The Chancellor of the Exchequer was asked—
As you will be aware, Mr. Speaker, the Chancellor of the Exchequer is at a meeting of European Finance Ministers in Brussels today. However, he and the Treasury hold frequent discussions with United Kingdom Financial Investments Ltd on a range of topics related to the Government’s holdings in financial institutions, in line with the UK Financial Investment’s framework document and investment mandate.
Given that the Government have reduced competition among high street banks, does the Minister not recognise that many small and medium-sized businesses will be frustrated by an economic recovery, because they will be unable to access finance on the terms that they need for expansion and recovery? Is it not the Government’s responsibility to ensure that they can do that, so will he do something about it rather than being passive on the sidelines?
We are certainly not being passive on the sidelines. As the House is well aware, the Government have negotiated binding commitments with RBS and Lloyds Banking Group on lending to businesses, as well as mortgage lending. We have taken further actions to help small, growing companies, through the enterprise finance guarantee, which has been a big success in lending to small businesses, and through intermediate lending by the European Investment Bank. We have also seen EIB loans at cheap rates to help companies through the recovery, which is what we all want to see.
Like many hon. Members, I have probably spoken to more constituents over recent months than I would normally, and there is still a huge amount of anger among my constituents—and, I suspect, many others—about bankers’ bonuses. They feel that, as the Government have a stake in a number of such institutions, perhaps they should have taken a lot more action to curtail the amount that bankers are still being paid.
The whole House will have had representations from constituents on the issue of bankers’ bonuses. My hon. Friend will be aware that UKFI manages the Government’s interests in RBS, Lloyds Banking Group, Northern Rock and Bradford & Bingley on an arm’s length basis. It is not in the interests of shareholders, including the taxpayer, for banks to lose key profit-making staff, but we have to ensure an appropriate balance. As she will be aware, RBS made a commitment to pay the minimum possible, to protect the banking franchise, and it is in investment banking where that issue is most apparent. On behalf of the Government, UKFI took independent analysis and looked at sector averages in coming to its conclusions, and it was entirely appropriate that it showed that due diligence.
On lending banking, has the Chancellor yet modified his opposition to Mr. Paul Volcker’s view, which is strongly supported by President Obama, that it is a mistake for commercial banks to allow their depositors to run the risk of their money being handled by investment banks?
No, I do not think that the Chancellor has changed his views on that. Indeed, he has clearly expressed the view to the House on a number of occasions that he does not believe the causes of the current financial crisis to have been brought about as a result of a failure to implement Glass-Steagall and split investment banking from ordinary commercial banking. Both types of banks have got into difficulty over the past couple of years. What is important is that we pay due attention to ensuring the effective regulation of the banks. That is the approach that we have adopted, which is why we have introduced recovery and resolution plans, for instance, as part of our new legislative programme.
Since the Budget more than 3.5 million people have been helped off jobseeker’s allowance—
In the past year more than 3.5 million people have been helped off benefits and back into work, while more than 300,000 people have been helped to stay in their homes and more than 160,000 businesses have been helped to defer more than £5 billion in taxes. Together, those measures have helped our economy return to growth.
Will my right hon. Friend join me in congratulating the partnership of Yorkshire Forward, the local authority, West Yorkshire MPs and local businesses, which has been so successful in saving the Halifax brand, as well as the maximum number of jobs in my constituency? Can he also tell the House what further he can do to support jobs in my constituency?
I am pleased that because of the measures that we have taken over the past year, unemployment in my hon. Friend’s constituency is not only lower than the UK average, but lower than the average for Yorkshire and the Humber. Thanks to the Government help that has been put in place, the partnerships to which she referred have now delivered more than 350 jobs to the local community. We have no plans to take away that support, which is helping to get people back into work. We still provide the young person’s guarantee which helps young people to obtain jobs when they have been out of work for six months, and extra help is also available to those aged over 25 who are in that position.
May I stress the importance of capital expenditure to the Merseyside and Cheshire area, and, in that context, the importance of a decision on the proposed Mersey gateway bridge, which will create hundreds of construction jobs and many thousands of jobs thereafter? Will my right hon. Friend talk to his colleagues in the Department for Transport about the need for an early decision?
I congratulate my hon. Friend on the consistency with which he has championed that project over the past few years. It will make a great deal of difference to the local economy: I understand that it is worth 4,000 or 5,000 jobs to his area. As he will know, the Government have brought forward some £3 billion of capital expenditure to help fight the effects of the recession. I understand that the Departments for Transport and for Communities and Local Government have received an inspector’s report on the bridge, and I will continue to press my colleagues for an early decision.
If last year’s Budget decisions were right, why did the Chief Secretary rule out a VAT increase last week only to rule it in again this morning? Will he clear up the confusion, and tell the British public categorically whether or not an increase in VAT is being considered?
The hon. Gentleman has been in the House long enough to know that tax decisions are matters for the Chancellor, who presents them to the House in both the pre-Budget report and the Budget.
We will not cut support for the economy this year, unlike the Conservative party. Once growth is locked in, we will take action to halve the deficit over the next four years. What we will not do is make the commitment made this morning by the shadow Business Secretary, the right hon. and learned Member for Rushcliffe (Mr. Clarke), to bring down the deficit to 3 per cent. by 2014-15—a step that would take another £20 billion out of public spending over the medium term.
Over the past year, steps have been taken not only to increase the basic state pension, but to increase the support available through pension credit. We have increased the disregard in the pensions system to put more money into pensioners’ pockets, and they will also have benefited from VAT cuts over the past year which have put about £1 billion into the pockets of consumers throughout the country.
At a time when economic confidence is crucial to Britain’s recovery, the assessment of the policies in the 2009 Budget that matters is not the Chief Secretary’s assessment or mine, but that of the international investors who have to buy our debt and the business men who will invest in that recovery. Their verdict is clear, and it is getting louder. It is summarised very neatly by the European Commission’s view that the Government’s plans are “not sufficiently ambitious” and that “additional fiscal tightening” is necessary. Is not the simple fact that the Government’s deficit reduction plan is not designed to restore confidence in markets, not designed to kick-start business investment and not designed in the long-term interests in the British economy, but designed to postpone the tough decisions until the other side of a general election?
The argument that the shadow Chief Secretary seeks to advance is one that he has rehearsed over the past year. In his opinion, it would be right to start to cut public spending now, before the recovery is locked in. If he is so interested in the views of business leaders and others, let me quote a couple. Richard Lambert has said:
“I think the Government is right to say that it would be a bad idea to slam on the brakes right now because the economy’s still… fragile.”
The Institute for Fiscal Studies has said:
“it doesn’t make sense to announce more tax increases or spending cuts that would take effect over the course of the coming year.”
That argument has been reinforced by the International Monetary Fund. If the hon. Gentleman does not wish to listen to those organisations, however, perhaps he will listen to his own economic adviser, Alan Budd, who has said:
“If you go too quickly, then there is a risk that the recovery will be snuffed out and we will go back into a recession. I mean, what do the Americans say? ‘Remember 1937.’”
I hope that the shadow Chief Secretary will heed that advice.
Order. May I say to both the Chief Secretary and the shadow Chief Secretary that what I do not want is for Back Benchers to be “snuffed out” by excessively prolonged exchanges between the Front Benches. Mr. Hammond, I know that your second question will be shorter than your first.
Yes, Mr. Speaker, and we hope it will elicit a shorter reply, too.
The fact is that the Chief Secretary is not listening. In particular, he is not listening to the people whose assessments really matter, such as Sir Martin Sorrell, who says:
“If Labour win we may well have a sterling crisis.”
I might also mention Fitch, which says that
“halving the deficit over four years is frankly too slow”,
and the CBI, which says that
“the Government has no credible plan.”
The truth is that whereas the Conservative party is willing to roll up its sleeves and take the tough decisions that are necessary for Britain’s future, Labour still has its head buried in the sand and is merely hoping that the problem will go away. When will the Chief Secretary start telling the British people the truth about the challenges that lie ahead?
We could carry on trading quotes from business leaders, but the International Monetary Fund, the Bank of England and respected economists such as the chief economist of UBS have all made it clear that this year would be the wrong year to start making cuts. The hon. Gentleman is, I think, reaffirming the argument made this morning by the shadow Business Secretary, which is that another £20 billion should be cut from public spending. Will the hon. Gentleman deny that today? [Interruption.] Will he issue a statement denying that today? It appears that the shadow Chancellor and the shadow Business Secretary are now auditioning for the same job, but the problem is that they are using a different script.
Small Manufacturing Business
The annual investment allowance of £50,000 is particularly helpful for small manufacturing businesses. The business payment support service allows firms with cash-flow difficulties to spread tax payments over a period. My right hon. Friend the Chancellor will set out our plans in his Budget statement next week.
Is my right hon. Friend aware that many businesses, such as manufacturing businesses in Yorkshire and especially Huddersfield, very much value the range of incentives that they have, particularly the research and development tax credits? Does he also understand that they are very worried? One business man said that he could not sleep at night because of thoughts of a naive new Chancellor sweeping all this away.
My hon. Friend is absolutely right. There is a great deal of concern among manufacturers about the Conservative party’s proposals. I agree with the Engineering Employers Federation, which has described the proposals as a disaster for manufacturers. The Institute for Fiscal Studies said that the proposals
“would help companies that make large profits with little investment, at the expense of businesses that are investing heavily in the UK”.
What we should be doing is supporting investment.
The Financial Secretary told the hon. Member for Huddersfield (Mr. Sheerman) that he would have to wait for further announcements in the Budget, but why does he have to wait until then when the Chief Secretary is merrily going around ahead of the Budget telling the world there will be no tax increases? Is the purdah rule now selectively applied, or is the Chief Secretary just gaffe-prone?
As my right hon. Friend the Chief Secretary has made clear, tax announcements are made at the time of the Budget. Like my right hon. Friend, however, I am very interested in what the shadow Business Secretary has been saying this morning, apparently committing the Conservative party to a 3 per cent. deficit by 2014.
Order. The Minister is being very cheeky—anybody would think an election is on the way. The Minister does not need to preoccupy himself with the policies of the Opposition, and I know that in a moment he will want to return to the policies of the Government.
In recent evidence to the Treasury Committee, Lord Turner told us that
“the tax deductibility of interest is creating a bias in the tax system”.
That bias is towards debt, rather than equity. For the sake of all manufacturing industry, is it not time that we had a real debate on this issue, so that we correct the tax system in favour of people who are involved in manufacturing and creating jobs in the country?
My right hon. Friend is right. We will need to reflect on this, but I think that he will agree that it would be a mistake to make changes now that undermine the incentive to invest in manufacturing. That is what the Conservative party is proposing, however.
With your permission, Mr. Speaker, I will answer Questions 4 and 23 together. The Chancellor will provide an update on the Government’s—
I am very grateful for your judgment, Mr. Speaker; I shall answer Question 4 directly.
The Chancellor will provide an update on the Government’s fiscal position, including forecasts for public finance, at the Budget. The Fiscal Responsibility Act 2010 puts a legal obligation on the Government to more than halve the deficit over four years and have debt falling by 2015-16.
The Government’s fiscal plans have been criticised by the Governor of the Bank of England and the European Commission in the past week. A few moments ago, in response to my hon. Friend the Member for Sevenoaks (Mr. Fallon), the Chief Secretary said that this was the wrong year to make cuts. Last week, the Chief Secretary told us that there was no need for tax rises, but this week he has changed his mind. Following the Chancellor’s reprimand of him, is he now going to tell us that this is the right year and that this Government will be increasing taxes this year?
We were clear in the pre-Budget report about our belief that £19 billion-worth of tax increases need to be secured over the next few years. We have not caveated our language with the kind of dissembling that we have seen in some quarters about whether proposals on national insurance contributions will be reversed or implemented. Alongside those proposals, we have said that £38 billion-worth of cuts and efficiency savings also need to be secured. We have been clear about our plans to halve the deficit—I hope that the Conservative party will match that clarity.
At a time when we need to make savings, is my right hon. Friend aware that Gloucestershire has seven local authorities? There are too many councillors and too many local authorities, so in the run-up to the Budget will he consider allowing us to bring in unitary authorities in places such as Gloucestershire? We could save £16 million a year by reducing the number of authorities from seven to two, by cutting the number of councillors and by reducing the amount of duplication. If we took a similar approach across the country, we could save half a billion pounds a year.
Is the Minister not mildly embarrassed that the Government claimed to be leading the international debate on recovery from the financial crisis but have now been chastised by the European Commission for a lack of clarity in their plans for tackling the fiscal deficit? Although the Government have been clear about when to make cuts and how rapidly to do so, they have been massively unclear about what they propose to cut—when are we going to hear that?
I think that the European Commission made the wrong decision by saying to the United Kingdom that we should reduce the deficit to 3 per cent. of GDP by 2014-15. That would entail a cut of well above £20 billion in public spending or commensurate tax increases. In the pre-Budget report we set out deliberately how we would save £20 billion of current spending over the next four years: £4.8 billion of that would come through savings on pay and pensions; there would be £5 billion of cuts to departmental expenditure limits; and £11 billion of it would come through the reorganisation of Whitehall and doing things more efficiently in the future. We set that out clearly in chapter 6 of the pre-Budget report.
Does this European report not also relate to a deeper argument within Europe about whether recovery should be led by countries such as Germany widening their deficit—that is the French argument—or by the weaker countries, such as Greece, Ireland, Italy, Spain and probably Britain, taking action on their deficits? Where do the Government stand on that debate?
We are very clear that what is in the interests of the United Kingdom economy—I believe that the hon. Gentleman has made this argument before—is rebalancing our economy in the years to come and having an investment and export-led recovery. No one country can secure that policy acting on its own, which is why international trade reform is part and parcel of our approach to the agenda for the G20 over the year to come. The truth is that if American savers carry on saving at today’s rates we will not be able to rely on them to drive growth in the global economy in the way that they have done in the past.
Will my right hon. Friend confirm that there could not be a more bizarre sight than the Tory Front-Bench team joining unelected European Commissioners to call on the British Government to carry out a policy of creating mass unemployment by postponing the attempt to halve the deficit in four years? And the Member for the Liberal party ought to know better than to join these unelected people who want to throw workers on the scrap heap.
My hon. Friend is absolutely right. Over the past year, 22 million people have benefited from tax cuts because of measures we have introduced. Up to 500,000 jobs have been protected, more than 160,000 businesses have been helped with their cash flow and 120,000 jobs have been provided through the future jobs fund. That has all been possible because of the measures that we took over the course of the past year. It would have been impossible to sustain those steps had we followed the advice of the Opposition.
Given that the Chief Secretary’s pronouncements on tax policy last Thursday were overruled by the Chancellor on Sunday, will the Chief Secretary tell the House whether he speaks on these matters with the authority of the Chancellor, or is the relationship between the Chief Secretary and the Chancellor as dysfunctional as the relationship between the Chancellor and the Prime Minister?
What a non-question. What I did last week was set out very clearly proposals for how, over the next four years, we will increase taxes by about £19 billion. They are difficult decisions that no Chancellor wants to implement, but none the less they are decisions that we have faced up to. Alongside that, we have said that we will reduce spending on day-to-day public services, but we will not take precipitate action as proposed by the Opposition. We will lock in the recovery, not put it at risk, as proposed by the Opposition.
If John Maynard Keynes were alive today, he would agree absolutely with my hon. Friend the Member for Bolsover (Mr. Skinner) and would have contempt for the views of the Opposition. May I suggest to my right hon. Friend that cutting now would be about as intelligent as burning witches in the middle ages?
Not just my hon. Friends agree with our approach. My hon. Friend and others may convey it in different language, but that approach is supported not only by the International Monetary Fund but by the Institute for Fiscal Studies, UBS, the CBI, two Nobel economists, the hon. Member for Twickenham (Dr. Cable) —on occasion—and the independent fiscal forecaster for the Conservative party, Sir Alan Budd.
Crown Estate Commissioners
The Crown Estate has delivered good financial returns over the past 10 years, with capital up 66 per cent. and revenue paid to the Exchequer up 70 per cent., reaching £226 million in the last full financial year. Over the past 10 years, the value of the portfolio has increased by £2.3 billion and the Crown Estate has paid a total of £1.8 billion to the Exchequer.
The Minister is—I hope—aware of the announcement made this morning by the Crown Estate on licensing sea bed areas around Orkney and the north of Scotland for the development of marine renewables. May I tell her, however, that many in the renewables industry, although they welcome the announcement, have serious concerns about the process that the Crown Estate has used in getting to this point? Will she use the powers that are given to her in the Crown Estate Act 1961 to have a look at what has been done to ensure that the Crown Estate becomes a facilitator rather than a hindrance in the development of green renewables?
I have to disagree with the hon. Gentleman; I do not think that the Crown Estate is a hindrance. I have had it from the Crown Estate that it wishes to be involved in that process and recognises the importance of the sea bed around Scotland. I am having a meeting with the Crown Estate commissioners in the next couple of weeks and I intend to take various issues to that meeting, including the marine issues to do with renewable energy in Scotland and other matters that have been raised by hon. Members.
This question reminds me of how, soon after I was elected, I had to do battle with the Crown Estate commissioners on the foreshore of the Thames for putting in jeopardy the 1,000-year-old ferry route between Tilbury and Gravesend. It is rather sad that, as I come to the end of my life in the House of Commons, that ferry is again in jeopardy. I do not know to what extent the Crown Estate commissioners are involved, but I ask my hon. Friend to look into that in her discussions. The real problem is that work, employment and school opportunities for my folk are being put in jeopardy by the Conservative borough council, which wants to cut the subsidy. That was not mentioned to the hon. Member for—
Value of Sterling
As stated in the previous pre-Budget report, the depreciation of sterling is expected to help contribute to recovery in the UK economy. It should give a competitive edge to UK exporters, and encourage UK consumers to switch to domestically produced goods and services.
I thank the Minister for that reply. However, given the faith that Ministers have placed in a weak sterling supporting export growth, does the drop in the previous quarter’s export figures not demonstrate again both the complacency of Ministers about the recovery, and the extent of the damage that has been done to the UK’s manufacturing and export base under this Government?
We are certainly not complacent about the recovery. That is why we have taken the fiscal judgments that we have taken, and why we have said explicitly that we need to make sure that we lock in the recovery. We have taken actions to help exporters through UK Trade and Investment, which helps some 20,000 exporters every year. I happen to believe that there is more to be done: perhaps it is because I come from one of the UK’s manufacturing heartlands that I believe that we will not have a successful economic future unless we export goods and services. So, yes, I think that there is more to be done, but this Government have a good record in supporting UK exporters.
Pretty much any economist will say that there is a time lag between depreciation occurring in an economy and its visible effects in both exports and import substitution. I am confident that the normal laws of economics still apply to the UK and the global economy. Because of the financial crisis that has hit the world economy, I have concerns about the effectiveness of banks as a transmission mechanism for supporting growth in our exporters and businesses. However, I have every reason to believe that the exchange rate as it is will help UK firms.
Every time that this discredited Government make any kind of recovery, sterling falls sharply. That is due to their lack of credibility when it comes to the deficit. Does the Minister think that it helps the Government’s credibility with the markets and sterling for the Chief Secretary to make promises on tax that he has to retract five days later?
The hon. Gentleman must have been reading one of the reports in The Times today, which said that sterling was on the slide as a result of recent announcements. That might have been true between 6 am and 11.40, but then it changed round, and apart from a blip at about 7.40 to 8 o’clock this morning, the pound has gone up again. It has been within a trading range for a considerable period of time.
We receive representations from a number of public and private sector organisations as part of our policy development and delivery. More than 500,000 businesses that invest are able to claim tax relief on their qualifying investment expenditure under the capital allowances regime. In 2010-11, it is estimated that £62 billion of capital expenditure investment will be made and supported by these allowances.
Does my hon. Friend recall that the polices of the Conservative Government of the 1980s and 1990s meant that it was far more tax-efficient to distribute what should have been retained profits for investment than to retool and re-kit our industry? That was especially true in the west midlands, where we lost a great deal in terms of modernisation. Will she tell us this afternoon that the policy of this Labour Government, which encourages investment, will continue?
I assure my hon. Friend that we believe that investment is crucial for the UK economy’s long-term success. That is why we acted to support business investment during the recession by temporarily doubling the main rate of capital allowance. We support capital allowances—unlike the Opposition, who wish to cut allowances for investment.
Listed Places of Worship (Grants)
The Government’s plans for the listed places of worship scheme beyond 31 March next year will be announced in the spending review later in the year.
I hope that it will be good news. The Minister will know that the scheme involves money given to help defray the cost of value added tax on repairing listed buildings. Many communities up and down the country are trying to keep their churches in good repair, and either the scheme has to be extended or the Government must restore heritage as part of national lottery funding. Does he agree that we cannot expect this important element of our built heritage to be done on thin air?
The hon. Gentleman raises an important point. This scheme has now generated some £100 million for 10,000 buildings since it was introduced in 2001. We have recognised that listed churches are a special case. Our long-term aim is that a lower rate of VAT should be agreed at European level for instances of that kind, but in the meantime the joint English Heritage/Heritage Lottery Fund scheme is providing £25 million a year. We will look at that particular scheme again in the spending review.
Tax credits have supported the economy in the downturn, responding quickly when household income falls. Last October, 400,000 households whose income had fallen since the start of the year were receiving, on average, £37 a week more in tax credits.
Tax credits have helped more than 9,000 families in my constituency by supporting them through difficult times and helping to reduce child poverty. Will the Minister reaffirm his commitment to that policy, in contrast to the two main Opposition parties, which are looking to cut tax credits for those on very modest incomes?
My hon. Friend is absolutely right. I can reaffirm our commitment to the policy. Under the last Government, child poverty more than doubled, to the highest rate in Europe. We have been able to reverse that rise, and indeed reduce the number of children below the poverty line by 500,000 on the most recent data. I can confirm to my hon. Friend that we will maintain that policy.
Yes. Our view is that the tax credit system has played a very important role in supporting the economy, particularly in the past year, when a lot of people have seen their income fall—for example, because their hours have been reduced—and it has been possible for their tax credits to increase very quickly in response. I noticed that in my hon. Friend’s constituency more than 500 families have benefited, by an average of just over £41.
I do not think that I have had people in tears over that in my constituency surgery. The hon. Gentleman might be pleased to note that in April to December 2009 the number of complaints about the operation of the tax credit system was 40 per cent. down on the year before, so we are making good progress.
The Government have introduced a significant package of support to help young people into work quickly. This includes the £1.3 billion young person’s guarantee of a job, and up to £1,000 for businesses that recruit unemployed young people.
In Stockport, more than 4,000 young people are not in education, employment or training and many employers are ready to help them. Is it not time for the Chancellor to increase his support for employers, so that they can give the young people in my constituency the break and the start that they need?
I will take that as another Budget submission, but just to be clear with the hon. Gentleman, the young person’s guarantee is already providing jobs and work experience and training for those aged 16 to 24 who have been out of work for six months. From April this year, if a young person has been out of work for 10 months, they need actually to take that job or that training opportunity, or the community service on offer. We have already provided access to 120,000 jobs for young people through the future jobs fund, paid at the national minimum wage, together with 120,000 pre-employment training places.
Will my right hon. Friend ensure that special help is given to those young people recovering from either mental health problems or addiction difficulties, given that there seems to be a disproportionately high number of such people among the young unemployed?
We can, and partly because of the extra resources that have been put in place in jobcentres, many thousands more people have been added to the strength of that particular front line. That obviously increases the personalisation of the service that jobcentres can offer, and it is part of the reason that 3.5 million people have been helped off jobseeker’s allowance and into jobs over the past year.
Last week, before he was forced to make his humiliating climbdown on tax increases, the Chief Secretary was boasting about the difficult decision to increase national insurance. Will he tell the House what the impact of that difficult decision would be on unemployment?
Experience suggests that general national insurance cuts and wage support have very limited impact on employment. Of course, taking those national insurance contributions out of the forward programme for tax would leave a £7 billion hole in the tax base. The Conservative party has yet to come clean with the public about how it intends to fill that gap.
As the House would expect, Treasury Ministers and officials have meetings with a wide variety of organisations.
I thank the Minister for his conclusive answer. With a Budget deficit higher than that of the Greeks, is it not a matter of some embarrassment to the Government that after 13 years of their being responsible for the economy, serious figures—from the CBI, to the Bank of England, to credit rating agencies—are raising questions about this country’s credit rating in the manner of some disreputable pyramid scheme salesman who has finally been caught out?
I do not think that the hon. Gentleman’s words are representative of how a vast majority of informed commentators look at these issues. They certainly are not representative of the credit rating agencies, all of which recognise the UK’s strong funding flexibility. They continue to judge the UK as having the highest possible sovereign credit rating. I point out to him that average debt maturity in the UK is 13.5 years, which is twice that in France, Germany and Italy, and is more than three times that in the United States.
Is it not the case that the credit rating agencies take account of the real economy, that Britain is the world’s sixth largest exporter of manufactured goods and the world’s second largest exporter of services, and that there is no possibility of the credit rating agencies downgrading our rating?
My hon. Friend is absolutely right to point to the strength of the UK as a manufacturing nation and our strength in exporting services. Rather than speculate about credit ratings when it is very clear from all that the credit rating agencies have said that there is currently no risk to the UK’s credit rating, we should focus on a strategy for growth and jobs for the future. We will hear more about that next week.
Government Holdings (RBS)
The Treasury holds frequent discussions with UK Financial Investments on a range of topics related to the Government’s holdings in RBS, in line with the investment framework and investment mandate.
Does my hon. Friend accept that it is very difficult for me to convey the absolute anger of a number of my constituents, especially small businesses, many of which have been forced to the wall because of the lending policies of those institutions? Does he accept that that is all the more repugnant given that RBS found £1 million to pay 100 executive bonuses last year? Clearly, something has to be done.
My right hon. Friend will be aware of my comments on bonuses and what RBS has said on the matter. It is certainly the case that some businesses have, sadly, gone to the wall as a result of the global recession. The Government have always been consistent in pressing to make sure that lending continues in the UK economy. He might be aware that RBS recently announced a £1 billion manufacturing fund for providing flexible long-term loans to businesses. I am sure that that will be welcomed by businesses in Scotland and throughout the UK given RBS’s role right through the UK economy.
Does the Minister accept that the question of the RBS debt is central to the question of public sector debt generally? Does he disagree with the Office for National Statistics that the total amount of debt is between £2.65 trillion and £3.15 trillion, or between 185 and 215 per cent. of gross domestic product when financial sector interventions are included?
I do not have the figures from the ONS to hand, but I have no reason to doubt the hon. Gentleman. It is established practice when reporting on Government accounts to exclude financial interventions in RBS and Lloyds Banking Group. In the same way, the German Federal Government tend to exclude KfW and their investments in banks. I do not think that anything we are doing is particularly unusual and, as we have discussed before, there are different methods of accounting, which are at issue. I do not think, however, that party politics should be part of that. We are clear and transparent about the overall financial situation.
Economic Growth Forecasts
I am on a roll. The Chancellor and the Prime Minister have regular discussions on a range of issues, including the prospects for the UK economy.
It would be good if the country was on a roll, too. Exports are absolutely vital for our future economic growth, so why during the Government’s stewardship has the UK’s share of world trade fallen by 31 per cent., when Germany’s has gone up by 5 per cent.?
My right hon. Friend the Chief Secretary says that the hon. Gentleman might have noticed the rise of India and China over the past 10 to 15 years, which probably explains why the UK has slipped down to being the sixth largest manufacturing nation in the world. However, we are still the second largest exporter of services, and our manufacturing performance is strong. I believe that it will become stronger over the next 12 months to two years, and a competitive exchange rate will help a great deal.
The Treasury’s responsibilities remain as the Chancellor has set out on previous occasions.
I appreciate that the Chief Secretary is pretty embarrassed about his U-turn this morning. Last week, he ruled out VAT increases, presumably to curry favour with the Prime Minister and undermine the Chancellor, so can he simply explain to the House when and why he changed his mind?
I have merely set out the statement made by my right hon. Friend the Chancellor at the pre-Budget report about how we plan to halve the deficit over the next four years by raising taxes by £19 billion. We will do so in a fair way, unlike the Opposition, if they ever get into power, by ensuring that half the taxes that we raise fall on the shoulders of the top 5 per cent. of earners. Alongside that, we will cut capital and current spending by £38 billion. In that way, we will halve the deficit over four years, as set out by the Fiscal Responsibility Act 2010. What we will not do is pursue the Opposition’s approach, which is to introduce cuts now and put the economy into a double-dip recession. We will not follow the approach set out by the shadow Business Secretary this morning by reducing our deficit to 3 per cent. of GDP in 2014-15, because that would require taking out something like an extra £20 billion to £30 billion of public spending—a strategy that has not been renounced by the Opposition Front Bench this afternoon.
Boiler room scams are completely unacceptable. It is the responsibility of the Financial Services Authority to take action in this area, and it has increased its surveillance capacity quite substantially. My hon. Friend is right to make the point about the importance of savers. People need to have confidence in the savings products in which they invest, and it is the responsibility of the regulatory authorities to ensure that that confidence is not misplaced.
The Valuation Office Agency is directly responsible for the matter. For the past two and a half years it has been involved in discussions with representatives from the industry and their agents. There must come a time when negotiations stop. There are three aspects of the model. They are not exceptional, but I agree that some of the rating valuations appear to be very high. The VOA continues to work on the matter.
I said this morning that we think the European Commission is wrong to say that we should be trying to reduce our deficit to 3 per cent. of GDP by 2014-15, which is the timetable proposed by the Commission. I look forward to members of the shadow Front-Bench team confirming that that is their position, too.
I welcome the campaign for the Robin Hood tax, as it has been described, for the energy that it has generated and the interest in this important area. Any changes in that direction would need to be made on a global basis, not just on a UK basis, and the IMF will look at that option with others to see how the balance of risk and reward between the banks and taxpayers can be changed for the future.
I thank the hon. Gentleman for his kind words, which are typically generous of him. I do not think the Prime Minister needs any lectures in economics. He was an outstanding Chancellor of the Exchequer and is a very effective Prime Minister, as I am sure the Opposition will recognise in the course of the upcoming election campaign. I will happily watch it from the sidelines.
Why, in the current economic climate, do we allow the salaries of senior managers in the public sector, such as vice-chancellors of universities, chief executives of local authorities and chief executives of housing associations, to rise way above the rate of inflation, while those same managers are encouraged to keep the salaries of the public sector workers whom they manage at a very low level?
We have repaired the salaries of public service workers in this country. Over the past decade, public sector wages have risen by about 25 per cent., but at a time like this we think it is important that senior leaders in the public sector show an example, which is why, in our evidence to the Senior Salaries Review Body, we recommended a pay rise of 0 per cent. That was the rise that we implemented across the board last week.
I do not want to pre-empt any announcements that will be made by my right hon. Friend the Chancellor in the Budget next week. We recognise that alcohol duties play an important part in fiscal consolidation, but we also recognise that the alcohol industry creates many jobs. We will get that balance right.
My hon. Friend is absolutely right to raise that as an issue. The Government have made substantial investments in institutions such as Royal Bank of Scotland, Lloyds Banking Group, Bradford & Bingley and Northern Rock, and we need to ensure that we get best value for the taxpayer. We will not be giving these away, and it is the responsibility of UK Financial Investments to manage the Government’s interests in these matters. We do not want to own these for the long term. We do want to make sure that they go back into the private sector. But it has to be done at a price that works for the taxpayer.
These matters are the result of lengthy application of the law. We have said that the current concession, which applies only to freehold holiday lets in the UK, may not be consistent with European law and therefore we will withdraw the concession from 2011. But the definitions are very well established and familiar in tax law.
The announcement recently by the Treasury to extend the offshore new field allowance to developments west of Shetland, will, I hope, allow the Laggan-Tormore development to go ahead. Has my hon. Friend worked out how much the development of the west of Shetland province could be worth to the British economy in the years that follow?
We certainly wish to assist in the development of fields where it is more difficult to get out the natural resources, not only for the security of supply for the UK but for the benefit of the whole economy. I do not have the exact figure to hand, but I will be more than happy to write to my hon. Friend.
At the risk of repeating myself, we said that over the next four years we will halve the deficit—we have not seen a plan as clear as that from the Conservative party—and we said that we would do that in a fair way. We said that in part we would need to raise taxes, and we set out very clearly how £19 billion of taxes needs to be secured, alongside spending cuts. I hope that during the next week or two we will see a plan of equal clarity from the Conservatives, and I hope that as part of that plan they will renounce the proposal that the shadow Business Secretary set out this morning to take another £29 billion out of public spending by 2014.
I put it to my right hon. Friends that cuts in public spending are not the only way to reduce the deficit. We could, for example, raise the basic rate of income tax, not to as much as it was under Mrs. Thatcher, but by a penny or two.
Our view is that those with the highest incomes should bear the largest share of the burden of consolidation. That is the reason we have announced the introduction of the 50p rate of income tax on the highest incomes, and the restriction of personal allowances also for people with high incomes. We think that that is the right place for the consolidation to start.
We have the highest budget deficit, pretty much, in the G7, but the reason why we have a high budget deficit is that we chose to act to protect jobs, to protect homes and to protect businesses over the course of the past year. As the International Monetary Fund has recognised, the reason why we had that flexibility to act was that we went into the recession with the lowest debt of any country in the G7 apart from Canada.
Last week Sutton council granted planning permission for a new patient wing to be built at St. Helier hospital, removing the last obstacle to Treasury approval for the necessary investment. Will the Minister today give my constituents and NHS workers the good news that Treasury approval is coming and coming very soon?
I thank the hon. Gentleman and my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) for the consistent way in which they have championed the need for a new hospital in their area. The hon. Gentleman knows that I am in close discussion with the Secretary of State for Health, and we hope to make an announcement on that matter shortly.