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Preparing Britain’s Economy for the Future

Volume 494: debated on Thursday 18 June 2009

Topical debate

I beg to move,

That this House has considered the matter of preparing Britain’s economy for the future.

Nobody in the country today needs reminding of the difficult times the world economy currently faces. It is a hard truth that the global economy has contracted for the first time since the second world war. Output in the UK has fallen over the last three quarters by 4.1 per cent. and by 3 per cent. in the US, 5 per cent. in Italy, 6.9 per cent. in Germany and 9.1 per cent. in Japan—grim statistics indeed. Now is a time for action, a time for tough decisions. Moreover, it is a time to take decisions for the long term as well to respond to the immediate problems. That is why today’s topical debate is so important.

Of course, the No. 1 priority has been to deal with the immediate problems, ensuring that the downturn is as short and shallow as possible. This means responding in particular to the threat to the economy posed by the banking crisis, but it also means taking steps to mitigate the impacts on real people—on those who may have lost their job or been unable to find their first one, on those worried about their financial circumstances and their savings, or on those perhaps having trouble paying their mortgages or getting on the housing ladder. The longer-term challenge is no less important. That means preparing for the upswing to ensure that we have a sustained recovery and make the most of the UK economy’s underlying strengths.

Given the Minister’s remarks on helping people through the worst of the downturn, will he take this opportunity to congratulate Kettering borough council, of which I am a member, on hosting not only what it called a “credit crunch summit” that brought many local agencies together to see how best to help local people, but a jobs fair, which was attended yesterday by 300 local people trying to find out more about the local employment opportunities available as well as by a Minister from the Department for Communities and Local Government? Are not such local initiatives really important in helping local people through the worst effects of the economic recession?

I certainly applaud local initiatives such as those in the hon. Gentleman’s Kettering constituency. I believe local authorities can play a great role and that local activism is essential, just as I believe that the Government must be active to help people and businesses through these difficult times.

I want to emphasise the longer-term challenge and the actions we are taking to prepare the UK for the upswing. Although there is more to be done overseas and at home, recovery will come. As the Chancellor said in his Mansion House speech yesterday, there is growing evidence that the steps taken at home and internationally are stabilising the banking system and supporting our economies. We expect the UK economy to return to growth around the turn of the year, and we are confident about the British economy in the medium term, but we are not complacent. We must recognise the numerous risks that could threaten both a recovery in the short term and sustainable growth in the future.

We have taken steps in the UK to support the cash-flow, credit and capital needs of businesses. Banks have been recapitalised and steps have been taken to unstick wholesale markets. The enterprise finance guarantee and the working capital scheme are helping to ease the strain of the downturn, and banks are now committed to lending more. We have started to see conditions improve. At the same time, HMRC’s business payment support service is allowing firms to spread tax payments over a longer and more affordable timetable.

As of 14 June, more than 149,000 agreements had been reached with businesses, worth £2.6 billion of tax. In the automotive industry, for instance, the vehicle scrappage scheme is providing a temporary and welcome boost to the industry at a difficult time. Figures released this month show that more than 60,000 new cars have already been ordered since the scheme was announced—and this is only part of a wider package of support for motor industry.

Looking to the longer term, is the Minister concerned that when the economy starts to pick up again, we might run the risk of inflation? One lesson from the past is that the Bank of England should be instructed to take house prices into account when setting interest rates. It has not done so in the past, and we have seen low interest rates in the good times leading to house price rises, while in the bad times we have seen interest rates too high. Will the Minister instruct the Bank of England to take house prices into account when setting interest rates in future?

We have a very effective inflation-targeting regime. As the hon. Gentleman knows, the Bank of England was set up to be independent by the Government and it has a clear remit to bear down on inflation. We see no risks to inflation in the short or medium term, but these are matters for the Bank of England.

We are taking important action now to help business through these tough times. At the heart of our strategy for tackling the economic downturn is our ambition to build for the years ahead, which is where I want to focus my comments.

It has been my great privilege as a member of the Government to see from all angles both the challenges we face and the strengths we have as a country. As Minister for Trade, I saw how the UK was respected and trusted around the world for its openness and sense of fair play. I saw how China and India were already transforming the global economy and know how they will become even more prominent in the decades ahead. That highlights the central importance of our need strategically to partner with them in future.

As the Minister for Climate Change and the Environment, I saw compelling evidence on global warming and how it will affect our planet if we do not take action, but I also saw the tremendous opportunities available to businesses that can become the first movers in helping to build the low-carbon economies of the future. As the Minister for Science and Innovation, I saw the world-class research expertise in our universities and the opportunities for innovation it presents for UK companies with the skills and the imagination to help us respond to the challenges of climate change in a globalising world.

As the world economy emerges from the downturn, there will be major new opportunities for British business, but global competition is getting tougher and technological change is always accelerating. We cannot afford to stand back as other countries invest and raise skill levels in high-value sectors.

I consider it vital for the United Kingdom to continue to invest in infrastructure in the economy, and to have an active industrial policy. In April the Government outlined their vision for Britain’s economic and industrial future in a document called “Building Britain's Future - New Industry, New Jobs”, which explains where Government action can have the most impact. We need to invest in growth to speed recovery and support the manufacturing and services that are essential to ensuring that British people and businesses can compete successfully for the jobs of the future.

If we are to succeed in the high-tech, low-carbon economy that lies ahead, we need to act wherever we can to remove the barriers that hold business back. In April, in the Budget, we announced a £750 million strategic investment fund to support advanced industrial projects of strategic significance, £250 million of which will be earmarked for low-carbon investments. The statement that we heard earlier demonstrates the need for us to continue to take action on the low-carbon agenda. A further £50 million will be spent on expanding the Technology Strategy Board’s budget and its programme of support for business innovation, which is also vital to our long-term economic prosperity. It will help to drive future growth in areas such as low-carbon technologies, but also advanced manufacturing more generally in the life sciences. Those funds will help to turn more bright ideas into products that can succeed in the marketplace and improve our ability to identify the skills that are needed for future success.

As I have said, infrastructure—our energy infrastructure, water, transport and telecommunications—is vital to our future. I believe that, in that future, Britain will compete with other countries in the quality of infrastructure it can provide for its people and its businesses. Preparing for that future means adapting to the changes that are transforming the world in which our people and businesses operate. The digital revolution is one such transformation. The “Digital Britain” report that was published this week sets out clear plans for an active industrial policy to maximise the benefits of the digital revolution.

The Minister talks of the importance of the infrastructure of Great Britain, and Members on both sides of the House agree that that is paramount, but why is it taking so long to create a common gas market in Europe? The security of energy supply that the infrastructure is supposed to bring is as important as the infrastructure itself. At present we are seeing the problems created by Russia’s turning the taps on and off and sending ripples throughout Europe. We must address that problem. It does not matter how robust our infrastructure is if no gas is coming through.

I agree with the hon. Gentleman about the importance of an integrated European infrastructure when it comes to gas markets. He will know of the work that the Government have done in seeking to promote open energy markets in Europe. It is important not only for Britain to have a 21st-century infrastructure but for Europe to modernise, and we recognise the interconnections involved in that.

Life sciences are also important to the UK economy. That is one of the reasons we created the Office for Life Sciences, which is working with industry to make further improvements in the operating environment for the pharmaceutical, medical biotechnology and health care technology sector in the United Kingdom.

In my view, there has never been a more important time at which to look to the future. Conditions will improve and confidence will return, in the United Kingdom, in Europe and globally. We are absolutely determined that when that happens, we shall be ready to take full advantage of the opportunities that the upturn will bring in a changing global economy. By setting out our vision for the long term, we are laying strong foundations for a prosperous and sustainable future. We will continue to work to deliver on that agenda to provide the support for new industry and new jobs that the UK economy needs and the British people want and expect a Government to deliver on their behalf.

When the Government’s business managers tabled today’s debate, I do not suppose they expected it to take place immediately after a very public spat between the Chancellor of the Exchequer and the Governor of the Bank of England. At last night’s Mansion House dinner there was more back-stabbing than back-slapping. The Governor made it clear that

“fiscal policy… will have to change”.

Very wisely, Mervyn King pointed out that in five years the national debt would be more than double its current level of around 40 per cent. of GDP. He said, without any ambiguity,

“it is also necessary to produce a clear plan to show how prospective deficits will be reduced during the next Parliament”.

The spat was all the more stark as a result of the Prime Minister’s very strange performance yesterday at Question Time. He seemed to find it impossible to give a straight answer on budget deficits, an issue to which I shall return shortly.

I am vice-chairman of the all-party parliamentary group on China, and last week I attended a conference about Hong Kong which had been organised by the Hong Kong trade office here in London. The message—the same message that we hear from the excellent Chinese ambassador to London—is that China is moving out of recession. Similar signals are coming from India. Some confidence is beginning to return to the London stock exchange, although it is probably too early to assert that the worst economic storm since the 1930s is over.

Professor Robert Shiller was in London a couple of weeks ago. It was Professor Shiller who predicted the end of the dotcom boom in March 2000. He was also one of the first to warn that the United States housing market was seriously over-valued, and that its collapse would have a huge impact on the world’s largest economy. When he was in London, he warned that the recent stock market bounce should be treated with caution. He and others think that we could be in for a W-shaped recession, with recovery so fragile that we could be plunged into another slowdown as soon as we emerge from the present one.

There are still a number of issues that threaten any long-term recovery for the British economy. Rising unemployment, mortgage defaults and a possible further wave of company failures could surprise us yet. Today’s unemployment figures make grim reading. The ranks of the unemployed are now swollen to 2.26 million, the worst figure for 13 years. We seem to be losing jobs at a rate of 100,000 a month. There is every indication that unemployment will continue to rise, and will end up a great deal higher: an unemployment rate above 10 per cent. is almost certain. To put it more bluntly, unemployment may well reach more than 3 million.

As a result of the recession, Jobcentre Plus is becoming bigger by the day. It now has 70,000 employees. It is already the Government’s biggest agency, and it is seeking to employ an extra 10,000 staff. Even if the economy does start to turn up, the prospects for the jobless do not immediately look good. In my constituency, local unemployment is at a 13-year record high. The number of jobseeker’s allowance claimants continues to increase, a number of major local employers have had to make redundancies, and the local unemployment rate has trebled since March 2008. Locally, as a community, we are determined that no one should be left behind in the recession. We have set up two job clubs, one in Banbury and one in Bicester, to give every possible support to those who have lost their jobs: to support them while they are out of work, and to help them back into the world of work as soon as possible.

If the economy is starting to show some signs of sunshine, the clouds have yet to pass. As The Economist noted last week,

“another cloud already looms on the financial horizon: massive public debt.”

The simple truth is that our budget deficit is the highest in our peacetime history, and the highest in any G20 country. The reality is that we face a debt crisis. As I made clear in the debate on this year’s Budget, the reality is that existing Government plans show that whoever wins the next general election, Government spending will have to be cut. The figures are all there in this year’s Budget Red Book.

The Institute for Fiscal Studies says that the Government’s plans imply a cash freeze on Government Departments for three years from 2011 after debt interest and other unavoidables. Allowing for inflation, that becomes a 2.3 per cent annual real-terms cut, or 7 per cent over three years. Both the Conservatives and the Government have said that they want to protect health spending; that is obviously appropriate as we have a fast-growing population. As a former chairman of the International Development Committee, I am glad that we have made it clear that we will honour the promise we made to increase the development budget to 0.7 per cent. of gross national income. Given the reality of the Government’s Budget figures, and given the bills of rising unemployment and the huge interest costs of soaring national debt, many Departments will inevitably face budget cuts.

I think that everyone is now pretty much agreed that we have reached the limits of our abilities to take on ever more debt without risking the economy as a whole.

“We need”

said The Independent in a recent editorial

“this acceptance of economic reality so that our political system can move on to the serious debate about where those public sector cuts should or should not fall. If there is to be a reshaping of the public realm, it must be enacted with serious thought.”

In short, the debate that we need to have for the foreseeable future is how we tackle the debt crisis and deliver quality public services when spending is tight. Ministers—in particular the Prime Minister—seem incapable of acknowledging that reality. Let me give one example.

Even in the Department of Health things will be tough. Nobody is more respected on NHS research than the King’s Fund, and in its briefing on the Budget it says that

“from 2011 this period of growth will end. Treasury forecasts issued with the Budget suggest that the NHS is set to receive low or zero real growth in funding after 2011. The Institute for Fiscal Studies’ forecasts suggest real term reductions from 2011 are a strong possibility…the poor state of the public finances means that the NHS must prepare at best for very low or zero growth in funding from 2011 onwards. The government’s forecasts for annual real increases in total government spending on public services and benefits from 2011/12 were 0.7 per cent. However, the Institute for Fiscal Studies has calculated that once debt pressures and growth in spending such as unemployment benefits are taken into account, this 0.7 per cent. growth translates into an average real reduction of around 2.3 per cent. a year between 2011 and 2014 for the public sector as a whole…the scale of the challenge is magnified further by rising demand for health services with an ageing population and a higher incidence of chronic disease. Recent falls in NHS productivity are also a concern. Productivity must rise significantly if the NHS is to sustain and improve performance.”

David Nicholson, the NHS chief executive, put it even more starkly last week when addressing senior NHS managers. He told them to plan for spending cuts even more drastic than those already suggested. He says that NHS trusts will have to deliver between £15 billion and £20 billion-worth of financial savings over the three years from 2011 to 2014. Such cuts will be the equivalent of up to 6 per cent. of the current NHS budget. That is of very real concern to my constituents and myself. The most serious constituency campaign that I have had to wage during my time as a Member of Parliament in North Oxfordshire is to keep the Horton hospital a general hospital, to maintain all key services at the Horton and to ensure that we continue to have 24/7 maternity and children’s services.

I put the King’s Fund points to the then Health Secretary, the right hon. Member for Kingston upon Hull, West and Hessle (Alan Johnson), on 12 May. I asked:

“The King’s Fund advises that the poor state of the public finances means that the NHS must prepare, at best, for very low or zero growth in funding from 2011 onwards. I would like to know what the Secretary of State is doing to advise strategic health authorities that they must now start planning for zero or very low growth within the NHS from 2011 onwards”.

The answer from the right hon. Gentleman, who some say may be the next Prime Minister, was one of complete denial. He said:

“What we have done since the allocations that took place last December—it was a two-year allocation of 5.5 per cent. each year and included the ability to draw down £800 million of surplus—is to say that there is a message here. It comes from the chief executive of the NHS as well, and it is that the NHS has to prepare for a time when we will not have such spectacular increases in growth…We cannot say at this stage what the expenditure will be in the NHS but we can say that it will continue to be our absolute priority. As the Prime Minister told the Royal College of Nursing yesterday, we hope very much to ensure that there are real-terms increases over the coming years, although they may not be at the same levels as in the past.”—[Official Report, 12 May 2009; Vol. 492, c. 678.]

One wonders what sort of planet the right hon. Gentleman is on. I cannot believe that the Secretary of State for Health had not at least read the research from the King’s Fund. I am sure that the Secretary of State must have been talking to the chief executive of the NHS. It is depressing that when everyone is talking about more honesty from politicians, there seems to be collective denial from Ministers because at best this is waffle and, at worst and in reality, it is a collective denial by the Prime Minister and Ministers to face up to the facts.

According to the Government’s own figures, public spending in 2011 will see only a 0.7 per cent. increase. We have to start talking now in an adult and responsible way about how we can deliver more with less. We need some basic honesty, otherwise we know from experience what happens. We get a Treasury-led salami-slice approach to departmental budgets. Every Department regardless is told that they will simply have a smaller budget. We have been there before. All that happens is that it tends to harm front-line services as managers and mandarins push the pain away from them to those who are delivering services.

There are a number of ways in which we can make some easy savings. We certainly do not need to waste billions of pounds on ID cards. We need a sensible and grown-up debate on defence. We need to ask, importantly, how our public services can be made more efficient. Recent figures from the Office for National Statistics show that productivity levels across the public sector have fallen over the past 10 years. A cause for concern is that average public sector output in 2007 was 3.2 per cent. lower than in 1998. We have had increases in public spending but falling productivity from the public sector.

I have a simple plea. I suspect that, whoever wins the next general election, the next Parliament will be the hardest, toughest, most difficult and grimmest that any of us have lived through, but may we please have an honest and grown-up debate about how our public services do more with less, and may we please have an honest and grown-up debate about what the real figures are? Please can we cease this insane and mindless denial by the Prime Minister that what the Government have said in their Budget is the reality and the truth? If we can all acknowledge that, perhaps the public policy will be all the better for it. Otherwise all that will happen is that the country will waste a year between now and the general election. That is not in the country’s interest and it is certainly not in the interests of our constituents.

I will speak on three areas: supporting the good work that is going on in the economy, stopping some failures in the economy, and suggesting something that should be positive for the banking system.

In the north-east we have had good support over the last few years from the regional development agency—something I understand that the Tory party would do away with. If that is the case, and if the Tories were to get into power at any time in the future, that would be bad news for the north-east. The north-east, with One NorthEast working for it, has been successful in supporting manufacturing industry. We have set up the manufacturing advisory service, which has worked closely with north-east business. Some of the examples of successful interventions include support to a Tyneside brush manufacturer that reduced its energy bills by 35 per cent., and productivity improvements of almost £1 million at a Northumberland electronics company. A Teesside chemical company has saved £360,000 per annum by reducing equipment downtime following advice from the MAS. MAS North East Energy alone has assisted 240 companies, helping them to save £3.7 million in the past two years by giving them advice on how to eliminate waste, and guidance on energy costs. Overall, its work has helped to cut CO2 emissions by more than 25,000 tonnes in the last two years.

We are developing a range of new industries in the north-east, and we need the support of the regional development agency to keep that going, by taking both the opportunities given by carbon capture and storage and the chance to have a large offshore wind system; that is there for the taking, if we are prepared to go for it. To help in that, One NorthEast has set up the New and Renewable Energy Centre in Blyth in Northumberland, which has given support for those taking these measures forward. Ultra low carbon vehicles are also being developed; electric vehicles are being produced by Nissan. Companies in my constituency such as Tegrel and Romag in Consett are delivering charging canopies that will use photovoltaic cells so that cars can be charged in areas such as public car parks. That is a positive step for the future; this could be a huge development for this country, and it is being led and supported by One NorthEast.

We are also leading the way in plastic electronics, industrial biotechnology, and health care. In particular, One NorthEast has given support to the Centre for Life in Newcastle; I am the chair of the all-party group on muscular dystrophy, and I have been involved in work on neuro-muscular diseases at the centre, which is leading the world on that. I hope that, regardless of what happens at the next election, the RDAs will carry on supporting businesses in the north-east and throughout the country.

I now want to talk about a policy that has been a total failure for this country ever since it was first announced in the early 1990s: the private finance initiative. It has let this country down. I agree that we have delivered projects: we have built new schools and hospitals—but at what cost? According to a recent report, the cost at present is that we have had £64 billion-worth of PFI projects built, but we owe £217 billion-worth of repayments between now and 2033-34. Therefore, we will pay in almost four times the value of what we have got out: for every brick we have laid, we are paying for four; for every pound of value we have got, we have given £4, which does not sound like a good deal to me now. It did not sound like a good deal in 1992, and it certainly has not proved to be a good deal.

We saw that with the failure of the public-private initiative for the tube: when Metronet went bust, it walked away. The whole point of PFI was supposed to be that the private sector would take the risk, but when the risk is called in, the private sector walks away. It left the people of London with a bill of £410 million for the failure of the private sector. The private sector was not prepared to stand up for this risk, and PFI certainly has not been value for money.

I hope that my Government will take forward the development of the post bank, and that that will be supported across the House. Less than two years ago, if anyone in this House or anywhere else had suggested that we would have nationalised banks in this country, they would have been laughed out of court. The perceived wisdom was that if we nationalise a bank, money will flee away. The truth that has been shown over the past two years is that, rather than fleeing away, the people with money want to be involved in and supported by the nationalised banks.

The basis for a post bank is therefore already in place, and I draw the Minister’s attention to the report produced by the coalition for a post bank. That coalition has brought together the Federation of Small Businesses, the Communication Workers Union and the Unite trade union, the New Economics Foundation and the Public Interest Research Centre. They believe that a post bank could be built on the post office network and that it could incorporate the following principles. It would safeguard the unique and popular post office network, which we should all be committed to. It would be a key player in addressing financial exclusion. It would build in a universal banking obligation. It would also give real support to small and medium-sized enterprises.

The idea of a post bank is not new. Such banks exist all over Europe. In France, La Poste set up such a bank in January 2006. Since then it has built up 11 million accounts, and accounts for one quarter of La Poste’s turnover. In Italy, BancoPosta was set up in 2000; for the first time in half a century, the Italian post office came into profit in 2002 as a direct result. In Germany, although there have been problems with Deutsche Post, its bank has 14.5 million customers, making it the largest retail bank in the country. There is, therefore, a model that we can take up and adapt.

The conclusion of the report that I mentioned is clear. It states:

“There is both a need and an appetite for transformative change in our economic and banking institutions. A Post Bank based on the Post Office network will provide a solid, trusted basis for new banking, new investment and the revival of local economies.

The Post Bank must be dramatically different from the failed commercial banking model. It must signify a departure from profit-driven, speculative banking practice and a return to locally based, sound financing. It must be inclusive, reaching out to other social and financial organisations concerned with the economic health of their communities. It must be a banking system for all the people.

A successful Post Bank would offer real, long-term financial security to individuals and businesses and provide a vital role for the Post Office commensurate with the high esteem in which it continues to be held by the British people.”

Those are sound reasons for doing this now, and I suggest to the Minister that we should turn our hand to it. It would be a start towards that if the Government were to consider withdrawing or amending the Postal Services Bill. They should work with the unions and others who have put forward alternative plans and develop the Post Office into the modern 21st century organisation that it should be, and Royal Mail along with it.

There are issues to do with the pensions of the workers at the Post Office and Royal Mail, but there are precedents here. In 1994, when the mines were privatised, the Department of Trade and Industry took on the role of the former National Coal Board. I accept that that was a different situation and the mineworkers pension scheme was in surplus, but what was different then was that nobody contributed to the mineworkers pension scheme going forward. In the current situation, we could develop the Royal Mail pension scheme with the Department for Business, Enterprise and Regulatory Reform—or the Department for Business, Innovation and Skills, or whatever we are calling the business Department this week—playing its part as the employer. This is worth looking at. If we are serious, we should sit down with the unions and do it, and at the same time develop the post bank.

I am not sure that that is in order, but I am extremely grateful.

I was wondering how you were going to respond to that, Mr. Deputy Speaker.

I begin by sharing my concerns about how few Members are gathered here for this debate. This is one of the more important subjects for us to debate at present, but I count just one hon. Member on the Labour Benches and absolutely nobody representing the Liberal Democrats other than their Front-Bench spokesman. That is an appalling indictment, when efforts should be made to understand what is going on in the economy and to try to provide the answers that the nation wants to hear.

Is it not particularly tragic that the only Labour Back-Bench present has made a speech critical of Labour Front-Bench policies? It is pretty pathetic that the Government Whips cannot get at least one Member from their party to give a speech in support of the Government’s economic policy.

My hon. Friend makes an important point. It is perhaps because the Government cannot get support on their own Benches that this debate has been tabled for the fag-end of the parliamentary week when many Members have dispersed to their constituencies. This debate should be held in prime parliamentary time and be given a full day’s hearing, so that all Members can represent their constituencies and voice their concerns. Instead, the Chamber is almost empty; we could, in fact, hold this discussion in a taxi cab. That is an embarrassment, and I am dismayed that so few Members are present. That does not take away from the quality of the speeches made, however, which I am sure will make up for the lack of numbers.

We are living in extraordinary times. We have just had some astonishing local election results, which left this dilapidated Labour party representing not one single county. We had EU elections in which the governing party scored only 15 per cent.—a score Labour last saw under Michael Foot. We have also witnessed 11 Ministers resign from the Government, and, as my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) teased out in the recent debate on Europe, even the Foreign Secretary considered resigning. I do not know why he felt the need to tell everyone he had considered resigning, and I am not sure how helpful that was to the Prime Minister; the Foreign Secretary must answer that for himself.

We should bear in mind the fact that the backdrop to all this is one of the worst economic downturns we have ever seen, and it is understandable that the nation is losing its patience with the Government. There is an increasing need for a general election to be called, rather than having a Government limping on towards the final date—the endgame—next May.

It is sad that we cannot muster many Members to come here to debate properly issues such as the obscene sums that the Government are throwing in such a reckless way at the economy. Their approach will encumber every newborn child with a debt to the tune of £22,500. The reason the Government are able to cling on and the Prime Minister has not been ousted is that his weakness is overshadowed only by the weakness of those who tried to oust him. Again and again we hear the call, which I am sure the Minister will repeat, that this is a global economic downturn, so many of the problems are not vested in Britain. It is a global economic downturn, but each country is having to manage the effects in different ways, and the cause of that is the rules and regulations that are or are not in place in each country.

What happened when this Government came to power? They made the Bank of England independent, and straight away the Bank lost crucial powers to regulate the banks. That was the first schoolboy error made by this Government, and it led to the level of borrowing getting out of control; banks were lending people sums that they could not afford, in ways that they did not understand. We hear again and again from the Prime Minister that the situation in the United States is to blame for the downturn in our economy. Perhaps some aspects of the situation there can be blamed—what happened to Fannie Mae, Freddie Mac and the sub-prime market—but it was not the Americans who were allowing Bradford & Bingley to offer 125 per cent. mortgages. That was very much a British issue, which happened under the tutelage of this Government. It went unrectified, and that is why we have the current levels of debt.

The Government then say that they have the answers and that other countries are copying them. Perhaps the hon. Member for Twickenham (Dr. Cable), who speaks for the Lib Dems, will wish to expand on that. The coupon rate at which we lent to our banks was about 12 per cent. How can the Government, the lender of last resort, possibly expect to lend money to banks in that way and then expect those banks to pass the lending on to small and medium-sized businesses at the going rate of about 1 or 2 per cent? Banks will not do that, which is why small and medium-sized businesses up and down the country are suffering because they cannot get the loans they need to see them through this very difficult period.

Another Government initiative was to reduce VAT to 15 per cent. at a time when businesses up and down the country were slicing the cost of their products—the discounts were already 10 or 15 per cent. How was 2.5 per cent. off VAT going to help? That was a gimmick, but it is not over yet, because VAT will go back up to 17.5 per cent. Guess on which day that is due to happen? VAT will go back up when Big Ben chimes midnight on 31 December. The industry that I represent as a Front Bencher—the tourism industry—is up in arms, because that is one of its busiest days. Businesses will have to run two tills that evening; they will run one up to midnight and another from midnight onwards.

The Minister is shaking his head. Well, some concessions have been made and those businesses have been given a couple of hours to adjust, but why on earth was that date chosen in the first place? That decision was madness, and it shows that the Government were not in touch with the very people they were trying to help.

My next concern is the top rate of income tax. The Institute for Fiscal Studies has said that the increase will gain “approximately nothing” in revenue. The increase was a gimmick designed to appease Labour Back Benchers—those very Members who are absent today. I was interested to hear my hon. Friend the Member for Banbury (Tony Baldry) discuss the increasing growth of Jobcentre Plus; it seems that the only place where people can get a job now is working for Jobcentre Plus, because it has grown to be one of the biggest employers for the Government. Unemployment is growing—it is currently 2.3 million and the CBI expects the number of unemployed to grow to up to 3 million. That is happening simply because we did not make arrangements to contain the scale of the economic downturn in time.

In the remaining minutes available to me, I wish to discuss tourism, the portfolio that I follow. I am pleased that my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), whose constituency includes the wonderful little village of Aldbury, where I used to live, is on the Front Bench to listen to this, because it is important that all Members, on both sides of the House, understand the relevance and importance of tourism. That is glossed over in this House on a regular basis. Tourism is our fifth biggest industry: it is worth £90 billion, 200,000 small and medium-sized businesses make up our magnificent tourism industry, and one in four new jobs is created by tourism. Yet it could be argued that tourism does well in this country in spite of the Government, not because of them. It is faring better than expected in this downturn; ironically, because people do not have money in their pockets thanks to this Government, they are forced to consider a domestic holiday, rather than go abroad. That is not an excuse for the Government to say that they are pleased with the tourism figures, because that is not how the tourism industry would have liked its figures to grow.

What this Government have done over a 10-year period is allow the infrastructure designed to support the tourism industry to get out of control. The hon. Member for Blaydon (Mr. Anderson) spoke passionately about the importance of the regional development agencies, but they have creased a confusing, overlapping and costly system that has wrecked our tourism industry. One or two RDAs have done well to promote tourism—the north-west’s RDA is one example, but that is because it does not hold on to that money centrally. Nobody has heard of the north-west’s RDA or the north-east’s RDA, but they have heard of Blackpool and Newcastle. Those are the brand names that need to be promoted, rather than the RDA names, which have taken all the money.

The reality in the north-east is that because of the work that has been done by the RDA, including the development of a campaign called “Passionate people. Passionate places.”, the north-east has the highest growth in tourism of anywhere in the country.

I hope that tourism is growing by more in the north-east than anywhere else, because it gets seven times the amount of money that the south-west does, even though its tourism industry is seven times smaller; the irony there is that the money has not gone to where the tourism industries should actually be. The problem is not only in the distribution of funds, but in an overlapping of effort. It cannot be right that in Singapore there are five different offices representing and promoting tourism in different parts of the United Kingdom. That has come about simply because there is not one voice looking after English tourism, and we need to get back to that. The Conservative policy is to ensure that in this economic downturn we spend the money apportioned to tourism better, which means having a stronger voice for Visit England and a less powerful voice for the RDAs, but a stronger voice for the brand names of the areas that we actually know and love.

We should not forget that this country is the sixth most visited place in the world, which is amazing given that the whole of the UK could be fitted into one of the great lakes in Canada. Yet, as I have said, the Government do not recognise the potential for growing this business. That is reflected in what is called the “tourism deficit”: in 1997, the amount of money that Britons spent abroad taken away from the amount of money that overseas visitors spent in the UK gave a figure of minus £4 billion. We were spending far more money abroad than we are able to bring in, and that figure has jumped to minus £18 billion. That is how much we are losing, whereas countries such as France or Spain have a surplus, and are making money because they are able to attract people in. That is not just to do with the weather; it is to do with other aspects too.

Let us consider the UK’s proportion of global tourism. In 1997 we had 6.9 per cent. of the international market, but the figure has dropped to 3.3 per cent. Those figures must be reversed if we are to get a grip on our tourism industry and what we can offer. We should celebrate our offering, because this country has things that cannot be replicated in new tourism industries in other places. Dubai and Thailand are great places to visit, but Oxford is Oxford and Brighton is Brighton. The culture offered in Britain is unique, but we need to sell it too. Another irony is that the Department for Culture, Media and Sport is one of the few Departments that could make money for the Exchequer were the Exchequer to invest in it; for every £1 spent abroad, we bring £25 back. Does the Exchequer recognise this? I do not think so, because it has cut Visit Britain’s budget by 20 per cent. over the next three years.

We have a once-in-a-lifetime opportunity with the Olympic games coming here. It will be a fantastic chance to celebrate what is good in Britain, beamed to television sets with billions of watchers around the world. Not a single penny has been made available to harness that opportunity, and that is a scandal.

The Treasury has removed tax relief on second home lets. What conversations did the Minister have with the DCMS about that? It will affect the tourism industry, because fewer people will be able to afford to let out their homes for tourism purposes.

We have also seen a legal battle over VAT levels on bingo. Hon. Members who are familiar with the bingo scene will recognise that the industry has been hit by two taxes—VAT and gross profits tax. Gala Coral took the Government to court and won its case that the VAT imposition was unfair, because it was being hit twice. The Government have responded by getting rid of the VAT but increasing the gross profits tax from 15 per cent. to 22 per cent. Did the Treasury consult the DCMS on that? According to answers to parliamentary questions that I have received, no consultation took place. The consequences are not just monetary. Yes, the Exchequer will lose out because bingo halls will close, but bingo is part of our community. For many of the dear old ladies who play bingo, it is their one evening out in the week. It is as much a part of the community as the post office or the pub, and the Government seem unaware of the impact that this taxation will have on the community.

I mentioned pubs, and we have also seen an increase in alcohol duties, part of a grand sweep of hikes in taxation with no recognition of the impact on the normal responsible drinker. Instead of targeting certain types of alcohol, the Government have put a burden on all pubs, and that is why some 40 pubs shut every week. That is changing the fabric of our communities, especially rural communities, where pubs can be one of the main tourist attractions.

I urge the Minister to think beyond the numbers, the bean counters and the abacuses over which they toil, and recognise the wonders and the importance of our tourism industry. All these tweaks in VAT and taxation have a knock-on impact on things that are very important to us and have been around for such a long time, and it is destroying some of them. I am passionate about tourism. I hope that I have expressed that today, and I hope that that has come across to the Minister.

I wish to touch on three of the themes that have emerged from our discussion—the general state of the economy, about which the Minister spoke; the budget deficit, on which the hon. Member for Banbury (Tony Baldry) focused; and the state of bank lending, on which the hon. Members for Blaydon (Mr. Anderson) and for Bournemouth, East (Mr. Ellwood) touched in different ways.

The Minister is right to say that the mood on the economy has changed, certainly compared with three months ago. We are no longer talking in terms of Armageddon and a return to the 1930s. There has been a change of mood and greater optimism. On the objective evidence, it is clear that the economy is falling less rapidly than it was, although we probably cannot say any more than that. It is not surprising because the authorities—here, in the US and in other countries—have thrown the kitchen sink at the economy. We have had drastic cuts in interest rates, the creation of money, big fiscal deficits and, in the case of the UK, a massive devaluation. It would be amazing if all that had not had an impact.

I am more sceptical about where all this will lead. There are big areas of uncertainty. For example, unemployment is still rising, both in aggregate and among particular groups. This week we saw a big increase in the number of young people not in education, employment or training, and in two months a big graduate cohort will come on to the labour market, many of whom will not find work. The effect of rising unemployment is also significant in terms of confidence.

Nor do we know what will happen when the Bank of England withdraws the monetary steroids that are keeping the economy going at the moment. The Governor, in his speech yesterday—in one of his quieter passages—pointed out that next year, in order to prevent an excessive flow of liquidity into the economy and the danger of inflation, he will cut off the increased liquidity injection. We do know how that will affect growth. The Minister said he is confident in the medium term, and I hope that he is right, but we have to ask where that confidence comes from. Households and businesses are de-leveraging frantically and the Government will have to rein back their spending, so at this stage it is difficult to anticipate where the injection of growth will come from.

The hon. Member for Banbury spoke about the deficit. He is right to say that there is a serious problem. Government tax receipts are now 35 per cent. of GDP—lower than at any stage since the days of Harold Macmillan. We are in a low-tax economy—not by design but because of the collapse of revenue from the financial services sector and housing—and expenditure is some 48 per cent. of GDP, so we have a 12 to 13 per cent. gap that has to be borrowed, and that is clearly not sustainable. The Government have a problem with timing—I sympathise with them on this point—because it would be foolish to try to contract the deficit suddenly in the middle of a recession, but it will have to happen. Severe budget discipline will be needed, and it would be helpful to start from a platform of honesty about that. It is clear from the Government’s own plans that current spending is being cut according to any meaningful measure, and anecdotes from local hospitals and other sources suggest that the cuts process has already started.

In addition, a very deep cut is planned in public investment—a halving from its peak. I introduced a debate on that point on 2 February, because it is a big problem. The Minister referred to the need for infrastructure investment, but it is difficult to see how that will be financed, given the scale of the cuts required. I agree with the hon. Member for Banbury that in this discussion of public finances, it would be helpful to get beyond broad aggregates about expenditure limits and get down to the particular programmes that we will have to talk about cutting. We have tried to inject into that debate discussion not only about the defence budget, as the hon. Gentleman suggested, but about tax credits—which may be good in principle, but have become over-extended—public sector pensions and many other items. We will need a mature and grown-up debate on those, in which this House should participate. Sadly, for constitutional reasons going back a century or more, we do not have the powers that we perhaps should have.

There is also clearly a serious problem still with the banking sector. Many solvent, successful businesses with good order books and a good credit history cannot get credit on decent terms. They face big arrangement fees and unreal demands for security, and this is causing them to cut back and close their doors. Many of us see that at constituency level, and the business federations also report that back to us. There is a big lending problem. Many individuals have also been excluded, which enhances the relevance of the post bank proposal put by the hon. Member for Blaydon.

In addition to the lending constraints, the Government have bottled the big issue of banks that are too big to fail. As the Governor of the Bank of England pointed out yesterday, that whole concept is outrageous. If banks are too big to fail, they are too big, and the Government will have to take the initiative to break them up or find some effective way of regulating them so that the taxpayer is not taking on excessive levels of risk.

The Governor also said that we need to address the whole climate of irresponsible risk taking in the City and the banking sector, which still has not been properly confronted. We have seen a premature return to the culture of bonuses, although we have seen some limited restraint in the semi-nationalised banks. However, the Government still have not put in place a framework for dealing with that issue systematically.

It is a pleasure to speak in this afternoon’s debate. It would be fair to say that it is not particularly well attended, but I thank those hon. Members who have taken part, particularly my hon. Friend the Member for Bournemouth, East (Mr. Ellwood). He is a passionate advocate for the cause of tourism in this country, and I thank him for mentioning the glorious village of Aldbury in my constituency, which he knows well. I also want to thank my hon. Friend the Member for Banbury (Tony Baldry) for his excellent speech on the public finances, and that is the issue on which I want to focus.

When we consider the future of Britain’s economy, the central fact is that we have run out of money. We are borrowing record amounts. For every £4 spent by the Government, £1 is borrowed. We are borrowing more in the next two years than in aggregate over the country’s entire history, with debt likely to double—if it does not grow by even more. The 40 per cent. sustainable investment target—that is, the target that debt should not be more than 40 per cent. of GDP—is well and truly broken and is not likely to be met until 2032. We are borrowing more than any other country in the world.

The central question for the Government is whether they have a coherent plan to get us out of this mess. We know that the Government have optimistic growth forecasts, particularly from 2011 onwards. We know that there will be unspecified fiscal tightening after 2014 of £45 billion. We know that spending restraint will be delayed until after the general election, but we also know from the Government’s figures that cuts are already planned in public spending between 2011 and 2014. That is the topical issue of the day, but the Prime Minister is characterising the facts in a somewhat different way. Only yesterday, he said that we never hear any figures from the Conservatives. Let me attempt to address that in the short time that I have available this afternoon.

In Prime Minister’s questions last week, on 10 June, the Prime Minister listed cash spending in the years beginning 2010-11: £702 billion, £717 billion, £738 billion and £758 billion. He claimed that that showed more spending from Labour. However, if we take out inflation we have the following numbers: £702 billion, £699 billion, £701 billion and £701 billion. If we take out debt interest and benefits—I am using the numbers prepared by the Institute for Fiscal Studies, which give us the real departmental spending—the numbers are £391 billion, £382 billion, £373 billion and £362 billion. That is a cut of 2.3 per cent. per year or 7 per cent. over three years. If health is protected, as we intend it to be, the percentage would go up for the remaining Departments to a fall of 3.3 per cent. a year, or 10 per cent. over three years. Let us be clear: these are the Government’s own numbers.

The Prime Minister had another crack at defending his position yesterday. He read out the numbers for current spending: £629 billion, £633 billion, £638 billion and £642 billion. However, if we deduct debt interest and benefits the departmental spending will fall from £344 billion to £341 billion, to £337 billion and to £332 billion. That is a cut of 1 per cent. per annum or 3 per cent. over three years according to the Prime Minister’s own chosen measure of current spending.

Let us look at capital spending. The hon. Member for Twickenham (Dr. Cable) was quite right to highlight that matter. Again, the Prime Minister stated yesterday:

“Capital expenditure will grow until the year of the Olympics. After that, it will be less”.—[Official Report, 17 June 2009; Vol. 494, c. 295.]

The facts are very straightforward. Page 226 of the Red Book lists net investment in table C4. The figure for this year, 2009-10, is £44 billion, which then falls to £36 billion, £29 billion, £26 billion and finally £22 billion in 2013-14. There are two points to make about that. First, that is clearly a significant cut and it is a year-on-year cut. There is nothing about an increase until the year of the Olympics, 2012; there is a cut every year. Secondly, why highlight the year of the Olympics as if everything is explained by capital expenditure on the Olympics and as if that is no longer a relevant factor after 2012? Average capital expenditure on the Olympics is just over £1 billion a year, and that is clearly barely relevant to a reduction of £22 billion in capital spending.

What have Cabinet Ministers said, notwithstanding those facts? The Secretary of State for Wales told the BBC’s “Question Time” last week that

“up until 2014 there will be real term increases in Government spending Departments.”

The Secretary of State for Health told Channel 4 news on 11 June:

“I am also committing to you, in the way that the Prime Minister has, that we will continue to maintain growth in health spending in the following period”.

The Secretary of State for Children, Schools and Families—a noted economist—told Radio 5 Live:

“I think we can see the spending on schools and hospitals rising in real terms after 2011”.

The facts are very clear. I have outlined the numbers and the facts to the House this afternoon.

The Prime Minister has put his Ministers in an impossible position in the launch of his election campaign—assuming, of course, that he makes it to the election—by stating that it will be about Labour investment versus Conservative cuts. Never before has a campaign unravelled quite so comprehensively even before the election has been called. Columnists and observers from The Guardian and from every news organisation have lined up to describe the Government’s position as silly, infantile and dishonest.

It is difficult for me to characterise the nature of the Prime Minister’s position within the confines of the conventions of this House, but the Prime Minister must think that the British people are stupid if he thinks they will believe his claim that it will be Labour investment versus Conservative cuts. The facts point in a very different direction. Not one single respected commentator or observer supports the Prime Minister’s line that the Government will be spending more on departmental expenditure.

I think we should spare a thought for Ministers of honesty and integrity, such as the Economic Secretary, who are forced to go out to defend the Government’s position. I want to ask him two questions, and I hope that he has a chance to answer them. Does he accept that the Government’s budget projections involve real-term cuts in departmental expenditure from 2011 onwards, whether we look at total spending or current spending? Secondly, does he accept that capital spending will fall in each of the next four years and will not, as the Prime Minister told the House yesterday, rise until the year of the Olympics?

It is clear that the numbers point in one direction. The country’s money has run out. The public finances are in a mess and, whoever is in power after the next election, there will need to be real-term spending cuts. If the numbers and the facts do not suit the rhetoric, what will the Government do? I warn them that if they attempt to adjust the numbers or if bogus growth figures suddenly appear in the comprehensive spending review, that will do nothing for their reputation. It is time for some honesty; it is time for a grown-up debate. The Prime Minister has descended into self-parody and we need a change.

With the leave of the House, I shall briefly respond to the debate, although I appreciate that it is not customary for a Minister to do so in a topical debate.

We heard interesting contributions from the hon. Members for Banbury (Tony Baldry), and for Bournemouth, East (Mr. Ellwood), and from my hon. Friend the Member for Blaydon (Mr. Anderson), as well as contributions from Front Benchers, as is usual. My hon. Friend the Member for Blaydon talked principally about three issues: regional development agencies, the private finance initiative and the post bank. On the latter, I know that he has been in discussions with what used to be the Department for Business, Enterprise and Regulatory Reform and is now the Department for Business, Innovation and Skills. I would not want to say any more on that matter.

My hon. Friend made some good points about regional development agencies. I am not sure what the Conservative policy on RDAs is, but I think that it would be a huge strategic blunder to get rid of RDAs. They have been on a learning curve and, overall, they now provide effective assistance to businesses in their regions and contribute to their regional economies. He referred to One NorthEast and some of the success stories of the manufacturing advisory service. I can confirm that those success stories are not confined to the north-east, but can be found across the regions of England. He also talked impressively about the action that companies in the north-east are taking on renewable energy, plastic electronics, industrial biotechnology and electric vehicles. Those are all important areas for the UK economy for the future.

I have to say that I do not agree with my hon. Friend that the private finance initiative has let the country down. Under the private finance, many more schools and hospitals have been built than could possibly have been built using conventional financial routes. Independent investigation shows that there is good evidence suggesting that PFI projects are far more likely to be built on time and on budget than those built using conventional procurement, although the Government have made great strides to improve their record on conventional procurement.

My hon. Friend also referred to the fact that payments are made over a period of years, because the costs of running a facility are often a large part of the total whole-life costs, which are taken into consideration when we talk about the private finance initiative. If he looks back at the bad old days of conventional procurement under the Conservatives, he will see that often the attitude was, “design, build and fail to maintain.” There was a scandalous record of failing to maintain the fabric of our infrastructure, and private finance has addressed that issue.

If the hon. Gentleman will allow me, I will not give way to him. I want briefly to respond to the debate; as I say, it is not normal to do so. I want to come on to the points that he raised, and those made by the hon. Member for Banbury.

The hon. Member for Bournemouth, East, spoke with great passion about tourism. I acknowledge the importance of tourism to the UK economy. I do not particularly want to get into the issues of pubs and bingo today, as they are perhaps not central to preparing Britain’s economy for the future, but he is certainly correct to point to the fact that tourism is a significant part of the UK economy. It is an important part of Britain’s economic future, too.

The hon. Gentleman referred—I think I quote him correctly—to the Government throwing “obscene sums” at the economy. I have to disagree. The hon. Member for Twickenham (Dr. Cable) talked about us throwing the kitchen sink at the economy. It is quite good that we did so. We needed to take action to stabilise the banking system. It is right, in the Government’s opinion, that there should be a fiscal stimulus to support the UK economy. Frankly, it would have been irresponsible for a Government not to have thrown the kitchen sink at the problem.

As the hon. Member for Banbury suggests, however, we know that public spending cannot grow in the way that it has since 1997. I am enormously proud of the public investment made since 1997; we have largely rebuilt Britain’s infrastructure. The hospital system and general practitioner practices across the country are in a far better state than they were when we came to power. Schools have been rebuilt. Each and every Member can point to new schools in their constituency that were built in the past 10 or 12 years, sometimes with private finance and sometimes through conventional public procurement. That is clear, important investment in the fabric of the country for the future.

With regard to spending figures—a point raised by the hon. Member for South-West Hertfordshire (Mr. Gauke)—we can trade different sets of figures, but he will be aware that public sector current expenditure is planned to rise by 6.8 per cent. this year, and by 4.4 per cent. in 2010-11. We believe that it is important to invest during these difficult economic times, but we have also said that we need to take a responsible attitude to the public finances in the medium term. That is why, in the Budget, we published figures showing a real-terms increase in public-sector current expenditure of 0.7 per cent. per year from 2011 onwards. The hon. Gentleman pointed out that we should take into account debt interest charges and welfare bills. I do not know what welfare bills or public debt charges will be between 2011 and 2014. We live in a time of great uncertainty. Given that uncertainty in the world economy, it is too early to say how those factors will pan out, and so much too early to say how the growth in public spending will be shared, especially as we are only one year into the current comprehensive spending review.

I am grateful to the Minister for giving way. I note his comment that he does not know what interest payments or welfare bills will be, but presumably the Treasury has made its own projections, as the Institute for Fiscal Studies has done. Will he agree to release publicly the Treasury projections showing what it anticipates welfare bills and interest payments will be in the years 2011 to 2014?

We will make information available in the normal way, as we always do. I hope that he agrees with my point: it simply is not possible to know, and to forecast with any great precision, what welfare bills or debt charges are likely to be in the years 2011 to 2014. Given that uncertainty, it would be wrong to say how they would pan out, and wrong to speculate about the overall balance.

We have to get back to the fundamental argument, which is that the Government have invested massively in our public services. We are continuing to provide a fiscal stimulus this year and next year because we believe that it is important to help the economy through difficult economic times. On all assumptions, the Conservative party wants to spend less now. It wants to spend less in the future than the Labour Government—that is a dividing line. It is important to recognise that the Conservative party would spend less on services than a Labour Government, and that will be an issue when it comes to the general election.

Question put and agreed to.


That this House has considered the matter of preparing Britain’s economy for the future.