Section 5 of the European Communities (Amendment) Act 1993

Business of the House (24, 25 and 26 March) – in the House of Commons at 4:33 pm on 24th March 2015.

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Photo of David Gauke David Gauke The Financial Secretary to the Treasury 4:33 pm, 24th March 2015

I beg to move,

That this House
approves, for the purposes of section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in Budget 2015 and Autumn Statement 2014, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook (2015) and Fiscal Sustainability Report (2014), which forms the basis of the United Kingdom’s Convergence Programme.

As in previous years, the Government inform the Commission of the UK’s economic and budgetary position in line with our commitments under the EU’s stability and growth pact. The Government plan to submit their convergence programme, with the approval of both Houses. The convergence programme explains the Government’s medium-term fiscal policies, as set out in the 2014 autumn statement and Budget 2015, and also includes the Office for Budget Responsibility forecasts. As such, it is based entirely on previously published documents that have been presented to Parliament.

With the Budget on 18 March this year, and the debate much earlier than normal because of the electoral timetable, I appreciate that the time to prepare for this debate has been particularly tight. Against that backdrop the Treasury has made every effort to provide early copies of the convergence programme document in advance of the debate today. The document makes it clear that since 2010 the Government’s long-term economic plan has delivered the stability and security needed to build a resilient economy: the UK had the fastest growth among G7 economies in 2014; employment has reached its highest ever level; and inflation—the consumer prices index—is at a record low. Debt as a share of GDP is now forecast to start falling in 2015- 16, meeting the debt target set out in 2010.

There are differing views on the value of submitting that information to the Commission. To be clear, as a result of the UK’s opt out from the single currency, no sanctions can be imposed on the UK as part of this process. The UK’s record is a good one, and there is some value in sharing the UK experience across Europe and demonstrating that there is no conflict between central fiscal consolidation on the one hand and robust economic growth on the other.

Last week’s Budget set out the Government’s assessment of the UK’s medium-term economic and budgetary position. GDP grew 2.6% in 2014, which is the strongest annual growth since 2007 and the fastest in the G7. Debt is forecast to fall as a share of GDP in 2015-16, meeting the debt target set out by the Government in 2010. Borrowing is forecast to be lower in every year to 2018-19 than at autumn statement 2014, and the public finances are forecast to achieve a larger surplus in 2018-19. Falling debt and improving borrowing mean that consolidation can end a year earlier than planned, and that spending will grow in line with GDP in 2019-20. Budget 2015 builds on existing reforms to create a dynamic, regionally balanced and stronger economy. Latest data show that employment is at its highest ever level, with 1.9 million more people in work since the current Government came to power. Business investment has increased by 25.6% since the first quarter of 2010, and the UK will have the joint lowest rate of corporation tax in the G20 from April 2015.

Budget 2015 sets out a significant package of measures for a truly national recovery by investing in infrastructure, housing, and science and innovation across the whole of the UK, and building a northern powerhouse. Fuel duty will be frozen for another year. The Government will substantially reduce oil and gas taxes to improve competitiveness in the North sea. Further support for energy-intensive industries will begin in 2015-16. A comprehensive review of business rates has been launched, and there will be a radical simplification of the tax system by abolishing the annual tax return.

Restoring growth and competitiveness across the EU is critical. The euro area outlook is for slow, but positive growth, supported by lower oil prices and European Central Bank sovereign quantitative easing. The European Commission’s own forecasts from February this year predict growth in 2015 of just 1.7% in the EU as a whole, and 1.3% in the euro area. Some 45% of our exports are destined for the EU and seven of the UK’s top 10 trading partners are EU member states.

The UK recovery has been based on a number of policy responses: supportive monetary policy, clear and credible fiscal consolidation, and structural reform, all of which must mutually reinforce each other. Although the challenges across member states differ, countries across the EU need to consider a similar response, and these processes of European co-ordination, including the sharing of information through the shared reporting of fiscal and reform progress, can play a part in making that happen.

Much of the answer lies in national level reforms such as creating flexible labour markets. Clearly, the European Semester has a key role to play in encouraging member states to make ambitious reform commitments, and the UK has an interest in making those reforms happen. However, an ambitious EU-level reform agenda is also a key part of the equation and an essential counterpart to national level reforms.

In conclusion, the Government are committed to ensuring that, in line with section 5 of the European Communities (Amendment) Act 1993, this House approves the economic and budgetary assessment that forms the basis of the convergence programme. Following the House’s approval of that assessment, the Government will submit the convergence programme to the European Commission, which is expected to make its recommendations to all EU member states in late May. Those recommendations will then be considered by ECOFIN council and agreed by Heads of State or Governments at the European Council.

The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2014 autumn statement and Budget 2015, and also includes the Office for Budget Responsibility forecasts. As such it is based entirely on previously published documents that have been presented to Parliament. Unlike other member states, the UK does not submit its Budget to the Commission for approval, and cannot be subject to any action or sanctions as a result of its commitments under the stability and growth pact. I look forward to the debate.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 4:39 pm, 24th March 2015

I am grateful for the opportunity to respond to the motion on behalf of the Opposition. Looking back over the corresponding debate last year, I was interested to see that the Minister’s predecessor, Nicky Morgan, told the House that, due to the tight timetable,

“the Treasury has made every effort to provide early copies of the convergence programme document in advance of today’s debate.”—[Hansard, 30 April 2014; Vol. 579, c. 851.]

I acknowledge that today the Financial Secretary indicated the difficulties in providing the document in a timely fashion. I received a copy only on Friday. At more than 250 pages long, it was perhaps not ideal, but it certainly made for interesting weekend reading.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

Does the hon. Lady recognise that many of those pages were familiar, having been in the Budget documents? No doubt, by Friday, she had already read and digested all the Budget documentation.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I was just about to say that I know the Minister is courteous and accommodating, so I understand that the delay might have been unavoidable. As he quite often does, he has anticipated a number of the questions and points I intended to raise—indeed, the whole thrust of my remarks is just how familiar some of the documents and the issues they cover are, given that they have been discussed already and are likely to be debated again tomorrow. I hope to be able to do the subject justice this afternoon.

Some things have changed since last year. Looking across the Chamber, I see that, unlike last time, Jacob Rees-Mogg is not in his customary place. I know what a keen interest he normally takes in European matters, having had the pleasure of his company in many European Committees, including one only this morning. As the Minister last year observed, the hon. Gentleman

“could go on for hours and hours on that particular subject.” —[Hansard, 30 April 2014; Vol. 579, c. 854.]

Given his absence from the Chamber this afternoon, the debate might be shorter than was anticipated.

As the Financial Secretary observed, once again we have been provided with a barrage of figures, accompanied by bouts of backslapping, boasts and congratulations from the Government to themselves. The overarching theme of the document is to show just how well the Government have done—and, no doubt, the Government would say that is entirely in order from their perspective. However, the document—and to some extent this debate—is something of an exercise in repackaging. Bits of the Red Book and bits of the Office for Budget Responsibility’s “Economic and fiscal outlook” are spliced together with a new binding—a theme and variations on the Budget, except there is little theme and scant variation. Although the Government can try to repackage the Budget, I would argue that they cannot mask some of the problems we have already raised and the reality of the failure.

Part of me thinks that the Minister’s tune, like the Chancellor’s last week, strikes a pretty discordant note, because the truth is that, under even the mildest scrutiny, the Government’s economic credibility behaves like a sand castle in the waves, melting away before our eyes. Attempts have been made, through choice language and careful presentation, to obscure the impact that this Government have had, and continue to have, on the people and public services of this country. The theme that runs through the Red Book and the report we are discussing today is that everyone can put away their umbrella, because the sun is shining, people across the country are better off, and we should all be very grateful as we walk hand in hand into the sunlit uplands of peace and prosperity. [Hon. Members: “Hear, hear!”]

I hear the cheers from the Government Benches. Hon. Members may wish to wait for the next part of my speech before further congratulating the Government. The picture is very different for the millions of people across the country who are still firmly mired in the slough of despond because of what has happened to their lives. For example, there are those who are £1,600 a year worse off since this Government took office, or those who are £1,100 a year worse off as a result of the tax and benefit changes made by this Government, including the rise in VAT. The hundreds and thousands of people across the country, including many in my constituency, who are forced to rely on food banks—a persistent and pernicious feature of Tory Britain—are not feeling the benefits of the recovery. For them the sun is not shining. They can see through the smoke and mirrors that the Government use to try to paint a glowing picture.

To judge only by the language and tone of the document in which the Government claim to have laid the foundations for a strong economy and a fairer society, one might be forgiven for thinking that the worst was over. In some ways that is the most troubling aspect, because we know that the worst is yet to come. The Chancellor may have shuffled the numbers around, but no shuffling can conceal the truth about the Government’s economic plans. As the OBR said, the Budget will mean

“ a much sharper squeeze on real spending in 2016-17 and 2017-18 than anything seen over the past five years”, and a

“sharp acceleration in the pace of implied real cuts to day-to-day spending on public services”.

Perhaps I do not share the Chancellor’s or the Minister’s sunny disposition, or perhaps I am more in touch with the reality of the lives of people across the country. I do not see much fairness in the document before us or in the Government’s approach. The cuts of more than 5% planned for 2016-17 and 2017-18 are twice the size of any annual cuts in this Parliament. That has resulted in a somewhat erratic trajectory, described by the OBR as a “rollercoaster ride” of public spending. Remarkably, for all the cuts yet to come, the Government continue to repeat the tired mantra that “we are all in this together.”

That is not borne out by the evidence. Wage growth has been stagnant over the course of the Parliament. Energy bills, on the other hand, have gone up by around £300 over the past five years. Although the Government boast of more jobs and high rates of employment, we have to consider what kind of jobs these are. Many are low paid. For evidence of that, one need look no further than the state of the nation’s tax receipts. Income tax receipts and national insurance contributions are £97 billion lower over the course of the Parliament than was forecast in 2010. Jobs are often insecure and uncertain, typified by the over-reliance on zero-hours contracts. Alongside the proliferation of insecure, low paid jobs, the wealthiest have been handed a £3 billion tax cut, while the poorest have lost out disproportionately from the cuts to tax receipts and the increase in VAT.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I will give way in a moment.

Labour has announced today that under no circumstances will we increase VAT in the next Parliament. Perhaps the hon. Gentleman is about to say something from his Government’s point of view. Perhaps he will give the same assurance.

Photo of Simon Kirby Simon Kirby Conservative, Brighton, Kemptown

As the hon. Lady mentioned income tax, I was thinking of the millions of people taken out of tax and the 27 million people benefiting from the increases in the personal allowance, many of whom, in my constituency, are among the lowest paid. It is all very well to say that we are helping the rich, but we are helping the low paid even more.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Under a Labour Government, there would be a new 10p starting rate for tax, and we would also reverse the tax cut for millionaires, which this Government gave and which by no stretch of the imagination can be seen to be fair. It is interesting that the hon. Gentleman did not mention VAT. I assume the Minister does not want to intervene at this point to give me an assurance that his Government would not raise VAT in the next Parliament.

It is worth looking back and considering that this is the first Parliament since the early 1920s in which the average person in work will be worse off at the end than they were at the beginning, and the poorest are worse off than the rest. Last week Paul Johnson of the Institute for Fiscal Studies spelt it out in language that I think everyone, including the Government, can understand:

“Looking only at changes implemented by the coalition the poorest have seen the biggest proportionate losses.”

That sounds pretty conclusive to me: the poor have lost the most.

The Minister has given his account of what will happen, but I think that he has been pretty coy about what is really in store for the future. What about the £12 billion of welfare cuts that the Government have committed to? They have already overspent on their welfare plans by £25 billion over the course of this Parliament, while at the same time imposing the unfair and iniquitous bedroom tax, so it is difficult to see how that £12 billion squeeze will be achieved.

When interviewed by Andrew Neil a few days ago, the Minister gallantly held the Government line and steadfastly refused to say where the cuts will be made. While we can perhaps applaud his loyal and resolute nature, he really should be more forthcoming about just where the axe will fall next, because voters across the country will be wondering what the Government are keeping from us. What more can he tell us today? He appears still not to want to say anything about VAT, so I will move on and deal with the Government’s pretentions to fiscal credibility.

For most people, a Government who are fiscally credible are a Government who meet their own fiscal targets. The budget deficit will be around £90 billion this year, and next year’s budget, far from being balanced, as was promised in 2010, is projected to show a £75 billion deficit. Meanwhile, public sector net debt will be £217 billion higher in 2015-16 than was projected in 2010. How can the Government claim to be credible when they have missed their own targets by such wide margins? The end result of all that failure, all those missed targets and broken promises, is even bigger spending cuts.

As my right hon. Friend the shadow Chancellor pointed out last week, it really has come to something when a Government are forced to boast that spending as a proportion of GDP will fall only to 1964 levels—levels last seen over 50 years ago. It is not a pretty picture. Close scrutiny of the OBR tables shows that 2018 spending, on the historical comparative measure that the OBR uses for day-to-day spending on public services, will fall to its lowest level since 1938. Despite their best efforts, the Tories are still the party that wants to take us back to the 1930s.

The Red Book is trying to perform a delicate balancing act; it is trying to assure us that the worst is over and that stability has been restored while at the same time plotting deeper cuts than anything we have seen in this Parliament. I think that it is seeking simply to paper over the cracks of failure and evade the debris of broken promises. It is for that reason that we will be voting against the Government’s motion today.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury 4:53 pm, 24th March 2015

We seem to have entered day five of the Budget debate. Let me make one or two brief points in response to the hon. Lady. First, let us remember what the state of the economy was in 2010, and the state of the public finances. Our borrowing levels were over 10% of GDP, which is a peacetime record, and we were forecast to have the highest level of borrowing in the G20. Over half of that amount has now been dealt with, but we have further to go and further steps are needed to deal with borrowing. That is why this House overwhelmingly voted for the charter for fiscal responsibility, which means that the cyclical current budget will be balanced by 2017-18. That is a target that those in all parts of the House signed up to, including Labour Members, but we heard nothing from them during the Budget debates, or today, about how they would meet that ambition. Whereas my party has set out our plans for finding £12 billion from welfare cuts, £13 billion from departmental spending and £5 billion from tax evasion, tax avoidance and aggressive tax planning, we have had no such indications from Labour. There is a huge hole where there should be an Opposition party policy.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The hon. Gentleman constantly talks about cuts—very unpleasant cuts that are going to affect a lot of poor people—but the real problem is an income problem, because we have a tax gap of £120 billion through evasion and avoidance that the Government refuse to recognise to its full extent. If we looked at the income side and made sure we collected the tax that should be paid, then we could address the problems with the deficit—if they are serious problems—and, at the same time, not inflict cuts on poor people.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

The Government do not recognise the £120 billion figure, nor did the previous Government, and nor, as far as I am aware, does any statistician. One individual has put that methodology forward, but Her Majesty’s Revenue and Customs has set out in some detail the numerous flaws within it. As for tax, I agree that it is important that we get the money in. It is worth pointing out that the yield from HMRC’s activities has gone up from £17 billion a year to £26 billion a year under this Government. We have a proud record of collecting more in tax, and we will maintain it.

I do not intend to detain the House for long on this occasion. The fact is that this Government are getting the deficit down, while living standards are going up, employment is going up, and we are fixing the mess that we inherited. Is there more to do? Yes, of course there is, and we hope to have the opportunity to address that over the next five years.

Question put,

The House divided:

Ayes 300, Noes 199.

Division number 182

See full list of votes (From The Public Whip)

Aye

No

Question accordingly agreed to.

Resolved,

That this House approves, for the purposes of section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in Budget 2015 and Autumn Statement 2014, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook (2015) and Fiscal Sustainability Report (2014), which forms the basis of the United Kingdom’s Convergence Programme.