoidance, which is also welcome. However, paragraph B.13 of the OBR’s Budget document reads:
“The OBR was notified of the change to corporation tax and the 1p cut in fuel duty…too late to incorporate any indirect effect of these measures in the economy forecast.”
I do not think he told the OBR until the afternoon before. However, it was able to give some clarity. It said that it believed that
“any such effects would have been minimal.”
This growth strategy has been produced with fanfare and much delay, but since publication his own independent auditor, the OBR, has said that it will have no impact on growth and jobs in our economy. Is that not the reality?
An alternative was open to the Chancellor, and it was one that I have set down. He could have decided to follow the American example and cut the deficit at a steadier pace in order to strengthen growth and lower unemployment.
Moody’s credit rating agency warned today that the UK’s triple A credit rating could be affected by slower growth. Does that not undermine entirely the Conservative party’s too-fast, too-deep cuts strategy and show that growth is the important aspect of this country’s economic policy?
I accept my hon. Friend’s point. I was tempted earlier to go down that road, because the fact is that in 2006, 2007 and 2008, the credit rating agencies entirely failed to spot the financial crisis in the first place. The Conservative party and the Liberal Democrats are keen to quote credit agencies when they support their case, but not when they do not support their case. The truth is that the credit agencies failed in the crisis, and quoting them at all is very risky indeed.
As I said, the Chancellor should have adopted our plan for deficit reduction, growth and jobs. He also ought to have adopted our plan to repeat the bank bonus tax for a second year, and used it to give immediate help to young people and jobs, rather than cancelling—in fact abolishing—the future jobs fund. As I have also argued, he should have cut VAT on fuel. That would have been a fairer and more substantial approach. However, the fact is that this year, as a result of the Chancellor’s tax decisions in the Budget, fuel tax will not fall; it will rise by 2p per litre. That is the reality.
The Chancellor should have reversed the VAT rise. That was a big mistake. Two years ago, when we proposed a cut in VAT, which got growth moving and unemployment down, he said, “People won’t notice the VAT cuts.” I am sure that he did not notice them himself, and he probably thinks that people will not notice the VAT rise either. The fact is, however, that with consumer confidence and growth down, and unemployment up, people are noticing what is happening and what he is doing. That is why they are so worried.
There has been some confusion on this over the past 24 hours. We know from the OBR that it was told of the 1p cut in fuel duty so late that it could not even get it into its economic forecast. The Chancellor realised at the weekend that he was behind the curve, that he was not setting the agenda, that living standards were a rising issue and that Labour was making the case for fuel tax cuts, so he jumped in late with his 1p cut, but he did not have the courage to reverse his 3p rise. That is the reality. Had the Chancellor done things properly—I can give him some advice on this, because I know how to do things properly on North sea oil tax—he would have consulted the oil companies in plenty of time, explained what was happening, made the case, got their agreement, and then announced the policy in the Budget. I think that many of the oil companies did not find out about it until it was announced in the Budget. That was the problem.
Yesterday afternoon the Chief Secretary to the Treasury—as always, he is not here—was on a television programme about the Budget. He was asked, “How will you stop the oil companies simply passing on the cost in consumer prices?” He said that he did not know, but that he would monitor the oil companies closely. That was the problem. The Government did not do the work, and this was cobbled together at the last minute. That is why it has caused so much confusion and consternation in the past 24 hours. He needed a headline and a flourish to his speech, but he did not want to announce that they were cutting the winter fuel allowance—an announcement we would never have had at the end of a Labour Budget—so instead he announced a cobbled-together, last-minute 1p cut in petrol tax.
The Chancellor is not listening.
I can see that the right hon. Gentleman wants to get this point on the winter fuel payment going. Will he confirm, therefore, that I am only following the plan set out in the last Labour Budget on the winter fuel payment?
A plan was set out in the last Labour Budget for a 1p rise in petrol tax, but the Chancellor reversed it. If he could reverse it on petrol tax, why could he not reverse it on the windfall tax? The fact is that it was not his priority. When we entered government in 1997, what did pensioners get? They got £10 in a Christmas bonus. What did they get from Labour? They got £200, and the poorest pensioners got £300. What did we do? We confirmed in Budgets that we could carry on with the £300 in a sensible and proper way for a period of years. It would have been for the Chancellor to decide in this Budget what then to do, but I can tell hon. Members that a Labour Chancellor would have extended it. Instead, a Tory Chancellor cuts it. That is the truth.
The Chancellor is not listening. He just does not get it. He does not get how hard people are being hit by higher VAT and cuts in local services. He does not get what it means to face the fear or reality of unemployment. For the sake of our country’s future, he needs to think again and start putting jobs first—and he needs to start doing that right now.
I want to talk about how we progress from the painful but very necessary deficit cuts to achieving growth that is balanced and sustainable. However, I shall start by addressing the shadow Chancellor’s attack. His starting point seems to be that the past is another country, and that 2010 was year zero. I am afraid, however, that all his rather bumptious self-confidence cannot conceal his massive legacy: the biggest deficit in the G20, an overweight and damaged banking system, and an economy that was hopelessly unbalanced.
The right hon. Gentleman’s criticism is built around the downgrading of the growth forecast, but before we get any more of this “Growth is down! Growth is down!”, let us remember what happened to growth in the last two years of the Labour Government—it was down to minus 4%. By the last quarter of the Labour Government, GDP was back where it was in 2006. Indeed, if we look at growth on a per capita basis—that is, living standards—we find that five years of Labour Government produced a decline in per capita incomes in Britain. The only time in history that this had happened previously was shortly after the first world war, so we do not need any lessons on growth. As the Chancellor pointed out yesterday, the European Union and the IMF has Britain’s projected growth comparing favourably with that of France—the shadow Chancellor’s favourite country—Italy, Spain, the eurozone and the whole of the European Union of 27. Our projection is better than any of those.
This morning at the Treasury Committee, the former chief economist in the Cabinet Office, Jonathan Portes, remarked that—as my hon. Friend John Mann has also pointed out—“The Plan for Growth” that the Business Secretary has published does not show the average growth from 2000 to 2010. Why is that? Presumably the Business Secretary knows the numbers, so does he agree that the performance was not terribly bad, which is precisely what Jonathan Portes said?
For six of those 10 years, we were dealing with an artificial boom based on a property bubble, an overweight banking system and, as the shadow Chancellor has acknowledged, gross levels of personal debt. That was why there was rapid growth in the early part of that period. However, if we look at that period as a whole, including the last period of Labour Government, we see a decline in per capita income that was unprecedented even in 20th-century history. That is the record that we are dealing with.
Let me deal with the shadow Chancellor’s pessimism about employment. We are all rightly concerned about unemployment—we have to be—but let us remember that last year growth was 1.3%, which is lower than the projected growth for the coming year. In that time, there were 428,000 new private sector jobs—300,000 were in the second half of last year—which by a long way more than offset the 132,000 job losses in the public sector, many of which, incidentally, were a result of the cuts that the last Government were starting to introduce. Our responsibility—this was the purpose of the Budget—was to ensure that we have sufficient private sector confidence so that companies hire people and invest.
If the economy delivers lower growth, as is likely, and if unemployment continues to increase, does the right hon. Gentleman believe that the Government need to adopt a plan B?
We are sticking very firmly with plan A, because plan A is right. The hon. Gentleman will know that flexibility is built into economic management, primarily through monetary policy, and that is the mix that we will continue.
The shadow Chancellor is right. There is of course concern about a squeeze on people’s living standards, and we are concerned about that no less than he is. The Chancellor has tried to alleviate the problem through action on fuel duty and by lifting the income tax threshold. I would like to spend a few moments looking at the two proposals that the shadow Chancellor has made—he has repeated them today—to deal with the problem. The first proposal turned out to be illegal under European Union law. Like me, he is a good European—we would both like to observe European Union law—and to change that law would have taken roughly five years, which will not provide much relief.
After the fiasco of the shadow Chancellor’s “VAT relief on petrol” idea, his other big idea, which he elaborated on today, was to finance jobs through the tax on bank bonuses. I remind him that he and I have some form on this issue. When the last Government were in power, I was critical of the idea of taxing bank bonuses as I did not think it would work. It is to the credit of the former Chancellor that, through his ingenuity, he made it work. In the year in which the measure operated, he raised £2.5 billion—not the £3.5 billion that is often cited, because that takes no account of the offset in corporation tax. Because of his skill in making the bonus tax work, we have to listen to his advice when he says:
“I think it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and…find all sorts of imaginative ways of avoiding it in…future”.
He has counselled very strongly against a repeat of the bonus tax. He was—to use the word—wise.
There is another reason why I am surprised that the shadow Chancellor has returned to the bonus tax issue. He may remember that back in 2006, when he was the City Minister, a big debate opened in the Labour party when Bob Diamond was having one of his early years of extremely generous bonuses. The deputy leader of the Labour party declared “war” on “fat City bonuses”. She was promptly slapped down by the then City Minister, who reminded us that such pay-outs were good for tax revenues and for job creation. In that particular Labour party debate, I was very much on the side of the deputy leader.
If the previous Government are serious about taxing banks, why did they allow a situation to arise in which only two of the 15 major banks had in place an agreement to stop large-scale tax avoidance? We have now stopped it. Every single bank is now covered by the HMRC code on tax avoidance. Additionally, we have put in place the levy on banks’ balance sheets, raising £10 billion, which is four times as much as the one-off bonus tax would have raised.
I am concerned by that comment, and I am not sure whether the Chancellor would agree with it. The fact is that hundreds of thousands of people in our country work in financial services, often on low or average earnings of around £20,000 to £25,000 a year. Is the Business Secretary really saying that those jobs are not important, and that job creation in financial services can be dismissed? He is not one of those people who says, “Let the financial sector go to Switzerland”, is he? He is supposed to be the Business Secretary.
I really do not know what the right hon. Gentleman is talking about. We started by talking about excessive bonuses in one very large investment bank, and he has now extended that to the whole of the financial services sector. Of course that sector is valuable. Of course the jobs and the tax revenue are valuable, but that is not what he was talking about in his ideological dispute with his deputy leader.
Let me return to the right hon. Gentleman’s central message that the Government should abandon, or substantially modify, their fiscal strategy. I shared a platform last week at the London School of Economics with Angel Gurría of the OECD. He was asked what the Government should do. He had a simple message, which was that we should “stick with it”. He is not some pro-coalition politician or right-wing ideologue; he is the head of an organisation representing 25 Governments. Opposition Members should ask themselves—the shadow Chancellor was asked this but he neatly evaded the question—why all the major international institutions, including the International Monetary Fund, the European Commission and the G20, support the strategy that we have adopted. The reason is that they are all painfully aware that we are in an economically dangerous world in which crises of sovereign debt are not very far away.
The Business Secretary is going through a list of international organisations that evidently support his plan. However, as a result of the plan, the UK will have the smallest public sector in the G7 by 2015—smaller even than that of America. Does not that tell the right hon. Gentleman, who was on our side of the argument before the election, that this is an ideological attack on public services in this country?
I cannot see how it can be ideological to have a public sector that, by the end of this Parliament, will have a share of GDP comparable to what it was when Mr Brown became Prime Minister. Whatever criticisms the Opposition might want to make, ideology has absolutely nothing to do with this.
The comments of the international organisations are reflected in those of the business community. The former head of the CBI has often been quoted on this, because he was critical of the Government. He had some strong criticisms, which we have taken to heart. However, it is worth remembering how he started the speech that is now so frequently quoted. He said:
“This coalition Government has been single-minded—some might even say ruthless—in its approach to spending cuts…That policy is strongly supported by business, on the grounds that sound public finances are an essential foundation for a sound economy.”
I want to deal more specifically with the suggestion that we are cutting too much too soon. The shadow Chancellor has quoted me on this, and he is quite right. I said on “Newsnight”, and I will continue to say, that there is a serious economic debate that we must constantly have on striking the right balance between not choking off recovery and not risking a financial crisis. That is the calculation that we are having to make. Our approach has been vindicated by the evidence, and the evidence is the response of the financial markets. The bond yields, which are important not just as an indicator but because they set the cost of capital for business and investment, are 3.5% for 10-year bonds, which is close to the rates in France, Germany, the Netherlands and Sweden, compared with 5.2% in Spain, 7.5% in Portugal, 9% in Ireland and 12% in Greece. That is a fair comparison with what they were a year ago when the Labour party was in power. Since then, the differential has widened by 1.5% in respect of Spain, 3.5% for Portugal and 5% for Greece and Ireland. In real terms, the cost of capital—long-term capital in this country—is now zero. The reason why that matters was summarised many years ago by John Maynard Keynes. Labour Members may revere his memory, as do some of us. During the crisis of the 1930s, Keynes wrote to Roosevelt:
“The turn of the tide in Great Britain is largely attributable to the reduction in the long-term rate of interest.”
That is the basis on which we have to take account of interest rates.
Of course Keynes also said that if the facts changed, he changed his mind. Does the Business Secretary agree with the Energy Secretary who said that the Government should not be “lashed to the mast” of their economic policy? On
I am not sure that what Keynes said was a matter of changing his mind in response to a change in fact. He was stating one of the basic principles of Keynesian economics—that the cost of capital has to be kept low.
The Secretary of State said that the evidence had borne out his decision to change his mind on the scale and pace of deficit reduction, but what evidence does he need? Since he made that decision, the unemployment forecasts have risen, the inflation forecasts have risen, the growth forecasts have fallen, the debt repayment forecasts have risen, and as for bond yields he has no evidence that at the time of the election they were causing any problem for the UK’s financing of its debt under the last Government. What evidence is there to suggest that he was right to change his mind?
I do not know when the right hon. Gentleman last opened a financial newspaper. If he had done so recently, he would know that all the countries on the periphery of Europe that have been hit by the rising cost of capital are in very acute financial crisis, which we have avoided. We have German interest rates, and at the same time we are carrying a deficit on the scale of the most debt-ridden economies such as Ireland and Portugal.
One thing the Opposition can claim is that there was stability in the bond market, which we have been able to continue this year in order to borrow at reasonable rates. As the Business Secretary knows, directly and indirectly, although we have long-term rates in the bond markets, the main problem is that if small companies can borrow at all—very few of the small and medium sector singled out by the Chancellor and the Government as the key area of expansion are able to do so—it is only at exorbitant rates. What are the Government going to do about it?
In the earlier part of his comments, the hon. Gentleman was right to acknowledge how important interest rates are. He is also right to say that because of the badly damaged banking system, small companies have an extreme problem with lending. That is why the Chancellor and I have been dealing with the banks to try to get them to reach an agreement, which they now have, to extend considerably the amount of lending to small and medium-sized enterprises. That was one of the earliest decisions we had to make—to focus on access to capital.
While we are dealing with the issue of what has to be cut, I would like to ask the Opposition what they would do. Mr McFadden wants us to run a bigger deficit. What would the Opposition cut? It is a question I often pose to my opposite numbers in the BIS team. They had planned a 25% cut in departmental spending, which is what I am doing. We are cutting a lot of things—very painfully—so I ask the Opposition what they would do, but we have not yet had a single suggestion about what they would do instead.
Government Members often raise that sort of question, but it is becoming obvious that the natives opposite are also getting restless. I noticed that Hazel Blearsrecently said that the Labour party needs to be
“explicit about cuts… The public expects us to at least give a broad direction—but I think they are worried that we haven’t been as clear as we ought to be”.
“It can’t be that hard for us to say what we would cut, or at least give a few examples, for goodness’ sake.”
[Interruption.] Beneath the shouting, those are the questions that Labour Members are asking themselves, and they are absolutely right to do so.
On the question of evidence, is my right hon. Friend aware that institutions as wide ranging as the Institute for Fiscal Studies and the Bank of England have calculated independently that we would be borrowing between £7 billion and £10 billion more if interest rates had been allowed to stay at the same level, without the fiscal austerity programme that was introduced by the Chancellor?
Yes, indeed. There is clearly a close link between the level of the budget deficit and interest rates, both long-term interest rates in the markets and short-term interest rates set by the Bank of England. That is why maintaining a monetary policy that is supportive of growth—which is what we are doing—requires fiscal discipline.
Let me now deal with how we can achieve sustainable, balanced growth, and what “sustainable, balanced growth” actually means.
I have been dealing with a great many interventions from members of the hon. Gentleman’s party. I am always happy to do that.
I must begin by acknowledging that the task is a massive one, although there are some encouraging signs. Manufacturing is growing at its fastest pace for 16 years, the car industry is growing by 12% a year, and we are seeing a real-terms growth of 5.5% in exports. However, when it comes to rebalancing the economy, I do not pretend that we are anywhere other than at the beginning of a very long march. It is a long march because we inherited a structure that was horribly unbalanced and unsustainable.
Let me remind Opposition Members of some of the things that we inherited, quite apart from the deficit. There was a hollowed-out manufacturing sector that, under the last decade of Labour government, declined by more than the manufacturing sector in any other western country, from 21% to 12% of GDP. Exports were growing at half the rate of growth of world trade. As we were reminded by the shadow Chancellor himself, household debt was running at 170% of GDP, a higher rate than in any country in the world as far as our statistics can establish. We had a property bubble that was more extreme than that in the United States, and banks were encouraged to grow until their balance sheets amounted to more than 400% of the British economy. We had grotesquely distorted pay structures and lending behaviour, and a financial vulnerability of Irish and Icelandic proportions.
The Secretary of State has talked of sustainable economic growth. How does that square with the Government’s claim to be the greenest Government ever? Given that the Office for Budget Responsibility has been set up so as not to take account of green considerations, is there not a real risk that if the green investment bank is not a proper functioning bank from day one, it will not be able to lever in investment that could otherwise have contributed to the growth recovery that we need?
The claim to be the greenest Government ever has been vindicated in significant part by some of the key announcements in the Budget—of, for instance, the establishment of the carbon floor price, which is the first effective carbon tax system in the world, and the green investment bank, to which the hon. Lady referred. It has been made clear for the first time that it will be a proper bank—a borrowing bank—although, as a public sector institution, it will have to reflect the position of the public finances.
The carbon floor price, which the Secretary of State has just mentioned, could threaten the international competitiveness of key intensive energy users such as the steel, glass, paper and ceramics industries. How will the right hon. Gentleman ensure that growth does not suffer as a result of the policy?
The hon. Lady makes a valid point. I have already spoken to representatives of the steel industry about precisely that issue.
The Budget referred to the climate change agreements and to more extensive relief. Energy-intensive industries are an issue, but any Government who are serious about carbon reduction will have to deal with such industries in a balanced way.
The low value of the pound has certainly been very helpful, and that is supported by low interest rates. That is indeed a supporting factor for exports. It is not just a question of exchange rates. That is why I introduced the trade White Paper a few weeks ago. We are extending export credit support for small-scale business. The current export boom must be sustained, and it definitely was not sustained under the last Labour Government.
When we consider the catalogue of ways in which the economy became unbalanced under the Labour Government, it becomes clear that there was not just a problem of deficit denial, but there was manufacturing denial, trade denial, debt denial and banking denial. There was denial of many of the fundamental weaknesses that emerged in the economy. We are picking up the pieces and trying to create the conditions for sustainable growth.
Let me press on a little first, and then I will take an intervention.
In future, growth and jobs will come from the private sector, and in particular from small-scale business. Taken in conjunction with the trade White Paper to which I have referred, the Budget’s commitment to lower and stable corporation tax gives the strong signal that we are open for business and we warmly welcome inward investors. Growth and jobs also depend on small companies, which provided a giant proportion of the 300,000 additional jobs created in the private sector in the past six months, and they will be helped by the Budget’s extension of small company business rate relief and cuts in small company corporation tax.
On inward investment, this Administration’s “ The Plan for Growth” states
“the Government will provide a bespoke service to key inward investors, giving them direct access to UK ministers and speedy resolution of bureaucratic obstacles to investment”.
Does the right hon. Gentleman not think that that could leave the Government open to rather difficult situations with foreign investors, and how does he think British businessmen will feel when they see inward investors getting priority access to Ministers that they do not enjoy?
I would have thought that Opposition Members who want the economy to flourish and new jobs in their constituencies welcomed the fact that I and other Ministers spend a lot of our time talking to potential inward investors. That is good not only for them but for the British companies that then become part of their supply chain and whose confidence is reinforced.
Especially for small businesses, growth requires the Government not to put unnecessary obstacles in the way. When we searched the archives, we discovered that we had inherited a stock of 21,800 regulations and that the last Government were responsible for roughly 10,000 of them. Rather sad people like me who have spent some of the best years of our political lives in Statutory Instrument Committees will have seen all of that happening.
We have taken action to stop the gold-plating of EU regulations, to ensure that every new regulation is matched by the value of an “out”, and to mandate sunset clauses. We have launched a reform of the expensive and time-consuming tribunal system, and we have injected common sense into Health and Safety Executive inspections. The Budget confirmed the statement I made last week that there will be a three-year moratorium on new regulation affecting micro-businesses with fewer than 10 employees.
Not at all; we should be proud of lifting regulation from small companies that generate employment, which every Member should be concerned about.
The role of government is not only to get out of the way when they are blocking growth, but to intervene when there is a genuine market failure. Training is one such area, and we are seeking to alleviate the problem by supporting apprenticeships. When we came into office, 150,000 apprenticeships were planned for 2010-11 to be part-funded by government. We have increased that number, even in an environment of cuts, by 75,000 over the spending review period and in this Budget we have added another 50,000. The problems of training are massive. Let us remind ourselves that we inherited a system in which 14% of the adult population have poor literacy skills—we are talking about the reading age of a 12-year-old—and 19% have grossly inadequate mathematical skills. That is the base from which we start. [Interruption.] A lot of people, both in this House and outside it, would take this issue of innumeracy among the public much more seriously than the Labour Front-Bench team.
In the Budget, the Government have also invested further in science, particularly in research infrastructure. Through a combination of policies—the protection of the ring-fencing of the science budget; the legislative action to protect scientists and others from libel action; and the launching of the technology and innovation centre and advanced manufacturing—we have made a very firm declaration of support for the science community and the commercial application of science.
Before the Secretary of State leaves the issue of apprenticeships, will he tell the House whether the new money for apprenticeships will be dependent on employers coming forward? In my constituency, in the city of Stoke-on-Trent, employers have not come forward in the way we need them to do, so there is a real danger that the new apprenticeships will go to other areas of the country, where they are not needed so badly.
It is new money and of course this has to be employer-led; otherwise, there would be no job to follow the apprenticeship. That is why it has got to come from the private sector and why this is the best way of investing in training.
In my concluding comments, I wish to move on to the issue of fairness. It is a legitimate challenge to any Budget to ask about its distributional impact.
I confess that I am about to be disappointed here. In 46 minutes, we heard hardly any news from the shadow Chancellor about what a Labour Government would do. My right hon. Friend is about to disappoint me by not even mentioning some of the other fantastic things he has done for businesses, such as the research and development tax credit, the entrepreneurs’ relief, the increased bank lending, the developments in the enterprise investment scheme and so on. Why is he not referring to these many other good things?
I probably was going to disappoint my right hon. Friend, because the Chancellor covered those issues very well yesterday. However, there is a lot more where that came from.
I am not going to take any more interventions.
I return to the issue of fairness. When we first came into office, the major attack from the Opposition was that we were going to hit the poorest hardest. When it became clear that we were producing policies to protect the state pension, increase child tax credits, give preferential treatment to low-paid workers in the public sector and lift low-paid workers out of tax, attention shifted to the so-called “squeezed middle”, which has been variously defined to encompass 90% of the population.
The truth of the situation is that as a result of the financial crash and the recession that followed, Britain is a significantly poorer country than we were several years ago, so living standards have been squeezed. As the Governor of the Bank of England said,
“the real consequences of this crisis are only now beginning to be felt.”
What we have done in the Budget is take concrete action on fuel duty and on lifting the thresholds at which low earners pay tax. I shall dwell on that point a little—
Let me finish this point. One genuine philosophical difference we have with the Opposition is on how best to help those on low and modest pay. The Opposition believe in using targeted means-tested benefits. By contrast, we believe that the best way of doing this is by lifting low earners out of tax—880,000 on
The test of the Budget will not be the response of the political world or this debate. It will be the response of the business community, which has to invest for recovery. It is worth reviewing what the business community has said about the Budget as it has often been critical of Budgets in the past. The British Chamber of Commerce said:
“Despite tight fiscal conditions we are encouraged that the Chancellor has prioritised business growth and private sector expansion alongside deficit reduction”.
The Engineering Employers Federation—the manufacturers —commented:
“The Growth Review has now started to deliver tangible progress in removing the barriers to growth investment and job creation in the UK”.
And the CBI concluded:
“This budget will help businesses grow and create jobs”.
The Government recognise that the road back to balanced, sustainable recovery will be painful and difficult, but we are on the right track. As the head of the OECD put it, we must “stick with it”.
Order. I remind hon. Members that there is now an eight-minute limit on all Back-Bench speeches and 30 or more Members wish to participate, so will each Member bear in mind that they have a colleague who might also like to make a contribution? It is not compulsory to use the full eight minutes; you could always leave time for somebody else.
I am very pleased to follow the Secretary of State for Business, Innovation and Skills, but, unfortunately, by the end of his speech he still had not told us a single practical thing from the strategy for encouraging growth. Despite all the pages in “The Plan for Growth”, the Office for Budget Responsibility stated yesterday that it found nothing that it could measure as contributing to an improvement in the UK’s growth prospects. He goes on about low interest rates, but I wonder whether he has tried to borrow, or knows of any small company that has had to borrow, in the current difficult market and has been able to do so at the low or zero interest rates to which he referred. That is absolute nonsense. It is divorced from the real world and he knows it.
The Business Secretary knows that when we were both in different places in the Chamber he used to say that we had either to establish a national bank or its equivalent or to make the banks lend. He has come up with no solution to the problem and the fact remains that the single biggest inhibitor to growth in the vital sector of small and medium-sized enterprises still remains, and that is their inability to access credit. How can they grow in a difficult situation when markets are flat without access to credit? That is the question he has not answered and until he has answered it, he has no credibility as a Business Secretary. We need definite plans for doing that at some stage.
I shall in a moment.
It is no good the Business Secretary asking us for our plans. He now has responsibility, he chose to take it and he chose, also, to go into this coalition, having been convinced by a concerted effort by the Governor of the
Bank of England and others that the Liberal Democrats were wrong before the election—that within one week of the election campaign, everything had been turned on its head and we faced an imminent crisis, the outcome of which was that we would face interest rate rises and an inability to borrow nationally, along the lines of the situation faced by Greece and Portugal. He knows that he did not even meet the Governor for a working over, because his leader, the Deputy Prime Minister, had already been worked over. Nobody else on the Government side needed to be worked over—the Governor had worked them over before and during the election campaign. The implicit deal was, “Go along with this huge deflationary package, and I will keep monetary policy so loose that you don’t need to worry—you’ll still get growth.” I believe that that is the sort of Faustian deal to which the Business Secretary referred in his reply to the Budget debate last year.
What have we seen since? Interest rates are still low and policy has been loose. No doubt it might even continue to be loose for a period of time, but I am sure that interest rates will go up in the near future. Irrespective of that, there is still no credit for the SMEs from which, as Sir Richard Lambert pointed out, the vast majority of jobs must come if the commercial and business sector—the private sector—is to recover. However, there is still no prospect of their being able to borrow. Why does the Business Secretary say, therefore, that there is no alternative because the OECD says so? The OECD is as wrong as everyone else. We heard last night from Robert Chote that all those forecasts are a “load of rubbish”. One cannot always be right about such things; nobody ever is. One might ask what the point of them is. Certainly, to invoke the OECD, which can be as wrong as anyone else, and say, “It says that we have to go on with this strategy, so therefore we will,” in the face of all the mounting evidence that the strategy is not working is perverse and not worthy of the intellectual distinction that the Business Secretary is capable of bringing to these problems.
The only thing that could be said in favour of the Government’s policies is that they have not had enough time yet—not quite a year—to have worked, but it is obvious that they are not working.
I shall in a moment, but Rory Stewart is first.
The figures for every crucial forecast area of activity are pointing in the wrong direction. Unemployment is up, growth is down, inflation is up, bizarrely, and Government borrowing is up—the very thing they are meant to be getting down—as measured against the OBR forecasts. Those are the only measures we can use to judge whether their policies are working. We can look at the past and it is clear that they are not, but to see whether they are working, we have to look at the forecasts. The Government’s whole policy is predicated on such forecasts, but look at the figures now—down, down, down! Every single indicator is going the wrong way, but they still say that we have to press on with their programme—plan A or whatever it is. I think I heard the Business Secretary say, in response to an intervention from an Opposition Member, that some flexibility is built into the Government’s plan A. I do not know whether he will elaborate on that or whether I misheard—we will see in tomorrow’s
Hansard whether I did. I did not raise the issue at the time because I was not sure whether I had heard right—I could not believe it. If there is some flexibility, the sooner it is acknowledged, built in and practised the better.
Clearly, it is very difficult to get banks lending to small and medium-sized enterprises and to balance the need for that against the problems caused by credit in the first place. What solutions does the hon. Gentleman propose?
I do think it is pathetic when the only answer that the Government, who are charged with handling the nation’s affairs, can come up with is, “What are the Opposition going to do?” If the Government want to vacate those Benches, my right hon. Friend the shadow Chancellor is not slow in coming forward and would be over there on the Government Front Bench faster than anyone. We have instead a Business Secretary who preached about these matters very eloquently when he was in opposition and said that he would be practical, but he has done nothing.
What do we have now that the current Government are in office? We have inflation going up to 4.4% or perhaps even 5% and the deficit reduction that was to come from growth being hindered because growth and the forecasts are all down. Each forecast, whether for borrowing, inflation, unemployment or growth, is heading in the wrong direction. Those are the facts. All indicators, whether for last year, this year, next year or even the year after that, are headed in the wrong direction. Perhaps the Government should fix the electoral cycle to have 10-year terms and then some latter-day outcome might eventually catch up with what they forecast at the beginning. It should be clear to anyone looking objectively at the evidence that the Government’s plan is not working, that it needs to be changed and that there are alternatives that could be pursued.
If we are talking about getting growth in the economy—the right sort of growth—I agree entirely that we need business employment and development in the private sector. Let us consider HS2—the stupid vanity project that I am sure the Business Secretary would have opposed when in opposition. It is being proceeded with despite the eventual cost of some £32 billion. I cannot believe that the Treasury is going along with it, but I am told that the Chancellor is, bizarrely, in favour of it. Why do we not switch from that to the simple plan that was set out in Atkins’ alternatives—I think it was alternative 2 —for an investment that could be proceeded with immediately, that would give us what is most needed right away and that would help Coventry: four-tracking the line between Coventry and Birmingham? That could have been given the go ahead this year, had effect next year and made a direct contribution.
Why cannot we get the schools programme back on track? Make it quicker, make it simpler—we would accept all the criticisms if that would make it easier for the Business Secretary to go ahead with it. In Coventry, we have not had a single school built—not one! One school in my constituency has been propped up by scaffolding for the past three years. I was on the shadow Chancellor’s back all the time about that when he was the Education Secretary, asking, “Why can’t we get it done quicker? Why can’t we do it?” I was told that procedures had to be gone through and all the rest of it. The Government should speed it up and get on with it, but they should not cut it and stop those projects as they are doing at the moment. I still believe that they should go ahead with some of the other important projects that we could do, particularly in transport, and that they should go ahead with building projects.
To take the example of building projects and the construction industry, I read a couple of days ago in the Financial Times that orders in the industry over the past six months are down 50% on the previous six months. Much of that would be good, constructive infrastructure investment of the kind we are want to see, creating employment and skills and making a real contribution to long-term growth in the private sector, and yet we have cut it by 50% in six months. That cannot make sense, and in the meantime unemployment, borrowing and inflation are going up—all the wrong indicators.
In my remaining minute I will focus on Coventry. I heard today that we have lost another 400 jobs in an insurance company there. Since the Government came in, around 2,500 jobs have gone in Coventry. If the Business Secretary is open to meeting companies inwardly investing in this country, which he says he is, will he come to Coventry to see the investment problems we have? We have nothing to take back to those people who have lost their jobs. I say to him that he should have the confidence and courage of his convictions and stand up to the Treasury and his so-called coalition partners, because things are going to get worse, and he faces returning here with his whimpering excuses to his own increasing embarrassment.
I have sat here today with a sense of déjà vu, first because I sat here yesterday for a number of hours and did not make it into the debate—as it wore on today I felt that the same thing was going to happen—and secondly because of the arguments from the Opposition, especially those put forward by Ed Balls. If we were to listen to him and completely ignore the fact that we had a general election in which they lost and we won and formed a coalition Government—[ Interruption. ] The British people clearly did not believe that Labour’s stewardship of the economy had been exemplary, which is why they were kicked out of office. That is why in places such as Erewash, a seat that Labour won in 1997, we had a 10% swing back to the Conservatives. Let us not allow Labour to pretend that their stewardship of the economy was somehow exemplary. Until they learn to accept, in front of the British public, that they made mistakes, they do not have the credibility to be part of the economic argument. Let us not allow the right hon. Gentleman to rewrite history.
I will take up the gauntlet laid down by Mr Foster. Rather than allowing Labour to push us into debating the fiscal plan that we set out last year and the implications for growth and interest rates now, let us talk about some of the excellent measures that are in “The Plan for Growth”, because Government Members owe it to the British people to explain them rather than letting the Opposition muddy the water on what happened in 2008-09, when they clearly mismanaged the economy and were kicked out of office.
My hon. Friend is absolutely right. “The Plan for Growth”, particularly in relation to the smallest start-up businesses and the idea of exempting them from much of new regulation and legislation or putting a moratorium on it, is a very positive way forward. I hope he will explore that a little further.
I agree with my hon. Friend entirely. One of the great things about “The Plan for Growth” is that the Chancellor did not try to say that there is a silver bullet for creating growth in the economy, or that we can pick winners. No bureaucracy or Government can really pick winners to generate economic growth. I am reminded of a story—perhaps apocryphal, but certainly instructive—about McKinsey, the strategy consultancy firm, which produced an economic outlook for the 2000s that completely omitted the internet when identifying the key drivers of economic growth. Today the internet is a massive sector worth, I think, £100 billion and employing thousands of people. It is right that we have not tried to pick winners.
Looking at what the Chancellor has done, I note that it is we, rather than Opposition Members, who recognise that growth will come from the private sector, not from a state-led programme. That is why I agree with the four objectives that he laid out: to be competitive on taxes; to be one of the best places to start, finance and grow a business; to encourage investment in exports as a route to a more balanced economy; and to create a more educated work force.
I will focus on just one of those areas—starting, financing and growing small businesses—partly because I have an interest in it because my constituency is full of small businesses. Nationally, however, there are 4.8 million small and medium-sized enterprises, and they are responsible for 50% of private sector output and 60% of jobs. If we really want to create the growth that drives jobs, we should surely look to do so from the private sector.
Research by the National Endowment for Science, Technology and the Arts points out that 6% of the fastest-growing companies create 50% of the jobs, not just in the south-east, but throughout all regions and sectors. In other words, the start-up, survival and eventual success of small companies is vital for public policy and for creating growth.
Mr Robinson mentioned bank lending, but fast-growing companies’ revenues are often volatile and their cash flows can be unpredictable. Banks do not want to lend to them, so we need to be able to create an environment for equity lending. One thing we know in the UK is that, if people want to raise amounts below £2 million, they find it incredibly difficult to do so. Such risk capital, however, encourages businesses to take a risk—to take on the new plant, to hire new staff—so it is great that there are so many changes to the enterprise investment scheme in “The Plan for Growth”.
Increasing relief to 30% means that someone who is going to invest in a business knows that they can offset 30% of their investment against tax. It will encourage people to take sensible risks and invest in those companies that will drive growth. Raising the relevant annual limit to £1 million and to £10 million per company means that companies can seek capital from high net-worth and private individuals, not just from institutions. Anybody who is involved in small businesses knows that people often rely on friends and family to support their business in its early stages, so it is good to see the Government backing those who are ready and willing to take such risks.
Raising the limit on qualifying companies to 250 employees means that the measure will apply not just to start-up companies, where the failure rate can be quite high, but to well-established companies that need capital to grow. I would like to see what more the Government can do to allow connected persons to enjoy such tax reliefs, because connected persons—directors—cannot enjoy them at the moment, and that is where businesses get much of the expertise that they need. By making investment in small businesses easier, the Budget recognises and encourages people who are willing to take risks.
I am listening very carefully to the hon. Gentleman. Does he agree that the real problem for small businesses is not in formation, as a number of them will inevitably die after a few years, but in taking a small business and making it into a larger business? I take his point about venture capital trusts, business angels and all the other mechanisms, but the only way in which we can achieve such growth is through bank lending. That is the real source of capital for small businesses, so how do we improve bank lending?
I take the hon. Gentleman’s point and thank him very much for it. Anybody who has ever tried to start a business knows that banks do not lend to businesses with unpredictable revenues or cash flows. One has to raise equity to support small businesses, and the Budget includes a raft of measures to encourage individuals and institutions to invest in them. Entrepreneurs do not always mind whether it is a bank or an individual who is willing to invest in their business either in the early stages or when they need new plant; what they want is the money to grow their business and to hire new staff. That is how they look at it, and there are many appropriate measures in the Budget to address that.
The Budget also seeks, through the entrepreneurs’ relief and raising the cap on capital gains from £5 million to £10 million, to reward people who mortgage their home, take a low salary and start a business. That will not make the newspaper headlines, but in competitive terms it makes the UK a centre for investment. I have spoken to several people in the venture capital industry who say that they will now be thinking of coming to the UK to look for small business assets to invest in. It also means that an entrepreneur who lives in another country will come to the UK to set up a business such as Skype because he is more likely to attract investment—and yes, they might be from abroad, but they will employ UK residents. That is what is great about this Budget.
Unless we understand that the engine of growth is enterprise—that it is individuals and their efforts who will drive growth—we will be barking up the wrong tree as we discuss this Budget.
In addition, we have measures such as the research and development tax credits; I cannot go through them all in the short time that I have available. It is good that small businesses that invest a lot in R and D can get some of that back in the form of a tax break. I am reminded of a husband and wife who came to my surgery. They had set up a business, having developed equipment to treat club foot, and needed R and D tax credits, but they had to move to Cornwall to do so. I hope that the tax relief that we are providing will not only be regionally based but that people will be able to access it wherever they are in the country.
Last week, Opposition Members came up with their growth plan—the right hon. Member for Morley and Outwood reiterated it today—which would levy the bank tax again and spend it on a series of Government programmes. What I like about this Budget is that it does not seek a Keynesian stimulus—we cannot have that because we have maxed out the credit card—but backs enterprise. It relies on the endeavour, the ingenuity and the efforts of the British people to get our country back on its feet again, in contrast to what the Opposition did, which was to get the country into a mess.
In listening to the debate today, and certainly yesterday, I was interested to note that George Orwell’s Ministry of Truth is still alive and well and speaking through the Chancellor of the Exchequer. His relentless Newspeak mantra that we are all in it together just will not wash. When we consider that poverty is increasing, unemployment is going up, and the Government Benches are stuffed full of millionaires and people who are doing extremely well for themselves, it is complete and utter nonsense to suggest that we are all in it together.
It is not only wrong to suggest that for those reasons, but because the cuts are very unevenly spread, and depending on which part of the country someone happens to be from, a different level of cuts are being imposed. They are far greater in the more deprived parts than in the more affluent parts. The reality is that the poorest people in Britain will bear the biggest burden of the cuts imposed by this Administration.
According to a new report by the Institute for Fiscal Studies, the British people are suffering the biggest drop in their living standards for 30 years. It is no coincidence that 30 years ago another Tory Government presided over the last drop in living standards. The Business Secretary said today that he was happy to have the worst public services in the G7 countries by 2014-15. What an admission from a member of a party that used to claim to be a progressive party that stood up for ordinary working people! Clearly, that is a long way in the past.
The hon. Gentleman makes great play of the idea of reduced living standards. That is not a phenomenon that has arisen only over the past nine months. Indeed, it was when the credit and debt bubble was built up for many years during the last Labour
Administration that living standards for ordinary people began to be undermined. As for saying that we are all in this together, that is the very reason that the Chancellor has bravely decided, although it does not make a lot of economic sense, to keep the highest rate of tax at 50%. I fear, however, that he is doing grave damage in ensuring that some people who should be developing businesses here are leaving these shores, which is not in anyone’s interests, rich or poor.
There is nothing brave about what the Chancellor is doing. In fact, he is behaving like a bully; he is picking on the poorest and weakest members of our community. As I have said, the poorest in our society will bear the biggest burden of these cuts. If Labour had won the last general election, the measures that we would have put in place would have ensured that the poorest people in our country did not bear the biggest burden. That is an absolute fact, as was made clear by my right hon. Friend Ed Balls in his speech.
The Chancellor claims that this is a Budget for growth, he says that he wants a private sector-led recovery, and he argues that his catastrophic cuts are necessary. However, this Budget will not deliver the growth that the country needs, it will not precipitate a private sector-led recovery, and it will not create the jobs that the country desperately needs. While other countries are seeing their economies grow, the UK’s growth forecasts have once again been revised down—for the third time in 10 months. That is dreadful.
Does my hon. Friend agree that the Government and the Government parties seem to lack an understanding of the interdependence between the public and private sectors? Without a strong public sector and a strong private sector, this country will go nowhere.
That is a point that I will come to later in my speech.
The Chancellor is presiding over the highest and longest squeeze on public spending since world war two. My fear is that the Budget and the unprecedented cuts being pursued by the Government will impede economic recovery. As my hon. Friend said, the Chancellor refuses to accept that there is an umbilical link between the public and private sectors. Taking an axe to one causes catastrophic bleeding in the other. Last year’s PricewaterhouseCoopers report highlighted that connection admirably in pointing out that the half a million job losses in the public sector will be replicated in the private sector.
No, I will not give way any more.
This Budget does little or nothing to ameliorate the public service cuts. The cuts to local council budgets in particular are vindictive, gratuitous and counter-productive. The Department for Communities and Local Government budget is set to experience a whopping real-terms reduction of 67.8% over the next four years.
The Chancellor needs to create demand in the economy. My hon. Friend Mr Robinson referred to the importance of the construction industry. Every pound invested in construction generates £2.84 in total economic activity, and 92p of every pound spent on construction is retained in the UK. Every pound invested by the public sector yields a return of 56p to the Exchequer, making it a net investment of just 44p. In spite of those facts, house building is at an all-time low, Building Schools for the Future was scrapped and housing targets have been abolished. The £250 million announced in yesterday’s Budget to support first-time buyers is not enough.
The proposed changes to the planning system, which as the Chancellor said will introduce a presumption in favour of sustainable development, contradict the proposals in the Government’s Localism Bill. What is going on? On the DCLG website, the Minister of State, Greg Clark, who has responsibility for decentralisation, is quoted as saying that the Localism Bill
“will enact new rights allowing local people to shape and influence the places where they live, revolutionising the planning process by passing power down to those who know best about their neighbourhoods.”
A Budget briefing from the UK Contractors Group states that
“it has been much harder to obtain definite information on investment intentions from a number of key public sector clients. Indeed, there appears to be some deliberate attempts to delay decisions and to obfuscate on forward plans. A prime example of this is the future of the school building programme. The Sebastian James review was originally scheduled to report to ministers before Christmas. In March, we are still waiting for the Department for Education to signal its intentions. Equally on energy supply, the industry stands ready to support the enormous amount of investment needed but to deliver this support effectively and efficiently we need a clear understanding of the future programme.”
It goes on to say how the health reforms have caused further confusion.
I turn to the Chancellor’s modest reduction in fuel duty. As other Members have said, it is more than offset by the imposition of the VAT rise. I have been lobbied heavily by small businesses and residents in my constituency, who say that the VAT rise on petrol is hurting and needs to be reversed. It is not acceptable for the Government to argue that they are prevented from doing so by the European Union—that simply will not wash.
I will not give way any further, I am afraid.
The Chancellor should have done more to support manufacturing. The growth fund is inadequate—nowhere near as much as the regional development agencies were spending—business confidence is falling and the enterprise zones will not generate growth either. It is simply a case of rearranging the deckchairs. Let us not forget that it was the Tories who decimated manufacturing industries when they came to power in 1979. They also put all their eggs in the financial services basket, and that is why this country was overexposed when the financial bubble burst.
There are also problems with the Government’s ambitions on welfare reform. A Financial Times survey of businesses showed that three quarters of them said that they could not absorb lost public sector jobs, and that 57% were not interested in doing so. What hope do long-term unemployed people have of being able to get employment, given the welfare reforms and the so-called private sector-led recovery, which is not happening? They will simply not be able to get employment, given the cuts that the Government are bringing about.
Further to that, an investigation by my local paper, the Derby Telegraph, has shown that unemployed workers are being discriminated against by the insurance industry, which is saying that landlords who let their properties to unemployed workers will not be able to obtain insurance. A lot more people will be facing that situation as a result of the cuts, with more and more people losing their jobs.
We are in an economic downward spiral, and we need a virtuous circle. We need public sector investment to create jobs and demand in the economy, which in turn would create more demand and then more jobs. Yesterday, the Chancellor claimed that his decisions had brought economic stability, but the reality is that they have created a toxic cocktail of falling growth, increasing poverty and rising unemployment.
The inconvenient truth for the Chancellor is that his decisions have left this country facing the spectre of stagflation. To add insult to injury, he is borrowing an extra £44.5 billion a year, and for what? It is to pay for unemployment and lower growth. It is clear that he has lost the plot, and that we need a plan B. He said that
“society should not just be judged by the strength of its economy alone, but also by the compassion of its people”.—[Hansard, 23 March 2011; Vol. 525, c. 961.]
He certainly fails on the first point, and he is making the second very difficult. I am afraid that unless we get a plan B, this country is doomed to further decline.
Mr Robinson has had to leave the Chamber, but for reasons that I well appreciate he went to the heart of much of the economic debate since the general election, which has been about whether the pace and depth of the Government’s public expenditure cutting strategy is too far and too fast, and what implications it will have for other indicators. I suspect that that debate will go on for the remainder of this Parliament and for many years into the future.
The hon. Gentleman knows that, as something of an unreconstructed Keynesian myself, I have every sympathy with his side of the argument and have expressed my view on many occasions over the past year about the rapidity and depth of the public expenditure constraint and cutting strategy. None the less, whether or not it is too far and too fast, reading into it quite what he did is too much, too soon. The Government set sail so firmly last year that they and their economic policy are tightly lashed to the mast this year and will remain so in the years ahead. Their consistency of purpose has shown that. The Budget should be seen in that context.
The coalition Government’s economic fate will be sealed in the third to fourth year of the Parliament, when so many of the genuine longer-term implications of the strategy that is being pursued become clear. Despite the views that I have expressed in the Chamber and elsewhere in the past year, it must be acknowledged—I genuinely do so—that, within the severe self-constraints that the Government have imposed, there is much welcome ingenuity in the Budget.
I want to draw particular attention to the continuing pressure and policy direction on income tax personal allowances. I would like to underscore that, because the Liberal Democrats have been wedded to the principle and policy for many years. As a result of the proposals that the Chancellor outlined yesterday, in the financial year 2011-12, more than 1 million people will be lifted out of income tax altogether, and 25 million people will be better off. Women and part-time workers will be the primary beneficiaries of such a policy. I welcome that. Those figures have been verified today by our most authoritative independent source in this place—the House of Commons Library—in an excellent briefing note on the Budget, which has been circulated. It is important to place that on the record and demonstrate that, thanks to the Liberal Democrat input into the coalition Government, social conscience is continuing to be emphasised at the heart of Government policy.
I want to make two specific points from a constituency viewpoint. First, I welcome the fuel policy measures. Some 20 years ago, when Jim Wallace, a long-standing friend, was still a Member of the House, he and I embarked on a series of meetings and visits with the European Commission in Brussels. We were astounded to discover that a derogation was available to member states—it was a much smaller European Union in those days—on fuel policy. For the best part of those two decades, I and many others have hammered away at successive Governments, Conservative and Labour, to pursue such a policy, only to meet, every time, a brick wall. The Treasury hates that sort of thing, and I have no doubt that the Treasury institutionally continues to hate it and is not rubbing its hands with glee at the commitment that was given in the Budget. However, at last, the Government are applying for the scheme, which will be introduced for the most peripheral island communities as a means of lowering fuel prices. That is great.
Having argued for such a policy for nearly 20 years, it would be churlish not to welcome it. I simply make the point that the Government have to start somewhere, and self-defined island communities make sense. Equally, many more remote mainland communities have problems that are not essentially dissimilar, but for obvious reasons of definition, they cannot be included in the scheme. In my area, there are such communities around Lochalsh and Wester Ross. I hope that when the analysis of the scheme is examined, the impact on those areas will not be overlooked and that their continuing needs will be taken into account in the years ahead.
Secondly, the acceleration of the policy on the green investment bank through the Budget is welcome. An increase of £2 billion in the start-up funds that will be available to the bank was announced, and it continues to be a big priority for the Government. I say that because the Kishorn site in Wester Ross, a remote part of the western highlands, is a prime UK site to take advantage of the potential in offshore renewable technology. I have raised that issue many times, and the Secretaries of State for Scotland and for Energy and Climate Change are taking a great interest, which I welcome. The impetus that the Government give to the green investment bank will be critical in that respect.
Other aspects of oil policy in the Budget are controversial, but I offer one reflection from my constituency in conclusion. A great concrete platform—a classic historical example—for the North sea was built at Kishorn. To this day it extracts oil, but it was a case of boom and bust. The opportunity from renewables would mean sustained employment in that community, and that technology harvests natural resources, which can continue, essentially, in perpetuity. It is important that the Government continue to emphasise that.
In welcoming those important developments in this week’s Budget, and their potential impact on the economy, social fairness and areas such as mine, I hope that we can look forward to continuing resolve from the Government.
As Chair of the Select Committee on Business, Innovation and Skills, I wish to address my remarks to the so-called plan for growth. It is fair to say that I share with many people a sense of bafflement that the plan was published in the context of a Budget that shows that this year’s projected growth rates are lower than last year’s. That makes me wonder how a plan for growth works within the Government’s overall policies. This is the first plan for growth that I have ever known to predict a drop in the growth rate.
The plan is conspicuously devoid of references to jobs. If we have a plan for growth, we should reasonably expect an element of job creation to be included. The private sector is supposed to be mopping up those cut from the public sector as a result of cuts in public spending, and we ought reasonably to be able to expect to see how the plan deals with that.
The problem is that the plan incorporates a series of micro-measures. I approve of some and would not object to others, but they are intended to deal with a macro-economic programme that fundamentally undermines their objectives. The statistics have been reeled out several times, but the most important one is that the Government, in trying to keep interest rates down, have a fiscal policy that includes VAT increases. Those push inflation up, therefore increasing the chances that interest rates will go up. That could fundamentally damage the potential for growth in our economic capacity.
I welcome some elements of the plan, not least because some, such as the export credit insurance measures, were recommended by my Committee. I have to hand it to the Government, because I pushed for those when I was a Government Member, but I did not make much progress. At least on the surface, those measures address some of the issues that the manufacturing industry raises. I do not know whether they will be successful, but they are a step in the right direction.
Similarly, the creation of a creative industry council addresses a gap in the recognition that the creative industries play in exports and employment. My churlish quibble might be that among the 32 or so industrial ambassadors who promote our industries abroad there is not a representative of the creative industries. Given the huge export market of our creative industries, and in the light of some of the issues involving IPT abroad in particular, I would ask the Government to consider that point in order to reinforce the measures they have already taken.
Many of the objectives and plans of other Departments cut across what the Department for Business, Innovation and Skills is trying to do. We are just recovering—I hope—from the damage that the visa issue has inflicted on our export potential and ability to attract bright research students and undergraduates into our universities. All the feedback that the Select Committee received during its recent visit to China demonstrated that in the country that will be the economic driver of the world economy over the next 30 years, that issue has given the impression that Britain is not open for business. It is too early to say whether the measures announced on Tuesday will address that problem, but the initial indications from universities are that they will go some way towards doing so. However, damage has been done that is fundamentally at odds with all the objectives incorporated in the plan.
I am delighted that the hon. Gentleman has found space in his speech to make the point about visas. I had the good fortune, owing to the sad occurrence that happened to the Chairman of the Select Committee, to lead that delegation to China, and I want to impress on the House how many people in both the British and the Chinese business community made the same point. This is a really important issue, because they think that Britain is closed for business. We need to change that perception. Does he agree that the Home Secretary needs to do more to ensure that the message gets through loud and clear in China?
I thank the hon. Gentleman for that intervention. For personal reasons, I could not join the Committee’s visit to China. However, he put those proposals to me forcefully, and I have spent the morning with the appropriate Ministers pressing that very point, because a lot of damage has been done. We need to rectify it if we are to realise any of the potential in the document.
On the localism agenda, noises were made in the Budget about improving planning for local businesses. Despite the fact, however, that the Localism Bill places planning priorities in the hands of local communities and neighbour planners, the local organisations set up by the Government—the local enterprise partnerships—have no defined role in that. I do not understand how we can have a legal process for devising planning programmes locally without incorporating the representatives of the local business community. There is enormous concern among the business community about the potential damage that that could cause.
I am sorry but I am not taking any more interventions, because a lot of Members want to speak.
There are a number of measures that in themselves might be good, but which I do not think address the scale of the problem created by the Government’s macro- economic policy. First, research and development tax credits are very welcome. Business has been pushing for them, particularly in high-quality manufacturing, but at the end of the day they will affect only a few thousand businesses. They are very welcome but will not in themselves transform the economic landscape. Entrepreneur reliefs are also welcome, but they affect only a few hundred people. National insurance holidays for start-ups were announced some time ago, but so far only some 1,500 of the 400,000 that it was thought would apply have done so. The Government need to look at that again.
I have mixed feelings about enterprise zones. There will be one in my area, which I very much hope will work—I will certainly be working with the black country business community to ensure that it does. However, the reality is that enterprise zones are a recycled policy from the 1980s, which was not even very successful then. Indeed, those fears were expressed yesterday by Mr Tyrie, the Conservative Chair of the Treasury Committee. If the policy is to succeed, we have to prevent existing businesses from relocating just to pay less tax, while not necessarily employing more people. I am concerned that we may end up trying to prevent that by incorporating a lot of regulations that will defeat the purpose of having enterprise zones in the first place.
Although there are some measures in the plan that are good, they are not sufficient to address the core problem of the macro-economic policy that undermines them. They are hot on rhetoric, but they will not deliver very much, I am afraid—although my Committee will be probing and supporting those that can.
I am delighted to follow Mr Bailey, the Chairman of the Business, Innovation and Skills Committee, who welcomed a number of the measures in the Budget. Some will clearly be helpful, so it was perhaps disappointing that the shadow Chancellor did not acknowledge them. He will probably be relieved to learn that I have little in common with him, apart from the fact that we were both economics undergraduates—I suspect that he was rather more distinguished than I was. I remember one of the first tutorials given by Maurice Peston, now Lord Peston, a former Labour adviser who taught us about economic debate. I just wonder whether the shadow Chancellor needs to reflect on how his proposition that the cuts are being made too fast and too deep is equally a subject of economic debate, and whether, as could be argued, he is being just as ideological and dogmatic as he claims the Government are.
For there are some economic facts—some economic truths—even if the shadow Chancellor did not want to accept them this afternoon. Whatever he says, this Government were left with the biggest peacetime deficit—a deficit that was 11% of GDP, twice that of Germany and Italy, while France had 8.6%. Borrowing is costing
£120 million, and let us be clear: the total stock of debt tripled over the lifetime of the Labour Government. Those are facts.
Does my hon. Friend also accept that the brutal truth is that for many years we have collectively lived well beyond our means? Only our near-zero interest rates are disguising just how damaging that is.
My hon. Friend makes a correct point, and those are true facts. The causes of those facts may be in dispute. There is a clamour from the Labour party about the financial crisis. No one is suggesting that it did not happen, but equally the Labour party cannot escape the fact that this country had a structural deficit before the financial crisis or that Labour contributed at least partly to that crisis, because the regulatory regime that the previous Government put in place made no estimation of systemic risk.
There are risks to the Budget strategy—although I should say from the outset that I support it wholeheartedly. Those risks concern the lack of growth in places such as Brazil, India and China—which are slowing dramatically compared with previous levels—global inflation and the eurozone crisis, which the Prime Minister is talking about today. There are risks to the Budget strategy; it is just that the risks that the Opposition are talking about are not the risks that are real. Their strategy relies on their comment about the cuts being “too fast, too deep”. This is not just about the fact that no international economic body agrees with them, or about their plan to halve the deficit over the lifetime of this Parliament—which the shadow Chancellor reiterated again this afternoon, albeit without giving any detail. That deficit might or might not halve, but the total stock of debt would still rise, as would the cost of servicing it, even at this level.
The shadow Chancellor was wrong blindly to dismiss what is happening in the gilt markets. I read the yield curve this morning, just as he did, and it is clear that 10-year gilts yields are low at the moment. If the market believed that the Government’s debt reduction plan was going to change, those yields would undoubtedly rise and the cost of borrowing would rise substantially from £120 million a day, ruling out any prospect of more of the things that we really want to spend public money on. Labour Members shouted out, “Too fast, too deep,” yesterday, but they should remember that there are risks involved, and that theirs is an equally dogmatic strategy.
It has been interesting to observe the movement in the past year from the Opposition Benches to the Government Benches. Year after year, as we sat on the Opposition Benches, we listened to Chancellors changing their forecasts and changing the length of economic cycles. I would gently say to the Opposition that we have growth in the economy, and that there is growth for the next four years. Its overall level might be tinkered with slightly, but the forecasts often change—
Does my hon. Friend also recognise the massive distinction, in the context of forecasts on growth and throughout the economic sphere, between what happened before the election and what has happened since May 2010? In the past the Chancellor of the Exchequer made the forecasts in his own interests. We have instituted the independent Office for Budget Responsibility, and it is a sign of the robustness of its independence that it has issued the downgrades in the forecasts to reflect changing circumstances.
Indeed; I am grateful to my hon. Friend.
The shadow Chancellor, in contending today that the changes were too fast and too deep, once again relied on the Keynesian multiplier. He is an eminent economist, and he should know better than to rely too heavily on that mechanism. It has traditionally held out the prospect that public sector investment has an impact on the private sector, so there could be an element of crowding out and of limiting of growth potential. If the right hon. Gentleman has read the recent academic research, however, he will also know that the size of the multiplier in the growth phase of an economy is about a third of the size of the multiplier when an economy is going into recession. To rely on that thesis is therefore to rely on a very weak economic mechanism.
But let us leave the world of deficit denial behind, and welcome a Budget that does not bow to pressure. It is hugely important that the Government should stick to their policy of deficit reduction, as that is the only way to achieve long-term growth in the economy. Market rates clearly indicate that there is confidence in what the Government are doing, and to be blown off course would result in a loss of confidence. The cost of borrowing and the yields on 10-year gilts, which are important for the cost of industry borrowing and UK Government borrowing, would change. Domestic inflation would rise in those circumstances, and any indication of making a special case for one would result in having to make a special case for another. The Government are therefore to be congratulated on sticking to their policy.
I am sorry; I have no more time.
Many colleagues on both sides of the House, including the Chairman of the Select Committee, the hon. Member for West Bromwich West, have made the point that the macro is always based on the micro. The devil is always in the detail. This is the first Budget for many years in which the detail has matched the rhetoric, and in which the detail on the micro side supports the detail on the macro side. Measures include the corporation tax rate, and the 21 new enterprise zones. Far from being a failed policy of the 1980s, this was a great success. Only earlier last year, when I travelled to Merseyside and Manchester to talk to business people there in my role as a shadow Transport Minister, I found that people were asking for this and were keen for it to come through.
The measures to support small and medium-sized enterprises include research and development tax credits and the change in the enterprise investment scheme, which, alongside what is happening with the banks, will bring new capital into the country. These are micro-economic reforms that will come through to build macro-economic success through growth. The simplification of the tax code, the abolition of regulation, the acknowledgement that the 50% tax rate must be only temporary—these are all key levers of growth. They are a sign that in this Budget, the rhetoric is matched by the detail and the commitment.
Finally, growth must come in order to be fair to families, and again with this Budget, the rhetoric matches the detail. The increases in personal allowances, taking the lowest income earners out of paying tax altogether, ensuring that the 40% tax band is not extended, the freeze in council tax—those measures will all impact on real people, and it is real people and the private sector, not just the Government, who build the growth of the economy. The Budget is to be commended; it is the first for some time in which the detail has matched the rhetoric.
I listened to the Budget debate yesterday as well as today, and I want to take up some of the points raised in it. I clearly come from a different economic school from Stephen Hammond—and I probably come from a different one from his erstwhile colleague the shadow Chancellor as well!
The premise of the debate so far has been that as a result of profligate public expenditure by the last Government, we have an economic crisis on our hands. The conclusion is that we can solve the deficit largely by cutting public expenditure. My hon. Friend John Mann, who is no longer in his place, referred to various Treasury charts, and I have to say that one that was published a short while ago demonstrates that the profligate expenditure argument is simply not true.
Let us consider the recent Treasury chart about public spending under the last Government and previous Governments as a percentage of gross domestic product. It shows that public expenditure under the last Government was, in fact, less than it was at the height of Thatcherism and under John Major’s period in office. I shall circulate this chart to Members. I know this is true because for many of the years the last Labour Government were in office, I was attacking them for not spending enough and for poor expenditure. I fully agree with the criticisms made of the private finance initiative; I opposed every PFI scheme that was proposed.
If we look at the chart to find out when expenditure as a proportion of gross domestic product rose dramatically, we discover that it was, as the shadow Chancellor said, only when the economic crisis hit and we had to pump out the quantitative easing into the economy. In my view, the deficit occurred as a result of the failure to match expenditure with tax justice. We had large levels of tax evasion and avoidance and, in addition, we failed to develop a whole range of other tax bases within the economy. Genuine criticisms can be made of over-dependence on the financial sector and the failure to develop the manufacturing sector during that period.
What do we do now? It is not all about cutting expenditure. In yesterday’s debate, reference was made to the crisis of the 1930s and the lessons that can be learned from it. It is worth Members returning to J.K. Galbraith, who I believe wrote the best book on the crisis, “The Great Crash 1929”. What Galbraith says is that although economic structures can be put in place, what will defend us most against a repeat of the crisis is memory. We seem to forget that the cause of that crisis was the cause of this crisis—speculation by the banks and other speculators and, yes, a Government who failed to regulate. I have to say, however, that when a number of Members called for bank regulation in this House, there was an element of quietude on all sides. I remember fighting for four years, in almost a solitary capacity, to secure the passage of the City of London (Ward Elections) Bill at a time when we were pressing for regulation.
One of the lessons of the 1930s is that the one thing we should not do in a recession is cut public expenditure, because that will turn a recession into a depression. However, it is exactly what the Government seem to be doing. At present 2.5 million people are unemployed, 1 million young people are unemployed, according to recent statistics 1.7 million people are in voluntary and part-time employment, and the £80 billion cuts proposed by the Government will make at least another 1.2 million people unemployed.
What I am really anxious about, however, and what we should all be anxious about, are the cuts in capital expenditure. We are told that there will be a 4% cut next year and a 6% cut in the year after that, and that local government capital expenditure is to be cut by 30%—possibly more, according to the Red Book. I believe that if that element of demand is removed from the economy, we will experience either a deflationary spiral or the worst of all worlds, stagflation: increasing inflation along with stagnation in the real economy. I do not believe that there will be a double dip. My fear is that we will become like Japan, where asset values are falling, and will scrape along the bottom of economic activity for perhaps a decade.
People ask what the alternative is. I have mentioned the lessons of the 1930s, and Keynes’s name has been bandied about many times today. It is true that Keynes concentrated on the bond market, but one of the main lessons to be learned from him is that the key issue is unemployment. I think we should be declaring, across parties, that our objective must be the return of full employment, which appears no longer to be cited as a policy objective. As has already been pointed out, the most effective way of restoring investment is through capital investment—the development of capital programmes in housing, renewable energy and transport. I ask Members to look at the green new deal and to examine the “One Million Climate Jobs” booklet produced by trade unions including the Public and Commercial Services Union, which sets out a capital investment programme that could get people back to work.
How would that be paid for? Let me list just a few short-term measures. I am very pleased that windfall taxes have come back into fashion, and I commend the Government for that, but I do not think that the windfall taxes on the banks go nearly far enough. The lending rates on personal loans in particular are exploitative and extortionate in the markets. I also think that if we are to consider organisations that have profiteered during the recession, we should consider the supermarkets. Commodity inflation is about 3%, but they have increased prices by 6% and above, and they have been profiteering for a number of years.
I think that a windfall tax on energy is appropriate. The current profits of British Gas average 24%, and Ofgem has reported an average profit margin of 38% per customer since last November. That is profiteering during a recession. Some economists have suggested that a windfall tax in those three areas would produce up to £10 billion to get people back to work.
Let me make clear, however, as I did under the last Government, what should happen in the longer term if we are to avoid future deficits. Yes, it is about careful expenditure and it is about having confidence in local and regional decision making, but it is also about achieving a fair and just tax system that will fund our expenditure. First, we must tackle tax evasion and avoidance. What has been done about that by past Governments and by the present Government is trivial. According to Richard Murphy and John Christensen of the Tax Justice Network, £150 billion a year is potentially available to us. Secondly, we need a financial transaction tax. We have been talking about a Robin Hood tax for too long, and we should now be implementing it. Thirdly, I think we should deal with land speculation. I believe that now is the time for land value taxation. If we tax the wealth in land, we will encourage development rather than preventing it.
On Saturday, there is to be a “march for the alternative”. I expect at least half a million people to march in the streets against the cuts, and I want them to march for a just alternative. I believe that one of the alternatives they will expect us to implement in the House is a fair taxation system allowing investment in public services so that we can all share in that wealth.
I refer Members to my entry in the Register of Members’ Financial Interests.
I am delighted that business, as well as families, took centre stage in yesterday’s Budget. Enterprise zones will be a beacon for growth. There will be two in Yorkshire: one in Leeds and one in Sheffield.
My hon. Friend might also be pleased to know that West Northamptonshire Development Corporation will shortly submit an application to create an enterprise zone in Northampton, which will bring 10,000 new jobs to an area that is supposed to be building 50,000 new homes over the next 15 years. Does that not show that the Budget is particularly about promoting growth, and that this is just one way to achieve that?
My hon. Friend is absolutely right, but he will be facing stiff competition from the North Yorkshire local enterprise partnership, which will be seeking to get ahead of his proposal.
The most exciting aspect of yesterday’s Budget was the direction of travel the Chancellor set in respect of the conditions for business that he wants in Britain, because growth will ultimately be achieved through the individual efforts of business leaders, not through Government. The 2% cut in corporation tax signals to companies that Britain is once again open for business. It is now clear to every potential investor, in the UK and overseas, that this Government are committed to putting in place the best corporation tax rates in the G20 by the end of this Parliament. Overnight, global companies such as WPP have said that that will make a difference to their decisions on where to invest. That is great news.
The Budget also encourages those who want to set up a business to go for it. It contains a big nudge from the Government for people to give entrepreneurship a go. There is a golden carrot to dangle before those thinking of taking a risk: a 10% capital gains tax rate up to £10 million. The profit motive is a motivator, and the Budget clearly says, “If you believe in your business, take the risks and are successful, you will be much better off financially.” Therefore the message is, “Unless you’re a cracking singer or can dance like the Business Secretary, forget ‘The X Factor’ and ‘Strictly’; this Budget gives you a golden ticket to join start-up Britain.”
The moratorium on new legislation for small businesses with fewer than 10 employees will be a big relief for entrepreneurs, who need to be fully focused on jobs and growth rather than the latest wheeze from Whitehall. When I was a small business owner, dealing with employment law took more time than any other management responsibility. Employment laws and regulations have been piled on British business since 1997.
Not at the moment.
Let us be clear: employers want to get on with running their business. They want to allow their workers flexibility in their jobs and to give them training, but they also want to make decisions themselves. The changes in the Budget will provide welcome relief from administration, rules and red tape, which always come from new legislation. Opposition Members have already started putting about the myth of this being about “nasty Tories” who have no interest in equal rights. It is nothing of the sort. Labour took some good steps on employment, and we have accepted many of them, but the last Government ultimately failed to see that adding on regulation after regulation was counter-productive; they just did not know when to stop.
This Budget establishes two principles: first, that micro-business needs to be treated differently from other business, which is very important for my constituency; and, secondly, that creating jobs is more important than adding more regulations to existing ones. Everything we do should encourage business and make things easier for risk takers. Only by doing that will we get this country’s economy growing to its full potential. Jam-packed with other measures as well as the ones I have talked about, this Budget has set us firmly on the right course.
The first thing to say about this Budget is that it has to be seen in the context of last year’s Budget, because that gave us a large-scale fiscal adjustment of some 6.9% of gross domestic product over the course of the Parliament and the measures announced this year were inevitably going to be smaller in scale and focus. So our discussion is not so much about the measures about to be taken, but, inevitably, largely about the measures already taken: the VAT rise; the shift from the retail prices index to the consumer prices index for so many things; the pay freezes; the child benefit freezes; and the cuts to public expenditure. All those are going to have a far larger impact on household finances and on businesses than anything announced yesterday.
The one headline the Chancellor did not want to see in today’s newspapers was anything that smacked of a U-turn or a reversion to a plan B in terms of his broader strategy. What that means for the public is set out in the forecasts published alongside the Budget by the Office for Budget Responsibility. For the third time since the election, we have seen a downgrading of growth forecasts—growth down last year, this year and next year. Inflation forecasts are up and unemployment is at a 17-year high. The forecasts for borrowing and the interest to be paid on borrowing are also up, even though dealing with that is supposed to be the central purpose of his grand economic strategy. Those forecasts underline the fact that growth is needed and although the Chancellor will continue to claim that any problems he is addressing are Labour’s fault, he will find out that, to use his own metaphor, this particular tank of political fuel runs out over time.
My right hon. Friend the shadow Chancellor fairly pointed out that growth was increasing at the time of the general election, before falling back sharply at the end of the year. I am not sure that even the Chancellor believes that that was about snow. It was about confidence, as the country realised what a tough time lay ahead for family budgets over the next couple of years. The central antidote to all this bad news about cuts was supposed to be the growth plan published yesterday. The Chancellor announced a stream of measures on innovation, tax, planning, training and so on. It was tempting to close one’s eyes, just as the Justice Secretary did, imagine a different accent and be reminded of some of the Budgets that the Chancellor used to attack so strongly for their blizzard of initiatives. We can imagine a range of groups being invited to the Treasury and the Department for Business, Innovation and Skills to be asked what was on their shopping lists. The question for us is whether the sum of these various parts adds up to a plan for growth or whether they are a list of things to insulate the Government against the accusation of having no plan for growth—the two are certainly not the same thing.
I wish to discuss a few of the individual measures, because I believe that my party should adopt a level-headed approach to them. Some of them may work, some of them may not and some of them are, in fact, Labour party policy. The technology and innovation centres announced by the Government are welcome. They were recommended by Dr Hermann Hauser in a report to the Labour Government last year and are based on the successful Fraunhofer institutes in Germany. Their essential task is to bridge the gap between concept and production—between the great idea and the manufactured product. We have long heard commentators say that Britain is less successful at doing that than other countries, so I am glad that the Government have carried on this idea begun under the Labour Government.
The Chancellor also made much yesterday of his new regime for short-life assets in manufacturing, which is designed to encourage investment in new machinery. That has been welcomed by manufacturers over the past 24 hours, but before the Government get too carried away we have also to remember what the Chancellor announced last year: a hit of almost £3 billion on manufacturing to pay for his corporation tax cut by cutting capital and investment allowances. In other words, he made manufacturing—the part of the economy that needs to invest in new plant and machinery—pay for a tax cut for the parts of the economy less reliant on such investment. This is not, as he claimed yesterday, a conversion to support for making things; this is the Chancellor applying a dressing to a wound that he created last year. What he has given back in the measures on short-term assets is a lot less than he took last year—[ Interruption. ] If there is any doubt about that, I refer the Economic Secretary to pages 42 and 44 of the Red Book, which clearly set it out.
The Chancellor also announced 21 new enterprise zones, with the relaxation of planning control, business rates and so on. If they can create jobs in areas such as the black country, which I represent, they should be welcomed. I sense in the proposals, however, the spirit of Lord Heseltine, who was also involved in the regional growth fund. We had enterprise zones back in the 1980s, when unemployment was 3 million and industry was collapsing all around us. I hope that in reaching for them now the Government are not privately expecting a repeat of the circumstances that gave birth to them in the first place. I also hope that they are not a consolation prize for local enterprise partnerships that are disappointed when the results of the first round bids for the regional growth fund are announced in a week or two’s time.
Some of the measures are worthy of consideration and support, but do they add up to the plan for growth that the Government have claimed they are? Surely to answer that we need to return to the broader context. There is no denying that, had the outcome of the election been different, there would have been difficult decisions to take. It is important for all of us to say that to the electorate. The deficit cannot just be wished away, but there is a legitimate debate to be had about the speed and scale of deficit reduction and its impact on families up and down the country.
The deficit is not there because the Labour Government lost control of the public finances; it is there because of the hit that our public finances took as a result of having a large financial sector and because of the measures we took to stop recession turning into depression. That is not a loss of control, but a Government acting to stop recession having a more painful impact on the public and on business than would otherwise have been the case.
The Budget claims to be a Budget for growth, but there is no escaping the fact that the growth forecasts have been reduced. That is what will matter to businesses and families throughout the country.
I speak not merely as a member of the Treasury Committee but on behalf of tens of thousands of working people in my county of Herefordshire. It is a county where the average income is £21,000, where residents face the very high costs of living in a rural area—especially for fuel and transport—and where there is a very high relative number of small businesses. These are real people putting in the hours to support themselves and their families at a difficult economic time.
I welcome the Budget and especially several measures that will have a direct impact on the well-being of my constituents. The first is the cut in fuel duty, which we have pushed for very hard with the Treasury. The second is the rise in the income tax threshold, which will take many Herefordians out of income tax all together. The third is the support for small businesses and entrepreneurship; for apprenticeships; for local housing; for the university technical colleges; for the green investment bank; and, finally—a measure that is perhaps as important as any of those—for filling in potholes, an area in which Herefordshire rather specialises.
The Budget marks a further decisive step in dealing with the disastrous legacy of the previous Government. We know the brute economic facts, but it is important to remind ourselves of the wider picture: that this country now faces paying nearly five times more in debt interest every day than it does on care for the elderly; and that we have, in addition to the disclosed public debt numbers, £200 billion-plus of off-balance sheet debt for the private finance initiative. The wider story, however, concerns the atmosphere of unreality on the Labour Benches, and particularly on the Front Bench, which one might describe as a fog enshrouding planet Balls.
The intention seems to be to rewrite history and to deny, as the shadow Chancellor did today, the fact that in 2007-08 the previous Government created a 3% budget deficit at a time of 3% economic growth—a structural deficit that had existed at that point for seven years. It is unrealistic to pretend that America and Germany are parallel cases to ours in terms of economic recovery. America has the global reserve currency in the dollar and therefore has a far greater intrinsic ability to inflate its way out of trouble, and Germany has benefited massively over the past year or two from the expansion in the American purchasing of industrial goods. Their situations are not parallel to ours. The truth is that our economy is grossly unbalanced and that that is what exposed us to the situation we find ourselves in.
Also unrealistic is the Opposition’s refusal to acknowledge the weight of expert opinion supporting the present policy, including from the G20, the IMF, the OECD, the US Treasury Secretary and even Tony Blair. The Bank of England testified only a couple of weeks ago that without the current austerity measures, our borrowing costs would be 3% higher. Given the amount of refinancing we have to do over the next two or three years, that implies additional borrowing of some £10 billion. If one has any doubts about this issue, one need only look at Portugal, which is close to economic meltdown.
Finally, we have the shadow Chancellor’s denial, which we heard again today, that any deficit ever existed. As they say, “De Nile is not just a river in Egypt.” [ Interruption. ] I am in town all week! Labour’s strategy has been pretty clear: ignore economic reality, disavow the previous Chancellor’s own plans to make cuts and increase taxes, attack the coalition wherever possible and hope the voters do not notice. The result has been a refusal to articulate any constructive, concrete proposals at all. I note the contrast with the Republicans in the US, who have opposed the Democrats with great vigour. Whatever their personal merits, the fact is that the Republicans in Congress have created positive alternative plans that have to be debated. That is in sharp contrast to the actions of the Opposition in this House.
The truth is simple: this country has suffered the biggest economic shock since the great depression. It will take years to recover fully from that shock and the world’s economic system remains very fragile. The USA took slightly longer than a decade to rebuild after the great crash of 1929. Japan started to recover from the asset-based deflation of the early 1990s only a few years ago and it will be a doubly cruel blow if the earthquake sets back its recovery any further. The idea being pushed by the Opposition that this Government are in any way responsible for the current economic mess is laughable.
The hon. Gentleman makes a powerful case about the Opposition’s economic strategy, or lack of one. Does he agree that what they might also have done is risk an increase in interest rates that would have hit everyone with a mortgage, everyone with an overdraft and every new business seeking to borrow?
I thank the hon. Gentleman for that intervention. It is certainly true that if we had higher borrowing costs and a tighter monetary policy, interest rates would be higher, mortgage rates would be higher and the average mortgage holder and household would be suffering considerably.
I welcome the fact that the Budget is a reforming Budget that has not shied away from taking difficult long-term decisions, such as the proposals to merge income tax and national insurance. A properly functioning system of social insurance could have been a very fine thing—indeed, that was what Beveridge originally anticipated—but the system has been allowed to slip away from the contributory principle into a disguised income stealth tax. The new reform will bring home to people just how heavily they are taxed and will encourage them to demand better public services for their money.
In short, the country is emerging from a time of fake capitalism that was matched by fake government—a time when Fred Goodwin could destroy an august 200-year old financial institution, squander billions in shareholder value and then walk away with a fortune and have a Minister sign off on his pension. The economy became grossly unbalanced in that time and executive compensation soared both inside and outside the financial sector with little or no relation to performance. It was a time of increased complexity, short-termism, bureaucracy and regulation. As every Herefordian knows, what we need now is real capitalism, with real people taking real risks, investing real time in real work and reaping real rewards for their efforts, and this Budget is a very important step in that direction.
The Budget was billed as a Budget for growth, which my constituents wanted and the Sunderland economy needed, but it is not a Budget for growth. In fact, it is a Budget in which the Chancellor has had to admit that he is failing to create growth. What is growing after this Budget and the tax and spending announcements of the past 10 months? I will tell you, Madam Deputy Speaker, what is growing: the Chancellor’s nose. It is the dole queues that will be growing, with all the projected job losses. The cost of living will be growing, with the Government’s regressive VAT hike, which hits the poorest families hardest. The number of young people not in education, employment or training will be growing, due to the scrapping of the future jobs fund and the education maintenance allowance.
Not at the moment.
John Campbell from Washington e-mailed me yesterday. He currently receives £30 a week in EMA to support his studies. He asked me what support he would now get. I cannot answer, because Ministers have not told us yet, despite repeated hints from Simon Hughes. I share the disappointment that he will no doubt have felt yesterday. Students are making choices about their future now. How can they do so while this silence persists?
We heard that the Chancellor will lift the tax-free allowance by £630 in 2012. I am sure that those of my constituents who will be lucky enough still to have a job this time next year will be very grateful for the extra 92p a week they will get. Perhaps they could use it towards the increased prices of their weekly shopping and energy bills, or to offset their loss in tax credits or frozen child benefit. What this Chancellor gives with one hand, he takes away many more times over with the other.
I remember, as I am sure do my hon. Friends, the furore in 1999 when the Government of the day announced an increase in the state pension of 75p a week, which was widely decried as an insult, despite being part of a wider package of measures that included the introduction of the winter fuel allowance and free TV licences. I checked with the Library this morning and found that 75p in 1999 is equivalent to around £1.05 today, which is 14% higher than 92p. Using that reasoning, the Budget’s increase is an even bigger insult. Mr Willetts, who was shadow Minister for social security, asked my right hon. Friend Mr Darling at the time whether he felt guilty about cutting taxes for business at the same time as making such a derisory offer. I wonder whether the right hon. Member for Havant feels guilty today.
I am grateful to my hon. Friend for giving way and for highlighting the effect of the proposals on her constituents, but she is perhaps being a little unfair to the Government on pensions. After all, they are solving some of the problems by bringing forward proposals that will eventually mean that some people might not be able to retire until they are 80. Is that not the kind of measure they should have highlighted more yesterday, rather than the ones they chose to highlight?
Although we all acknowledge that we will have to work longer because we are living longer, I do not think that anyone in this Chamber would want still to be working when they are 80.
At the Liberal Democrats’ spring conference last week the Deputy Prime Minister referred to the 75p increase in 1999 as an indignity, so I wonder how he views the 92p increase announced yesterday. Family income is vital to our growth prospects, as squeezing household budgets means less consumer spending, which in turn means lost profits and jobs in the sectors that depend on it.
How will growth be encouraged in Sunderland and the north-east? We heard yesterday that 21 local enterprise zones will be created and that one of them will be in the north-east local enterprise partnership on Tyneside. Seeing as we have an LEP for the whole north-east, leaving aside Tees valley, which is being given its own LEP and enterprise zone, why can we not have an enterprise zone that covered a wider area or more areas within the north-east enterprise zone, such as Wearside, in which Sunderland sits, which has both the need and potential, which are two criteria?
I was interested to read today in my local paper, the Sunderland Echo, that the Chancellor may have made an error in announcing that the local enterprise zone was going to be in Tyneside, because the location of the zone has not yet been decided. The Energy Secretary spoke to the Echo on that point and said that there was going to be a zone in the north-east local enterprise partnership area, and that the north-east LEP would help to choose where it was. He may need to go back to school and re-take his English baccalaureate—perhaps he does not have one—in geography, however, because Tyneside and the north-east are two very different areas.
That aside, we all know that if the Government were serious about stimulating the private sector they would never have abolished One North East or slashed funding for regional development. The Chancellor said that he wanted his Government to be the greenest ever, and he told us that funding for the green investment bank would be increased, in turn increasing the amount that it could leverage from private sources. I will not complain about any measures to increase investment in the low-carbon sector, particularly when that investment is going to help companies to innovate and create jobs in the north-east, but the Government could and should be doing so much more. Germany and China are taking action right now to stimulate green growth, so surely it is in this country’s economic interests to do the same and attract businesses before they locate to the countries that are taking action.
I also have concerns about the much heralded renewable heat incentive. A business man with a small to medium-sized enterprise in my constituency wrote to me to make the point that, had the scheme started next month, it had the potential to provide a big boost to the solar thermal sector. As it is, it will not start until October next year, and at a much reduced level to that which was expected. So, in effect, and even with the premium payment, the whole industry is on hold for 18 months, because who would invest now when they could get an incentive to do so in the next 18 months? That does not help the renewable energy sector; it puts the industry in limbo, and it puts jobs and innovation at risk.
My constituents may be pleased that the Chancellor has taken some action on fuel duty, however—an issue that many of them have contacted me about in the past few weeks. Cutting the duty on fuel by a penny will have made for some good headlines, and we all know that he needs those, but he failed to tell my constituents watching yesterday that a 1p cut in duty will not make up for the 3p VAT increase that he introduced at the beginning of the year. Again, he gives with one hand and takes much more away with the other.
There is so much more that I wanted to raise, but I will do so another time. Like so many of this Tory-led Government’s policies, this Budget is for the few, not the many. The bottom line is that this so-called Budget for growth has caused the Office for Budget Responsibility to revise down growth predictions; it had failed before it was even printed. The Chancellor spoke for an hour yesterday, but he provided almost nothing from which my constituents could draw any comfort. So, on behalf of those constituents, in particular the young and the struggling families, I urge him and his ministerial colleagues to listen seriously to the concerns that hon. Members have raised today.
Thank you, Madam Deputy Speaker, for calling me to speak in this important debate. I, for one, welcome the Chancellor’s Budget statement, and I look forward to voting on all its details and recommendations. In particular, I am relieved to be able to say that Britain is once again open for, and backing, business.
Before I was elected last year and since, in my meetings with and speeches to the business community in Erewash, I have always reflected on how important it is that we in this country make things again. I was pleased to hear Sir James Dyson speak a few years ago, and I think my right hon. Friend the Chancellor referred to him in his speech yesterday. To hear somebody of such experience, gravitas and talent speak is really encouraging, and from that I saw the real need to support budding scientists and entrepreneurs. In particular, there is a genuine need to support young women who are thinking about a science career. We all know that, for whatever reason, engineering and science, as a profession, has had a lower uptake of young women wanting to pursue it. That is a shame. Some of the measures set out in the Budget statement and by the Business Secretary do all they can to encourage young women by saying, “Now is the time. You can have a career in science and engineering—it is for you, and there are the opportunities to do well.”
In Erewash, we have a proud history of manufacturing, including traditional lace-making, furniture-making and engineering. Sad to say, the traditional lace-making, in particular, has declined over the past 10 years or so; indeed, we have just one such factory left. The people there have used their entrepreneurship and ingenuity to keep it going. I am sure that everyone in the House can imagine that that brings with it daily challenges, such as finding appropriately qualified mechanics to repair the machines and finding new business, but they are trying their best and doing well. However, we also see, unfortunately, a number of empty lace factories where once they were busy and flourishing. Under the last Labour Government, manufacturing halved as a share of gross domestic product, and jobs in that sector declined by 40%.
Moving on to the many positives about business and entrepreneurship in my constituency, we have several successful small and medium-sized enterprises, particularly in high-tech engineering and aerospace manufacturing, and there is a great need to support them at this time. Geographically, there are many advantages to my constituency, which is based right in the heart of the country. We have nearby large employers such as Rolls-Royce and Toyota, as well as the universities of Derby, Nottingham and Loughborough, all with very successful business departments.
We all know—the figure is startling every time it is said—that £120 million per day is paid in debt interest. That is more than the schools budget and the defence budget. There is always moaning and groaning from the Labour Benches whenever that is mentioned, but we have to deal with the facts as they are. When my constituents come to my weekly surgery, they always start by saying, “We know that the country has a lot of debt, and we know that we have to sort it out.” There is a realism and a level of acceptance about it, and that is how we have to move the debate forward.
For me, the Budget statement marked a line in the sand. What I heard is that Britain is back, and that Britain is backing business. This morning, we saw the headlines saying that in the light of the measures announced yesterday, the WPP agency may well return to the UK with its business. I suspect that it will be the first of many important businesses that are going to come back and invest. That is a great start.
The Budget contains several steps that will help business. First and foremost, there is the cutting of corporation tax by 1%, which will take it down to 23% by 2014. There will be 50,000 more apprenticeships, taking their number to more than 250,000. Locally, we have a strong history of supporting apprenticeships, and that will further encourage new jobs, investment and training for young people. The doubling in the number of university technical colleges is a positive, as is extending the small business rate relief holiday to October 2012.
I was particularly delighted to hear the announcement about the establishment of an enterprise zone for Derbyshire and Nottinghamshire. My constituency is right in the heart of that area, and I will do my best to ensure that we are its beating heart; I will fight for an appropriate level of investment. We also have some of the centres of innovative manufacturing that were announced yesterday, at Loughborough university and the university of Nottingham. Again, many young people in my constituency could benefit from that training and help, and I will do all I can to make those facilities available to them.
The enterprise zones will follow the structure set out in the local enterprise partnerships. We were lucky to have a strong LEP application for Derbyshire and Nottinghamshire from the outset, and it was one of the first to be accepted. That group is already taking great steps towards being up and running, so that it can take in bids and bring in investment and jobs. I think that the enterprise zone will assist in that even further.
Finally, the freezing of council tax will benefit hard-working families in my constituency. We are lucky in Erewash because this is the second year running in which the borough council has frozen council tax. That will really help people.
I welcome the Budget speech. I will fight for investment for my constituency, and I certainly back the move to help manufacturing.
There was so much and yet so little in yesterday’s Budget that could be talked about this afternoon, but I will concentrate on the growth section.
The first line of the foreword to the Government’s document, “The Plan for Growth”, states:
“This Plan for Growth is an urgent call for action.”
At last, after almost a year of the coalition Government, they have finally realised that hard-pressed businesses and families up and down this country need an urgent call to action for growth. However, I do not see a call to action for growth in cutting public spending too deep and too fast; the highest unemployment since 1994; the highest youth unemployment since records began, with no plan to get it down; inflation on the march, with the retail prices index at its highest level in 20 years; the largest squeeze on living standards in modern times; increasing VAT to 20%, which puts more pressure on consumer confidence and further compounds business insecurity; a continued lack of liquidity in lending markets through our banks; fuel prices that are out of control; consumer confidence at its lowest level in more than 20 years; and an overwhelming, ideologically driven attack on public services. That is certainly hurting people in my constituency, but it definitely is not working. We have all that, and the real effects of the VAT increase and the public sector job losses are still to feed through to the real economy. This does not seem to me to be a call to action for growth; it is no plan for growth, or perhaps a panic plan for growth.
That point is made clearly by the Office for Budget Responsibility, the independent body set up by the Chancellor, which we debated a few days ago in this Chamber. Even after the Chancellor’s “Budget for growth”, which, to use his words, should add fuel to the economy, the OBR has reduced its growth forecast for this year and next year, as it did last year. It is surely a huge embarrassment for the Chancellor that his Budget for growth actually downgrades growth. It is extraordinary that it does, given the urgent call for growth in the Government’s own document and the Chancellor’s own words that it would be a Budget for growth. This must be a historical first.
The Chancellor has failed to realise that cutting too deep and too fast is damaging our economy. The public and private sectors are inextricably linked. Slow growth and rising unemployment will make it harder to get the deficit down. The move from 2.1% to 1.7% is a reduction. Unemployment has been revised up to 8.2%. As someone said to me at my surgery a few weeks ago, “How can you possibly pay back debt from the dole queue?” They were absolutely right.
In its submission to the comprehensive spending review, the hon. Gentleman’s party suggested that the cuts in unprotected Departments should be no more than 20%. What the Government actually delivered was only 19%. Does he think Labour’s proposed cuts were going too far and too fast?
I find it surprising that the Liberal Democrats always jump to their feet during these debates and throw out statistical analysis of stuff that is, quite frankly, not true. The Liberal Democrats’ leaflets from the general election, which I still leaf through, tell me time and time again that they supported what we were doing on the economy, that the banks were all to blame, that VAT would not have to go up and that employment was the key to growth. The Secretary of State for Business, Innovation and Skills said that to Jeremy Paxman after the general election.
I will carry on, if the hon. Lady does not mind, because our colleagues want to contribute to the debate and our time is restricted.
What we heard yesterday was a big Budget con. My right hon. Friend Mr McFadden, who is not in his place at the moment, said that this Budget could not be seen in isolation from the last one. It is a continued attack on the cost of living. As has been said, the Institute for Fiscal Studies said yesterday that the Chancellor is giving with one hand but taking it back not just with the other hand, but with
“lots and lots of other hands”.
Does that not show how out of touch he is? Did he not realise that people would see the Budget con?
The Government trumpeted the increase in the tax threshold, but changed the threshold increase mechanism to the consumer prices index, which will totally offset the increase. Page 42 of the Red Book shows that the Government will hand out £1.2 billion in a tax cut but take £1 billion back over time through the change to the threshold indexation. Of course, the biggest con of all is that indirect taxes will continue to rise by the retail prices index, which of course is the highest measure of inflation.
I have not even touched on the millions of families who will lose their child benefit, or the fact that every family earning less than £26,000 a year will lose their tax credits. It is a Budget con for families. The Budget confirms that although ordinary people will be thrown a little bit of corn, there is little doubt that they will be hit the hardest by this uncaring and out-of-touch Government.
The second con that I wish to examine is the fuel con. We all welcome the 1p cut on fuel. I am not a car driver, but I appreciate how much it costs to drive. My constituents constantly tell me about the pressure on small businesses that have to fill up vans and cars. However, at 7 pm on Monday, the petrol station next to my constituency office was charging £1.28 a litre. On Tuesday night it was charging £1.30 a litre, and on Wednesday night, after the 1p decrease, it was charging £1.29 a litre. The 2.5% VAT increase makes up 3.25p of that price. That is the fuel cut con—the price is 1p down due the Chancellor’s decision, but 3.25p up to due to another decision of the same Chancellor.
As has already been asked, who is to say that oil companies will not just pass the additional tax costs back to the consumer? Oil and Gas UK has said in the past 24 hours that there will be job losses and a reduction in production in the North sea as a direct result of the Government’s policies. We are left in a quandary. Do we have more job losses and less production in the North sea, which could be catastrophic for the Scottish economy, for what might be absolutely no benefit to consumers at the pumps? The IFS said yesterday of the fair fuel stabiliser:
“If oil prices stay high but volatile, this policy will do little to stabilise pump prices.”
It is a policy that does not help hard-working families fill their cars, and may cost jobs.
According to the Government’s own figures, this Budget does nothing for growth. The Chancellor needs to think again before it is too late and he sends this country into a spiral from which it may never recover.
I remind the House of the interests recorded in the Register of Members’ Financial Interests.
I am sorry that the shadow Chancellor is no longer with us, because a couple of elements were missing from his speech. First, any sense of humility was lacking in one of the architects of banking supervision, who started with 10 well-funded banks and ended with only five. Secondly, there was no apology for the appalling deficit that we inherited. Let us be clear: it is 10 years to the month since the Labour Government balanced a Budget. That is nothing to do with something that happened in 2007 or 2008. They made the mistake of letting the deficit grow in the good years as well as the bad.
The Budget’s most important feature is that it does not change the fiscal consolidation plan. We remain on track to balance the budget again by removing the structural deficit by 2015. The Office for Budget Responsibility’s forecast is that we maintain our position on track to being able to do that.
Most of the meat of the Budget is also extremely welcome, and I am glad that Opposition Members have picked out pieces that they, too, can welcome as helping their constituencies. Simpler taxation and less regulation are the drivers of a successful economy. Businesses have enough to worry about at the moment; the Government should not be one of their worries. Reducing the weight of tax and red tape on our businesses is essential. I urge Ministers to stick to their task, regulation by regulation, tax by tax, until we can genuinely say that we have one of the most competitive economies in the west.
I also welcome the Budget’s emphasis on the longer term, backing the newer technologies, especially in energy and the environment, and taking the measures necessary to improve the employability of that huge pool that we inherited of people under 25 who are simply outside the labour market.
I am struck in my constituency by how many companies succeeded in growing even under the previous Government, without direct subsidy or specific grants. I visited three recently. The Sevenoaks energy academy, which I had the honour of opening last year, trains hundreds of engineers in renewable energies, providing courses in fitting solar panels, rainwater harvesting and so on. One of Sevenoaks’s most dynamic business women, Julie Walker, made a £1.5 million investment in that academy, and I welcome that.
I will not, if the hon. Gentleman will excuse me.
Secondly, Vine Publishing is a new media company in my constituency that is heavily involved in all kinds of print and digital work. Its turnover now approaches more than £3.25 million and it employs 12 people. It was founded by three entrepreneurs, who dropped out of university because they preferred to go into business.
Thirdly, I attended the opening of the Ideal Waste Paper Company this month. It has built a major new recycling facility at Swanley—a £14 million investment, creating 60 new jobs and recycling more than 250,000 tonnes a year.
Those are examples of companies of the future, in the new technologies, the new energies and the new media. We should all ask ourselves how we get more of them. Of course, getting the long-term climate is right, but we must also address how to make it easier for people to set up such companies.
First, we must consider how we make it easier for them to start up. Like my hon. Friend and neighbour Mr Gyimah, who made an excellent speech, I support the Government’s enterprise incentive scheme, the entrepreneurs’ relief and the relaxation of planning. I would also like us to return to share ownership and consider how we can spread it more widely among those who work for start-up companies, particularly in the payment of dividends.
Secondly, we should consider how we make it easier for such companies to employ those who have been shut out of the labour market, and who might be viewed as too expensive or too risky to hire.
I welcome the Government’s initiative to reduce the number of cases going before employment tribunals. That is still a very serious barrier to employing more staff for small businesses. Finally, we need to make it easier for such companies to access the capital that they need; a number of hon. Members on both sides of the House have spoken about that.
I welcome the agreement on lending targets in the Merlin negotiations. Those need to be met, especially for smaller and medium-sized enterprises. Of course the banks are right to want more certainty on the capital and liquidity requirements, which are now being emphasised on all sides, from the Financial Services Authority to the G20 and so on, but I hope that there will be more focus on simpler business models with stronger regional networks, which can make lending to small businesses more worth while. We need such businesses to flourish, because they will create the jobs of the future.
The Chancellor was right in the Budget to help people to cope with the unexpected increases in the cost of living over the last few months, but I hope the Budget will also be welcomed for its long-term effects: keeping the public finances on track so that we eliminate the structural deficit that we inherited, putting Britain back into the black without huge changes in the tax and spending measures already announced, and helping to pump the oxygen of enterprise around the economy. It is nice, after 13 years under the previous Government, to welcome a Budget from a Government who believe in enterprise and are prepared to back it.
I was most impressed by the list of businesses that Michael Fallon has recently opened or visited in his constituency. Things could not have been too bad under the Labour Government if there is such vibrant activity, could they?
That aside, given the limited time available I want to concentrate on just one of the issues that I would otherwise have covered: the Budget announcements on the green investment bank. I am pleased that the Minister of State, Department of Energy and Climate Change, Gregory Barker, is in the Chamber alongside Treasury Ministers.
I welcome the fact that the initial capitalisation of the green investment bank will be increased to £3 billion. However, I note that the increase in funding is to come from asset sales, and I would be interested to know how certain we can be that those proceeds will materialise as funding for the bank. As all hon. Members know, such funds can be diverted elsewhere if there are other urgent public finance needs, so I hope for a reassurance that that sum will materialise.
Although £3 billion is clearly better than £1 billion, it is still short of the sums that many say should make up the initial capitalisation of the bank. An Ernst and Young accountant said this morning that the bank should have been granted £4 billion to £6 billion, and I have heard that figure from other sources.
I and others are also concerned that the bank will not be allowed to borrow until 2015, and that it might not be able to borrow at all if the Government are unable to meet their debt reduction targets. The chief executive of the UK Sustainable Investment and Finance Association today said that linking funding of the bank
“to progress on the deficit does not give investors the certainty they need”, which is worrying.
However, it is not just that the bank will be unable to borrow until 2015. Today’s comments suggest that that reflects a decision on what kind of bank the GIB will be. One commentator said:
“The decision was a victory for the Treasury, which for months had been embroiled in a tussle with green enthusiasts within the government, including climate change secretary Chris Huhne, over the powers the bank should have. It was originally intended much like a private sector institution, funding investments by taking on loans and issuing financial products such as green ISAs and bonds. One by one, these powers were whittled away.”
I hope that that is just press speculation, and I would welcome any ministerial refutation of it. There is a view within the Government that it is not a problem if the green investment bank cannot borrow until 2015, because the projects that will be devolved will be large projects that will take time to get going. I am concerned, however, that if the bank cannot borrow until 2015, it will send the message that it is too closely linked to the Treasury and could have its funding turned on, turned off or even taken back by the Treasury, depending on the wider financial priorities of the Government. Again, I would welcome reassurance from the Government that that is not the case.
Hon. Members will not be surprised to hear my second point: I want to emphasise the case for the green investment bank headquarters to be established in Edinburgh. I say that not just because it serves the interests of my city—although obviously it does—but because I genuinely believe it is the best location in the UK for it to be based. I would argue strongly that its headquarters should not be in London—too much of the financial services industry is concentrated there anyway—and it would certainly be a mistake for it to be run out of the Treasury, as some have suggested. It needs to be outside and independent of the Government.
If the green investment bank is to add to what can be provided by existing financial institutions, and not just be a brass plaque that reads “Green Investment Bank” without doing much that is different from what happens now, it needs to be proactive and to work with the energy and renewables sector, in particular; to work with industry and academics; and to have a good close relationship with financial experts. In my view, Edinburgh has the best combination in the UK of these sectors and skills, and I believe that basing the green investment bank headquarters in Edinburgh would be good not just for Edinburgh and Scotland, but for the north of England and Northern Ireland, and would be a good sign for the renewables and low-carbon sector throughout the UK.
I hope that the Minister can give a decision on Edinburgh in her winding-up speech. However, if she feels that she cannot, as I suspect she might, I hope that the Government will still give serious consideration to the matter. I think the view is shared across political parties that locating the bank’s headquarters in Edinburgh would allow us to make the best of the skills and expertise in many areas.
On behalf of the Liberal Democrat part of the coalition, I would like to make a few remarks on the business, innovation and skills measures in the Budget. Last year, we delivered a very tough Budget—one that members of neither coalition party would have wished to bring in as our first Budget—but it had to be done. Labour Members have conveniently forgotten just what a mess they left: they increased public spending by 5% year on year for 10 years so that the state accounted for more than half of all income; overheated the economy based on borrowing that this country could not sustain when the global banking problems struck; and left behind a deficit bigger than anywhere in the G20. And now they appear to be living in a parallel reality. They said that there would need to be cuts, but they never had the decency to tell the public where the axe was going to fall, and despite all the speeches we have heard this afternoon, they still have not.
We have an Opposition party that continues to oppose everything while proposing nothing. The simple truth is that if we had not taken strong measures, the country would today be in the same situation as Portugal: a whisker away from needing a bail-out and with all the draconian measures of higher taxes and bigger spending cuts that Greece and Ireland have had to endure. Our measures were tough, but they are doing the trick. They were endorsed by the International Monetary Fund, the OECD, the European Commission and, most important of all, the credit rating agencies, which confirmed our triple A credit rating. Today, therefore, families are not paying 12.9% interest rates like those in Greece, or 10% like those in Portugal, but 3.6%.
With this Budget, we need to support the growth that will pull us out of the situation we are in. The first thing we have to do is to start rebalancing the economy. We have arguably the best financial sector in the world—and we need it. We need it for jobs and we need it for tax revenues. Labour supported the financial sector. The then City Minister—now the shadow Chancellor—feted it with soothing words about light-touch regulation, and we all know what happened after that.
While Labour was in thrall to the financial sector, it neglected the manufacturing sector. Shockingly, the previous Government oversaw a decline in manufacturing that was greater than that seen in the days of Margaret Thatcher. My region in the west midlands has the invidious distinction of being the only region to lose private sector jobs when they were on the increase everywhere else, in the so-called good times. What do we have in the Budget to help to redress that imbalance? Not 10, but 21 enterprise zones have been announced. Each zone has a metaphorical “Open for business” sign outside, to attract the inward investment that each area desperately needs. The predicted 1% lowering of corporation tax this April has been doubled to 2%. By 2014, we will have the lowest corporation tax in the G7, which will attract more businesses and jobs to the UK.
For a long time we have been lobbied by small businesses about the burden of regulation. They are drowning under red tape. We have already made a start in that regard, with the one in, one out rule, the introduction of sunset clauses and the establishment of the Cabinet’s reducing regulation committee. I welcome the announcements that will assist local business: no more domestic regulatory burden for micro-businesses—that is, businesses with fewer than 10 employees—for the next three years; 200% R and D tax credits for small and medium-sized enterprises; increased entrepreneurship relief; and the extension of the small business rate relief. I could go on, but I shall not, in view of how many Members still wish to speak. I think the House gets the point, although I would like also to mention that more than £350 million of regulation for the smallest businesses has been done away with. However, we will need to look at equality legislation, which embodies rights that should be available to every working person, regardless of the size of the company for which they work.
Much mention has been made of young people. We need to encourage and develop our skills agenda. We have announced a further 50,000 traineeships and 80,000 work experience placements. We have also had the welcome doubling of the number of university technical colleges.
Fuel and transport costs—a tough area for the Treasury—are clearly things that business has lobbied about. However, business is suffering very badly, and although Opposition Members may mock the 1p reduction, let us not forget that their plans were for a 5p rise in the cost of fuel. At today’s prices, that would have increased the cost of filling up an average-sized car by more than £200 a year. I am glad that we have scrapped it.
However, it is important that we do not lose sight of our desire to be the greenest Government ever. That is an agenda that the Liberal Democrats are particularly keen to promote. The green investment bank will receive treble the capitalisation and be able to facilitate investment of £18 billion by 2014-15. It will also act like a real bank, able to borrow and invest from 2015. We have also set a carbon floor price, which will drive investment in low-carbon industry.
There is a lot more in the Budget that I would like to talk about, but I am conscious that other colleagues wish to speak. Together with all the other measures already announced, I am sure that the Budget will not only give business a helping hand, but put the “Open for business” sign up clearly outside the door of Great Britain plc.
All I can say about the contribution from Lorely Burt is that it is a bit rich to hear her talk about the stance and policies of the Opposition when she represents a party that, over the years, has perfected and polished the art of opposition based on opportunism.
Some Budgets are remembered for decades to come. Some are instantly forgotten, and some are seen as a missed opportunity. I suppose that only time will tell how this Budget will be remembered. However, my best guess is that it will be seen as a missed opportunity to turn on to a different road that would lead to jobs, growth and long-term sustainable investment in our future.
Yesterday, we needed to see a change of direction, but what we got was more of the same from the Tories. Unemployment is now at its highest level for 17 years, and even more worrying is the latest youth unemployment figure, which now stands at 1 million. That is not only a tragedy for the individuals involved but a national catastrophe. The promise to help 100,000 youngsters is welcome, but it goes nowhere near far enough. It also raises the question of why the Chancellor abolished the future jobs fund last summer, condemning many of our young people to a bleak future. The real fear is that this Government are creating another lost generation, to go with the one that they created in the 1980s. That is my generation, and it has never recovered from the years of Thatcherism. If that happens, the Government will deserve all the scorn that will be directed at them.
Yesterday, we needed to hear how the Government were going to help to get people back to work, but, unfortunately, we heard very little of that. What is being offered pales into insignificance when compared with what the Chancellor has already done to damage our prospects for growth. The fact is that £80 billion is being taken out of the economy over the next four years as a result of the comprehensive spending review. That is twice the amount that we believe to be sustainable.
The 1.2% growth in the economy experienced in the spring of last year vanished in the cold of winter, to the extent that the economy contracted by 0.6% in the last quarter. With the first quarter figures for this year not expected to be much better, there is a real possibility of the country slipping back into the danger zone. Consumer confidence is at its lowest level ever, unemployment is on the up, living costs are squeezing people’s incomes hard, and the full ferocity of the spending cuts will start to bite in April, which is just a few days away.
All these factors have led the independent Office for Budget Responsibility to revise downwards its growth forecast for 2011, from 2.3% when this Government took power, to 2.1% after the emergency Budget, and now to 1.7%. Many people expect even that figure to prove optimistic, with the possibility of growth being even lower over the next couple of years. Even if the
OBR is right, the lower growth figures will have dire consequences for people’s jobs and living standards. It is already being said that lower growth figures will add £10 billion a year to Government spending, because of increases in unemployment and welfare benefit costs. To me, that is the economics of the madhouse.
It does not have to be like this. In countries such as America, growth estimates are being revised upwards, not downwards. However, according to Mervyn King himself, we are now seeing the longest fall in disposable income since the 1920s as a result of this Chancellor’s policies, and the Institute for Fiscal Studies is saying that households will be 6% worse off than they would have expected to be for the period from 2008 to 2011.
There is more to come, with cuts in housing benefit and tax credits in April. Tax credits played an important role in cushioning people during the recession. They provided a cushion for many people who were put on short working hours and had their incomes cut following the financial crisis. I saw men at Corus being put on short time to save the company, and Corus was able to do that successfully, with the co-operation of the union, because tax credits helped to keep those men’s incomes at a high enough level to prevent them from hitting the poverty line.
On top of those cuts, many people are being badly affected by inflation, which is now running at 5.5% on the retail prices index, which is more indicative of the situation. That is much higher than the Chancellor’s initial forecast. We know that one of the reasons for that is the rise in VAT to 20% in January. When they were in opposition, the Conservatives and the Liberal Democrats promised that they would not raise VAT. It is no wonder that consumer confidence has fallen to record low levels over the last few months, yet this Budget does not offer any help for hard-pressed people who are struggling to cope.
While the increase in personal allowances is to be welcomed, it in no way fully compensates for the previous increases in VAT and other tax rises being implemented. In a sleight of hand, the Chancellor has moved the uprating of tax allowances, as we now know, from the retail prices index to the consumer prices index, which will cost every taxpayer dearly and bring in an extra £l billion to the Treasury by the end of the Parliament—more than covering the increase in personal allowances.
Even the Institute of Directors, not generally given to rigorous criticism of the Conservatives, commented recently that average earnings were falling and that household disposable income faced a big squeeze. It concluded that this was, at best,
“the jobless and joyless recovery”— not exactly a ringing endorsement of the Chancellor’s policies.
This Budget gave the Government the chance to alter course, to reflect on a vastly changing global situation, to calmly look at the evidence and to realise that the country is not recovering. They talk about rebalancing the economy, and they could have changed their minds and invested in Sheffield Forgemasters rather than leave it hanging in the wind, but that is what they did.
What we have had instead from this Budget is the same old Tories making the same old mistakes and it is the ordinary people who will suffer with their jobs. We have a politically motivated Chancellor who is making cuts now to offer tax cuts at the next election. This is a Chancellor who puts his party and his politics first and the economic situation and prospects for the country last. The Chancellor said this Budget was all about growth, but independent growth forecasts have downgraded the prospects for it. In my opinion, this Budget is a missed opportunity to invest in the UK, to rebalance the economy and to help hard-pressed families all around the country to make ends meet. There is no doubt that the Chancellor’s policies are hurting, but in the end, just as under Thatcher, we will not see them working.
To listen to some of the speeches of Labour Members one would think that the debate about the prosperity of hard-working families and individuals is somehow totally separate from the debate about reducing the deficit and getting our country’s finances back into balance. The two, of course, are intrinsically linked. We cannot have long-lasting peace and prosperity for our people unless we live within our means. The Government are no different from any business, any family or any household in that regard.
In his opening remarks, the shadow Chancellor wanted to take us back to the period in the run-up to the last Budget. The forecasts coming from the City of London about British Government debt and the state of our economy spoke of a dire situation. I am not talking about only forecasting companies and organisations, some of which were criticised earlier, but organisations that have skin in the game, so to speak, whose job is to advise investors.
The managing director of one such company, PIMCO, which is one of the world’s largest fund management companies and also the employer of the shadow Chancellor’s brother, said in the run-up to the last Budget that British Government debt was
“resting on a bed of nitroglycerine”.
He published a chart of a “ring of fire” in which Britain appeared alongside other countries such as Ireland, Portugal and Mexico that have terrible problems with their debts. That situation, however, has been transformed by this Government’s policies. Everyone in this country should be glad about that; we will reap the rewards from that change in the future.
Household debt has been mentioned. Anyone looking at the Red Book can see that levels of household debt rose continuously during the 13 years of the last Government. That problem was driven by unsustainable levels of credit, with which this Government have had to deal, as it was an underlying problem in our economy.
Income tax has also been touched on. Like all Government Members, I welcome steps to take the poorest people and families out of income tax altogether. More than 1 million people have been taken out of it. We all know that one of the greatest stealth taxes pushed by the last Government was the failure to keep the income tax thresholds moving in line with inflation, so millions of people were paying taxes at higher rates and levels than they otherwise might have done. This Government have done something to address that.
I want to say a little about the plan for growth. Like many other Members, I take a keen interest in the enterprise zones proposed in the Budget. My part of east Kent contains pockets of considerable deprivation in national terms as well as in comparison with the rest of the south-east of England. Along with colleagues, I will use my local enterprise partnership to lobby for the creation of an enterprise zone in our area.
One of the aspects of enterprise zones that interests me most is that areas will keep the uplift in business rates generated by the zones to reinvest in their communities. A White Paper on local growth published last year by the Department for Business, Innovation and Skills proposed giving councils more powers and more incentives to generate greater business activity in their areas, and to keep that business rate uplift to reinvest in their communities. Local authorities throughout the country, whether or not they end up being part of enterprise zones, may be able to develop their own business plans for local growth. There is the potential for mini and micro enterprise zones in every area, or even on every high street, in the country.
I also welcome the announcement of incentives for local authorities and planning bodies to promote growth and increased business activity in their areas. During Question Time this morning, I asked the Secretary of State for Energy and Climate Change whether that announcement would apply to the national policy statement on energy, on which the Department is currently consulting. Nuclear power stations are deemed to be part of the national infrastructure rather than a matter for local authorities, but they can provide considerable economic benefits, and I have been campaigning for a new nuclear power station at Dungeness in my constituency. There is considerable economic deprivation in that part of Kent, which is part of an economic zone that also includes Pfizer’s Sandwich plant. The establishment of a new power station at Dungeness would boost the local economy and create thousands of high-skilled jobs, and if it can be achieved through the measures in the Budget, it will be greatly welcomed by my constituents.
The Budget also contains measures to boost the creative economy. The Select Committee on Culture, Media and Sport, of which I am a member, has been considering the funding of the arts and heritage, and our report will be published next week. It was completed before the Budget statement. I am particularly encouraged by the measures to incentivise private giving through legacies and gift aid, which will benefit charities to the tune of hundreds of millions of pounds. I believe all Members will welcome that. The Budget also provides for breaks for smaller businesses in the creative sector. A number of Members have referred to the measures to increase investment in small businesses. Many creative and high-tech businesses, such as those involved in the digital economy, are small and entrepreneurial. My hon. Friend Mr Gyimah spoke eloquently about the benefits that the Budget provides for such businesses.
I also note from their paper “The Plan for Growth” that the Government intend to relax the restrictions on the performance of live music, especially in smaller venues. There has been considerable debate in the music industry about the restrictions introduced by the last Government in the Licensing Act 2003, which made it harder for people to organise live events by imposing more regulation and costs. The Government will introduce measures to make the position easier not just for live musical performances but for theatre and cinema, and I think we can all welcome those as well.
This was a Budget for growth, featuring a series of bold plans not only to make some of the poorest people in the country wealthier by reducing their income taxes, but to increase investment in smaller companies and the micro-economy to benefit people and businesses throughout the country and particularly in my constituency.
Before I make my substantive point, let me make two observations, on growth and employment and on business confidence.
I do not think there is any disagreement between the two sides of the House on the need to reduce our debts. The controversial issue is the time frame within which we should do that. If we want to reduce the deficit, we will obviously need to produce growth and jobs, because people who are out of work do not pay income tax and we have to pay benefit. I believe that the cost of every 100,000 people out of work is about £500 million in benefit payments. According to the latest figures, 4,000 people in my constituency are claiming jobseeker’s allowance. I hope that we can get them back to work very soon.
The Office for Budget Responsibility’s downgrading of the growth forecast has been widely reported, but its revision of its autumn estimate of the number of jobseeker’s allowance claimants has not been commented on. The OBR revised upwards its forecast of the number of JSA claimants in this year and the following four years. For this year, unemployment has been revised upwards, and the number of people claiming JSA has been revised up by 50,000 compared with the autumn forecast. For next year, the forecast has been revised up by 120,000, and for 2013 it has been revised up by 130,000.
Does my hon. Friend agree that such statistics say nothing about the tragedy that unemployment visits on the lives of individuals, and especially on the lives of our young people and on their prospects for the future?
I absolutely agree. As a former employment lawyer, I am well aware of the huge impact that loss of work has on individuals and their families.
We are entitled to ask why the unemployment forecasts have been revised upwards. That has happened because of sluggish growth, and the OBR’s autumn forecast clearly states that the sluggish growth has been caused in no small part by the extreme fiscal consolidation embarked on by the Government. Therefore, there are more people out of work, claiming benefit and not paying income tax due to the policies of this Government. The OBR has said that.
The Chancellor’s strategy on business confidence and investment is clear. As the Government hack off chunks of the public sector—causing, of course, mass public sector job losses—he says that the private sector will automatically step in to fill the gap, and he foresees private sector growth fuelled by a boom in exports and business investment. Business confidence is key, and since this Government took office confidence has fallen.
The latest Institute of Chartered Accountants in England and Wales and Grant Thornton UK business confidence monitor shows a continuing downward trend in business confidence in this country for the fourth consecutive quarter. I sincerely hope that that confidence returns, because the people in the communities I represent in Streatham and parts of Clapham, Balham, Tulse Hill and Brixton will be among those who suffer.
Does my hon. Friend share the concerns that were raised with me yesterday and today by many green businesses that this Budget could have been an opportunity for growth specifically in the green sector, yet the ability of the green investment bank to lend has been delayed until 2015—if it will be able to lend at all? The Government talked yesterday about the green deal, but there are no details about what incentives to many householders across the country might be.
Aside from the two observations that I wanted to make, I want in particular to comment on the document’s proposal to scrap the planned extension of the right to request flexible working to parents of 17-year-olds. That has been cited as a way to ease the burdens of employment regulation on business. “The Plan for Growth” says the administrative burden of extending that flexible working will cost about £500,000. That figure is taken from the Government’s own impact assessment of the measure, published in October last year.
Although “The Plan for Growth” mentions the £500,000 figure, it does not tell the whole story. The assessment agrees that there are additional procedural costs to business in extending the right to request flexible working, which it quantifies as £1.3 million, including the administrative costs I have just mentioned. In addition, there is a £975,000 cost in making adjustments to working patterns. However, that is far outweighed by the savings to business, which are listed in the Government’s impact assessment: £1.1 million from higher productivity, £1.2 million from lower labour turnover and £63,000 from reduced absenteeism, totalling £2.4 million in the first year. Overall, the “net present value” of introducing the measure—the benefit to business—would be £41.2 million. Again that is not my figure, but the Government’s. Therefore, on pure cost grounds, I do not understand how that decision makes any sense.
It is a shame that the Minister for Employment Relations, Consumer and Postal Affairs is not here, because he signed off the impact assessment with the following statement:
“I have read the Impact Assessment and I am satisfied that…it represents a fair and reasonable view of the expected costs, benefits and impact of the policy, and…the benefits justify the costs”.
Never mind the costs of the measure, because there are some things in society that we do not price up and put a market value on—one is the time we spend with our family. That is presumably why the Prime Minister said on
“We are not casual about the pressure that many parents feel”.
The impact assessment is clear, because under the heading “key non-monetised benefits”, it says that the measure will improve health and well-being, help employees achieve a better work-life balance and help improve family life. For me and my constituents, that is incredibly important, because we face a problem whereby a minority of our young people are engaging in serious violence. A number of stabbings and shootings are taking place in my constituency almost every month. There are many reasons for that, and there is no one magic solution to resolving these issues, but I am clear that we need to help adults spend more time with their families. Extending the right to request flexible working to parents of 17-year-olds—teenagers in that key group—is essential to helping them provide the guidance that many young people need in my community.
I will give way shortly.
I have come to the Chamber from this morning’s Treasury Committee sitting, where I asked Jonathan Portes, who until February was chief economist at the Cabinet Office, about this issue. I asked him whether abolishing the right to request flexible working for the parents of 17-year-olds would make a big difference in increasing GDP or growth. He made it very clear that scrapping the extension will “do nothing for growth”. I then asked HSBC’s chief economist whether he would be revising his GDP figures as a result of the scrapping of the measure, and he told me that he would not.
This measure seems to be a gimmick, which tends to suggest that the Government think that watering down employee rights is a substitute for a properly thought out growth strategy. All the figures I have just presented and all the arguments I have just made for the introduction of the extension, which was planned for April, are in the Government’s own impact assessment of the measure. Will the Government think again about it? I grant that they do not and will not accept our arguments to revise their plan for fiscal consolidation, but I suggest that it would be very wise for them to think again on this small measure.
I call Gavin Williamson, who has until 5.42 pm—about three minutes. I am sorry about that.
Thank you for calling me to speak, Mr Deputy Speaker. I am for ever astounded by Opposition Members and their total denial that their party had anything to do with the financial mess that this Government are sorting out. My grandfather always used to say to me, “You spend what you earn and you never borrow on the never-never.” The only economics that Labour Members seem to understand are the economics of the never-never—never worrying about how much money they were borrowing and never worrying about how much money they would ever have to pay back.
Ever since I left university in 1997, I have worked in manufacturing. I am proud of that and I am proud that the Government are doing something for manufacturing to reverse the decline we have suffered. It is about time that we had a Government who care about this and who will sweep away the regulations that have stifled manufacturing. When I was running a pottery business, I used to go to many countries across the globe—I can even proudly boast to be probably the only Member of Parliament who has sold chinaware to the Chinese— and whether I was in Germany, Italy or France, the Governments spoke to their businesses and wanted to know how to help them best, minimising regulation and helping businesses to succeed. That is the ethos that I believe has been spelled out in this Budget and it is one that I welcome.
I also want to pass on my thanks to the Chancellor for the fact that he has listened to representations from me and many other colleagues on community investment tax relief. In my constituency, that will help the Black Country Reinvestment Society, an organisation that is helping businesses, giving them small loans to help them grow and prosper. That will have a positive impact and I thank the Chancellor and colleagues on the Front Bench for listening.
This country faces many great challenges, which we have to deal with, and rebalancing the economy is the core one. I believe that this Budget makes strides to achieve that and that it will do so.
We have had an important debate this afternoon on a vital subject, following on from yesterday’s Budget statement—a statement that, unfortunately, largely followed the course mapped out by the Tory Government, with their allies, in the announcements that they have made in the last year.
I hoped today that the long-trumpeted plan for growth, which has been so elusive as far as the Department for Business, Innovation and Skills is concerned, would be revealed in more detail. We have had the document, but the Secretary of State barely referred to it. In his speech he did not even mention enterprise zones, or provide any more detail or information to expand on the fairly threadbare set of initiatives in the document.
The Government inherited growth and have taken it away, they inherited falling unemployment and have caused it to rise, and they have squandered the low inflation that they inherited. The result, in constituencies up and down the country, is a profound lack of confidence in the future. The prospect of falling living standards is restricting demand, businesses are failing to invest, and as a consequence, joblessness continues to grow. The Government need to recognise the malign effects of their policies, but unfortunately the Budget offers more of the same—the same policies that have taken the country backwards, not forwards.
At least now the Government are talking of growth. They took a long time even to do that, and they have now given us a document, but that document takes us backwards again—back to a Thatcherite prescription for what is wrong with the economy, reheating policies that led to an unemployment count of 3.5 million twice under Tory Governments in the 1980s and 1990s. As we have just heard from my hon. Friend Mr Umunna, the same thing is beginning to happen again. The OBR has identified that unemployment will be higher than it predicted last year because of the Government’s policies.
Lest we forget, the legacy of those years in the ’80s and ’90s was not success but a wasted generation of young people. What is so depressing about this Budget is the realisation that the Tories have learned nothing from history and intend to repeat it instead—and it is shameful that the Liberal Democrat allies they now have are acting as their accomplices. It makes me sick to the stomach to see the Liberal Democrats being more vehement than the Tories in their defence of Government policy in the Chamber, because they stood on the hustings and told the people who were fooled into voting for them exactly the opposite when they were asking for those people’s support.
The proposals put forward by the Government offer nothing new. Even the names bring back memories of the 1980s, with enterprise zones coming back from the dead. Those of us whose politics were defined by the mistakes of the 1980s remember that enterprise zones were not a success then. As Helen Miller, a senior research economist at the Institute for Fiscal Studies, said in response to the Budget:
“Past UK experience with enterprise zones suggests that their main effect may be to cause activity to relocate rather than to create new activity.”
We must recognise that the introduction of enterprise zones follows the dismantling of machinery to deliver regional growth. Local enterprise partnerships are still nascent and the Budget does nothing either to resource them adequately or to take them forward any further. They must do their work without assets or resources, and decisions on the allocation of resources are still being made not locally but centrally by the centralised regional growth fund. Ian Swales, who is not here today, pointed out in a debate in Westminster Hall earlier this week that 97% of grants given out by One North East were for less than £1 million, which is below the threshold for securing financial assistance from the regional growth fund. Where will small businesses secure the finance that was previously available to them? We must wait to see the detail of the proposal for enterprise zones, as we did not hear any more detail about them today, but I suggest that there is a vital gap in relation to small businesses, which needs to be dealt with.
The Budget is made in the context of a crisis in the construction industry, but the Secretary of State did not mention that industry in his statement. This week, the Federation of Master Builders reported that the proportion of firms reporting higher work loads fell from 22% in the fourth quarter of 2010 to 19% in the first quarter of 2011. Even this Government have finally recognised that their rhetoric on planning change and localism has had a profoundly negative effect on the construction sector and the housing market. Their move, in the Budget, to introduce a presumption in favour of development is a tacit admission of that fact. Equally, the crisis regarding first-time buyers, which the Government have ignored until now, is real and has had a profound impact. Any move to assist first-time buyers is welcome, but the help for only 10,000 for only one year is, as the Construction Products Association has today pointed out,
“a very modest step and is unlikely to make much of a dent in the 100,000 shortfall of new build that this sector is currently facing.”
We hear a lot of rhetoric from the Government about deregulation, but the action is less convincing. We have the “one in, one out” soundbite, but what about the groundwork—the hard work—of taking forward the regulation agenda of the Better Regulation Executive and the Regulatory Policy Committee? Where is the Government’s forward regulatory programme? Will what was produced by the previous Government finally come through? I would love to see that programme, because the Government need to come clean about the regulations that are going to be introduced.
I do not have any time to give way; I am sorry. I know that the hon. Gentleman had only three minutes, but I have only nine.
We agree that the country needs to rebalance the economy, and that is why the Labour Government set up the Advanced Manufacturing Centre in Rotherham and the National Composites Centre in Bristol. I encourage the Secretary of State not just to reannounce projects that were set up by the previous Government, but to support manufacturing with some projects of his own. We welcome the progress made on the back of favourable exchange rates, but there are worrying signs in leading companies such as Pfizer and Novartis that we may be losing the edge that we previously enjoyed in hi-tech industry. There are real concerns that cuts in our universities sector will threaten our primacy in science.
When this Government set their course last year they made the wrong choice. Labour’s plan to reduce the deficit was measured and it was working. The Tory Government’s plan is reckless and is not working, a fact evidenced by the ending of growth in the last quarter. The Budget’s downgrading of growth figures is also a fact. They have undermined the fundamentals needed to deliver growth—adequate demand and confidence in the economy—and replaced them with a lack of confidence among businesses and consumers. The result is that there is a real risk of slipping back into recession. We believe that the evidence is there to justify the need for the Government to take a different course. They must change course before they create a further Tory—and this time Liberal Democrat—wasted generation.
We have had an important and, in many respects, illuminating debate this afternoon. I will try to refer to all the contributions that have been made, but time is short so it will be difficult for me to take interventions.
We have been talking about two halves of a solution to a problem that itself has two halves. The first half of the problem relates to the economy: the imbalance in jobs and a business model for UK plc that was simply unsustainable in relation to the sectors and its regional impact. The second half of the problem relates to what we can do to tackle the huge problem in the public finances and the structural deficit handed over by the previous Government.
The first point to consider is the broken business model that the previous Government created for UK plc, which was simply unsustainable. First, it was unsustainable in terms of sectors. An uncontrolled boom took place broadly in one sector—financial services—and in one region. During the mid noughties, for every 10 jobs created in the south-east and London, only one was in the private sector and outside financial services, which clearly shows that the previous Government’s model simply was not working. That had a huge cost, as my right hon. Friend the Secretary of State for Business, Innovation and Skills has said. Since 1997 manufacturing has been halved and lost two fifths of its work force, and exports from the UK fell behind the rate of growth seen in the rest of the world. Meanwhile, household debt ballooned. We had a huge property bubble that was worse than the USA’s. As the shadow Chancellor knows very well, he allowed the banking sector to get dramatically out of control. The sectors across the UK economy were totally unbalanced, and we need to change that.
Secondly, the imbalance was regional. There was huge job creation in the south-east, but what about the rest of the country? That shows why we are right to make proposals in the growth review for enterprise zones, and I very much hope that Opposition Members will not allow their political prejudices to get in the way of their local communities being able to ask to be part of the enterprise zones as they are developed.
On the public finances, I listened to John McDonnell, with whom I have previously made common cause on other issues. I have great respect for him and for his consistency, but I must say that on this occasion I disagree with his analysis of what we need to do, which seems to be broadly in line with that of his party. What is their solution in a boom? It is to spend more. What is their solution in a bust? It is to spend more. That simply is not a sustainable way to run an economy. In fact, the previous Government left our country and our people weighed down with public debt after maxing out the nation’s credit card. They eventually decided that they did not support tackling the deficit now. Instead, we hear from the shadow Chancellor today that he wants to do that later. He wants to pass on Labour’s debt to our children and grandchildren, which is totally unacceptable.
Chris Williamson talked about decline, but what does he think happened under the previous Government? He should go and talk to people in manufacturing who saw their own competitiveness decline dramatically.
My right hon. Friend the Secretary of State for Business, Innovation and Skills and my hon. Friend Jesse Norman talked about the utter denial that still exists among the Opposition, about not just the deficit and the public finances, but their thoroughly broken approach to running the UK economy. There was no humility or apology for any of that, as my hon. Friend Michael Fallon said, and the fact that there is no recognition of the problem surely means that there will never be any solution from the Opposition.
Mr McFadden seemed to think that we could suddenly wish away those problems and get over them incredibly quickly, but the challenges that the Labour party left this Government—two parties that have come together to work in the national interest to sort out that huge mess—will take some time to be met. There will be no quick fix, but we have early, immediate and continuing steps to resolve the problems that have been left for the UK economy and for our people.
We took immediate steps in the spending review and in the emergency Budget to lift people out of income tax. Mrs Hodgson seemed quite dismissive of them, but I hope that she will not vote against them when the time comes. We took steps in the spending review to bring public spending back under control, and yesterday we took the next step, which was a Budget for reform and recovery and a growth plan to rebalance our economy and put growth and sector issues back on a sustainable footing.
Opposition Members seemed to suggest that we have not talked to business, but we have actually had more than 1,000 meetings, and if they look through the growth review and “The Plan for Growth” they will see that we have taken well over 100 steps to help businesses throughout Britain. Our message to them is that Britain is open for business.
We will have the most competitive tax system in the G20; we will make sure that Britain is the best place in Europe to start, finance and grow a business, which, as my hon. Friends the Members for East Surrey (Mr Gyimah) and for Skipton and Ripon (Julian Smith) said, is absolutely critical; we will have a more balanced economy by encouraging exports and investment; and we will have a more educated work force, who are the most flexible in Europe. Those are the ingredients for a rebalanced economy that creates sustainable jobs.
Mr Bailey did talk about jobs, but if he is concerned he should read the OBR report to the end, because it clearly says that our plans are projected to create a net 1 million jobs over this Parliament. I hope that Members from all parts of the House will support that. By the time we have finished, we will have a corporation tax rate lower than America’s, France’s and Germany’s, giving us the lowest rate in the G7.
Our second ambition is to make sure that Britain is a great place to start, finance and grow a business. In the World Economic Forum global competitiveness index, we fell from fourth to 12th. The shadow Chancellor breathes out in frustration at me reading out that statistic, but it is absolutely true, and we have had to combat it by abolishing £300 million of regulations and by introducing a moratorium, exempting businesses employing fewer than 10 people from new domestic regulation for the next three years. But, we are going to go further than that. To stimulate growth, we will double entrepreneurs’ relief and help SMEs by extending the small companies business rate relief for an extra year. We are doing our bit to help business, and I wish the Opposition would support that.
We have a whole range of plans to support different sectors, but manufacturing is crucial to rebalancing our economy, as my hon. Friend Jessica Lee and Lorely Burt said. One reason why our economy became so unbalanced, and so regionally unbalanced, was the skew towards financial services, and we have to encourage other parts of our economy to grow, so we will do what we can to help manufacturing in particular.
On enterprise zones, the boom left too many communities behind, and we are determined to ensure that as our economy grows, the communities that can benefit most from that will do so.
Our country should never again have to accept the economic decline that has taken place over the past decade —an irresponsible boom and bust, and an unbalanced economy that overheated and took our country to the brink of bankruptcy. The shadow Chancellor was at the heart of the decisions that were so catastrophic for our country: selling gold, PFI arrangements, structural deficit and catastrophic bank regulation. His utter denial of the role that his Government played in leading our country so near to ruin will leave the British public shocked and utterly bewildered as they watch this debate.
In conclusion, this Government are looking to right the wrongs of the past. Where others have failed, we will succeed.
The debate stood adjourned (
Ordered¸ That the debate be resumed on