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Oral Answers to Questions

Volume 493: debated on Tuesday 9 June 2009

Treasury

The Chancellor of the Exchequer was asked—

Savings

2. What his most recent estimate is of the percentage of household disposable income that is saved. (278505)

The latest gross household savings ratio is for the fourth quarter of 2008 and it shows that 4.8 per cent. of total household resources were saved.

Families saving for the future are under serious pressure, especially those with disabled children, as they come under particular pressure when the disabled child reaches 18, so saving is very important for them. What have the Government done to help those families? I ask that because some good Government initiatives that were introduced in the Budget seem to have got lost in the general credit crunch debate.

I am grateful to the hon. Gentleman for raising this point, because the Government announced in this year’s Budget that we will contribute an additional £100 a year to the child trust fund accounts of all disabled children, with the most severely disabled receiving £200. We are doing that because, as he mentioned, we recognise the particular issues that face disabled children as they reach maturity. They can, of course, control their trust fund assets when they turn 18.

There will certainly be a reduction in savings from household income in the Cheltenham and Gloucester area today, following the peremptory announcement by Lloyds of the loss of 1,600 Cheltenham & Gloucester jobs. Is it not the case that Lloyds has betrayed any regard for the dignity of people and their employment, and will the Minister join me in writing to the Cheltenham & Gloucester in order to ensure that people who are to be made unemployed are treated properly?

My right hon. Friend is absolutely right to raise this point, and we obviously hope that people will be treated with decency in what is a very difficult time, not only for Lloyds but across the financial services sector. The question of the number of people employed by Lloyds is obviously a commercial matter for the company itself, but I am sure that Members in all parts of the House who have constituents who are affected will want to make sure that they are treated as decently as possible.

How can the Treasury properly promote a savings culture when it is led by a Chancellor who last week was scheduled to be sacked? [Hon. Members: “Where is he?”] If the Prime Minister does not have any confidence in the head of the Treasury, why should the rest of us?

Well, I am delighted to be able to report to the House that the Chancellor is currently at ECOFIN fighting for this Government’s interests, and in particular ensuring that the UK’s interests are represented as the European Community discusses the de Larosière report, which is entirely relevant to the City of London as it deals with the European supervisory framework. I think that that is exactly the right thing for the Chancellor of the Exchequer to be doing, and it is in direct contrast to the policies of the Opposition, which are to reduce the influence of our country in Europe by leaving the European People’s party and refusing to engage.

I welcome my hon. Friend back to the Treasury; it is nice to see her in the team again.

As my hon. Friend will know, the savings ratio tends to be geared to what is happening to house prices, so it is no surprise that now that we are seeing a house price deflation there is a recovery in household savings. At a time of low inflation, savers will be looking for good deals, and I welcome the extension of the individual savings account scheme in the Budget and particularly the extension of savings opportunities for those over 50. Will she and the Treasury team continue to look at some targeted further developments of the ISA scheme to assist those who are now seeking to save in new ways?

My hon. Friend is right to draw attention to this point. People over 50 will be able to save £10,200 in their ISA from October this year, of which £5,100 can be saved in cash. We know that this will be particularly welcome as savers seek better returns on their assets. It is, of course, a competitive market out there, so I urge anybody who has been adversely affected by the necessary reduction in interest rates to have a look at the comparator tables available on the Financial Services Authority website.

Can the Minister tell me why anyone should save at this time, bearing in mind that the return they get on any savings is either nil or minimal? Is she not concerned, as I and many other Members on both sides of the House are, about the situation of the elderly, who look to the income from their savings to provide them with a sensible standard of living? What are the Government doing about those who rely to a large extent on their savings to supplement any pension or other modest or low income?

I do not know whether the hon. Gentleman was listening, but I just explained one thing that we are doing for the over-50s to ensure that they can get a better return on their savings—we have increased the limits up to which they can save tax-free in ISAs. This Government’s policy is to promote saving across the whole of a person’s lifetime, which is why we introduced child trust funds—I am delighted that three quarters of parents take those up for their children; we, of course, open them for the remaining quarter. It is also why we introduced and are expanding the ISA allowances, why the savings gateway will come on board from next year and why we continue to give advantageous tax relief to people saving for their pensions.

Bradford & Bingley (Bonds)

3. What representations United Kingdom Financial Investments has received on the cessation of interest payments on Bradford & Bingley’s 11.625 per cent. perpetual subordinated bonds. (278506)

The Treasury and UKFI receive a wide range of representations on issues relating to banks in receipt of public funds. It is not the Government’s practice to provide details of all such representations.

Bradford & Bingley has announced that it is going to default on the interest payments on these bonds. When it made that announcement the capital value of the bonds fell, so many people who have invested in these securities for their retirement income have lost out on both interest and capital. Given that Bradford & Bingley is effectively a Government-owned institution, does this not suggest that the Government are prioritising getting their money back ahead of their moral and legal obligation to bondholders?

This was a decision for the Bradford & Bingley board to make, judged against the objectives it had in its business plan. The hon. Gentleman will be aware that the statutory debt owed to the Financial Services Compensation Scheme is about £14 billion, and the Treasury is owed about £4 billion. He will also be aware of the normal creditor hierarchy, and I believe that it is fair that the FSCS and the Treasury should be repaid ahead of subordinated liabilities. Furthermore, he will be aware that in such circumstances the 11.625 per cent. rate of interest should have given people who were taking advantage of these bonds some sort of clue that they were making a reasonably risky investment and that they would not necessarily be ahead of others who were making less risky investments.

Yesterday, we saw that Lloyds TSB was able to pay back to the taxpayer a net £2.3 billion, and the British Bankers Association today reports that bank lending to small businesses has increased over the past month. Although there is a long way to go, what do those developments tell us about the effectiveness of the Government’s strategy towards the banks?

My hon. Friend is right to highlight the announcement made yesterday by Lloyds Banking Group. I think that it indicates that the recapitalisation of the banks and the actions that we took in January, on top of those in October, are working. We need to do more to continue to ensure that lending is available in the financial system, be it lending for people who want mortgages or lending to business, which is vital. Well over £50 billion of additional lending has been committed this year, which should make a difference in the future. The Government need to keep taking actions that will make a real difference in helping people and businesses through these difficult economic times, rather than leave people to their own devices, as the Conservative party would do.

Can the Minister confirm that he is about to appoint a valuer for the assets in Bradford & Bingley and that the valuer will be able to act with complete independence from the views of Ministers in valuing those assets? Can he also confirm that the valuer will be free to offer the same deal to bondholders and shareholders in Bradford & Bingley as the preferential deal offered to the same groups of people in respect of Northern Rock?

I can indeed confirm that the Government will appoint a valuer shortly. We hope to be able to do that before the recess, and a public appointments process is going on at the moment. The hon. Lady will be aware of the powers in the Banking Act 2009 and the role of the valuer—they have a remit to act independently. The valuer’s decisions will undoubtedly be a matter for the valuer, acting in accordance with his or her remit and existing legislation.

I congratulate my hon. Friend on the development at Lloyds. May I ask him to look further at the form of recapitalisation executed there—namely the reduction in high interest rate preference shares for normal equity—to see whether or not he could consider, in the case of Bradford & Bingley and others, using high-yielding bonds too? They could be repaid and therefore make it much easier, in terms of bank liquidity, to promote the very increase in borrowing that we seek.

My hon. Friend has a great deal of expertise in these matters, and I always listen with interest to what he says. Lloyds has made a commercial decision about wanting to repay the preference shares, and it is right to refer to the vital importance of liquidity in the financial system. As always, the Government will keep these matters under review.

Does the Minister accept that it is essential that United Kingdom Financial Investments should be seen to have genuine operational independence? Will the Government therefore take early action to put that body on a proper statutory footing?

We have made a number of announcements with regard to UKFI, and as the hon. Gentleman knows, it operates on an arm’s length basis. It is right that Bradford & Bingley and other banks that have received Government funds and involve UKFI in a supervisory management role should act on a commercial basis. We will continue to ensure that we provide the right level of resourcing for UKFI so that it can undertake the work that it needs to do, which is about protecting the taxpayer’s interests.

We have to bear in mind the fact that as a Government, we have invested huge sums on behalf of the taxpayer in our banking system. We need to ensure that we do all we can to protect the taxpayer’s interests, and that is what we will do.

Inflation

The Treasury’s latest assessment of inflation and its effect, and the effect of other factors on the economy, was published in the Budget. Since then, consumer price inflation was 2.3 per cent. in April.

I welcome my right hon. Friend to his new post.

In the longer term, will the Government look again at the inflation target, perhaps with a view to raising it so that as the economy moves out of recession—it is doing that, which is very welcome—the green shoots of recovery are not crushed by too early and too steep an increase in interest rates?

We certainly have no plans to choke off growth when it returns, which is exactly why we have put so many tools and resources in place to ensure that we return to recovery as quickly as possible. The reason why we will not revisit the inflation target in future is simple: we do not see that there is a trade-off between inflation and growth, and in the medium term we believe that higher inflation will deliver higher interest rates, which in turn will dampen down our long-term rate of growth. That is exactly why, when the Chancellor published the Budget a month or two ago, he confirmed the Bank’s remit to keep the inflation target exactly where it is.

I had intended to congratulate the Chancellor on rising from his grave, but it appears that he is still lurking in the graveyard.

May I ask when the Treasury plans to reverse the not very successful quantitative easing programme, in order to moderate inflationary expectations?

The Governor of the Bank of England has been very clear that quantitative easing is a tool that he needs to ensure that monetary policy operates effectively in this country. That is perhaps why we have not seen the falls in prices that have been seen in other parts of the world. We are absolutely determined to ensure that the Governor has the tools that he needs to set that measure alongside a fiscal stimulus. Together, they amount to something like 4 per cent. of the economy. We believe that that is the best way to return to growth as quickly as possible.

The market is factoring in expectations of a significant rise in inflation, as reflected in higher bond yields. Why is that happening, and does it not run the risk of choking off any economic recovery when it comes?

That is exactly why the Chancellor has been clear that the inflation-busting remit of the Governor of the Bank of England remains undisturbed. What is important is that the Chancellor makes available to the Governor the tools that he needs to deliver on that inflation target. That is why it is important that it is down to the independent Monetary Policy Committee to help oversee how tools such as quantitative easing are used.

The Governor has been clear about how he will approach the question of when to stop using the tools that have been made available to him. He said in the May inflation report that that decision would be based on a judgment about the inflation outlook, so there is no change in the strategy or the approach. This is simply another way of conducting monetary policy within the framework that the Chancellor has set for him.

May I, too, welcome the Chief Secretary to his new position?

Last week in Beijing, US Treasury Secretary Tim Geithner said that

“consumer spending in the United States will be restrained for some time relative to what is typically the case in recoveries. These are necessary adjustments. They will entail a longer, slower process of recovery”.

Going into this recession, UK household debt was even higher than that in the US, so why does the Chief Secretary think that the UK recovery will be so much stronger than that in the US and is he still sticking to his trampoline forecast of 3.5 per cent. growth in 2011?

The reason why we have confidence in the forecast is that we not only acted early, but acted to ensure that a considerable stimulus was put in place. If the hon. Gentleman looks at the return to growth after previous recessions in the 1980s and 1990s, he will see that it was not dissimilar to the return to growth that we project in the years to come. But that growth would not materialise and we would not see the recovery that we project if we followed the course of action proposed by the Opposition, and took £5 billion out of the economy at the worst possible time.

Like me, the hon. Gentleman will have read closely the speech made by the shadow Chancellor, who said this morning:

“You might think that the middle of a recession is not the time to be investing in the businesses and entrepreneurs of the future, but you couldn’t be more wrong. It’s actually exactly the right time.”

Can the hon. Gentleman perhaps explain why he plans to take £5 billion out of the economy in the middle of a recession?

Notwithstanding the progress that has been made arising from the G20 and all the rest of it—[Interruption.] This is serious—[Interruption.] We won every seat in Bolsover last week, six out of six—[Interruption.] Not in my area. I was on the streets speaking to voters and getting them out—[Interruption.] You are no good at maths, either.

Will my right hon. Friend bear it in mind that this time last year there was serious speculation in oil and other commodities, and the price of oil rose to $147 a barrel? Speculation undoubtedly played a significant part in that. The price has now risen to $68 today. Will he ensure that there is no speculation of the kind that we had last year, to ensure that the recovery gathers pace through to next year?

As my hon. Friend will know, the Governor of the Bank of England and the Chancellor, in the Budget, projected that the consumer prices index would begin to fall over the course of this year, which is why it is important that we ensure that the Governor has the right tools at his disposal to ensure that we do not see prices falling uncontrollably and for an extended length of time. We will therefore ensure that the Governor has the tools that he says he needs, but we will need to keep situations such as the rise in oil prices under close review. That is why it is important that we retain a degree of flexibility. It is also why it will be important for us to carry on acting internationally, because the kind of co-ordination that my hon. Friend mentions is best done internationally. That is something that would be very difficult if we were to take the very different approach proposed by the Opposition.

I often want to intervene, although not particularly on this point; the question that I was going to ask concerns something that arose some time ago. What level of quantitative easing does the Chief Secretary believe is consistent with a low inflation target?

Well, I am afraid that that is a judgment that we will leave to the Governor of the Bank of England. The Chancellor has authorised up to £150 billion of quantitative easing, and the Bank has drawn down something like £125 billion so far. As I say, it is important that we provide the framework and give the Governor the tools to do the job, but it is also important for the confidence of markets and for delivering the target in hand that it is left to the MPC and the Governor to make the ultimate judgment about how much is needed now and how much is needed later.

Reoffending (Access to Services)

5. What discussions he has had with ministerial colleagues to ensure that methods of budgeting for health, education and skills enable quick and effective access to services required to reduce levels of reoffending. (278508)

The Treasury sits alongside 13 other Departments, including the Department for Children, Schools and Families, the Department for Work and Pensions and the Department of Health, in our work focused on reducing reoffending. My right hon. Friend will be glad to know that adult reoffending fell by 23 per cent. between 2000 and 2006, while juvenile reoffending fell by nearly 19 per cent. over the same period.

I welcome my right hon. Friend to answering these questions.

Does my right hon. Friend agree that spending on aspects such as drug treatment and public health can have an implication for reoffending? For instance, the engagement of young people in school and in having a future through education is also relevant to reducing reoffending. Will he come with me to look at the success of the violence reduction strategy in Cardiff, which has prevented violent crime and also reduced the need for expensive surgery? Will he also ensure that officials in his Department make the connection between these different sorts of budgets?

I congratulate my right hon. Friend on the persistence and tenacity with which he has raised this issue with Treasury Ministers. I would be pleased to learn a little more about the work in Cardiff that he has talked about. It is a clear example of the way in which front-line public servants, when they are given greater freedom, can work together more effectively to deliver better outcomes on such an important agenda, very often for less money. I know that he will be keen to know more about the work of Sir Michael Bichard, who is working in 13 different areas around the country to consider how, within different local authority areas, we can bring together the work of public services engaged in similar endeavours.

Is this not an area where the Minister can bring to bear experience from his previous office? Is it not something that Governments of all colours are rather bad at—namely, spending on prevention rather than cure and spending upstream to avoid a problem rather than spending money on the consequences of that problem? Could not the excellent third sector organisations be deployed far more efficiently by the Government, with the right kind of backing, to stop people reoffending as frequently as they do?

I have to agree with the hon. Gentleman. Moving our attention and our resources into the business of prevention will, overall, be much cheaper for the country and will save a lot of human pain in the medium and long term. I must agree with him that the third sector provides extraordinary new potential, as do charities, voluntary groups and social enterprises. They can help on this agenda in two fields in particular. First, they can ensure that those who are convicted of offences are given much greater skills, education and literacy training so that they are better able to succeed in the labour market. Secondly, they can do a better job of helping people to kick the poison of drugs. As we know, that is the root cause of so much reoffending in this country.

One of the most effective approaches with young offenders in particular is finding paid employment. I have seen a scheme sponsored by National Grid that reduces the reoffending rates from 70 per cent. to just 7 per cent. through supported employment, taking young people into the workplace and ensuring that they have all the support they need. As has been said, this is all about prevention and ensuring that we invest in the long term by investing these moneys up front. Will he commit to ensuring that such schemes are replicated across the country so that we learn from the best practice that is already happening up and down our Prison Service?

The scheme that my hon. Friend mentions is very much the kind of scheme that will be more possible in the future because of the £100 million of investment provided last year in the youth crime action plan. As I say, ensuring that money and resources go into equipping people with the skills that they need to succeed in today’s labour market is one of the best investments that we can make in crime prevention. From my experience in my constituency, I think that that must go alongside well-organised, well-structured and well-delivered programmes to keep people away from drugs, too, but where there is innovation such as that pioneered by National Grid, we will, of course, seek to learn from it and build on it.

Debt Reduction

6. What recent discussions officials in his Department have had with the International Monetary Fund on the Government’s plans for debt reduction. (278509)

The IMF holds bilateral discussions with each of its member countries, usually every year, as part of its country surveillance function. IMF staff last visited London in May 2009 and met representatives of various institutions, including Her Majesty’s Treasury.

The IMF recently published its report on the British economy and the Minister’s colleagues have clearly read it, as they are very fond of quoting the odd phrase that supports the Government’s tattered economic policy. However, at its heart it is highly critical and calls for a

“more ambitious medium-term fiscal adjustment path”.

Does the right hon. Gentleman agree that that is bureaucratic code for, “We’re in a mess and the Budget doesn’t sort it out”?

I am afraid that I am going to be guilty of quoting from aspects of the IMF report again, but like me the hon. Gentleman will have read the IMF’s endorsement of the Government’s response to the crisis. It said that it was “bold and wide ranging” and would “support the recovery”—an echo of what IMF managing director Dominique Strauss-Kahn said when he told “Newsnight” that it was “obvious” that the fiscal stimulus

“is the right thing to do”.

However, there will be differences of view with the IMF. For example, we have a different projection or estimate of what the return to growth will look like; the IMF estimates that economic growth will contract by 4.1 per cent. this year, but the consensus among independent forecasters is for something more akin to 3.8 per cent. It is not unexpected, therefore, that we will have different ideas and judgments about what is the right pathway back to fiscal balance. We are determined to make sure that we halve the deficit over four years and pay off something of the order of £50 billion by 2013-14. Where there are difficult decisions to make, we will make them, especially on tax and efficiency. Unlike the Opposition, however, we are determined to make sure that we protect front-line services because we think that that is the best way to protect businesses and families in this country while returning as quickly as possible to a sensible and sustainable fiscal position.

The economies of some European economies, such as Hungary and Latvia, are experiencing deep economic troubles, and traditionally they would turn to the IMF for help and rescue. They are also committed to becoming members of the eurozone, so is the Treasury having any discussions with the IMF on how to co-ordinate the actions of the IMF and the European Commission in respect of those failing currencies?

As my hon. Friend knows, conversations about such questions go on all the time with the IMF and within the European Commission. She underlines the point that we need a better system of international surveillance so that preventive action, where it is needed, can be taken fast.

Will the Chief Secretary confirm that this country is now formally in an excessive deficit procedure, and that the Economic and Finance Council wrote to the Chancellor on 27 April to say that the Government had not taken effective action to correct the situation? ECOFIN also said that, even on the Government’s own figures, our deficit will be more than four times the permitted 3 per cent. level. Is the Minister pleased or sad that that rules out this country joining the euro in the foreseeable future?

I missed the last bit, but the answer to the substance of the question is that we have to make sure that we publish a pathway back to balance that is open, transparent and credible. It will entail the difficult policy choices that were set out very clearly in the Budget. Difficult decisions will have to be taken, such as increasing marginal rates of tax on the 600,000 people who earn more than £150,000 a year. Serious efficiency measures will also be needed, but as my right hon. Friend the Financial Secretary said recently, that is precisely the sort of discipline that we are determined to set out, and stick to.

Since debt reduction is of the utmost importance to developing countries, will my right hon. Friend confirm that the Government remain absolutely committed to achieving the millennium development goals?

Given the way our debts are growing, is the right hon. Gentleman aware that according to The Economist, our Budget deficit this year as a percentage of GDP will be the highest in the entire industrialised world?

The very reason we are able to mount the fiscal stimulus that we put in place this year is that, against international comparisons, we went into the downturn with relatively low levels of debt. We think it is important that we invest now, because if we did not provide the stimulus that we are putting in place, the recession would cut deeper and longer, and would more closely resemble the kind of experience that this country went through in the 1980s and 1990s. That is not an experience, thanks very much, that we want to repeat.

I do not know where The Economist got its figures, but the IMF figures indicate that debt in this country as a percentage of GDP is lower than in all our industrial competitors and will stay lower than theirs for several years. Is not the key thing about debt whether or not we can service it? As we reduce those levels of debt, may I ask my right hon. Friend not to cut the investments that we are making in jobs, wealth creation and public services, because those are what will guarantee that we can repay the debt in the long term?

I can provide that assurance because in the Budget the Chancellor was able to set out a pathway back to balance, which involved difficult decisions on tax, spending and efficiencies, not least adding to the £30 billion of efficiencies projected for next year a further £5 billion. The Chancellor was also able to set out the kind of sustained investment that we can continue this year, for example, in primary care trusts, with budgets up 5.5 per cent., in schools, with budgets up this year 4.3 per cent., in front-line policing, with budgets up this year 2.7 per cent., and in local councils, which this year helped to deliver the lowest council tax increases for more than a decade.

May I welcome the Chief Secretary to his new position? I am sure his arrival in his new post will be welcomed by the Chancellor as well, not least on the grounds that, presumably, the Chief Secretary’s spouse will not be plotting to replace the Chancellor. The IMF report that we have been discussing says that the UK recovery will be subdued and gradual, in contrast to the Treasury’s very optimistic forecasts, yet is was reported in The Times last week that even the Treasury’s projections were insufficient for the Prime Minister, and

“the Prime Minister tried to upgrade the growth forecasts to make the economic outlook appear rosier than it was; the Chancellor refused.”

Is there any truth in this allegation? Is this not another example of splits between the Prime Minister and the Chancellor?

What are important for the House are the estimates that were published. There is indeed a range of views right the way across independent forecasters. The hon. Gentleman will no doubt have access to those, as I do. The IMF, it is true, is on the pessimistic end of those forecasts, projecting a 4.1 per cent. contraction this year. I understand that the IMF has now revised its forecast three times since October last year, reflecting a degree of uncertainty in the international economy, but I merely note for the House that the IMF is at the pessimistic end of that range of forecasts. If one corrals the range of independent forecasts that are available, one finds the consensus among them is about 3.8 per cent. We think growth will be stronger than that but, as the Chancellor has said to the House a number of times, the international economy remains in an uncertain place.

Early Intervention

7. If he will take steps to ensure that policy to encourage early intervention is taken into account in decisions on expenditure in the next comprehensive spending review; and if he will make a statement. (278510)

I pay tribute to my hon. Friend’s work on early intervention. Its benefits have been recognised in spending decisions and, for example, in January’s “New Opportunities” White Paper, as my hon. Friend knows, and they will certainly be recognised, as he calls for, in future spending decisions as well.

Will my right hon. Friend have a word with the new Chief Secretary to the Treasury and congratulate him on now being a little closer to the place where he can actually do something about social inclusion and early intervention? Will he also discuss with him the idea that the best way to pay off debt is to invest effectively and early, securing returns through people who have grown up to be more capable citizens due to early intervention? Will he therefore include early intervention, as the next theme of the comprehensive spending review, in every single Department so that we can start to receive repayments from that investment, to pay off the debt and to establish an effective economic base among our people as well as among our financial institutions?

My hon. Friend is absolutely right to highlight the benefits of investing particularly in the early years of children’s lives. Sure Start children’s centres are a great example: we have invested almost £2 billion in them, and we will have 3,500 of them by the end of next year. It is absolutely right to say that that investment in children’s earliest years will amply be repaid in years to come. Future spending will not be needed because children will be better equipped for their future lives—transforming their chances. I can tell my hon. Friend that we certainly will reflect that perspective in the comprehensive spending review, when that work is under way. It would be catastrophic to impose £5 billion of unplanned spending cuts this year, as the Opposition have argued for.

Early intervention is welcome, but how does the Minister expect to cope with the lack of social and language skills of many pupils entering reception classes and the first years of primary school, which reflect the breakdown generally in British society?

Of course, the hon. Lady’s point is one reason why early intervention is so important. The network of 3,500 children’s centres will make a big contribution to preparing children at the start of their lives to do well, and for school when they reach it. It is vital that those investments be maintained. One great benefit of the work of my hon. Friend the Member for Nottingham, North (Mr. Allen) on that issue is the cross-party support for it. He wrote a pamphlet jointly with the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), and we need to sustain that commitment.

One issue that must be considered, along with early intervention, is poverty among families. The Government have a commitment to child poverty reduction targets, but unfortunately it has not been possible to implement them in recent years. We must stick with those targets, however, so will my right hon. Friend commit to keeping them as a priority and ensure that they are part of the comprehensive spending review next year?

I certainly will. We have made a great deal of progress in reducing child poverty. The number of children below the poverty line has been reduced by half a million since 1997; our commitment is to secure the eradication of child poverty in the UK by 2020, and we will shortly publish legislation to enshrine that commitment in statute.

I realise why it was impossible up until last week for the Chancellor to confirm the details of the comprehensive spending review, but, since the Chancellor has now reasserted control of his Department, will the right hon. Gentleman, on the Chancellor’s behalf, confirm that there will indeed be a comprehensive spending review? Will he also confirm the timing of that review and the period that it will cover?

An announcement of the timing of the comprehensive spending review has not yet been made, and I am not able to provide additional information on that, but of course there will certainly be one.

In the spending review, will the Government take into account the impact of oil prices, particularly on businesses and communities, which have great difficulties with them?

Yes, we certainly will. We have put in place an effective programme of support for businesses, which need help to get through this very difficult period in the world economy. We are starting to see clear signs that the steps we have taken are working, and we will maintain our support for businesses in the period ahead.

Public Sector Debt

10. By what date he next expects public sector debt to fall below 40 per cent. of gross domestic product. (278513)

In the current global environment of uncertainty, our focus is on ensuring that debt is on a downward turn in the medium term, and we have set out clear plans to do precisely that.

Does the Minister accept that the huge increase in Government debt in the UK represents significant extra tax rises for the British people in the future, and that the interest on that debt also represents massive amounts of public spending forgone in future years?

We have been very clear about what precisely we project and anticipate in the years to come. We have been candid and open about the tax and spending implications, and the efficiency implications. I know the hon. Gentleman will forgive me if I tell him that the future costs of today’s downturn would be far more significant if we let it cut deeper and longer, and taking £5 billion out of public spending right now would guarantee exactly that.

I am sure the Minister is aware that on-balance-sheet debt is likely to rise to 79 per cent. of gross domestic product by 2013-14. I am sure he is well aware that, the Government having acquired several banks, that debt amounts to roughly £2 trillion, currently held off-balance sheet, in addition to another £1 trillion of public sector pension liabilities. Can he confirm how much debt is currently held off-balance sheet by the Government, and what percentage of GDP that represents?

We can be open about what the costs are of the current financial crisis, and those costs were set out clearly in the Budget. Both the International Monetary Fund and the Bank of England have welcomed the degree of transparency about the kind of costs we have projected.

When calculating public sector debt, can my right hon. Friend assure me that the whole cost of private finance initiative schemes will be included? He talks of transparency; we need transparency in relation to PFI, which is at best a murky scheme, and at worst a failed scheme.

I know that I will not be the first Minister to answer that question by reminding the House that that is of course a matter for the Office for National Statistics.

Will my right hon. Friend reflect on what the alternatives might have been if we had not intervened in the banking system? My constituents—pensioners with savings, and people with mortgages and businesses—are relieved that the Government have taken the action that they have taken. Complaints from Conservative Members about the level of debt that that has given rise to demonstrate that they would have done absolutely nothing to assist those people, or to deal with the dire consequences that people would have faced as a result.

My hon. Friend is absolutely right, and I would tempt him to go further. Of course, if the rescue for the banks had not taken place, not only would the economy be in a far more serious situation now, but its potential for growth would be in a far more serious position. That, in part, is precisely why the IMF has congratulated the Government on the bold and wide-ranging programme we have put in place, and indeed on the international leadership we have shown.

Topical Questions

Perhaps like many other hon. Members in this House, I have a branch of Cheltenham & Gloucester in my town. May I put it to my right hon. Friend that many people will be really concerned about the loss of jobs and services from institutions that have had so much public sector funding? Will he therefore ensure that the banks understand that although of course we expect them to make a profit and repay their debts, we also expect them to honour their wider social commitments to their employees, their customers and the wider community?

I fully understand the comments that my hon. Friend makes. She will be aware that Lloyds Banking Group is undertaking a restructuring exercise. To be frank, in some instances it does not make sense to have three branches of the same bank within 100 yd of each other. That having been said, it is vital that Lloyds Banking Group follows the right sort of processes, and that it treats not only its customers but its staff fairly. Although we are talking about an operational decision for Lloyds, Lloyds has made it clear that it intends, as a matter of preference, to try to carry out its proposals through natural turnover of its staff, and we hope that it will be possible to do that.

Order. In case there is a problem, I should say that the Chief Secretary to the Treasury opened by saying what great things his Department was doing. It would appear, however, that the Economic Secretary to the Treasury knew more about this particular subject.

I know he got off to a shaky start, but let me welcome the new Chief Secretary to the Treasury to his job. He is the fifth Chief Secretary I have faced—and hopefully the last before the general election. I hope he enjoys his move from No. 10 to the Treasury, and that the coffee is up to his exacting standards. At least he knows he will not be hit on the head by a flying mobile phone.

Will the Chief Secretary confirm that the Treasury’s current spending plans—the plans set out by the Treasury at the Budget—show that total real Government spending is going to be cut in the years 2011, 2012 and 2013? If that is the case, what on earth was the Prime Minister saying when he told the press conference last Friday:

“Public spending is due to rise every year”?

I thank the shadow Chancellor for that welcome, delivered with the self-assurance and charm that have become his trademark in the House. As he very well knows, when the Chancellor set out his Budget he provided for 0.7 per cent. real-terms increases in current spending. That is set alongside a move in public service net investment to 1.25 per cent. That was the position the Prime Minister was echoing last week.

I am sorry, but I must press the Chief Secretary on this. He gave us the current spending figures; I am asking about total Government spending, which is what the Prime Minister was asked about. The Treasury figures clearly show that that is going to be cut in 2011, 2012 and 2013. That is why the Chancellor of the Exchequer said on the radio, the day after the Budget, that he had cut overall spending. What on earth did the Prime Minister mean when he said that public spending was due to rise every year?

The position is as I have just stated. There will be real growth in public spending of 0.7 per cent. between 2011-12 and 2013-14, alongside a situation in which public sector net investment moves to a position of 1.25 per cent. by 2013-14. [Interruption.] I hear Opposition Members squealing “Cut” from a sedentary position. However, through our process of bringing forward capital investment into this year, we are indeed able to provide for reductions in capital spending in later years. What the Prime Minister was reflecting is very clearly the position in current spending as was set out by the Chancellor at the Budget.

T2. The prevailing economic philosophy is that the free movement of labour across Europe is good for the economy. Does the Chief Secretary agree with me that his Department needs to provide statistics to demonstrate whether a worker permanently resident in this country who gets a job has a greater economic multiplier effect than a temporarily resident migrant worker who gets the same job? (278529)

That subject has been debated extensively in both Houses and it was reviewed in some depth by the House of Lords Economic Affairs Committee. In their evidence submitted to that Committee, the Government were clear that, on average, migrant workers contribute more to this country than they take out. Obviously, it is important to keep that under close review. The advent of the Australian points-based system means that we are able either to raise or lower the bar to newcomers much more flexibly, depending on the needs of the labour market here and the overall economic contribution made to this country by migration.

My hon. Friend the Member for Twickenham (Dr. Cable) apologises for being unavoidably absent owing to a recent operation on his appendix. As the Chief Secretary surveys the team in his new Department, can he think of any part of the Treasury ministerial anatomy that, similarly, serves no useful function, exists in a state of constant pain and was threatened with brutal surgical removal over the weekend?

Ministers will be aware that this week is carers week. Could the appropriate Minister from the Treasury meet the appropriate Minister from the Department for Work and Pensions to try to find the finances to end the unfairness in the carer’s allowance, which is completely lost following a very small increase in earnings or on retirement, despite the fact that the caring role and responsibility continue?

This being my first day as a Treasury Minister, having previously been at the Department for Work and Pensions, I can say I will be delighted to hold such a meeting.

As the hon. Gentleman will be aware, the Government appointed Sir John Chadwick to advise us on the form of an ex gratia payment scheme that should be devised and the factors that relate to disproportionate impact. I can report that Sir John Chadwick has made progress; when I recently appeared before the Public Administration Committee, I gave further details about how his work was proceeding. I can confirm that actuarial advisers have been appointed to help him with his work, and that he has the staffing and resources he requires to do his job. We have always said that we wanted progress to be made as quickly as possible, and that clearly remains the Government’s position.

Last week, the Northern Ireland Secretary gave the House an undertaking that he would pursue with vigour the crisis facing investors in the Presbyterian Mutual Society in Northern Ireland. There is clearly a Treasury dimension to this. I would like to know what has been done, what is being done, and what discussions are being held on behalf of those investors—the most thrifty and decent people who are very anxious about having access to their funds now.

I sympathise with the situation that people who have made investments in the Presbyterian Mutual Society are facing. My hon. Friend will be aware that the PMS is not like a normal savings institution: it is not regulated by the Financial Services Authority, and when people made investments they did so in the form of shares rather than deposits. Different circumstances therefore apply. He will be aware that there has been an investigation. We have been looking into the whole issue of the regulation of credit unions and industrial and provident societies, and a report is due to be published shortly.

T4. In respect of the Government’s planned changes to furnished holiday lettings tax rules, could the Financial Secretary to the Treasury clarify whether it would be possible to distinguish between properties that are purpose-built chalets, caravans, and other properties with occupancy restrictions that are clearly intended for the holiday lettings industry, and other properties that have been lived in and could be lived in again by local families in need? (278531)

I would not want to encourage the hon. Gentleman in the view that that might give a way forward on this issue. Our position is that we have given support in the past. It is clear, under European Union rules, that that support would need to be extended to furnished accommodation not only in the UK but across Europe. We are therefore making that change, but only for a year; then our intention would be to withdraw the relief altogether, not just for some but for all furnished holiday accommodation.

Further to earlier answers, Britain’s national debt would be repaid more rapidly, and public expenditure cuts would be avoided more easily, if the top 700 British companies did not involve themselves in tax avoidance on such a grand scale. Why, in that case, does this year’s Finance Bill repeal section 765 of the Income and Corporation Taxes Act 1988, which requires companies to seek the permission of Her Majesty’s Revenue and Customs before moving cash offshore and to say whether the move will be to the detriment of the Treasury? That will encourage avoidance.

I do not think it will. Indeed, we are likely to debate the matter in the Finance Committee this afternoon. The Treasury consents rules were introduced in 1951 in a very different environment and they are now clearly out of date. The measures that I will set out in Committee this afternoon, with which we are replacing those rules, are a much more effective way of tackling the genuine problem of avoidance, to which my hon. Friend rightly draws attention.

T5. The announcement today by Lloyds TSB about the job losses at Cheltenham & Gloucester is a big blow, particularly to the 74 people who will be made redundant in Gloucester. The bigger issue is the 1,000 people who also work in our county for the Cheltenham & Gloucester mortgage business. Given that the Government control a significant stake through UKFI—which the second permanent secretary to the Treasury runs, and which is therefore not at arm’s length—can the Minister provide any assurance about whether those jobs are secure in the short and the long term? (278532)

As I have told the House previously, if we are to protect taxpayers’ interests, it is vital that UKFI manages its relationships with the banks in which the Government have investments commercially. Lloyds Banking Group is making commercial decisions. As with any major company, we expect it to act in a socially responsible manner and undertake due processes of consultation with its work force. My understanding is that that is exactly what is happening.

T6. Despite the massive investment of public funds in the banking sector, many small and medium-sized viable companies have contacted me to say that the banks are not providing the financial support that they require. What are the Chancellor and the Treasury team doing to ensure that money that goes to the banks finds its way to small and medium-sized businesses? (278533)

Let us first be clear that, when the Government took action to prevent the collapse in the banking system, we were investing not in the banks but in people who had savings and mortgages and in companies that had overdrafts in the banking system to ensure that it could continue. As a result of the negotiations in January, under the asset protection scheme, RBS has made legally binding commitments to invest more in businesses this year and next, as has Lloyds. The sums for businesses are £16 billion from RBS and £14 billion from Lloyds, on top of the additional investments that Northern Rock is making and the announcements from banks that have not taken advantage of the recapitalisation scheme, such as HSBC and Barclays.

We are in a position whereby much of the international finance that was available to the UK economy in the form of lending to business has disappeared in the past 12 months. We are putting that back in place through our negotiations and agreements with UK banks. We will continue to monitor, through the lending panel, actual lending in the UK economy, so that we can ensure that small and medium-sized enterprises and other businesses get the lending and financial support that they need to see them through the difficult times.

I wonder whether my hon. Friend saw the survey in the Financial Times yesterday of City economists. It showed that a majority thought the recession would end in June. The minority who did not thought it would end sooner rather than later this year. Does that not show that the City is coming round to the Budget forecasts for the economy? Is that not a clear endorsement of the Government’s programme for a fiscal stimulus?

My hon. Friend will be delighted to hear that I have no plans to provide a running commentary on growth forecasts. The Budget clearly set out our current expectations, and the next update will be provided to the House in the pre-Budget report. I merely note that several City economists and independent forecasters have revised up their forecasts for growth next year and adjusted their forecasts for the extent of the downturn this year. As I said in response to earlier questions, independent forecasters’ average for contraction this year is 3.8 per cent., which is much closer to the forecast that we published in the Budget.

T7. May I ask Treasury Ministers to look again at the position of those families who are being pursued by the Treasury for alleged overpayment of tax credits? I still have a steady stream of families coming to my surgery who are being chased, sometimes for up to £10,000 or more. They come in with detailed files of information, and I am absolutely inclined to believe that they have been entirely honourable and honest in looking at their claims. Those families tell me that the Treasury sometimes takes the more expensive period of their child care, rather than looking at their child care costs over the period as a whole. Those families do not like the way the Treasury acts as judge and jury, with no right of appeal. That causes huge distress, so may I ask Ministers please to look again at the issue and tell us that they can do something to help those families? (278534)

We have already made some substantial changes and improvements to the way the tax credit system works. One of the consequences is, for example, that complaints to the tax credit office are down by a half, compared with two years ago, so there have certainly been considerable improvements. The tax credits transformation programme that we have put in place is delivering. I accept that there is more to be done, but it is worth remembering that 6 million families benefit from tax credits, and that includes 10 million children. That is one of the main reasons why we have been able to reduce child poverty so substantially over the past 10 years, but we need to ensure that the system works as efficiently as possible and that overpayments are minimised. We have seen a big reduction in the number of overpayments, and we will work to improve the position further.

T8. May I give the new Chief Secretary another opportunity, while the cat is away, to play at being open about the Government’s spending plans? Given the analysis of spending plans by the Institute for Fiscal Studies, Departments are projected to face a real-terms cut of 2.3 per cent., which translates into cuts totalling £20 billion. Can he come clean today and accept that the 2009 Budget heralded significant Labour cuts? (278535)

Let me be very clear—I am afraid I will have to repeat a number of the points that I made earlier. The Chancellor set out clearly what changes will happen overall to public sector net investment over the next few years and what changes we forecast to real growth in current spending. However, as he said as recently as last oral questions, with the degree of uncertainty in the international economy that we currently face, I just do not think that now is the time to start making detailed budgets for individual Departments for the year after the Olympics.