Amendment of the law
Motion made, and Question proposed,
(1) It is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(a) for zero-rating or exempting a supply, acquisition or importation;
(b) for refunding an amount of tax;
(c) for any relief, other than a relief that—
(i) so far as it is applicable to goods, applies to goods of every description, and
(ii) so far as it is applicable to services, applies to services of every description.—(Mr. Darling.)
Today everyone can see what an utter mess this Labour Government and this Labour Prime Minister have made of the British economy: the fastest rise in unemployment in our history, the worst recession since world war two and the worst peacetime public finances ever known. As of today, any claim that they have ever made to economic competence is dead, over, finished.
This Chancellor has just told us that he will be doubling the national debt. He is planning to borrow £348 billion over the next two years. That is more, over just two years, than every previous Government put together—not just every Government since world war two and not even every Government since world war one, but every Government since the Bank of England was first founded more than 300 years ago. This Prime Minister has certainly got himself into the history books. He has written a whole chapter in red ink: Labour’s decade of debt.
The Chancellor rattled through those figures for borrowing, so let me read them slowly. The Government are set to borrow £175 billion this year, followed by £173 billion, and then £140 billion—[Interruption]—he says he said that; he swallowed it—and then £118 billion. That means that over a four-year period, Britain will now be borrowing £606 billion. They talk about child poverty, but with debt like that, our children will be in poverty for decades. It is a staggering amount and the price will be paid not by the incompetent Ministers who put us into this mess, but by families and businesses up and down our country. They will never forgive the people who have done this. Britain simply cannot afford another five years of Labour.
Even those figures are massaged. On page 204 of the Red Book, the Government are assuming that consumer demand will bounce back to pre-boom levels by 2011. That is what they are forecasting, and that is why they forecast the debt coming down so quickly. That would not be a U-shaped recovery; it would be a trampoline recovery.
What is the Chancellor’s excuse for those dreadful borrowing figures? He just told us that this is a world recession. Of course other countries are suffering, but there is not one single other major country in the world in a position as bad as the United Kingdom. [Hon. Members: “Rubbish!”] They say, “Rubbish!”, but there is not one country with a bigger budget deficit in any major economy. Why is that the case? Because the Government did not fix the roof when the sun was shining.
It is no good the Chancellor’s pretending that the international factors were some sort of surprise. He knew that there was a world recession when he made those utterly useless forecasts in the November pre-Budget report last year. We now know that what he told us was a complete work of fiction. Let us take just one figure, the growth forecast. He told us that it would be minus 1 per cent., but he has had to downgrade it to minus 3.5 per cent. That is one of the biggest downgrades in the history of forecasting.
The figures are so bad that the Prime Minister and the Chancellor have had to do a spectacular U-turn. For years they have lectured us about how departing from the Government spending programmes means swingeing cuts. Minister after Minister has stood at that Dispatch Box and said that any attempt to depart from the Government’s rate of growth of spending means being savage or inhuman, and now they are doing it themselves. [Interruption.] That is right—that is what Labour Members were all cheering in that rather pathetic cheer at the end of the Budget speech. The Government have just announced more than £10 billion of cuts over two years. For years, that was the Prime Minister’s great dividing line, but he is suddenly on the wrong side of it. After today, no one will ever believe a word that they say about spending cuts ever again.
But the Budget still does not do enough to get the public finances under control. In two words, it is completely inadequate. Instead of putting up taxes in 2011, why does the Chancellor not get to grips with spending now and next year? Look at the consequences of failing to deal with spending. Look at the tax rises that he has announced today. Of course, the Government claim that it is just the rich who will pay—and by the way, he has just broken a manifesto promise not to put up the top rate of tax, but people expect that from this lot anyway—but look at the other taxes.
Look at the tax on beer. That is going to hit every drinker in every pub. Look at the tax on petrol. The Government are reintroducing the fuel duty exercise—[Interruption]—escalator. That is going to hit everyone who has to drive to work. Those people are not rich; they have to work hard, and they are going to pay the price for Labour’s failure. Those are not taxes for the few; they are taxes for the many, introduced by this Labour Prime Minister.
But what stands out most about today’s Budget is how every single argument and every prediction that the Government have told us about has turned out to be wrong. They told us that the recession would be less severe than in the 1990s. I have lost count of the times that the Prime Minister has told me that over that Dispatch Box, but perhaps he would like to look at page 200 of the Red Book, which states that:
“the current downturn is forecast to be much deeper than that of the early 1990s”.
He is condemned by his own Red Book. This is worse than the ’70s and it is worse than the ’80s or the ’90s. This is not just boom and bust; it is the worst boom and bust ever.
Then the Government told us, in that November pre-Budget report, that the recession would be over by the end of June. I know that the Chancellor does not want to remember what he said in November, but he said that growth would start early as a direct result of the cut in VAT. So by the Government’s own criteria, the VAT cut has failed. The money was wasted and our debt is higher as a result.
What about the last big argument—the one that the Prime Minister tried to get off the ground before the G20? Britain, we were told, was heading for another great fiscal stimulus. Well, where is it? Are we missing something? There is no fiscal stimulus here; there is a couple of extra billion added to what has already been announced. That is less than the cut in next year’s capital budget. This is not a stimulus; it is a delayed tax rise and a delayed spending cut. The Chancellor could not provide a proper stimulus because he had run out of money. The Prime Minister sits there shaking his head, but he is the only person in Britain who does not realise how ridiculous he looked wandering around the world telling Governments everywhere else to open their cheque books and start spending, when the Governor of the Bank of England had taken the Prime Minister’s cheque book and torn it up in public.
Of course we need schemes that will really help the unemployed and that will help British businesses, large and small. We have been calling for a proper credit guarantee scheme for six months. Before we get carried away with the schemes that have been announced today, I think we are entitled to ask what happened to the ones announced last year. The internship scheme: not working. The asset-backed security scheme: not working, but, incidentally, reannounced today. And what about HomeBuy Direct? The Chancellor told us today that it was to be given another £80 million. What a treat for HomeBuy Direct! There is only one problem: we asked some parliamentary questions and found out that, by 25 March, not a single sale had been made through the existing scheme.
What about the home owners’ mortgage support scheme? Peter Mandelson was meant to be in charge of that one, and he knows a thing or two about getting a good mortgage, so you would think that he might have succeeded. It was the centrepiece of the Queen’s Speech last year but now, four months later, the Government have just announced it all over again. And still not a single home owner has received a single penny under the scheme. What a disgrace! What a callow farce from this Government! The Chancellor also told us about his scrappage scheme. Let me see if I can get this right. We take something that is 10 years old; it is completely clapped out, it pumps out hot air, pollutes its surroundings and is absolutely ripe for the knacker’s yard. What a brilliant idea!
Where does all this leave the Prime Minister’s big argument—the one he based his whole premiership on—that he would always be prudent with the nation’s finances? Barely a year ago, he described a deficit of 8 per cent. as being completely out of control. So how would he describe a deficit today of 11.9 per cent.? That is more than Denis Healey borrowed when he was forced to go to the International Monetary Fund.
Let me turn to the IMF, as the Chancellor might well have to. I would love to read out a list of countries that the IMF says are heading for a larger deficit than Britain’s next year. I can’t; there aren’t any. Russia, South Africa, Turkey and Argentina are all heading for deficits half the size of ours. Is it any wonder that, in a not-very-noticed announcement, Ministers chose this time to announce—some of you might have missed this—that they wanted to remove the stigma on countries going to the IMF. One Minister actually said that the IMF should be seen as something to celebrate—I am not making this up, I promise—and a bit like
“getting wellbeing care or even like going to a spa to recuperate”.
What planet are these people on? When are they going to realise that they cannot spin their way out of this one?
This Budget was a missed opportunity. We need to move from an economy of borrow and spend to an economy of save and invest. The Government talked about the disregard, but why not give proper help in the tax system for people who save? Where was the plan to regulate the banks and to regulate credit properly? Is it not time to end the tripartite system and to restore the Bank of England to its proper role of regulating debt in the economy?
On the fiscal side, the Chancellor has scrapped his fiscal rules and his spending plans, but he has put absolutely nothing in their place. That is why we need spending restraint now and an office for budget responsibility for the future. I have to say to the Chancellor and the Prime Minister that no one will believe that the Government are going to sort out the public finances when the Prime Minister says that they are going to make a serious start only in 2011. We all saw what they are doing today: introducing a few clever, political taxes on the rich before the election while saving up any real tax increases until 2011. But look what we have got between now and then: another Queen’s Speech, another pre-Budget report and another Budget. The Prime Minister sits there in his bunker talking about all the brave things that he is going to do in 2011. Is there no one left to tell him that he has to hold an election between now and then? They just do not get it; they cannot see what is actually wrong. He will never bring in the changes required because he does not accept that the economic model that he has run for 12 years, based on Government debt, consumer debt and housing debt, is fundamentally bust. This Prime Minister can never be the future because he does not understand what went wrong in the past.
The fundamental truth is that all Labour Governments run out of money. The last Labour Government gave us the winter of discontent; this Labour Government have given us the decade of debt. The last Labour Government left the dead unburied; this one leaves the debts unpaid. They sit there, running out of money, running out of moral authority and running out of time. We have to ask ourselves: what on earth is the point of another 14 months of this Government of the living dead? If they do not have the courage to deal with the debt and take the difficult decisions, why not make way for the team that can?
The economic crisis is unprecedented in many ways—its scale, its speed, its reach—so people are looking for something bold and distinctive from this Government. Let us think back to the great Budgets of our history. The people’s Budget of 1909 introduced the first pension and the first social insurance. Labour’s post-war Budgets built a new nation from the rubble of war. What made those Budgets great was their ambition, and their coherent vision for a different future. That is what we needed today, in the aftermath of this generation’s disaster. The worst of times demand the best of Budgets.
So what did we get today? We got a mishmash of recycled announcements from a Government skilled in raising false hopes but incompetent in delivering practical help. The Chancellor had a choice: he could have used this Budget to get practical help to the millions of people struggling in this recession. He could have given a people’s Budget for the 21st century. Instead, we got just another politician’s Budget, desperately rushing around for half-baked ideas to save the skin of this failing Government. This Budget is a political supermarket sweep, a trolley full of random promises, but without even a hint of a plan or of any real likelihood that the promises will be put into practice.
The growth predictions in this Budget stoke up false hopes. The Chancellor says that the economy will grow by 1.25 per cent. next year, and by 3.5 per cent. by 2011. He says that £15 billion can be shaved from public spending without cancelling a single Whitehall project. Given the lamentable failure of this Government to get their own predictions right, people will be asking what kind of fantasy world they are living in these days. If they get things wrong again—particularly the growth predictions—even greater pain will be necessary to get the Government accounts in order in future years.
The economic crash is not the result of a few minor mistakes, and patchwork repairs will not fix it. We need to do things fundamentally differently, and that will need to start with a different kind of banking system, although that barely warranted a mention in today’s Budget. Just because the subject is off the front pages today, that does not mean that the problems in our banks have been solved. Businesses are still not getting loans. Banks are still in a mess. The problems have to be sorted: we need a banking system in which no bank is too big to fail, in which high street banks take no unnecessary risks with other people’s money, and in which risky casino-type investment banking is cut loose to fail when things go wrong.
The biggest disappointment in this Budget is its failure to sort out Britain’s unfair tax system, and its failure to put money into people’s pockets to help them to make it through this recession. Britain’s taxes are still too heavy on those who can least afford them, and too easy to avoid for those who know how to do so. That is how this Government—and, I think, the Conservatives—seem to want it. We are now the only party that will do things differently, and get practical help, through lower taxes, to people who are really struggling.
This week, we explained that, if we took aggressive action to clamp down on all the loopholes and exemptions that benefit the richest people and the biggest businesses, it would be possible—even in a recession—to cut most earners’ income tax bills by £700 by raising the income tax threshold to £10,000 for everyone.
The Government have finally accepted today, having spent years telling us it was not possible, that one of the most unfair loopholes—the doubling of the tax relief on pension contributions from the highest earners, compared to people on ordinary incomes—should be changed, but they have only tinkered with the loophole today by removing the benefit only from the tiny minority of people earning more than £150,000. Like the Chancellor’s other tokenistic measures applying to the highest earners, it will raise very little money—only £200 million, according to his own Red Book—while leaving in place the really big loopholes such as the lower 18 per cent. tax on capital gains. That, in effect, serves as a massive subsidy for the very rich when we should be doing everything we can to cut taxes for people who really need help. Our proposals would ensure that 4 million of the lowest paid would no longer have to pay any income tax at all. Our proposals would put fairness and transparency back into this Government’s woefully unfair and complex tax system, and I urge the Government, even at this late stage, to take up our ideas.
It is not too late to sort out Labour’s failed fiscal stimulus either. There should have been proposals in this Budget to end the pointless VAT cut and replace it with a stimulus package that actually works. Billions have already been poured down the drain, but if the Chancellor stopped the VAT cut now, he would still have £8.5 billion to spend better elsewhere. Just imagine what could be done with that money. We could create thousands of real jobs, as well as lay the foundations for a different, greener economy. We could insulate 2 million homes and every school and hospital in the country, which cannot be done with the piffling amount announced today. We could build new council houses, upgrade public transport with new train carriages and re-open railway lines and railway stations. For every minute that goes by, £22,000 is wasted on the VAT cut, and every minute that goes by, someone else in Britain loses their job. It is not too late to turn things around. We could cancel the VAT cut, put the money into green jobs, and have a quicker recovery and a stronger country.
This mishmash Budget includes a litany of missed opportunities. I welcome the Chancellor’s announcements on pensions, but will he confirm that he has still not addressed the fact that many pensioners receive pension credits on the absurd assumption that they are making a 10 per cent. return on their savings?
I have lost count of the number of Government announcements on housing—we have had another one today—yet fewer new affordable homes are being built than ever, young people still cannot get a foot on the housing ladder and the Government persist with their deeply misguided policy of subsidising people to take on new debt in a falling housing market.
Then there is the huge dilemma of how balance and discipline can be restored to the Government’s finances in future. Today’s figures of projected national debt will cast a dark shadow over future generations, but one thing is more important than anything else when it comes to the public finances—growth. Without growth, there will be no money anywhere to pay off the nation’s debt. That means that we must not pull the rug out from under the British economy just as it is struggling to get up off the floor. So the Conservatives are, I believe, just plain wrong to propose slashing budgets immediately, which would be an act of monumental economic masochism. But the Government are wrong, too, to commit right now to the biggest fiscal contraction in the OECD— according to the Government’s own figures published this morning, they have committed to a massive 16.75 per cent. cut in capital investment by 2011 when they have no idea what the economy will look like by then and no idea of whether cuts would kill off growth just as it gets going.
We should remember that this time last year, the Chancellor said that the economy would be growing by 2.5 per cent. today, and yet it is now registering 3.5 per cent. negative growth. Six months ago, he said that the recession would be over by 1 July. The Chancellor may fancy himself as the new Mystic Meg, but he should get out of the predictions game. We do not know where the economy is going, so we simply must keep our options open until growth is restored, when we will need to face difficult choices. That is the only honest approach.
The Chancellor should adopt an honest approach on spending, too. He is trying to pretend that £15 billion can be stripped from public spending without anyone noticing, but talk of pain-free efficiency savings is a joke. We all remember Gershon. All it proved is that money can be moved from one column to another and called a saving.
The Liberal Democrats would do things differently. We would take big choices about what the Government should and should not do in the medium term, once growth has kicked in again. We would ask difficult questions: is the 50 per cent. target for university students either necessary or affordable; what is our international military role and how much should we spend on it; are exceedingly generous pension entitlements for well-paid public servants fair or affordable? We need a national debate about what the state can and cannot afford in the future, not Whitehall salami-slicing today. That is the responsible way—the honest way—to reduce spending in the years ahead and avoid painful higher taxes.
This Budget could have been a great Budget. It could have set a new direction, a new course for Britain out of recession and towards a stronger future. We could have had a new, fair, transparent tax regime; a better banking system; green jobs and green infrastructure for a sustainable economic future; a new era of openness from Government about what the public purse can sustain; and a new era of responsible, lean government that improves people’s lives. Today was an opportunity to deliver practical help, but Labour is out of ideas and out of steam. Today the Labour Government have condemned us to years of unemployment and decades of debt. The country deserves something different.
Today’s Budget is set against the backdrop of a banking crisis that has in the past year become an economic crisis and is now a social crisis. Witness the problems in Europe, whether we are talking about France, Spain, Greece, or the Republic of Ireland, not to mention the central European countries. Against that backdrop, thousands of jobs have been lost and many more people have had cuts in their working hours and wages.
When the Treasury Committee visited a number of regions in the UK just over a month ago—we went to Edinburgh, Belfast and Halifax—we came across owners of small businesses who feared bankruptcy, home owners who feared repossessions and many more people who simply feared the unknown. Mention has been made of help for young people, particularly students and school leavers, about 600,000 of whom will be leaving education this summer for an uncertain job market.
In the past, there existed a social contract whereby individuals as well as companies were free to prosper or fail on their own merits, but with the collapse of the banking sector and the necessity to rescue the banks, which took devastating risks with ordinary people’s money, that social contract has been damaged. Trust and confidence in the banking sector need to be re-established. That will not be an easy task; it will be a long and painful task. In the midst of that, people are looking for a fairer society, which is why I welcome a number of the measures announced by the Chancellor today.
The Treasury Committee will be scrutinising the Budget over the next week; indeed, we will have three evidence-taking sessions and will, I hope, be able to report to the House in time for Second Reading of the Finance Bill a week on Tuesday. When we scrutinised the 2008 pre-Budget report, the Committee recognised the uncertainty of the economic outlook, but was concerned that the Treasury’s forecasts were on the optimistic side, as has been proved. In the next week or two, we will cast a scrutinising eye over these growth forecasts and the plans over the next six or 10 years to balance the budget to achieve an even fiscal landscape.
I have already mentioned the Treasury Committee visits around the country. We found that access to lending was an important issue then, as it still is now. The banks claim that they are increasing access to credit, but we heard in our visits that small businesses were still unable to access the lending that they need to keep going. The work of the Lending Panel, which the Government have established, is hugely important. I would like to see the results of that panel published at least every quarter, so that we can keep a handle on exactly what the banks are doing and on how much lending is actually taking place.
On those visits, was the right hon. Gentleman aware of, or did he come across, the fact that quite a few businesses, far from getting more lending, are experiencing a squeeze on their overdraft facilities, which are being reduced by the very banks that are promising to be more generous? Will he and his Committee’s investigations perhaps consider whether anything in the Budget might force the banks to be more generous with their overdraft facilities, and certainly not reduce them, when companies are desperate to invest?
What we did hear from businesses was that they would rather be paying higher interest rates than, say, some of the arrangement fees that the banks were imposing on them—in a number of cases, four or five times the value of what they were paying the previous year. Those are hidden charges from the banks, so they go on the profit and loss account. There is a need for transparency here and for a lot of work to be done, but I welcome the measures that the Chancellor announced today with regard to business support.
The Chancellor mentioned the public finances. There is legitimate concern about the sustainability of Government borrowing and it is vital that in our plans for economic recovery the path back to a balanced budget is clearly outlined. Next week, the Committee will be looking at that, as well as at the efficiency programme that the Chancellor announced. In an inquiry over the next month or so, the Treasury Committee Sub-Committee will consider where those efficiency cuts are taking place. Mention has been made of the fact that it will not be front-line jobs that are involved and we hope, for sure, that that will be the case. We will certainly be subjecting the Department to that scrutiny to ensure that front-line jobs are maintained.
As I said, the Budget has been presented against an uncertain background, but the right hon. Gentleman should look to some of the economic gurus whom he respects, such as Sam Brittan of the Financial Times. Sam Brittan will say that we should be quite relaxed about public borrowing at the end of the day. Indeed, I refer the right hon. Gentleman to Sam Brittan’s article of 27 March, in which he says that in the second world war we borrowed against a bank rate of 0.5 per cent. What for? To ensure that we went to war producing guns that killed people. So why, in the words of Sam Brittan, should we not borrow to ensure that we get people back to work and off the dole—a lifetime penalty?
Is not there a real difference between now and the age that Sam Brittan writes about? When we were trying to balance our wartime budget, other major allies were in surplus and only too willing to lend to us. They are also now in deficit and wishing to borrow.
There is a major difference. We have a global crisis—it is being experienced across the whole world. I was in the United States last week and people are talking about the budget deficit being 12 per cent., the sustainability of US accounts and the stress testing of US banks, so certainly we are in a different world. If people do not grasp the fact that we are in a global downturn and that we are avoiding a depression in the world rather than a recession, they have not got it.
I would rather see public borrowing to keep young people out of unemployment as I witnessed it when I was a school teacher in the 1970s and 1980s. Let me characterise that. Walking down my local high street, I would meet pupils whom I taught 10 or 15 years previously. I would be introduced to their wives and children, but then they would turn round and tell me that they had not had a job.
I want that type of society to be dispelled. I want to ensure that we have a society where young people have an opportunity and an ambition that they can realise. To do that, we must ensure that we assist them in every way we can with the public finances. That is hugely important. At the end of the day, as Martin Wolf said recently in the Financial Times, given that the Government can borrow at a lesser rate of interest than others, we can see borrowing as an investment for the future, whereby we keep people in jobs and get tax revenues back, which will assist the Government when growth returns to the economy.
I have been asking for a Budget that will ease the pain of the recession and help those who are feeling it most keenly by keeping them in their jobs and in their homes. I have been seeking a Budget that protects the most vulnerable people in our society and that prepares the economy for the future—an economy that is changing enormously. I welcome the comments and commitments made by the Chancellor regarding climate change and green technology.
The Chancellor’s announcements regarding the steps that he will be taking to support the labour market are welcome, but I feel that we have to be alert and that perhaps more has to be done. We had the news this morning that unemployment is 2.1 million. That is still rising, despite the fact that some are saying that the economy will turn at the end of the year. We will still face rising unemployment, so this is a crisis with a human face. Unemployment can cause massive psychological and emotional strain. As we know, it affects not only the unemployed, but their families and friends and their wider communities. It has a particularly lasting impact on young people, so it is important that the Government help young people. The measures announced today are welcome in that regard.
In the north-east of Scotland specifically and across the UK, 500,000 jobs depend on investment in the North sea. The Chancellor has gone some way to recognise that with his scheme for the field allowance, but that scheme was dreamed up in a time of much higher oil prices, when the challenge was how to get incremental developments. Will the right hon. Gentleman’s Select Committee consider whether the needs of the wider industry could be addressed by taking it further into current developments and by bringing forward tax relief for new entrants, so that they can deal with the missing cash flow caused by the banking crisis?
I welcome the commitments made by the Chancellor today to provide funding to open fields that were previously unprofitable. That is good, but I give him advance notice that we will question him about North sea oil when he appears before the Committee next week. I am flagging that up pretty early.
I want to keep focusing on unemployment. A couple of weeks ago, I hosted a meeting in Parliament with Professor David Blanchflower, the departing member of the Monetary Policy Committee. He predicted that unemployment could be 4 million by 2011 or 2012. That is a dismal background, but it illustrates why we need to keep helping people if there is such a background. If that is the case, we will find that the Government are spending money to assist people.
Statistics from the House of Commons Library, sourced about a year ago, showed that every unemployed person would cost the state £10,000. That does not cover welfare benefits or local authority benefits such as free school meals or whatever people get, but if the figure is indeed £10,000, having 4 million unemployed would result in £40 billion a year being spent by the Government. Is it not sensible to try to avert or avoid that unemployment by spending at this particular time?
On the most vulnerable, the Government have produced ambitious targets on child poverty, but today, 30 per cent. of children in the United Kingdom still live in poverty. The Government’s commitments on child poverty, while admirable, still have a long way to go to ensure that we eliminate child poverty by 2020. In my constituency, one child in four grows up in poverty, according to the End Child Poverty campaign.
The Joseph Rowntree Foundation estimates that child poverty costs the UK £25 billion each year in extra spending on social services, health, housing, education, crime and so on. The Government’s moves to create jobs are important in the light of the fight against child poverty, because long-term parental unemployment is one of the biggest causes of child poverty. We will not be able to reduce it significantly while unemployment is rising. I welcome the Government’s commitment in that particular area.
The Government’s commitment to investing more money in building homes will directly benefit children living in poverty, because the shortage of affordable housing is one of the biggest barriers to eradicating child poverty. However, measures to meet the Government’s housing targets and to protect the homes of children whose parents have lost their jobs are really important steps to reducing the number of children growing up in poverty.
Other vulnerable groups mentioned by the Chancellor—pensioners and those in low-paid work who do not have children—will also benefit from the Budget. I welcome the Chancellor’s measures to help pensioners, especially the savings initiative and particularly in the ISA field.
My right hon. Friend mentioned investment in housing. Does he share my disappointment that only £100 million is to be provided for council housing? That will secure about three council houses per constituency, and is surely inadequate, given that more than 1.5 million households are on council waiting lists and given that a large number of housing revenue accounts are paying money directly to the Exchequer—many millions in the case of Birmingham council tenants.
The £100 million is over and above the money that local authorities are already receiving, and is intended to support energy efficiency measures. I welcome that £100 million from the Government, but is there still a long way to go? Of course there is. Some years ago the Government commissioned a report from Kate Barker, who was a member of the Monetary Policy Committee at the time. According to her, between 120,000 and 140,000 houses needed to be built each year. That is an ambitious target, but we are moving along the path towards it. However, we also need to prepare the economy for the future.
The Chancellor mentioned the banking and financial sector. That sector will not contribute the same amount to the economy as it has in the past. It will shrink: everyone has acknowledged that, not least the Governor of the Bank of England when he appeared before our Committee. We need to rebalance the economy, and ensure that it functions in all the regions.
The banking practices mentioned by the Chancellor generated the highest yields, but they also generated a massive amount of risk, which ultimately led to a global banking crisis and which we are no longer prepared to accept. In the future, our economic growth should not be driven by risky banking practices. At this stage, it is important for us to take a long-term view and to invest in areas that will be drivers for growth, including high-value manufacturing. Our infrastructure will also need investment to support a post-recession economy which, as I pointed out earlier, will be less centred on the City of London. The Treasury Committee is conducting an inquiry into the banking crisis, and we hope to publish our first report in the next week or so. We intend to produce another report on corporate governance, followed by reports on consumer issues and international regulation and co-operation.
I suggest to the Chancellor that any financier whom he meets—and any whom I meet—should be told that it will not be business as usual in the future. Some people in the City have their heads down, thinking that the storm will pass and that in a couple of years they will be able to renew the old practices and the old ways of doing things. The old practices and the old ways of doing things should be consigned to the dustbin of history, and new ways, involving putting customers at the forefront of banks and financial services’ interests, should be promoted.
Corporate governance should mean good management of companies. As the Chancellor knows, it was a shocking lack of corporate governance that led to the demise of the Royal Bank of Scotland and HBOS. In the case of the Royal Bank of Scotland, the problem was the acquisition of ABN AMRO. The then chairman of RBS, Tom McKillop, told the Committee that the bank had bought ABN AMRO at three times the market value price. It bought the company on 15 October 2007, a month after the crash. That was a mistake that brought the bank down. The chairman of HBOS, Lord Stevenson, acknowledged that there had been mad, risky lending and no oversight of the risk assessment, and that that had brought the bank to its knees.
On the boards of those banks were people whom we would term the great and the good—very influential people with a track record in the financial services industry—but they did not make a squeak, because profits were coming through the door. They turned their faces in the other direction. We must have a corporate governance system that ensures that risk is assessed. At the end of the day, the long-term interest of the company rather than the short-term interests of the executives should prevail. Sadly, it is the latter that we have seen in the banking crisis to date.
Mention has been made of the public debt and whether we can afford it. I would turn the question around, and ask whether we cannot afford it. Opposition parties will argue that we need to cut public spending dramatically, but cutting public spending dramatically is the wrong way to go about things at present. It would appear from the comments of the Leader of the Opposition that if the Conservatives were in power the cost would be even higher, because they would fail to take action to protect jobs and homes.
Last year, the public debt was estimated at 8 per cent. of GDP. Seven per cent. of that debt was a result of the automatic stabilisers; only 1 per cent. was a result of the fiscal stimulus. The Conservatives have said that they are signed up to the Government’s proposals on the automatic stabilisers. All that we are talking about here is a 1 per cent. fiscal stimulus, and we need to ensure that we help people with it. I suggest to the Leader of the Opposition that he is on the wrong track in that respect.
A fairly wide debate is taking place on the fiscal stimulus and its affordability. Only this week the National Institute of Economic and Social Research, one of the country’s leading economic think-tanks, said that the United Kingdom could still afford a fiscal stimulus, and suggested that the Budget should contain a stimulus amounting to 2 per cent. of GDP—£30 billion.
On the subject of the public finances, let me again quote Martin Wolf of the Financial Times. On 18 March, he wrote that:
“it makes no sense to avoid action that would greatly lower the real economic costs of the crisis now, to eliminate a hypothetical and avoidable fiscal crisis later on. This would be like committing suicide in order to stop worrying about death.”
Given the Government’s commitment to helping people and to making this a Budget with a human face, I welcome the initiatives announced today, but are they enough? I fear not. Will the Treasury Committee be scrutinising the Government on their public debts and their commitments to assist the most vulnerable people in society? We certainly will. We look forward to renewing our engagement with the Government next week, when the Chancellor will come before us.
I am a director of a couple of companies. I have declared my interests in the Register of Members’ Interests.
This is really the Damian McBride memorial Budget. It is a Budget of the spinners, by the spinners, for the spinners. It is a Budget with all the black arts around it. It is a Budget that wants people to believe that it will all be fine in a couple of years’ time. It is a Budget built around numbers that are entirely fantasyland economics. It is a Budget which pretends that there will be massive growth in two years’ time, and that that growth will miracle away the enormous deficit and the huge debts that will be the Government’s only legacy.
This is a Government who, just a few months ago, were in denial that there was even a recession on here in the United Kingdom. This is a Government who would not admit six months ago that they would preside over the worst collapse in any major western economy, as measured by the public finance figures. This is a Government who a year ago, at the time of the then Budget, said that there would be a little drop-off in the growth rate, but that Britain would come sailing through because they were married to Prudence and had abolished boom and bust.
The Government are not married to Prudence, Indeed, the Prime Minister—the former Chancellor—divorced her many years ago. Now they are holding a drink and drugs party on the poor lady’s grave, inviting everyone to come along and spend as much borrowed money as possible. I do not think that the current Chancellor has ever met the lady Prudence. It is quite obvious from his figures and his representations today that he does not have a clue about the fact that it is necessary to balance the books at some point. He has no clue about how to balance the books, and, as my right hon. Friend the Leader of the Opposition so powerfully observed, it will take another team of Ministers to deal with the awful job of cleaning up the mess.
Let us look first at the economic forecasts. I am grateful that at last, after it had become obvious to everyone else in the country, the Government have accepted that there will be a very serious downturn this year. After all the lying, weaving and ducking outside this House and the funny figures given inside it, we now discover that even the Government admit that there is going to be the most severe recession since the war—not only the deepest, but also the longest. We now have a Government who admit that there is not about to be an upturn any time soon. According to the new forecast, the magic Ides of July will come and go without us seeing the green shoots, let alone the recovery.
As my right hon. Friend the Leader of the Opposition memorably said, the Government are forecasting a trampoline recovery some time later, with most of the benefits of this improbable gymnastics delayed until after the general election, because they do not want the electorate to be able to compare what actually happens with the ridiculous forecasts they are now coming up with.
Why is it that after 12 years of this Labour Government, who said they were married to Prudence and had learned the lessons of their trip to the International Monetary Fund and of previous economic crashes, we now see this Government in complete disarray, presiding over not just a big increase in debt, not just a whopping increase in debt, not just a colossal increase in debt, but a bigger increase in debt than all previous Governments from time immemorial over a millennium in this country had managed to borrow together? If someone had made that up for a BBC drama, I think that I would have been one of the first people moaning again that the BBC had overdone it and that the plot was preposterous. Yet that is what today’s figures tell us; they tell us that the Government are seriously suggesting that they should, and they can, and they will, borrow more money in a couple of years than all previous Governments added together over many centuries, including all the war debt that we still have, inherited from those earlier tragic and difficult times when different rules and priorities clearly applied on a cross-party basis.
How did the Government get into such a dreadful quagmire? There are three main reasons. First, they foolishly, rashly and needlessly committed this country’s public accounts to two extremely large banks—banks which, as my right hon. Friends on the Front Bench have again memorably said, were too big to fail and too big to bail. The Government were quite wrong to force those banks, at the fateful weekend in question, into trying to find capital that quickly, and they were quite wrong to say that the taxpayer would stand behind those banks and buy all those new shares at too high a share price, which they forced upon the poor reluctant taxpayer. There were many ways of sorting out and standing behind those banks without putting all that taxpayer cash on the line, and the last thing we needed to do in the parlous financial condition we already found ourselves in was put the taxpayer fully, squarely and completely behind the £3 trillion of liabilities on those two massive bank balance sheets, with all the consequences that followed.
I have not had a chance to read the detailed figures, which were not released to Members of Parliament until immediately after the Chancellor sat down, and of course, the Chancellor did not give us the actual cash figures for his current view of how much those banks are going to lose us. However, he did say in his statement that he now recognises that there will be material losses for the taxpayer. We have heard the figures in the press; as always, we could have learned most of the Budget in advance by listening to the media over the weekend preceding it, and in the days before we in this House are graced with some kind of statement—and then if we really want to know what is going on, we have to go away and read the documents, because they contain at least some of the bad figures that the Government wish to conceal.
We have gathered, however, that the debate is between the Chancellor and the IMF. We learn that the Chancellor thinks that the Government are going to lose £60 billion on the banks. I will be delighted if they lose only £60 billion on the banks, as I have always forecast that they will lose a lot more than that—but let us just think about this: that is £60 billion of needless losses subsidising rich bankers and foolish banks. Why do a Labour Government want to do that? Do they not realise that that is £1,000 for every man, woman and child in the country? What could my constituents do with £1,000 per head extra this year? Would it not have been better to have given them the money so they could have sorted their own lives out and bought a few more things to create some demand, rather than to tip that £60 billion down the drain by making the taxpayer stand behind the banks and pay for those losses?
The IMF, however, says it thinks the losses will be £200 billion, and I fear that it is nearer the mark. We understand that some of the very expensive spin doctors and Treasury officials employed at our expense have thought it a productive use of their time to try to get the IMF to calculate its figures again—in other words, “If there’s a problem, let’s try to spin our way out of it.” I urge the IMF not to be too lenient with these Ministers and this Treasury, because I fear the losses are, as the IMF has said, going to be all too large. It shows the Government’s priorities that when they nationalise the banks, they will not accept that there is any possibility of loss at all, when they have the autumn statement they leave all the figures on the banks out of the borrowing because the borrowing looks too awful with the banking figures included, and when they finally get to the Budget they realise that none of the commentators and City experts are going to buy the idea that there will be no losses on those banks, so they come up with a figure rather smaller than those of the serious commentators and hope to get away with it, and when no less a body than the IMF rumbles them, they send the spin doctors out to deal with it and try to get the figures massaged in the right direction.
That is the first reason why we are so colossally in debt and so hugely at risk. Never before have a British Government been stupid enough to nationalise banks that in aggregate are bigger than the national income. Never before has a group of Ministers blundered into such a colossal and risky financial commitment as this group of Ministers has. Given the questions I have asked over the months about this, I feel that when they took the decision they had no idea how big the thing they were taking on was, and they certainly had no idea that only £1 in every £7 on the RBS £2 trillion balance sheet was a loan to a British person or British company. Like them, I want to make sure that British companies and British people do not suffer because of the awful credit crunch. Of course I wish to see the creditors protected, and of course I wish to see lending resume at sensible levels in this country, but only £1 in every £7 on the RBS balance sheet was doing any of those things, yet this Government had to blunder into backing the whole balance sheet, and who knows how much they will lose.
How much do the Government reckon they will lose on the £500 billion casino bank within RBS that they have bought? What action have they taken to protect the taxpayer interest? Have they instructed those bankers to close down the dangerous positions? Have they asked them to calculate the losses and take the ones that could get bigger? Have they agreed with them that they will net out a lot of the positions so we can begin to see what we have got and start to reduce the total risk for the taxpayer? I do not think they have done any of these things. I do not think they have got a clue; I do not think that they care. They thought it was a great idea to nationalise a bank. They thought that would give them control over the economy. They will learn the hard way that they do not control the banks—the banks now control them.
The second reason why we are so deeply in debt—and, even worse, a reason why we will get increasingly into debt under this Government—is the very violent boom-bust cycle that they have unleashed upon our poor economy. This is a boom-bust cycle that was made particularly violent in Britain by wrong policy here in Britain. This is the Government who, when it was becoming obvious to many outside critics that a huge credit explosion was under way, instead of calming the flames by taking some of the material off the bonfire, decided to stoke it some more. This is the Government who, instead of saying to the private sector, “You’re overdoing the off-balance-sheet borrowing, boys and girls,” went out and said, “Do more off-balance-sheet borrowing. We’ll show you how to do it. We’re going to finance most of our public projects on the never-never on an off-balance-sheet basis so that people don’t realise that we’re building up extra public debt, don’t know that we have broken all our own rules, and don’t know that we are doing this on the never-never in the hope that some future Conservative Government are better at running the public books and are able to pay the interest and the debts off.”
I agree with everything my right hon. Friend says about the appalling state of private finance initiatives, but unfortunately, I disagree with him in one small area: this debt is not on the never-never, as it will have to be repaid. Indeed, it will have to be repaid during the second half of the next decade and beyond, and will be a drag on any recovery that this economy could possibly hope for in that period.
I was using “never-never” in the common sense—I meant as a way of financing oneself—but we all know that, as my hon. Friend rightly says in correcting me, the never-never is the ever-ever; it is ever-ever with us, and we will have to repay it. These Ministers thought that they could get the glory for the spending and leave the bills with the British taxpayers. These Ministers thought that they could do the borrowing round the corner and leave it off the balance sheet, and that would stimulate the economy. These Ministers thought that if they are having a drink and drugs party on Prudence’s grave, why not let the public sector lead the way and buy more of the drinks, while the private sector is encouraged to do exactly the same thing.
Far from being the surprised moral Government who did not quite understand how things were out of control, and who can now condemn bankers for getting it wrong, this was the Government who were leading the never-never society, were leading the charge and were leading the off-balance-sheet movement, and who were urging the financial markets of Britain to come up with ever cleverer and, unfortunately, dearer ways of feeding the public monster that they were creating—this huge debt machine in which they were revelling—so that they could have more press releases and more initiatives, and try to give people the impression that they were investing. If only they had been investing, it might have been a good idea—but they were not investing. They were squandering and wasting, and they were not getting the efficiencies, improvements and extra services that we would have liked. There needed to be some extra spending—Governments always have to spend extra on services to improve them—but they were blowing the money in all sorts of ways, not just on nationalising banks, but in ways that I shall examine briefly in the third part of my comments, which will deal with public spending.
The Government made the cycle worse by the lack of spending discipline and by the over-borrowing in the public sector, and by rigging the inflation target at the end of 2003—a little before the 2005 election. They saw that the Bank of England’s Monetary Policy Committee was likely to have to put interest rates up, because it could see that inflation was perhaps going to get out of control and credit was a bit too lively. So what did the then Chancellor do? He changed the target to one that was performing much more modestly than the retail prices index, and I am sure that he knew, because he is a clever man who studies these things, that by changing that target, interest rates would have to be kept lower for longer. That fateful decision—that decision to encourage the borrowing binge in the private sector by keeping rates too low for too long—stoked up the private sector half of the violent cycle.
By 2007, when it was becoming clear even to the Government that they had overdone it, they allowed or encouraged the monetary authorities to put the brakes on. We lurched from careering up the motorway at 140 mph to trying to do a complete stop—an emergency brake—by putting interest rates up and withdrawing funds from the market. They overdid it, so we lurched from excessive boom to excessive bust, and we, the passengers in the car, were hurled towards the windscreen by the effort to bring the vehicle to a grinding halt. It was a disgraceful piece of bad driving for which the Government will not be forgiven for a very long time by the electorate, who can see that British actions—actions by the authorities here in the United Kingdom—made the cycle more violent and worse. China, India and Germany did not have this sort of cycle, but we had it here, because our authorities were uniquely incompetent and uniquely unable to see how they were overdoing it in both directions.
The third reason why we are so massively in debt is that Labour has blown it with its public sector spending programmes. Contrary to the constant rumours from the Labour party, none of us came into politics to fire teachers, nurses or doctors; Labour Members should accept that all of us, from all parties, come into politics because we want better schools, better hospitals, better public services and better standards. If they were to examine the record of past Governments, they would see that every Government, be it Labour, Liberal or Conservative, have every year, or nearly every year, increased expenditure on those vital front-line services and the people who deliver them.
The Chancellor should be thanking the good people of St. Albans, who pay the most into his coffers but get the least back in terms of the delivery of front-line services. My area rattles around at the bottom of the league table in what we get back, so we struggle. I am sure that the good people of St. Albans will wonder how on earth they are going to manage with the new cuts that the Government will be putting in place, given that they have been struggling in the good times. All the things that I heard in the Budget to do with the stamp duty holiday for homes worth up to £175,000 do not help St. Albans. I heard nothing about small business rate relief for my local small businesses; in St. Albans that relief does not even kick in. I am sure that my right hon. Friend will agree that the Chancellor seems to have abandoned places such as St. Albans, merely seeing them as cash cows: he just spends the money.
For St. Albans read Wokingham; my hon. Friend has spoken powerfully for me, for herself and for many of our right hon. and hon. Friends. Our constituents, by and large, pay the bills, go to work, work hard, are prudent and save—they do all the things that, we hope, Governments of all persuasions wish them to do—but we are the ones who get socked with the tax bills, and we do not get any of the extra money if the Government are thinking of money for better schools or hospitals. It is very noticeable how unfair the system has been. The Conservative Government to whom I belonged always gave more to areas with greater needs—and of course that is fair, and a common-sense approach—but the situation has now become extreme. Our areas have needs too, and, as my hon. Friend rightly says, the distribution system is very unfair.
I wish to draw attention to the two economies out there: the huge divide in modern Britain is between those of us who work in the public sector and those who work in the private sector. The big divide is between those who are trying to run small and medium-sized entrepreneurial businesses and their staff, and those who are in the large bureaucracies of the public sector—those in the quangos, the councils and the Whitehall Departments. There is a monumental sense of injustice, because when we talk here about tough choices we are talking about whether we increase public spending at 2 per cent. or 1 per cent. in real terms—above the inflation level—or about whether we are going to have three nice extra things or one nice extra thing in our budgets, but what people in private sector companies are talking about during this awful recession is whether they close one factory or two factories out of their three or four, and whether they get rid of 20 per cent. of the work force today or whether they may have to fire 25 per cent. of the work force in two months’ time because demand is so low. They also talk about how they can halve their stock levels because they cannot afford to maintain them and they cannot get the borrowing for the stock, and they discuss what impact that has on all the people who would like to carry on in their jobs making things.
I do not think that these Ministers have a clue how tough it is out there for private sector businesses. I do not think that they have any idea what it is like for businesses of just four or five people, where those running the business are personal friends with the individuals whom they are employing, but at some point they are going to have to say to one or two of their employees, “Either you go, or we all go.” That is the tough choice that such people are facing; that is the reality. They are the people who are facing this huge rash of extra bureaucracy, extra regulation and changed tax rules that makes their lives even more difficult at a time when they need to concentrate on sorting out their business, when they need a break from their banks and when they need a break in terms of improved demand and improved economic prospects.
It is this huge divide in Britain that is so unfair and that is causing so much anger, and it is one of the main reasons why the governing party is so low in the opinion polls—about which it must be extremely worried. When listening to the Chancellor and hearing about his many schemes for people who, sadly, lose their jobs, one wondered whether there was at last some forethought about the colleagues of his whose jobs are going to be destroyed by his very bad economic management, and who may well be feeling that pain in a year. They will then discover that it is very brutal out there and things are very different when one loses the protection of the indexed pension, the decent salary, the expenses and all the rest of it.
The public expect us to do everything we can to try to reduce the length, depth and severity of the recession, and to make the tax changes or produce the schemes that might make a difference to those who are struggling to keep going potentially good businesses that have been very badly damaged by the current climate. But they also expect us, above all now, to treat their money seriously and to spend it wisely. They do not believe for one minute that all this extra money that has been tipped in, so much of it borrowed, is buying them a better school, a better hospital, safer streets or stronger border controls. They think that a lot of it is wasted.
I called this Budget the Damian McBride memorial Budget, but I now wish to say something nice about the Government. I know that I will upset my right hon. and hon. Friends by saying so, but I think that the Government did a very good thing in sacking Mr. McBride. I think that the Labour party would agree. However, I have some advice for the Government. They still have dozens of McBrides left in their organisation—spin doctors spinning in favour of their bosses and the Government—although I hope that none is doing all the things that Mr. McBride was doing, at least not any more.
The Government do not need those spin doctors—indeed, I fear that I am doing the Government a good turn by giving them this advice. One reason why they are getting such a dreadful press at the moment is that those spin doctors—and their bosses—are turning on each other, fighting for power and the ear of the current incumbent, and positioning themselves for the leadership race. If the Government got rid of more of their spin doctors, I could say nicer things about them. It would be a good saving, because many are supernumerary. They are letting the Labour party and the Government down, so some savings could be made there.
A much bigger saving in cash terms could be made by cancelling the ID card scheme and the national computer database. It is hugely expensive and will be deeply intrusive, without making our country any safer. Burglars will not take their ID cards to the scene of the crime and leave them on the mat when they leave. We already have identity documents that people have to show when they arrive at our borders; they are called passports. Instead of ID cards, we should have a border authority that wants to inspect passports properly and make sensible decisions about those visiting our shores. These people do not come across in rowboats; they are not sneaking into the country. They come in through the front door—through Gatwick, Heathrow and Dover. Let us do the job at the port of entry with the proper documents. We do not need to make everyone else live in fear that they will be caught without their ID card when digging at the bottom of the garden. If the Government do not scrap the ID computer scheme, they are not serious about civil liberties, and they are certainly not serious about saving money. It is a no-brainer, because it would be a popular public spending cut.
Unelected regional government is widely loathed and hated in England. The Government can no longer say that it is hated only in parts of England with Conservative local government administrations, because they decided to test the popularity of regional government in what they thought was the Labour heartland of the north-east. At the time, it had mainly Labour MPs and mainly Labour councils—more recently elected than some of the MPs—but the Government lost that vote not by 55 to 45 or 60 to 40 but by four to one against. If they want to repeat the experiment in my part of the world, we can make it five to one or six to one against.
Regional government is widely hated. It is a huge cost burden and involves unnecessary administration, bureaucracy and regulation. If something needs spending on or regulating, it should be done nationally by the Departments or locally by the county or unitary authority. We do not need the middlemen and women—let us sweep them away. Again, I fear that that would make the Government popular, but I can recommend it because I know that there is no chance of their listening to the people of Britain. The Government will go back to the north-east, where they still hope to win some seats in the general election, and they will have to explain why they rode roughshod over the freely expressed and sensible views of the people there.
The people have rumbled the Government. We do not need European government, national government, regional government, county government, district government and parish government. That is six layers of government and too many people bossing us around, too many people on expense accounts and fancy salaries and with public sector company cars. Get rid of some of them. The obvious place to start is the regional level, and it should go.
Let me mention something that I have not mentioned for a very long time in this House—my hon. Friends will be very disappointed—and that is the subject of the European Union. Tony Blair, in the good days, thought that we had so much money that he would like generously to give some of Baroness Thatcher’s rebate back to our partners. The Government always tell us that they have a lot of influence in Brussels and that they get on well with our partners. I think that the Prime Minister should go back there next week and say that his predecessor made a huge mistake.
When Tony Blair generously decided to give all that extra money to the rest of the EU, he thought that Britain was strong, prosperous and well run. The present Prime Minister now realises that it was not; it is nearly bankrupt and borrowing too much money. We cannot afford to borrow extra billions of pounds—and it will need to be borrowed—to give to other countries, some of which are in a stronger financial position than we are. It is a little challenge for the Prime Minister after the triumph of saving the world: to go back to Brussels, say that his predecessor wrongly and stupidly gave away the good deal that Baroness Thatcher had negotiated with great skill, and tell them that the British people now need that money, because it will all be on our overdraft as the public accounts are out of control.
I come to the public sector rich list. I pay tribute to the Taxpayers Alliance for the work that it has done in getting to the truth about some of the waste and grotesque excess that has substituted for proper public spending under this Government. Up and down the country, there are hundreds and thousands of senior officials in posts in quangos, in Whitehall and in local councils who are earning mega-salaries. Those salaries do not respond to market pressures. In the cold and hard private sector world of which I have reminded the Government, people on high salaries in companies under pressure are not only losing their bonus, but will have to take a pay cut—if they are lucky, because otherwise they will lose their job. When they get another job, if they manage to do so, it is at a much lower rate of pay than prevailed a year or two ago.
I am all in favour of people being highly paid if they earn it and the taxpayer does not have to pay the bill. Good luck to them; I want more and more of my constituents to have well-paid jobs. But we cannot afford to replicate the high pay of the successful in the competitive sector—freely, out of the money that customers make available—in the public sector, where most of our staff are motivated by a sense of public duty and think that, say, £63,000 a year is a decent rate of pay. They should not need £160,000, £260,000 or £400,000 a year, which now seems to be the going rate for some of these quango jobs.
The Labour Government are rediscovering their socialist roots in a big way in this Budget, but I suggest that they could do themselves a favour by having a new rule in quangoland and throughout the public sector: not to give people salaries above the Prime Minister’s level of pay, and to go back to those already on mega-deals and ask them to make a contribution by taking a pay cut or accepting really tough performance criteria so that they have to earn it. We all know that most of those jobs in the public sector have been a joke so far and performance pay has been granted too readily.
I fully endorse my right hon. Friend’s suggestion, but should salaries not be pro rata? Some of the chief executives and senior officials of these quangos not only earn more than the Prime Minister, but work only two or three days a week.
My hon. Friend is tougher than I am, but he makes a good suggestion. I hope that Ministers have got the point that the situation is out of control. There are too many of these jobs—many of them are non-jobs—and too many are too highly paid. At this time when we need some restraint, we should try to reduce them.
We in this place also have to make a contribution. My worry about the Prime Minister’s YouTube discovery yesterday—I do not know why we could not have been told first, because it is after all a House of Commons matter—is that we are being offered a scheme that on the face of it, although no numbers have been given, will lead to an increase in the total cost of MPs’ expenses. That is completely wrong in this climate. The idea that people should be able to get more money just by turning up than they did by handing in proper invoices for things on which they were spending money is for the birds, and I hope that Ministers back off from it as quickly as possible. If they do not, they will find that the public, far from being impressed by the Prime Minister’s action, will feel extremely let down that he has discovered another way to pump more money to Labour Back Benchers without any proper accountability.
I guess that the proposal would get more hon. Members turning up at the House of Commons, and that could be a good thing—although, given that we are locked out for much of the time because the Government do not want us to meet, they may decide to lock us out for even more days in the year to try to keep the costs down. That would not be a very welcome development either, so I hope that we can look again at the proposal. We need to show leadership on our costs and expenses, just as we do throughout the public sector.
I do not know about you, Mr. Deputy Speaker, but I feel that we have had a surfeit of glossy brochures under this Government. Day after day, a great pile of them is put on the table in my office. I look at some of them, but most get thrown away. Many are worthless and, if I needed it, I could get most of the information from a simpler source or from a website. All the glossy brochures that Members of Parliament throughout the Commons get day after day are paid for by the public sector. Could we not have a glossy brochure sabbatical, or amnesty? That would be a modest saving, but it would show willing. For example, we could have no more glossy brochures until Christmas, which would mean that the Government could save them up and then issue only the ones that really mattered. If they really do have a wish to tell us what they are doing, websites are so much cheaper, and it would be rather good if they were kept updated.
My right hon. Friend makes a very good point. There are lots of useless glossy brochures, but even the ones that we want have got glossier, bigger and more unreliable. We need to show a little common sense: the information that we need should be timely and accurate, not produced in this extremely elaborate way.
I have many more ideas, but many colleagues wish to speak in this debate so I will not go on at any greater length. My conclusion is that there are three major reasons why this country has been landed in such massive debt. The first is the huge mistake that has been made over the banks. My advice to the Government is to get out from under the bank assets and liabilities as quickly as possible. We cannot afford them, and they will only lose us a bigger fortune.
The Government still do not seem to know what risks they are running, so will they please take action today to start limiting the risks and selling off the assets that they have acquired? Will they also please tell people in the publicly owned banks that they will not be earning £300,000, £400,000 or £500,000 a year or getting mega-pensions as long as those banks are making losses? They are public sector bodies and we are responsible for the money. It is a waste of money to spend those sorts of sums on such banks unless they are going to go back to the private sector immediately and earn their living sensibly. If they do that, and the sort of salaries that I have mentioned can be paid for from private means, I have no problem with them.
The second reason is the violent cycle. We desperately need proper welfare reform from this Government. We went into the downturn with more than 5 million people of working age out of work. That was a disgrace, and it shows what a dear mistake it was to sack the man who was Minister for Welfare Reform at the beginning of this Government, the right hon. Member for Birkenhead (Mr. Field). I think that he would probably have done a rather good job in improving incentives for work and limiting the welfare bills. Instead, we have gone on for years with no proper welfare reform.
The Government have allowed many people to be out of work, for good reasons or bad, and they have not ensured that they were brought into the work force in the good times. We need proper welfare reform so that we can get people back into work more quickly. If the Government do not reform welfare, they will not solve the problem of unemployment and they certainly will not control the budgets.
The third big reason why we are too heavily in debt is wasteful, needless and unnecessary public spending. There are many examples of that, and I have listed some items to show Ministers that we would know what we were doing. They must understand that pretending that there are a few more efficiency savings to be made without naming them is not a good enough answer.
I therefore have one last proposal that would make a big impact on Government budgets over the next couple of years: a complete freeze should be placed today on all staff, throughout the public sector, who do not work on the front line, and that replacements should be allowed only where they are absolutely necessary. If that were done, the Government would soon start to make an impact on the huge increases in spending that they have presided over. There are 300,000 extra civil servants compared with the number under the previous Conservative Government. Why does it take so many more to do a worse job? Of course, that is exactly what happens: the more people who are employed, the more difficult it is to control them, the more things they do that do not need doing and the more money is wasted.
The message is simple: the Government cannot solve a crisis of over-borrowing by borrowing more, or get out of a credit explosion by going on a public sector credit binge. If they take too many chances with the public accounts, there will be a buyers’ strike on Government debt. There is already a dangerous bubble in Government bonds which has been brought on by quantitative easing and their monetary antics. That is very insecure for savers and our economy.
As the Leader of the Opposition said, the way out of this problem is through saving, investing and exporting. We have had the years of borrowing, importing and spending foolishly. We now have to pay the bills.
Economic predictions are notoriously unreliable, but few of us at the time of last year’s Budget would have imagined that we would be where we are now, with a major share of our banking industry in public ownership and the world in the throes of recession.
The economic crisis began in the financial sector, and I would imagine that most people would agree that we would be suffering a far worse situation had the Government not stepped in to rescue the banks. The scale of the measures taken to save the banks and get them lending again is enormous but, had there not been Government action on this scale, we would have faced the real prospect of a collapse of our banks. Allowing our banking system to collapse following the bankruptcy of Lehman Brothers in the US would have been catastrophic for the entire country. It is important to remind people that these measures were not taken for the sake of the banks but for the sake of everybody in the UK. Had the banks been allowed to fail, the entire economy would have suffered from the impact.
The financial sector is of vast importance to the broader economy, and the current economic problems have shown the degree of interaction between the two. The ill-health of the financial sector caused an acute reluctance on the part of the banks to lend to each other, and to people and businesses. This credit crunch soon put the so-called “real” economy into difficulties, leading to an increasing number of individuals and businesses whose finances look precarious. In addition, lenders stop providing credit to people who they perceive as at risk of being about to go bust. As well as preventing the collapse of the banks, the measures taken by the Government have been designed to get the financial institutions lending again.
There is real hardship—and fear of hardship—as the recession takes its course. My constituents are particularly exposed, owing to the high proportion of jobs in Edinburgh that are in the financial sector. Edinburgh is Europe’s fourth largest finance centre. In 2007, 32 per cent. of employees in our city worked in the job category of finance, IT and other business activities, compared with 22 per cent. in Britain as a whole. That is quite a big difference.
A recent study commissioned by Scottish Enterprise projected that the Scottish banking and insurance industry could lose up to 8 per cent. of its work force—that is 24,000 jobs—over the next two years. Unemployment in Edinburgh has indeed jumped: the number of people claiming jobseeker’s allowance leapt by 59 per cent. in the year from February 2008, and the number of unfilled jobcentre vacancies more than halved. There are now nearly six jobseeker’s allowance claimants for every jobcentre vacancy, up from just under two last February. While there are signs that the worsening of the economic situation may be slowing down, the economic downturn is far from over and unemployment in particular, as a lagging indicator, is likely to increase for months to come.
We must make a massive effort to identify the lessons to be learned from this crisis, and all involved should accept their share of the responsibility. It is undeniable that events abroad played a major role in igniting the global and domestic recession. In his report published last month, Adair Turner, the chairman of the Financial Services Authority, identified the US housing market as the source of the origins of the crash. However, it is also clear that all was not as it should have been here in the UK. Practices of the banking and finance industries have been roundly condemned and the Government have moved to identify the weaknesses that must be addressed. In addition to the Turner review, David Walker will report later in the year on the banks’ corporate governance, and the Chancellor said today that the Treasury will bring forward its own proposals for reform in due course.
The culture of excessive borrowing has also been criticised. We still have huge levels of personal indebtedness. Total net outstanding lending to individuals is just under £1.5 trillion. Consumer spending that was funded by borrowing on the basis of inflated property prices drove our economy to an unsatisfactory extent. In time, as more information becomes available, it will be possible to determine the extent to which the Government and their agencies could have better mitigated the impact of the crisis, especially in the regulation and oversight of the banks.
It is clear that we must help the UK’s productive economy—sectors such as manufacturing, food and agriculture, which require support. I would like to take this opportunity to raise again—I have done so in the past two Budget debates—the question of our international trade in goods and services. In the past decade our balance of payments has deteriorated substantially. At current prices, the deficit stood at £7 billion in 1998. That rose to £25 billion in 2003, and the figure stood at £44 billion last year. Of course, the global economic crisis will have an impact on the trade balance. In fact, last year, the balance improved slightly on the previous year. Economic difficulties at home may dampen demand for imports, while the effect on exports of the global slump in demand may be softened to some extent by the recent devaluation of sterling. However, the long-term trend has been one of continued and substantial deterioration, and I encourage my right hon. Friend the Chancellor to address the importance of the trade balance to our economy.
It is understandable that there has been focus in this debate, particularly on the part of the Opposition, on the scale of the borrowing that the Government are having to undertake to fund their programmes, but it is inevitable that Government debt will rise if the Government take action, through tax cuts and increasing public spending, to stimulate our economic activity. The Government were right to take action in recent months to increase demand in our economies. The Chancellor has announced a range of positive measures today that we should all be able to support. These are difficult times. The Government are on the right lines in investing at this time. We need to stay the course and continue to have the courage to invest in our economy.
May I first remind the House of my entry in the Register of Members’ Interests? I am a non-executive director of a plc.
The first test that one has to apply to any Budget is a bit like the question that one asks after a Chinese meal: “There is an awful lot of it to digest, but how will I feel in the morning?” The second test is to ask what the reaction was in the House. This Budget got what I might describe as muted applause towards the end. Both the Chinese meal test and the applause test reflect that there was an awful lot of very difficult information to digest.
I was thinking about the Budget and, remembering the time when I was in the Treasury, reflecting on the kind of decision-making process that has to be gone through when a Budget is framed. I was almost stunned mentally by the enormous size of the numbers, and the changes that have occurred in the state of the public finances even since Budget 2008; that is without even commenting on the pre-Budget report. Last year, I wrote an article for my local newspaper, in which I said that between planting my potatoes on my allotment in May and harvesting them in September the world had fundamentally changed, economically speaking. I do not think that any of us have seen such an enormous turnaround—not just in the United Kingdom economy but in the global economy—involving such very large numbers in so short a space of time. It takes a long time for the public to come to terms with the enormity of what has occurred.
The Chancellor was almost emotionless in his delivery; he read out the Budget a bit as though it were the annual statement at the annual general meeting of some great corporation. The attitude was, “We’ve got everything under control. Fingertips are on the pulse. We have understood the numbers, and we have got the model working. Everything is all right. In about 2015, all these problems will be over.” It was just surreal. It was too serene and did not, in my humble judgment, reflect the reality and the pain to which the real economy is having to adjust in a very short space of time.
At Prime Minister’s Question Time, the Prime Minister denied to my right hon. Friend the Leader of the Opposition that boom and bust was the busted flush. That was not looking reality in the eye. Let us spend a moment analysing what the former Chancellor of the Exchequer used to say. When he said, “I’m bringing an end to boom and bust,” fundamentally he was trying to say, “I’m going to restructure the economy. We’re not going to do what previous Administrations did. We’re not going to put the economy at risk.” However, if we look in the Red Book, we see a rising trend in the percentage of gross domestic product that was used for public expenditure before the recession. That brings to mind that much-used but now rapidly discarded word, “prudence”. It indicates that what perhaps was a responsible start to the former Chancellor’s regime rapidly went off the boil when public expenditure and borrowing got out of control.
I want to speak on the theme of what I consider to be a failure of economic intelligence-gathering. A number of colleagues in the House looked askance when the Chancellor said that the year after next, there would be 3.25 per cent. growth in the economy. They thought that that was absolutely for the birds. In fairness, if we look at the National Audit Office report issued with the Budget, which talks about the assumptions, we see that there are some reassuring words in there, suggesting that the Treasury may have got it right. I have to say that I find that very difficult indeed to accept.
I note with interest that the Under-Secretary of State for Defence, the hon. Member for Grantham and Stamford (Mr. Davies), who has responsibility for defence procurement, is on the Front Bench. Newly ensconced in his role, he will understand the amount of money that is being spent on military intelligence-gathering. He will also understand the absolute importance of that intelligence-gathering if we are to configure our military forces’ activity properly. When I was in the Treasury, the Bank of England had its agents who went around the country getting a feel for what was happening in the economy, so that they could advise the Governor on what was going on, and what advice he ought to give—this was before the Monetary Policy Committee—on the setting of interest rates.
Those agents still exist, but I question the intelligence that they and the Treasury are getting, and indeed the foreign economic intelligence. A great deal was going on in the world of banking, and new financial instruments were being created. Last year, in my Budget remarks and the Budget remarks of colleagues, we talked about the beginnings of the credit crunch and toxic loans. We looked at some of the first estimates of how much that was costing American banks. One wonders what went wrong in spotting what was going on, spotting what the decision-making process was, and spotting what the effects of the new financial instruments, and the new things that were happening, would be on the overall economy. I say to those on the the Treasury Bench that in the light of what has occurred, the speed with which it has occurred, and the impact that it has had, there needs to be a fundamental reappraisal of the collection of economic intelligence if we are not to be caught out again.
In his Budget speech, the Chancellor put a lot of emphasis on improving the busted flush of tripartite regulation in our banking system. However, it was not so much regulatory failure that caused the problem in the first instance; it was the decision-making process in so many high-powered financial institutions on both sides of the Atlantic that fundamentally led us into the mess that we are in. If they had had better decision making or a less risk-averse approach, we might not be in this mess. I am all for making certain that regulation plays its part in protecting the public interest, but ultimately it is the decision-making process that got us to where we are. We need to understand what went wrong, and banks and financial institutions will have learned a bitter lesson and will now understand the need to improve their decision-making process.
In the Chancellor’s remarks he commented on the need to get the banking sector back into good order. I do not disagree with that. However, the Chancellor was somewhat sparse on what is really happening in that sector. I shall dwell for a moment on that because it still has a fundamental potential for impact on the ability of the economy to recover. The Chancellor did not talk about the fact that foreign and secondary banking in the United Kingdom is effectively over. Those banks have pulled out of our banking system, and the burden of dealing with the economic consequences rests fairly and squarely on the major clearing and investment banks that are UK based.
The difficulty for those banks is that although their balance sheets have improved, and some of them have been stress tested and some of the news has been reasonably positive, there is still an innate nervousness in the banking sector about what may yet happen in terms of the toxic assets that are still out there, which are impossible to value and which may still have the potential to have a serious adverse effect on the world of banking.
As risks increase in the world of banking, so the capital provisioning to cover those risks on bank balance sheets must increase. As a result, the cost to industry of financing its future needs and the ability to provide the liquidity for those future needs becomes ever more testing. Although the Government have done something towards the emergency shoring-up of bank balance sheets, there is still considerably more work to do if we are to get the liquidity flowing at a price that business can afford.
In fairness, the banks are finding that their own lending one to another, though improved, is still costing them a lot of money. There are still difficulties out there if the economy is to recover. I say to the Treasury, and through the Treasury to the Bank of England, that there is still much work to be done if the banking system is to get back into operating properly.
Will my right hon. Friend also take into consideration the difficulty that the banking sector is having with the accounting regulations that relate to market to market, which effectively exaggerate the downgrading of a bank’s assets and therefore reduce the amount it can lend?
My hon. Friend makes an important point. Although there have been some beneficial changes in that situation from the point of view of American banks, is it a matter that affects not only banks, but companies with various financial instruments. Those companies are also having to make balance sheet provisions, which may upset, so to speak, the way that they present their trading circumstances to the wider world when they have to make such accounting provision. What we see is the unwinding of those very difficult positions. Unless banking gets back into good order, we will not see the rate of recovery that the Chancellor hoped for.
The right hon. Gentleman is making a very interesting speech on a matter that the Select Committee is considering. Will he give full credit to the Government for the asset protection scheme and, through the Bank of England, the asset purchase facility, which between them have done a huge amount to clear some of the toxic assets off banks’ balance sheets and get liquidity starting to flow back and starting to produce results in the lowering of long-term interest rates?
I acknowledge that a sensible series of measure were introduced to address some of the balance sheet difficulties encountered by the banks. Bearing in mind that if something of the order that the hon. Lady mentioned had not been done, bank collapse might have been reality. We have staved that off, but we still have some way to go.
May I raise one issue which I think is interesting? There have been calls already in the debate for greater information about what is happening. My right hon. Friend the Leader of the Opposition listed many Government scheme that he believes are not working and not delivering results. On the other hand, the Chancellor enunciated and re-announced a further set of schemes. It is extremely difficult to know what is going on. Interestingly, a FTSE 100 company has to report to the City on a quarterly basis. It has to tell people what is going on. It makes a statement to the City because it is of material interest.
We in the House of Commons have, in effect, two bites at the cherry in debating and dealing with the economy. We have the pre-Budget report, and sometimes it is difficult to get a debate on the economy after that report. Apart from that, we can ask the Chancellor a few questions. Then there is this debate, which lasts for four parliamentary days. After that, apart from Treasury Question Time, we cannot have a discussion on the topic most central to all of us, except in an Opposition day debate on the subject.
Ministers on the Treasury Bench ask companies to pay their corporation tax on a quarterly basis. They are happy with major companies making statements to the City on a quarterly basis, so why cannot we have a quarterly statement to the House of Commons of what is happening, particularly at the current time? The Government owe it to the financial community to report with greater regularity on what is happening in the economy. Why we are sceptical about some of the numbers in the Red Book is that enormous sea changes occur between one set of forecasts and another.
I had a look at table C3 in the latest Red Book. When I see the difference even between the pre-Budget report in terms of the borrowing figures and the figures that are now projected, I discover that in the financial year 2010-11 there has been a change of nearly 65 per cent. in the amount of money projected to be borrowed. For the next financial year, 2011-12, the projected degree of change is nearly 71 per cent. All I can say to the Treasury is that I am jolly glad it does not run a real business. If it was the finance director of a real business, or the sales director, and it came along and said, “I’m sorry, boss, I’ve got the sales figures over 60 or 70 per cent. out,” it would be going out of the door rather rapidly.
It is no wonder people are sceptical about some of forecasting that goes on when that degree of difference is presented on a year-on-year basis. That is why quarterly reporting is needed, so that we do not have to deal—[Interruption.] The Minister says, “Rubbish.” He is right—economic rubbish. From the mouths of babes and sucklings on the Treasury Bench, we have the magic word “rubbish”. That is the problem. Unless the Treasury updates and reports on a regular basis, people will think the figures are rubbish, because the degree of difference between the previous and current projections is so enormous.
May I comment on one aspect of the Budget that I very much welcome? The Economic Secretary to the Treasury and Under-Secretary of State for Business, Enterprise and Regulatory Reform is present. When he made his statement on the motor industry, he announced that the Government were working on a trade credit insurance scheme. I know that it has proved particularly difficult to find a mechanism for doing that, but I am delighted that a scheme now exists. I look forward to learning more about the details.
I hope the focus of the scheme will be on the small and medium-sized industry, which is finding trading without that facility extremely difficult. There is a real urgency to get the scheme off the ground. I hope that at some stage in the course of the debates we might hear a little more about the timing. If the Minister wants to intervene and tell me a little more about how it will work and when it will happen, I shall be happy to give way. I see that so far he has not taken that opportunity.
I shall move on to the Budget’s contents for savers. I welcome the fact that people will have an opportunity to save a little more with their ISAs, but, for many hundreds of pensioners in my constituency, if not thousands, low interest rates in the real market have had a devastating impact on their standard of living. It is difficult for them to find an outlet where their money has security of tenure and can earn more than 3 per cent. It is interesting to note that one sector of the financial world where such returns can be achieved, however, is in corporate finance. The ratings agencies’ opinion of some corporate bonds is still very high, and the coupon that they pay is attractive. However, it is a sophisticated area of investment, and not one that is easily accessible by the citizen who wants security for their savings while craving a better rate of return.
I put it to the Economic Secretary that, between now and the Committee stage of the Finance Bill, he might like to think about carving out a special ISA that would be underpinned by the Government and enable people to put some money into corporate bonds. That would have certain advantages: first, people would receive returns tax free; secondly, if the Government could underpin the measure initially, it would have a degree of security; and thirdly, pensioners could access a higher rate of return. The latest corporate bond rate for Tesco, for example, is about 6 per cent. and, for BMW, it is about 5 per cent. There are other really good, gold-plated private companies offering to pay above the market rate, but it is difficult for the citizen to access that asset class.
Perhaps the Treasury will consider a meaningful way to improve returns for savers by carving out a special additional ISA category for that type of investment—particularly for the older pensioner. I notice that the Chancellor, in making the changes to ISAs, distinguished between people above and below the age of 50. The people about whom I am talking are the recently retired whose pensions have suffered because of what has occurred. They desperately need a higher and better source of income, and I believe that that is something to be sorted out.
May I raise with the Treasury Front-Bench team one or two specific points? The Chancellor seemed to assure us that, if the retail prices index was recorded as a minus figure in September, pensioners would not lose out, but I was not sure whether he said that there would still be, for example, a 2 per cent. increase in their pensions in real terms or in percentage terms. We need some clarification of what is going on, because, as I understand it, technically speaking, pensions could decrease this year if the RPI formula is followed. Many people will be unclear as to precisely what the Chancellor meant.
I welcome the investment announced in green energy, which is certainly to be applauded, but the Select Committee on Environment, Food and Rural Affairs, which I have the honour of chairing, will produce a report fairly soon on fuel poverty, so I counsel the Treasury to wait until we have reported before looking at exactly how it will spend the additional moneys, particularly on domestic energy efficiency, because we will highlight a better and more focused means of spending the money to address our current difficulties.
On Monday 20 April, the Financial Times made a simple but none the less profound statement in one of its leading articles. Addressing the question of public expenditure, it said that
“the UK must start a national debate on fiscal priorities.”
Although it is easy from the Opposition Benches to pick schemes such as ID cards, or anything else on which we do not think we should spend money, it must be noted that this country has not discussed what the state should spend taxpayers’ money on. What are the fundamentals? I think that the public are open to a candid discussion, but I am worried that, given the electoral cycle, with a year to go until an election, both Front-Bench teams will be very nervous about discussing the unthinkable—about cutting back on public expenditure. However, I do not think that the public, who want to know the situation as it is, are so fearful that they could not express an opinion about what should occur.
The reason I mention the issue is that about one third of public expenditure is on social benefit payments, and, understandably in the current circumstances, that is difficult to change. In fact, we are increasing support through the tax credit system. Therefore, when we look at what is left, the two thirds, we realise that we do not have a lot left to reduce. We need a discussion about what reduction the public would stand either in absolute terms or at the current rate of increase in planned expenditure. I ask the Government to do that, because I notice that, for example, in table A1 of the Red Book, they already seem to have made a decision to reduce to the monetary sum of zero the reserve support for military operations. I am intrigued to know why our forces will seemingly have no reserves to call on from financial year 2010-11 and thereafter. The Government have rather cunningly hidden away in that table what appears to be a large cut in potential public expenditure. They have done that without any discussion, however, and I think that the public would like to know what that decision means for our armed forces. Against that background, let us also have some candour about the standard of forecasting.
I shall conclude by considering some growth projections, however. Let us compare the previous Budget’s growth projection for the current financial year of plus 2.5 per cent. with this Budget’s projection of minus 2.75 per cent. The 2008 Budget document projected next year’s growth to be plus 2.5 per cent.; now, it is projected to be plus 1.75 per cent. The fantasy world starts in 2011-12, because whereas in 2008, the projected growth figure for 2011-12 was 2.5 per cent., we are now asked to believe that, then, the economy will grow at 3.25 per cent., which is about three quarters of a point above the trend rate of growth for the United Kingdom economy.
Notwithstanding what the National Audit Office said, I see the hand of a particular kind of Treasury discussion around such forecasts. Officials turn up, saying, “Here you are, Chancellor: here’s the macro-economic model; we’ve done our sums; this is what’s going to happen.” Then, we get the political horse-trading, when the Chancellor of the day says, “Hmm, well what does perhaps another quarter point on growth mean in terms of either increasing tax revenues or reducing the borrowings? How much can I tweak these numbers so that the figures don’t look in the real world quite so bad as the economic model suggests?”
I am afraid that asking us to believe that 3.25 per cent. growth is do-able for the period to which the Red Book refers calls into question some fundamentals of the recovery programme that the Chancellor sketched out in his Budget. There is a basic need to consider very carefully how such numbers are put together, because they fundamentally determine the outward projections of the state of the British economy. If the Treasury gets them wrong in the next 12 months to the degree that it got them wrong in the last 12 months, I am afraid that, while President Obama may talk about glimmers of hope, we may be talking—if we are still here in 12 months’ time—about glimmers of true disaster.
I say with all sincerity that it is a great pleasure to follow the right hon. Member for Fylde (Mr. Jack), who made pertinent and sensible points. He talked a lot about forecasts. As a Member who is a bit of a sad case, I spent some of yesterday evening reading the noble Lord Healey’s autobiography “The Time of My Life”, in which he was critical of the forecasts that he got as Chancellor in 1974, 1975 or whenever it was. He said that all the errors that he was making—he writes about them quite freely—were due to the fact that the forecasting was all wrong, or at least very far wrong. The right hon. Gentleman discussed coming back from working in his garden and finding that the forecasts had changed, and he was absolutely right about that. I call it “the complexity of Budget ratiocination”. Budgets are extraordinarily complicated—how they are put together is something of a miracle.
At the beginning of his speech, the right hon. Gentleman put forward the example of a Chinese meal—the time it took to figure out, the indigestion and the rest of it. That reminds me of Rab Butler’s comment as Chancellor of the Exchequer. He said that it takes about six months to figure out the Budget. By the time we get round to figuring it out, it is time for the next pre-Budget report.
I certainly agree with the right hon. Gentleman’s sentiment that we do not have full economic debates here—but then we do not have full debates at all. The right hon. Member for Wokingham (Mr. Redwood) was saying how we could save £5 billion by getting rid of the identity card scheme, but nobody mentioned saving £5 billion by getting rid of Trident, for example. I am not suggesting that we should, but I am saying that there is a debate. If we have a debate about the economy, we ought to have one about the country. We were asked what would happen to businesses if business forecasts were way out. The Government’s difficulty, however, is that they have to run a country. One of the points that I make—it links in with what the right hon. Member for Fylde said—is that we need a debate on our economy and country, on where we are and where we stand. We could take that opportunity, given that we are coming up to the second decade of the 21st century.
The right hon. Gentleman also mentioned boom and bust. This is the first Budget in 12 years of a Labour Government that has come in a recession. I am willing to accept that the boom period began under the right hon. and learned Member for Rushcliffe (Mr. Clarke). We had a period of stability that we could call a “boom”. Now, however, there is a global recession, and that is a fact no matter how we debate it. It affects Germany, France, Italy, Spain and the United States. Some 20 million workers in China are losing their jobs. As I mentioned, I am a sad case—I have also looked at the Brazilian economy and what steps the Brazilians are taking to face the recession. However we look at the issue, we cannot get away from the fact that this is the first global recession that we have seen.
I studied economics for a time at university, and it seems to me that we have to accept that forecasts are, to a large extent, guesswork, except in periods of extraordinary stability; the variables far exceed our understanding of them. Does the hon. Gentleman not agree that, if there are large swings between periods of contraction and expansion in the economy, one of the biggest dangers is that demand and supply will get out of kilter and there will be increased oscillation? In simple terms, if the forecast is correct, we could go from a period of dramatic contraction to one of dramatic growth. That might create future instability and perhaps an even bigger crash.
The hon. Gentleman is right about forecasting, but forecasting moves around. The forecasting in the press today, which was confirmed, was that we would have a fiscal deficit of £175 billion; yesterday’s Daily Telegraph, however, forecast one of £200 billion—that is, £25 billion more. That was another forecast. I am grateful to the hon. Gentleman for giving me the opportunity to cite the latest forecast of the ITEM Club—when it suits the newspapers, it is the “respected” ITEM Club; when the club does not please them, they do not refer to it. It is simply a forecasting club, which uses the Treasury model. It is Ernst and Young-based; I used to represent that institution, although I do not any more, so I declare that non-interest. In its spring forecast published today, the ITEM Club identifies
“signs that the financial situation is stabilising and credit conditions and confidence are starting to improve, partly in response to the vast resources which government has thrown at the problems.”
The ITEM Club has some merit, although that will not necessarily be reported tomorrow.
Before I move on from the speech made by the right hon. Member for Fylde, I should say with the utmost sincerity that he made a fine point. I am the Second Church Estates Commissioner and have to look after the portfolios of the Church of England. The significance of corporate bonds and their returns is not lost on me, nor on the sophisticated investor. One can get a fine return. The right hon. Gentleman mentioned Tesco, and I can say—again, as a sad case—to him that Gazprom is paying 6 per cent. on its corporate bonds at the moment. Linking an ISA with that market is not a bad idea, and I hope that the Treasury will take it up. It is one of the most constructive ideas that I have heard from a speech on the Budget.
I forgive you, Mr. Deputy Speaker, but I was sorry that you did not call me immediately after the speech of the right hon. Member for Wokingham. His speeches are a centrepiece of the Budget debates in the House, and his one today would have been excellent—if it had come from the Republican party in 1930. It would have been a fine example of Republican sentiment. He said that we should not have saved the banks; in the 1930s, the United States refused to save the banks and 12,000 of them went to the wall. We had six or seven years of recession, which became a depression. Truth be told, we got out of it only because of the second world war.
The idea that we should not have saved the banks was excellent: every bank in the country would have failed. In his mild way, the right hon. Member for Fylde contradicted the right hon. Member for Wokingham by mentioning inter-banking. The inter-banking business in the banking sector is such that if one major bank, such as the Royal Bank of Scotland or Lloyds, had collapsed, every bank in the country would have gone. Let us make no bones about it—every depositor in the country would have lost their money and we would have had the most enormous crisis. The right hon. Member for Wokingham seemed to overlook that point—“Let the banks go, and let the markets take their toll.” That was not an option for the Government.
This is not just a yes-no issue. The Government’s whole approach to dealing with the banks has been similar to that of the Japanese Government nearly 20 years ago. The alternative is to do what the Swedes did. They identified the bank losses that were beyond recall and rescued the banks that could be rescued; they defended the system rather than individual banks. The question is not about whether to defend the banks but about how we can most economically rescue the system and then return to a system of financial confidence.
I agree entirely with the right hon. Gentleman, but the luxury of that kind of reflection was not available to the British Government—and was certainly not available to the United States Government when they allowed Lehman Brothers to collapse. The Chancellor referred to that event in his statement. The markets were in difficulty as a result of the sub-prime mortgage crisis. However, allowing a bank of the stature of Lehman Brothers, which was the landlord of a building in Canary Wharf, to collapse sent the economy of the United States and the rest of us into recession. That was the one significant event, and, to get back to the right hon. Gentleman’s point, the US Government did not have the time to think it all through, just as we probably did not.
What we had to do, which the Government did, was to work on the principle that we had to save the banks even if it meant nationalising them. We made the commitment at the time, and we repeat it, that the time will come when we will return those banks to the private sector. The right hon. Gentleman’s point is a good one. We did not have time to think, but the result was what we expected and wanted. No investor in any bank in our country has lost a penny. We should not overlook that fact but repeat it at every opportunity.
On the question of no investor losing money, shareholders have lost an enormous amount of money in the banks. I accept that bondholders have not; that is an issue that my right hon. Friend the Member for Wokingham (Mr. Redwood) would take some account of. Clearly, depositors have not lost money, but shareholders—the real investors in banks—have lost tremendous amounts over the past year.
I entirely agree with the hon. Gentleman’s point. I was talking about investors who had savings—deposits—in banks. If you are a shareholder, Mr. Deputy Speaker, you pays your money and you see the show. Twice in my life I have sat in a hotel room looking at The New York Times and discovering that my shares had lost half their value—not once but twice. I know all about it. I put my money on the stock exchange and lost it, and I then decided to wash my hands of the whole thing and never invest again. I am therefore sympathetic to those who lose their money on the stock exchange, but I do not put them in the same category as those who have investments—money deposits—in the banks, and those have been saved.
The right hon. Member for Wokingham—I apologise for continuing to refer to his speech, but it was so excellent that I cannot really not do so—talked about boom and bust. He had huge criticisms of off-balance sheet financing and the private finance initiatives that we launched as a Government in 1997. I am proud of the fact that the very first public-private initiative that we launched was to build James Cook university hospital in Middlesbrough, which is now the finest regional hospital in the area. When I first became an MP, people had to go to Newcastle for a heart operation; now, they come from Newcastle to us. The Duke of York came to open it, and I was very proud to be there. That was an example of the off-balance sheet financing and public-private initiatives which we as a nation can afford and which render a significant service to our economy.
The right hon. Gentleman talked about the retail prices index, and said that we moved from one form of evaluating inflation to another. In fact, the Chancellor referred both to the retail prices index and to the fact that the inflation rate under that indicator was 3 per cent., so it is not overlooked at all.
The right hon. Gentleman made no mention of the global recession: we were an island surrounded by fishes, to be sure, although the fishermen are complaining about the fisheries policy. In fact, we are not an island—no man is an island unto himself—but part of the global economy. He did not mention the 20 million people in south China who have lost their jobs or the 500,000 people a month losing their jobs in the United States. People refer to our unemployment rate rising to 2.1 million, but in 1983 I fought a general election, which the Conservatives won, with unemployment at 3 million. Unemployment was never a political issue. Even in the ’30s, when we had the Jarrow march, the Conservatives still won the election of 1935.
I will refer to the forthcoming general election later in my speech. Clearly, this is a great day for the Opposition. They have never had to speak in the House on Budget day under a Labour Government when there has been a global recession. I can well imagine that they will make as much hay as they can while the sun shines. I would not say that that is wrong. We would have done exactly the same—we probably did, and were then disappointed when the election results came in. Who can tell what may be the case next year?
The right hon. Member for Wokingham talked about the public sector borrowing requirement. He made a huge distinction between public sector and private sector workers. I am not sure that those who work in the public sector would be very happy about that. In Middlesbrough, we have public sector workers in health, education, social services and local government. They are there not only to serve the community but to help the disadvantaged people in that community and to try to get them into work. One cannot balance public and private sector workers like some kind of see-saw. They are all a significant part of our community and society.
Getting back to when there was a Tory Government, when I was a city councillor in Newcastle, Michael Heseltine was Secretary of State for the Environment and came up there. We had 20,000 workers working for the council and he said, “I want it reduced next year.” When he came back the next year he asked, “How many do you have?”, and we said, “22,000.” It is not as easy as simply saying that we should get rid of people from the public sector and put them in the private sector. That is not a possibility, as there has to be a balance in society between the public and the private. The right hon. Member for Wokingham missed that.
It seems a long time since the leader of the Liberal Democrats, the right hon. Member for Sheffield, Hallam (Mr. Clegg), spoke. He began by talking about the best of times and the worst of times. It was not lost on us that he was referring to the opening sentence of the novel by Charles Dickens, “A Tale of Two Cities”. He did not really take us very far or make a contribution that I would wish to refer to. If I had a reference to it in my notes, I have lost it, so I shall have to move on.
My right hon. Friend the Member for West Dunbartonshire (John McFall), who is not in his place, mentioned the section of the Budget about banking and the business community. He said that there were difficulties in the banks getting money to the business community and that the business community was not getting the service that it required from the banks. My information is that that situation is easing now, and that the lack of confidence in the business sector is holding up the traffic between the two. Getting confidence back in the business sector will be a major element in restoring some kind of equilibrium.
It is very clear that we will never go back to where we were before. A comment was made about people not getting overdraft facilities, and those days will not necessarily come back easily or quickly. One Member asked whether the sovereign debt market can absorb the amount of debt that is on the market and coming through in bonds. I have to say that all the studies show that the market is holding up well. The ratings agencies are still giving us triple A ratings, and the essence of the Budget is to balance out what we are doing in the short term, how we will deal with the situation in the long term and what the markets foresee. By the markets, I mean business, private and international investors in our community. I was with a major state investor last night, who told me that they were very confident in the British economy and were keeping their investment going.
The Leader of the Opposition asked whether there was an additional fiscal stimulus in the Budget. There is a fiscal stimulus in it, but it is small compared with the major ones. However, it is there—there is £2 billion for one particular project, but I did not quite catch which one from where I sat. In my view the fiscal stimulus has gone as far as it can go, and I would not wish to see any further fiscal stimulus at this time. The balance is right between the stimulus in the economy, how we project ourselves forward and how we pay for our debt as time goes by.
As I said to the right hon. Member for Fylde earlier, in considering how a Budget looks we have to look perhaps 10 months or six months into the future. A Budget has many facets, and we will have to assess the full significance, impact and importance of this one in the current climate of economic downturn. That is the essence of it all—we must have a strategy, and the Chancellor put his strategy forward. The essence of it is the core values of fairness and opportunity.
In considering the Budget, we must ask whether it is good for families. Is it good for those in employment? Is it good for helping those who have lost their jobs back into employment? Does it stimulate the economy and reform our taxes? How is it received nationally and internationally, and can it have the confidence of investors? At a time when public debt has risen to accommodate the recession and to lessen its impact, how does the Budget reassure the markets in the medium and long term? My assessment is that the markets will be reassured by the Budget. They will see that the Government are taking responsibility at this difficult time. In my view, the Budget lays the framework, not for now until the next pre-Budget report—it is a Budget that defines the economy’s direction not for a year, but for several years.
The hon. Member for Esher and Walton (Mr. Taylor) mentioned the general election. The Budget does not set the scene for a tax-cutting Budget next year; that was never on the cards. We know that next year is an election year, but we have already announced increases in income tax and national insurance for 2010-11 and 2011-12, and the Chancellor said that he would raise the higher rate of tax from 45 to 50 per cent. for the 1 per cent. who are the country’s highest earners. I believe that that will be well received in the country; it is an appropriate measure at this time.
On competitiveness, the Budget must be construed not as a stand-alone, but in conjunction with the policy of the Department for Business, Enterprise and Regulatory Reform. We did not hear much about the industrial side of our policy today, but Lord Mandelson explained it in his policy paper “New Industry, New Jobs”, which calls for the development of industries such as biotechnology, high-tech manufacturing, green technology, advanced materials and carbon capture and storage. The Chancellor referred to them all.
The House should welcome the emphasis on new industries and the proposals for a 3i-style investment fund. The original 3i fund was set up in 1945, with £10 million of finance, and has since expanded to incorporate £6 billion of assets, including venture capital buy-outs and investments worldwide. The new vehicle, which is putatively an industrial and finance corporation, will be ideal for balancing the demands of industry with those of the banking sector, thus creating equilibrium. I agree with Richard Lambert, director general of the CBI, that the fund should have a financial base of at least £1.5 billion. I am sure that he will welcome the scheme on behalf of the CBI, as should the Institute of Directors, which pressed for it in the first place, and has done since Lord Mandelson was appointed to his high office.
Only the right hon. Member for Wokingham used the dreaded word “socialism” in this august Chamber. We may hear it more later, but he is the only Member to mention it so far. However, I welcome Lord Mandelson’s proposals and the fact that his concept of industrial activism and policy accepts that the so-called free market, unfettered, cannot pull the economy out of a recession. We cannot go back to the proposals of the right hon. Member for Wokingham—I have a mild obsession with him and his speech. He had the wonderful view that everything should be left to the market—which reminded me that when we set up the Financial Services Authority some years ago, he opposed it because he believed that the market should be unregulated. We have moved away from that. The view of the G20 is that a free and unfettered market is not the way forward for an economy. I believe that we have learned the lessons of the 1930s: that message emerged from the G20 meeting in London.
However, I stress the difference between intervening in a country’s economy to give it direction, and interfering in the marketplace. We make a distinction between intervening and interfering. We do not believe in interfering in markets, but they should be given a proper direction, especially in a global recession. We want markets to evolve, with flexibility, in a global environment. The right hon. Member for Wokingham mentioned the European Union, even in the Budget debate. He criticised the Government for allowing a portion of the rebate, which Lady Thatcher negotiated some years ago, to be returned. We must admit that we did that. We paid some of that rebate back—we own up to that—and we did it to help eastern European countries that are much poorer than we are. The right hon. Gentleman said that we gave the money to countries that were richer than us. That is not the case. We gave it to countries that were less rich than us, as part of the European Union concept. In order to deal with the irrational exuberance of the markets that has led us to the predicament that we are in, we need the economic and industrial activism that we have now heard about.
I want to refer to the north-east of England. My right hon. Friend the Member for Edinburgh, East (Dr. Strang) referred in his speech to the situation in Edinburgh. We have to look at where we are in the north-east. Let me start with our steel industry. Although we accept the concept of a new economy, with biotechnology and the way in which environmental issues affect the economy, we must not overlook the fact that steel was once the backbone of the north-east of England, along with coal and shipbuilding. Teesside Cast Products is a producer of steel on Teesside. The plant reduced output by 30 per cent. at the end of last year to safeguard jobs in the short term. At present there are talks between management and unions to revisit the company’s cost structures.
In their overall Budget strategy and their emphasis on new industries, the Government must not overlook traditional industries such as steel which provide work and which, in some cases, are the backbone of the local economy on Teesside. I fully accept the Government’s position that subsidising wages in any sector during a downturn would be untenable. Rather, the emphasis is, and should be, on youth employment schemes and on getting young people who have lost their jobs back into work as quickly and efficiently as possible.
The Secretary of State for Business, Enterprise and Regulatory Reform and the Prime Minister were in Loughborough on Monday making important speeches that set the background for this Budget. The Prime Minister said that we have to ensure in the present recession that a time of crisis is a time of opportunity—those are my words, not his. We should use this opportunity to make our economy more competitive. Such competitiveness lies with the development of a skilled labour force, transport infrastructure and innovation.
On infrastructure, building on the Prime Minister’s speech on Monday, as well as the contents of the Budget statement, I invite the Government to take on board the proposed Tees valley metro scheme. It is a project that would put £30 million into improving our rail network on Teesside and would underpin our planned regeneration at this time of recession, with a £50 million investment in the Darlington-Saltburn line and a £130 million investment in the Hartlepool-Nunthorpe line, a major infrastructure project in keeping with the Prime Minister’s thoughts this Monday.
The Government can make a start by sorting out who pays the £1.5 million for design work that could be included in a regional programme and the appropriate appointment of a senior responsible owner. Both matters have been discussed with Lord Adonis, the Transport Minister, and would be fully in keeping with the aim of the Budget, in maintaining our competitiveness, strengthening our infrastructure and ensuring that Teesside remains an attractive venue for business.
I would like to touch on the scrappage deal—but first I welcome you to the Chair, Madam Deputy Speaker; you came in silently, but it was noticed. Talking of Teesside, I welcome the proposed scrappage deal, although I would have preferred a more elegant title to describe the proposal. I am reminded of a comment that the Leader of the Opposition made in his speech. He castigated the proposal and called it everything under the sun, but his comments were churlish, curmudgeonly and not thought out.
In my area in the north-east of England alone, there are some 2,000 workers who work in car dealerships. They will be very grateful for the so-called scrappage deal, which gives a £2,000 discount for trading in cars more than 10 years old. The scheme has worked in France and Germany. Just to amuse the right hon. Member for Fylde, who produced a copy of an editorial this week from the Financial Times, I can say that I agree with Brian Groom of the Financial Times that “scrappage deal” is not a very good name for the scheme. He said that it should be called a “car scrapping deal”—but you have to say that very carefully, Madam Deputy Speaker, because it could come out in a different form, with different connotations; I will leave it to Hansard to work out what that might be.
In one car dealership in Middlesbrough alone—Jennings of Middlesbrough—there are 470 people who work there, and throughout the north-east. It invests in the latest equipment and it services and maintains our cars and vans. This helps to make our small and medium-sized enterprises viable. Anything that helps such businesses to continue, including the scrappage deal, is welcome. I predict that while it is available, it will have the same impact as the similar schemes in France and Germany, and that the 30 per cent. loss of sales by car dealers will be rectified. We should not overlook the fact that our car dealerships play their part in the local community. They are, for example, investors in local charities. This will be a welcome proposal for them.
We heard a brief reference earlier to how VAT had been reduced by 2 per cent., and how that measure was time-limited, as the car scrappage deal will be. However, the Centre for Economics and Business Research has shown that the VAT reduction has boosted retail sales this year by £9 billion. So it has had an impact, and that will continue. I promise that I will make no further reference to the right hon. Member for Wokingham after this one—but he mentioned the green shoots of recovery, a phrase that goes back to Lord Lamont. It is, of course, metaphorical, as are such phrases as “stepping up to the plate” and “throwing a curve ball”. These are all part of our literary debate in the Chamber, and they widen the debate on economics and finance.
The Group of 20 has met in London, and global measures have been announced. We are using the lessons learned from the depression of the 1930s. It is a measure of our times that the following statement by David Miles, the newest member of the Bank of England’s Monetary Policy Committee, was to be found in a paragraph tucked away on the inside pages of a local newspaper:
“Economic history teaches us that a combination of tax cuts…cuts in interest rates and more quantitative easing is likely, with a certain time lag, to have a substantial impact on demand in the economy and it may well be that the worst of the recession may well be behind us”.
He went on to say that that was
“not a confident prediction but a judgment about what may be the case.”
It is certainly the case that the Opposition will have a field day with regard to the time lag, but trying to invest several billion pounds in an economy takes time. The Conservatives might make hay while the sun shines—to use another metaphor—but in the long term, the proposals will work.
I want to refer to the north-east again. Figures from the Royal Institution of Chartered Surveyors show that house sales in that region have increased for the third consecutive month, and new inquiries have increased for the fifth consecutive month. I must contradict my right hon. Friend the Member for West Dunbartonshire, who talked about the demise of the Royal Bank of Scotland. It has 170,000 workers, and data provided by the bank for studies in the north-east show that following a reduction in private sector business in March, the level of the reduction has eased markedly. Things are moving in our area.
Much has been made of the public deficit amounting to 11.9 per cent. of national income, and of the need to reduce it over the medium and long term, but nations that have paid for wars—and world wars, at that—will not have any difficulty in easing their deficits when the time is right, when recovery is well established and there are no sudden lurches. That is, I believe, the essence of the Budget. When President Clinton came to office, he had to deal with the mighty deficit left to him by President Bush senior, but his Administration overcame that. To please my hon. colleagues on the Conservative Benches, I will also mention Lady Thatcher. We fought the election in 1983 with 3 million unemployed. She brought public spending down from 48.1 per cent. of national income in 1982-83 to 41.6 per cent. in 1987-88. As I said earlier, I fought that election with 3 million people unemployed.
To come back to the point made by the hon. Member for Esher and Walton, the idea of an election seems to haunt this Chamber. Every Opposition Member seems to be obsessed with a general election, but whenever it comes and whatever the outcome, it is not relevant to this debate. What is important is that the Government of the day take the measures that they must, to see the country through the recession.
The right hon. Member for Fylde mentioned the need for a debate on what kind of country we are economically, and I would welcome that. If one ever wanted to know what the Conservative philosophy was, it could be heard from the right hon. Member for Wokingham. If he has his way, our public sector and our banks will disappear, the EU will descend under the North sea and we will all be happy citizens of the realm.
I am listening carefully to the hon. Gentleman, and I agree that the Conservative approach seems to be entirely dominated by the general election, no matter what the costs may be for the economy—but is it not also a problem that today’s Budget, too, was short-termist and failed to provide for the long-term changes necessary to see this country through a very difficult economic time?
I am grateful for the hon. Lady’s intervention, but I think the Budget did go as far as making projections up to 2015—a fact that was picked up by the Leader of the Opposition. As I have indicated, and as is clear, we are steering our way through the first global recession in history, and much depends on the framework and measures of the G20 group of countries that other nation states use. I am talking about the economies of Germany, France and the United States; as they pick up, we will pick up.
The Chancellor referred to green shoots of recovery, which means that at the end of this year and into the next we will move from zero growth into growth—even if only at 0.3 per cent. The Chancellor said that that could happen at the end of this year; my personal view is that it may not be until next year, but there will be a turning point—a prospect that this Budget has to deal with. The Chancellor’s point was that we must not have sudden lurches bringing recovery to a juddering halt on account of the free-market principles of the right hon. Member for Wokingham, other Conservative Members or even, if I may say so, the leader writers of the Financial Times.
I was surprised to read in a Financial Times editorial this week—perhaps the one mentioned by the right hon. Member for Fylde—that we were picking winners and losers in our economy. We are doing no such thing; we are guiding the economy in areas where it should be guided. We are not choosing one particular industry or firm against another. We are not in the ’70s; we are not in Tony Benn’s industrial regeneration programme of 1975-76. We have a new programme; we are going to guide the economy and be active in it.
Let me close where the Chancellor began and ended his speech. We should be looking to a confident and successful Britain. The word “Britain” is important because we all have to pull together. It is not a matter of one section against another or St. Albans against Wokingham. It is not a question of what the Budget is going to do for me; rather, it is about how the people of Middlesbrough may relate to the people of St. Albans as we all work together and all plough this particular furrow together.
At the end of the day, when the election comes, we will go forward, able to say that we did the best for our country. We will say that we saw it turn a corner, moving from negative to positive growth. We will say that we handled the banks so that people did not lose their money. That is the way forward. At that time, the people will have to decide between a Labour party that believes in growth to get us out of a recession and a Conservative party that believes in cuts. We will then have to ask the Opposition what cuts they want and what cuts they propose. ID cards may be one area for cuts and Trident missiles might be another.
I hear an important sedentary intervention. Are the Tories going to get rid of tax credits, benefits for young people and the Sure Start schemes that are working well on my housing estates? Which section of the community is going to be afflicted to pay for what happens in St. Albans and Wokingham? I hope it will not be Middlesbrough. I will be asking those questions, but I have no doubt that when the economy turns and people see the alternatives, we will have a proper vote, the reality will meet the perception and we will have a proper result. It will be based on what the Government are doing today, what they have done since the beginning of the crisis and what they will do into the future, when we are re-elected.
It is always a pleasure to follow the hon. Member for Middlesbrough (Sir Stuart Bell). At the end of his speech, he said, “We will ask the Opposition which section of the community will be afflicted by any cuts they may make in the future.” It is not for me to attempt to answer that 12 months before an election; no doubt my right hon. and hon. Friends will set out our plans in detail. I simply say that today’s denial Budget has afflicted every single section of the community—every single man, woman and child—with borrowing and debt that will last for generation after generation. That is my only criticism of the hon. Gentleman, who made an excellent job of trying to defend, in the best possible way—he is an expert at it—a Budget with which I think he is slightly uncomfortable. Despite his partial praise and partial criticism of my right hon. Friend the Member for Wokingham (Mr. Redwood), I detected a deep unease in the hon. Gentleman’s views on the amount of borrowing that this country will undertake.
The hon. Gentleman said at the start of his speech, “We are in a global recession, we are not in this alone and we can’t judge the measures that the Government are taking in this country without looking at what is happening in China, Brazil, India and other far east countries.” I agree, but are any of those countries seriously going to go on a massive Government spending spree in the hope that Government can buy their way out of bankruptcy? Those countries will be freeing up their private enterprise and their economies, not adding to paternity pay or health and safety regulations. They will use private enterprise to get them out of the hole. I will return to that subject later in my speech.
I also agree with the hon. Gentleman—and the Prime Minister, if he said it this week—that a time of crisis is a time of opportunity. However, it is not an opportunity to borrow £175 billion next year, then £173 billion, then £140 billion, and it is not an opportunity to put us deeper into debt than at any time in our history, and it is not an opportunity to have more debts than every other Government since this country’s history began. It is a time of opportunity to cut regulation and red tape—something my hon. Friends and I have wanted to do over the past 10 years.
I suspect that it is more difficult to cut some of the nonsense in a booming economy: why cut health and safety regulations and the plethora of red tape when we can afford them—as well as lots more civil servants, local government and health and safety inspectors—and when industry is making a fortune and paying its taxes? When we are in a hole, it is time to stop digging and to stop strangling ourselves with red tape and regulation.
As I listened to the Budget statement, I was reminded of a film. Many years ago, there was a “Carry On” film called “Carry On Regardless”. That is what we had in the Budget. In some ways, it reminded me of the Prime Minister’s Budgets in 1998 and 1999, when he could carry on the expenditure levels that are now no longer sustainable because of the golden economic legacy that he had been left by the outgoing Conservative Government.
We have had no sense at all today that the Government understand the urgency of making cuts in non-essential Government expenditure. I do not think that my right hon. Friend the Member for Wokingham was suggesting in the slightest that any front-line services should be cut—none of us is suggesting that—but as I go round my constituency I get the same message from everybody from every side. They say exactly the same thing: “When can we get rid of this Government? Goodness me, I don’t envy you lot the job you will have to do. The mess you will have to sort out is terrible and there will be pain.”
The people out there—our electorate—know that there will have to be cuts in some services. They are doing that themselves. They cannot go to their bank manager and say, “I’m absolutely broke, but can I borrow more money to spend my way out of bankruptcy?” Every little business in my constituency is pulling in its belt. Yes, those businesses would like to invest and they are saving every penny they can for proper investment. They are not squandering a single penny.
When I open the pages of my local newspaper, I may see a little advert as Eddie Stobart wants a driver. I may see an advertisement saying that a hotel wants a chef. I see columns of advertisements placed by the district council, the county council and the health service, which is still recruiting like nobody’s business. I am not talking about front-line staff. Five-a-day managers are being recruited. These people will not be managing anything; they will be paid about £23,000 a year to go around exhorting the rest of us to eat five portions of fruit and vegetables each day. No doubt eating five portions of fruit and vegetables is jolly good for us, and I try to do it myself occasionally, but the idea that it is essential to recruit people to carry out these exhortations is bananas. [Laughter.] Yes—and apples, broccoli and leeks as well. That was an inadvertent one, although I sometimes throw them in to check that the House is alert.
The idea that we can afford, at the present time, to continue that sort of extravagance is absolute nonsense. I was about to say “pie in the sky”, but that would have been the second portion. We cannot afford to do that in the current circumstances. We could not afford to do it in the past, but Government and local government could get away with it because we seemed to be earning, we seemed to be paying our way, and we were in a boom period. Now the bust is here with a vengeance—and when the bust is here with a vengeance, we all have to pull in our horns. We invest in what will actually help us to escape from our problems, which is growth. That means that we must cut the red tape and all the things that slow down our industry.
The Chancellor says that in a couple of years’ time we will have 3.25 per cent. growth. No one in the House believes that. Labour Members have made a good fist of defending the Budget—no doubt they received their briefing and found all the good things that it is possible to defend—but no one seriously believes that we will move from negative growth of 3 per cent. to positive growth of 3.25 per cent. in a couple of years’ time.
If that were to happen—if we were to achieve that 3.25 per cent. growth—where would it come from? Would it come from Government expenditure, Government investment in infrastructure, or Government investment in so-called front-line services? Of course not. Government are not going to create that growth. If we end up with 3.25 per cent. growth in two years’ time, it will be because private industry has created it. The investment that private industry will put into its business is infinitely greater than anything that Government can spend by borrowing hundreds of billions of pounds. If those hundreds of billions were to go into capital investment and increasing productivity, it could be justified, but much of it is going into shoring up the current account and continuing the profligate expenditure policies that got us into this hole.
This is my main criticism today. As elections approach, Governments are often accused of promising jam tomorrow. Well, this Government are promising pain in a couple of years’ time rather than inflicting it now. I am quite pleased about that for political reasons, because I know that my constituents—and, I suspect, those of most other Members—will see through this Budget and say “Ah yes, a tax cut. The huge tax increases will come in two years’ time.” The Government might have gained more political mileage today by giving us some of the pain now: by being absolutely honest, and saying, “We must rein back on excessive Government expenditure, and we must rein back on it now.” Delaying the pain for a couple of years fools none of the electorate. Indeed, I suspect that it will mean a few more seats for my party at the next election.
I believe that there are areas of expenditure that can safely be cut. I am not going to come up with a full shopping list, and this is not a Conservative party shopping list; it is just a list of some of my pet fetishes. We are going to waste £12 billion on identity cards, which are absolutely unnecessary. We have wasted £36 billion, I am told, on NHS computer systems which do not work. Thank God they do not work, because I do not trust this Government with my medical records—particularly if they introduce a euthanasia Bill shortly, given my current state of health. We do not need that particular investment. In fact, it is not investment. Buying £36 billion-worth of computers for the NHS so that, theoretically, all the medical records can be in a central system and, theoretically, everyone in Whitehall can access them is not investment, but an absolute nosey parker’s charter and a waste of money.
Let me also suggest that the Government cut the £300 million that has been spent, either at Cheltenham or somewhere else, on monitoring all our trips abroad. I am quite happy for MI5 and MI6 to recruit a few thousand more workers to gather intelligence to find out who the real terrorists are, but not for £300 million to be spent so that every time every single citizen of this country goes abroad full details of their passport, where they are going, the hotel they are staying in and, no doubt, what they have had for breakfast is logged on a central computer on the off-chance that we pick up some guy going to Pakistan for terrorist training. Let us put the money and investment into more Security Service foot soldiers on the ground infiltrating these communities, and into hearts-and-minds operations in those communities and gathering intelligence on the half a dozen guys who may be going to Pakistan to learn to be terrorists, rather than into monitoring the other 56 million of us and intercepting every e-mail we produce.
We have got to start unscrambling the tax credit system and put in place a better system. I wonder how many of us as Members of Parliament could lay off half a secretary—not that I am suggesting we want to do so—if we did not have to deal with the absolute mess of the tax credit system and the child tax credit system. We must tackle the burden of public sector pensions as well, including our own—I suspect it will be the next Government who will have to tackle that.
We have had a lot of measures on jobs today. They are well intentioned and well meaning, but the people in my constituency who have lost their jobs are not all waiting to be retrained into a new industry. The 30 or 40 men who have lost their jobs in a plasterboard factory get laid off every recession; they are waiting for that work to pick up again, and then they will be back doing the same job in the plasterboard factory. The HGV drivers who are laid off at the moment are not going to retrain for the new green economy and start driving green cars; they are waiting to start driving their lorries again, carting goods around the country. What is needed to help them is not some of the gimmicks we have had today on new training, but a cut in national insurance. If we cut national insurance, I can guarantee that within weeks more people in my constituency will be back in employment, because it is a burden on employers which encourages them to lay off labour and does not encourage them to take on new employees.
I agree with the Prime Minister that a time of crisis is a time of opportunity: when the Conservatives come into government, there will be an opportunity for my Front-Bench colleagues to take an axe to some of the regulations that have been passed in the past 10 years. That opportunity will come because the people of this country realise that we cannot have more and more red tape strangling private industry as it is only private industry that will get us out of this crisis.
I seldom watch television, but I caught a bit of a programme the other night. I believe one of our esteemed Gallery correspondents was responsible for it: Mr. Quentin Letts. The programme was certainly infinitely better than anything he writes, and it was all about training for using ladders. Mr. Letts had discovered that everyone in this country who may have to go up a step-ladder now has to get a certificate on handling ladders and using them safely. I understand from Mr. Letts’s programme that the European Union regulations are about two pages long, whereas the British Government ones are about 30 pages long. That is typical of the gold-plating of every regulation.
My right hon. Friend the Member for Wokingham may have a view on which regulations may be scrapped. I take the view that while we are in the European Community, and we are—and rightly so—trading and working with our partners, we must obey European law. If we have British regulations duplicating those from Europe, we cannot get rid of the European ones; therefore, we should scrap all those duplicating regulations that we in this country pass in gold-plating the European standard regulations. We have such a problem with the working at height regulations, and in this place we are doing it with the fire regulations: we as a House and a British Government are gold-plating them, and nowhere else in the European Community is that being done.
Before this is misconstrued as Maclean suggesting that we should go back to the bad old days before the Health and Safety at Work, etc. Act 1974 and scrap all the vital safety regulations that protect workers, let me say that I am not suggesting that in the slightest. If we look at the statistics, however, we will see that we are putting a lot of effort into targeting some areas where there are very few accidents or deaths, while ignoring other areas, such as the construction industry, which are still high up the accident league. Whatever we do, we must take the burdens off private industry, where one finds the only ones who will create the magical 3.25 per cent. growth that we seek.
I wish to make one other major point before I conclude, and it involves contradicting what I have just said on cutting regulation. One regulation is essential, and it is not a matter of the regulation that may be necessary for the Financial Services Authority to determine whether or not the institutions are lending properly. It is the imposition of a new regulation or code of practice on our banks, which are turning the screws on all our businesses and individuals like never before. Every business man and woman in my constituency to whom I have spoken, including someone I bumped into in London last night, has made the point that they have had letters from their bank saying that because of the change in interest rates their terms are being revised and charges on companies are being increased. As Bank of England rates get lower and as we pump more and more taxpayers’ money into some of these wicked banking institutions, all they are doing is taking the taxpayers’ money and then extorting more from the businesses to which they are supposed to be lending.
Not at all. The hon. Gentleman is totally misrepresenting those proposals. I think that the Government made a mistake in not tackling some of the regulation, and their tripartite arrangements clearly do not work—nobody has been in charge, and a simple example of that is Northern Rock. I am told that six months after the Government took it over, Northern Rock was still lending 120 per cent. mortgages—even though the Government were in charge—and there is something wrong in the regulatory system if that can continue to happen.
I fully agree with the right hon. Gentleman’s point about the practices of some of the banks at the minute and the further squeezes that they are putting on their existing business customers, even though they tell us that during this period their emphasis is on their relationship with their customers—which is certainly what the banks in Northern Ireland tell us. Is the problem not worse than he suggests? The banks are increasing the rates not just to get more money out of these customers; some of the banks, including the Ulster bank in Northern Ireland, are doing it deliberately to price customers off their books. The aim is not only to take the money off them, but to ensure that those businesses—sound, productive businesses—pay the pain of the banking excesses.
I agree entirely with the hon. Gentleman, and the point he raises has been made to me too. The Government just do not realise what is actually going on between the banks and their business customers. Admittedly, the Government and the Treasury have had to focus on the mega-picture of the scandal of the Royal Bank of Scotland, HBOS and so on—I leave it to others of my right hon. and hon. Friends to comment on how successful the Government have been in dealing with those institutions—but they do not realise what the banks are doing to their ordinary customers. The threat is there, because the banks say, “If you do not agree to our new terms and conditions, you realise that your overdraft is up for renewal next year or in two years’ time.” In some cases, the threat is overt; in others, the banks are pulling the rug from under customers who have quite good liquidity and who are not a risk. The banks are deciding to recapitalise by pulling the money out of the very businesses that will regenerate this country.
Although I have been highly critical of the Government in this speech, I beg the Treasury team to look at what the banks are doing to ordinary customers—to small and big businesses, which will give us the 3.25 per cent. growth. If the Government do not urgently introduce codes of practice or regulations to stop the banks, which have a monopoly and are all doing the same thing, albeit by using slightly different words, to all our constituents—to all their customers—and to control the way in which the banks are shafting our constituents and our businesses at the moment, we will be stuck in negative growth for far too long and there will be no prospect of 1 per cent. let alone 3.25 per cent. growth.
There were some good little things from the Government today. I of course welcome the £30 million for homes for our heroes, but it is a pity that it was in this Budget. It was the one really good thing and I do not want it tarnished by some of the other dross in the Budget and the denial. If the £30 million is going to clean up some of the service housing and to give the wives and families better homes in which to live while our guys are in Afghanistan, I hope it comes through in the next few months and is not scheduled for April next year. These people desperately need that clean-up in their housing now and they need more than that. If the Government want to make such investments, the plasterboard factory in my constituency will make more plasterboard, the HGV drivers will do more driving and all the other businesses will do more and get this country moving again.
I regret that the Budget was a denial Budget. The film “Carry On Regardless” was followed a few years later by “Carry On up the Khyber”. This was a carry on regardless Budget, but it will be followed by carry on up the creek without a paddle in a year’s time if we do not start cutting wasteful Government expenditure now.
I am pleased to participate in this debate and to follow the right hon. Member for Penrith and The Border (David Maclean). He is widely respected on both sides of the House and held in great affection by many. He mentioned the Budget provision for homes for heroes, and I hope it will be one point of agreement between us that we should rejoice that the figure is not the £30 million that he suggested but £50 million.
What if today’s financial crisis were something more fundamental than merely a serious and deep recession? What if 14 September 2008—the date on which Lehmann Brothers was allowed to go belly up—represented the point at which the whole architecture of a consumption-led, growth-based economy collapsed? Perhaps this crisis is telling us that a system predicated on limitless growth must inevitably hit boundaries—boundaries that are not only economic, but ecological. What if 14 September 2008 were the point at which not only the market but mother nature hit the wall?
In today’s Budget debate it is more important than ever to understand the context of the financial crisis that we face. Today we must look beyond the local dispute between those who say that we must cut public expenditure as a way of managing the recession and those who believe that the public expect the Government to provide greater support in times of distress. This suddenly fashionable interest in macro-prudential regulation and imposing counter-cyclical reserve and capital requirements throughout the economic cycle has been beset by disagreements about who should determine where we are in the cycle and who should determine the level of reserves. The real question is not who, but how. We need to focus on the most appropriate way of modelling market transactions and their velocity to indicate what part of the cycle we are in. That is much more important than the party political spats that we have seen about whether the Bank of England or the FSA should be the implementing body.
If we can generate such models, they will provide the regulatory prudential controls for the economy if two double tensions are resolved. The first is the conflicting messages that have been sent to the banks. On the one hand they are told to stimulate the economy and increase lending. On the other, they are told to reduce their liabilities, increase their reserves and minimise risk. I am no apologist for the banking industry, but it is unfair to demand that they do both at the same time.
It is understandable that the Government should tackle social and financial exclusion. We sometimes forget that the expansion of credit that is now so universally derided enabled 1 million people to avoid financial exclusion by acquiring property through mortgages. That credit expansion was to achieve clear social policy goals. In and of itself, it was good and laudable, but it came at the price of financial instability through under-capitalisation and inadequate reserves. That institutional tension was compounded by the fact that householders then sucked equity out of their properties for personal consumption. They also spent a larger share of their disposable income.
Now that household net worth has dropped so dramatically, what used to be the engines of demand-led growth are now too feeble to lift the economy off the ground. The management consultancy firm McKinsey has calculated that, for each 5 per cent. fall in the debt-to-income ratio, the US economy experiences $500 billion less available consumption going into the market. Britain is no different.
The second tension—between growth and sustainable development—is more fundamental. Those who accept the growth model of the economy believe that there are no limits to growth and positively welcome the fact that the global population is projected to rise between now and 2050 from 6.7 billion to approximately 10 billion. They believe that that 50 per cent. increase in the number of global consumers will be able to fuel the demand-led growth that will lead us to recovery. However, even as we see consumption rise and living standards around the globe rise with it, we are forced to acknowledge that the world is already consuming each year the resources that it takes the planet one year and four months to replace.
If we are able to see that the economy has experienced a credit bubble of consumer-led growth, surely we can see just as clearly that we are experiencing an ecological credit bubble that is potentially far more dangerous. We cannot afford a fiscal stimulus to be simply a way to get back to the status quo ante. Recovery must be a stimulus to transformation—a new model of sustainable development, and not just a way to regain the old growth path.
Borrowing at a personal level imposes an obligation to pay one’s creditor in future. Borrowing at a national level imposes that obligation on a population and its children. If we need a fiscal stimulus to keep people in jobs and to stimulate the market now, we should, in justice, be using the money to invest in making tomorrow’s world better and more sustainable for those future generations. That means new jobs in biotech, digital communications and, above all, in green technology and renewable and low-carbon energy.
Climate change is certainly the most complex question of justice that the world has ever faced. It is about justice across the generations and not just geographical boundaries, and about the equitable distribution of natural resources and not just money. That is why the term “capital” needs to be redefined: we must move away from an exclusive focus on financial capital to include natural capital.
The services that ecosystems provide are largely unvalued. They are treated as externalities by our economic model. The flood protection provided by forests is an externality, and the value of the pollination services provided by insects has not even been calculated. The world is prepared to spend millions of dollars on providing naval escorts and increased insurance for cargo vessels off the horn of Africa, but nothing is done to resolve the ecosystem collapse brought about by desertification that spawned the social and economic chaos that gave rise to the pirates in the first place. That is economic madness.
In an economic crisis, it is possible to provide a fiscal stimulus, but nature does not provide bail-outs. Nature no longer has an infinite capacity to absorb waste, and Governments around the world need to engage in a new paradigm, where natural capital is valued and budgeted for. The valuation of ecosystem services such as watershed protection, climate regulation, and soil stabilisation may seem recherché ideas, but I remind the House that 20 years ago, when officials at the World Bank first proposed that there might be a value attached to carbon, and even that carbon markets might be developed, Treasuries around the world dismissed the idea as peripheral and not worth pursuing.
I am delighted that alongside this Budget there is a document that forms a separate carbon budget, “Building a low-carbon economy: implementing the Climate Change Act 2008”. The Chancellor highlighted that. I welcome the commitment to cutting our CO2 emissions by 34 per cent. against 1990 levels by 2020, and 80 per cent. by 2050, but I am concerned that the overall investment in green growth is not substantial enough to meet even those laudable objectives. Over the next few days, I will carefully examine the figures that he sketched out. We will not be able to get the level of investment right unless we put in place a new system for the evaluation of natural capital, ecosystem services and biodiversity.
As the country begins to emerge from the current crisis, we need to reverse the patterns of internal macro-economic policy as a means of correcting external imbalances. That means moving from consumption-led growth and fiscal deficit to investment-led growth, fiscal balance and higher saving. Key to that transformation is the proper identification of subsidies that still provide perverse incentives to consumption of carbon-intensive products that degrade our environment unsustainably. The key consequence on which the Budget will and should be judged is not how quickly we see the green shoots of recovery, but how deep and how wide it spreads the green roots of sustainability.
It is a great pleasure to follow the hon. Member for Brent, North (Barry Gardiner). Listening to him reminded me how much I used to enjoy his philosophical excursions when he served on the Public Accounts Committee under my chairmanship. They may have been philosophical excursions, but they were always useful and reminded us of what was important. He did that again today with his reference to world ecology as well to the world economy.
That being said, I suspect that this Budget will be judged on a rather simpler basis. When the economic historians look back on it—it will be to them that we will have to look, because I am sure that the economic journalists will give it hell—they will consider a principal, objective aim: whether it gets us out of this recession. It will be as simple as that, and all the complexity of the numbers should not obscure that. Those economic historians will probably look back on what preceded the Budget as a decade of delusion; that is probably the simplest way of putting it. There was self-delusion on the part of the Government in many ways, ranging from the way in which they introduced creative accounting into our national accounts and fell for their own propaganda in so doing, right through to the hubris of believing that they had put an end to boom and bust. All that was self-delusion, and it has lasted a decade.
There is also the self-delusion of the bankers, who created instruments that they told us would minimise risk, but in fact simply concealed it. That led to the maximisation of that risk, which, of course, is what broke the system in the final analysis. There is also the self-delusion of the professions—the accountants and the credit-rating agencies—that failed. It was a criminal failure in my judgment, and I say that not in hyperbolic terms. I mean a literal criminal failure to protect the public from the misrepresentations that were visited on them, both by the public sector—the Government—and the private sector.
I will leave it to colleagues to enumerate the massive overspends, false forecasts, incredible levels of debt, and debt burdens that have been visited on us as a result. I want to focus, briefly, on the consequences of those delusions for the set of policies that were explained to us today, and on the likely effectiveness of those policies.
A few weeks ago in the Chamber we debated the Government’s response to the banking crisis and, in particular, one of the delusions that they wanted to maintain in their response. They wanted the public not to recognise the size of the problem early on. Look at the delays that they undertook in responding to Northern Rock and to all the other problems that they had to face. Why did they do that? Because to recognise those problems was to shoulder the burden of responsibility for them.
So the Government took a route that was probably most like the route taken in the 1990s by the Japanese Government who faced a similar sort of problem and colluded with their banks to cover up the size of the problem. Contrast that with what the Swedish Government did, also in the 1990s. The Swedish Government forced into the public domain the size of the problem, forced the banks to recognise the liabilities that they faced, forced the shareholders of the banks to face those liabilities, and then stepped in, cleaned up the mess, sorted out the banking system, and underwrote the depositors. Within three years they had their economy back on track. By contrast, Japan 20 years later still does not have its economy back on track.
I am afraid we are on a Japanese trajectory rather than on a Swedish one. Government action has not been seen to resolve the problem of the banking crisis. That has, as I shall explain, some pretty sizeable implications for their policies today. The IMF stated in its report yesterday:
“Systemic risks remain high and the adverse feedback loop between the financial system and the real economy has yet to be arrested”.
That is the problem that the Government face. It is time for them to get a grip on that banking problem, make the banks face the losses, end the tripartite system and replace it with a Bank of England control system.
My right hon. Friend the Member for Penrith and The Border (David Maclean), who spoke briefly, made it clear that there has been a major regulatory failure. In responding to his comments about the behaviour of the banks, I would say that we have seen a distinction between large quantity of regulation and a high quality of regulation. The failure has been a quality failure in regulation. We used to have a very good Governor of the Bank of England control system that was subtle and able to respond to delicate signals and unforeseen problems when they came up.
That is the nature of the problem. The most obvious short-run effect is the problem that my right hon. Friend raised—that banks have been in receipt of vast quantities of public money, which has been used to improve their balance sheets and not to improve the prospects of their customers—a point that the hon. Member for Brent, North characterised perfectly when he highlighted the contrasting aims and purposes put upon that money given to them.
That is one consequence, but there is another. There is a confidence effect. The way the Government have approached the banking crisis leaves a massive gap in commercial confidence, which in turn has an impact on the Government’s own neo-Keynesian strategy. The House will not be surprised to know that I am not entirely comfortably with neo-Keynesian strategies. I think they are over-rated and pose a major series of problems, but let us for a moment accept the Keynesian analysis. Let us accept what it sets out to do, and see what the banking crisis has done to it.
When Keynes first characterised his policy as a policy of effective demand management, it rested on the idea of the Keynesian multiplier. He was not the first person to talk about it, but he was the first person to popularise the idea. He and a man called Professor Hicks characterised it and demonstrated how it worked. It is very simple. If I spend £1 with you, buying something from you, you will spend a portion of that £1 with somebody else, who will spend a portion of that money with somebody else, and so on, so £1 spent has a ripple throughout the economy. Hicks demonstrated that the algebra was pretty simple. If you spend 90p of the £1 that I spent with you and that works down, every £1 that I spend has a £10 effect in the economy. If you spend 80p of the £1 on average, every £1 that I spend has a £5 effect in the economy. If you spend half, every £1 that I spend has a £2 effect. That is what the algebra demonstrates.
What happens if one destroys confidence in the economy? If one makes people feel that commercial activity is dangerous, which it was not last year, one destroys the multiplier. We understand from the Chancellor today that the Government have injected some £20 billion, but I guess it must now be £22 billion given the further £2 billion spent, into the economy trying to reflate demand. That is about 1.5 per cent. of GDP, but with no multiplier effect, it is completely irrelevant. The economic demand management policy has been crippled by the Government’s failure to solve the banking crisis, but the issue of confidence and its effect on the multiplier was why Keynes rested so much on that policy. The point is that even if Keynesian policy had had a chance, the Government have destroyed it.
There are other reasons for concerns with neo-Keynesian policies, however, and the primary reason is that spending all that money has a series of effects on the long-term competitiveness of the economy. The most obvious has been discussed today: the long-term impact on tax and borrowing in the United Kingdom—and £600 billion is a spectacular burden on our future competitive ability. Before I address that issue, however, I shall deal with one that the Treasury Committee Chairman, the right hon. Member for West Dunbartonshire (John McFall), raised earlier.
The right hon. Gentleman attempted to argue—I think he was repeating Sam Brittan—that there was no limit to the amount that the Government could borrow and no issue about raising the money. He said that such money has been borrowed before—in the second world war. Well, what a devil of a comparison to make—that we borrowed that amount of money during the second world war. He missed the point, however, which was made by the right hon. Member for Birkenhead (Mr. Field), when he simply said that many people wanted us to win that war and, as a result, were willing to lend us a lot of money so that we could continue spending money to win it. We have had high borrowings at other times in our history, but, at those times, sterling was a reserve currency and it is not now. There are other reasons why we cannot compare our current situation to our history.
Today, we have a real problem: we might well be on a cliff edge in respect of our ability to raise money before we reach the £600 billion limit. One way in which that cliff edge will come nearer is if there is a further decline in our currency, because that would attack the source of much of our borrowing, which comes from abroad. A combination of poor credit worthiness on the part of the Government, an inability to raise taxes to pay the returns and a decline in the currency could have a serious impact on our continued ability to raise money.
That brings us to the issue of overall public expenditure levels, because what do the Government do when they cannot raise money? Then, they do not choose to cut; they have to cut. I am aware of only one point in modern times—peacetime, anyway—when any Government of any persuasion or party cut public expenditure: it was under the Labour party and Denis Healey, because they had to. The International Monetary Fund told him that he had to. No Government willingly cut public expenditure, but it is entirely possible that the strategy that we are in the middle of will lead a future Government, of whatever party, to have no choice but to cut public expenditure, because they will not be able to raise money either by taxes or by borrowing. That is the potential horror story at the end of this situation. I began by talking about how economic historians will see this Budget, and that is the worst scenario—the tragic, potential outcome.
Although I am not a Keynesian, I am not innately against public expenditure in a downturn. If one goes to America, one will see that much of its infrastructure, from roads to dams, was built cheaply in the 1930s and created an underpinning for that great country’s economic success thereafter. If one is going to spend money, a downturn is a good time to do so, whether one is a private or a public citizen. However, we must be very careful about how we spend it, and we must understand what we can and cannot do, and what Governments are good and bad at. Let us be plain: Governments, as we all know, are bad at picking winners; it is not what they do. Throughout history, all Governments who have tried it have failed. At one point in the Chancellor’s peroration, I heard him proudly lay out the fact that he was going to invest £750 million in high-tech industry. All I can say is that I will make sure that I do not invest where he puts that money; it is a fair bet that those industries will not succeed.
The Government should pump-prime and encourage investment, if not provide the whole investment, in areas in which large—often monopoly—industries underpin other industries. I say to Treasury Benchers that I rather support their idea of improving the status of our broadband structure; actually, what they plan at the moment is rather unambitious. Just as the roads and railways were an underpinning during the industrial revolution, broadband improvement will be an underpinning for industry in future.
One worry for those of us who represent rural areas is that it seems that the Minister is already conceding that that broadband development will not reach the highlands and islands and other rural areas of the country. Those areas, of course, would take maximum benefit from such development, because it would get around the need to commute and bring the economy to those areas.
That is a good point. I do not want to go off on a big excursion on the issue, but I shall say this to the hon. Gentleman. The Government have been unimaginative on broadband development. The BBC is spending £5 billion on digitising the broadcast network—another issue that affects rural areas. If that money went into providing an optical-fibre link to all the rural areas, we would not need to digitise the broadcast network because there would effectively be a physical broadcast network.
A lot of things need to be done. The hon. Gentleman is absolutely right: rural areas would benefit most from what an optical-fibre network could provide. It would save money, encourage high levels of localised industry and cut back on the unnecessary use of cars and other vehicles.
There are benefits, but we have to be incredibly careful. The truth is that four of five Government investments will fail. We are also up against another delusion. In the past decade or so, the new Labour Government have insisted on calling every item of public expenditure an “investment”. They are not all investments—there are some items of expenditure and some of investment. It is perfectly proper for there to be welfare expenditure, for example, to save people from misery; that is part of the purpose of the Government. However, to call it investment is to confuse things.
The important thing to understand in a downturn is that the marginal extra money should be investment. We should be building for the future. If the money is not being spent on investment, we should think twice about spending it, bearing in mind that in any event the largest changes in the public expenditure accounts are in respect of the so-called automatic stabilisers—namely, the cut in taxes raised and the increase in welfare paid.
Surely expenditure on pensions and benefits can be an investment in the classic sense of the word. It provides a decent level of income that enables people to be properly fed and housed and to engage in social activity. The payback from that investment will be that those people will live longer lives. So there is a payback from such expenditure, which can properly be classified as investment.
The hon. Gentleman demonstrates only too clearly why I think that he and his Government are wrong. I approve of expenditure for such purposes, but we do not have to call it an “investment” for it to be something of which one approves. He was discussing proper, social expenditure; I talk to him as a social Tory, if he likes. We could go back to Lord Shaftesbury. He called such spending not “investment”, but “social expenditure”. It is social welfare, and it is what a civilised society should have. However, we should not kid ourselves that it gives an economic return. It does not—it improves our civilisation and the nature of our country, and it enables us to live with ourselves, but it is not an economic investment. That is my point.
One issue of competitiveness—I am sure that Labour Members will entirely disagree with me on this—has worried me for some time. Incidentally, it also worried Keynes. If one goes back and reads Keynes, there are some interesting parts where he discusses reparations after the first world war. He was critical of the reparations that we imposed on Germany for a number of reasons. Some of those were moral and ethical, but he also said, to paraphrase, “If we put this burden on Germany, Germany will grow strong in having to pay this burden; we will grow soft in living off this burden.” He was talking about the work ethic in our respective societies. In the famous Keynesian example of the state paying a worker to dig a hole and then paying another worker to fill it back in, he was talking about not only effective demand but the need to maintain the work ethic in British society to ensure that when idleness is forced on people, that does not enter into their soul and institutionalise the unemployment that arises from major recessions.
I worry about the work ethic in British society. When I looked up the numbers in this morning’s publication, I found that there are currently 7,851,000 economically inactive citizens in the United Kingdom. That figure is not quite as shocking as it sounds, because about 2 million are students, a couple of million are people raising families, and so on. What is interesting is that over the course of the past decade the number of people who have determined that they do not want to work has gone up— these are round figures; it has bounced around a bit—by between 500,000 and 600,000. Half a million people in our adult working-age population have decided that they do not want to work. We often see anecdotal evidence of people refusing work. A lot of the arguments about immigration have focused on the fact that people who come into this country are doing jobs that British citizens will not do.
That is worrying in terms of the nature of our society, which we were debating earlier, and our long-term competitiveness. We have to think very hard about the whole welfare structure of our society. I am pleased that the Financial Secretary is on the Front Bench, because I know that he takes an interest in this. I have been backwards and forwards on this argument, but I am beginning to think again that we have to reconsider workfare. If the forecast is wrong and we end up having a long recession, we must ensure, first and foremost, that that does not visit habits of idleness on our population. I am happy to hear the Chancellor speak about action to help the young, but it is not just about the young: we are talking about a much bigger sector of the population, particularly in some of the old industrial areas near where I live and where I come from. We do not want to allow such habits to take hold in those areas. The economic historians will answer these questions on the basis of whether we come out of recession, which is all about growth.
On taxation, everybody in this House knows that I am a low-tax Tory and that I would like to see lower taxes. I am not going to pick a fight with the Government over having a 50 per cent. top rate for those earning £150,000 a year or more—frankly, in terms of the argument, I do not care too much one way or the other. However, the independent Institute for Fiscal Studies has said in terms that a 45 per cent. rate would not deliver any more money—not a penny—to the Exchequer. Therefore, if that is the purpose, it will fail. What is more, it carries the risk—we do not yet know how big it is, because it depends on what other countries do—that people of talent will not come here. It is fashionable now to decry Ireland, but for 25 or 30 years Ireland has had a fantastic success story. One of the key parts of that was ensuring that talented people came to Ireland and had good tax arrangements in doing so. I suspect that if the Scottish Parliament had control of its own destiny, it would do the same. That is why I am in favour of tax competition. There is a real risk that in doing something that is designed simply as a trap for the Tories, which is what it is, the Government may harm our long-term economic prospects.
My right hon. Friend the Member for Penrith and The Border mentioned regulation, and he is absolutely right that that is the real impediment to employment growth in our economy. The reason why I specify employment growth rather than GDP is that the big generators of employment are small businesses, and those are the ones that suffer as the result of regulation. Big businesses have no trouble. I used to be a director of Tate & Lyle, and we had departments designed to deal with employment regulation and to maximise the amount of money that we got out of the Government in grants here, there and everywhere. We had departments and specialists for all those things, and the regulation was no impediment to us. In fact, it was an advantage because it got other people out of the business. Others did not have those departments, so it was a competitive advantage to us. That is exactly what regulation should not do, but it is what it does.
I shall give an example. We will all have seen vans going around near here with “Pimlico Plumbers” on the side.
The right hon. Gentleman, who made a good point earlier and missed my compliment to him, says that he uses them. The man who runs Pimlico Plumbers is exactly my age. He went to school and got nowhere. He was useless at school—I hope that he will not mind my saying that—and left and became a plumber. I should not be giving him an advert, but he was a skilled, good plumber and turned that into a business in which he guaranteed the quality, speed and so on of the plumbing, which is a wonderful thing in its own right. He turned it into a pretty sizeable, effective and successful business. I remember him telling his story in one of the newspapers. He was asked whether he would do it today, and he said no, because he did not like reading and writing, he did not like filling in forms and all that. The very thing that in some ways distinguishes the skilled working class in Britain from the rest of us is that they do not like the literary aspect of small business, although “literary” is hardly the word. They do not like filling in all the forms. I am afraid that that is a major impediment to the growth of small business.
There is a deal to be struck with the European Union. A number of other countries in the EU, of which Denmark is one, have arrangements that protect small companies and give them exemptions or limit the size of the issues that they face on some aspects of employment law, health and safety law and so on. There is a deal to be struck across the whole EU, all of which faces this problem. Every company with fewer than 50 people could have certain levels of reduced regulation, or perhaps every company with fewer than 10, so that small businesses can start up. If we really want a solution to the problem of growth in the new era, that will be one big step.
It is interesting that even France, which, by goodness, has regulations every day of the week that we have not even dreamed of inventing yet, has started to do exactly what my right hon. Friend is talking about for people who want to enter employment and to set up their own companies. It has got rid of a raft of regulations. We will see how effective that is, but it has taken a lead that we should do even more to follow in this country.
My hon. Friend makes my point perfectly. This is an issue not only for us but for every other country in Europe, and every other political class in Europe now understands that. They all have the local equivalent of the Federation of Small Businesses writing them letters, sending them e-mails—probably burning tractors in France, I do not know. They are all coming under the same pressure.
There is also something to consider in the nature of the business that small businesses go in for. They tend not to be in the great international areas of business that have to compete with China and India. They tend to be localised and service-oriented, so they create the sort of business that is viable in the long term in our western economies. There is a serious deal to be struck among all the EU countries. For me to talk about doing deals in the EU is interesting in its own right, but that is something that we could usefully do.
I want to make a rather more esoteric point. The western capitalist market system has been allowed to slip, often by people who do not understand it well. The financial markets in the past few years have resembled a Marxist parody of a free market. They have had huge burdens of silly check-box regulations, but no serious, sensible regulations. Silly decisions have been made, such as the abolition of Glass-Steagall under the Clinton Administration. I cannot make up my mind about whether they did not understand it or whether they were simply bought out by the lobbyists, because $200 million passed into the electoral system from Wall street in those years. The system has come under much pressure, and failed for the reasons that I have discussed, including self-delusion.
The massive flow of money from east to west accelerated the failure. India and China saved large quantities of money—much more than they spent—exported the money to us and we spent it. I believe that a Governor of the Bank of England, doing what the FSA was supposed to do, would have spotted, for example, building societies and banks giving 125 per cent. mortgages. A mortgage is part of an investment process, up to spending 100 per cent. of the value of the investment. However, a mortgage of 125 per cent. is a way of transmitting capital into consumption. Somebody who exercised a little common sense would have realised that. He would not have needed a rule, regulation or something laid down by Parliament—he would have seen it coming.
We must consider two things. First, we should try to ensure that the structure of our banking and financial systems is such that the important bits can be tackled with some simplicity, not complex check-box regulations. That is one component, and why Glass-Steagall is worth revisiting.
The second component relates to the aggregate macro-economic strategy. We must think hard about striking an east-west deal so that the money that has been flowing in a tide from east to west is recycled and goes back, too. The breakdown could happen again in another decade. We should bear it in mind that, in the century before last, such breakdowns happened approximately once every 10 years in America. It could happen again in another decade because the same pressures apply. At the moment, the Chinese are in a mood to talk because their economy is suffering quite seriously.
I am listening to the right hon. Gentleman’s speech with great interest. He mentioned Glass-Steagall. Will he reflect on the impact of the collapse of Lehman Brothers, which was not a deposit taker on the Glass-Steagall model? It would not necessarily have been protected, yet its failure has had catastrophic implications around the world. I wonder whether the distinction is perhaps harder to make today than it was in 1933.
I take the point. Glass-Steagall is not a solution by itself, but it simplifies one critical element of the system. It is critical no matter how big the banks are. I did a Harvard advanced management programme and, one day, our senior finance professor said something that shocked the entire class—that tax complexity was in our interest. We all asked what he was talking about. He replied that, every year, Wall street employs 300 people with master of business administration degrees from the top business schools—Wharton, Harvard, Stanford and so on—while the Internal Revenue Service employs one middle-ranking MBA from Penn Central. He asked whom we thought out of that group would win the arms race. He was talking about tax, but the same argument applies to regulation. We will always lose the battle over complex regulation, so one of the strategies that the Government should consider is simplifying regulation in those sectors that it is vital to control, whatever the size of the individual companies in it. After all, as somebody said earlier, 12,000 banks went down in America in the ’30s.
The other sector, however, has historically best been dealt with in America by anti-trust law—it is the “too big to fail, too big to bail” problem. There is a need for at least another international discussion, if not an agreement, about how big we let some of those financial institutions get. There is an argument for an anti-trust approach. The original anti-trust laws in America were a mixture of political and economic decisions to do with minimising the risk of having too big an individual player in the corporate sector, after the great robber barons who built the American railways and so on. If we understand our history properly, we have to think about what size of corporation we allow to have certain key plays within the system.
The other problem that we have here is one of transparency. The point about Lehmans is that I do not think that the American Government understood the linkages to Lehmans, through the credit default swap and collateralised debt obligation structures, and so on. My throwaway line earlier about instruments that were supposed to reduce risk ending up concealing it is quite relevant in this context, because that is what happened. There were individual risk reductions that did not apply to the whole system. I apologise to the House for going into terrible complexity in answering the Minister’s point, but that seems to me to be one component of dealing with the overall system. Another component is ensuring that the risk transmission mechanisms are transparent and also that no organisation is too big to bail.
I will draw my remarks to a conclusion on that point. Even given my political interests, I hope that the Budget is a success, because there are too many millions of people out there whose lives depend on it. I am pessimistic, because it seems that we are not addressing the fundamentals at the core of our problem. I say “we” because the political class in total has deluded itself about the vitality of the City and so on. We have allowed the problem to happen. It is the Government’s responsibility: it happened on their watch and they have to sort it. However, because of those collective delusions, they have not addressed the right issue. It is a sad day for Britain and I am afraid that the Government will fail.
There is no doubt that this year’s Budget has proved to be the most difficult Budget for this Government since we came to power, primarily because of the global economic crisis that this country finds itself in, along with a lot of other westernised developed countries.
I for one welcome a lot of the measures in this year’s Budget. Indeed, I would like to emphasise one or two of them that I particularly support. They include the extension of the stamp duty holiday on properties sold for less than £175,000 until the end of the year. In contrast to what was said by the hon. Member for St. Albans (Anne Main), who is no longer in her place, that will affect the vast majority of property sales in my constituency and will have a good knock-on effect on future property sales. Likewise, I certainly support the increase of the higher rate of income tax to 50 per cent. for people with salaries of more than £150,000, which comes in next year. I also support the increase in funding for the digital industries, which have the potential to create many jobs, both directly and indirectly, particularly, I hope, in South Yorkshire.
Let me look at the social side of some of the policies contained in the Budget. I also welcome the increase in statutory redundancy pay from £350 a week to £385 a week, and the retention of the increase of the winter fuel allowance, which is worth £250 for pensioners over 60 and £400 for pensioners over 80, for another year.
That leads me to the first omission of something that I would have liked to have been included in this year’s Budget—something that I have been pushing for with both the Department for Work and Pensions and the Treasury—which is the abolition of the so-called 25p age addition for pensioners over 80. It is nonsense that pensioners get an increase to their state pension of 25p, which has remained at the same level since 1971, when the Heath Government introduced it. In 1971, someone could buy a dozen eggs or a pound of cheddar cheese with 25p; now they could not even buy a second-class stamp.
The Government have introduced some good initiatives for older pensioners, such as the winter fuel allowance. I would like the 25p age addition scrapped, and £25 or £50 to be put on the winter fuel allowance. This is primarily because a third of all pensioners over the age of 80 in this country now pay income tax, so they are effectively paying income tax on that 25p increase. If the increase were added to their winter fuel allowance, however, it would be a capital allowance and they would receive the full benefit of the increase. The net cost to the Treasury of making that change would be £15 million a year, which is peanuts. It costs £35 million to pay the 25p a week. To add £25 a year to the winter fuel allowance for people over 80 would cost £50 million, and that would be £50 million well spent. It would be well received by the pensioners of this country.
The next issue that I want to focus on was brought to my attention by a constituent of mine just before Christmas. It concerns the level of taxation on statutory redundancy payments. I should like to quote from the e-mail that I received from my constituent, Mr. Nicholas McIvor from Great Houghton, because it hits a number of buttons that have been touched on earlier in the debate. The e-mail is dated 12 November, and it states:
“Dear Jeff…I am writing to you as a ‘soon to be’ unemployed civil servant. I work at the Pension Centre in the Dearne Valley which will close just before Christmas. I will be receiving a Statutory Redundancy Payment but anything above £30,000 is liable to income tax at the highest rate. I understand this tax limit was raised from £5,000 to £10,000 in 1978, to £25,000 in 1981 and to £30,000 in 1988, but it has remained at that level for the past twenty years. I am hoping to use my payment to set up in business and if the Government is looking to stimulate the economy, would it not be better if the £30,000 limit was raised as it seems to be well overdue?”
The reason I say that that hits a number of buttons is that the right hon. Member for Wokingham (Mr. Redwood)—who, unfortunately, is no longer in his place—said that the private sector was bearing the brunt of the redundancies and job losses. That is not the case, and the sooner Conservative Members can get away from the notion of “private sector, good; public sector, bad”, the more it will be to their benefit. As far as I am concerned, the people who work in the private sector, the public sector and the third sector—the charitable sector—are all serving UK plc to the best of their ability. That is what we should be more concerned about. We need to continue to invest in jobs in the public sector in order to maintain that sector, because a lot of the small and medium-sized enterprises that are struggling to survive are dependent on their contracts with local councils, with the NHS and with quangos to sustain them. This idea of “private sector, good; public sector, bad” is a false notion that we need to get away from.
Incidentally, there is a good news story attached to that e-mail, because within weeks of being made redundant, that gentleman found alternative employment. That proves the success of what the Government are doing through Jobcentre Plus, through the regional Government offices—we have a very good chief officer in the Government office for Yorkshire and the Humber, Felicity Everiss—and through the regional development agency, Yorkshire Forward, whose chief executive is Tom Riordan. They are doing a fantastic job of finding alternative employment or job opportunities for people who are being made redundant, particularly in industries such as the financial sector in West Yorkshire.
I am listening to my hon. Friend with a great deal of interest. Earlier, he mentioned the announcements about Digital Britain. I wonder whether, in the context of Yorkshire Forward, he has noticed the reference on page 81 of the Red Book to the Government’s approval for the £100 million “Digital Region” project led by Yorkshire Forward.
I thank the Minister for referring to that project. I specifically wanted to draw attention to it, because it will create a lot of jobs in potential unemployment black spots, including the former mining industry areas in South Yorkshire.
I would have liked the Budget to deal with another issue—cold weather payments—drawn to my attention by a local constituent, Mr. Stuart Warrior of Thurnscoe. The issue particularly affects former miners in my area who no longer have concessionary fuel and have only a small pit pension to supplement their state pension. They argue that while current cold weather payments are applicable only to pensioners in receipt of tax credits, former miners with a small work pension get cold just as quickly as the others do, so I believe that we should have given further consideration to that matter.
I have major problems with one proposal in the Budget—the 2p increase in alcohol duty—which I would like to draw to Ministers’ attention. It is not because I am a drunkard or anything like that, but we all get correspondence from constituents involved in the “Axe the Beer Tax” campaign, pointing out that many pubs and clubs are closing down because of losses resulting from the competition from supermarket chains selling drink. I am very concerned about that, and in my constituency I am just as concerned about clubs closing as I am about pubs closing. In my home village of Grimethorpe, for example, we have lost the miners welfare club; it provided extensive sports fields and other sports provision for the local community, but it closed just before Christmas.
Changing social patterns are also relevant, with people entertaining a lot more at home. I fully support consumer choice in that respect, but I think pubs and clubs provide a great deal of social cohesion, particularly in working-class communities. I would have supported an increase in alcohol taxation for supermarkets, if only we could have differentiated between those and licensed premises, and kept the tax off the licensed premises. I understand that this is a complicated issue, but I believe that in the circumstances, it would have been better to leave the 2p increase for another time.
I shall shortly draw my remarks to a close. Some Members have elaborated on their contributions, but I want to ensure that every Member who wants to speak in the debate can do so. I would, however, like to reiterate my main point, which some Conservative Members seem to ignore—that the Government’s current problems are not of their own making. They have been made by the global crisis created primarily by the sub-prime lending market in America, which has gradually snowballed and spread throughout the world. It has been recognised on all sides that there has been irresponsible lending by the banking sector. We must regulate not just in our own country but across the globe, so that confidence and trust in the banking sector can be rebuilt.
I recently spoke to a senior executive banking official in Yorkshire about how the banks could rebuild trust and confidence among their customers. In a sense, that is what the current crisis is all about: the banking customer has lost trust and confidence in the banking sector. I certainly agree with the right hon. Member for Penrith and The Border (David Maclean), who is no longer in his place, that some banks are actually milking their consumer and customer base, attempting to get more fees out of it than can fairly be tolerated, given current banking rates. I believe that it will take the banks a long time to rebuild customer trust. The successful banks of the future will be those that manage to achieve that in the shortest time. The banks are presently competing to try to regain trust from their customer base so that they can be successful again.
I congratulate the Chancellor on producing this Budget at this very difficult time. I hope it will succeed, because it is so important not just to this country, but to the rest of the world.
The one thing the Budget statement demonstrates is that the Government intend to take absolutely no responsibility for any of the mess we are in. If we heard a variation of it once, we heard it a hundred times: this is a global problem. It is a pity that the Chancellor could not say those four special words, “It started in America.” Perhaps the Government do not say that any more.
However, the Government’s prescription to cure the problem is interesting: more money for the jobcentre network to help get people who have lost their jobs back into the jobs that still exist is welcome, but they were forecasting the recovery based on quite extraordinary—almost unbelievable—growth figures in a few years’ time. The same applies to the actions that they are proposing for the businesses that will create the jobs we need and craft the recovery from the recession.
I suspect that the extension of tax relief for investments will be welcome, although the reaffirmation of a fuel duty escalator will not be welcome at all. I would have thought that with the barrel price sitting pretty stable at about $50 and the litre price at the pump sitting stable at about 95p, this was the time—the stable time—to put in the fuel duty regulator to deal with the spike when it happens next year, the year after that or the year after that. Instead, there seems to be simply another attempt to bring in more cash.
In the middle of it all, however, are the proposals for £15 billion of cuts. I think the Chancellor described that as fiscal tightening. Others have described it as efficiency. It is most certainly cuts, and we have had it confirmed today that next year alone, that means a £500 million cut in the Scottish budget. I want to make it clear that that means the loss of 9,000 jobs, as a consequence of the £500 million lost to the Scottish budget next year.
The Government are missing an opportunity. This is the time to cut other things—spending on ID cards, as many have said, and spending on Trident. That idea is gathering pace. Last night Tony Dolphin, from the Institute for Public Policy Research, said that
“you have to identify your priorities”,
and once that has been done,
“look very hard at projects like the Trident programme, like ID cards and some big projects are going to have to be cancelled because unless you do that you just won’t be able to make enough savings.”
That is absolutely right.
If we are serious about making savings but protecting the investment so that we can get a recovery from the recession, let us look at the ID card system and the Trident programme as projects to be cut.
The hon. Gentleman is always extremely interesting to listen to on financial matters. I, too, have been a strong opponent of ID cards and Trident—but does he acknowledge that cutting investment in those projects would also reduce the number of jobs available in the Scottish economy and elsewhere? Specifically, the increases in expenditure, which he is criticising in relation to the Chancellor’s statement, will have a knock-on effect through the Barnett formula, which he adores and I detest.
I know that the hon. Gentleman always listens intently when I speak in the House; it worries me. I say to him that the Barnett formula cuts both ways, and the Treasury has confirmed that the departmental expenditure limit will be reduced for 2010-11, so it is a bad time to be cutting investment in the recovery when there are alternative cuts that could be made.
The Budget also tells us how out of touch the Government were. They were frantically running around pretending that they were not complacent last year, when they said that we would come out of recession only a few weeks from now. Yet the Chancellor managed to say that he believed the economy would begin to recover this year. Given that the OECD and Ernst and Young are still forecasting negative growth for 2010, it seems almost unbelievable that the Government can forecast that we will come out of recession in 2009. I fear that when the pre-Budget report is delivered at the end of the year, the Government will give us another three or four-month target, and that may not be met either.
The full implications of the recession are clear—not least the fact that, at 2 million, unemployment is already hitting the target forecast for the end of 2009. The Government appear to have been dragged here kicking and screaming to come clean about the true size of the national debt, which they have left as a mortgage debt for our children. It is £1.6 trillion-ish. I am not sure whether that includes everything, but it is bound to include an awful lot. I am not sure what the figure per household is in the United Kingdom: £70,000, perhaps. There are people in the real world who cannot afford a mortgage for their houses, but they may well be left to pay for one in the form of their share of the debt that the Government have built up.
We shall have to do the sums later. I am trying to do the mental arithmetic: £1.6 trillion divided by 26 million households. May I ask the hon. Gentleman to intervene again in a few minutes once he has worked it out? That would be great.
The £1.6 trillion figure makes the time before the recession, when there was a national debt of nearly half a trillion, seem almost like a golden age of prudence. The problem is, however, that it was not. It was a housing boom built on a credit bubble. There was too much money in the system early in the cycle, and too much debt at the end of it.
We are responding today to a Budget statement from a Government who saw a million manufacturing jobs lost on their watch before the recession started, and 30,000 factory jobs lost every month since then. That makes it worse that the £500 million that they are trying to cut from the Scottish budget may undermine the vital efforts to save jobs and stimulate the economy in Scotland. Although unemployment there is lower than it is in the United Kingdom, and although employment is higher and economic inactivity rates lower, there has been a rise in unemployment as part of the rise to 2.1 million in the United Kingdom. There was a record rise of 138,000 in February, and 177,000 people became unemployed in the last quarter. That means that 2,000 people a day became unemployed under Labour in the last three months.
Those are frightening figures. We must not allow anything to happen that would undermine the ability to invest in a recovery, and in particular, to create jobs. However, it is difficult to see how many of the proposals in the Budget would do anything to create the million or so jobs that we need. Even today’s measures to create green jobs, which I welcome, I am treating with some caution, particularly the announcement about carbon capture and storage, and some of the other green measures.
As the Minister will know, we have heard much of this before. In the 2005 Red Book, the then Chancellor, now the Prime Minister, said that the Government must examine
“how it might support the development of CCS in The Climate Change Programme Review”.
In his pre-Budget speech in the same year, he said:
“Carbon capture and storage protect the environment from carbon emissions by containing them at source”.—[Official Report, 5 December 2005; Vol. 440, c. 612.]
In the 2006 Budget, he said:
“Following a joint study with the Norwegian Government, we have found that carbon capture and storage in the North sea can reduce emissions…by 80 per cent.”—[Official Report, 22 March 2006; Vol. 444, c. 294.]
In the 2006 pre-Budget report, he repeated and paraphrased that statement. In 2007, he said:
“The Secretary of State for Trade and Industry is announcing today that Britain will launch a competition to go ahead with our first full-scale carbon capture and storage demonstration.”—[Official Report, 21 March 2007; Vol. 458, c. 821.]
On 27 February 2007, the then Minister for Science and Innovation said:
“The pre-Budget report committed to making a decision this year, and I am advised that it is not incompatible with the Miller field decommissioning time scale.”—[Official Report, 27 February 2007; Vol. 457, c. 246WH.]
On the same day, the Secretary of State for Scotland said in the Chamber that the Government would make a decision “within months”. On 23 May, following the Government’s inability to make a decision, BP pulled out of the £500 million project at Peterhead, and the investment went to Abu Dhabi.
As Ministers will appreciate, we will look closely at the small print of the CCS proposals. Perhaps we will be told at some point how much money will be available, what the time scale will be, how the arrangements will work, whether there will be a consultation, and if so, when it will be launched. My colleagues would be delighted to hear the details.
It is difficult to see how the Budget will do anything to remedy the fact that according to the CBI’s assessment, not only is cumulative output forecast to fall by 4.5 per cent., but manufacturing output is forecast to fall by 10 per cent. and investment to fall by 9 per cent. Given those figures, how on earth do the Government expect us to believe that we will be in recovery by the end of 2009?
I said at the outset that the Government were out of touch, and I think today’s statement confirmed that. Last November they said the national debt would rise to £1.2 trillion; today they confirmed that the figure was £1.6 trillion. They said that the economy would be £78 billion in the red this year; we were told today that that sum is now £90 billion. We were told that the Government would have to borrow £300 billion over the next three years; we learn today that they were out by £138 billion. Governments used to be accused of being at sixes and sevens; I think this one are at billions and trillions, because that is how far out they are in their forecasts.
The Government’s other dirty little secret is the private finance initiative. We assessed last year that the taxpayer’s PFI liability had increased by £30 billion merely in the six months between the Budget and the pre-Budget statement. Today’s Budget shows that up to 2033 the taxpayer liability remains over £200 billion, at £204 billion, much of it off balance sheet.
It is true that reduced demand has driven down the price of oil, but according to today’s figures, the North sea will still generate £45 billion in revenue for the Treasury over the next six years, compared with £41 billion in the six years between 2002-03 and 2007-08. However, given that the Budget forecast is based on a price of $46.7 a barrel, whereas Merrill Lynch has forecast $62 a barrel for 2010, and delivery prices for 2015 are already sitting at $80 a barrel, the real price and revenue yield is likely to be far higher. Those future prices confirm that the Treasury will continue to take a great deal of money from the North sea, but they also indicate underlying inflationary pressures, which risk worsening an already appalling trade deficit as the costs of essential imports rise. Even with a 15 per cent. fall for the pound against the euro since last summer and a 25 per cent. fall against the dollar, today’s Budget forecasts, and the forecasts published in the last week or so, show a staggering £44 billion balance of trade deficit and an extraordinary £93 billion deficit in the trade in goods—all the more reason to have a proper manufacturing strategy as soon as possible.
Today the Chancellor commented on many of the Government schemes designed to kick-start the economy. Many are not yet up and running; some, such as the enterprise finance guarantee scheme, have been the subject of complaints around the country; others, such as the VAT cut, have saved less than half the number of jobs that direct capital investment could have saved. However, having put those schemes in place, and having lauded President Obama for his stimulus package, we now find that the Government are intent on doing the opposite of what they were trying to persuade the rest of the world to do, by making a £15 billion cut next year, including a £500 million cut in Scotland.
At a time when the state of Maryland, whose population is a similar size to that of Scotland, will receive £2 billion extra to spend, mainly in 2010, in fiscal stimulus, this Government are planning to cut investment, which is the wrong thing to do in the teeth of a recession. Indeed, the £15 billion cut will take more out of the economy than the VAT stimulus put into it. Therefore, the Chancellor is risking delaying the start of the recovery and making that recovery more painful than it might be. I do not want anyone to misunderstand me: I think that belt tightening is essential. The year-on-year efficiency savings of the Scottish Government represent the right approach. We must squeeze every ounce of value out of every public pound spent, but in the teeth of a recession, with unemployment rising and output and productive capacity down, we cannot risk undermining efforts to restart the economy anywhere in the UK.
I do not expect the Government to listen to me or take my word for it, but they should listen to the Scottish Trades Union Congress. Its general secretary, Grahame Smith, has said:
“Cuts in funding for vital public services would be a disaster which Scotland’s communities will feel for many years to come”,
and he is absolutely right. The Government have failed to take any responsibility for the economic mess, and bits of this Budget might compound that error, make recovery more difficult, stifle business growth and hit hardest the communities who most need help.
When the Leader of the House says that we cannot cut our way out of a recession, I suspect that at least some people on the Labour Benches might want to listen. When Rhodri Morgan says that the archangel Gabriel could not find such proposed cuts without damaging public services, more people on the Labour Benches should listen. It is not too late to protect jobs and the economy, but I am sure that if the Government are not prepared to take the right steps to continue reflationary tactics and the recovery stimulus now, the electorate will speak volubly in the June elections, and in the next general election, about how the recession should be fought and about how recovery should be progressed.
Given the perilous state of the world economy in which the Budget has had to be presented, I wondered whether the Chancellor would open his Budget statement with reference to words used by someone else. I could have pictured him opening with the following remark:
“I would say to the House, as I said to those who have joined this Government: ‘I have nothing to offer but blood, toil, tears and sweat.’”
I would not have begrudged him if he had gone on to include the following words:
“We have before us an ordeal of the most grievous kind. We have before us many, many long months of struggle and of suffering.”—[Official Report, 13 May 1940; Vol. 360, c. 1502.]
However, this was not a Churchillian Budget and it did not contain a national mobilisation to deal with the severity of the threat that we face. That threat is not only the current credit crunch and global economic collapse. As my hon. Friend the Member for Brent, North (Barry Gardiner) pointed out, it is the sense that as we get through this stage of the crisis we will encounter a series of crises waiting for us in the pipeline. Those will primarily be ecological and resource crises; we will find ourselves facing peak oil, peak phosphates and peak water. Those ecological crises, which involve the limits that nature sets on the way in which we construct our view of economics and society, will profoundly change the whole way in which we have to think about the role of government, governance and economics in the 21st century.
The right hon. Member for Haltemprice and Howden (David Davis) rightly said that we have been living through an era of delusionary economics. My only disagreement with him comes from the fact that one cannot confine that era to the past 10 years, because it is a 20 to 30-year period in which the politics and the economics of the UK have been caught up in the age of avarice. We have presumed that everlasting growth could be based on everlasting consumption, based on the creation of limitless debt. The prophets of that sort of economics are those who brought it crashing to its knees. They were not the bulk of constituents in any of our constituencies; they were the people in the glittering towers of the global finance industry who demanded global deregulation of financial movements on a colossal scale and whose collapse is now requiring everyone else to pay for their profligacy.
My disagreement with the right hon. Gentleman came when he described today’s capitalist system as a parody of Marxist market regulation. In a sense, I would have welcomed anything in the past 20 or 30 years that was a parody of Marxism, but we have not seen any such thing. What we have seen is, in a sense, a squandering of conventional and ecological resources to the point where we face a need to mobilise the remaining resources that we have in a quite different way.
The Budget that we required today needed to be based around three components: honesty, a degree of equity, and something approaching the visionary. I give the Chancellor credit for the attempt at honesty about the circumstances in which the Budget was constructed, but in truth the Budget only tiptoed towards equity or to anything that might be construed as visionary.
One of the starting points for the equity agenda is the need to recognise—difficult as it may be for colleagues on the Labour Benches—that the tax gap between the richest and the poorest has actually widened in the 10 years or so that we have been in government. The poorest 20 per cent. of the population pay some 39 per cent. of their incomes in taxation in one form or another. The tax contribution by the richest 20 per cent. has fallen to an average of 35 per cent., and the very rich pay a considerably lower percentage. I had hoped that the Chancellor would use the Budget as an opportunity to remove dramatically some of the tax cushion constructed over the past 20 years that featherbeds the extremely rich. The opportunities were there to be bolder than he was today.
In my opinion, the Budget should have removed the ceiling on national insurance contributions, which would have given the Chancellor an extra £11 billion of retained revenues in the Exchequer. If the basic rate tax allowance had been applied to all pension savings, rather than the higher rate, the Exchequer would have an extra £6 billion. If we were to attempt to end the profligacy of self-reward in the bonus culture, share-option offers and short trading, we could have introduced a 75 per cent. tax on all such activities. That would not stop those activities, but people would be taxed for the damage done by that short-termist and speculative approach to the UK’s economy.
I read an article last week that powerfully made the case for the presumption of a minimum tax obligation. For those earning more than £100,000 a year, the presumption would be that a minimum of 35 per cent. of those earnings would be paid in tax. For those earning more than £200,000, the presumption would be that 45 per cent. tax would be paid. The collection from those shifts in taxation presumptions would give the Exchequer an extra £25 billion with which to mobilise a shift in how we spend, or invest, our way out of recession.
For the record, I should say that I would support those hon. Members who would willingly vote—on a pragmatic as well as a principled basis—to abandon the commitments to the introduction of ID cards, which would save £12 billion, and the Trident renewal programme, which would save £75 billion in lifetime costs. There are much better uses for those resources, which the nation now needs to mobilise very differently.
Does my hon. Friend agree that there is no reputable academic evidence that levels of taxation relate to incentives to contribute to the economy?
One of the things that has annoyed and confused me over the years is the nonsensical view of incentives. Whenever we talk about what is required to provide incentives to work for the poor, it is compulsion and punishment. But apparently the rich have to be courted, wooed and induced to work. We need a consistent view of what mobilises people. This may be an appropriate time to reverse the presumptions that I have described and, for experimental purposes, woo the poor but punish the rich, but I do not want to go down that path. I want to go beyond presumptions about whom to punish and reward, because the real challenge as we make our way through this recession is to find a different and visionary description of how society can work. For me, the answer is unquestionably to be found in the greening of all future Budgets.
I am pleased that the Chancellor today introduced the first of the annual carbon budgets, and that he has recognised it as a benchmark commitment that is important in global terms in the run-up to the Copenhagen summit at the end of this year. However, it is important to put the UK’s performance in the context of the performance of other countries that are not necessarily making the same strategic claim.
The most recent appraisal of the green proportion in governmental intervention measures and stimulus packages introduced around the world puts it at an average of around 15 per cent. In the UK, the proportion is just less than 7 per cent. That makes it hard to describe us as a world leader in that context. Moreover, the most recent analysis of that 7 per cent. suggests that the carbon savings in the green measures are outweighed by the carbon impact of the 520 carriage miles of new road construction that are also part of the package. Our attempts at carbon balancing must achieve carbon-negative Budgets. We cannot disregard the carbon damage caused by one part of the stimulus package that outweighs the carbon gain in another.
My hon. Friend is perhaps the most prominent ecological economist of his parliamentary generation, and he will be greatly missed. Does he agree that we should treat the proposal for a scrappage allowance of £2,000 for cars over 10 years old with some caution? It gives the Budget a coat of green paint, but about 20 per cent. of all carbon emissions in a car’s life are caused at the point of manufacture, and any savings that may be obtained by cleaner cars that use less fuel should be read in that light. Moreover, only one in seven of the cars purchased in this country is assembled here, so any economic benefit will be restricted.
Those are important points, and we are going to have to weigh very carefully the carbon footprint of manufacture. Nothing can be made without a carbon impact—that would be like making an omelette without using eggs. That is the difficulty, and the question that we must resolve is how we make sure that the carbon gain of what we do outweighs the carbon cost. That is a terribly important consideration.
My worry about the scrappage scheme is that it is very short term; it expires in 2010. It is cash-limited as well as time-limited, and it attaches no conditions to the nature of the replacement vehicle. We had a decade of voluntary agreements with the UK car manufacturing industry between 1997 and 2007, during which time the industry was supposed to reduce emissions from new cars manufactured to less than 140 g of carbon per kilometre. We got nowhere near delivery of that target.
The successful schemes elsewhere on the continent contain conditionalities that require the replacement vehicle to emit less than, say, 100 g of carbon per kilometre. There are at least eight vehicles on sale in the UK that meet that standard. As I understand it, at least another six will become available this year. It is right to say that green measures will shift us to the consumption of things that tread more lightly on the planet, and away from the consumption of goods that tread heavily on the planet. However, there are no conditionalities built into the UK scrappage scheme proposals that would structurally move us to where we need to be within the next two to three years.
With green measures, I always think that the most important thing to do is to translate the notion of green or ecology into practical, tangible jobs. Without a doubt, the leader in that field internationally is South Korea. Its stimulus package is around £30 billion, 81 per cent. of which—£23 billion—is to go on green measures. It has set itself some very specific targets. Not all of them will be earth-changing, but they mobilise huge numbers of people. For instance, it is a commitment of the South Korean Government that the lighting in every single public building in South Korea will be changed to light-emitting diode valves this year. More than 1 million light bulbs and light fittings will have to be changed. Every one of those fittings will have to be changed by people who are capable of carrying out the electrical installation. People will also have to manufacture the bulbs. That shift will deliver both jobs and a dramatic reduction in the carbon consumption of all public buildings, and the commitment is that it will take place this year.
South Korea has also made a commitment to build within the next four years 1 million eco-homes, and a further 1 million existing houses will be refurbished to low-carbon standards. The number of jobs involved in that process is massive. South Korea is using directed public investment, channelled through private providers in the construction and contracting sector, to deliver both economic and ecological transformation. It has a quantitative target for delivering change. My experience of trying to do similar work in countries in other parts of the EU shows that wherever a country runs those practical, targeted programmes, today’s unemployed, and particularly today’s young unemployed, are desperate to be part of it. They want to be part of the solution to today’s problem, rather than be defined as today’s problem. We have to address their aspirations in the context of the practical jobs that such a green transformation would bring.
I was pleased to see in the Government’s proposals an extension of the low-carbon buildings programme. It is a small measure—a commitment of £45 million to extend the programme beyond its expiry date of June this year. The reason I focus on that is that, although our Government are committed to introducing feed-in tariffs for renewable energy into the UK energy market by hope, the end of this year or by the beginning of next, almost all the renewable energy sector was saying to us that unless there was a bridge between the end of the low-carbon buildings programme in June and the start of the feed-in tariff regime at the beginning of next year, the bulk of the industry would die. The reality would then have been that, by the time our Government got round to introducing the feed-in tariff regime, the only suppliers catering for and responding to the regime would have been outside the UK. It is a therefore a huge “small” relief. The industry that we have, which has survived despite rather than because of Government policy, will at least still be in existence when we produce the real stimulus to shift us to renewable and sustainable energy systems.
To do that, however, we needed bigger measures in the Budget. At least £100 billion ought to have been allocated to the creation of a green infrastructure bank. Some of the moneys raised from the tax changes that I mentioned earlier could have been used. More importantly, we need to understand that we are currently putting about £50 billion a year into UK pension funds. The difficulty is that those funds are still circulating in pursuit of short-term returns within a speculative and almost paranoic global financial market. We need to give people the capacity to invest in their own ecological future and their own pension security. A green infrastructure bank, underpinned by that sort of funding, would be an essential part of the transformational shift that we must make.
I mentioned the shift into feed-in tariffs by the end of the year. Some Members of the House may be aware that, somewhat belatedly in my parliamentary career, I have been appointed Government special adviser on the introduction of feed-in tariffs.
Bought off, I hear from my friends and comrades. I welcome the ritual denunciation, but I ask them to hold fire because there is a gap between that appointment and the fact of not having a single meeting with officials at the Treasury or the Department of Energy and Climate Change to drive that through. All my experience suggests that there is an intellectual inertia at the core of our civil service that blocks the introduction of radical and dramatic changes, because civil servants have been caught up in a 20-year culture of non-interventionism. They would just like someone else in the market to do it for them, rather than taking hold of the responsibility for driving the change.
To make matters easier, in default of the civil servants doing any work on the framework for introducing feed-in tariffs, I have produced a document myself, which sets out exactly the sort of tariffs that would make viable the introduction of feed-in tariffs on photovoltaics, biodigesters, solar thermal—the whole range of renewable technologies that we could and should be supporting. It will require someone to drive that through, and that, for me, is what is missing from the Budget: the willingness to drive aspirations into deliverable and measurable policy changes within a defined timetable. If we are to do that, it would be a great advantage to recognise the points that were recently made about where our current business-as-usual case would take us in UK energy accounts. The business-as-usual case will take us into a huge deficit in the balance of payments for the consumption of energy by 2020. That is on the conventional plan.
However, a fascinating report came out this week from Delta Energy and Environment which points out that a dramatic shift into UK renewables would not only see us delivering more than 15 per cent. of our energy requirements from renewables by 2020, but more importantly would see us with a £12.5 billion surplus on our energy account—primarily because the jobs and services would be delivered for ourselves, rather than our being dependent on external suppliers for our energy security. That is the direction in which we must drive our efforts.
The same applies to our existing housing. The reality of environmental transformation is not to be found in how many eco-homes we start to build after 2016. It is what we do with the 25 million properties that people live in today. If we want a jobs agenda that makes consistent sense with the environmental and training and skills agendas, we need something that will radically transform the quality of life of people in this country’s 25 million housing properties.
That is why I began my speech with a reference to Churchill’s wartime Budget statement. I suspect that, for the remainder of my lifetime, we will have to address crisis—mobilisation-style—Budgets to take us through one crisis after another. I say that not to scare people but simply to point out that the situation requires us to step up to the plate—to be big enough to govern our way through that transformation and those crises. It will require us to mobilise people in a way that we have not been used to doing for 20 years or more.
My pitch to the Prime Minister and to the House is that Gordon needs a carbon army. That carbon army should comprise many of the 2.1 million people who are out of work and hungry for meaningful, secure, long-term and transformational jobs. If we could harness the desire for work to structured plans for transformation, we would have a Budget that was the saving, not so much of this Government but of this society for future generations. We require Budgets that live more lightly and sustainably on the planet. Sadly, today’s Budget is several steps away from that. I urge Ministers to think again and find the courage to step in and act in transformational terms to save the ecological future of our society and our country. It is infinitely more important and urgent than the situation in which they found the courage to intervene to save a banking system that, some would argue, would have been better left to collapse.
We can survive in this society if we rebuild banks on the basis of securing people’s savings, not of guaranteeing speculative debts. We cannot survive as a society if we squander the ecological capital that our children and grandchildren will need to draw on if they are to survive and prosper.
I, first, declare my entry in the Register of Members’ Interests—in case anyone thinks that my interests benefit from this Budget.
Our level of debt before the recession was so high that, now, we are less able than we would otherwise wish to react to the problems that we face. The current Prime Minister must regret the profligacy of the former Chancellor—the sadness, of course, being that they are the same person. In his new role, he suffers from the problem that we spent too easily money that we did not have. It is not just the banks that got us into trouble, but the Government’s expenditure, which was not related to the true state of even a successful economy. It means that, now, we probably have the fastest rising Government debt as a proportion of GDP of any advanced nation in the G20. The debt, which this country will continue to face over the next decade, will take an age to pay off. No wonder this document before me used to be called the Red Book.
It was in the red; now it is white. It pretty much says, “We’re putting up the white flag.” We are in a desperate state, and the Government need to admit that they have to take the blame. Having said that, I must say that, although we are in such a bad state to start with, some of the Government’s actions during the recession have been sensible. One thing that I give the Prime Minister credit for is his recognition that this is a global problem—although he got it the wrong way around: he said that he was here to save the world; actually, the world is here to save us. What I mean by that is that the globalised impact that has affected all the advanced countries of the world—and caused collateral damage, of course, in the less developed world—has shown that we cannot adjust an economy only by taking measures internally. We learned that during the banking crisis. I do not think that the American Government entirely understood what they were doing in allowing Lehman Brothers to collapse. They did not understand that the certificates securitised on the back of the mortgage industry not only involved Lehman Brothers in New York, but were spread—we still do not know how widely—around the world. Everybody in the world was therefore suddenly affected by the American Government’s decision.
In a different context, we have understood that it is no good having a currency that falls in value if there is nobody to buy our exports, which would normally have benefited from the situation. In a different context again, the German Government suddenly understood that although they had felt that their domestic economy was doing well, they forgot that their whole economy depended on their tremendous historic success in the export markets; other countries needed to reflate if the German economy was to survive.
The Government got it right in another way. In a recession, there is a temptation—an obligation, almost—on the private sector to save, or reduce its borrowing. If that is the case, it is essential that the Government do the opposite; otherwise, the recession will be deeper and longer. The Government stimulus was the right move. The criticism might be that they did not handle their VAT reduction well. The timing was not good because all the Christmas sales were on at the same time, and it was difficult to get a 2.5 per cent. reduction on VAT of 17.5 per cent. across to the public at that stage. However, I suspect that the cut has now begun to stimulate the economy, as certain independent bodies have begun to say. That is a belated bonus.
The overall stimulus package was right, however. I disagree with what I think the hon. Member for Nottingham, South (Alan Simpson) was saying. Of course it was essential to protect the banking sector, because without it there would not have been ecological activities at any level—let alone the levels that he would like. How we protect the banking sector is a detailed matter, which Select Committees can investigate for weeks on end, but what I am saying is that the Government were right to introduce the stimulus package. That stimulus has been allied to the stimuli that have taken place in other countries. In the end, the stimulus in Germany turned out to represent a bigger percentage of GDP than our own. The American stimulus is an extremely important event. There are criticisms that it has gone too far, and Congress has ample ability to add in a few pork barrel opportunities, which will probably distort the package. Nevertheless, the overall thrust is right.
The collective effort of the world has been such that I think that we can now see the beginnings of the end of the worst of the recession—although sadly, as always, the bad news is still to come out. Unemployment in this country will rise towards 3 million because of the economy today, even though the country may see a turn in its overall economic prospects. Those prospects have changed because there has been collective action around the world, although it has been difficult. As long as the measures agreed are applied in practice, the G20, which is actually the “G28” in this sense, was rather effective.
There is a lesson to which we should pay attention in this country. It is that we are one member of the “G28”, but things are beginning to change in the world. Washington and Beijing regard the real determinants of how the global economy rebuilds as being down to the “G2”—China and America regard themselves as being the two that determine how it goes. Why is there not a G3? Because the European Union has not been as effective as it needs to be. It will not surprise some of my hon. Friends if I say that it is in the British national interest that the European Union is more effective, because by ourselves, however much we try, we will not make our voice heard within the G28 at the level at which we have traditionally thought that it would be heard. Our influence therefore has to be exerted through a collective role for the European Union in what would then genuinely become a G3 rather than just a G2.
With all that is happening, we have seen that the world economy has a chance of recovering. I would like to share some of the thoughts expressed by my right hon. Friend the Member for Haltemprice and Howden (David Davis) in what was an extremely good and quasi-philosophical speech. We have to accept that just hoping for recovery will not be sufficient, and that it is about time that we started to think about what sort of economy we really want. It must be open and global, yes—for the reasons I have stated, it is almost impossible for it not to be so. Certainly, the old capitalism based on the individual and—to employ a word used by the hon. Member for Nottingham, South—avarice will not do. The public will not buy it: they want something more.
We have to be slightly humble in this country and try to work out what others have tried to formulate in different ways—a concept of social democracy and Christian democracy rolled together, where the reason for prosperity is that it means we can help each other and help people who are vulnerable. If that is the purpose of growth, profit and expansion, they are worth having and worth striving for. We want to rebuild the financial community, we want London to regain its status as a financial global centre, we want to build up business again to be profitable, and we want the banking community to start lending. That is not because we want to give people back their bonuses or give them the opportunity to make money and have bigger cars, but because it is the only way that we can have enough wealth to share with other people. That vision makes it absolutely crucial that we start to rebuild now. If we can provide that moral leadership, we can begin to influence not only people in this country but those in a wider sphere. That has been lacking in the debate so far. We have been agonising about this or that isolated issue, such as whether the automobile industry is going to recover. All those things are important, but they provide no context as to what we are trying to do.
I hope that the Government and my own party will try to put our current circumstances into context. There is a desperate hope that the Government have got their growth forecast figures right. For goodness’ sake, if they had made those forecasts as a public company, they would have been de-listed from the stock exchange and banned from ever being a director again. Somehow, we can get away with such forecasts in politics, but people cannot get away with it in business. We have to hope that growth returns, but if the public are to go through the pain of the almost inevitable increases in taxation as well as the impact of restraint in public expenditure over the next few years, they have to know what it is all for—why we are trying to rebuild this society and this economy, what we are trying to do as part of a structure, and why we are trying to help people who are most vulnerable. It is because without doing that, we will have instability in society.
Another vision is very important; it is, in a sense, a parallel vision to that of the hon. Member for Nottingham, South, but more general. It is about the importance of creating a society that is capable of solving some of the problems that we as individuals face, which means meeting the need to spend more money on science, research and innovation. That is partly because there is a competitive world economy, and if we do not do it in this country, other countries are doing it. President Obama has put an enormous amount of money into science and research in the US. His stimulus budget is about $22 billion. But what is required is not just sums of money but a vision. In the great depression, Roosevelt had that vision and launched a crusade to try to change the infrastructure, science and ecological environment of the south of the United States, with tremendously positive results, and galvanised people in the process. We have lost that in this country.
Today’s Budget picked off a few things that were honourable, admirable or whatever we want to call them, but they did not cohere. There was not the drive for ecological change for which the hon. Gentleman and I share a desire, with different emphases. There was no understanding that this is an opportunity to consider unleashing medical science to solve some of the big medical problems. The Cooksey report gives us guidelines as to how we might go about that. We could try to unlock some of the scientific problems that will determine the quality of life in this country.
In my own report to my party’s Front Benchers, I have proposed an innovative projects agency, which would start with £1 billion. It has some similarity with what the Government have started today, but it would be intended to take ideas beyond the point of discovery. We have huge admiration for our scientists who come up with brilliant ideas from basic research, but we are less good at pulling those ideas through into practical application. We cannot expect the private sector to do that by itself. There has to be collaboration in that grey area between discovery and proper application. The Government should be doing those things, and they should engage the public more in why they are being done. It is not about picking winners; it is about stimulating opportunities for the economy, which can then provide benefits for other people. I could go through a list of areas in which I would like that to take place. Last night I became the chairman of the all-party parliamentary and scientific committee, and I hope to make many more speeches in the House on these matters, so I shall not get down to specifics now.
At a time of real depression, when there has been a Budget that contained extremely depressing figures, we need an uplift. The Minister of State, Department for Environment, Food and Rural Affairs, is smiling, and that by itself is an uplift for me, but I think that the public will probably be a bit more demanding. They want not just some context to the pain that they are going through now—believe you me, even in my constituency in Surrey there are plenty of people in pain—but to know why they will have to bear the pain in the future. What are we really trying to do? What can we do to make society cohere so that it comes out of this stronger? Then they will understand why they might have to pay a top rate of tax of 50p in the pound. People are more generous-spirited if they know why something is being done. I did not get that from today’s Budget, and I wish that I had, because it is in the national interest that we should.
I shall speak very briefly, because others wish to get in. I shall focus on two aspects of the Budget. On the first part of the speech, Members on the Labour Benches were thrilled when the Chancellor said that even in times of extreme difficulties, we had different priorities from others and would ensure that the Budget was shaped in such a way as to protect the poorest. We are never happier than when the Government are ensuring that there is a wide, red sea between us and the other side. There was slight disappointment among many of us, if I put it gently, when the Chancellor did not go on to say what he was going to do about the 10p losers. I am sure that the Treasury Front-Bench team will not be too dispirited to know that some of us will return to that issue, to ensure that that red sea is even wider than the Government envisaged in the Budget statement. However, all credit to the Government for saying that the worse the crisis, the more focused we must be on the poorest.
My second point is on a similar theme: no crisis, however horrible, should make us waste radical purposes. I have listened to Budget debates in the House for 30 years, yet I have never before felt the excitement, if that is the right word, that I experienced just before 1 o’clock, when the Chancellor announced the public borrowing for this year and next year—£175 billion this year and £173 billion next year. At that very moment, the country’s economic future, and much more besides, was cast on the waters of the money markets. If the Government are not successful in raising the record sums of money, we will clearly be in great difficulties. Hon. Members know—thank goodness, the figures have become common currency—that we are attempting proportionately to borrow more than any of our fellow G8 members. The times are therefore difficult for the Government and the country. Even in the early stages of trying to raise the debt, there has been some stickiness—I put it no more strongly—in the gilts market, where the Government have not always got their way in raising the money on the weekly basis that is required.
The Budget contains a table—C7—which gives urgency to my comments. The Chancellor was, thank goodness, as optimistic as ever about recovery, despite the fact that, compared with the time of the pre-Budget report, when we thought that unemployment would be about 1.4 million at the end of next year, he now believes that there will be 1 million more unemployed—approximately 2.5 million. According to the International Labour Organisation’s definition, the figure could be above 3 million. Not only constituents in Surrey feel the pain, but Members of Parliament will feel the pain of going into an election, if it is held in April or May next year, with unemployment at that level.
The Chancellor suggests in table C7 that, even after a considerable period of recovery, we will not get revenue to support expenditure—we will not get revenue to reach 38 per cent. of GDP—by 2013-14. Yet all of us are on the drug of wanting Governments to spend 45 or 50 per cent. of GDP. I am worried about how the Government will raise the funds, given that a Government who wished to squeeze the rich “until the pips squeak”, as Mr. Healey once said, did not get revenue above 37 per cent. of GDP. Much more than what the Budget outlined today is required.
We must not only think of effective ways in which to raise revenue, but think in a way in which we have never previously thought about how we cut—I use the word “cut”— public expenditure. It is not that I am not radical, but in those circumstances we might find ourselves being even more radical than we have been in the past.
I offer an illustration of that. I have lobbied the Government to adopt a pension reform that, in a sense, leads to a loss of interest in the huge ramifications with which we concern ourselves, and goes for a single objective of trying to guarantee a pension that, over time, lifts everybody out of poverty. It will obviously take time. It is about building an investment fund around the pay-as-you-go state scheme. At the moment, the Government are rejecting that reform and are committing us to a programme that will add 5.5p to the standard rate of tax, spending more on their pensions reform, yet that will leave 40 per cent. of pensioners poor.
In this situation, radicals will say, “Surely we can begin to spend that money much more effectively,” which would mean something like the proposals that a number of us have put forward. That would not only secure the huge gain of committing the Government for the first time ever to ending pensioner poverty in times when we are cutting public expenditure, but for the first time ever open the debate in a civilised way about how we disengage from public sector pensions, including our own pension. We could safely say that we were closing all schemes to new members, because we would have in place a guarantee that nobody who is a citizen and does their bit will end up poor. We would then begin not only to save public expenditure on the Government’s pension proposals, but build big savings into our national accounts over time from the closure of all public sector schemes, including our own.
That would also begin to give us the vision that was talked about by the hon. Member for Esher and Walton (Mr. Taylor), whom I am pleased to follow. We need some sort of vision to engage, as my hon. Friend the Member for Nottingham, South (Alan Simpson) said, in a way that galvanises the population. As we try to get our expenditure down to what taxpayers are prepared to pay, we clearly need some vision of what the new state is going to be like, because it will have to do things differently.
I thank the Government for suggesting that our side is going to have as our priority protecting the poorest. We are going to put even more wind in their sails. I hope that we will do justice to the 10p losers before the Finance Bill is through, as we said we would. There are 3.8 million of them out there still waiting for us to deliver on that pledge, and that is quite a lot of constituents and voters.
In a sense, one’s whole empathy is with the Government, as they now try to grapple with what will be, for the rest of my lifetime, the central domestic political issue: how we begin to get the revenue that we can raise in taxes towards the level of what we can afford to spend. That will bring about a change in politics, which will not be just old-fashioned cuts politics and all the rest, but will open enormous opportunities for radical politics. I hope to be around for a few years yet to participate in that.
It is always a pleasure to listen to the right hon. Member for Birkenhead (Mr. Field). I would not have minded listening to him for a little longer, but he was commendably brief. I am grateful to him for that, and will try to do the same service for colleagues who are still hoping to participate in this debate.
The right hon. Gentleman rightly said that one of the central points that needs to be addressed in future years, and perhaps even decades, is how we bring revenue towards expenditure. However, he was also honest enough to say that we urgently need to bring expenditure towards what can reasonably be borne by revenue, and the willingness and ability of the public to provide it. That is the central point that we need to consider in the context of this Budget.
The right hon. Gentleman also spoke about the spectre of the vast and rapidly increasing levels of unemployment, as did a number of hon. Members in all parts of the House. That is an increasing concern for us all, in all our constituencies. I know that I am not alone in having seen unemployment in my constituency more than double in the past year, which is an alarming increase, albeit from a relatively low base. The announcement of £1.7 billion more to help deal with that problem is welcome, as long as it is used effectively. I have a real concern, however, that that might just go into the machinery of the new deal, and much of it could be wasted, just as so much has been wasted by using the revolving door method of taking people off unemployment benefit, thus reducing the apparent period of unemployment, then dumping them back on to it. I hope that the Government will make every effort to ensure that those resources are directed to the more effective schemes. Those are often the smaller, more local schemes run by voluntary organisations, of the kind that are all too often run much more effectively in other countries than they are here.
There are, of course, measures in the Budget that we all welcome. I was pleased to hear the reference to the trade credit insurance measures, for example. I am sure that Members across the House will hear repeatedly from those in their constituencies and elsewhere about the very real problems that they are encountering because of the withdrawal of trade credit insurance, so I hope that the scheme will be effective. All too often over the past few months we have seen schemes brought forward with commendable motives, but which do not seem to have come into effect as quickly or as substantially as is needed.
I want to say a few words about some of the details that should have been addressed in the Budget but have not been, before I make a wider point afterwards. I know that Ministers are engaged in live debates on these matters, but I want to highlight some of the things that are missing. Last year I spoke against the adoption of aviation duty, which I thought would be a bad tax that would have all sorts of negative effects. I was therefore delighted when, in November, the Government accepted that it would be a bad tax and would not work. However, they then responded by introducing some ad hoc measures relating to air passenger duty, which have problems of their own, especially in connection with the banding, and the fact that an unfair burden is being imposed on premium economy seats. I know that Ministers are dealing with those problems—or at least having discussions about them—and I know that they are difficult to resolve. However, given that the Budget papers today tell us that the projected revenues from air passenger duty are reducing rather than rising, we have to wonder whether the Government themselves think that they have got that tax right.
I raised the issue of fuel duty in the Budget debate last year. We have now seen a further increase. That will be painful for drivers, but massively painful for British hauliers, who face intense competition from continental Europe, where their competitors often pay much lower rates of duty. There was some recognition in the pre-Budget report of the problems relating to fuel duty, and it was said that the VAT cut would give a degree of compensation, although of course that will only be temporary. The Chancellor said earlier that he would keep an eye on oil prices, but we have heard from the hon. Member for Dundee, East (Stewart Hosie) that the future price of oil looks worrying. To follow up on the point made by my hon. Friend the Member for Esher and Walton (Mr. Taylor), we still see no coherence in what the Government are trying to achieve through the fuel duty. Do they want to set a competitive level or are they concerned only with maximising revenue? Do they really recognise the necessity to ensure that our industry remains competitive?
This illustrates the central contradiction in the Chancellor’s approach. That contradiction was there before today’s Budget, but it was also clearly displayed within it. It can be summed up by looking at the temporary VAT cut, which was introduced with the intention of reducing the severity of the downturn by about 0.5 per cent. of gross domestic product. There are questions about whether it was the most effective way of reducing tax in order to achieve that goal, but its introduction provided a wonderful moment of hope that perhaps, after years of the Government thinking that taxes on businesses and consumers could be increased without limit, without having any negative effect or inflicting pain on the economy, the Chancellor was going to cut taxes to benefit economic growth in the United Kingdom. However, the reduction is, of course, temporary, and due to be reversed at the end of the calendar year—and if we look at the wider set of proposals in the Budget, we see fiscal tightening over the years ahead: £1,000 of tax rises per family over the next two years.
As the right hon. Member for Birkenhead said, the massive expansion of expenditure over a number of years has led to an unsustainable structural deficit, and what we have not seen in today’s Budget is a credible path towards removing it—nor have we been given a clear sense of how the Government will arrive at a sustainable level of spending in the future. We will all be fighting those battles for many years to come. I hope to be here, along with the right hon. Member for Birkenhead, to listen to future Budgets, which I hope will make the real progress that this one has failed to make.
It is always good to follow my hon. Friend the Member for Altrincham and Sale, West (Mr. Brady)—which is what my hon. Friend, in turn, said about the right hon. Member for Birkenhead (Mr. Field). They both made forceful and thoughtful speeches, showing great restraint in their timing; I shall do the same, as I know that at least one other Member wishes to contribute to the debate.
First, I declare an interest as the proprietor of Evans News, a convenience store in Swansea that sells alcohol and cigarettes, for both of which this Budget has implications. Much has been said about the public debt that has been built up, and the enormous public debt that will be built up this year and next—the greatest public debt that this country has ever seen.
Government Members accuse us of just wanting to cut public spending, but that is simply not the case. We want to see public spending improved in some key areas. As many hon. Members will know, after getting a super-bug infection in a Swansea hospital, my mother died on 27 March. Almost 10,000 people died of super-bug infections in 2007, and no Member wants to see avoidable deaths continue at the present level in our hospitals. To put the number of hospital deaths from super-bugs into context, fewer than 3,000 people died from accidents on the roads. Money should be directed towards ensuring that hospital infections are completely eradicated; they seemed not to occur at all 20 years ago, yet all of a sudden there are massive numbers of deaths. I wanted to raise that issue on behalf of my mother and others, but I shall not concentrate on it any further today.
I wished to raise a number of points, but given the time constraints, I shall deal with only a few of them. Some hon. Members have already spoken about the support needed by small and medium-sized enterprises. Business rates clearly affect them, and although the Government have announced that the misery to be inflicted on SMEs will be spread over more years, the fact remains that they will still have to suffer the pain of paying higher business rates. Some SMEs are marginal businesses, and some make hardly any money, so we must ensure that we support them properly, and find ways of limiting the business rates that they have to pay.
I also want to say something about credit insurance, and also something about the short-time working subsidy, which the Government need to consider further.
One campaign that I have been running, which has clearly been a complete flop, is the “Axe the Beer Tax” campaign. We saw further increases in taxation on beer today, yet 40 pubs close every week, and thousands of people are losing their jobs every year. Pubs are small and medium-sized enterprises, and we all know the great work that those iconic British institutions play in our communities, not just in rural areas, where they are particularly important, but throughout the country. Pubs have dual uses, and the rate at which they are closing has not been helped by the continuation of the taxation that the Chancellor has announced today.
I have received a letter from the Government. We asked about a differential tax rate for beer pulled at the pump as opposed to beer sold in bottles and cans from supermarkets, but I am told that we cannot have that, because the EU will not allow it. I implore Ministers to go to Brussels, sit with the Commission and work out what it takes to change that directive, or law, so that we can start to support the great British pub again. I will leave that suggestion with the Exchequer Secretary to the Treasury; I know she is aware of the issue.
The next issue is fuel, which my hon. Friend the Member for Altrincham and Sale, West mentioned. Fuel is almost reaching £1 a litre again—another increase was announced in the Budget today—and 70p of that £1 goes in taxation. It is not as if we operate in splendid isolation from other countries. We do not. My hon. Friend mentioned hauliers, who are put at a competitive disadvantage. For my constituents in rural areas, cars are not luxuries. In many cases, no rural public transport whatever is available to them, so they need their cars. I ask the Government to look at the impact that that increase is having on rural drivers and people who need a car to go to work. Government must not simply take motorists for granted and impose ever-increasing rates of taxation on them.
One area that the Government might reconsider, where we might be able to make substantial savings, is that of some public sector salaries—my right hon. Friend the Member for Wokingham (Mr. Redwood) touched on this subject. MPs are pilloried in the papers for the amount that we earn, but my goodness, we are mere amateurs compared to some local authority chief executives and officers, and others who operate within the public sector.
It has been recorded that more than 1,000 people who work in local authorities earn more than £100,000. At least 16 of them earn more than the Prime Minister, at more than £194,000. One earns more than £500,000. For goodness’ sake, where is the pay restraint in local authorities? Pensioners and people living on limited and poor incomes are having to scrape together the money to pay their council tax, yet it is being siphoned off by an elite group who work for our local authorities. That must be looked at again. Such salaries must be capped. There has to be restraint in our local authorities.
The other issue also involves the public sector, and there must be capping here, too. I serve on the Culture, Media and Sport Committee, and I always enjoy having Mark Thompson, the director-general of the BBC, give evidence before us—but he earns more than £800,000. I cannot believe that sort of money—and of course he also has expenses on top of that. Again, that makes MPs look like complete amateurs, as such people are trousering lots of money in expenses and showing no restraint whatever.
The head of Network Rail earns £1.25 million a year. Adam Crozier of Royal Mail earns almost £1.25 million. Andy Duncan at Channel 4 earns £1,211,000. Where is the pay restraint in the public sector? One lady has just taken over as chairman of Ofcom; she works less than five days a week, and earns more than £200,000 a year. [Interruption.] I am informed that she works a three-day week. We know that there are quango heads who earn substantial sums for part-time work. Quite frankly, that shames us all, because we have lost the plot, and lost our grip.
A lot of non-jobs are advertised in The Guardian and local papers up and down the country. If they did not exist, nobody would miss them, but my goodness, we would all benefit from saving the money that we are throwing at some of those non-jobs.
I have been a Member of Parliament for nearly 17 years, and I have to say that this Budget, as a whole, is the grimmest Budget, for the grimmest conditions, that I have ever seen. We have had a bankrupt Budget from a bankrupt Government who now administer a bankrupt country. Each time the Chancellor said that he wanted to do something to help the country, I thought that he was going to announce his resignation, but sadly, he did not. The best thing that he and the rest of this Government could do would be to go to the country, and ask for the public’s verdict on how they have conducted the country’s affairs.
I am not sure whether it is the immediate effect of the Budget or that the House authorities have decided to turn up the air conditioning, but I have been freezing for three and a half hours. I am glad that I am now able to exercise a little—to get moving, and start the blood circulating around my body.
I do not know whether I am alone in this, but I do not like to think about the stars and the planets. It tends to hurt my head if I think about things that are beyond my comprehension, and I think that that was the Chancellor’s general approach today. He preferred to talk about the minutiae. He spurted out figures, one after another. In one section of his speech, when he was talking about banks and percentages, we heard about percentages of 59, 68, 74, 78 and 79, and sums of £175 billion and £173 billion. He then mumbled some generalisations about the future, but he avoided talking about the big picture.
I think that it was the hon. Member for Esher and Walton (Mr. Taylor) who asked what was the vision for the Budget, and he was spot on. If people are to buy into the pain that we will experience, they need to know what is the promise—the pledge—for the future, but there was nothing for them to grab other than a series of individual announcements. I welcomed some of them: the announcement on carbon capture, about which I shall say more shortly, was excellent. However, there was no big vision. There was nothing for people to grab hold of and consider to be worth going through pain for.
One of the biggest financial stimuli—although I am not sure whether the Chancellor classed it as a financial stimulus—was for Jobcentre Plus. While I think it worthy to invest more money to retrain and support people, I do not recall the Chancellor tramping around the world trying to secure the support of other countries for that sort of financial stimulus. I am not sure whether we have been given the Budget that we have been promised over the past few weeks. I believe that this is a Budget of missed opportunities.
The big debate on which the Prime Minister likes to try to make us focus deals with whether we are to have the do nothing approach of the Tories or the all-action approach of the Labour party. It would be nice if it were as simple as that, but in the case of a financial stimulus it is what we do that counts. I want to try to create something new out of this crisis. I do not want to patch up the old; I want to create something of which we can be proud. The hon. Member for Nottingham, South (Alan Simpson) made some good points when he described, very knowledgeably, the experiences of South Korea. I think that we should try to build something of that kind.
I am particularly disappointed because a manufacturer in my constituency is having to lay people off because the train maker Bombardier and the bus maker Alexander in Falkirk have laid people off, having not secured the orders that were promised in the general furore following the initial financial crisis. The fact that people who were employed to manufacture buses and trains are being laid off at a time when we are trying to create a new environmental economy is an indication that the Government may have got it wrong.
In Dunfermline, the break-up of the Dunfermline building society has been a traumatic experience over the past two weeks. I am pleased that the Scottish Affairs Committee has agreed to conduct an inquiry into the breaking up of Scotland’s largest mutual society. I want the Committee to take evidence from a range of people, not just the directors, the management and the Financial Services Authority. I think that the Prime Minister should consider giving evidence. He should do so because when he was Chancellor he did not impose the appropriate financial regulatory machinery that would have prevented these catastrophic mistakes from being made within the society. Although it is quite a small society in UK terms, it is a symbolic institution and it is right on his doorstep. He will feel pressure locally, therefore, and he might want to seek the opportunity to explain what his role was in the demise of the society.
There are some related issues. I was hoping that we might get some more radical reform of the Financial Services Compensation Scheme, because the balance between risk and value in how the levy is allocated is completely out of kilter. There is not the appropriate recognition of institutions that are relatively safe in their outlook, and they are therefore penalised in the same way as the reckless. I was hoping a reform would be announced today, but, alas, that did not happen.
The second issue is the capital requirement. Lord Turner has advocated a flexible capital requirement for institutions, which should lend from 7 per cent. in the good times to 4 per cent. in the more difficult times. Unfortunately, the Financial Services Authority imposes a requirement of 8 per cent. across the board, which penalises a lot of organisations and institutions that are doing a very good job in very trying circumstances.
Since the beginning of the year, I have visited about 100 businesses in my constituency. Going around them is a very interesting experience, because we often think they are one big homogenous mass and that everybody is suffering right across the board, but that is not true. Some businesses are actually doing quite well. They are smart businesses that are adapting to the circumstances. They might be operating in the “make do” area—fixing fridges or cars, perhaps. They are doing quite well; they are recruiting people and they are quite optimistic. I must add, however, that there were a lot of empty units as I travelled around the industrial estates, so there were others who were not able to speak for themselves. Nevertheless, we should acknowledge that despite the trying circumstances some businesses are doing quite well, and we should not kid ourselves that they are one big homogenous mass. We should reflect on that when devising policy, because we need to have appropriate mechanisms in place to support the businesses that are doing well—despite the best efforts of the Government, I would add.
Bank lending is an issue. The Red Book contains some figures about how much the banks are committed to lending over the next year: £25 billion for RBS, £14 billion for Lloyds, and £5 billion for Northern Rock—and I am sure there are others. The trouble is, however, that it is all very well committing, but the conditions and the commercial requirements that are in place are crucial. We need to have arrangements that recognise valuable businesses.
Lots of people have come to me—I am sure this has happened to other Members, too—who are incredibly frustrated that they are unable to squeeze any money out of the banks and other institutions. They have good business prospects, they employ quality people and they know how to run businesses, but they still cannot get the money out. It is not that they get a flat rejection; what they get are delays and barriers—they might be asked to return to their bank with yet another requirement—and eventually they just give up.
I met someone on Saturday who was incredibly frustrated. He was a smart guy with a great business opportunity, but he is not managing to go ahead with it simply because the banks were not prepared to lend him the money he needed. This is partly to do with the skills of the people who work in the banks. In the past they were salesmen grabbing every opportunity they possibly could, but now they are being told to hold back, and they think, “I’m not going to be the first person to say to my manager that I want to make a slightly more risky loan than others might recommend even though I think it’s a great opportunity.” We need to ensure that we have quality people within these institutions who can assess whether a business is a good opportunity.
I have talked to people involved in banking in my area of Northern Ireland and they have confessed that in the past 10 to 15 years banks were lending junkies. Yet now, as the hon. Gentleman acknowledges, we are relying on the very pushers to manage their way through this problem. We have recapitalised the banks—we have put the money in and helped to stabilise them—and are simply relying on them to conduct things, yet, as he says, we hear from businesses that they are not getting the credit. Does he agree that this House perhaps needs to have more oversight of banking performance and practices in such circumstances? We cannot leave it to the Treasury Committee to try to pursue and examine these things, in addition to the huge amount of other things that it is having to deal with in this situation. Given the scale of intervention and support that there has been from the taxpayer, perhaps we need to see how the House can provide a bit more oversight and put better manners on some of the banks.
That is absolutely right, although I am not sure that we are the best people to run the banks and I fear that in the current circumstances we may go from one extreme to the other. I think that the banks have gone from being lending junkies to not lending anything at all because they have clamped down on everything out of the fear that they will be the first to get it wrong. We should have more oversight, but the banks should look at the quality of the people working for them—I am sure that they are doing that. We do not need the pushers any more; we need the assessors, who can spot value and spot the winners. If we do not get that area right, we will end up suffering even more.
The Government should be putting much more of a social economic requirement on the banks. It should no longer be the case that we are just trying to look after the taxpayers, which seems to be the only requirement in the Red Book—the aim is to try to get the money back into the Government’s coffers as quickly as possible. A measure needs to be in place to ensure that we direct the banks more to have a social economic requirement. We own most of them now so they should have such a requirement in place.
I wish to discuss carbon capture in the last couple of minutes available; I was very enthusiastic about today’s decision, because it presents a great opportunity for one of the biggest coal-fired power stations in the UK—Longannet power station, in my constituency. I understand that the hon. Member for Dundee, East (Stewart Hosie), who is not in his place, is sceptical about whether the Government will go ahead with the proposals, but I think that they will go ahead; I shall be encouraging them every step of the way as I want it to be done as quickly as possible. If we can get carbon capture up and running effectively, we will make a significant impact on climate change.
Longannet power station has been the powerhouse for Scotland for decades, but it could now become the green powerhouse for Scotland. I strongly believe that we could create a centre of excellence around it. I know that it has to go through a competition process and it is not guaranteed to secure a scheme, but the Government did talk of up to four, and there are only three on the shortlist, so there is a possibility that it might get one. I was delighted to hear that that is being introduced.
On more of a disappointed note, the final thing that I wish to mention is the Forth road bridge, which, again, is local to my constituency. The cables on it are breaking and there is a recognition that it needs to be replaced, but that will cost about £1.7 billion to £2.3 billion. The Scottish Executive have singularly failed to raise a single penny to fund the new crossing and are now going cap in hand to Westminster. I appeal to the Treasury to come up with the necessary funding to ensure that we are able to build the new bridge, because if we are not, that major artery will be lost not only to the east coast of Scotland, but to the whole of Scotland.
Ordered, That the debate be now adjourned.—(Helen Goodman.)
Debate to be resumed tomorrow.