House of Commons
Wednesday 22 April 2009
The House met at half-past Eleven o’clock
[Mr. Speaker in the Chair]
Oral Answers to Questions
The Secretary of State was asked—
Dissident Republican Groups
Dissident republican groups have nothing to offer but violence and suffering and are funded by criminal activity. Resources for the prevention of recruitment are shared between the Police Service of Northern Ireland, the Northern Ireland Executive and the Northern Ireland Office.
Is the Secretary of State aware of reports that dissident groups are using social networking sites, websites and blogs to recruit young people, some of whom may be as young as 13? Will he say what he is doing to tackle that and, in particular, whether he will consider taking down any offensive material promoting terrorism or violence that appears on social networking sites, or blocking access to any such websites?
I have been made aware of this, and the police are indeed investigating it. The site itself has vowed to remove materials that it considers illegal, defamatory or fraudulent or that infringe or violate any individual’s rights. There are clearly some legitimate concerns, and obviously the police will act if there is any evidence of activity of a criminal nature going on. The hon. Gentleman makes a very important point. Whether this activity is done on social networking sites or in any other way, these organisations are criminal organisations and we need to ensure that young people realise that they are just that.
Does the Secretary of State agree that one good way of helping to disarm the dissidents of some of their twisted logic would be for us to achieve completion on the political institutions and policing through the devolution of justice and policing? Does he also agree that a bad way of trying to convince young people to stay out of dissident violence is for some people to pretend that violence in the past was somehow morally justified or circumstantially different from the awful, brutal and futile violence now? It was always counter-productive—then and now—and young people see through hypocrisy and dishonesty when it comes from an older generation.
My hon. Friend makes an absolutely valid point. I simply say that it is incumbent on all of us to ensure in whatever way we can that we reach young people and make them realise that these criminal groups have nothing to offer them now and will have nothing to offer them in the future. I also agree with him that we should now complete devolution, because that will clearly be the strongest signal of all that politicians in Northern Ireland have the confidence to say to young people, “Leave the future to the legitimate, elected people of Northern Ireland.”
Would this be a fitting moment to pay tribute to Sir Hugh Orde, who has constantly warned us about dissident republicans and the threats that they pose? Has he not been an exemplary leader of the PSNI and given incalculably good service to the people of the United Kingdom throughout his period in Northern Ireland?
I am grateful for this opportunity to endorse what the hon. Gentleman says about the contribution of Sir Hugh Orde as Chief Constable. For seven years he has provided outstanding leadership and helped to change the face of policing in Northern Ireland. That is absolutely not in any way to diminish the extraordinary work that was done by the Royal Ulster Constabulary, but it is to recognise that, in the face of the Patten report and the changes that came about, and by building confidence across the entire community in Northern Ireland, he has led that change and been a great leader. We owe him a very great debt indeed.
May I agree with my right hon. Friend about Hugh Orde? As Secretary of State, I could not have had a better or more astute Chief Constable with whom to deal.
On the dissident threat, does my right hon. Friend agree that it was aimed not least at trying to torpedo the agreement between the Democratic Unionist party and Sinn Fein, and between the First Minister and Deputy First Minister, on the programme and principle of the devolution of policing and justice? Does he agree that it is absolutely essential that none of the parties is deflected by dissident attacks and tragic murders from pursuing their course and completing the process of devolution that is so essential to entrenching stability and peace in Northern Ireland?
I entirely agree with my right hon. Friend. It is very clear that the criminals behind the so-called dissident attacks set out to destabilise and damage the confidence of the people in Northern Ireland in the peace process and the political process. Of course what they also did, regrettably, although I continue to pay tribute to those who were murdered, was reveal the strength, depth and width of the political process and the peace process. It is stronger today than at any point before, and people in Northern Ireland can have great confidence in their political institutions.
Can the Secretary of State confirm that the security forces informed two of their former members in recent days that they were to be murdered by the so-called dissident republican terrorists? Failure to take resolute action to eliminate terrorism will consign the people of Northern Ireland to more years of terrorism. Will the Secretary of State confirm that, in the light of the severe threat to former members of the security forces, they will be granted the right to hold personal protection weapons?
I do not think that it is appropriate for me to comment in the House on individual circumstances and whether individuals might be subject to threats. However, I am prepared to say that we take threats extremely seriously, and the Chief Constable will take all necessary and proportionate measures to protect individuals who may be the subject of those threats. That is why, for example, he is reviewing measures on the retention and use of personal protection weapons.
I am sure that the House is looking forward to the announcements later today from my right hon. Friend the Chancellor of the Exchequer. He has had the opportunity to examine our proposals to the Treasury for additional help to ensure that we have a police service in Northern Ireland that can deal with all criminal elements, including threats from so-called paramilitaries.
First, I would like to be associated with earlier speakers’ compliments to Sir Hugh Orde on his great work in Northern Ireland. I had the pleasure of serving with him on the Northern Ireland Policing Board.
Apropos the question, does the Secretary of State know that a consequence of the horrific murders of the soldiers and the police officer is a tendency for police officers to withdraw from the communities that they serve, resulting in an increase in crime and antisocial behaviour? If that continues, there is a danger of recreating no-go areas, which we will not tolerate or accept. Such withdrawal is understandable for personal protection purposes, but it has to be addressed. I ask the Secretary of State to use his best endeavours to ensure that that tendency and drift is stopped and reversed because it assists the recruitment of dissident republicans, including very young people, in my constituency.
The hon. Gentleman rightly pays tribute to the work of Sir Hugh Orde—I imagine that many hon. Members wish to endorse his comments. I entirely agree with the hon. Gentleman’s analysis. It is incredibly important that we all do all we can to reach those young people and make them realise that they have no future in engaging in criminal activity. On policing areas that may be especially affected, I reassure the hon. Gentleman that one of the distinctions of Hugh Orde’s policing leadership has been to ensure that the officers of the PSNI carry out community, normal policing. We are doubly resolved to ensure that it remains good community and neighbourly policing, and that there will be no no-go areas in Northern Ireland.
On behalf of Her Majesty’s Opposition, I endorse the comments of my hon. Friend the Member for South Staffordshire (Sir Patrick Cormack) and the Secretary of State about Sir Hugh Orde, who is moving to another job. He did a remarkable job under difficult circumstances, and we should all be grateful for his work. We wish him the very best in his new endeavours.
The most effective way in which to prevent young people from joining dissident groups is a strong legal deterrent, with a very real prospect of arrest and conviction. Under existing legislation, some individuals who are linked to terrorism and convicted of firearms offences have received only suspended sentences. Is the Secretary of State considering reviewing that legislation?
I am always happy to review legislation, with a mind to improving it and making it more effective. However, let us be clear: between the signing of the Good Friday agreement and today, there has not been a significant increase in the numbers of people joining so-called dissident organisations, which we know to be criminal. That does not mean to say that—as with any regrettable gang culture—young, impressionable, alienated, albeit completely wrong-headed, people may feel disposed to be recruited to those gangs. We will take any measures that we can to discourage them—whether legislation, working with the Executive or other steps. However, I point out to the hon. Gentleman that one of those arrested for the murder of one person in the attacks in early March will be charged with being a member of a proscribed organisation.
Let me look at the issue from a slightly different angle. Following the Omagh bombings, the former Prime Minister passed legislation changing the rules on admissible evidence. However, it was so unworkable that it was repealed weeks after he left office. Is the Secretary of State considering legislating for new and usable powers to curb terrorist activity effectively?
I think that the hon. Gentleman knows that I have a strong record of working closely with the Chief Constable and the PSNI to ensure that he has all the tools available, whether in legislation or resources, as the hon. Gentleman will discover later today, to achieve public order and public safety. I am prepared to look at any appropriate, proportionate measure. However, for the benefit of the House, I would just say to him that, in relation to the attacks that happened at the beginning of March, the PSNI has made some spectacular progress, which has led to the arrest of individuals and charges of murder in the case of both attacks. I am confident that the police service has what it needs, but I am always prepared to enter into more negotiations.
May I associate those of us on the Liberal Democrat Benches with the comments made earlier about the ending of Sir Hugh Orde’s tenure? He was always vigorous in making the case for the proper resourcing of the PSNI. I hope that the Secretary of State and the Treasury will not see his moving on as an opportunity to diminish the resources given to policing and, in particular, to community safety partnerships in tackling the recruitment of young people to dissident republican groups. Does the Secretary of State agree that community safety partnerships have a particularly important role, as do all parties in all communities in Northern Ireland?
Of course community safety partnerships have an extremely important role to play, both in the context of the resources in the original comprehensive spending review settlement for the PSNI and crucially, as the hon. Gentleman will see from what my right hon. Friend the Chancellor may have to say later today, in relation to the police service and the resources required in Northern Ireland to meet the current criminal threats that are operating there. The hon. Gentleman will see that the Government are indeed a staunch friend of law and order in Northern Ireland.
I have had no such recent discussions. Policy relating to rates of duty is the responsibility of the Chancellor of the Exchequer, while responsibility for the promotion of business in Northern Ireland is largely devolved to Northern Ireland Ministers.
The Minister will be aware of the huge increase in volumes at the border, with people trying to take advantage of both different duty rates and the collapse of sterling, thanks to his Government. What specific involvement has he seen of organised crime and paramilitary groups in that increased trade?
The price of particular items on either side of the border will reflect a range of factors, including the value of the currency, VAT rates and duty rates. People will act rationally and make choices accordingly. However, the hon. Gentleman puts his finger on an important issue, which is the need to deal with those who would manipulate the border as a way of conducting illegal activity. We have established an illegal fuel enforcement group under the Organised Crime Task Force. Yesterday it had its most extensive operation yet, when 19 premises north and south of the border were raided. Huge volumes of illegal fuel were seized, as well as vehicles and cash. We take the issue extremely seriously and there will be more action to follow.
Of course, it would not be appropriate for me to have discussions with the Finance Minister of the Irish Government, because such matters go beyond my responsibilities. However, I can tell my hon. Friend that I have certainly had many discussions with the Justice Minister of the Irish Government about how we can co-operate to ensure that those who deal in illegal fuel are dealt with and brought to justice.
Thank you, Mr. Speaker.
Does the Minister agree that there is a lot of frustration in the communities in Northern Ireland about the lack of further action against fuel launderers? Does he acknowledge that more work needs to be done between the Serious Organised Crime Agency, the PSNI, the Northern Ireland Office and Her Majesty’s Revenue and Customs to ensure that a real focus is brought to this issue?
That is what the Organised Crime Task Force does: it brings all those agencies together in a focused way. The hon. Gentleman is right, however, to say that people are impatient for action when they see illegal activity being carried out. We will seize assets that have been criminally acquired, and ensure that people are prosecuted when that is appropriate. When people commit serious offences, they should go to prison.
I welcome what my hon. Friend says about trying to stop the smuggling of fuel across the border. What evidence is there that fuel is being smuggled not only into Northern Ireland but into the north of England and the rest of the mainland? What effect is that having, and what is he doing to prevent the fuel from reaching the mainland?
My hon. Friend has put his finger on an important issue. Criminal networks in Northern Ireland might seek to bring their illegal fuel over to England and Wales and beyond. Her Majesty’s Revenue and Customs leads on all this work, and operates right across the United Kingdom. We take this matter very seriously.
The Minister has already referred to the seizure of large amounts of fuel. As he said, 175,000 litres were seized yesterday, along with €22,000, four mobile laundering plants and 12 vehicles. I would like to congratulate the police and customs authorities on both sides of the border who have done extremely well in making these seizures, but it is worrying that as many as 15 to 20 organised crime gangs are involved in smuggling fuels including red and green diesel. What assessment has the Minister made of the full extent of this problem?
The assessment that I have made leads me to believe that the only way to deal with this issue is on a cross-border basis. That is why the fuel fraud enforcement group involves Revenue commissioners and the Criminal Assets Bureau in Ireland as well as Her Majesty’s Revenue and Customs and the PSNI; it is a collaborative effort. The hon. Gentleman could add to the list that he just read out the 25,000 litres of toxic waste, which would otherwise have been poured into the environment, that was rescued yesterday. Those who conduct this kind of activity have no regard for human life or for the wider environment.
Supervision of Offenders
This month, I have introduced electronic monitoring and extended post-custody supervision so that more offenders will be managed by the probation service on release from prison. Both these measures will strengthen the management of offenders in the community.
I welcome the Minister’s comments and the policy. Can he reassure me that the extra burdens that the policy will place on the Northern Ireland probation service will be matched by extra resources in order to implement it? Otherwise, its impact could be severely reduced.
Until very recently, the only offenders coming out of prison who received supervision in the community were the most serious offenders who had been serving life sentences. We have now extended the provision so that anyone who receives a sentence of 12 months or more will receive supervision after their release. We have been able to increase the budget of the probation service by 20 per cent. to ensure that it can fulfil its obligations and provide the necessary support. I hope that that will reassure my hon. Friend that we are putting the necessary resources in place.
As the hon. Gentleman knows, we are constantly vigilant of people coming out of prison as well as of those in the community to ensure that we have the necessary intelligence to find out who is associating with those organisations, and to bring them to justice when they commit criminal offences.
Preparing prisoners for their release from prison can be achieved more easily when we have state-of-the-art, purpose-built facilities in which to house them in the first place. When will the Minister be able to announce the beginning of the construction of the new prison at Magilligan? He and I, and others, worked hard to achieve the announcement of that new, state-of-the-art facility. When will we see the beginning of its construction?
The hon. Gentleman is a great advocate for the rebuilding of Magilligan prison. I cannot give a precise date when the building work will begin, but I can say that the detailed design work and the preparations are happening right now. I would be happy to meet him and update him on the plans at a suitable time.
Community Halls (Criminal Attacks)
Community halls play an important role in every local area across Northern Ireland. The Police Service of Northern Ireland works closely with local community safety partnerships and those who run the halls to do everything possible to prevent such attacks.
The Minister will be aware of the considerable concern arising from the attacks on community halls. There has been some suggestion that the number of such attacks is increasing. Can he confirm whether that is the case and, if so, what impact it will have on his estimate of the sums payable under the applicable statutory compensation schemes?
We are constantly vigilant on the issue of attacks on community halls. The number of attacks in 2008 was a significant reduction on the number in 2007, but there is no room for complacency. The PSNI works with those who run the halls in order to protect them. We have extended the compensation scheme in Northern Ireland so that any community hall conducting charitable activities is given further protection.
We welcome the recent changes to the compensation legislation, which mean that halls will be properly compensated when they are the subject of an attack. Will the Minister continue to work with us to drive down the cost of insurance for community halls so that those who run them for the benefit of the community will not suffer the penalties that they suffered in the past?
I certainly join the right hon. Gentleman in paying tribute to those who run these halls. Whatever the organisation that runs them across Northern Ireland, they are a huge additional bonus to any community in providing very important resources. Of course, the recent extension of the compensation scheme—the hon. Gentleman acknowledged that it has taken place—has been a significant factor in helping to keep the insurance premiums down. I am happy to continue to work with him and with all organisations in order to make continued and steady progress.
Dissident Political Organisations
We believe that there are three so-called dissident political organisations, but it is difficult to estimate the number of members of them, except to say that they have extremely limited appeal because they reject both the peace process and the political process.
The Secretary of State will recall that, last month, the Minister of State told the House about the activities of dissident paramilitaries who were, as he put it, using extreme violence to extort money from drug dealers while at the same time pretending to protect the communities in which they were operating. He quite rightly said that it was necessary to bring such individuals to justice. Can the Secretary of State say what success the PSNI has had so far in that regard?
The hon. Gentleman makes a very important point. The PSNI continues to be extremely successful in bearing down on all kinds of criminal activity, including that from so-called dissident paramilitary groups. It is essential for the House to remember that the funding of those so-called dissident groups—they are also, of course, criminal—comes from criminal activity. We will pursue them rigorously.
The Secretary of State has admitted that the security forces do not even know the primary people involved in dissident organisations, let alone what attacks they are planning. Does he accept that that is partly due to the fact that the special branch of the RUC, now the PSNI, was disbanded, so those intelligence sources have been lost and we are now in the dark about what dissidents are likely to do and what attacks they are likely to plan?
I really do disagree with the hon. Gentleman. First, I pay tribute not only to the RUC, but to the PSNI and the security services throughout the period. We should recognise the number of attacks that they have stopped and the number of people who have not died because of their work, which was important not only 10 or 20 years ago, but continues to be important today.
Later today, my right hon. Friend the Chancellor will have things to say about ensuring that the police have the resources that my right hon. Friend the Prime Minister promised they would have. We are determined to bear down on those people and the hon. Gentleman will see actions and words together this afternoon.
The Prime Minister was asked—
As we prepare to hear the Chancellor’s Budget today, will the Prime Minister detail for us what sort of an impact scrapping the Barnett formula would have on the least well-off regions of the United Kingdom, including, of course, Northern Ireland? Will he resolve that those areas such as Northern Ireland will not be penalised in the allocation of funding for essential services in the Budget?
It has been common ground between all the parties over the last 30 and more years that the allocation of public spending resources in the United Kingdom is based on need. I believe that that is the right formula and the right way to proceed.
I can tell the hon. Gentleman that, over the last few months, as a result particularly of the pre-Budget report, an injection of resources into Northern Ireland has amounted to £600 million, so that the Northern Ireland economy can do better. He has made his representations about the need for extra policing costs as a result of recent terrorist incidents. I hope he can look forward to the statement that will be made later today by the Chancellor.
The Home Secretary said on Sunday that she is committed to releasing any relevant information into the public domain as soon as possible that would shed light on the Hillsborough disaster and its aftermath. My right hon. Friend the Prime Minister will have seen the distress and anger that still exist in Liverpool and elsewhere, and among families and supporters, by watching last week’s memorial service, which more than 30,000 people attended. Will he ensure that all information is got out as soon as possible? That should include not only police files, but health files, local government files and Government papers that relate to the disaster, because the way it was handled originally was a disgrace. The police tried to cover it up and present it as being caused by Liverpool fans. Of course, there was also the disgraceful 3.15 cut-off point for time of death.
I am sure the whole House, on its return, will wish to repeat the sympathies that have been sent to all those families who lost loved ones as a result of the tragedy at Hillsborough: 96 people lost their lives on that day and the inquiry found that actions had to be taken so that something like that would never happen again. I well understand that, even after all these years, the feelings of the families are such that they want to be sure that everything possible was done. So, yes, we will look at how we can release whatever information is available to the families.
I have to say that the Taylor report was a very full inquiry. There was then a further inquiry after 1997 to look into what it may be necessary to do in addition, but if this is a means by which we can help the families in difficult times, even after these years, we will look carefully at what we can do.
Today’s unemployment figures are a reminder of the human tragedy of this recession: young people leaving school and university unable to get a job, and families facing tight budgets as people go on to part-time work or lose their jobs altogether. Before we hear the Budget from the Chancellor, I want to use this opportunity to get the Prime Minister to confirm some simple facts about the state of our economy. First, will he confirm that today’s unemployment figures show that what we have seen so far this calendar year is the fastest increase in unemployment in our history?
There are still 29 million people in work, nearly 3 million more than there were 10 years ago. We will continue to do everything we can to help people into work and help people to stay in their jobs. That is why we have extended tax credits so that they can help people on short time to have a living income. That is why we have taken action to ensure that there are 35,000 more apprentices in our country. That is why this week we introduced a scheme to help people who have been unemployed for six months to get back into work. That is why we are prepared to spend the money and invest it where it is necessary to do so. There is not much point in the Conservatives coming and telling us that they want to do something about unemployment if they oppose every measure that we are taking to deal with it.
The fact is that the Prime Minister’s schemes are not working. The forecast that the Chancellor made in the pre-Budget report of the level of unemployment at the end of the year was reached this morning, in April. That is the truth about these figures.
In terms of the figures, will the Prime Minister confirm that there are now more young people not in employment, not in education and not in training than ever before? Can he give us the figures for that?
I have looked at this very carefully, actually, and there are nearly a million more young people in education, training or work than there were in 1997. If the right hon. Gentleman looks at the figures for those aged 18 to 24 or 16 to 24, he will see that nearly a million more young people are in work or training.
Talk about massaging the figures! I asked the Prime Minister for a very simple fact: how many young people are out of employment, education and training? The answer is 857,000. That is the highest number on record. Even before the recession began, it was higher than when Labour came to power. If the Prime Minister will not even acknowledge these facts, how on earth are we going to make any progress?
Let me turn to the public finances. Will the Prime Minister confirm that next year Britain will borrow more than at any moment in our peacetime history—yes or no?
First, on unemployment and young people, let me just give the right hon. Gentleman the figures so that he is absolutely clear. In 1997, 3.9 million 18 to 24-year-olds were working or engaged in full-time education. The figure is now 4.7 million. In 1997, 5.2 million 16 to-24-year-olds were in full-time education or employment. The figure is now 6.1 million. I am giving the right hon. Gentleman the facts, and these are the facts. There are more people in work, training or education than there were in 1997, and I challenge him to deny that fact.
The second issue is public borrowing. In every country, borrowing is rising. The right hon. Gentleman will find that borrowing is actually higher in America than it is in Britain. The reason is that having lost substantial revenues as a result of the economic crisis, we are still prepared to take the action necessary to help home owners, to help people into jobs, and to help businesses. Once again, the question is this: will the Opposition stop deciding to cut public expenditure at a time when it is most needed, and will they support us when we give real help to people now?
What we have heard is a complete failure to address the facts. When the Prime Minister was in opposition, he talked about youth unemployment, not the number of people in jobs. The fact is that since Labour came to power, unemployment is up and youth unemployment is up.
The Prime Minister talks about the deficit. The Chancellor is about to stand up and, I believe, say that we are going to borrow around 11 per cent. of our GDP. There is no other country in the G20 with figures as bad as that. If we do not have a Prime Minister who can accept the facts, we are never going to make any progress.
Let me try another fact. In terms of the recession, will the Prime Minister confirm that, far from this being “not as bad as the 1980s” or “not as bad as the 1990s”, we are now, in Britain, in the deepest recession since the second world war?
I am glad that the right hon. Gentleman has asked that question. In the early 1990s, interest rates went up to 15 per cent. In the early 1990s, inflation went up to 10 per cent. In the early 1990s, the Conservatives did nothing when people were worried about their mortgages. In the 1990s, they did nothing when people became unemployed. And who was the chief economic adviser to the Chancellor at the time? None other than the Leader of the Opposition.
Perhaps on another occasion we can talk about some of the Prime Minister’s chief advisers and what they have been up to. It is about time he realised that as well as bringing the country to the brink of financial bankruptcy, he has brought his party to moral bankruptcy. The truth is—we are going to look at the facts—that this is the deepest and most painful recession since the war. On this day—a day when the Chancellor is going to have to explain that unemployment is rising faster than ever before, that the number of young people not in education, employment and training is higher than ever before, that Britain is borrowing more than ever before, and that the recession is as deep as I said—will the Prime Minister finally admit that he did not abolish boom and bust?
Every crisis that has happened since the second world war has been the result of high inflation pushing interest rates up, causing businesses to go bust and forcing people to get unemployed. That has been the traditional economic crisis we have faced, but this current crisis is happening even when inflation is low and interest rates are low. [Interruption.] If the Conservatives do not want to understand the solution, they will not even understand the problem. This is a global banking crisis, which we are dealing with through measures that in every case the Conservatives have opposed. If they want to do something about the economic crisis, they should support the measures we have been taking.
On this day of all days—on this day of judgment—let me have just one more go. When the whole country can see that we had a boom and we are now in such a deep bust, what is it about the Prime Minister that he cannot admit what everybody knows: he did not end boom and bust?
The right hon. Gentleman knows perfectly well that we are dealing with a banking crisis that has infected the rest of the economy, and if the Conservative party does not face up to that, it will never be able to solve the problem. [Interruption.] I am not going to go back to the days of the 1990s—[Interruption.]
We are not going to go back to the days of the 1990s of 15 per cent. interest rates, when we did little to help people with mortgages. This week we have announced a mortgage rescue scheme that will help—as will our other measures—thousands of families in the country. This week we have announced measures to help young people who are unemployed. The Chancellor will be announcing measures that will not only help jobs, but build for the future. But to do that we have to invest in the future; we cannot cut our way out of this recession. That is the difference between the two parties.
There are better schools, there are more hospitals, there are more Sure Start centres for young people, and there is better provision for the elderly. That is only possible as a result of—in Halifax and elsewhere—the doubling of public investment in our future. I have to remind people that that could not have happened if we had not made the decision to invest, rather than to cut our way through the economy.
Over the last few months the Prime Minister has come up with a shopping list of announcements about creating new jobs, and he was up to it again this morning: 100,000 new jobs from big capital projects; 500,000 people in work by paying employers; 400,000 new green jobs. That is 1 million new jobs he is now promising—jobs that people desperately need when unemployment is now soaring way beyond the worst predictions. Will he tell the 2.1 million people who are now jobless exactly how many of his new jobs have been created so far?
We believe that as a result of the action that we have taken, hundreds of thousands of jobs that could have been lost are not being lost. I ask the right hon. Gentleman to wait to hear from the Chancellor, who will give him a very precise figure when he gives his Budget in a few minutes from now. As for action on employment, when the right hon. Gentleman lists the various things that we have done he is making our point. This does not happen by accident—it does not happen by chance; it is because we have taken action to create jobs that more people have not lost their jobs, as has happened in other countries.
The answer shows exactly what the problem is. What is the point of the Prime Minister’s mortgage support scheme for the jobless, to which he referred, when he cannot even get the banks to join in? How many jobs is he going to create from a subsidy for cars that have not even been invented yet? These are meaningless headlines that serve as a health warning for the Budget, because this is a Prime Minister who makes promises but does not deliver and who raises hopes without giving real help. He should just come clean—he promised 1 million new jobs, so do they exist today, yes or no?
On the home owners protection scheme, I just have to correct the right hon. Gentleman. Many companies have joined that scheme and many companies are now agreeing to have similar schemes to the Government’s, so the idea that we have not acted on this is wrong. First, there is protection for people who have become unemployed and it is at a far higher level than ever before. Secondly, we have agreed with the building societies and banks a moratorium on mortgage repossessions. Thirdly, we have changed the rules that govern court action so that it is a last resort. Fourthly, we have underpinned some of the major building societies so that they can keep people in their homes and people will not suffer the fate of what happened in the previous recession.
As far as jobs are concerned, I ask the right hon. Gentleman to await the Chancellor’s remarks, both on green technologies and cars and on employment generally. I believe that the Chancellor will answer many of the questions that the right hon. Gentleman has put.
Following the success at the G20 in recapitalising the International Monetary Fund, will my right hon. Friend tell me what plans our Government have for the spring meetings of the IMF and the World Bank in respect of protecting poor people in poor countries from the global recession?
We did agree at the meetings of the IMF and World Bank that more action would be taken to help the poorest of the world. The president of the World Bank has proposed a vulnerability fund, and we have said at the G20 meeting that £50 billion more will be available, in order to help restructure the banks in some of the developing countries and to help people with food, education and health. I have said before that this is not the time to walk away from our responsibilities to the poor of the world.
Many Members of this House are very concerned and dismayed by events in Sri Lanka. The Foreign Secretary and I are doing what we can to impress on the Sri Lankan Government not only the need for humanitarian aid now, but the need to press forward with a political settlement, which is the only way forward to deal with the problems that we have faced. I spoke to the President of Sri Lanka earlier this week and I have followed up meetings that we have had previously. I asked him to extend the pause in respect of the ceasefire. I also asked him for humanitarian access to those refugees who have come out, are in difficulty and need help—I have said that the UN should have full access. I also asked whether he would receive a delegation from the United Kingdom, so that we could assess what humanitarian help was available and should be made available. We have had further discussions over the past few days, and I believe that the President will now be prepared to accept a humanitarian delegation, on a cross-party basis, from the United Kingdom. To prepare the way, a Department for International Development Minister will go to Sri Lanka later this week. We will impress on its Government the need not only for humanitarian help, but for a ceasefire and a political solution to these problems.
We did press the Israeli Government to investigate fully the allegations made against Israeli forces. The previous Prime Minister, Olmert, agreed that that would be done. I have offered the UN Secretary-General full support in his call for an inquiry into the shelling of UN premises in Gaza. All allegations of war crimes must be properly investigated. In addition, I think it important to say that some £50 million in humanitarian aid is now going to Gaza as a result of decisions by the Secretary of State for International Development. People will also be heartened by the fact that the President of the US has asked the President of the Palestinian organisation and the Prime Minister of Israel to visit him in Washington to discuss matters of peace over the next few weeks.
Yes, and I have said sorry that this has happened. I have also written to the hon. Lady personally. We should all say that what happened has no part to play in the politics of this country. It is wholly inappropriate and unacceptable, and that is why there will be new rules and procedures to govern the behaviour of political advisers.
What comfort can the Prime Minister give to my constituents who work for the Ford appendage called Visteon and who have been made redundant in a contrived administration? People have been thrown out of jobs and pensions have been lost. The same has happened to constituents who worked for Nortel.
The car industry, including component suppliers, is important to this country. There are meetings taking place with the companies concerned and we are doing everything we can to help the car industry through this difficult period. I would be happy to meet my hon. Friend to discuss those particular problems.
I applaud my hon. Friend for her representation of Luton. It is true that Luton won the final and I am pleased that that has happened. The team will be back in the league soon as a result of the efforts made by good local people.
On housing, we will invest in helping people to avoid repossessions. That is what this Government are about—helping people in times of need. But we need to make the decision to invest to be able to do so, and that is what we will do—invest, not cut.
Will the Prime Minister take this opportunity to explain why on earth he is proposing a system of daily allowances instead of an allowance system that is based on actual receipts and need? Apart from sidelining this House again, the proposal is frankly another example of what the public would regard as snouts in the trough, with people claiming money for absolutely nothing. Is not the real reason for bringing forward these rushed and ill thought through proposals the fact that he does not have the courage to sack Ministers who have been abusing the system?
This is a decision for the House itself. The one thing that is absolutely clear is that the present system does not work. The one thing that is absolutely clear is that the present system needs to be changed, and the one thing that is clear is that action has got to be taken immediately. If other people have better proposals, let them put them forward. We are putting forward proposals that deal with the problem, and deal with it now.
I am, as are the whole Government, very concerned by the evidence uncovered by the Information Commissioner about the re-emergence of blacklisting in the construction industry. In 1999, we established a power to introduce regulations to outlaw blacklisting, and we also consulted on draft regulations in 2003. Evidence at that time suggested that blacklisting had been eradicated but, given that there is new evidence that that is not the case, we are looking urgently at what we can do. We will assess whether the 2003 regulations, amended as necessary, should now be introduced to the House of Commons.
Yes, I will, and I hope that we can deal with the legitimate concerns of him and his Barnsley college staff about how we can enhance the investments available to further education colleges. I have said before that further education colleges have got more money this year for new investment. There is a great demand for it. The Chancellor has been looking at the matter and obviously will report in due course about what he can do. However, I fully sympathise with the points that my hon. Friend has made about the position of Barnsley college.
We are not. Scotland has received £2 billion more as a result of the injection of money into the economy, from the rise in pensions and child benefits, and from the cut in VAT and the rise in tax allowances. All that money—£2 billion in total—has gone to Scotland. If the hon. Gentleman does not understand that that is what is happening, he is living in the dream world of the Scottish National party.
Our duty to people in these difficult times is to invest in the future, and not to cut. Our duty is to be fair to other people, and not to be unfair. [Interruption.] It is all very well the Conservatives shouting; half the time in Question Times they are doing nothing—not even standing up to ask questions. I think that they are proving that some of them are part-time Members of this House.
Ways and Means
Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that at the end of the Chancellor’s speech, copies of the Budget resolutions will be available to them in the Vote Office.
Today’s Budget will continue to help people through this global recession, and prepare Britain for the opportunities of the future. First, there will be help now to get people back into work quickly, and to support businesses and home owners facing problems. Secondly, there will be measures to support investment in growth and green industries of the future while the recovery takes hold, and to ensure that our public finances are sustainable. We will protect investment in schools, hospitals and other key public services, and we will work to rebuild our financial services. Taken together, the measures in this Budget will build on the strengths of the British economy and its people and speed the recovery, providing jobs and spreading prosperity. In all of these decisions, we have been guided by our core values of fairness and opportunity, and our determination to invest and grow our way out of recession.
Today’s Budget will take Britain through the most serious global economic turmoil for over 60 years. The impact is being felt in every continent, every country and every community. When the world economy was plunged into a deep crisis in the 1930s, the response, both nationally and internationally, was too little and too late. That failure to act turned a serious downturn into a prolonged depression. We will not repeat those mistakes again. This time, we and other countries have worked to avoid them. Across the globe, we have seen decisive action by national Governments, and internationally, too. This action, taken promptly and decisively, gives us good grounds for confidence.
Today’s Budget builds on the substantial help for people and businesses that I announced in the pre-Budget report last November. It builds on the steps that we have taken to recapitalise and restore confidence in our financial institutions, and it builds on the outcome of the G20 summit in London this month, when the world’s leading economies came together to agree an unprecedented co-ordinated action to speed global recovery. The action already taken here and internationally, and the measures that I will announce today, mean that I expect the economy to start growing again towards the end of this year. I am also confident that as the global economy recovers to double in size over the next 20 years, Britain can and will be a world leader. This Budget will help make sure that we seize this opportunity.
As I told the House in November, we and other countries have been battling against a succession of shocks that have hit the world economy. At the end of 2007, problems in the international mortgage markets began to put a damaging squeeze on credit. In early 2008, we also saw dramatic volatility in many commodities prices, adding to uncertainty and putting pressure on growth. Last autumn, the dramatic failure of one of the top investment banks in America— Lehman Brothers—shattered already fragile confidence and brought the international financial system to its knees.
Since then, an extraordinary international financial crisis has fed into the wider economy, causing a steep and widespread world recession. A crisis that started in the developed economies has spread to emerging and developing countries too. Industrial production has fallen and unemployment is rising, by 5 million in the United States alone. In the past few months, world trade fell, and while our exports are down 14 per cent., exports in Germany are down 21 per cent., in China 26 per cent., and in Japan 45 per cent. So for the first time since the second world war, the world economy is expected to contract this year.
In the past few months we have seen considerable economic uncertainty, and that has fully justified the action we, and other countries, have taken to support businesses and people. Since the autumn, we have put the banks on a stronger footing, cleaning up their balance sheets and helping to boost bank lending. As a result, banks will be able to lend billions of pounds more this year and next to homebuyers and businesses. Getting credit flowing again is the essential precondition for economic recovery.
In the pre-Budget report, I announced a range of measures to help the country through the recession, putting £20 billion back into the economy. That help is coming through now, from an income tax cut, and a VAT reduction that will continue until December. There is increased support for pensioners, as well as investment in vital public services and accelerated capital projects, which is protecting thousands of jobs in this country. Because of the reforms we have made to the welfare system since 1997, that comes on top of extra help when families need it most.
I fully understand the anxiety behind calls to support those whose wages have fallen. This is exactly the support that our flexible system can offer, and is already offering. As shorter working weeks or irregular patterns reduce wages, those receiving tax credits can see an automatic increase to compensate for the loss of income. In March alone, for example, 355,000 families were receiving on average £35 a week more to support them, through tax credits—all the more reason why we need to keep tax credits and not scrap them. This demonstrates how our welfare system automatically helps people when they need it most.
Fiscal support has been complemented, too, with sharp reductions in interest rates by central banks right across the world. The Bank of England interest rate is now down to half a per cent., the lowest it has ever been. That has reduced the cost of mortgages and loans. The average saving, since October, for the 4½ million families with tracker mortgages, is over £230 a month. And we have now given the Bank of England new means to support the flow of credit and put money into the economy. Inflation has come down, which means that people’s income will go further.
Taken together, the total support that we have provided to the UK economy is expected to protect up to half a million jobs. Other Governments across the world have been doing the same. The total amount of fiscal support across the G20 will amount to over $5 trillion.
There has also been unprecedented co-ordinated action at an international level. The G20 group of economies came together, first in November and then in London earlier this month, to fight this global recession. We agreed to take whatever action was necessary to deliver the International Monetary Fund forecast of global growth of over 2 per cent. by the end of next year. In total, we agreed over $1 trillion of additional support for the world economy.
There are no quick fixes; there is no overnight solution—but because of the progress we have made, here and internationally, we can begin to restore confidence, save jobs, and bring the world economy more quickly out of recession. Of course, we must make sure we deliver on these agreements, starting at the meeting of Finance Ministers in Washington this week. I want the next meeting of European Union Finance Ministers to be focused on rebuilding growth in Europe, based on the foundations laid by the G20 in London. But we also need a clear path to recovery here—both fiscally and by investing to build Britain’s future.
The UK went into this global recession with employment at an all-time high, and inflation, public debt and interest rates at low levels. But no country can insulate itself from this worldwide downturn. The position here, as in every country, deteriorated in the autumn. In the last few months, world trade fell at the sharpest rate since 1945, and, as an open economy, we are the world’s sixth biggest exporter of goods and the second largest exporter of services, and we are affected by the collapse in demand in other countries. The unexpected severity of the recession has led the IMF to downgrade its own forecasts for the world economy three times since October. We, as well as other countries as diverse as Japan and France, India and the US, have reduced our growth estimates.
The United Kingdom economy contracted by 1.6 per cent in the last quarter of 2008. For the first quarter of this year, I expect the economy will again contract by a similar amount. And my forecast for GDP growth for the year as a whole will be minus 3½ per cent.—in line with other independent forecasts. But because of our underlying strength, and the measures we are taking domestically and internationally, I expect to see growth resume towards the end of the year. The IMF forecasts published today confirm the problems that all countries will face this year. But they also show that the British economy will suffer less than Germany, less than Japan, less than Italy and less than the euro area as a whole this year. The British economy is diverse, it is flexible and it is resilient, which is why I believe we can be confident in recovery.
Next year, because of the pick-up in world demand, the continuing benefit of lower prices and the substantial recovery measures being put in place, I am forecasting growth of 1¼ per cent. in 2010. In future, the sources of our growth will be more varied—and we need to ensure that we play to our country’s strengths. It will increasingly come from an expansion in investment by businesses in the industries of the future, such as low-carbon, advanced manufacturing and communications. These industries, together, are as important to the British economy as the financial services sector. That is why it has been so important that, for example, we have increased investment in Britain’s science base by 88 per cent. in real terms over the last 10 years. Growth will also be driven by the opportunities to export as the global economy doubles in size in the next two decades.
From 2011, I am forecasting that the economy will continue to recover, with growth of 3½ per cent. from then on. To account for the impact of the global shock, I have further adjusted trend output—the productive potential of the economy. But in future years, the economy will recover towards a trend rate of growth of 2¾ per cent. Inflation is expected to continue coming down sharply, reaching 1 per cent by the end of this year. I am writing to the Governor of the Bank of England, in the usual way, to confirm that the inflation target remains unchanged at 2 per cent. Retail prices index inflation is forecast to remain negative, falling to minus 3 per cent. by September, before moving back to zero next year.
The deepening global recession has had an impact on the public finances here and in every country across the world, and in this Budget, I will set out steps to ensure that they are on a sustainable path. And owing to the measures that I will announce today, the current deficit is expected to halve within four years. But before I turn to that, I want to set out the additional help we will give to people and businesses to get through the recession—and build towards recovery.
We know from previous recessions that people’s greatest fears are the loss of their job and their family home. All over the world, as the economy slows, unemployment is rising. In the UK, the claimant count increased in February by 137,000. Today’s figures show that in March it went up by 74,000—making the total claimant unemployment rate 4.5 per cent. It is not in any Government’s power to prevent all job losses, and, even when the recovery is under way, it will take time for unemployment to start falling. But Governments must give people targeted help to find new jobs as quickly as possible and, where necessary, to gain the new skills which will allow them to do this. This is not just morally the right thing to do, but economically essential. All the evidence shows that the longer people are out of work, the more difficult it becomes for them to re-enter the labour market. So today I will announce steps to ensure that a short-term job loss does not turn into a lifetime on benefits.
The core of the Government’s approach is the Jobcentre Plus network; its help has almost halved the average time that people spend out of work compared with previous recessions. Even in the tough economic conditions since November, it has helped over a million people move back into new employment. I am determined that this support can continue to be given to people who lose their jobs. In November, I increased resources for the Jobcentre Plus network and the new deal by £1.3 billion. I can announce today an additional £1.7 billion worth of funding, so that everyone can receive the high-level and high-quality support to which they are entitled.
Most people, even now, continue to find work within a matter of weeks, but we need to step up help to those who have greater difficulty in getting back into the labour market. So there will be additional support, through the flexible new deal, for people who have been out of work for 12 months. I am also determined that we do even more to protect young people from the damaging impact of long-term unemployment. The alternative is a return to the days when a whole generation of young people found themselves abandoned to a future on the scrap heap. We will not repeat that mistake.
So I want to offer a guarantee. From January, everyone under the age of 25 who has been out of work for 12 months will be offered a job or a place in training. Those in work will receive a wage; those in training will receive additional money on top of their benefits. To provide these extra opportunities, we are working with employers to create or support as many as 250,000 jobs. That will include delivering local services and traineeships in social care and other high-demand sectors, as well as jobs for people of all ages in particularly badly hit communities.
I also want to do more to help people gain the crucial skills that will be needed in the future. So, as part of my guarantee to young people, I will spend over £260 million of new money for training and subsidies, to help them get the skills or experience that they need in sectors with strong future demand. We will also provide extra investment to ensure that we deliver on our guarantee for every 16 and 17-year-old who wants to stay in education or training, to make sure that they can do so. To deliver that, for the next two years I am providing a further £250 million this year and £400 million in 2010-11. That will allow an additional 54,000 places in sixth forms and further education colleges for students in the next academic year. For this and other measures, there will be consequential provisions, where appropriate, for Scotland, Wales and Northern Ireland.
I will shortly set out long-term measures for housing and for businesses to help build the recovery, but first I want to set out how we can offer more support now in these areas. One of the biggest fears when people lose their jobs is that they and their families will lose their homes, and I want to do more to reduce the number of repossessions. Last year, I increased and extended the support for the mortgage interest scheme, which covers mortgage interest payments when people lose their jobs. Today I can announce that I will maintain the higher level of support for a further six months to help home owners as long as they look for a new job. That is in addition to the scheme to help people stay in their homes if their income falls.
The housing market is also being held back by a lack of mortgage credit, and the Government have already taken action to encourage an increase in mortgage lending; this year the major UK banks will increase the availability of mortgages by around £20 billion. To build on this, today I can announce the introduction, following state aid approval, of the scheme to guarantee securities backed by mortgages. That will help ease the flow of mortgage finance.
The recession and the credit crunch have made it much harder for people to take their first step on the housing ladder. This is not just difficult for those involved, but also undermines the entire housing market. So to help, I have decided to extend the stamp duty holiday on properties sold for less than £175,000 until the end of the year. Sixty per cent. of residential properties will continue to be exempt, which will encourage modest and middle-income home buyers. I can also announce a further £80 million extension to HomeBuy Direct, the Government shared equity mortgage scheme, which has already received interest from over 32,000 people since last September. Altogether, this is additional support for those who lose their jobs and new help for people to get on to the housing ladder.
In November I announced a series of measures to help businesses now. Over 100,000 businesses, which employ well over half a million people, have taken up the option to defer their tax bills, and I intend to continue this help. Some 800,000 smaller companies will benefit from the delay in the increase in corporation tax. Last month I announced that we would allow companies to spread out the payments of this year’s uprating of business rates, but today I want to do more to help firms with cash-flow problems. Many viable companies face temporary difficulties because of the shortage of credit, so today I am extending the help which allows loss-making companies to reclaim taxes on profits made in the last three years. This help, which will lead on average to repayments worth £4,000 each year, will now be available for two years until November 2010, and well over 100,000 businesses will have their full current losses entirely wiped out. Today I can also announce additional targeted support for companies’ cash flow, with a top-up trade credit insurance scheme, which will match private sector trade credit insurance provision if insurers reduce their cover to businesses operating in the United Kingdom.
I also want to help the UK’s automotive industry, which has been one of Britain’s success stories over the last decade. But the loss of consumer confidence and the credit crunch have led to a sharp fall in vehicle sales around the world. In order to help the car industry and retail trade, I can announce that we will implement a scrappage scheme next month. It will provide motorists with a £2,000 discount on new cars bought when they trade in cars over 10 years old. It will be a time-limited scheme until March 2010. My right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform will announce further details shortly.
We have made our choice to help those who have lost their jobs to find work quickly and, if needed, to learn skills. We are acting decisively to prevent a new generation of young people from becoming a lost generation. We are offering real support to home owners, and to businesses, through this unprecedented economic crisis. We could have decided to do nothing—but we chose to act, because that is the right thing to do. By doing so, we have not just protected people but will also reduce the length and the severity of this recession, lessening the impact on our public finances in the medium term.
I now turn to the public finances and the action that I will take to put them on a sustainable footing in the medium and long term. As I told the House in November, tax revenues were falling. The financial sector, which provided 27 per cent. of corporate tax revenues, was already badly hit then. But since then, with the recession spreading across almost every sector, the wider tax take has also come down sharply. Corporation tax and income tax revenues have fallen. The problems in the housing market have meant a dramatic reduction in stamp duty. In the UK, tax as a share of GDP is 1.2 percentage points lower now than it was a year ago. Here and across the world, tax revenues are down, and it will take some years before they come back up. At the same time, our reformed welfare state is rightly providing support to families, but of course it does come at an added cost to the Exchequer. Many countries have also intervened to strengthen their banking system, as we have. My public finances forecasts today include a provisional estimate for the potential cost of this, which totals 3½ per cent. of our GDP.
Around the world, fiscal deficits and Government debt have been rising sharply to levels not seen since the second world war. This is a response to an unprecedented financial crisis and a deep and widespread global recession. Allowing borrowing to rise—protecting services, helping people and businesses—is the right thing to do. The alternative—to take money out of the economy now, as some have suggested—would damage key public services, create more unemployment, lengthen the downturn and lead, in the end, to higher, not lower, debt. This Government, as well as others, have learned from the historic economic mistakes of the inter-war period that countries cannot deflate their way out of recession.
Taken together, my Budget measures today represent a fiscal easing of half a per cent. of GDP this year, followed by a tightening of 0.8 per cent. of GDP each year until 2013-14. I believe this is a sensible pathway to sustainable public finances. It will mean, as I have said, that the budget deficit will be halved in the next four years. At this stage, when there is so much uncertainty, to do so more quickly would prevent us from helping people now, choke off recovery, and stop us investing in the future.
Many countries, as a result of their action to support the economy, have seen higher deficits. In the United States, for example, the Congressional Budget Office expects the deficit to be 13 per cent. of GDP in 2009, 10 per cent. in 2010, and even in 2019, to be above 5 per cent. Our own figures for public sector net borrowing will be £175 billion this year, or some 12 per cent. of GDP. From 2010, as the economy starts to recover, and the measures announced in November and today take effect, borrowing will fall to £173 billion, then £140 billion, £118 billion, and then £97 billion. As a share of GDP, our borrowing will be 11.9 per cent. of GDP next year, and then, as we move towards balance, 9.1 per cent. in 2011-12, then 7.2 per cent., and then 5.5 per cent. in 2013-14.
This downturn will inevitably mean sharp increases in national debt relative to GDP. UK net debt, which includes the cost of stabilising the banking system, will, as a share of GDP, increase from 59 per cent. this year, to 68 per cent. next, then 74 per cent. in 2011-12, 78 per cent., and then 79 per cent. in 2013-14. It will stabilise and then begin to fall from 2015-16. In countries across the world, because of this economic crisis, it will take far longer for deficits to come back into balance. But because of the steps we are taking, I expect the underlying current budget to come back into balance two years later.
We need to help people now. We need to maintain key public services now. We need to invest in the future, but we also need to make sure that we maintain public finances on a sustainable footing. Indeed, this is the best way to drive up economic growth, which, in turn, is the best way to bring down borrowing and rebalance the public finances. We must to this within a time scale that does not damage the recovery. This will require tough decisions, but I am determined that they will be fair decisions.
It cannot be fair that those who should pay tax are allowed to avoid it. Over the last decade, we have taken a number of measures that have reduced tax evasion and avoidance—on average, reducing avoidance by over £1 billion a year. I intend to build on this today. We have identified loopholes and schemes which, when closed, will result in £1 billion of extra revenue over the next three years.
In this Budget, there will be new measures to help pensioners and savers on middle and modest incomes. It is important that everyone is encouraged to save for their retirement, and we will continue to support them to do so. But I intend to address an anomaly which sees a tiny proportion at the top taking a large slice of the help we give people to help to save. It is difficult to justify how a quarter of all the money the country spends on pensions tax relief goes, as now, to the top 1½ per cent of earners. So from April 2011, I will restrict pension tax relief for those with incomes over £150,000 so that it is gradually tapered to the same 20 per cent. that the majority of people receive. We will consult on its implementation. I am introducing measures from today to prevent forestalling, but again only those with incomes over £150,000 will be affected.
I am not proposing to increase taxes on income for this year. However, as the economy recovers and wages start to grow again, it is right that we take additional steps. I believe that it is fair that those who have gained the most should contribute more. Only those with incomes over £100,000 a year—or 2 per cent. of the population—will be affected. In November, I announced a new rate of income tax of 45 per cent. on incomes above £150,000—the top 1 per cent. of taxpayers. In order to help pay for additional support for people now and to invest in the future, I have decided that the new rate will be 50 per cent., and will come in from April next year—a year earlier.
In November, I also announced that I was reducing personal allowances for the very highest earners with incomes over £100,000. These allowances are worth twice as much as those of basic rate taxpayers. I have now decided to withdraw fully the benefit of that allowance for those with incomes over £100,000 from next April. These measures are necessary to build our recovery and secure our country’s economic future.
Along with other measures, including for landfill, company cars and gaming, I can also announce the following. I will continue to monitor oil prices, but I expect that fuel duty will increase by 2p per litre in September, and then by 1p a litre above indexation each April for the next four years. Alcohol duties will go up by 2 per cent. from midnight tonight, and there will be an increase in tobacco duty of 2 per cent. from 6 o’clock this evening. Taken together, these measures will raise over £6 billion by 2012, to secure our economic future and to provide help for people now when they need it most.
The importance of our public services, on which we all depend, becomes even clearer in these difficult times. We have made our choice to continue investing in our public services, which underpin the health and strength of our nation now and in the future. In the past 10 years, that investment has seen an extra 40,000 doctors, 41,000 teachers and over 70,000 nurses. But just as every family are looking closely at their own budget to ensure that they get the best value for money, so too should the Government.
Since 2004, the Government have identified and made £26.5 billion in efficiency savings while continuing to invest to improve schools, hospitals and other public services. In November, I announced plans to find an extra £5 billion of efficiency savings in 2010-11, on top of the £30 billion in this spending review period. Some have argued that we should cut public services immediately, rather than invest and grow our way out of the recession. I believe that would be the wrong thing to do. I can confirm that we are able to secure these savings that year while increasing investment, as planned, for local health services by over 5 per cent. and for schools by over 4 per cent.
Yesterday, we published the reports of the five independent reviews I set up last year. They have identified extra efficiencies from 2011 that rise to a further £9 billion of additional savings a year by 2013-14. They include efficiencies in public sector back-office functions and IT, improved procurement and better collaboration, and innovation at a local level. This will allow us to protect front-line services, while keeping current spending growth, in real terms, at an average of 0.7 per cent a year from 2011-12 onwards.
Capital spending is equally important to the future of our country. Over the past five years, this investment has transformed services. There are 61 major hospital schemes, 140 new schools and improved transport links including the modernisation of the west coast main line. It is essential to help create jobs, boost the recovery and deliver economic success in the long term. I intend that capital investment will continue at historically high levels to 2012, as we prepare for the Olympic games in Britain. After that, public sector net investment will be at 1¼ per cent. of GDP by 2013-14, twice as high as it was in 1997. Indeed, the efficiency savings we are making will help us direct more money to continue to support investment that everyone in this country depends on. We have set ourselves a central goal of realising up to £16 billion of property and other asset sales in the three years from 2011-12, with the proceeds raised being used for new capital investment.
As a result of the measures I have announced today, I can afford to make further investment in the future of this country. These funds will be invested now, to help ensure we seize the opportunities that will come from a world economy that is expected to double in size. I have already announced today £3 billion-worth of extra support to help people find work quickly, with a new guarantee for young people. There will also be £1 billion to help us combat climate change, by supporting low-carbon industries and green collar jobs. There is close to £1 billion to help home owners, meet future housing supply and allow the construction industry to recover quickly, and there is £2.5 billion for business, to encourage investment in the industries and high-paid, high-skilled jobs of the future—sectors such as advanced manufacturing, the creative industries and the low-carbon technologies: all essential if we are to prepare for the future.
A successful economy needs a strong financial sector. We do not want to throw away the many advantages that come from our position as a world centre for finance. I intend that we retain that position. Hundreds of thousands of jobs across the United Kingdom depend on it. We need to build trust in the banking system and harness the strengths of the financial services sector for the benefit of society. Crucial to that is financial regulation. I will publish shortly a Treasury paper with my recommendations for wide-ranging reform. It will propose action to reform corporate governance and remuneration at banks to avoid undue risk taking; to improve the regulation of capital and liquidity, so banks do not over-extend themselves; to increase transparency to achieve a single set of accounting rules so that we can see the risks that banks are taking; as well as to regulate all important institutions including hedge funds. It will also propose action to reduce the impact of the failure of financial firms. It will protect and support consumers and improve efficiency and competition in the financial markets as well as strengthening regulators’ powers. All these steps will, in turn, complement the agreement that we reached in London earlier this month to restore trust in the global financial system.
Strengthening the banking system is crucial to the recovery and to the economy, but the strength of our economy and the health of our society also depend on meeting the long-term demand for housing in this country. I have two measures that will help achieve that. First, we want to work with the industry to help tackle the restraints that house builders say could prevent them from acting now to increase housing supply. This will give construction firms more certainty and help them meet housing demand more effectively. Secondly, lack of finance now is affecting house builders and preventing the long-term investment that we need. So today I can announce £500 million of extra financial support. This will kick-start building on housing projects that have been stalled because of the credit crunch, and will deliver thousands of new homes. As part of that support, we are providing £100 million for local authorities to build new energy-efficient housing.
I have one further announcement to make about housing for one particular group. The whole country and the House are united in admiration for the courage and professionalism of our armed forces, but I want to ensure that that admiration is reflected in the quality of their accommodation, so I am bringing forward £50 million to accelerate the modernisation programme for that housing to ensure that this happens.
Let me turn next to the targeted help for business, which will help build on the strengths of our economy. A sustained and strong recovery depends on companies of all sizes making the most of the new global opportunities that await them. A more competitive exchange rate will help exporters, but it is also vital to our recovery that Britain and other countries remain open to free trade. It is essential that the Export Credits Guarantee Department gives businesses the support that they need, and I intend to report back shortly on how the support can be improved.
I have a number of proposals to encourage investment. There is, at the moment, less incentive to explore and extract oil from the North sea because of prevailing prices. So I am bringing forward incentives to encourage smaller fields to be brought into production, which could lead to an extra 2 billion barrels of oil and gas that would otherwise remain under the North sea. The incentives will also remove fiscal barriers, so that the North sea can become a hub for energy of the future—gas storage, carbon capture and offshore wind. I want to say more about that shortly.
I want other industries to invest, too. Businesses already benefit significantly from the annual £50,000 investment allowance, which was announced two years ago. I want to go further to promote investment now. So for this year, I will double the main capital allowance rate to 40 per cent. That will encourage firms to bring forward investment, in particular those companies in the growth sectors that will deliver the rewarding jobs of the future. It will mean enhanced tax relief to support investment of up to £50 billion this year. That includes £10 billion of investment in the vital communications sector.
It is vital as well to ensure that the entire country and economy benefit from the digital age. So I am allocating extra funding for digital investment to help extend the broadband network to almost every community. That will allow us to deliver the vision set out in the “Digital Britain” report—making sure that everyone can benefit from this communications revolution and creating thousands of skilled jobs.
Next, Government can and should do more to buttress the strength and capability that we need for our economic future. On Monday, the Government published a new industrial framework, the aim of which was to remove the barriers holding back innovative and fast-growing companies and to help markets work better.
To support that industrial activity and strategy, I can announce the setting up of a £750 million investment fund to help the country seize the opportunities ahead. The new fund will provide financial support, focusing on emerging technologies and regionally important sectors in, for example, advanced manufacturing, digital and biotechnology. It will encourage exports, support inward investment, promote research and development and harness commercially our world-class science base. It will complement the two new city region pilots in Manchester and Leeds, which will also have a major role in promoting economic investment.
Green technology will be one of the great growth sectors in the world economy in the next few years. In preparing for the future, Britain’s economic recovery must be sustainable and protect the environment. These efforts also have the potential to create thousands of high-tech businesses and hundreds of thousands of high-skilled jobs.
Climate change is one of the biggest challenges our world faces—and we in Britain are setting the lead. We are ahead of every other major developed country in progress against our Kyoto targets. Today, I am presenting the world’s first ever carbon budget, which commits this country to cutting its carbon emissions by 34 per cent. by 2020. Those budgets will give industry the certainty needed to develop and use low-carbon technology—cutting emissions and creating new businesses and jobs. They are a landmark step, which point the way to the vital decisions that must be made at the Copenhagen climate change summit later this year.
Saving energy is the easiest and cheapest way to cut carbon emissions—and it also saves people and business money. Over the past 12 months, we have helped around 1 million homes improve central heating or insulation. Today, I can announce £435 million of extra support to develop energy efficiency measures for homes, businesses and public buildings.
As well as saving energy, we need cleaner energy. We must build on Britain’s status as a world leader in offshore power generation. However, I am aware that the credit squeeze is holding back major offshore wind projects. I want to lift the barriers—through £525 million of new financial support over the next two years for offshore wind, funded through the renewables obligation. The potential is enormous and I am confident that this will lead to major projects getting the go-ahead quickly, providing enough electricity to meet the needs of up to 3 million households. We need to support all forms of renewable energy. I can also announce that renewable and other energy projects in the UK stand to benefit from up to £4 billion of new capital from the European Investment Bank.
Coal, oil and gas will continue to be major sources of energy for the foreseeable future. Clean technologies, such as carbon capture and storage, are vital to ensure that we can produce power from those sources without damaging the environment. I am determined that this country’s research and technological expertise is used to make us world leaders in this area as well. So I can announce that a new funding mechanism will be used to finance at least two, and up to four demonstration projects. The new generation of power plants could be even more efficient by using the heat produced in the generation of power. To encourage the use of combined heat and power technology, I will exempt those projects from the climate change levy from 2013, which will bring forward over £2.5 billion in investment.
I can also announce that, through £405 million of new funding, we will encourage low-carbon energy and advanced green manufacturing in Britain to drive up the application of new technology as well as to invest in small-scale projects. In particular, that will help us strengthen the supply chain right across these sectors and build on the expertise that we have in this country.
On the back of the discovery of oil and gas in the North sea, we became a world leader in every aspect of oil technology and industry. I am determined that we will replicate this success across the renewable energy and low carbon sectors. The steps that we are taking today will help make sure that we meet this ambition. They will also protect our planet and ensure the country’s economic future.
The measures that I have announced today underline our vision of a confident and successful Britain. They offer support for people when they need it, but also hope for the future. They put in place the vital building blocks for recovery and the economic long-term success that we need. Everything that we have done—whether supporting families now, maintaining investment in our public services and putting the nation’s finances on a stable path—is based on our values of fairness and opportunity. Even at this time of global difficulty, we are determined to continue building a fairer society.
In November, I provided help for families and pensioners. Today, I want to do more. Twenty-two million people on middle incomes have seen their income tax go down this month. There is help for millions of families, too—with the child tax credit up by £75 this month and the increase in child benefit paid early. Today I can announce additional targeted measures.
The Government are determined to eradicate child poverty, so, first, I can announce that, from April next year, the child element of the child tax credit will increase by £20. Secondly, children with disabilities need extra help to make the most of their potential, so we will add an extra £100 a year to their child trust fund. For those with severe disabilities, it will be an extra £200 each year. Thirdly, I can announce an increase in statutory redundancy pay from £350 to £380 a week.
I have one further measure, which will help a small number of valued people in this country. Increasingly, grandparents play a big role in family life in looking after grandchildren. To reflect that, we will, for the first time, ensure that those caring responsibilities of grandparents of working age will count towards their entitlement to the basic state pension.
I want also to announce further help for pensioners and savers. Earlier this month, pensioners on modest incomes got the biggest ever increase in pension credit while the basic state pension increased by £4.55 a week. I want to reaffirm today our commitment to increasing the basic state pension by at least 2.5 per cent. So if retail prices index inflation this September is below zero, as we expect, pensioners can be confident that their pensions will rise in real terms.
Last year, because of the steep increase in energy prices, I brought in a one-off increase in the winter fuel allowance. Energy prices are now expected to come down, but to help pensioners even more, I intend to maintain the allowance at the higher level for another year. That is worth £250 for the over-60s and £400 for the over-80s.
The fall in interest rates has been a welcome benefit to the economy and to millions of home owners whose mortgage costs have come down, but this has also reduced the amount of interest paid out on savings, and has particularly hit pensioners who rely on this extra money. There are more than 5½ million pensioner households in this country who have modest savings of less than £10,000, and I want to help them. For over a decade, the capital disregard on pension credit has been at £6,000 or below. It means that savings above that level reduce the amount of help that households get through the pension credit. I believe that it is now time to increase those limits, which will help compensate modest-income pensioners with limited savings. So from November of this year, the limit will be raised to £10,000. That will benefit more than 500,000 pensioners on modest incomes, who will gain by an average of £4 a week.
I have one other announcement that I want to make on savings. Tax-free individual savings accounts have been a great success. Eighteen million people have taken them out and have saved in them almost £290 billion. Since they were introduced 10 years ago, the annual limit has been increased only once and it now stands at £7,200. I want to go further, so to help savers on the 10th anniversary of ISAs, I intend to increase the total annual limits to £10,200, of which £5,100 can be saved in cash. The new limit will be introduced this year for all those aged 50 or over and will come in next year for everyone else.
Even in these difficult times, there is fair and targeted help for grandparents and pensioners and to tackle child poverty, encouraging people to save now and in the future. Every country has been hit by this global recession, but we have confidence in Britain’s future and in this country’s strength. You can grow your way out of recession; you cannot cut your way out of it. We have made our choice—to help people now, to build Britain’s future. I commend this Budget to the House.
Provisional Collection of Taxes
Motion made, and Question put forthwith (Standing Order No. 51(2)),
That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—
(a) Rates of duty on alcoholic liquor (Motion No. 9);
(b) Rates of tobacco products duty (Motion No. 10);
(c) Fuel duties (rates and rebates from Spring 2009) (Motion No. 13);
(d) Amusement machine licences (amounts of duty) (Motion No. 18);
(e) Gaming participation fees (Motion No. 61).—(Mr. Darling.)
Question agreed to.
I shall now call upon the Chancellor of the Exchequer to move the motion entitled Amendment of the Law, and it is on this motion that the debate will take place today and on the succeeding days. The remaining motions will be put at the end of the Budget debate next week.
Budget Resolutions and Economic Situation
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