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.
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.