House of Commons
Monday 24 November 2008
The House met at half-past Two o’clock
[Mr. Speaker in the Chair]
London Local Authorities Bill [Lords]
That so much of the Lords Message [17th November] as relates to the London Local Authorities Bill [Lords] be now considered.
That this House concurs with the Lords in their Resolution.—[First Deputy Chairman of Ways and Means.]
Message to the Lords to acquaint them therewith.
Oral Answers to Questions
Work and Pensions
The Secretary of State was asked—
Cold Weather Payment
We estimate that the number of households that would be eligible this winter for a cold weather payment in Milton Keynes, should such payments be triggered, is 84,000.
I am sure that my constituents will welcome the extra money should it be required, but would it not be a better long-term solution to insulate more houses more effectively? Is my right hon. Friend’s Department considering sharing data with other Departments, so that Warm Front grants, for example, can be more effectively targeted at those who are known to be on low incomes because they are in receipt of various benefits?
My hon. Friend raises the important question of how we get the information to people who may be eligible. As I am sure that she knows, people on certain means-tested benefits are eligible for Warm Front grants, but they have to claim them. We are working with the Department for Energy and Climate Change to make sure that we can use some of the ways that we used to ensure that people on lower incomes were aware of benefits such as pension credit. We will work with the Department for Energy and Climate Change on that basis.
Of course, many of the households in Milton Keynes that the Minister mentioned will be made up of pensioners, who will be delighted that finally, after months of dithering, the Government have renewed the Post Office card account contract. Does she not believe that those pensioners should be allowed to use that account to pay their utility bills, so that they can enjoy the benefits gained by others who pay by direct debit?
Domestic Heating Engineers
Gas safety law requires work in domestic premises to be performed only by competent people. The law also requires installers to register with the HSE-approved body, CORGI. That includes demonstrating that employees are approved in the correct way. Self-employed installers must also fulfil those requirements. The HSE enforces the law.
My hon. Friend will know that three of my constituents, including a little boy of 10, Dominic Rodgers, were killed by carbon monoxide poisoning. Many of us in this House are part of a campaign to make sure that such a thing never happens again. CORGI is to end as a brand, and as a trainer, and Capita will take over, so it is a sensitive time for the gas industry and its safety. Can my hon. Friend assure me that the transition will be smooth, and that in April we will have a better product than we do now?
I am grateful to my hon. Friend for that question, and I am aware of the campaign that he has been involved with in his constituency relating to the Dominic Rodgers Trust. There has been a reduction in the number of fatalities due to carbon monoxide poisoning, and we continue the work of raising awareness. He is right to point out that the transition arrangements for the new contract awarded by the HSE will include further awareness-raising, and will allow a smooth transition to ensure that customers and installers are aware of the new requirements under the contract.
CORGI estimates that as many as 20,000 people are working illegally with gas in the UK. What more can the Government do to ensure that the public are aware of the dangers of employing unqualified workers?
I am grateful to the hon. Gentleman for that question. He is right: about 10 per cent. of installations are still carried out by people who are not registered with CORGI, and more needs to be done on that. As part of the arrangements for the new contract with Capita, that body will donate about £1.7 million to a charity. My noble Friend Lord McKenzie is asking other energy providers to put in resources, too. That fund will be used further to raise awareness. The more we do to raise awareness, the greater the reduction in the number of fatalities will be.
Will my hon. Friend ensure that engineers who install heating systems are well aware of some of the toxic substances that surround heating systems, such as asbestos? Will he make sure that people get the proper equipment when working with that toxic substance, which causes disease, as there are long-term cancerous effects from working with it?
In 2005, two young people died in my constituency of carbon monoxide poisoning as a result of inadequately attended gas installations. Two pensioners died a year ago in my constituency for the same reason, and, 10 days ago, another pensioner died of suspected carbon monoxide poisoning, and his wife was lucky to survive. Will my hon. Friend do everything that he can to promote the use of carbon monoxide monitors to complement the work that he talks about, perhaps by ensuring, for example, that every time a house is sold, the home information pack requires there to be a carbon monoxide monitor in the house?
As I said in answer to an earlier question, under the new arrangements, the operator, Capita, will put in substantial sums of money, and we want there to be further amounts of money to raise awareness, so that people know that the installation of their gas central heating system, which is the predominant heating source in this country, will be undertaken by an appropriately qualified installer. I shall pass on my hon. Friend’s comments about monitors to my noble Friend Lord McKenzie as he works with the industry to ensure that the number of deaths continues to fall.
The number of people in the UK claiming jobseeker’s allowance in October was 980,900. In Ludlow, the number of people claiming jobseeker’s allowance was 651.
I am delighted that the Secretary of State is aware that unemployment in Ludlow has gone up by 10.5 per cent. in the past year alone, but why are there 300,000 fewer British people in work today than two years ago, while there are almost 1 million migrant workers in work?
On the first part of the hon. Gentleman’s question, we totally understand that people will be worried about the economic circumstances, and our commitment is to do everything that we can to help people get back into work if they lose their job. That is why we have announced, for example, an extra £100 million—to do exactly that. We will do that to ensure that we never reach the unemployment levels that we had in the past—almost 3,000 people, not 651, in his constituency—at the height of the previous recession.
The fact that the numbers of people on jobseeker’s allowances are rising is, nevertheless, a big contrast compared with the 1980s and 1990s, when people were just abandoned in the terrible Tory years. [Interruption.] As we are entering a period of turbulence in the jobs markets and rising unemployment, will my right hon. Friend specifically look at the question of people not receiving their benefit and support quickly, if not immediately, particularly in respect of mortgage relief and of those who are made redundant? People should receive their benefit right away and then be helped back into work, instead of languishing for a period in no-person’s land.
We are introducing today the lone parent changes, and I pay tribute to my right hon. Friend for that radical welfare reform package, for which he was responsible. He is absolutely right: we need to ensure that we get people their benefits as soon as possible, and that is why we have brought forward the help that people receive if they lose their job and need to pay their mortgage, from 39 weeks, as it was under the Conservative Government, to 13 weeks.
I know that Opposition Members did not like it, but my right hon. Friend was absolutely right to remind them that in the ’80s and ’90s, millions of people were abandoned when the Conservatives massaged the figures to get people on to incapacity benefit. We will not repeat that mistake.
Given that the number of new jobseeker’s allowance claims is rising quickly alongside unemployment, and that Government policy changes mean that an extra 350,000 people will be moved on to JSA between now and 2011, at the same time as the Department for Work and Pensions plans another 7,000 job cuts on top of the 16,000 jobs that have already been lost, will the Secretary of State guarantee that Jobcentre Plus staff will have the time and resources to deal with the increasing work load? Does he agree that this is the time to recruit more Jobcentre Plus staff, rather than to continue with job cuts?
The hon. Lady is right to say that we need to make a commitment to do everything that we can to help people find their next job. However, she misunderstands the nature of the efficiency changes that we have made; they are about moving people from back-office jobs to the front line. Actually, there are 1,500 more personal advisers today than two years ago, so we have got more people to the front line. On top of that, we are retaining an extra 2,000 people who were helping us with the introduction of the employment and support allowance; they will now help us with the higher volume of claims. The hon. Lady will have to wait for the Chancellor of the Exchequer’s announcement later this afternoon to see whether anything further is coming.
Will my right hon. Friend look towards ensuring that there is a skill match for people who have lost their jobs and that if those people need to be trained, training is available immediately, rather than their having to wait a long time before qualifying? That would begin to help the situation at Leyland Trucks, where jobs have, tragically, been lost. With a bit of skill matching and extra training, we can get those skilled people back into work. That is the kind of support that they need. Will my right hon. Friend look towards assisting them?
My hon. Friend is absolutely right. The earlier we can get help to people, the easier it will be for them to find their next job. That is exactly what we want to do. We want to make sure that the rapid response service helps people when redundancies are announced, before they even lose their jobs, so that they can be provided with help on retraining. As my hon. Friend says, with a small amount of retraining, people with good skills can get back into work quickly. That is exactly what the extra £100 million that we have announced is, in part, designed to do.
I listened carefully to the Secretary of State’s answer to my hon. Friend the Member for Ludlow (Mr. Dunne); he did not even attempt to answer my hon. Friend’s point about the impact of migrant workers. As the recession bites and unemployment rises, what plans does the right hon. Gentleman have to make representations to the migration advisory committee, so that when it considers shortage occupations, it looks first at people who will be helped by the Government’s welfare reform programme, rather than bringing in people from outside the country to do those jobs?
Is the Conservative party against migration now? The tone of its questioning is getting suspiciously close to that. It is important that we have a system for managing migration effectively, and that is exactly why we are bringing in the system based on the Australian points system. However, it is important to remember that in the past 10 years we have gone from being the poorest country in the G7 to being the second richest. Three million more people are in work than in 1997. We come from a context in which, earlier this year, we had the lowest unemployment count since the 1970s and the highest employment ever. We now need to make sure that we do everything that we can to help people fairly through the coming downturn. That absolutely involves welfare reform to get people back into work.
The Government have introduced a more powerful and proactive pensions regulator to protect the benefits of occupational pension scheme members. The Pension Protection Fund and the financial assistance scheme provide protection to members of eligible defined-benefit occupational pension schemes.
In recent years, there has been a dramatic fall in the number of defined-benefit pension schemes, and that issue is likely to be exacerbated by the slump in the stock market. A gap has therefore opened up between provision in the private and public sectors, and there are those who suggest that the way to solve the problem is to reduce benefits in the public sector. Surely, however, we should be looking at the issue exactly the other way round. What more can my right hon. Friend do to try to protect and enhance defined-benefit schemes in the private sector, so that we can ensure dignity in retirement?
My hon. Friend is absolutely right. We need to achieve a balance between protecting employees’ benefits and the promises made to employees, and encouraging employers to continue to contribute to the schemes that they have set up. That is exactly what we intend to do. We are considering where we can reduce regulation—for example, by reducing the section 75 obligations when they get in the way of people restructuring appropriately. Furthermore, we have changed the inflation indexation and made it absolutely clear through the pensions regulator that contributions have to be affordable and should not put a business at risk. That is the right approach: balancing protecting people’s benefits with encouraging employers to continue to contribute.
My hon. Friend is right to say that the additional part of the state pension is vital. That is why I am sure that he welcomes the changes that we have made to the state second pension; they will bring equality for women, recognise caring contributions and make the system an awful lot simpler. I am sure that he will also welcome the huge changes that will come through the implementation of the Turner commission’s recommendations. That will mean that instead of only a minority of people benefiting from company pensions, as in the past, all employees will have the right to an occupational pension matched by the Government and their employer. That fundamental change will increase people’s benefits and bring them equality, as was never achieved in the past.
As more employers become insolvent during the recession, will the Secretary of State have to come back to the House and ask for an increase in the levy for the Pension Protection Fund? If not, how will he balance the need to have enough money in the scheme to meet calls on it and yet not overload pension schemes, which are already closing under the sort of pressure that he has mentioned?
The Pension Protection Fund announced very recently that it did not foresee any increase in the levy and that it would keep it at its current level. I am sure that the hon. Gentleman is glad that we fixed the roof while the sun was shining and brought in the pensions regulator and the PPF. That is in huge contrast to the Government whom he supported, who were warned about this by Labour Members in the ’90s and did absolutely nothing about it, so that we then had to pick up the pieces through the financial assistance scheme.
Given the importance of occupational pension security, which many workers feel is as important to them as the asset of their own home, and given the Labour Government’s proud record in introducing the regulator and the Pension Protection Fund, can my right hon. Friend assure the House that the new consultation will do nothing at all to diminish the responsibilities of employers to workers’ pensions?
Yes, absolutely. We have made that very clear in the consultation. Our aim is to make it possible for companies to have legitimate business restructuring, but only where the employer covenant remains just as strong. That is why the pensions regulator is there, and I pay tribute to my right hon. Friend for the important role that he played in my Department in ensuring that these changes were brought in.
When I asked the Department in July how many final salary schemes were in deficit, the answer was 5,000, but the then Minister showed no particular concern about or interest in this matter. Will the Secretary of State give an updated figure for the number of such schemes and tell us what he will do about the large number of companies that are, as my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) said, obliged to top up final salary schemes in deficit and to pay escalating fees to the Pension Protection Fund, all in the middle of a recession? Will he now grip this problem rather than simply abandoning it?
We are gripping the problem. That is exactly why the pensions regulator gave the advice to which I referred earlier, which is that people have to continue to address their deficits but what they do must be affordable in the current economic circumstances. The last thing that anyone would want us to do is to push out of business a company that has a perfectly viable future, because of contributions being made at this very moment— but the pensions regulator has to be assured that those contributions will be made so that the deficit is addressed. On the hon. Gentleman’s specific point about the figure, I will write to him with the latest information.
Will the Secretary of State confirm to the House that it is only under his Government that over 70,000 occupational pension schemes have been wound up since 1997, and that savings in those that survive have halved in just the past 18 months? Does his consultation on the obligations of employers towards pension deficits show a dawning realisation on his part that heaping extra costs and red tape on to these schemes has served only to hasten their demise?
As the hon. Gentleman knows very well, the trend in defined-benefit schemes has been the same all around the world. Employers have been trying to get those risks off their balance sheets. Indeed, the Turner commission said that the previous system was a fool’s paradise where people were making promises that they could not afford to pay for, and where Governments of both colours, including the hon. Gentleman’s, loaded regulation on to schemes through legislation. We are now addressing that. As he knows—I think that his party supports this—we have changed the rules on indexation, we are examining the section 75 provisions, and we are looking into overriding scheme rules where that is appropriate. However, we need to do that in a way that protects employees, because it would be wrong to unwind the promises made to people who decided to work for those companies on the basis of such promises.
As part of income-related benefits, help is available towards the interest on mortgages. We have announced that from January 2009 help will be available for the first £175,000 of the mortgage for new working-age claims and that, as my right hon. Friend the Secretary of State said, the waiting period for new claims will be reduced from 39 to 13 weeks. We are considering the effect that the 1.5 per cent reduction in the Bank of England base rate will have on the standard interest rate, and we will make an announcement in due course.
The loss of a home can have the most traumatic effects on a family, and in the long term can cost us all significantly more in human and financial terms than the cost of saving the mortgage in the first place. Will he do all that he can to ensure that protection from eviction lies at the heart of our Government’s policy?
I will certainly do all that I can on income-related benefits, and I will pass my hon. Friend’s concern on to those in the Government who have already taken significant action on the points that he raises about housing. We will have to wait and see whether anything else is forthcoming when my right hon. Friend the Chancellor makes his statement later on today.
I welcome what the Minister has said. Would he agree that the thrust of Government policy has got to be to keep people in their own homes in this difficult period? I welcome what he said about help with mortgage payments being given wherever possible, but does he agree that where it is not possible, we need to keep people in their own homes? If necessary, the Government should take over property and convert mortgages into rents.
I am not sure about my hon. Friend’s last point, but as she rightly implies, the help given is but one small element of what the Government can do to help people protect their homes, and to ensure that they keep them. I agree with her broad point that the Government should work across the piece—much more broadly than the work of the Department for Work and Pensions—to ensure that people’s homes are preserved, especially in a period of economic downturn.
I welcome the Minister’s first answer, even though he seems to have gone slightly downhill since. Can he explain why the system, which has been encouraging people to own homes for the past 11 years, and quite rightly so, still does much more to support those paying rent than those paying a mortgage, even among those with modest incomes in modest houses? I welcome the changes, but why does the system still prefer those in rented accommodation?
I welcome the hon. Gentleman’s comments. I am not sure that he is entirely right about discrimination in the system in favour of tenants rather than home owners. There are, after all, two entirely different prevailing legal circumstances. With regard to income-related benefits, we are trying to do all that we can to provide support to both the home owner, given their circumstances, and the tenant, given theirs. They are not entirely comparable in the way the hon. Gentleman implies.
Expenditure on housing benefit for those in the private sector has increased in recent years, driven by increases in rents and a shift towards the private sector in the rental market as a whole. The latest forecasts of case load and expenditure will be published alongside this afternoon’s pre-Budget report.
A lot of media attention has been paid recently to a handful of cases of homeless households on housing benefit being placed in very expensive accommodation in the private rented sector. In seeking to respond to some of those extremes when looking at the wider reform of housing benefit, will my hon. Friend assure me that it is not the Government’s intention to ensure that swathes of our towns and cities are no longer affordable for low-income households, particularly bearing in mind that housing benefit is an in-work benefit? Will she avoid the trap we have fallen into so often in the past of crowding low-income households together into estates, communities and whole boroughs? That way lies all the social problems we are working so hard to overcome.
My hon. Friend is right to make that point. There is an intrinsic value in mixed communities, but an issue of fairness arises when people on benefits have access to higher quality accommodation than working families could possibly countenance. That is why my right hon. Friend the Secretary of State has taken steps to cap the housing benefit rate at five bedrooms. As we develop our housing review proposals, I would be happy to work with my hon. Friend to test them against the circumstances in her constituency.
We are working with lobby groups to make it far easier, especially for pensioners, to access the benefits to which they are entitled by reducing the number of separate forms that they have to fill in and creating greater behind-the-scenes liaison between the various parts of the public sector, thus ensuring that people get the help that they need and to which they have a right.
A landlord with 30 properties in my constituency came to me the other week and said that the new system whereby the rent rebate is paid straight into the tenant’s bank means that, unfortunately, when tenants are overdrawn, the banks take the rent and he does not get it. He has two or three tenants who are at least three or four weeks behind and he is having to take proceedings against them.
On the whole, the system is working well, but the new regulations contain provisions, which, without knowing the specific details of the case, I would think that my hon. Friend’s landlords could invoke. They provide that, if there is a genuine risk to the payment being passed to the landlord, direct payments can recommence. I therefore advise my hon. Friend to talk to his local authority to investigate that. However, across the board, a large increase in financial inclusion has occurred as a result of the proposals that we implemented.
The former Secretary of State, the right hon. Member for Neath (Mr. Hain), was right to mention a few moments ago the slow processing of benefits. Does the Under-Secretary know that in some parts of the country people are waiting nine to 10 weeks to have a new housing benefit claim processed? If they have just lost their job, they do not want nine to 10 weeks of rent arrears. In other parts of the country, because of the way in which the boundaries of the broad market rental areas are drawn, some people experience huge difficulty in finding properties with the local housing allowance that they are given. Will the Under-Secretary undertake to examine those two injustices seriously?
The hon. Gentleman raises two issues that are local authorities’ responsibility. I share the concern when some local authorities process benefits relatively swiftly and others take longer. In the latter case, we always put in resources to support those authorities and try to encourage the spread of best practice. However, the hon. Gentleman’s question would be better addressed to the local authorities that should improve their performance.
Does the Under-Secretary share my concern about the many houses in the private sector that were originally council houses, which were bought at a considerable discount, that now have families in them who pay no rent but have the whole amount paid by the public sector through social services or social security? That means that, in many cases, the public sector pays for the house twice over because the madness of the Rent Service produces a rent for a former council house that is twice that of the council house next door. We must take steps to remedy that. What Anthony Crosland called the dog’s breakfast of housing finance appears not to have gone way. It is still biting hard.
Lone parents have access to a comprehensive package of in-work and out-of-work support and advice via the new deal for lone parents, which has, to date helped more than 600,000 people into work nationally, including 560 in my hon. Friend’s constituency.
I thank my hon. Friend for that answer. With more people losing their jobs and fewer jobs becoming available, can she reassure me that lone parents on benefits, who are already among the very poorest, who cannot find good child care or suitable work will not have their benefit sanctioned?
The lack of availability and the high cost of child care are two reasons why it is difficult for lone parents, particularly parents of younger children, to return to work. What is the Minister’s Department doing to encourage greater access to child care and will she comment on the lower number of child minders over recent months?
The number of child care places has doubled under this Government. The hon. Lady mentions child minders. The proposals that we are introducing—they start today and will be rolled out over the next two years—apply to parents whose youngest child is seven and who will therefore be in full-time education. We have also introduced extra flexibilities to ensure that the regulations do not apply where neither appropriate child care nor the right kind of work for someone with such responsibilities is available. However, with the new duty on local authorities in England and the introduction of extended schools throughout the country by 2020, we do not think that that problem will be widespread.
Can my hon. Friend give me an assurance that where we encourage parents to look for work under the new regime, in which the age for single parent benefit has been reduced, the system will be one not of coercion, but of encouragement? Will she also look into the types of work that people are encouraged to go into, to ensure that the jobs that they are offered are sustainable?
We want to extend the support that has been available through the new deal for lone parents—and which has been shown to work—to single mums and dads of a much broader age range of children. However, as I said in response to an earlier question, if the job on offer is simply impossible to do because of that family unit’s circumstances, the parent will not be sanctioned for not taking it up. Similarly, appropriate child care must be available. Crucially, however, that is not a decision for a Minister to make; it is part of a conversation that takes place between an experienced professional adviser and the parent in question.
Lone parents are still saying that one of the biggest barriers to moving into work is that they may lose money as a result. That point has been made quite a bit over the weekend, in light of the changes taking place today and the new obligations on lone parents whose child has reached the age of 12. Can my hon. Friend please assure me that lone parents who are moving from benefit into work will always be better off?
The number of people in the UK claiming jobseeker’s allowance in October was 980,900. In Hammersmith and Fulham, the number of people claiming jobseeker’s allowance was 2,188.
The Minister for London will know that at 7.4 per cent., London’s unemployment rate is already the second highest of any UK region. Indeed, it is significantly higher than in either Scotland or Northern Ireland, which receive big public subsidies. Hammersmith and Fulham already suffers from a high unemployment rate. If the Minister came to my constituency, he would see shops and restaurants closing down and overcrowding on the tube and buses declining. Does he agree that now is the time to take another look at the amount of subsidy that London is paying the rest of the country, in an effort to do something about unemployment in our capital city?
I do not accept the hon. Gentleman’s starting characterisation. What I accept is that London’s employment is particularly high. However, we cannot, as he implied we could, tell the nation—quite rightly—that the Olympics are a matter for the nation and not just London, or tell colleagues that something as significant as Crossrail is a national infrastructure asset, rather than something just for London, and then demand money back because of the geographic location of the City of London. It is utterly simplistic, but not uncommon for the hon. Gentleman, to put things in those terms. Indeed, given the characterisation of London that he draws, he might want to explain—in writing would be perfectly fine—how an amnesty for every illegal immigrant in London, which is currently his Mayor’s position, fits into it.
May I urge the Minister to reconsider the threat of closure that hangs over the Whitstable jobcentre, in my constituency, at a time when there is considerable unemployment along the north Kent coast? Unemployment is rising both nationally and regionally, and the proposal will hit some of the most vulnerable people in my constituency.
I announced in passing last week that, given the economic downturn, I thought it appropriate to review the position regarding not only the 25 closures but the future estate rationalisation plan. I received the hon. Gentleman’s letter last week, and I shall respond to him and other constituency MPs in due course.
My colleagues and I have frequent contact with Treasury Ministers on a range of issues, including pensions. Together, we are working to encourage pension savings through, for example, the pension reforms in the Pensions Bill that will be considered by the House tomorrow.
Government tax policy has cost pension funds £5 billion every year since 1997, as well as the growth that would have been realised had that money remained invested. Actuaries estimate that in the long term, the sum could reach £100 billion—a sum that might sound rather familiar by the end of this afternoon’s pre-Budget report. Will the Minister acknowledge that that tax policy has had a devastating effect on pension funds and their contributors?
As I am sure the hon. Lady knows, the changes regarding tax credits payable on dividends were made because there was an incentive for companies to pay dividends rather than reinvest in their future through investment in plant and machinery, for example. The changes were part of a package that included the reduction of corporation tax from 33 to 31 per cent. What made the real difference for pension funds and what was in them were the poor stock market conditions that followed.
The actions that we have taken to support the pensions industry, including the measures in the Pensions Bill, will improve the position of pensions saving in this country. That message has been built up following the Turner commission and through political consensus on the need to ensure that pensions saving is improved.
Child Support Agency
The Child Maintenance and Enforcement Commission took responsibility for the Child Support Agency from 1 November 2008, and is on track to meet its target for this financial year, which was set by the Department for Work and Pensions.
I thank my hon. Friend for that answer. During its existence, the CSA collected more than £6 billion, but billions more are still uncollected. Will that debt pass to the new commission, and will the commission’s new powers cover that debt, or will it be written off?
No part of the targets that I have just mentioned, which were set by my right hon. Friend the Secretary of State, include collecting more of the debt—another £70 million for this year, raising the sum to £1.08 billion in this financial year. The commission’s new powers are not in force yet, but we expect it to raise the amount of debt that is collected even further.
Does the Minister accept that many Members receive a large number of letters and representations from our constituents about the CSA? I am genuinely seeking information on this issue: what size is the backlog of cases as the CSA is transferred to the new body? The issue is critical, as many of my constituents wait a long time to get the maintenance that they require.
I am extremely happy to write to the hon. Gentleman and let him know exactly how many uncleared applications remain in the system. I can tell him, however, that this year we think that 40,000 more children will benefit; the number is already up 200,000 in the last three years, and the target is 790,000 children benefiting by the end of this financial year. We are also, of course, introducing a disregard for benefits claimants so that the whole operation of the child maintenance system will contribute directly to our child poverty targets—something that the hon. Gentleman’s party did not even seek to influence when it introduced the CSA in the first place.
The primary responsibility of my Department is to ensure that people keep on getting the support and real help they need to get back to work quickly. I continue to work to ensure that Jobcentre Plus is well placed to help individual cases and to intervene rapidly in cases of major redundancies.
In light of that answer, which included the mention of work, and of the recession, does the Secretary of State agree with UKIP—and, since I see him in his place, the right hon. Member for Birkenhead (Mr. Field)—that unsustainably high levels of immigration are actually causing problems for the future for jobs in this country? Does the Secretary of State agree that, with rising unemployment, we need to stem the growth in the number of EU nationals being employed in this country, which would also help us to keep the benefit bill down in future years?
It is right to have a managed system. As the hon. Gentleman knows, we are bringing in a system based on the Australian points system, which will ensure that we get the best out of migration and the very important contribution that migrants make to our country. It sounds as if the tone of his party and that of the Conservative party are becoming surprisingly similar; perhaps he would like to go back and join the Conservatives again.
My hon. Friend is absolutely right to say that we need to promote rapid response to small employers so that they get the help they need, and I am glad that she welcomes the doubling of the rapid response service. We want to make sure that we can help in any situation where there are 20 redundancies; the point is to get there and offer help as early as possible. The contrast is between a Government who are prepared to take real action now—we will hear a little more about that very shortly—and the Conservatives, who have come up with schemes that have fallen apart within 24 hours of being announced.
In actual fact, the changes regarding backdating fit into a general overall package that will mean that, from October this year, people will be able to find out their state pension entitlement, pension credit entitlement, council tax entitlement and housing benefit entitlement with just one telephone call. That is part of a package that has been generally welcomed by Age Concern and others. Overall, it will mean spending £250 million more in this area by 2050.
My hon. Friend has already raised this particular issue with the Department. We need to make it clear that the Department makes advice on benefits and a wide range of other entitlements easily accessible to everyone through a variety of channels, including information leaflets, telephone helplines, websites and intermediaries. The loudest message needs to be that anyone requiring help on any aspect of the DWP’s work should go through those channels, not through premium-rate channels.
What is it about this Government that prevents them from ever answering a straightforward question? I asked the Secretary of State a simple question. This change affects a particular group of vulnerable elderly pensioners, including recently bereaved widows. How much money does the specific change from 12 months to three months actually save?
As the hon. Gentleman knows, it is part of a package that will cost more money. It allows us to improve the services that we give people, and it allows us to give more people more money. The real contrast is between his party, which wants people to suffer during the downturn and will do nothing to help them, and the extra help that will be announced very shortly and to which I am sure he is looking forward.
My hon. Friend is right to say that we need to help post offices to offer as many services as possible to ensure their viability. As he knows, the Department for Business, Enterprise and Regulatory Reform will work with Members to identify further such services that can be provided through post offices. I am glad that he agrees that we took the right decision. It demonstrates the support that the Government have been prepared to give to the Post Office—again in contrast to the Conservative party, which offered it no support at all.
It is important for us to ensure that those who are eligible for the grants receive them. As I said earlier, we are working with the Department of Energy and Climate Change to ensure that all who are eligible know how and when to claim, but I take the hon. Gentleman’s point on board and will pass it on.
It is a perfectly valid exercise constantly to look at a rationalisation of the estates base of Jobcentre Plus. As I said earlier, we are reviewing the options for the current 25 offices and will make an announcement shortly, but I agree with my right hon. Friend that we should keep the matter—and both its positive and negative aspects, in relation to the individuals concerned—constantly under review.
It was announced in February that the long-term unemployed who are seeking jobseeker’s allowance would be required to undertake four weeks of work-type activity. Given the benefits that that policy could bring both to the claimant and the community, can the Secretary of State update me on its progress?
I am happy to be able to confirm that we are going ahead with that proposal. Indeed, we are going further: we will require people who have been long-term unemployed to work for their benefits on a full-time basis, to make sure that people have both the right incentive and the right support to get back into work. We want to support people back into work, to make sure they reduce their family poverty and achieve the benefits for their communities that that can bring.
Further to the question asked by my hon. Friend the Member for Epsom and Ewell (Chris Grayling) about the amount of savings brought about by cutting the time for which pensioners can claim their benefits, my hon. Friend the Member for North Thanet (Mr. Gale) asked the Pensions Minister how much that amount was, and was told that the information was not held centrally. Can the Secretary of State now confirm that he has been supplied with the answer to that question, and share it with the House?
I would like to see whether we can close a particular loophole in pensions law. A constituent of mine has been in a same-sex partnership for 28 years and he and his partner are now in a civil partnership, but were he to die, his civil partner would at present not get the same survivor benefits from his occupational pension as would a married partner. That is not equal, and it is not fair. Can we look at that issue again, to see whether we can achieve equality?
We are very confident about that; we have been preparing for the past nine months. For example, the processing time for jobseeker’s allowance is 10 days, which is down from our target of 11.5 days. I want to pay tribute to the people in Jobcentre Plus, who have been working overtime and opening on Saturday mornings to make sure we maintain the excellent service that Jobcentre Plus provides.
According to the National Pensioners Convention, more than 60 per cent. of pensioner couples live below the Government’s poverty line of £151 a week, while the pensioner population is predicted to rise by 60 per cent. over the next 25 years. Is this not exactly the right time to bring forward from 2012 the restoration of the index link between average earnings and the state pension, and to combine personal tax allowances for pensioner couples? Would that not be a low-cost way of tackling pensioner poverty, and will the Minister slip that suggestion into the back of the Chancellor’s notes now?
I know how hard my hon. Friend campaigns on behalf of pensioners, but I have to say that were we to do what he suggests this year, the amount they would get would be lower, so this year is perhaps not the time to take such action. As he knows, we have committed to restoring the link between the state pension and earnings in 2012, or by the end of the next Parliament at the latest. Pension credit is, of course, already linked to earnings. I take on board my hon. Friend’s point about getting help to the poorest pensioners; we have lifted 900,000 out of relative poverty since we came to power, and we will continue to work on that.
My colleague answered the question as set out on the Order Paper. As the hon. Gentleman knows, we have been protecting people’s accrued rights and it is this party that put in place the pensions regulator and the Pension Protection Fund, unlike his party, which provided no protection for people at all, despite the facr that the shadow Foreign Secretary, the right hon. Member for Richmond, Yorks (Mr. Hague), was warned during the passage of the Pensions Bill of 1995 to do exactly that. We have put in place that protection. We fixed the roof while the sun was shining, and that is why people can be confident about their occupational pensions going forward.
My pre-Budget statement today is made against a background of economic uncertainty not seen for generations. These are extraordinary, challenging times for the global economy, and they are having an impact on businesses and families right across the world. In these exceptional economic circumstances, I want to take fair and responsible steps to protect and support businesses and people now, while putting the public finances on the right path for the future That is what I will do today.
My central objective is to respond to the consequences of this global recession on our country, both now and in the future, so that we are ready to take full advantage of the recovery of the world economy. My aim is to provide support and protection for families and businesses when they need it most; to maintain our commitment to investing in schools, hospitals and the nation’s key infrastructure; and to put in place the measures necessary to ensure sound public finances in the medium term, so that as a country we live within our means. This is not one single initiative, but a comprehensive plan to support families, business and the economy. Because of the wide-ranging measures that I am announcing today and the many strengths of the British economy, I am confident that the slowdown will be shallower and shorter than would have been the case. I am also confident that the UK, as an adaptable and open economy, will be well positioned to benefit from a return to growth in the world economy.
First, let me turn to my assessment of the international economy. Because of better macro-economic policy decisions and continuing, deeper globalisation over the past 10 years, global growth has increased from 3 to 4 per cent.; inflation has fallen from 22 to 4 per cent.; and living standards have risen sharply, with 300 million people across the world lifted out of poverty. But a crisis that began, as America itself has said, in the US housing market has seen these benign conditions undermined. The problems in that sub-prime housing market rapidly spread to the entire global financial system, causing a disastrous tightening in credit and undermining confidence. The Bank of England estimates that global bank losses could eventually reach $3 trillion—that is as big as the economies of Italy and Spain put together. Global shares have fallen by 50 per cent. since May.
All this happened, too, at a time when the global economy was already suffering from unprecedented increases in energy, food and commodity prices. Those increases pushed up inflation everywhere, and added to the pressure on businesses and households. In the UK, inflation, although now falling, is still at 4½ per cent. In the euro area, inflation has been above the Central Bank target since mid 2007. In Spain, inflation peaked at 5.3 per cent., and in the US at 5.5 per cent. The result has been a sharp reduction in growth across the world: the euro area has been in recession since April; in Japan and Germany, gross domestic product has already shrunk by about 1 per cent. in the past six months; economic output is falling in the United States; and growth in China and India, too, has slowed sharply.
This is an unprecedented global crisis, but the World Bank and other institutions are confident that the global economy will recover strongly, predicting that it will double in size over the next two decades, helping to spread prosperity across the world. The root of today’s problems are failings in the global financial system. The banking system is at the heart of all economies. Financial markets affect everyone’s daily life: if they fail to function properly, the impact is felt right across our economy and by every one of us, so restoring and maintaining financial stability is absolutely crucial.
The causes of instability are global, so the Government’s response must mean working closely together with other countries. Earlier this month, the Prime Minister and I attended the G20 summit in Washington. A wide range of measures was agreed to increase transparency of financial activities, ensure better international supervision and prevent excessive risk taking. It is crucial that this plan is implemented. So with the UK holding the presidency of the G20 next year, we will take the lead in doing all we can to prevent a reoccurrence of these problems. We will build on the work of the Financial Stability Forum, which, for some time, has been looking at international agreement on capital requirements that reflect the economic cycle and risk.
Domestically, too, we need to make supervision and regulation more effective. The Financial Services Authority is now considering changes across the regulatory system—including banks’ capital requirements, liquidity conditions, accounting rules and pay structures. The new chairman of the FSA will also examine whether the right processes are in place to ensure that the FSA can supervise the system.
The current financial crisis has also illustrated two further issues. First, the recent financial turbulence has highlighted the potential problems with overseas territories and Crown dependencies, such as the Isle of Man and the Channel Islands—[Interruption.]
The Crown dependencies, such as the Isle of Man and the Channel Islands, attract banking customers with lower taxes—without contributing to the UK Exchequer. But at times of stress, depositors need to know who will compensate them. The British taxpayer cannot be expected to be the guarantor of last resort, so I have asked for a review of those regulatory arrangements, which will report to me in the spring.
Secondly, we must resolve the situation highlighted by the Icelandic bank, Landsbanki, where billions of pounds of British savers’ money was deposited in a foreign bank, with branches in the UK, with insufficient safeguards for those depositors. They were not adequately covered by the compensation scheme of the Icelandic authorities, so we had to step in to guarantee UK savers’ money. So we are taking the lead at the European Union to tackle these shortcomings in international compensation arrangements. We cannot allow that situation to continue, and we have asked the European Commission to come back with recommendations by the spring.
A strong banking system is vital to the health of our economy. It needs to be fair and open, offering a range of services and lending demanded by consumers. Because of the Government’s action over the past year, no retail depositors in British banks have lost out. Last month, we took action to improve confidence in the banking system and recapitalise the banks. By next month, banks will have accessed some £100 billion of funding under the credit guarantee scheme. Now that the scheme is up and running, and other countries are beginning to implement their own schemes, it is time to explore how it can further support lending to families and business. We shall continue to monitor the working of the scheme and improve it if necessary. I shall announce any changes shortly.
But we also know that the process to allow UK banks to raise money in the markets, through rights issues, is too slow and complex. Today, the rights issues review group, which I set up, has reported. I shall pursue its recommendations in full, which will make the process for raising equity capital faster and simpler. All these steps are aimed at combating instability, restoring confidence and improving protection for depositors, while defending the taxpayers’ interests.
Our economy cannot insulate itself from this global financial turmoil, but the UK economy faces these challenges from a position of relative strength compared to the past. Even today, employment remains near record highs. The claimant count, while rising, is 2 million below the level of the 1990s. There are still today over half a million unfilled vacancies in the economy. Government debt last year was among the lowest in the major advanced economies. At the same time, we have been able to triple public investment in key services, transport and infrastructure. We did fix the many roofs that needed fixing—the roofs of schools and hospitals throughout the United Kingdom. While all other major economies suffered recessions, we saw the longest period of continuous growth in the history of this country. That has brought immense benefits, and tens of thousands of jobs across England, Scotland, Wales and Northern Ireland.
The UK is the world’s leading financial centre, but because of the size of our financial sector we are likely to be affected more directly by a global financial recession. New lending has shrunk, down by a third since March. With mortgages harder to get and more expensive, this has hit property markets, with prices falling by 11 per cent. over the same period.
Mirroring the big falls in the world stock markets, UK share prices are down by almost a third. These falls came as businesses and families were already having to meet rising energy and food bills, which squeezed incomes and led to lower spending on other goods and services. The combination of higher prices and tighter credit has inevitably put downward pressure on growth here in the UK and across the world. The volatility in prices was underlined last month when inflation fell from 5.2 per cent. to 4.5 per cent, the biggest monthly drop in 12 years. But while it is volatile, inflation is expected to continue to fall, and this has already made room for the Bank of England to cut interest rates by 2 percentage points since October, to a 50-year low of 3 per cent. For the millions of people on tracker mortgages, this cut in interest rates will be worth on average around £100 a month off their mortgage payments. But monetary policy—interest rates—on its own is not enough to stimulate the economy, as most people recognise. So we need action now to boost economic activity, together with the real help that I will announce today, to help us to emerge more more quickly, and to emerge stronger, from these difficult times and to face the future with confidence.
I now turn to the detail of the economic forecast. These forecasts are made against a background of sharply deteriorating conditions across the world. The International Monetary Fund is forecasting a year-long fall in output next year across all advanced economies—;the first time that this will have happened since 1945. The UK is no exception. UK GDP contracted by 0.5 per cent. in the three months to September. Growth this year is forecast to be ¾ per cent., which reflects a further fall in output in the fourth quarter of this year. The IMF is forecasting that the United States, Germany, Japan, France and Italy—as well as the UK—will all contract next year as a result of weak consumer spending and business investment.
I, too, am forecasting that output will continue to fall in the UK for the first two quarters of next year. But then, because of decisions taken in this pre-Budget report, I expect it to start to recover, and GDP growth for 2009 is forecast to be between minus ¾ per cent. and minus 1¼ per cent.
Inflation is forecast to come down sharply, reaching ½ per cent. by the end of next year. Lower commodity prices and lower interest rates, which boost incomes and help business profits, together with the fiscal reaction across the world, will also help. As an open and flexible economy, the UK is well positioned to benefit from this recovery. As a result, and as the world economy recovers from the credit crunch, the United Kingdom’s economy will begin to grow again. I am forecasting growth of between 1½ and 2 per cent. in 2010. In the years after that, the economy will continue to recover. Trend output—or the productive potential of the economy—will initially fall, but in future years the economy will recover towards a rate of trend growth of around 2¾ per cent.
Every country in the world is facing the impact of this crisis on its own economy, but there is a growing international consensus—although unfortunately not shared in the House—that we must act now to protect people and to help pull our economies out of recession, for there is a choice. One can choose to walk away, let the recession take its course, adopt a sink-or-swim attitude and let families go to the wall. That is no action plan. Or one could decide, as I have decided and as Governments of every shade around the world have decided, to support businesses and to support families by increasing borrowing, which will also reduce the impact and length of the recession.
I will do whatever it takes to support people through these difficult times. That is why my pre-Budget report today represents a substantial fiscal loosening to help the economy now with a £20 billion fiscal stimulus between now and April 2010, around 1 per cent. of GDP.
Before I describe the detail of how the Government will support people, let me turn to the fiscal framework that will help us to ensure fiscal sustainability. The Government introduced the code for fiscal stability in 1998, committing themselves to conducting fiscal policy in accordance with a clearly stated set of principles.
Our objectives are and remain to support the economy, to ensure medium-term sustainability and to maintain public investment. It meant that we were able to more than triple public net investment from 0.6 per cent. of GDP in 1997 to over 2 per cent. now. At the same time, we cut the Government debt from 43 per cent. of GDP in 1997 to 36 per cent. in 2007. Today, I publish the Treasury’s assessment of the last economic cycle, which is supported by the independent National Audit Office. It shows that the last cycle started in 1997 and finished in the second half of 2006, and this means that the Government met both their fiscal rules over the last cycle.
The average current budget balance, over the cycle, was 0.1 per cent of GDP. But today, Britain—like every other country in the world—faces an extraordinary global crisis, which means significantly lower tax revenues, both now and in the medium term. In the current circumstances, to apply these rules in a rigid manner would be perverse and damaging. We would have to take money out of the economy, making a difficult situation worse. So it is right that, in this pre-Budget report, we do all we can to support the economy, but also to ensure fiscal sustainability in the medium term.
Consistent with the code for fiscal stability, the Government are setting a temporary operating rule that requires us to set policies to improve the cyclically adjusted current budget each year, once the economy emerges from the downturn, so that it reaches balance and debt is falling as a proportion of GDP once the global shocks have worked their way through the economy in full.
The fiscal projections that I set out in this pre-Budget report are consistent with returning to current balance and debt falling as a share of the economy by 2015-16. They imply, as the economy emerges from the downturn, an adjustment in the cyclically adjusted current balance of over 0.5 per cent. a year from 2010-11, which will set us on a path to deliver our objectives of supporting the economy, ensuring sustainability and maintaining public investment. In addition, to increase transparency even more, I have asked the NAO to audit the Treasury’s analysis of the cyclical fiscal position.
I now want to turn to the forecast for the public finances. Because of the economic situation, tax revenues are falling across the world. As company profits fall, so do the proceeds from corporation tax. Receipts from the financial sector alone are expected to reduce by 35 per cent. this year. Slower growth in wages means less income tax. Fewer people buying houses and falling prices mean less money from stamp duty, where tax take is down 40 per cent. Because of the scale of these global problems, it is inevitable that tax revenues will take some years to come back up. That all means that borrowing will be significantly higher than forecast.
As a result of the combined effect of lower revenues, our commitment to maintain spending and extra support to the economy, borrowing will rise to £78 billion this year and £118 billion next, or 8 per cent. of GDP. But then, from 2010, as I take action to reduce borrowing when the economy begins to recover, borrowing will fall to £105 billion, then £87 billion, then £70 billion and then £54 billion. By 2015-16, we will again be borrowing only to invest. [Interruption.]
This means that the projection for the underlying budget deficit, excluding investment, will be 2.8 per cent. of GDP this year and 4.4 per cent. next year. But consistent with my commitment to sustainability and as a result of my announcements today, the underlying budget deficit, excluding investment, then improves, as a share of GDP, to 3.4 per cent., then 2.3 per cent., then 1.6 per cent. and 1 per cent., projected to reach balance by 2015-16.
The economic crisis and the action by Governments across the world inevitably mean sharp increases in national debt relative to GDP—we will be no exception—but because we started from a stronger position, our debt will remain below that of other major countries. UK net debt, as a share of GDP, will increase from 41 per cent. this year to 48 per cent. in 2009-10, then 53 per cent., before peaking at 57 per cent. in 2013-14.
If we did nothing, we would have had a deeper and longer recession, which would cost the country more in the long term. So in these exceptional circumstances, allowing borrowing to rise is the right choice for the country, as the CBI, the Institute of Directors, the Institute for Fiscal Studies, the IMF and many other countries have all said in recent weeks.
We will continue to invest in public services, just as we have done over the last 10 years. Investing in school or hospitals, or modernising infrastructure and transport links, is not just an effective way of stimulating the economy, safeguarding jobs and protecting incomes. It is also vital for the future strength and health of our country. We have seen in the past the long-term damage that cutting public investment has on the essential fabric of the country and the support that people need. Since 1997, we have doubled the NHS budget, cutting hospital waiting lists. Spending on education is 60 per cent. higher, improving schools and exam results. Transport spending is up by 70 per cent, with over 130 major road schemes, and record numbers now travelling by rail.
Total Government spending on much-needed investment and public services has increased from £322 billion 10 years ago to £584 billion last year. Through the current spending review, we will continue to support and improve key public services, to meet the ambition of the people of this country. The challenge is to continue to deliver these improved services while ensuring that we continue to get value for money.
Today I can tell the House that, since 2004, the Government have delivered £26½ billion of efficiency savings, exceeding the target set by Sir Peter Gershon by £5 billion. Building on this, in last year’s comprehensive spending review, we committed to improve value for money, targeting a total of £30 billion by 2010-11, without putting public services at risk. But as the original Gershon report said, there is a point at which front-line public services would be affected—and we will not pass that point. However, having carefully considered the extent and the limits of efficiency savings, today I can announce that the Government will now find an additional £5 billion of efficiencies in 2010-11 for a total saving of more than £35 billion over three years.
We know extra savings are achievable because independent reviewers have identified new efficiencies across public sector operations, coming through lowering the cost of back-office operations, better procurement, and examining property holdings and asset sales. By continuing to make efficiency savings, we can help to fund the action needed to help families and business, but we will also ensure that spending continues to rise from £584 billion last year to £682 billion by 2010-11. In the next spending review thereafter, we will continue to put money into public services and investment, to maintain the gains of the last decade, by increasing current spending by an average 1.2 per cent in real terms. As businesses and families across the country watch what they spend, it is only right that the Government work even harder to make savings.
I now want to turn to a wide range of measures that I am taking to support the economy and the people of this country. They will help businesses, support home owners and boost people’s incomes now. Bringing forward capital spending on major projects supports jobs and businesses, and I want to do more. It is right that, at this time, we reprioritise investment from within the existing three-year limits, so that more money is being spent now, when the economy is weaker.
I can announce today that £3 billion of capital spending will be brought forward from 2010-11 to this year and next. That money will be used to increase capacity in the motorway network, improve and build new social housing, renew primary and secondary schools, and invest in energy efficiency measures. I have looked at these programmes in detail, and I know that they can be delivered on this revised time scale. It will put people to work; it will renovate infrastructure; and it will modernise schools and create more fuel-efficient homes. That is all vital for the future prosperity of the country, supporting jobs in key industries. It is only possible because I am prepared to take action now.
This spending will help to put the money into the economy in the coming months, but to prevent the recession from deepening, we also need to take action to put money into the economy immediately. I have looked at a wide range of ways in which we might achieve this. I have decided that the best and fairest approach is a measure which will help everyone, including millions of households that pay no direct tax at all, and it is to deliver a much-needed extra injection of spending into the economy right now. I therefore propose to cut VAT from 17½ to 15 per cent. until the end of next year. This reduction will come into effect next Monday, 1 December. It will continue for 13 months before returning to the present level of 17½ per cent. at the beginning of 2010, by which time we expect the recovery to be under way. This temporary reduction is equivalent to the Government giving back some £12½ billion to consumers to boost the economy. We would like retailers to pass it on as soon as they can. It will make goods and services cheaper and, by encouraging spending, will help stimulate growth. Again, this is possible only because I have rejected advice to take no action.
I am also taking additional measures to help people on modest, low and middle incomes. In May, I announced an increase, for this year alone, in the income tax personal allowance—a benefit of £120 a year for basic-rate taxpayers. I have decided to make that temporary tax cut permanent, and I have also decided to increase it to £145 a year in April. That will benefit 22 million basic-rate taxpayers. My announcement in May helped 4.2 million households that were affected by the abolition of the 10p rate, and this announcement will help another half a million households—not just this year, but for good.
Along with those immediate steps to help businesses and families now, I am also announcing measures to ensure sustainable public finances in the medium term. I have considered a number of options to raise revenue in future years, and I have chosen those that are fairest and affect those who have done best out of the growth of the past decade. By 2011, we expect the economy to be recovering strongly, profits to be rising and incomes to be growing at close to 4 per cent., as they have done over the past decade. Today’s pre-Budget report shows that the tax burden, as a share of gross domestic product, will fall from 36.3 per cent. last year to 35 per cent. in 2011-12. Against that background, I propose from April 2011 to increase by ½ per cent. all rates of national insurance contributions for both employees and employers.
To ensure that the increase does not fall on those on low or modest incomes, I have decided, at the same time, to raise the starting point for national insurance to align it with that for income tax, so that no one on under £20,000 will pay any more national insurance contributions as a result. Secondly, those with the highest incomes have seen their earnings almost double since 1996, so—again from April 2011—I intend, only on income over £150,000, to introduce a new rate of income tax of 45 per cent. This higher rate of tax will affect only the top 1 per cent. of incomes.
I also intend to withdraw the long-standing anomaly of the income tax system under which the personal allowance is worth twice as much to higher-rate than to basic-rate taxpayers. Again, I will protect those on middle incomes; this will affect only those earning over £100,000—that is, the top 2 per cent. So from April 2010, those with incomes between £100,000 and £140,000 will see the value of their personal allowance reduced, so that they get the same benefit as basic-rate taxpayers. For people with incomes above £140,000, I will withdraw the full value of that personal allowance. I also intend to maintain the ceiling on tax relief given to people with pension funds of up to £1.8 million until and including 2015-16.
The reduction in VAT lowers the amount of tax paid on tobacco, alcohol and petrol. In addition, of course, petrol prices have come down by about 7p a litre since last month alone, so I will offset the VAT reduction by increasing those duties to an amount that will keep the overall cost to consumers the same this year. Of course, if we see a stronger economy and increased tax revenues—[Interruption.]
If we see a stronger economy and increased tax revenues, we will review whether we need to take these tax raising measures, but I believe that it is right that, as we all benefit fairly from the exceptional measures we take today, we should all share fairly the burden of the future. Taken together, these steps will ensure that there is extra money flowing into the economy now when it is needed most, but we can reduce borrowing as growth returns. And as a result of my decisions today to provide support now and to balance the books in the future, I will bring the current budget back into balance by 2015-16: fiscal support now and fiscal sustainability both now and in the future.
Small and medium-sized firms are the engine of our economy. They make up the vast majority of businesses and employ around 60 per cent. of the private sector work force. They also face continuing difficulties with cash flow and credit. I know that many profitable businesses are concerned that those twin problems threaten their future, and I want to help them. So, my objectives today for businesses are threefold: first, to help equip them for the challenges of the future; secondly, to improve access to credit and ease cash flow; and thirdly, to reduce burdens on them at this difficult time. I will maintain a focus on the long-term competitiveness of the UK, to increase our attractiveness as a base for global businesses. To do so, I will introduce an exemption for foreign dividends in 2009 for large and medium businesses, and improve our rules for taxing controlled foreign companies. To build on that, I have also today published an analysis of the long-term global trends impacting on the UK economy, and the Government’s response to them.
Small businesses need help to reduce their costs, and I have two announcements to ensure that they receive this help. First, to help small firms meet their running costs, I can announce a temporary increase in the threshold for empty property relief. From 2009-10, all empty commercial properties with a rateable value below £15,000 will be exempt from business rates. This exemption covers an estimated 70 per cent. of all empty properties.
Secondly, at this time of real difficulties for many small businesses, they need time to pay when meeting their tax bills, and I intend to meet that need. From today, Her Majesty’s Revenue and Customs will enable firms facing difficulties to spread their tax on a timetable that they can afford. This will cover not just VAT, as some have suggested, but all business taxes—VAT, corporation tax, income tax and national insurance; and not for six months, but for as long as they need. That is real help when businesses need it most. I will also allow several hundred businesses in ports to spread out their payment of backdated business rate bills.
We must continue to address the difficulty that many small and medium-sized firms face in getting loans. As part of the recapitalisation scheme, we agreed that banks receiving Government funding would maintain the availability of lending to small and medium-sized enterprises at 2007 levels, and I welcome the commitment announced at the weekend by Royal Bank of Scotland, one of the recapitalised banks, not to increase pricing on SME overdraft prices for at least a year. That will give security and reassurance to up to 1 million small businesses, and it should become the benchmark for all UK banks. We are closely monitoring the commitments given by banks to treat business customers fairly and decently, and I will take whatever action is necessary to make sure that that happens.
We are also acting directly to improve access to finance. First, we have agreed a £4 billion deal with the European Investment Bank to provide money to the banks to pass on to small and medium-sized enterprises, and I can report today that seven UK banks have already asked the EIB for that money, and £1 billion will be available to their customers by the end of this year.
Next, I can also announce that the Government are able to offer credit through a temporary small business finance scheme, and that is worth another £1 billion to small businesses. It should allow small businesses to borrow sums from £1,000 to £1 million on more flexible terms than before, making lending more affordable and easily accessible. That will help SMEs experiencing short-term cash-flow problems to get the funding that they need. We are also going to support companies that export, through the Export Credits Guarantee Department. From January, it will offer a temporary facility to support the availability of short-term working capital for smaller exporters, and that will mean yet another £1 billion worth of support to help ease the financing constraint faced by firms trading in the current difficult circumstances. So that is real support, quickly, for all types of small business, and it is possible only because we have made a deliberate choice to support businesses through this crisis.
I have two more measures to announce to help business save tax. First, I have decided to defer the increase in the small companies rate of corporation tax that firms pay on their profits. That will provide a boost to small companies, leaving their tax rate in 2009 unchanged. Secondly, I want to support viable small companies that are finding it harder to make a profit at the moment. We already have a system of tax repayments, which are available to help those businesses, previously profitable, but now making losses. Currently, companies are able to offset losses only against profits made in the last year, but it is important to offer more support to businesses at the moment. So I am today extending this repayment scheme so that losses of up to £50,000 can be offset against profits made for the last three years. An estimated 75,000 businesses will benefit from this change, by receiving tax repayments. And of these, 90 per cent. will have their full current losses wiped out.
This is a comprehensive package of support, which business has been asking us to provide. A package to support businesses—£1 billion-worth of tax cuts and £2 billion in loan guarantees, along with £4 billion of European money. That is a £7 billion package of measures—real help. It is funding that we can provide because we have decided to take action to support our economy through this recession.
I believe that these steps will help businesses through their current difficulties and enable them to invest so that they can make the most of the opportunities that will arise when the global economy recovers. I am also determined that the present economic uncertainty will not push aside the importance of protecting the environment and our long-term needs for a greener and secure energy future. We are already on track to exceed our emissions reduction targets under the Kyoto protocol, and we are further ahead than all the other G7 countries. We have now increased our commitment for emissions reductions to be at least 80 per cent. by 2050—by far the most ambitious in the G7. Through the Climate Change Bill and the new five-year carbon budgets, the UK becomes the only country in the world where legislation sets a binding commitment to cut emissions. The Government will set out detailed proposals for meeting that new carbon budget, laid before Parliament in the summer of next year.
Our climate change strategy is based on a range of policies—encouraging more fuel-efficient businesses and transport; better energy use at home; and targets for renewable energy generation. Central to that is the European Union emissions trading scheme. Last week, we conducted the first auction of carbon allowances in Europe, which gives firms the incentive to cut overall emissions. As the Government have demanded, aviation will now be included in the emissions trading scheme from 2012. That is a major step towards achieving our environmental objective of reducing the impact of aviation on climate change. It has enabled me to look again at our proposals for reforming air passenger duty.
Last year, there was cross-party support for a reform of air passenger duty and converting it to a tax per plane. Much as I am in favour of a bipartisan approach, it seems in this case not to have reached the right conclusion. I believe that this proposal could harm the aviation industry at a time when it is facing huge problems. So instead, I have decided to reform air passenger duty into a four-band tax system, ensuring that those who travel further and have a larger environmental impact meet the cost. I believe that this will be a better and more effective way of reducing emissions from aviation.
Improving insulation and energy efficiency will also help us reduce emissions, as well as cutting energy bills for families. In September, we announced a £6.8 billion home energy-saving programme. This is expected to lead to a 70 per cent. increase in installation rates for cavity wall and loft insulations this winter. The Warm Front scheme has already used its additional £50 million to help modest-income households get free energy efficiency measures. Today I can announce that I am providing an additional £100 million in new money and bringing forward another £50 million, to help up to 60,000 more households insulate their homes.
The most pressing energy problem for many families is paying heating bills. We have already tripled cold weather payments for this year, up to £25 a week, for those on modest incomes. But I know that there is widespread concern that the fall in the price of wholesale energy has not been reflected quickly enough in reduced household bills. I can tell the House that Ofgem, the regulator, is to monitor price changes and publish quarterly reports detailing the link between wholesale and retail prices. Alongside that, if sufficient progress is not made in the next few months in closing gaps in pricing between payment methods, the Government will use statutory powers to end unjustifiable pricing differentials.
Oil and gas from the North sea remain an important part of our energy supply. I am consulting closely with the industry over how, together, we can put in place the right incentives to increase production from marginal oil fields.
The economic recovery must support our environmental objectives, and not come at their expense. Government policies will drive more than £50 billion of investment and activity in the low-carbon sector over the next three years. This year, we became the world leader in offshore wind energy capacity, but we must make even more of our transition to a low-carbon world. As part of our commitment to bring forward capital spending, the Government will invest £535 million more quickly on energy efficiency, rail transport, and environmental protection. That will mean more homes benefiting from better heating and insulation, better flood defences as well as 200 additional trains. That is one of the many steps we are taking to secure high-value green-collar jobs—a potential 1 million jobs in the low-carbon industries in the next 20 years.
I have one further announcement in this context. Renewable energy, along with nuclear power, will play an increasing role in meeting our energy future. I can announce today that the Government will, therefore, extend the renewables obligation for an additional 10 years to 2037. By requiring energy companies to generate a share of energy from renewable sources, that obligation will underpin investor confidence and support the development of renewable energy. We are taking the right long-term decisions to protect the environment, to ensure low-carbon jobs, and to provide energy security.
I also want to take steps to improve the supply of mortgages, to avoid repossessions, and to increase the number of new homes. Today, I can set out proposals to do that. The current problems in the housing market are a result of the credit crisis, which has drastically reduced the opportunities for people to get a mortgage loan. Last month, we took decisive action to recapitalise the banks so that they could maintain the availability of lending, including mortgages. Today, I welcome the publication of Sir James Crosby’s report on finance in the mortgage markets. His principal recommendation is that the Government should support the mortgage market by providing, for a temporary period, guarantees for securities backed by new mortgages. I share Sir James’s concerns about the availability of mortgage finance. To implement his recommendation, the Government would need to obtain state aid approval from the European Commission and resolve some of the technical and practical considerations. However, we will work up a detailed scheme based on his recommendations and seek state aid approval to proceed. I will also take into consideration the interaction between that proposal and the credit guarantee scheme, and I will report back by the time of the Budget.
I am also setting up a new body, a lending panel, which will monitor lending both to businesses and households. It will bring together the Government, lenders, trade bodies, consumer groups, regulators and the Bank of England to monitor lending levels and practices by the banks. We intend to consider how else we can help to ensure that those in work but facing financial difficulties can remain in their homes. It is not just the availability of new mortgages that is a problem in the housing market; it is also fears about meeting the cost of existing loans.
It is right in these cases that repossession should be the last resort, and I am pleased to say that this has been recognised by the lenders. The major lenders have agreed today that when someone is facing repayment difficulties with their home mortgage, they will wait at least three months after the borrower falls into arrears before initiating repossession proceedings. That will give many home owners time to work with lenders to find a solution. I also welcome the commitment, lenders to explore all possible options, including accepting a minimum payment, or mortgage rescue products, before and after home owners get into difficulty. It is also important that families worried about their finances and mortgages can get expert and impartial advice, so I am announcing today £15 million of new funding for free debt advice, available to everyone, regardless of their circumstances, and available across the whole country.
I intend to take two further steps to help home owners facing financial difficulties. First, in September we extended the support for the mortgage interest scheme, which covers mortgage interest payments for those who have lost their jobs. Today I can announce that we will increase the upper limit of that scheme for mortgages up to £200,000 from the present limit of £100,000. That will, I hope, ease worries for home owners who have lost their jobs as they look for new employment. I have also agreed that, for six months, the level of interest rates covered by the scheme will remain, despite the recent base rate fall, at just over 6 per cent.
Secondly, I can also announce new mortgage support for people in work. In September, we set up a mortgage rescue scheme, which is helping vulnerable home owners who face difficulties to stay in their homes. Today, I am extending that scheme so it will also cover those at greater risk as a result of taking out second mortgages. Together, that provides help against repossession worth £200 million.
First-time buyer demand, and long-term housing supply, are the two essential cornerstones of the housing market. In September, to boost the market as a whole, I agreed £700 million of Government spending for new social-rented homes and shared equity schemes, and we agreed that they should be brought forward to this year and the next.
Today, as part of the acceleration of capital spending, we will bring forward an additional £775 million this year and next to invest in thousands of new and modernised social homes as well as regeneration projects. Overall, this is a package of support for housing worth £1.8 billion—support that can be provided only because I have decided that we must act to give people real help. It will help home owners of today to stay in their homes, and help the home owners of tomorrow to buy their first home.
As the economy slows, it is crucial that the Government minimise the impact of that on employment. Unemployment has started to rise and people’s worries have increased about losing jobs and the difficulty of finding another one. I am determined to do what I can to ease those concerns and to help those who are made redundant move quickly into a new job.
The evidence shows that the longer people are out of work, the more difficult it becomes to re-enter the labour market. Since 1997, we have made good progress on offering people the individual support that they need to find a job. We have halved the time it takes to find new work. Even as unemployment has been rising over the last three months, 1.2 million people have found new jobs.
I have three proposals to make. Those facing redundancy need greater support. As the success of the rapid response service of Jobcentre Plus has demonstrated, support in the workplace in the form of advice on job-search, careers and accessing existing vacancies can make a huge difference to employment prospects. We will now further expand that service so that its work includes all redundancies, not just those at the largest workplaces. And to complement that, I will offer greater provision of pre-redundancy retraining through the Train to Gain scheme. We will also target the successful local employment partnerships not just on the harder to reach groups, but also on the short-term unemployed.
There are still over half a million unfilled vacancies, and today I can announce a new initiative to help to fill them through national co-operation with the country’s major employers. The national employment partnership, chaired by the Prime Minister, will involve 20 of the largest employers, including Tesco, Centrica and the Royal Mail, who have agreed to take part. Together, they employ over 2 million people. I welcome their commitment to work with us in speeding up recruitment, increasing vacancies through Jobcentre Plus and stepping up access to work-related training.
It is the high-quality support provided by Jobcentre Plus and the new deal programmes to those out of work that has underpinned the success in the last few years in helping people quickly back into employment. I am determined to provide the resources so that the network can continue its excellent service, and I am setting aside additional funding to ensure that Jobcentre Plus and the new deal have sufficient capacity.
Today’s employment measures are worth a combined £1.3 billion—essential to prevent a temporary job loss from becoming permanent unemployment. Again, all of those measures are possible only because we have taken the deliberate decision to support businesses, protect jobs and help home owners. I have set aside £1 billion in the reserve so that we can continue to help during difficult times and ensure that we emerge from the current downturn stronger and ready to seize the opportunities in front of us.
I can also announce additional help for people of all ages. Turning first to motorists, we rightly have a system of car taxation that takes into account the environmental impact from different types of car. In the last Budget, I announced that I was going to take this further by increasing the number of bands for vehicle excise duty.
As planned, the differential first year rates, which people pay when they buy a new car, will be introduced in April 2010 because they give powerful incentives to provide less polluting cars.
I intend to go ahead with the introduction of new bands, reflecting fuel efficiency, but it would be wrong to do this in a way that places undue burdens on motorists at this time. So I have decided to help people by phasing in new rates and lower rates of increase.
First, in 2009, duty rates for all cars will increase by a maximum of only £5, as has been normal practice for a number of years. Secondly, from 2010, we will bring in differential increases in duty. In the original proposal, some cars would have seen increases of up to £90. Instead, I now propose that the more polluting cars will see duty increased, but up to a maximum of £30, and less polluting cars will see no increase, or a cut of up £30.
For savers, we want to encourage those with modest incomes to put money aside. To help them, we are setting up a saving gateway, which will mean that the Government add money to every pound saved. From 2010, up to 8 million people on low incomes who put money into the saving gateway will get 50p added for every pound that they save. The saving gateway will be widely available through a range of banks, building societies and credit unions, and also the Post Office.
I also intend to step up help for families with children. We have already announced that the child element of the child tax credit will increase by £50 above indexation next April. We have also announced a further increase in that credit of £25 above indexation in 2010. I now intend to pay both those increases together this April, making it worth, in total, £2,235 for modest-income families.
The Government are also working with local authorities to improve further the take-up of tax credits and benefits, because they have a key role in working well with families to tackle disadvantage and to extend opportunities for children.
We are introducing a child poverty Bill next year, which will set in legislation our historic commitment to eradicate child poverty by 2020. I have already announced that child benefit, which was only £11.05 in 1997, will increase from £18.80 to £20 a week in April next year. We are supporting families as well as creating opportunities for all children.
I also want to do more for pensioners. First, for pensioners on modest incomes, I can announce today an increase in pension credit in April. I will increase it from £124 to £130 a week for individual pensioners, and from £189 to £198 for pensioner couples. That is an increase above indexation—and the biggest increase in pension credit since it was introduced in 2003.
I can also confirm that state pensions will increase in line with the highest rate of inflation this year. This will increase the basic state pension for a single person from £90.70 to £95.25—an increase of £4.55 a week. Now that inflation is expected to fall quickly, pensioners should see a real benefit.
I do not want people to have to wait for this extra money. I want them to get it as quickly as possible, which will benefit them as well as the economy. So families will not have to wait until April to receive their increase in child benefit. Instead, they will start to get it in January—three months early.
I want to do the same for pensioners. Pensioners are already getting the winter fuel payment—increased again this year. However, I want to do more. So I will ensure that every pensioner gets a one-off payment of £60, on top of the £10 Christmas bonus, from January. For couples, that figure will be £120, also paid from January. That £70 payment will also go to children with disabilities.
In total, 15 million people will gain from the beginning of next year. We are helping pensioners, children and the economy.
These are exceptional times and they require exceptional measures. They require action now to help people—and action now to help build a stable economy. We have made our choice. We are helping businesses and home owners. We are helping people into work and boosting incomes.
All that is possible only because the Government have taken the deliberate decision to support people and businesses through these difficult times.
I commend the statement to the House.
Listening to the Chancellor’s speech, no one can doubt now that the Prime Minister’s claim to have abolished boom and bust was one of the greatest deceits ever told to the British people.
The Chancellor has just announced the largest amount of borrowing ever undertaken by a British Government in the entire history of this country. What he did not admit is that he is going to double the national debt, to £1 trillion, and that a national debt that has accumulated over centuries is going to double in just five years. That is the bill for Labour’s decade of irresponsibility, initiated by the Prime Minister. To pay for it, the Chancellor has put in place a huge unexploded tax bombshell, timed to go off underneath the future economic recovery.
The Chancellor talked about a 0.5 per cent. adjustment, but Labour Members did not understand what that means. It means that he is giving £20 billion in giveaways and taking back £40 billion in higher taxes, including the major rise in national insurance—a tax on the jobs and incomes of middle Britain. That is confirmation of the time-old truth that in the end all Labour Chancellors run out of money and all Labour Governments bring this country to the verge of bankruptcy.
Stability has gone out of the window. Prudence is dead. Labour has done it again. Massive borrowing; rising unemployment; tax giveaways for Christmas, paid for by tax rises for life; giving with one hand and taking with another—everything that we have come to expect from this Prime Minister. He says that the recession will end halfway through 2009, but the tax rises will not come in until 2011. I wonder why he chose those dates. This Budget is all about the political cycle and not the economic cycle.
Those borrowing figures are on a scale never before heard in the House of Commons. The £78 billion this year is almost double what the Chancellor forecast just eight months ago. The £118 billion next year is a record percentage of national income. He has added £512 billion to the national debt over the next six years—and by the way, that is based on growth forecasts that are vastly more optimistic than those of most independent forecasters. That means that the Chancellor is borrowing more on the nation’s credit card than all previous Governments put together. Now the Chancellor is taking out another credit card, for, like the gambler who cannot give up, he still thinks that he can borrow his way out of debt.
These are the excuses that the Chancellor has deployed. First, he claims that the recession has nothing to do with the people who have been running the country’s economic policy for the past 10 years. “It’s all America’s fault,” he says. What total nonsense. Was it America that gave Britain the biggest housing boom in the world? No. Was it America that gave Britain the highest levels of personal debt of any country in history? No. Was it America that gave Britain the largest budget deficit in the developed world? No. It was this Labour Government. No American politician said that they had rewritten the laws of economics. No American Treasury Secretary boasted that he had done away with the trade cycle and abolished boom and bust. It was the Prime Minister who said those ludicrous things, over and over again. He mistook a boom for stability and he never prepared Britain for the bust.
The second excuse that the Chancellor made today was that he faces this recession from what he called a position of relative strength. Relative to whom? If he spoke to anyone other than the Prime Minister, he might find that his is not a view widely shared in the world. If he is right that Britain is better prepared, could he answer this simple question: why is the recession predicted to be worse here than anywhere else?
The Chancellor reeled off a list of countries. Let me give him this list from the IMF. It says that Britain’s recession will be more severe than those in America, Germany, France, Italy, Japan, Spain and every other major economy in the world. What about this list from the Commission? Britain’s structural deficit is almost double that of France, three times that of Italy and more than 10 times larger than the deficit in Germany. The truth is that the Prime Minister built our economic growth on the pillars of finance, housing and Government spending, without once stopping to think what would happen if the pillars collapsed. He ran a huge budget deficit on the unstable premise that he could milk the City every year, and never considered what would happen to public finances when the money ran dry. He did not fix the roof when the sun was shining.
That leads us to the third excuse used by the Chancellor today. He believes that the temporary tax measures that he has announced will deliver some huge demand boost to an economy that the Government have led into recession. Let us be clear that half of those measures are to compensate people for the Government’s own 10p tax con and to delay the tax rises that he announced from the Dispatch Box just eight months ago. Labour MPs cheered the measures when they were introduced and now they cheer them when they are scrapped. I doubt whether the rest of the country will be so pathetically grateful that the Chancellor is going to wait a year or two before clobbering their family cars, empty properties and small businesses.
As for the temporary VAT reduction, we will see whether it has the great economic effect that the Prime Minister expects. The Chancellor did not tell us that the German and French Governments have today ruled out a similar move because they do not think it will be effective. He did not tell us that already today many retailers are questioning the cost of implementing it and the impact that it will have on the high street, given that many shops are already selling things at 20 or 30 per cent. off. Borrowing money for a temporary cut when prices are already falling, and telling people that their taxes will go up to pay for it, is not much of a stimulus.
What will make a difference are the massive new taxes on ordinary incomes and jobs that are just around the corner. The Chancellor got a cheer from the Labour Benches when he announced the higher top rate of income tax—no surprise there—but it will raise less than 5 per cent. of the black hole that he has to fill. It is designed to distract attention from the billions of pounds of extra taxes that are on their way for millions of hard-working families. Now we know at least one of those tax rises: national insurance, an income tax in all but name. The Chancellor did not give his figures, so I will: a £4 billion tax increase on families and jobs; more in tax for a qualified nurse, more for a police officer; £100 million on the annual NHS wage bill; £2 billion from British business. That is not just a bombshell; it is a precision-guided missile at the heart of a recovery.
The final excuse that we heard from the Chancellor today was that, despite all the economic evidence of the past 40 years, Britain can borrow and spend our way out of this recession. Does he not see any parallels in what happened to Japan, which followed the path that he advocates and found itself saddled with debt and stagnation for a decade? The international bodies that he quotes in his defence have clearly stated that fiscal stimulus is an option only for countries with strong public finances. Perhaps this generation of Labour politicians needs to be reminded of what Jim Callaghan told them at a Labour party conference—[Interruption.] The Lord Chancellor was probably there.
“We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists”.
If the candour of the last unelected Labour Prime Minister will not do, we can listen to what the current unelected Labour Prime Minister used to say:
“We have learned from past mistakes…you cannot spend your way out of a recession”.
It turns out that he has forgotten past mistakes, and now he is condemned to repeat them.
The Chancellor could have taken a different path today—the path of radical monetary action and responsible fiscal policy. That is the right route out of a recession. Instead of boasting about the bank rescue abroad—[Interruption.]
The hon. Member for Blyth Valley (Mr. Campbell) is very excited because he has his U-turn on the vehicle excise duty increase, for which he has been campaigning for so long. Unfortunately, it is coming down the track.
Instead of boasting about his bank rescue abroad, the Chancellor could have made sure that he was rescuing the real economy at home. He could have got credit moving through the veins of the economy by telling us that he was directly insuring business lending—to keep small businesses going—instead of storing up tax rises for them in the future. He could have helped the private sector get back on its feet with properly funded help on tax bills and employment costs, instead of piling on them crippling debts and national insurance bills that will take ages to pay off. Instead of yet another phoney efficiency review while public sector waste runs rampant, he could have brought proper restraint and independent oversight to the way that public money is spent. He could have got a grip on Government spending so that in future the state would live within the country’s means. That is what we would do and he would not. Instead he offers temporary tax give-aways paid for by a lifetime of tax rises for the British people, the national debt doubled and the future mortgaged to bail out the mistakes of the past.
This is exactly the road Britain is now on with this Prime Minister and this reckless Budget. Far from being an action plan, it represents the greatest failure of public policy for a generation. It will make the recession worse because it will make the recovery more difficult. If Denis Healey had had to announce these figures, he would not have turned around at the airport; he would have kept going—but the right hon. Gentleman did not.
When the Chancellor rises to reply, let him answer just these three straight questions. First, does he accept that the national debt will now double to £1 trillion? Secondly, does he have an explanation for why Britain is forecast to have the worst recession of any major economy? And will he confirm that families will be worse off because the tax cuts he announces are temporary, while the larger tax rises are permanent? I know that he will not want to answer those questions, but the choice at the next election could not be clearer. A record—[Interruption.] A record borrowing binge and a lifetime of tax rises under Labour, or fiscal sanity, and lower taxes that last, under the Conservatives.
The hon. Gentleman is right about one thing: there is a very clear choice before the country today—and that is between a Government who are prepared to help people and help businesses and an Opposition who are prepared to do absolutely nothing to help. [Interruption.] He was also right to say that we have chosen to take a different path. We have taken a path that will help businesses, help pensioners and ensure that everyone is helped through a reduction in VAT. At no point in the hon. Gentleman’s intervention did he even mention pensioners or children or families. He had absolutely nothing to say.
The hon. Gentleman then warned about repeating the mistakes made by Japan. The mistakes made by Japan in the early 1990s were precisely to follow the course of action that he is advocating today. I know that because a Japanese Finance Minister told me that those were the mistakes that his country made. You would have thought, Mr. Speaker, that at this stage of a Parliament, when we have seen countries all over the world recognising that action needs to be taken to support the economy, the shadow Chancellor would have had at least one suggestion to make to help people out of this difficulty. Instead, he has absolutely nothing.
It appears that the shadow Chancellor is against the reduction in VAT. At least he has gone a bit further than the Leader of the Opposition, who was unable to tell Andrew Marr on Sunday whether he was for or against reducing VAT. The shadow Chancellor has nothing to say about the help that we are giving to businesses. Instead, all he is saying is that, faced with today’s difficulties, which are recognised the world over, he is not prepared to take any action.
In some ways, that should be no surprise. This is the shadow Chancellor whose judgment led him to back a call to get rid of mortgage protection regulation just before the problems arose in the housing market. He is the one who said that the International Monetary Fund would not support the idea of a fiscal stimulus across the world, only a day before the IMF said that that was precisely what was necessary. This is the man who said that the Bank of England could not cut interest rates because of our policy, just a week before it cut interest rates by the largest amount for many, many years. [Interruption.]
Order. Mr. Grayling, I have asked for order. I expect a Front Bencher to respect the Chair. [Interruption.] Just shouting “Answer” is not good enough. That goes for the Conservative Chief Whip as well. He should be quiet as well. [Interruption.] Order. If the Chancellor is out of order, I will tell him. I will tell him how to conduct his affairs if he is out of order.
Order. Mr. Mackay, do not shout across the House. [Interruption.] Order. We must have good order. The Chancellor has finished, and I am calling—[Interruption.] Order. Members should bear in mind that this was a statement put to the House, and that Back Benchers who are shouting will run the risk of not being called to question the Chancellor. So let us have good order.
Perhaps I may start with some of the positive points with which we can agree: the statement on repossessions, the action on small business lending, the programme for home improvement, and the postponement of the decision on retrospective vehicle excise duty.
This is not a normal pre-Budget statement. We are experiencing a national economic emergency, and what is required, alongside radical cuts in interest rates and radical action on bank lending, is a serious tax cut concentrating on the low paid. The Chancellor has based his plans essentially on a temporary small cut in value added tax. I note that he is relying on the advice of a former Conservative Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), in that regard.
What I fail to see is how the economy receives a major stimulus from, for example, a £5 cut in the price of a £220 imported flat-screen television or a 50p cut in a £25 restaurant bill. Surely it would be much more sensible to put money directly in the pockets of low-paid workers by cutting their income tax, rather than offering them a pathetic £25 and, if they earn over £20,000 a year, the prospect of tax increases.
The Government have at last, after 11 years, acknowledged that there is a problem of inequality relating to the tax system. What they propose is a higher rate of tax for very high earners, after two years—possibly. What is needed, surely, is a comprehensive approach which involves cutting income tax for low-paid middle-income families and removing the vast plethora of tax reliefs and allowances from which the wealthy benefit, rather than this very limited fig leaf for redistributive policy.
What I find wholly incredible about the statement is the assumptions that the Government make about the future trajectory of the economy. They simply assume that after one bad recession year there will be an economic recovery. Buried in the Red Book is the assumption that after next year, the public sector need make no contribution whatever to economic growth. However, the problem is a very deep one. This is not just a conventional recession. We do not just have the home-grown problem of the bursting housing bubble and personal debt; we have the imported credit crunch.
As far as the banks are concerned, the problem is very deep. The Prime Minister tours the world, a little bit like a celebrity heart surgeon, lecturing the uninitiated on how to carry out financial heart transplants, but meanwhile the patient back here is suffering very badly, because the banks are cutting credit and greatly increasing their margins. I welcome what the Chancellor said about the Royal Bank of Scotland’s announcement yesterday; that was a positive step. I do not, however, know whether he is aware that today Barclays, whose balance sheet is twice as big as the Government’s entire public debt, is in the process of negotiating a deal with Arab investors on such extortionate terms that it is bound to make a drastic reduction in bank lending at the expense of its British customers. It is all very well for the Government to say that they are setting up a panel to monitor bank credit, but what is the Chancellor doing to enforce the conditions that the banks have apparently agreed to?
I welcome some of the Government’s comments on public investment, particularly on housing, but let us just consider the status of the Government’s commitment on housing, with their £700 million programme of social housing. The Government have a once-in-a-lifetime opportunity. Land is available very cheaply in the current market, and they could make a programme of large-scale social housing construction, meeting housing need and providing employment in the construction industry, but despite the rhetoric and the promises, virtually nothing is currently happening. It is not happening because the housing associations are loaded with bad debt that they acquired in dodgy deals with developers, and the Treasury is blocking any fundamental reform in the housing subsidy system. Nothing is happening.
To conclude, we have a very serious national economic crisis. The Conservatives do not acknowledge it, so they do not propose to do anything. The Government have rhetoric, but the rhetoric is not matched by their actions.
Although I do not agree with a lot of what the hon. Gentleman said, his response was a great deal more thoughtful than the shadow Chancellor’s.
I appreciate the hon. Gentleman’s welcome for some of the measures that we have taken, particularly in relation to repossessions, but our announcements on both VAT reduction and the extension and increase of the amount of money that will go to basic rate taxpayers will help people on low incomes through what are undoubtedly difficult times. The hon. Gentleman’s proposal for reducing income tax also comes with a promise to cut public spending very substantially—by about £20 billion—which would impact on the living standards of the very people he is concerned about.
On lending to businesses, I agree with the hon. Gentleman that we need to make sure that we hold to account those banks in which we have shares. The Royal Bank of Scotland group has now agreed to take the Government money, and its announcement this weekend was extremely helpful. Assuming the Lloyds-HBOS merger goes ahead, that transaction will be completed in January, and we will need to make sure that they, too, are held to account. The additional Government help I have announced today of £1 billion being made available to small businesses is also important and will make a difference. The hon. Gentleman said that he wanted banks to do more, but although I agree with him on that, he does not seem to agree with us on the action we are taking to spend more to encourage businesses and to give them the money they need to get through this difficult time, including the measures I announced this afternoon to help them pay their tax bills and to help small businesses that are exporting.
On housing, we are providing substantial sums to enable the building of more social housing, as well as to ensure the renovation of homes. Whenever anything is announced, the Liberals always call for more, yet it is not entirely clear how on earth they would be able to fund any of it given the fact that their tax and spending policies simply do not add up. I understand what the hon. Gentleman says, but I simply do not agree with him.
I think that what we have announced today will go a long way. We are putting about £18 billion into the economy between now and April 2010. Such action is supported not just by a wide range of people in this country, but, increasingly, by countries across the world as absolutely essential, and the hon. Gentleman at least understands what the shadow Chancellor does not: many of the problems all of us face today are truly international.
In these serious and profoundly risky global times—witness the fate of Citigroup, the biggest financial institution in the world, in the United States today—I welcome the financial stimulus, which is the only option, and, in particular, the social initiatives that will help families, vulnerable groups and businesses. I welcomed the £37 billion recapitalisation of the banks, whereby the Government guaranteed the debts and liquidity, but there is still pessimism in that market. Alongside the October statement came a credit guarantee scheme. Will the banks ensure that it is used further, with Government support, so that lending to businesses indeed takes place and that money circulates, helping jobs and communities?
I am grateful to my right hon. Friend, who rightly says that, in addition to everything that I have announced today, it is important that we ensure that the banks maintain their lending. I have said in this House before that banks sometimes fall over themselves to try to get customers in the good times, and they must understand that it is in their interests as much as everybody else’s that they continue to lend to people when times are difficult. We need to ensure that we hold those banks in which we have shares to account. As I have indicated today, and as he said, the credit guarantee scheme involves a lot of taxpayers’ money—almost £100 billion has been subscribed to already—and we are entitled to see the banks treat their business customers, and, indeed, their personal customers, properly. Banks need to be held to account on that, and they need to deliver.
Given that the Chancellor has turned to a temporary fiscal stimulus, as he was bound to do, because, as the right hon. Member for West Dunbartonshire (John McFall) has just said, the bank rescue scheme that was announced a few months ago has not yet fully worked and is not fully operative as far as credit guarantees are concerned, so credit is difficult to get and very expensive, is it not essential for the Chancellor to ask two questions about that stimulus? First, is it affordable now? Secondly, will it be repayable in the short to medium term, so that we can rapidly get back to fiscal stability?
In addition, does the Chancellor not accept that having set out the past state of the public finances, which is rapidly deteriorating as recession hits us, he should have told the Prime Minister that £20 billion-worth of additional fiscal stimulus was not affordable? When the Chancellor looks ahead and starts saying that even on his optimistic forecasts we will be borrowing £115 billion next year and £105 billion in 2010, does he accept that he runs the risk of the foreign exchange markets and the securities markets refusing to believe that that is credible and repayable, given the threats to sterling and the risk to the interest rates that he will have to pay on his bonds? This country clearly risks having a more severe depression than any other major western country. Does this reckless gamble not run the risk that it will eventually be worse still and that the recovery will be long and painful?
Yes. I believe that it is affordable. To put it another way, I share the view held by many that if we do not put this money into the economy now, the recession that we will face will be longer and deeper than it would otherwise be, and a greater cost will be borne, not only by the country as a whole but by every man, woman and child in this country. I am not prepared to take that risk. I believe that the Government have a responsibility to support people and to support businesses, and I believe that through the measures that I have announced today—substantial measures that will bring the budget back into current balance—it is affordable. The two objectives I had were to support the economy now and to ensure that we can live within our means in the medium term, and both those things are eminently deliverable.
May I thank my right hon. Friend for the announcement that he has made of enhanced investment in public sector building, which will increase still further the superb rebuilding of high schools and primary schools in my constituency? Under the Conservatives, those schools were so neglected that they were degenerating into slums. As the person who originally allocated the money for new build to housing associations under a previous Labour Government, may I also thank him for the money that he is putting into social housing, which the Conservatives also neglected and ruined? Together with the school building programme, that will—happily—increase employment among building workers in my constituency.
My right hon. Friend is right to draw attention to the fact that what happened 20 years ago meant that many children were educated in schools built by the Victorians and did not have the facilities to which they were entitled. We all suffered as a result, and that is why maintaining public investment—especially in education, but also in other areas such as transport—is essential. The Conservative party has nothing to say on that, except to go back to the same policies that it was advocating in 2001 and, to a large extent, in the early 1980s.
The Chancellor told us that if the economy performs more strongly than he predicts—however unlikely that is, we must all hope that it will—he will review the tax increases that he has proposed this afternoon. What will he do if recovery takes longer than he predicts?
I made it clear that we will, of course, review the position, as we would from Budget to Budget, but I have also made it clear that having put in place this fiscal stimulus—and recognising that tax revenues are likely to be affected for some time, especially because of what has happened to the financial services industry— we have to be prepared to raise revenue to ensure that we have sustainable public finances in the long term. I am prepared to take those decisions. There were two parts to what I announced today, as I have been making clear for some time: helping the economy, but also ensuring that we live within our means in the medium term.
May I congratulate my right hon. Friend on his decision to pump extra money into the economy? May I also congratulate him on targeting that money on the worst- off families and individuals? Putting money in their pockets and handbags is fairer than anything anyone else has suggested, and they are also the most likely to spend it and benefit the economy generally. That is in contrast to the Opposition Front Bench—
I congratulate my right hon. Friend on the targeted approach that he has taken, which is a fair response to the world crisis and to the question of how to deal with it in our economy. However, may I disagree with him slightly? I am afraid that he is quite wrong about the Conservatives. They, too, have reverted to type and they do have a response: massive cuts in public spending.
Will the Chancellor now answer one of the questions posed by my hon. Friend the Member for Tatton (Mr. Osborne), which he shamefully avoided at the beginning of his response to my hon. Friend? Why does the IMF believe that coming out of recession this country will be worse placed than so many others?
One problem that we face is that we undoubtedly have the world’s largest financial centre and, because of that, we are more directly affected in relation to revenues than would otherwise be the case. If the hon. Gentleman cares to look at all the IMF assessments, particularly the assessments that were produced earlier this year, he will see that they were extremely complimentary about the conduct of the economy over the last 10 years. The IMF drew attention to the fact that different countries are affected in different ways. I believe that we can be confident for many reasons that we will get through this, but one of the essential parts of that is ensuring that we support the economy now.
Although there is much to be welcomed in my right hon. Friend’s statement, his announcement on empty property rates will not save a number of the companies in my constituency—and, I am sure, elsewhere—that are destined to be put out of business by that tax. Pallion Engineering, for example, is due to see an increase in rates from £55,000 to £277,000 in a single leap. That would put it out of business. Did the Chancellor not consider giving total relief from that tax in regeneration areas, as some of us had urged him to do?
I did look at whether the relief should be concentrated on regeneration areas, but the problem was that a lot of people or businesses who have empty properties in areas that are not in regeneration areas would be perfectly entitled to say, “What about me?” I introduced a measure that helped 70 per cent. of empty property, where people will not pay rates as a whole. Of course, we will continue to consider what other measures we can put in place to help businesses. My answer to my hon. Friend’s question is that I did consider that option, but it would have created other unfairnesses of its own.
Will the Chancellor tell us what specific steps he intends to take to address the extortionate interest rate premiums that banks are placing on small businesses? Will he consider imposing penalties on banking institutions that are deemed to be working against the consumer and small businesses?
As I have said on a number of occasions, it is important that banks behave reasonably towards their customers. Part of the reason why we are setting up more intensive scrutiny of the banks is to ensure that if we see patterns emerging and if we believe that banks are reacting unreasonably, we can take appropriate action. The rest of Britain’s banks could look at what the RBS Group is doing, because that might act as a model for other banks. They need to ensure that they treat their customers fairly, because they will rely on those customers for their business in years to come.
I most warmly welcome the statement. I particularly welcome the new tax on salaries of over £150,000. I think that my constituents will see the tax as a just tax, and therefore it will be a popular tax. Will the Chancellor reassure the House that that tax will be collected and that we will not find that people who ought to pay that tax will avoid it by having part of their salaries paid in school fees, thus denying the public purse once again?
I agree with my hon. Friend: I believe that the tax system needs to be fair. Many people who earn quite substantial sums in this country have done pretty well over the past 10 years, and it is right that they should meet their fair share. Yes, of course, I believe that, if people are due to pay tax, they should pay their tax.
The Conservative party, alone in the world, is trying to make out that, somehow, nowhere else in the world is affected by any of the problems of the past 12 months, but I have made it clear on many occasions that, over the past 10 years, we have built up an extremely strong economy. More people are in work. We have been able to do more to help people, particularly those who lost out in the Conservative years, and I have been able to announce more help today. Of course, I will accept responsibility for anything that I am charged with—but if the Conservative party wants to come up with solutions to today’s problems, it might at least start by understanding what the problems are, and a lot of the problems emanate from the credit crunch.
On efficiency savings, I find it hard to believe that a Government who spend—certainly, directly, if we set aside benefits and pension payments—more than £400 billion a year cannot find £5 billion by being more efficient. I do not think that any organisation can proceed on the basis that it is impossible to be more efficient. I am afraid that I disagree with my hon. Friend on that point.
May I bring the Chancellor back to the 6 million taxpayers who are still losers after the abolition of the 10p rate? Although I understand why he has had to find billions upon billions of pounds for City slickers who have got us into this mess, may I express my disappointment that the Government have not yet found the funds fully to compensate those lower-paid taxpayers who lost out with the abolition of the 10p rate? May I assure him that there would be tremendous support among Labour Members if he told us that, when he makes his Budget statement next year, he will be able to find those funds, fully compensate that group of workers and draw a line under that unhappy episode?
My right hon. Friend will recall that, when he and I discussed the issue earlier this year and when I announced the proposals that helped just over 4 million households, I wanted to return to this issue in the pre-Budget report. I have done that; we are now helping another 500,000 households. Of course, I will always keep under review what I can do to help people, particularly those who are on low incomes, but I am sure that he would recognise that I need to deal with many things in any Budget or pre-Budget report. However, I hope that he will accept that I said that I would come back to this, that I have been able to help many more people and that I will continue to keep the matter under review.
Many of my constituents are beginning to be quite concerned about the future of the North sea oil and gas industry and exactly where the credit crunch is hitting highly geared companies’ investment. The Chancellor said that he was considering ways to incentivise and increase investment in the North sea. May I emphasise the urgency of that? Will he give more indication to the House about how he is taking that forward and what time scale he sees for the delivery of such incentives?
I understand people’s concerns, particularly with the oil price coming down. Although that has many welcome effects, it obviously has an effect on the outlook in the North sea. As the hon. Gentleman knows, my right hon. Friend the Prime Minister and I met leaders of the oil industry in Banchory earlier this year. We agreed to work together. We are publishing further proposals today to allow us to develop such things further.
One of the things that the industry told us is that it wants to work closely with us, because there is probably a coalition of interests: both of us want to ensure that we extract everything that we possibly can from the North sea. We said that we would work closely with the industry to ensure that the tax regime helps that process. I am glad to say that I believe that we are working well together, and I hope that things will come to a satisfactory conclusion as soon as possible.
I welcome my right hon. Friend’s announcements on small and medium-sized businesses throughout the UK, but will he continue to monitor both the specific and the general effects that the announcements today, and his actions in recent weeks, will, and have had have, on the housing industry? Will he undertake to take necessary further action if he deems that it is important to do so?
Yes, I can give that undertaking. It is important that we recognise that the housing industry has been going through a difficult time. It is in all our interests that we maintain the supply of housing. The measures that I have announced today bring forward spending in the housing industry. We have made it clear to the Scottish Executive that if they wish to re-profile their spending, we would be very happy to talk to them. We have made that clear for several weeks now. If they want to do something similar, we will do our best to accommodate that.
Is the Chancellor seriously telling us that when we can get 20, 40, 70 per cent. off on the high street, and when there are “buy one, get one free” offers on houses and cars, the average hard-working family has simply been waiting for a 2.5 per cent. cut in VAT to press ahead and spend money it has not got? I do not think so.
Does my right hon. Friend not realise how welcome the cut in VAT is—the second major cut from a Labour Government, who cut VAT on fuel? Will he take no lessons from the Conservative party, which doubled VAT and imposed VAT on fuel, which hit every single family, and pensioners worst of all?
My hon. Friend is right. I am sorry that the right hon. and learned Member for Rushcliffe (Mr. Clarke) is no longer here, because I am sure that he remembers only too well what happened when the Tories wanted to increase VAT on fuel. It caused them considerable discomfort.
I just do not agree with the Conservative party. I think that if we can help to reduce household bills and put money into the hands of people on low incomes, that is precisely what the Government ought to be doing at a time like this.
I welcome the business payment support service that my right hon. Friend is setting up. I spoke to the director of my chamber of commerce today, and he suggested something similar to this measure, by allowing the quarterly payments for VAT and corporation tax to be paid in monthly instalments. I urge my right hon. Friend to ensure that the service is an early intervention service so that small businesses do not incur huge bank charges and that they get the support to which he alluded. In addition, does it cause him any distress at all that the Conservative party changes its policy from week to week?
On the latter point, I think that most people have noticed that. On my hon. Friend’s substantive point, it is important that if firms are getting into difficulties, the HMRC helpline is there so that they can get advice. If people are in difficulty, it is always best to contact Revenue and Customs as soon as possible, rather than wait for a problem to build up. That will be helpful, because it is important to help, especially small businesses, in the way that my hon. Friend describes.
Will the Chancellor explain why so many OECD countries built up budgetary surpluses in the past few years and we singularly failed to do so?
If the hon. Gentleman cares to look at the position of most countries of comparable size to ours, he will see that most of them have had far higher debt levels than we have had. If his charge against us is that we spent money on schools, hospitals, roads and housing, I will plead guilty to it, but I remind him that the Conservative party usually called for us to spend even more money on all those things, not less. [Interruption.] An hon. Member shouts, “Not true.” If he looks back at the press releases over the years, he will find that, from time to time, the shadow Chancellor has had a terrible job trying to keep some of the shadow Ministers under control.
I agree with my hon. Friend. Countries and organisations around the world, and many respected commentators in this country, have said that at a time like this, when the world is facing unprecedented pressure, and when we have seen a credit crunch the likes of which we have not seen for generations, it would be utterly irresponsible for Governments to stand back and say, “Let the recession run its course.” I am sorry, but the view that we should let the recession run its course is not one to which I can subscribe.
On the help for families, we welcome the VAT cut and the vehicle excise duty changes, but question why on earth the Chancellor wants to put petrol duty up at this time. On the help for businesses, we welcome the flexibility that he has introduced, and the one-year deferral of the small companies corporation tax rate, but notice that there is no change to the standard rate, or to the income tax paid by the smallest businesses that do not pay corporation tax. On direct public investment, although he is borrowing £300 billion over the next three years, he is only bringing forward £3 billion of direct public investment from the 2010-11 Budget. That is not new money; it is simply being brought forward. Will the £3 billion be subject to Barnett consequentials?
No, because the money is being re-profiled. As I said, and as the hon. Gentleman said, it is not new money. If, for example, the Department for Communities and Local Government brought forward money from its budget to spend it this year, rather than in three years’ time, it would be difficult to argue that it was new money, and that his colleagues in Scotland should get a share of it. Of course, the Scottish Executive could re-profile their spending, if they wanted to. We have made that clear since September. As of a couple of days ago, no such request has been made, but if they would like to make such a request, that would be eminently sensible. It would be much supported by people in Scotland. Perhaps the hon. Gentleman should pass the message on to the right hon. Member for Banff and Buchan (Mr. Salmond), who might want to consider it in the course of his busy day.
In relation to fuel duty, I said that we have reduced VAT on fuel, but I am increasing duty on it, so that the effect will be as though there was no reduction in fuel duty. What people pay is remaining exactly the same, because I am taking account of the fact that petrol and diesel prices have fallen quite a lot, even in the last month or so. We are not allowed to have a large number of differential VAT rates, so that is the only way in which I can maintain the status quo, which is what I have done.
This is warm homes week, and it is freezing cold in Pendle, so I welcome the additional £100 million announced, but will the Warm Front programme be able to gear itself up and deliver a measurable increase in activity this winter, so that people see the benefit of that money?
In his speech, the Chancellor said that this year’s borrowing would be £78 billion, but the Budget book tells us that central Government need to borrow £153 billion this year—£93 billion more than at the Budget forecast. As he believes in transparency, why did he leave out so much of the borrowing?
I gave the House the borrowing figures, as the House would expect. I am also laying before the House the pre-Budget book. It is all there, and I am happy for hon. Members to look at it. Equally, I would be happy to listen to proposals from Conservative Members. The only proposal that I recall from the right hon. Gentleman recently related to the deregulation of the mortgage market, which I do not think would be a very good idea.