The Chancellor of the Exchequer was asked—
Credit Unions
The Government strongly support credit unions and have announced in the Budget an extra £18.75 million for the growth fund, bringing the total to almost £100 million. The extra funding will allow further assistance through accessible, affordable loans to be made by credit unions and community development financial institutions in addition to the 160,000 loans made so far.
The Minister will be aware that I have written to him about my local credit union, Wearside First, which helps thousands of people across Sunderland to save and to access affordable loans. Those people would otherwise, unfortunately, have to use illegal loan sharks, and we all know the road that that would take them down. However, that wonderful credit union is facing closure due to a lack of funding. Will the Minister agree to meet me and representatives of Wearside First to discuss the situation?
As my hon. Friend knows, Wearside First is one of the credit unions that is participating in the growth fund, and it has been doing good work. I would be very happy to meet her and a delegation from the credit union to discuss the issues that it faces. Obviously, she will also want to discuss the matter with her local authority—perhaps she has done so already—but I would be very happy to have a conversation with her about this issue.
If the Government are serious about helping the poor, why are Ministers allowing some credit unions to charge up to 27 per cent. interest? That is far higher than the rate charged by many leading retail banks. Given the large taxpayer subsidy to which the Minister has just referred, are the Government not complicit in making the poorest in our society suffer?
No; I do not accept that. The Government strongly support the credit union movement across Great Britain. There are 532 credit unions, which have two thirds of a million members and somewhere in the region of £500 million-worth of assets. I would have thought that the hon. Gentleman would welcome the extra resources that the Budget has provided to make additional loans available to vulnerable people at very affordable prices. By 2011, an additional 85,000 people will be able to be helped as a result of the actions announced in the Budget last week. That is good news for people who need affordable credit; the credit unions play a tremendously important role in keeping such people away from doorstep lenders and loan sharks. Credit unions should be supported, and that is what the Government are doing.
The extra financial help from the growth fund is extremely welcome and will be of great assistance to many credit unions, but they sometimes need help that does not have a price tag. In some instances, they simply need a place in which to deliver their services in the community. Through the ministerial work that my hon. Friend does with other Departments, will he look into the possibility of using Government buildings such as Jobcentre Plus and Sure Start centres to give credit unions more places where they can deliver their services in the communities in which those services are now greatly needed?
My hon. Friend makes a good point. The Government are very interested in examining how we can extend the coverage of credit unions throughout Great Britain—they are already very strong in Northern Ireland, as he is well aware—and considering whether certain premises could be made available. We are also looking into other routes that would ensure the necessary coverage of credit unions in all the most vulnerable neighbourhoods across Great Britain. We will indeed look at the inter-ministerial level at what more can be done.
My constituent, Tony Massarella from Otley, is an accountant to many credit unions, and is something of an expert on their structure. Along with many credit unions, he is concerned that the Government’s approach favours the very large credit unions, when surely the point is to keep them close to the very communities that the Minister says they should serve. Will the Minister assure me and Mr. Massarella that the Government do not believe in a “biggest is best” approach to credit unions?
As a Government, we want to see a range of credit unions and, in recent years, we have worked very closely with the credit union movement. The hon. Gentleman will probably be aware of the legislative reform order that we have consulted on, which we hope to launch before the summer. He might also be aware of the Co-operative and Community Benefit Societies and Credit Unions Bill introduced by my right hon. Friend the Member for Croydon, North (Malcolm Wicks), which we discussed in Parliament last Friday. It provides for further changes to support the modernisation of the credit union movement. However, that should not be taken to mean that we want to see overwhelmingly big credit unions. We want to see a range of credit unions performing a range of functions that will benefit people in local communities and local organisations.
I know that my hon. Friend will want to join me in congratulating the Livingston credit union, which is opening a new office in Livingston on Friday. Does he share my concern, however, that the Scottish National party Government have abolished the £3.5 million ring-fenced funding that was set up to establish and develop credit unions in Scotland?
I certainly welcome the opening of Livingston credit union’s new office. Credit unions are as important in Scotland as they are in the rest of the United Kingdom. Obviously it is a matter for the Scottish Administration where they put their resources, but I would like to think that they would want to support the credit union movement, just as we have done through last week’s Budget.
Government Infrastructure Investment
There are no such implications. The announcement made on 3 March is targeted at PFI projects that have not yet reached financial close. This particular project reached financial close in 2003.
I thank the Minister for that, but is she aware that the European Commission has indicated that it is minded to uphold my complaint against East Sussex county council for failing to follow public procurement rules in respect of a contract extension that has recently been undertaken, for which PFI funds have been made available? Can she assure the House that East Sussex county council sought specific approval from the Treasury before entering into the contract extension in order to confirm that the terms of the original PFI award were not breached and that all obligations in respect of public procurement have been properly discharged?
My understanding is that, as the extension required no further PFI credits or further money from Her Majesty’s Treasury, those decisions were a matter for the local authorities concerned.
I am usually happy to call the hon. Gentleman, but Brighton and Hove is a good train journey to the south of Luton, is it not?
Lending to Business
The Bank of England published a new report on lending just last week. It suggests that some lenders expect the overall availability of credit to the corporate sector to improve over the coming months.
We also have the impression locally that the position is improving somewhat, but does the Chancellor agree that public support for the rescue of the banks is very much conditional on the banks’ willingness to support the rest of the economy? Will he be doing all he can to ensure that our colleagues in the newly nationalised banks are aware of that public feeling?
I agree with my hon. Friend; the reason why we decided to intervene to restructure and rebuild the banking sector was the need to ensure that credit keeps flowing—that is vital for business. RBS will lend an additional £25 billion this year and next, the Lloyds group an additional £14 billion this year and next, and the figure for Northern Rock will be about £5 billion, which mainly relates to mortgages. Even the banks in which we do not have a stake have benefited from the support that we have given: HSBC has said that it will lend another £15 billion, while Barclays will lend another £11 billion this year. That money will be made available—although obviously it is important that we do everything that we can to ensure that credit keeps flowing—and will complement the measures that I announced in the Budget last week that are specifically designed to help businesses.
Why is the Chancellor proposing to sell the good parts of Northern Rock this year when under current market conditions that would almost certainly guarantee a very large loss, rather than wait for market conditions to improve and get better value for money for the taxpayer?
I assume that the hon. Gentleman is referring to the reports that I have seen in the newspapers over the past few days. I have always been clear that my objective, once we get through this, is to return those banks to the private sector, because I do not believe that the Government ought to be in the business of running banks in the long term—I think that he agrees with that view. The question is when we should sell those banks back to the private sector. The answer will be determined by what represents the best value for money for the taxpayer, so I am in no hurry to do so. It is far better that we ensure that when we sell we are satisfied that what we are getting represents the best possible deal. I can tell the hon. Gentleman that it is not something that I would rush into; I want to ensure that we get a good price for the assets that we have.
The chemical process industry in my constituency makes the point that although excellent investment is available for research, very little investment is available for projects that are being made ready for market. What are the Government doing about that?
I agree with my hon. Friend that it is important that we support research. She will know that through the research and development tax credits we have done a great deal in this country, particularly in those areas that are very dependent on research. She is also right to say that we need to ensure that, having got the research worked up, we can then convert it into something that is ready to go into the market. That is why, for example, we have put more money into the Technology Strategy Board, which helps to develop such products. We have also made sure that there is a range of measures available to help with funding. My hon. Friend is right to identify the problem, which is shared by many countries. It is right to try to address it in every possible way, because we are very good at inventing and innovating in this country. The key is to convert that into products that can be sold in the marketplace.
Does the Chancellor agree that the objective of the announced programme of quantitative easing is to increase and facilitate lending by banks to businesses? The Bank of England has warned against another fiscal stimulus, so why is it proceeding with QE in such a half-hearted manner that it has actually raised the yields on gilts? It was also very slow to lower interest rates on the eve of the crisis. Would not Montagu Norman be proud of them?
I will leave that discussion for another day. The Bank of England has authority to put money into the economy to kick-start credit, and it has agreed to spend £75 billion. Part of that will involve buying commercial paper to help ease lending conditions between companies, but it takes time to build up that activity. The Bank has operational independence for doing that; although, obviously, I had to authorise the operations in the first place, the Bank decides when and where to intervene. I know that the Governor is very aware of the fact that, as part of the process of putting money into the economy and getting credit going, he must ensure that he helps the commercial sector. I know that he is looking at various measures to help him to do that, and he set all that out when he last appeared before the Treasury Committee.
Does my right hon. Friend agree that the flow of bank lending to smaller companies would be considerably improved if banks would stop imposing impossible conditions? I refer specifically to those banks that want personal guarantees from owners and directors who are applying under loan guarantee schemes that will be met in default by Government. Is it not wrong that when the Government are doing all that they can to improve the flow of money to small businesses, banks are impeding that flow by making the loans conditional on personal guarantees?
My hon. Friend is right: the Government are doing a great deal to help to increase the amount of money available to small businesses, and over the past few months some 2,000 businesses have been offered some £240 million of additional lending. Other measures are in place. Banks need to be reasonable with their customers and balance the need to ensure that they do not repeat the mistakes made over the past few years—when credit was given with too few questions asked and not enough security—with avoiding the situation in which conditions are so restrictive that the schemes do not actually work. A degree of common sense is required. It is important that we do everything that we can to get credit going, because it is an essential precondition to recovery, and that is why we decided to intervene to support the banking sector.
Although the base rate is only 0.5 per cent., the real cost of borrowing for business is much higher. The banks put that down to a combination of the LIBOR rate, the requirement to strengthen balance sheets and, to some extent, the cost of the various Government insurance guarantee and asset protection schemes. Given that the cost of the latter is within the Government’s control, is the Chancellor prepared to look again at the pricing policy for the insurance guarantee and protection schemes to determine whether a change might bring down the cost of money to the banks and therefore lower the cost of borrowing for business?
The hon. Gentleman raises an important point. The Government have put in place substantial schemes to deal with the problems of assets for which there is no market, or where prices have fallen, that were restricting the ability of the banks to lend. The Government have also made available funds through the special liquidity scheme and other measures. However, we have to make a charge for doing that, and we must also ensure that there is some discount, so that it is not just seen as a free good. The obvious other side is the need to ensure value for the taxpayer.
I think that one reason why the IMF withdrew its initial calculations when it tried to calculate our potential liabilities was that it had not quite realised that we had made provision against debts or provisions that might go bad. I have always made it clear that there is a fee to be charged and a price to be paid, because the banks cannot expect to receive this as a free good. Obviously, I will keep all these things under review, because my primary objective is to ensure that we get credit flowing through the economy again, and the banking system is essential to that. I appreciate the hon. Gentleman’s general point about what businesses pay. We will do everything we can to try to keep that price as low as possible, but I have to have regard to the general security of the taxpayer’s position.
I welcome the progress made on new lending, but is my right hon. Friend aware that some banks, including those of the Lloyds group in my constituency, are taking a punitive approach towards some existing loans? That has included telling one local business that it should mothball a housing development. Will my right hon. Friend say how the Treasury will use its leverage with the banks with which it has holdings to ensure that they do not take such a punitive approach towards existing borrowers and that they continue with the loan arrangements that have already been made?
As I think that I have said on a number of occasions, we cannot second-guess the judgment of every bank manager on every customer. However, we say to the banks that we have made substantial support available and that we want to see that support translated into support for businesses. I would be very happy to look at the case that my hon. Friend raises—obviously, I have no knowledge of it, so I cannot possibly comment on it. It is important, as I said to my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) earlier, that we should ensure that there are funds available but that there has to be a degree of judgment in each individual case about whether the loan is a good prospect and about whether it can be repaid. We do not want to get into the very problems that brought about this situation in the first place, where loans were given without enough questions being asked and with disastrous consequences for the banks and for the wider economy here and across the world.
The Chancellor is being complacent about the flow of credit into the economy. The enterprise finance guarantee scheme is under fire from businesses up and down the country. The working capital scheme started a month late, with only RBS signed up to it. In the Budget, after months of pressure, the Chancellor finally announced the trade credit insurance top-up scheme. Did the British Retail Consortium not sum up the Government’s attempt to get credit flowing again when it said that the trade credit insurance scheme was “too little too late”? While the Government have dithered, the help that they have offered has come too late for many businesses and their employees.
I would say that the support that we have made available to the banking system is fully justified. It was necessary—as I said, it is a necessary precondition of recovery. We have also put in place a number of measures: the hon. Gentleman mentioned the enterprise finance guarantee scheme, which is helping 2,000 businesses. We now have support for exporters and other measures of support, too.
I hope that when the hon. Gentleman spoke to the BRC he pointed out what would have happened had he had his way, as he was against every single one of the measures. I am always interested to hear his concern about what we are doing, but he ought at least to stand up and say, “By the way, I would not have done any of these things”, as his Leader of the Opposition made clear at the weekend.
Government Shareholdings
The Government have to date invested £37 billion in Lloyds and RBS. The Budget estimated that the one-off long-run fiscal impact of all the interventions to ensure stability in the financial system will be between 1.5 and 3.5 per cent. of gross domestic product.
If the Prime Minister can express anger that the Royal Bank of Scotland should make an acquisition without fully understanding the extent of the commitments that it was taking on, how much more angry should we be that the Government have taken on commitments and made investments in banks without knowing, even now, the full extent on the taxpayer’s behalf?
I am not quite sure what the hon. Gentleman is saying. The implication is that we should not have stepped in to save the financial system from collapse because of the uncertainty to which he refers. The cost of doing nothing would have been far, far greater. We took decisive action. We acted quickly and we saved the system from collapse; indeed, in the debate yesterday, the shadow Business Secretary recognised that those steps were right.
One of the many damaging aspects of the greed and recklessness of the bankers is that markets do not know the extent of the losses that they made in deals. In cases where the British taxpayer now has a stake in banks, are we getting to the bottom of those losses so that we can start to restore confidence in markets?
Yes, we are. A great deal of detailed work is going on at the moment to negotiate the specific terms for participation in the asset protection scheme. My hon. Friend is right; in particular, the future valuation of assets is very difficult, but I know that he will agree that the cost of not acting would have been far greater than what we have done.
Is there any limit to the amount of financial risk and debt that the Government should assume? Can the right hon. Gentleman tell us if they are using any prudential rule at all to stop us heading towards national bankruptcy?
The right hon. Gentleman will have seen what my right hon. Friend the Chancellor said in the Budget about returning the public finances to balance by 2017. He will also have seen the estimate I have mentioned already that the overall cost of all the interventions we have set out in the Budget will be between 1.5 and 3.5 per cent. of gross domestic product. It was absolutely vital that we took those measures.
A moment or two ago, our right hon. Friend the Chancellor confirmed the Government’s intent to return state-owned banks to the private sector as soon as it was expedient so to do. Does my right hon. Friend the Minister agree that the problems of organisations such as Northern Rock and Bradford & Bingley started with demutualisation back in the ’80s, and would it not be a good idea, rather than just floating those two organisations back into the private sector without wider consideration, to consider remutualisation of at least part of their business, as at the moment that model has greater attraction and confidence among the wider community than does traditional banking?
That must be a matter for the management and shareholders of those organisations. [Interruption.] I would say to my hon. Friend that we certainly need to learn lessons in regulation from what went wrong in the past, and Lord Turner’s report has been valuable in that regard. We need to make some changes, and we need to agree them internationally, to avoid repeats of those mistakes. In particular, we need to avoid the calls of those who, over many years, wanted minimal regulation of the financial sector.
Although I appreciate that the Treasury is reluctant to commit to any timetable about divesting its interest in the banks, how will we all know when the financial system has been fixed?
What we are looking for is a restoration of the flow of credit, in particular to mortgage borrowers and to businesses. We are some way from that position yet, but as my right hon. Friend the Chancellor mentioned, the Bank of England is now publishing a monthly report on trends in lending. We shall be scrutinising those reports carefully, as I am sure will the hon. Gentleman. We want to see the flow of credit go back to normal.
Fiscal Framework
The pre-Budget report set out the Government’s approach to the fiscal framework as a result of the recession and the global credit crunch. That approach has continued as part of the Budget.
Given that the Government’s fiscal framework has been shown to be pure fantasy, why should we have confidence in any fiscal framework that the right hon. Lady wants to put in place for the future? Will she adopt our policy for an office of Budget responsibility?
If that is the hon. Gentleman’s only proposal—to create a quango—I do not think that it will create a proper approach to the fiscal framework. We all know that the global credit crunch and the worldwide recession are affecting the public finances, and they are affecting revenues from the City and from other sectors, too, but the right thing to do is to support the economy through the downturn, to invest so that we can bring borrowing back down because the economy is growing, which will obviously save us more in the long run.
I call Kelvin Hopkins.
This time!
My right hon. Friend has wisely relaxed the rule on public borrowing—[Interruption.] Necessarily so. Would it not now be sensible to abandon entirely any future private finance initiatives, given that they were apparently justified on the basis of restraining public borrowing? Would that not be a sensible time to start to bring PFI services back in-house and to look at ways to bring all PFI schemes back into the public sector, which would save billions of pounds for the public purse over the next 30 years?
The PFI schemes that were introduced have improved timeliness and cost-effectiveness in many cases. There is still interest in putting private sector equity into such projects, but there are difficulties with private sector debt due to the condition of the credit markets. That is why we are providing additional support to ensure that the PFI projects that are close to closure can go ahead.
How many times have the time spans of the so-called golden rule and the sustainable involvement rule changed in the past 10 years?
We made it clear as part of the pre-Budget report that we are not following the previous fiscal rules at the moment. It would not be appropriate to do so now because, for the first time since the second world war, the entire world’s economy is shrinking, which we did not expect even 12 months ago. That is having an impact on the public finances, which is why all countries throughout the world are increasing support for their economies. No country would support such a tight approach or cutting public spending during a recession, as the hon. Gentleman’s party advocates.
Government Borrowing
I set out my forecast last week.
Is it because the IMF thinks that Britain’s deficit next year will be worse than Japan’s and America’s that one of the Chancellor’s senior Cabinet colleagues apparently believes that going to the IMF would be like getting well-being care or even going to a spa to recuperate?
I do not visit spas or well-being clinics, so there we are.
The hon. Gentleman has to realise that we and every other country in the world face the problem that something that started in the banking sector has led to a real global banking crisis, and that that has now spread into the wider economy. We can see the consequences of that: world trade has fallen—for example, exports from Japan are down by almost 50 per cent. That has had severe consequences for borrowing in not just our country but others. The question is what we do in the face of that. I believe that it is right to support our economy now, because if we did not, the situation would be worse for businesses and people. However, I have also made it clear, both in the pre-Budget report and last week’s Budget, that our country must live within its means, and that is why, for example, I announced measures to halve the deficit over the next five years. The two things are absolutely necessary, but I am clear that simply standing back and letting nature take its course would be disastrous and would cost far more in debt and borrowing than the action that we are taking.
Given that the Government intend that borrowing will be in excess of £1.4 trillion over the next four years, will the Chancellor please tell us how much debt the Government would be willing to take—both on and off balance sheet—before it became unsustainable?
As I was saying a few moments ago, it is important that we support the economy now. As I think the hon. Gentleman knows, as a result of what is happening, we, like other countries, have experienced a substantial drop in our tax revenues. For example, more than 25 per cent. of our corporate tax revenue used to come from the banking sector, so what has happened has had a consequence. In the face of that, he might argue that we should embark on wholesale cuts now, but that would be absolutely nonsense—
The hon. Gentleman says no—I agree with him—but that means that borrowing will be allowed to rise, which has a consequence on debt. At the same time, however, we must take action to ensure that we bring down borrowing and debt, and we have announced how we propose to do that. It is right and sensible to support our economy while ensuring that we have sustainable public finances in the long term.
Is the cost of this borrowing to the economy not substantially less than it was the last time that this country had substantial debts, which was under a Conservative Government, when interest rates were in double digits for five to 10 years?
My hon. Friend is right. Part of this country’s problem in the 1980s and 1990s was high inflation, which meant that the Bank of England had to raise interest rates to 16 and 17 per cent. In addition, many of the problems then were home grown. As my hon. Friend says, the difference now is that the effective rate at which we borrow is a lot lower then it was in the 1980s and 1990s. However, I come back to the same point, which is that we and other countries, faced with a worldwide problem, have a choice either to stand back and do nothing, as the Conservatives seem to advocate, or to take action. When one hears the Leader of the Opposition, as he did on Sunday, criticise the fact that our spending is increasing by £20 billion a year and imply that he would cut it, and when one realises that much of that spending is on unemployment benefit and other support for people, one really does wonder about the Conservative party’s approach.
The Budget revealed the worst borrowing figures in our peacetime history and the Government’s projection that they will not get back to a balanced budget for another eight years. However, the day after the Budget, it emerged that the Treasury’s projections include an unexplained fiscal tightening from 2014 of £45 billion, the equivalent of £1,450 in tax rises per household. Why was there no mention of that in the Chancellor’s Budget statement?
I did set out a path to reduce our borrowing over the next five years. The number the hon. Gentleman uses came from the Institute for Fiscal Studies last week. At this stage, when there is an awful lot of uncertainty out there, it is sensible to set a path that shows that, yes, we are supporting the economy now, but we are taking action to ensure that we reduce our borrowing over the next few years. To attempt to write a detailed Budget for 2015, 2016, 2017 or 2018 would be ridiculous when there is so much uncertainty, but it is important that we set out a clear direction of travel. The hon. Gentleman criticises me for saying that I will halve the deficit over the next five years and implies that he would go further. If the Conservatives think that we ought to reduce borrowing faster, I would be interested to know when they intend to spell out in detail what they would do to meet that target, instead of just hinting.
Taxation (Households)
For a household with a single earner on average male earnings, the proportion of income paid in direct tax was approximately 19 per cent. in both 2008-09 and 2011-12, a little more than 20 per cent. in 2007-08 and more than 21 per cent. in 1997.
Does the Financial Secretary understand that my constituents were fed up with paying more taxes under this Government, even before the Chancellor doubled the national debt? No one is fooled: a 50 per cent. tax rate may make it look as though the rich are paying more tax before the election, but after the election it will be average earners who are paying even more tax, because of increases in fuel duty and national insurance contributions, which by 2012 will cost every family in this country an additional £1,000.
Among the pieces of information that the hon. Gentleman gives his constituents, I hope that he will point out that they will pay less as a proportion of their income in direct tax in 2011-12 than they did in 1997 and that every basic rate taxpayer is, with effect from this month, benefiting from a £145 tax cut, thanks to the increase in personal allowances, which exceeds future national insurance rises. I hope also that he will have the courage to admit to his constituents that the Conservative party’s only tax promise to date is to increase the inheritance tax threshold to beyond £1 million, which would do nothing at all for 97 per cent. of estates, but would give on average a £200,000 tax cut to a tiny handful—3 per cent.—of estates. His constituents might have second thoughts when he explains that to them.
On the question of tax, specifically fair tax, is it not entirely consistent with Labour values and principles that those who have benefited most over the past 15 years—during the good times—such as the 17 millionaires on the Tory Front Bench, should be the ones who pay their fair share now that we are in a downturn? Does the Minister agree?
I think that my hon. Friend is absolutely right, and indeed the vast majority recognise that it is fair that those whose incomes have risen fastest, and those in the best position to do so, should contribute more.
To pick up the question asked by the hon. Member for Liverpool, Walton (Mr. Kilfoyle), why does it fit with Labour values to tax everyone earning more than £20,000 a year by increasing their national insurance contributions—that is nothing more than a tax on jobs—and to save that increase until after the election?
The hon. Gentleman should perhaps have paid a little more attention to what I said a moment ago: the increase in personal allowances in income tax—that is, in the tax-free proportion of people’s income—gives every basic rate taxpayer a tax cut of £145 from this year.
I read with interest at the weekend that certain celebrity millionaires, such as Sir Michael Caine, are considering leaving the country because of the Government’s tax moves. Could they be reminded that it is ordinary, hard-working people, who pay money to watch their films, who put them where they are? We should give those celebrities the message that if they cannot support services for those hard-working people, such as the national health service, when the country is going through a bit of a problem, good riddance to them, and we should say, “Don’t come back.”
I say to my hon. Friend that I hope that Michael Caine is not going to leave the country, but I agree with him that at a time of crisis in the world economy it is fair to ask those who are in a position to do so to contribute more.
I think the situation is even worse than my hon. Friend the Member for Billericay (Mr. Baron) fears. My hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) put his finger on it: the small print of the Budget Red Book shows us that if we fast-forward a couple of years, even with roaring growth in line with the fantasy forecasts that the Chancellor gave us last Wednesday, a further £45 billion-worth of tax increases would still be required. Will the Financial Secretary to the Treasury confirm that that equates to £1,450 a year extra tax per family? Is not the truth that behind the spin about taxing the few with a 50p tax rate, the reality is a secret Labour stealth tax bombshell, targeted at the many and timed to go off after the next general election?
I think I remember that poster. I can say to the hon. Gentleman that for the household that the hon. Member for Billericay (Mr. Baron) asked me about, and that we talked about—the household with the single earner and two children—the proportion of income spent on tax has gone down since 2007-08. It has gone down significantly since 1997, and we will protect the well-being of those families in the years ahead, both through our investment in public services and through the way in which we manage the tax system.
Savings
The Government recognise the importance of saving in providing people with independence throughout their lives, security if things go wrong, and comfort in retirement. Budget 2009 announced that from April 2010 the annual individual savings account investment limit will rise to £10,200, up to £5,100 of which can be held in cash. Those new limits will apply from October 2009 for people aged 50 and over. The Government also announced an extra £100 a year for the child trust funds of disabled children, with £200 per year for severely disabled children. In addition, the saving gateway will be introduced nationally in 2010 to encourage saving among people of working age who are on low incomes.
The measures outlined by the Minister are in no way commensurate with the huge loss to senior citizens’ savings as a result of the cut in interest rates. A great concern of the Shropshire Association of Senior Citizen Forums, which is 6,000 members strong, is the fact that members’ incomes have been cut so drastically as a result of the cut in interest rates. What specifically are the Government doing to help those people?
As I just said to the hon. Gentleman, people over 50 will be able to see an increase in their ISA limits by October 2009. He will be aware of the capital disregard for pension credit and pension-rated housing and council tax benefit, which was raised from £6,000 to £10,000 when the Budget was announced. Again, that will come into effect in 2009. I recommend to him the Moneymadeclear website, which offers free, impartial advice on a range of savings products that have rates significantly in excess of the current Bank of England base rate. That is on top of the measures that we announced in the pre-Budget report to increase the basic state pension. We want to do the right thing by pensioners in this country, and we are doing that. I am sure that they will welcome the increase in ISA limits that we announced last week.
If the Government believe so strongly in encouraging saving, why are they treating the Equitable Life victims so shabbily?
The hon. Gentleman will be aware of the report that we produced in response to the ombudsman’s report on Equitable Life. We have announced that we want to make progress as speedily as possible, and we have asked Sir John Chadwick to provide us with advice. We are committed to introducing an ex gratia payment scheme as quickly as possible. We want to treat those who have suffered a disproportionate impact as a result of the events at Equitable Life, for which we have apologised, fairly and as quickly as possible.
Topical Questions
The Treasury’s responsibilities remain as I set out at the last Question Time.
The UK is in a deflationary period at present, but when the billions of pounds of taxpayers’ money feed through into the economy, especially money that has been quantitatively eased or printed, inflation will follow, as night follows day. What action will the Chancellor take to minimise the effects of inflation, especially for the most vulnerable in our society, who are always the hardest hit?
The hon. Lady is quite right that we always need to be mindful of the harm that inflation can cause, which is why we set the Bank of England an inflation target of 2 per cent., which I confirmed again last week in the Budget. The Bank of England has been operationally independent of the Government for more than 10 years, and that has been widely supported and accepted. However, the Bank has a responsibility to meet that target, both in setting out how much it will put into the economy through quantitative easing and in its interest rate policy. The key is to make sure that we keep inflation low. At present, as the hon. Lady would accept, the objective is to make sure that we get credit flowing through the system, particularly for businesses but also for individuals. The Bank of England has that responsibility, so that is the answer to her question. That regime has worked, and it will continue to work in future.
I congratulate IPS on its expansion. Only last week I visited a company, Vectura, in the south-west, where I opened a new factory. There are businesses that are continuing to thrive and expand during these difficult economic times. It is right that we put pressure on the banks to ensure that they make lending available to businesses at competitive rates, which is why my right hon. Friend the Chancellor announced the legally binding commitments that RBS and the Lloyds Banking Group have made, totalling £27 billion this year in additional lending to businesses. We monitor that lending—the Bank of England produces monthly reports that look at it very closely indeed—and we want to make sure that it is available to viable businesses that want it. We want to see more companies such as IPS expanding in the UK in future.
As the Chancellor knows, the growth forecasts that he gave us in the Budget last week, which predicted a return to boom levels of growth in just two years, and that the economy would stay at those boom levels, were greeted with near-universal derision, yet they were the fiction on which he constructed every other Budget forecast. When he gave those forecasts, did he know that the IMF was planning to contradict them flatly just an hour later?
Yes, of course I knew the IMF forecasts. The IMF takes a more pessimistic view, not just of our economy but of every economy across the world. However, we ensure that our forecasts are based on the information that we have. If hon. Members look at the IMF and its forecasting over the past three months, they will see that it has downrated its forecasting three times since last October, which demonstrates the uncertainty in the system. However, I believe that because of the action that we are taking, because of the fact that we have low interest rates, because inflation will be coming down this year, and because of the action that most other countries are taking to look after and support their economies, that will have an effect, which is why I remain confident that we will see growth return towards the end of this year.
Frankly, I do not think the Chancellor is in any position to lecture anyone else about downgrading their forecasts after last week. Is not the truth this—that the dishonest Budget has completely unravelled in the space of just a week? We have seen the IMF produce those growth forecasts, which were wholly different from the ones given an hour earlier to the House of Commons. We have the CBI saying that there is no credible or rigorous plan to deal with the deficit. We have the Institute for Fiscal Studies pointing to the black hole, and yesterday a former member of the Cabinet, beside whom the Chancellor sat at the Cabinet table, said that his tax plans were a breach of a manifesto promise that is damaging not just to the Labour party, but to the economy. Today we had the Prime Minister getting a lecture in prudence while he was in Warsaw. We are used to Polish builders telling us to fix the roof when the sun is shining, but not the Polish Prime Minister as well.
Does not the collapse of the Budget in the past week and the damage to the Chancellor’s credibility make an almost unanswerable case for an independent office for Budget responsibility, so that we get independent forecasts on Budget day and the assumptions of the Budget are believed by the public?
No. The big difference between us is on the action that the Government should take, faced with a downturn of the magnitude that we see today and the problems that we and every other country are facing at present. The hon. Gentleman’s solution is to stand back and let nature take its course. That is a price that I am not prepared to pay. I have set out in the Budget measures to help not only individuals, especially those who may be facing unemployment and need help to get back into work quickly, but businesses in this country. We also ensured over the past few years that we went into the downturn in a position where the Bank could reduce interest rates, unlike in the past, when interest rates had to be increased. The action that we have taken to help the economy now and the action that I set out to get borrowing down again is realistic and sensible, given the situation that we face. The question that the hon. Gentleman will have to answer sooner rather than later is, if he is critical of all that, what exactly is he proposing in relation to public spending? What exactly is he proposing to do to help people and businesses in this country? At present that is absolutely opaque.
Yes; we are monitoring carefully the impact of that service around the country. I can tell my hon. Friend that more than 1,200 businesses in Cumbria have benefited, enabling them to defer, between them, £15 million. Across the country 116,000 businesses have deferred £2.1 billion in tax, very often with a single phone call. I met a company chairman last week who described the service to me as “brilliant”. We are providing real help now for businesses in my hon. Friend’s constituency and across the country.
Sadly, I did not have the benefit of listening to the Polish Prime Minister, but I am glad that Poland has managed to do so well over the past few years. I am sure the hon. Gentleman will recognise that there are differences between Poland and other countries. If we look around Europe—I am glad that Opposition Members are now prepared to look at Europe and cite other European countries with approval; that is certainly different from how it used to be—the more developed economies in Europe have experienced exactly the same difficulties as we have, as America has and as Asian countries have. There is no country in Europe, Poland included, advocating the present policies of the Conservative party.
Order. At Topical questions, it is very important that the supplementaries are brief.
I am certainly aware of Caterpillar, which is a globally organised company and a significant employer in the United Kingdom. It is in the same market segment as the automotive industry and companies such as JCB, which is not far from my hon. Friend’s constituency. Caterpillar is eligible for the Government’s £2.3 billion guarantee scheme through the automotive assistance programme, and I am not aware whether, for instance, it has contacted the European Investment Bank for loans, but it might want to consider that. I should be very happy if Caterpillar wanted to meet Department for Business, Enterprise and Regulatory Reform officials to talk about the automotive assistance programme and the support that we can offer.
The hon. Gentleman makes an important point. He will know that we have supported many of those programmes, which include funds from Europe, to support regeneration throughout the country. That is why we are honouring and supporting the three-year budgets that we set for local councils and continuing with support for regional development agencies and other agencies throughout the country. It is right to continue to invest to support the recovery, and not to cut public spending in the middle of the recession. That would be devastating not only for recovery but for the public finances, because it would push up costs in the long term.
My hon. Friend rightly points to the importance of the aerospace sector to the UK economy. It is one reason why, through BERR, we have for a number of years had an aerospace innovation and growth team approach that has been highly successful. Aerospace companies have been accessing funds through the Technology Strategy Board for long-term research and development. He points to the need for bank finance and particular loans, but for small companies with a turnover of up to £25 million the enterprise finance guarantee is a potential route. None the less, I should be happy to meet my hon. Friend and representatives of the two companies, along with officials from BERR and the Treasury, if appropriate, to discuss whether further assistance might be available.
The hon. Gentleman is rather twisting what I said. I said that Poland has made very good progress over the past few years. As he very well knows, Poland, like so many other countries in eastern Europe, was saddled with being under the Soviet union for many years after the war. It has come through that, and it has established itself as a successful economy. Like all economies, it has had problems. The wider point that I was making is an important one: that across Europe, countries are being affected in the same way as we are because of the banking crisis that has spread into the wider economy. Whether in Poland, France, Germany, this country, Asia or America, the question is the same: what do Governments do in the face of this? Do they stand back and hope for the best, or do they do something to support their economies so as to support families and businesses? That is the right thing to do, and Poland recognises that as well.
As I am sure that my right hon. Friend the Chancellor is aware, I have recently been involved with setting up the all-party group on insolvency. With that in mind, will he tell me what he is doing to fight the culture of fear around insolvency which often prevents businesses and individuals from seeking help before it is too late?
As my hon. Friend will be aware, we announced in the Budget a package of reforms that we want to consult on with regard to insolvency legislation. We have great strengths in our insolvency system, but she is right to point out that these extraordinary economic times are putting major pressure on insolvency practitioners. We have learned some lessons from that. I would be more than happy to come to the all-party group to discuss insolvency issues, and I am sure that the Minister for Employment Relations and Postal Affairs, my right hon. Friend the Member for Wolverhampton, South-East (Mr. McFadden), who leads on insolvency in BERR, would be happy to do likewise.
I do not think that there is any contradiction between ensuring fairness and freedom from discrimination and good business practice. I am discouraged, to say the least, but not surprised that that attitude still thrives on the Conservative Benches.
Will my right hon. Friend the Chancellor look to holding a job and finance conference in which we can get banks, businesses, manufacturing industry and trade unions around the table to see how we can ensure that jobs are protected; and will he look to introducing the short-time working subsidy in order that manufacturing can survive to the end of this recession?
I will continue to do everything possible to ensure that we help people who lose their jobs to get back into work. In relation to my hon. Friend’s point about job subsidies, I repeat what I said in the Budget last week: for people who have families and children and whose incomes go down, the tax credit system compensates for that. In March alone, more than 355,000 people got £35 a week extra as a result of the measures that we have taken. That marks a difference between Labour Members and the Conservatives: we are prepared to help people, because all the experience shows that if people are left on their own, without help, as we saw in the 1980s and 1990s, that can have disastrous social and economic consequences.
As I said earlier, the reason we have allowed borrowing to rise is that in the face of the downturn and the problems that every country is having to confront, that is the right thing to do. It is equally important, though, that in the medium term, like every country, we have to live within our means, and I set out how we propose to do that.