Finance (No. 3) Bill

Part of Industrial Relations (Voting Procedures) – in the House of Commons at 6:32 pm on 26th April 2011.

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Photo of Angela Eagle Angela Eagle Shadow Chief Secretary to the Treasury 6:32 pm, 26th April 2011

I beg to move an amendment, to leave out from “That” to the end of the Question and add:

“this House declines to give the Finance (No. 3) Bill a Second Reading because whilst the Minister of State for the Cabinet Office acknowledged that the country faces an ‘immediate national crisis in the form of less growth and jobs than we need’ this Bill does not address it;
because the economic approach set out by the Government in this Bill puts jobs and growth at risk;
because the Bill cuts capital allowances to businesses who invest in growth; because the Office of Budget Responsibility estimates that after all the measures in the Bill are taken into account the number of unemployed will be higher by up to 200,000 than forecast in November 2010; because the Bill fails to reverse the higher petrol prices faced by families as a result of the Government’s VAT increase in January 2011; because it does not address the damage done to family living standards caused by the wider tax and benefit changes this month; and because without a repeat of the bank bonus tax, the bank levy alone will mean lower taxes for the banks at a time when families and children are bearing the brunt of the Government’s cuts to household incomes.”

At the beginning of the Second Reading debate on a Finance Bill, it is appropriate to take stock of the situation that we face in the UK and of the Government’s handling of our economy almost a year into their time in office. This was the self-styled “Budget for Growth” that downgraded the growth figures. When one in five young people were out of work, it was a Budget that forecast higher levels of unemployment. This was a Budget from the deficit cutters which forecast £46 billion of higher Government borrowing.

After listening for months to his analysis of the economic challenges facing this country, I must confess that I am very worried about the credibility of the Chancellor. His explanation of the origins of the banking crisis and the recession that it caused is partisan fiction—it has very little connection to economic reality. It seems that I am not alone in worrying about his grasp of the facts, because over the weekend he has been attacked by the enemy within. He has been accused of “fiddling the figures” and telling “untruths”, threatened with a lawsuit and told to withdraw “completely unfounded” claims or risk losing “his credibility as Chancellor”—that is just what the Energy Secretary is saying about him.

The Chancellor is clearly also a founder member of the enemy faction identified by the Deputy Prime Minister in his interview with The Independent over the weekend as

“a right-wing elite, a right-wing clique who want to keep things the way they are”.

Perhaps the Chancellor could tell us, if he bothered to turn up—[Interruption.] Perhaps the “Orange Book” Liberals are part of that right-wing clique. Perhaps the Chancellor will tell us whether this right-wing clique all have a uniform as fetching as the Bullingdon club tux?

What about the Chancellor’s deputy, the Chief Secretary? In response to the Chancellor’s wild accusations last week about the funding of the “Yes to AV” campaign, the Chief Secretary said:

“I think it is a real shame that this sort of pretty desperate scaremongering is going on.”

Well let me tell the Chief Secretary that I know just how he feels, because the Chancellor has been indulging in pretty desperate scaremongering about the threat of a UK sovereign debt crisis since his theatrically named “Emergency Budget” last June, and he has been aided and abetted by none other than the Chief Secretary. As the Energy Secretary said in his letter to the Chancellor over the weekend:

“Robust debate is normal in British politics. Persistent resort to falsehoods is not.”

So the Energy Secretary is off to consult his lawyers, and the Chancellor, the Prime Minister, the Foreign Secretary and the chair of the Conservative Party all appear to be in his sights.

In the meantime, will the Chief Secretary now admit, in the interests of not persistently resorting to falsehoods, that the banking crisis and global recession were not caused by the previous Prime Minister? The truth is that he helped to avoid a global depression and that the current Chancellor got every important call in those days of world crisis wrong. Will the Chief Secretary also have the decency to admit that the deficit was not caused by too much spending on schools and hospitals or by the profligacy of nurses and teachers? The truth is that the crisis was caused by unforgivable excess in the banking sector. Will he also take this opportunity to disown and stop repeating the Chancellor’s irresponsible and pretty desperate scaremongering about Britain being on the brink of a sovereign debt crisis like Greece or Portugal, when it is obvious that it is not?

Like the Energy Secretary, I believe that robust debate is normal in British politics, but persistent resort to falsehoods is not. Will the Chief Secretary therefore now disown the “pretty desperate scaremongering”—I use his own words—about the supposed threat of a UK sovereign debt crisis? The truth is that it was the banking crisis that had a disastrous impact on the public finances. Between 2008 and 2009, nominal GDP fell by 1.8%—that cost £20.6 billion—and tax receipts dropped by 3.7%, costing £19.9 billion. Will he acknowledge that this sudden collapse in economic activity is responsible for the bulk of the deficit? This is not a deficit caused by too much public spending before the crisis, but a deficit caused by the crisis. The truth is that the deficit is the price that we are paying for the failure of the banking system and the recession that was caused by that failure. It is also the price that we paid to prevent a global recession from turning into a worldwide depression, and it was essential to our future well-being as a nation that a depression was averted. We could all have a more mature and relevant debate in this House about the formidable economic challenges facing us, if we began with an acknowledgement of the truth of these facts.

Last June, in their first Budget, this Government embarked on a risky and dangerous experiment with the future of our economy. Last year, they abandoned Labour’s plans to halve the deficit in four years and decided to plough full steam ahead with a deficit reduction plan that went further and faster than that of any other major economy in the G20. So preoccupied were they with their desire to make the biggest public spending cuts since the second world war that they also failed to ensure that growth formed a key part of deficit reduction. They opted for a high-risk approach, and this Finance Bill continues that dubious experiment.

It appears that the Government are in thrall to the economic dogma of a long-dead 19th-century economist, David Ricardo, and their ideological preference for a small state. They imagine that the smaller the government, the less taxation and spending there will be. They think that the private sector will somehow automatically fill the gap left by cuts and that the economy will just grow. That is why they have embarked on a drastic programme of deep and immediate cuts that, if their theory is correct, should already be turning the economy around by now and why they are so uncomfortable with publishing their wholly inadequate self-styled, “Plan for Growth”, which was meant to be the public relations centrepiece of the Budget. Their laissez-faire economic approach assumes that growth will happen automatically without the need for any Government support, much less a plan. That is why the plan was so delayed and of such dubious merit when it finally arrived. Keynesians, however, believe that the economy works very differently and that the Ricardian equivalence dogma is wrong. We ignore the insights of Keynes at our peril, which is why the Government’s economic policy, as set out in the Bill, is taking us in the wrong direction.

The great banking crisis of 2007, which began in the American sub-prime mortgage market, administered a huge and near-fatal shock to the world’s financial system.