House of Commons
Wednesday 24 March 2010
The House met at half-past Eleven o’clock
[Mr. Speaker in the Chair]
Oral Answers to Questions
The Secretary of State was asked—
The threat level in Northern Ireland remains at “severe”. The Government are not complacent about the threat that dissident republicans continue to pose despite their having little or no community support. The House will wish to know that the Police Service of Northern Ireland continues to disrupt the activity of that small criminal group. So far this year, it has made 51 arrests, brought 12 charges and made three seizures.
The Northern Ireland Executive, fully supported by the majority of the people of Northern Ireland, not least the Unionist population, have achieved huge success, with major concessions to the nationalist population. Will the Secretary of State confirm to the House that there is now absolutely no need whatever for any paramilitary activity, unless it is by a hard core of people who want to destroy the peace, stability and economic success of Northern Ireland?
The House will know of the historic vote that took place in Stormont on 9 March—nearly all parties in the cross-party community vote were in support. I simply say to the hon. Gentleman that there never has been a need for any paramilitary activity: not then, not now, not in future. As for concessions, we need to understand this as a matter not of concessions, but of power sharing. Both sides may have compromised, but they have done so for the good of everybody in Northern Ireland.
I am afraid that I agree with only one part of the hon. Lady’s question, which is to recognise that the Chief Constable was appointed to his job with unanimous support; I entirely disagree with everything else she says. Confidence in policing in Northern Ireland is at record levels and will stay at record levels, and it continues to enjoy a support of which most hon. Members in this House would be extremely envious. The PSNI has brought down crime and been extremely successful in tackling even the activities of some of the most hated criminals in the community, and I hope she recognises that.
I put on record that the levels of co-operation in both Northern Ireland and the Republic have never been greater or better. That is true of every aspect of dealing with and preventing crime, none more so than those areas of crimes associated with paramilitary activity, and especially the investigations that are taking place into the recent murders of soldiers and a police constable.
Does my right hon. Friend agree that it was unfortunate that the Ulster Unionist party could not come on board in what was happening in the devolution process, and that perhaps, the Conservatives might have done a bit more to try and persuade it to come on board?
I think I will not take the temptation to make a political point, because I actually want to thank the Conservatives for their support. Their alliance with the UUP is of course a matter for them, as is the question of whether they can ultimately influence that party. I regret the fact that the UUP did not vote for the Hillsborough castle agreement and the devolution of policing and justice.
Dissident republicans pose a serious threat to the people of Northern Ireland. On Saturday last, a pipe bomb was found in a public place, outside the police station in Magherafelt, which is just a few yards from my home. Also, members and ex-members of the PSNI in my constituency and a number of others are under threat from dissident republicans. What active measures are the Government going to take to ensure that those organisations are infiltrated, brought to justice and defeated?
The hon. Gentleman knows a great deal about the impact of that kind of activity, not only as a very fine and outstanding constituency Member of Parliament, but as a person and as a family member, so I say this with huge respect for, and understanding of, where the question is coming from. We will do everything to support the Chief Constable and the PSNI to tackle both those who have committed crime and those who intend to commit crime. We will work as closely as possible with the First Minister, the Deputy First Minister, the Executive and the institutions of devolved Government to bring those people to justice.
Obviously it is very disappointing that the Ulster Unionists in the Assembly did not support the cross-community vote. Will my right hon. Friend continue to work on a cross-party basis in the hope that the Ulster Unionists will be persuaded to back this in future?
Although the leadership of the Ulster Unionist party and its Assembly Members did not vote for this on 9 March, it was perfectly clear from public opinion and the confidence that all political parties had established in Northern Ireland that that vote had the support of all communities in Northern Ireland, including those who would identify themselves as supporters of the Ulster Unionist party. Unfortunately, its leadership did not reflect that on the day.
The Secretary of State’s assessment of the level of risk is clearly sensible and realistic. It brings with it the potential for future challenges for the PSNI in dealing with that risk if it becomes reality. Will he confirm that he will use his good offices to ensure access to the Treasury for contingency funding should the necessity arise?
I thank the hon. Gentleman for his support in this. He will know that my right hon. Friend the Prime Minister made an additional £30 million of funding available from the reserve for the current financial year for the PSNI. My right hon. Friend has already committed nearly £40 million of additional funding, which will be available to the Chief Constable to deal with the threat posed by dissidents. This Government will stand with the people of Northern Ireland and with the devolved Government.
As the Secretary of State knows, the Select Committee on Northern Ireland Affairs strongly supports the devolution of policing and justice. Is he also aware that we attach the highest possible importance to the operational independence of the Chief Constable in tackling dissident republicans and in dealing with all his other duties?
The operational independence of the Chief Constable is one of the principal outcomes and a huge success of the Patten reforms. It has enabled enormous confidence to be established across all communities in Northern Ireland. That, of course, has been the case and after devolution on 12 April it will remain so.
A few days ago, an attempt was made to murder police officers in Newry after they were lured there by what is reported to have been a hoax bomb. Is the Secretary of State satisfied that there are sufficient intelligence sources to enable the police to counter what is becoming a very worrying and increasingly dangerous terrorist threat?
Let us remember that those who wish to commit these crimes are people who, regrettably, refuse to accept the political settlement that has now been agreed. The Conservative party, along with other parties in this House, has helped to ensure that the early devolution of policing and justice has taken place. Let us remember that the report by the Independent Monitoring Commission said that that would be the “potent intervention” in dealing with dissident republicans.
Presbyterian Mutual Society
The Chief Secretary to the Treasury and my right hon. Friend the Secretary of State are both members of the ministerial working group established by the Prime Minister. They, along with Ministers from the Northern Ireland Executive, are in regular contact in an effort to assist members of the PMS whose investments were affected by the society’s entry into administration.
The Financial Services Authority warned of a problem with the PMS almost a year ago, the Prime Minister set up his working group last summer, the Treasury Committee issued a scathing report this February saying that nothing would be resolved unless a political lead was given and this morning the relevant Minister in another place gave no lead whatsoever and no clue as to what might happen. Is this not a classic example of a Government who are incapable of taking a decision and who are letting down 100,000 savers in Northern Ireland?
No, it is not, because the Prime Minister established the working group and I hope that it will very shortly be able to consider a proposition—a paper—from the Executive in Northern Ireland, which will put forward a range of options. The commercial option is, of course, one that we would all wish to see taken, if it is possible to do so. The Executive have also been working on specific ideas. We need to hear those ideas, consider them and look for solutions.
Does the Minister agree that regardless of the legal and commercial niceties, there is a moral obligation on us all to help relieve the serious distress, both financial and emotional, that genuine savers in the PMS are suffering? These people invested in good faith and we have a moral responsibility to return that good faith or give them some return on it.
I agree that there is a sense of moral obligation here—the Prime Minister has said that—but none the less we have to find a solution that is hard-headed. We need a solution that will actually work in the interests of those who genuinely and in good faith invested their money in the PMS.
The Minister will be aware of the hardships faced by many PMS savers, who become more concerned as time goes on. Will he and the Secretary of State use their good offices to ensure that the Treasury co-operates fully with the Northern Ireland Executive to bring forward a solution and a package that will bring real assistance to PMS savers as soon as possible, so that their plight can be resolved?
I agree strongly with the right hon. Gentleman, who knows, as I do, that many, particularly older, investors, have lost money and are suffering financial hardship as a result. We all have enormous sympathy with them, but what we need more than sympathy is a solution. Yes, we might need to consider a hardship fund in the end, but it would be better to find a sustainable solution that would work in the long term. A commercial solution would be best, but ideas will be coming from the Executive shortly that are worthy of consideration. We should work together to see whether a sustainable solution can be found.
The Minister of State and the Secretary of State have been excellent Ministers for Northern Ireland, and I appreciate their efforts on many fronts. Will the Minister of State give a clear assurance to PMS savers, not just in my constituency but across Northern Ireland, that the Government will find a solution, before the election, to the situation in which those people find themselves through no fault of their own? Will he give a clear assurance that there will be a solution before the general election?
I am very grateful to the hon. Lady for her comments about me and my right hon. Friend. I give her an absolute assurance that for every day of this Parliament that remains, we will continue to search for a solution that will work for those investors and that will restore confidence and, I hope, some money to them. In the end, it is their hard-earned money that has been lost, and we need a hard-headed solution that will work in practice.
Last June, the Prime Minister announced a review group to look at the plight of those involved in the PMS, and promised that it would report by September. The Prime Minister intervened to rescue the Dunfermline building society, and boasted to the Labour party conference that
“not one British saver has lost a single penny”,
but it was his guarantee to banks that triggered the run on the PMS. What is the reason for yet another broken promise from this bankrupt Prime Minister?
The hon. Gentleman may be more interested in process than in solutions, but my right hon. Friend and I are interested in finding solutions. It is a completely false comparison, as anyone who has studied this knows, to compare the situation of the PMS with that of the Dunfermline building society. That financial institution was regulated by the FSA, whereas with the PMS we are talking about an industrial and provident society. I hope that, even at this stage, he will join us in the search for a solution rather than dwelling on process.
The Treasury Committee, with a Labour majority, said it was
“unacceptable and farcical that both the UK Government and the Northern Ireland Executive…have failed to act.”
In Northern Ireland questions last June, the Secretary of State promised me further talks,
“not with empty slogans and hollow promises but with real action—and not by doing nothing.”—[Official Report, 3 June 2009; Vol. 493, c. 261.]
But here we are, nine months later, and nothing has happened. We cannot go on like this. Is it not time for change and for him to make way for a Secretary of State who will stick up for the people of Northern Ireland? [Interruption.]
I was trying, before, to give the hon. Gentleman a fairly basic lesson in the economics of this issue, but we will shortly be getting an economic master-class from others at this Dispatch Box. I encourage the hon. Gentleman to listen very carefully, because he might just learn something for a change. The position is absolutely clear: a considerable amount of work has been done, even in the recent past, by Members of the Executive in Northern Ireland. They are represented on the working group that has been convened by the Prime Minister, and my right hon. Friend the Chief Secretary also belongs to that group. We want to find solutions—
National Security Protocols
I have discussed the national security protocol with a range of individuals and organisations in Northern Ireland. The current text addresses a number of concerns raised in those discussions.
I thank the Secretary of State for his reply. The intelligence services withheld information from the investigation into the tragedy of the Omagh bombing, and allegations have recently been made about the intelligence services’ role in the death of Kieran Doherty in Derry. What further discussions will he have with the Northern Ireland Executive to prevent such things from happening and to facilitate future investigations? He told the Northern Ireland Affairs Committee that it would become more likely that the intelligence services would co-operate, but more likely is not good enough.
I am sure that the House will want to pay tribute to the hon. Gentleman, who has been an assiduous Member of Parliament for 23 years and was a founding member of his party. We wish him well in the future.
I am of course considering the Select Committee’s report, but I remind the House that Sir Peter Gibson published his report last year and that after he examined the information available on the day, he concluded that
“to the extent that any relevant intelligence was derived from interception, it was shared with RUC…and Special Branch South promptly and fully”.
I join the Secretary of State in paying tribute to the hon. Member for South Down (Mr. McGrady), who has always been an assiduous and hard-working Member of Parliament.
Does the Secretary of State recall that, alongside discussions with the Executive about the national security protocols, there was consideration of finance and other related matters, including the transfer of four military sites? Will he use his influence to ensure that the promise given by the Prime Minister is not broken by the Ministry of Defence, which is trying to hold on to elements of those sites?
The right hon. Gentleman knows that the bases are being transferred to the Executive as part of the generous devolution package that my right hon. Friend the Prime Minister and I agreed at Hillsborough castle. There are, of course, outstanding points of detail in relation to those bases, but I am confident that they will be solved to everyone’s satisfaction. [Interruption.]
Tackling fuel crime is a key Government priority. Law enforcement agencies in the Organised Crime Task Force are working to disrupt fuel fraudsters, bring them to court and confiscate their criminal assets.
The Organised Crime Task Force in Northern Ireland is an excellent initiative that brings all law enforcement agencies together—Her Majesty’s Revenue and Customs, the Serious Organised Crime Agency and the Police Service of Northern Ireland. It is increasingly important that they work with their counterparts from the Republic of Ireland—the Criminal Assets Bureau and the Revenue Commissioners—because it is by working together that we can best bring to justice the people who perpetrate these dreadful crimes.
My hon. Friend makes a late bid with regard to the business that will come later. On reducing opportunities for fuel smuggling, it is important that the price of fuel is now virtually the same in the Republic of Ireland and Northern Ireland. That reduces the incentive for fuel smuggling, but it encourages fraudsters to consider other kinds of fuel fraud, especially fuel laundering, which is why the Organised Crime Task Force must continue to pursue the issue with great vigour.
I placed in the Library of the House on 3 March the most recent report from the IICD, which recorded full and final acts of decommissioning. I expect a final report, including a report on armaments, to be published later in the year.
The hon. Gentleman will know that the IICD was set up by both the British Government and the Irish Government. The arrangements to bring to an end decommissioning in the Republic of Ireland have now been concluded. We are in discussions with the Irish Government and with the IICD about the scope of the IICD’s final report, which will contain a report on armaments.
The Secretary of State rightly referred to the fact that both the British and Irish Governments set up the IICD. They did so arising out of agreements and negotiations in the talks leading to the Good Friday agreement. Does he recognise that when that commission was being set up and whenever decommissioning was being pursued, the main Unionist party insisted that decommissioning was not intended to happen as part of the agreement and was a fiction? Will he therefore acknowledge that the progress that has been made proves that those of us who committed to the agreement and to decommissioning were right and were honest?
In the course of the peace process, political parties in Northern Ireland have taken positions which in the end will, I hope, reflect a unanimous position that all the work that has been done to achieve peace and stability in Northern Ireland has succeeded. I hope that all political parties—including, as I am sure it does, the Democratic Unionist party—support the work of the IICD.
Per Capita Expenditure
My right hon. Friend the Secretary of State for Northern Ireland has had no recent discussions with the Chancellor of the Exchequer on these matters.
The public expenditure per head of population in Northern Ireland is now more than £10,000, and more than a quarter higher than the UK average. As things have got better in Northern Ireland, one would have thought that trend would go down. Does the Minister agree, or does he expect to see it at a constant level?
The expenditure for which my right hon. Friend the Secretary of State is responsible relates now only to policing and criminal justice matters, and they will shortly be devolved. It is true that the number of police officers per head of population in Northern Ireland is higher than it would be in the hon. Gentleman’s constituency or mine, but that is perfectly understandable when one considers the troubles of the past 30-odd years and the prevailing problem and challenge from dissident republicans. [Interruption.]
Is it not right that, after more than 35 years of the most terrible terrorist campaign, the level of expenditure on security in Northern Ireland was rightly spent to defend democracy and the Union with the rest of the United Kingdom? Will the Minister give a commitment that in the event that at any point in the future some kind of civil emergency arises, the money will be available to protect and defend the ordinary people of Northern Ireland against terrorism?
Both in the current financial year and for the next financial year a considerable amount of additional money will be made available to the Chief Constable to deal with the security threat. It is very much the judgment of the Chief Constable that we listen to. We will listen to his assessment and respond accordingly.
The House will be pleased to hear that finally, after more than a decade, Lord Saville will, this afternoon, I believe, make available to my officials his final report and inquiry, so that they may begin the checking process on article 2 obligations and national security that I am obliged to carry out as Secretary of State.
What took place on Bloody Sunday was a tragedy, whoever was to blame. It took place nearly 40 years ago. We have spent £200 million of taxpayers’ money and 12 years looking at the issues, probably just to stir up old enmities and reopen old sores. Does the Secretary of State think that it is all worth doing?
The hon. Gentleman is right to record the fact that the report has cost £200 million. I disagree with him about the value of the Saville inquiry. Without the Saville inquiry, there would have been no stable peace process. Because of the inquiry, it has been possible to establish the bona fides for a peace process to succeed, and the whole House will be grateful for that success.
Given that almost £200 million has been spent, with no definitive outcome yet in sight, does the Secretary of State agree that now is the time to call an end to further wasteful inquiries and deal with genuine innocent victims for the future rather than trying to remember the past?
The hon. Gentleman need take no lessons, certainly from me, in being reminded that several thousand people lost their lives in the course of the troubles. We cannot forget the past; I am sure that he shares that view. The Saville inquiry will help us to produce the truth about the events of that day. We will learn from this inquiry. However, we do need a process to enable Northern Ireland to reconcile itself with its past.
The Prime Minister was asked—
I am sure that the whole House will join me in remembering the life and achievements of Serjeant Steven Campbell from 3rd Battalion the Rifles, who died in Afghanistan earlier this week. We pay tribute to his energetic, brave and dedicated service. His infectious enthusiasm and his sincere patriotism will be sorely missed. The thoughts of everybody in this House, I know, are with his family, friends and colleagues.
This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall have further such meetings later today.
I join the Prime Minister in paying tribute to our armed forces, especially those who have lost their lives this week. Our thoughts and prayers are not only with those who have lost their lives, and their families and loved ones, but those who have been injured.
Last week the Prime Minister admitted that he had misled the Chilcot inquiry about the funding for the armed forces. When did he realise that he had misled—before or after he gave evidence?
As I said last week, when I was preparing for last week’s Question Time I was shown the transcript of what I had said in the Chilcot inquiry, and I decided to make it absolutely clear, on the first occasion, to the House and then write to Sir John Chilcot. But I repeat: defence spending has risen by 12 per cent. in real terms. Every request for funding by the Ministry of Defence and the commanders has been met by the Treasury for the operations that have been conducted. I have to say that there was a 30 per cent. real-terms cut in defence expenditure under the last years of the Tories.
May I pay my own personal tribute to all the officers we have lost and give my condolences to their families? I am sure we miss them all.
May I ask the Prime Minister why, in his view, fairness should be the hallmark of a good Government?
I appreciate the importance that my hon. Friend and her constituents attach to the fairness measures that we have introduced: the child tax credit, which has helped 6 million families in this country; the pension credit, which is helping 2 million pensioners to escape poverty in this country; educational maintenance allowances, which are helping half a million children to go to school; and a guarantee that young people under 24 will receive help and will not be unemployed but will have training and work. These are the measures that have been put forward by my right hon. Friend the Chancellor; they could never have been put forward by the shadow Chancellor.
I join the Prime Minister in paying tribute to Serjeant Steven Campbell, who died in Helmand on Monday. We are paying a high price in Afghanistan, and our troops and their families need to know that they have all our support. Our prayers and thoughts are with those who will not come home.
This is likely to be the second last Prime Minister’s questions before the general election, and clearly the Chancellor’s statement is the main event of the day, so this provides an opportunity to clear up a number of different issues. May I start with a simple one? It is Budget day, and there is a picket line outside the Treasury, so will the Prime Minister confirm that on this occasion he would like people to cross it and go to work?
Let me first congratulate the right hon. Gentleman and his wife on the good news about their baby. Secondly, I thank him for getting near again to asking a question about the economy. Of course everybody is going to work here, and we will continue to work for a Labour Government and for jobs.
I am very grateful to the Prime Minister for his congratulations. I have had a lot of texts and messages from many hon. Members, most of them focusing on how to find the time for these things, but I am very grateful none the less.
It was a very interesting answer from the Prime Minister. Last week he would not give any support to British Airways workers, but apparently the First Lord of the Treasury is content for his own work force to go to work.
In this spirit of clearing up a few issues, one of the things the Treasury is working on concerns the Prime Minister’s disastrous decision to sell gold at rock-bottom prices, losing—[Interruption.] It lost the country £6 billion. The Treasury has now lost its four-year battle against the Information Commissioner to keep the information about that decision secret, so will the Prime Minister now confirm that those documents will be published in full, with no redactions, before the general election?
I am very happy for any document to be published on that matter, but the right hon. Gentleman must do a bit better than that if he is talking about the future. We are lapsing into these issues, so let me just remind him that we have taken people out of unemployment and into work, that we have helped thousands of small businesses and that we have been helping people avoid the loss of their homes. The Conservatives have nothing to say about the present and the future. It is about time he started to think about the policies that work for the future.
It is a matter for the Information Commissioner and the Treasury. [Hon. Members: “Oh!”] I am happy if the Information Commissioner wishes to publish documents, but is the right hon. Gentleman going to come forward with any serious policy about the future of this country? Has he got anything serious to offer this country for the future? Has he got anything to say to the unemployed of this country, or to mortgage holders or businesses? The person who will be talking about the future is the Chancellor. The shadow Chancellor has nothing to offer.
So really that is it—the Treasury always wanted this information published, and it was only the Information Commissioner stopping it. Once again, this Prime Minister takes the whole country for fools.
Let us try another one. The Information Commissioner has also ordered the Department for Work and Pensions to release information on the Prime Minister’s disastrous raid on every pension fund in the country. The Information Commissioner ruled in November that that should be published and the Department has appealed against it. Now that we hear the Government are not interested in these appeals, will the Prime Minister withdraw that appeal and make sure the information is published?
We had a debate—[Interruption.] The shadow Chancellor may laugh, but he was the subject of the debate in this House on these very issues and he could not sustain his case about the dividend tax credit. We made the right decision for British industry and the right decision to protect British pensioners. It is the Conservative party that has let pensioners down and would do so in future by opposing many of the measures that we have taken. I am happy for everything in my record to be judged. Now let us start with the Leader of the Opposition—will he tell us what happened over Lord Ashcroft?
We had this debate on pensions. [Hon. Members: “Answer.”] Yes, we had this debate on pensions in this House of Commons. The shadow Chancellor tried to pursue the case against our policy to withdraw dividend tax credits. He could not even make a sensible argument about that at the time. We won this debate on dividend tax credits because our policy was the right policy, and it continues to be so.
On this, the second last Prime Minister’s questions, we have just had what we have had all along from this Prime Minister: no answers, endless cover-ups, not giving the information, not answering the question and dithering on all the important decisions. How much longer are we going to have to wait until we get rid of this useless bunch of Ministers? The cab meter’s ticking. Come on, tell us when the election is, then.
The right hon. Gentleman has been wrong on every single issue about the economy. When the people look at what the Conservative party proposed, they will see that it was wrong on Northern Rock, wrong on the restructuring of the banks, wrong on help for the unemployed, wrong on help for mortgage holders, wrong on help for small businesses and that, when it comes to right or wrong, it was wrong on Lord Ashcroft. Wrong, wrong, wrong—that is the Conservative party. [Interruption.]
Thank you, Mr. Speaker. Six days ago it was announced that the world’s first mass-produced, affordable zero-emission car would be made in Wearside by Nissan, securing and creating thousands of highly skilled manufacturing jobs. Will the Prime Minister ensure that the investment that has been committed to provide the infrastructure for charging points and to support the British motorist who wants to switch to zero-emission cars will be maintained and improved in the coming years, so that the UK can take its rightful place as the world leader in zero carbon emissions?
I thank my hon. Friend for what he has done and what Nissan has done to create in the United Kingdom the first mass-marketed electric car. That will mean not only safeguarding and creating jobs, but 50,000 vehicles a year being produced in the United Kingdom.
The one reason why it was possible for Nissan to make that investment was that Government support was available for the development of the new technologies that it is making. Unfortunately, the Conservatives’ industry policy would withdraw support from low-carbon areas. We are the party of jobs and building industry for the future; they are the party of unemployment.
I would obviously like to add my own expressions of sympathy and condolence to the family and friends of Serjeant Steven Campbell from 3rd Battalion the Rifles, who tragically died this week after serving so selflessly and professionally in Afghanistan.
Despite all the news about lobbying in Parliament, the issue has not yet been raised today. That might be because when we put forward proposals to restrict lobbying in Parliament, Labour and the Conservatives both blocked us; when we tried to give people the right to sack corrupt MPs, they both blocked us; and when we wanted to clean up party funding, they both blocked us. Is not the truth that this Parliament will go down as the most corrupt in living memory because they both blocked reform?
We have proposed and will implement a compulsory register of lobbyists. I have also made it clear that anybody who goes before the Advisory Committee on Business Appointments, as a former Minister, is compelled to take the advice of that committee. In future, Ministers will sign in advance a contract stating that that is exactly what they will do. We have taken action to make the system more transparent. We cannot say anything other than that the behaviour of the Members who were dealt with in that programme was unacceptable, and I believe that, because such behaviour diminishes us all, the action that we are taking is necessary for the transparency that the public want.
The Prime Minister has had 13 years to clean this up. Let us look at his record. Last summer, we put forward an amendment to introduce recall elections; Labour voted against it and the Conservatives did not turn up. Two days later, on our proposal to cap donations, they both voted against it. On our attempt in the Companies Bill to restrict lobbying, Labour voted against us and the Conservatives did not even turn up. Is this not just a grubby stitch-up between two old parties that basically want to keep things exactly the way they are?
Oh, he did not. I made it absolutely clear to the right hon. Gentleman that any action that is necessary to secure transparency and proper accountability will be taken. That is why there will be a compulsory register of lobbyists; that is why every action that Ministers or former Ministers take in relation to business appointments will be transparent; and, if I may say so, I think that there is a need for humility on all sides of this House.
Will the Prime Minister confirm that, at 8 per cent., the unemployment rate in the United Kingdom is far below the rate in the United States, of 9.7 per cent., in France, of 10.1 per cent., and in Spain, of 18.8 per cent? Will he assure the House that he will never adopt the policies of the Conservative party, which thinks that unemployment is a price worth paying?
Unemployment is never a price worth paying. I have to say to the House that the claimant count for unemployment today is half what it was in the recession of the 1990s. I should also say that unemployment kept rising for five years after the recession ended in the 1980s. Unemployment is now falling as a result of the action that we have taken, and whatever happens to employment and unemployment in the next few months, we have saved half a million jobs that would otherwise have been lost.
No one has done more to stand up for the needs and requirements of missing children than my hon. Friend. She deserves the gratitude of the whole House for everything that she has done. I received, this week, the report of the taskforce on missing people. The Government fully accept all the report’s recommendations, which set out a plan of action to improve how agencies will respond when young people go missing and provide the support that should be available to families. We are committed, and I thank her for how she has prosecuted this issue while she has been in the House. We are committed to taking the recommendations forward.
I would like to inform the Prime Minister that there are now nine Sure Start children’s centres in Bedford and Kempston, delivering high-quality, much respected and popular support to a wide range of families. Does my right hon. Friend agree that to cut back on the universal service so carefully built up over the past decade would be a tragic betrayal of future generations?
We have achieved our target of 3,500 Sure Start children’s centres, which are now reaching 2.7 million children under five and their families. I understand that the view of the Conservative party is that the Sure Start centres should be restored to their original purpose, which only covered a minority of children. The Sure Start children’s centres are now vital parts of every single community, and nobody should tamper with the advances made in helping children under five.
Yes, and I have done so, and I have done so consistently. The hon. Gentleman—[Interruption.] If the Conservatives want to turn an industrial dispute into a political provocation, they are going the right way about it. Any party that wishes to hold government in this country should want to see an industrial relations dispute stopped and arbitration and negotiations take place—it should want to bring this to a conclusion. After all, that is the view of its trade union envoy, who said that it was the business of the Conservatives to help people get back into work.
A ban on mephedrone will come too late for my constituent, Jordan Kiltie, who died last week at the age of 19, but will the Prime Minister give us an assurance that, when the Advisory Council on the Misuse of Drugs reports on 29 March, he will act immediately to ban such legal highs?
I am very concerned about what my hon. Friend has told me, and I send my sincere condolences to Jordan’s family and to their friends. We are committed to preventing young people from starting to take drugs. The advice is clear that, just because a substance is legal, that does not make it safe. We are concerned specifically about the harms of mephedrone, and the Advisory Council on the Misuse of Drugs is considering that and similar compounds as an absolute priority. We will receive its advice on 29 March, and subject to that advice we will take immediate action. We are determined to act to prevent this evil from hurting the young people of our country.
I understand the hon. Gentleman’s question and the concern that his constituents and others have expressed. The Government expect Sir John Chadwick to submit his final report in May this year, and we have undertaken to provide a response within 14 days of its publication.
Can the Prime Minister confirm that, following Total SA’s announcement that it is to develop the west of Shetland gasfields of Laggan and Tormore, involving development investment of £2.5 billion, it has placed an order with Corus Tubes to manufacture the gas pipelines at Hartlepool, involving an investment of £200 million? Is that not good news for Teesside and for the country?
That is indeed good news for the country; it is worth around 2,000 jobs in the country as a whole. It is because our recent tax changes have been able to support the development of remote deep-water fields that the project announced by Total can go forward. It has a development cost of £2.5 billion, and Total has awarded a contract worth £200 million to Corus Tubes to manufacture the gas pipelines in Hartlepool. That means jobs in Hartlepool, jobs in the north-east and jobs in Scotland. It means 2,000 jobs in the UK as a whole, and that is because a Government have been prepared to support with tax reliefs the development of North sea oil and gas.
I am grateful for the hon. Gentleman’s invitation to visit him and to visit Essex. I am aware that he is a long-standing campaigner on these issues, and I pay tribute to the work that has been carried out by Age Concern. It is right that, after the Turner report, we made recommendations about linking pensions to earnings. The hon. Gentleman will also recognise, however, that a lot of the work that helps pensioners is done by local councils, and I am afraid that some Conservative councils are letting down the elderly.
The eminent economist Professor David Blanchflower has predicted that if the various measures that are now in place to support people in jobs were to be withdrawn, unemployment could rise towards 5 million. What does my right hon. Friend think the effect would be if a policy of cuts were to be adopted as a matter of principle? How would that affect the recovery in our economy?
Every major country has made a choice about whether to continue the support for the economy that is necessary to ensure a recovery. Every major country in Europe, as well as America and all the major countries in Asia, has made the choice to support the economy so that we can avoid unemployment rising to the levels of the 1980s and 1990s recessions. Only one party seems to stand out against that by wanting to cut now, perhaps at the expense of causing a double-dip recession, and that is the Conservative party.
Mental Health Units
High-quality in-patient care is one component of acute mental health services, supported by appropriate alternatives to admission. The Government paper “New Horizons”, which the hon. Gentleman will know of, published in December 2009, set out a cross-Government programme of action to improve the mental well-being of people in England and to drive up the quality of mental health care.
Praise where it is due; under Blair’s Britain, several first-class state-of-the-art mental health in-patient units were opened in or near my constituency. Under Brown’s Britain, one of them has just closed and another is under threat. Instead of in-patient facilities, we are promised
“a shared dashboard of clinical performance quality indicators”.
Is the Prime Minister happy to see front-line services replaced by management gobbledegook?
I know that the hon. Gentleman will want to be fair, and the World Health Organisation says that we are the best when it comes to the provision of mental health care. We obviously want to do better every time. Since 2001, there has been a 50 per cent. increase in real-terms investment in mental health. It is wrong to say that we are underfunding mental health. We are trying to do what we can and we will continue to do what we can. The hon. Gentleman should be fair in recognising that.
Main House in Birmingham has been providing a much valued residential therapeutic service for people with a personality disorder since being nationally commissioned more than 10 years ago. That service has just closed because when national commissioning ended, Ministers’ intentions that commissioning should be picked up regionally were not undertaken by the strategic health authority. Will the Prime Minister look into what went wrong, with a view to reopening the service as soon as possible?
I am grateful to the hon. Gentleman for giving me advance notice of this question. I am sorry to hear of the difficult situation between his constituent and her husband about their children. The hon. Gentleman will know that following an application under the 1980 Hague child abduction convention on 17 March 2010, the High Court of England and Wales ordered the return of the children to their country of habitual residence. The children therefore returned to Gran Canaria on 20 March 2010. As the hon. Gentleman will understand, it is not for me to comment or intervene in the decisions of the court, but I will ask my right hon. Friend the Justice Secretary to look into this matter. He will write to the hon. Gentleman soon.
I do not want to anticipate all the news that my hon. Friend will receive in the Budget in a few minutes’ time. We have made sure that over the last 10 years pensioner households—indeed, households over 60—have had winter fuel payments every year; they have reached a record level of payment. The Chancellor will comment on that in a few minutes’ time.
This is the last time I will bother the House and the Prime Minister with a question—I am sure he is greatly relieved about that. I would like to associate myself and my colleagues with the words of condolence spoken in the House today. This is a sad and tragic hour in our nation, and rumours of war and wars are common. There is sorrow in hearts. Of course, people bury their dead; they put up their monument, but their heart is torn. I have been in too many houses like that in the north of Ireland not to know how deep the cuts are.
In view of the situation that we have here, and its sadness and its sorrow, and the dark shadow that lies upon the whole of our world today, I ask the Prime Minister to continue to give himself, as always, to the task of deliverance and victory and peace—and may it come speedily.
I think the whole House will want to pay tribute to the right hon. Gentleman for a long and distinguished career, not just in this House but in a number of forums. That includes his position as First Minister of Northern Ireland. I believe that the part he played in bringing the Unionist community together—indeed, bringing the whole community together in Northern Ireland—to ensure that we had devolution of power, and to ensure that the process of devolution of power was completed, will adorn the history books in many decades and centuries to come. On this day and on this occasion, I want the whole House to thank him for his service to the House and to the whole community.
Ways and Means
Before I call the Chancellor of the Exchequer, it may be for the convenience of Members if I remind them that at the end of the Chancellor’s speech, copies of the Budget resolutions will be available to them in the Vote Office.
This Budget takes place as the UK is emerging from the deepest global recession for over 60 years. It has been a testing time, which has required Governments across the world to make difficult decisions and difficult choices, and to take unprecedented actions. We had to decide whether to intervene to rescue the financial system or to stand on the sidelines, and whether we should support the economy, business and families, or let the recession take its course. The record shows that the right calls were made.
Global recession has not turned into depression. Unemployment here in the UK has not risen as much as was feared. Borrowing, as I will explain later, is lower than forecast last year. But the recovery is still in its infancy, and there are equally tough choices ahead: choices that will shape our economy and society for decades to come. The task now is to bring down borrowing in a way that does not damage the recovery, or front-line services on which people depend. The challenge now is how we invest as a country to support the industries of the future and allow the talent of the British people to flourish.
At the heart of our decisions is a belief that Government should not stand aside, but should help people and business to achieve their ambitions. My Budget today builds on that belief, and on our confidence in this country. This will be a Budget to secure the recovery, to tackle borrowing, and to invest in our industrial future. It will continue targeted support for businesses and families where and when it is needed. It will set out how we will stick to our plan to halve the deficit within four years.
Our economy is at a crossroads. Having come through this global recession, this Budget will set out a route for the country to long-term prosperity. At its heart is a £2.5 billion one-off growth package to help small businesses, promote innovation, and invest in national infrastructure and key skills. This package will be paid for by switching spending from within existing allocations and the extra proceeds from the tax on bank bonuses, in line with a Budget that is balanced over the period.
The world is still recovering from the severest economic shock of our lifetime. Despite what some try to suggest, the recession has not been restricted to the UK, nor did it begin here. A storm which began in America spread rapidly around the world. It was the biggest test that countries had faced in modern times. When I presented my Budget a year ago, world leaders had just met in London to agree unprecedented action to rescue the global economy. Governments of all political colours acted to stabilise their banking systems and to use fiscal and monetary policy to boost demand and protect jobs.
Not everyone here supported the action taken, but with hindsight it is even clearer that the right calls were made: economic disaster was averted; growth has begun to return across the major world economies; and the prospects for the global economy are much more positive than they were a year ago. But there is nothing preordained about continued recovery. There are still uncertainties. Financial markets are febrile, oil prices have increased by over 50 per cent., bank credit, while improved, remains weak in many parts of the world, and confidence has not fully returned to either businesses or consumers.
That is particularly the case in Europe, which is the market for 60 per cent. of our exports. Germany saw no growth in the last quarter. Ireland, another key trading partner, has contracted by over 10 per cent. Spain is still in recession. Italy has slid back into negative growth. Unemployment at 10 per cent. across the euro area is adding to uncertainty. All these factors are having an impact, particularly on an open trading economy like the UK. So it is imperative that EU countries act with renewed energy and vigour to get the European economy moving forward again. We need to support trade, discourage protectionism and take forward structural reforms. Such continued international action is crucial not only to global prospects but to each and every country’s future. Over the last two years we have been reminded of the force for good that Governments can be in protecting people. The role of government is now equally critical in regulating the global financial system and putting in the right foundations for future growth, jobs and prosperity.
The crisis in the world economy started in the banking sector, so improved global financial regulation must be the key priority. Our first test here in the UK came with the problems of Northern Rock. The Government intervened to protect savers and underpin the financial system. The unprecedented decision to nationalise a high-street bank was controversial, as was our action later that year to recapitalise the banking system. Other Governments right across the globe also acted to stabilise the financial system, and I believe this judgment has been proved correct. In the UK, the latest figures from Northern Rock show it is returning steadily to normality. RBS is now being restructured and is rebuilding. Last week Lloyds predicted a return to profitability this year. We will sell our shares in RBS and Lloyds, as well as Northern Rock, in a way that maximises value for the taxpayer and recoups the money we have invested.
We intend to get all taxpayers’ money back. In the meantime, I can tell the House that the Treasury has already received over £8 billion in fees and charges from the banks, in return for our support. At the time of the pre-Budget report I put in place a one-off 50 per cent. tax on the excessive bonuses of bankers. I made it clear that banks had a choice of whether to pay bonuses or not—but that if they did, given the amount of taxpayer support that had been provided, I believed it was right that the country as a whole should benefit. I can tell the House that that tax has raised £2 billion—more than twice as much as was forecast. That is money paid by the banks, and those receiving bonuses will, of course, also have to pay income tax at the highest rate.
As well as supporting the banking system during the crisis, we need long-term reform to prevent excessive risk-taking. Under our presidency of the G20 last year, we put in place a plan to reform the international regulatory system, but we still need to do more to strengthen global banking. The G20 countries must put in place new rules on capital and liquidity by the end of the year. We also need to reform remuneration practices, improve cross-border resolution for when banks fail, and ensure that international standards are implemented. We cannot continue with a situation where the banks are rewarded for creating excessive risk, but the taxpayer foots the bill when things go badly.
More countries now agree on the need for an international systemic tax on banks, which must be brought forward quickly, as I will urge international Finance Ministers in Washington when they meet next month. I agree with all those who think that such a tax should be internationally co-ordinated. Going it alone, as some have suggested, would costs thousands of jobs, not just in London but across the whole country. Global efforts must be complemented in each country with a drive to implement existing banking reforms, as we are doing in the UK.
As part of the reform of banking, I want to make it easier for everyone to access banking services. Since 2003, the number of people without a bank account has been halved. I can today announce that we will do more to combat financial exclusion, through a guarantee that everyone can have a basic bank account. That will mean that over the next five years up to 1 million more people will have access to bank accounts—something essential in the modern world.
We must be careful that, as banks begin to return to profit, the sense of urgency around reform is not diminished. There can be no return to business as usual for the banks, but we also must remember that their success is vital not just for the global economy but for Britain’s future. London is the world’s leading financial centre. Across the country, the sector supports over 1 million jobs, including in Edinburgh, Leeds, Manchester, Cardiff and other cities. A healthy, strong financial services industry is essential for our long-term prosperity.
The crisis might have started in the financial sector, but it spread rapidly to the entire global economy, underlining why intervention was essential. The impact has meant that the UK economy has contracted by around 6 per cent. over the course of the recession. That compares with 8 per cent. in Japan, 7 per cent. in Germany and 4 per cent. in the United States. Businesses in the UK have taken painful decisions. Many families have seen their incomes squeezed. Given the intensity of the global storm, no Government could prevent all jobs from being lost, or all businesses from closing.
However, I believe that Governments have the ability to act and the responsibility to reduce the length and severity of the recession, which is why we took decisive action to stimulate the economy, cutting taxes for families and business, as well as bringing forward capital spending. We also introduced initiatives such as the car scrappage scheme to protect jobs and skills. I can tell the House that this helped to drive an increase in sales of nearly 30 per cent. in the past year, and this in the middle of a recession.
Of course those decisions have a cost, but the cost would have been far greater, for families and the economy, if we had failed to act. We could have followed previous Governments and watched from the sidelines; we could have listened to those who opposed all those measures last year. But if we had, I believe that we would still be in recession. I am also certain that the pain caused would have been worse and more widely felt.
Indeed, in the recession of the 1990s the rate of home repossessions was twice as high as now. That would have been the cost of abandoning families to their fate. Double the rate of business failures: that would have been the cost of failing to support business through this recession. And because of the policy decisions that we made, the Bank of England has been able to take decisive monetary policy action during the downturn. Interest rates have been held at record lows—below 1 per cent.—although they were at double figures for almost three years in the early 1990s. But more than anywhere else, we can see the impact of our choices in the state of the jobs market here. Unemployment has been rising in this country, as it has been around the world. Last week’s figures, however, showed that UK unemployment had fallen, and is lower than unemployment in the euro area and unemployment in the United States. Even after the severity of this recession, the claimant count stands today at 1.6 million people. This compares with 3 million people in the recessions of the early 1980s and 1990s. Nor, because of a decade of welfare reform, has there been the massive increase in the numbers on inactivity benefits that we saw in the 1980s and 1990s.
I can tell the House that the claimant count today is still lower than the number we inherited in 1997. That has not happened by chance; it has happened because of the choices that we made. It is because of the tremendous efforts by business and work forces to keep people in jobs. It is also because, as the global storm hit our country, we responded with an additional £5 billion to help people find new work more quickly. We expanded the Jobcentre Plus network and offered support through the rapid response service at firms hit by redundancies.
It is clear that our approach is making a difference. Nearly 4 million people have been helped off the claimant count in the last year alone. With personalised support, around three quarters of those losing a job are leaving the claimant count within six months. Indeed, if this recession had followed the course of the last one, four times as many jobs would have disappeared.
The flexibility of the tax credits system has also provided automatic support, compensating families for loss of income due to shorter working hours and part-time working. I can tell the House that this year 440,000 families have benefited from this extra help—on average by £38 more per week—when they need it most. Despite all this support, there are groups that are likely to need more help, even as the economy recovers. For older workers, I want to extend the support provided by tax credits. To make it easier for those over 60 to receive working tax credit, we will reduce the minimum number of hours they need to work to be eligible. To enable people who want to work longer to do so, we are now consulting on reform of employers’ right to make people retire at 65. We are looking at options that include scrapping the default retirement age, raising it or giving employees stronger rights.
For younger workers, I have introduced a guarantee of a job or training for every 18 to 24-year-old after six months out of work, which is already proving a success. This was to run until March next year, but with recovery still in its infancy, we should not withdraw this support too soon. Because unemployment has been lower than forecast, the cost has been lower than expected. I have therefore decided to use the money saved to extend the guaranteed offer to young people until March 2012. So for the next two years I can guarantee that no one under 24 will need to be unemployed for longer than six months before being offered work or training: help with jobs now and, as I will outline later, help with jobs for the future.
Low mortgage rates have reduced costs for home owners, but many families still face fears over repossession. The support for mortgage interest scheme, which I enhanced during the recession, is already helping 220,000 homeowners who lost their jobs. To maintain this help during the recovery, I will continue to pay this support at the higher rate for another six months.
I am also determined to do more to help families take that first crucial step on the housing ladder. We have introduced new help through shared equity schemes, and in 2008 we also brought in a stamp duty holiday on all transactions under £175,000, which ended in December. By helping 260,000 home buyers, it supported the entire housing market when it needed it most. The housing market is now stabilised and has begun a slow recovery, but many first-time buyers, particularly those without large deposits, still find it hard to get a mortgage. I want to help them, but to do so in a way that is properly funded.
I can announce that I will double the stamp duty limit for first-time buyers from midnight tonight from £125,000 to £250,000 for this year and next. This means that nine in 10 first-time buyers will pay no stamp duty at all. But to ensure this measure does not become a burden on public finances, this relief will be funded through an increase in the stamp duty to 5 per cent. for residential property over £1 million from April next year.
Tax-free individual savings accounts have been an extraordinarily popular way to save, including for those saving for a deposit on their first home. Since their introduction in 1999, 19 million people have taken them out, saving over £270 billion. From next month, the annual ISA limit will rise from £7,200 to £10,200, of which half can be saved in cash. To help encourage saving further, I have decided that ISA limits will increase annually in line with inflation. These changes come at a time when the savings ratio has already risen strongly over the past year, to the highest it has been since 1998.
The last year has been tough for many people, but the evidence shows it would have been harder still without the choices we made and the action we took to support the economy. We need the same good judgement and decisive action to secure and strengthen the recovery, and to provide the right basis for the country to seize the opportunities ahead.
I want now to return to my forecasts. As I have said on many occasions, the world economy is still in a period of great uncertainty. In the absence of Government action to support the economy, the weakness in some of our overseas markets, particularly Europe, could result in a substantial downward revision of our growth prospects, but because of the action we have taken through the recession, and the measures that I am announcing today, I believe that only a small reduction is needed.
This year, as I said in last year’s Budget speech and last year’s pre-Budget report, I expect the economy to grow by between 1 and 1.5 per cent. I have decided to revise slightly downwards my forecast for 2011 to bring it into line with those of the Bank of England, to growth of between 3 and 3.5 per cent. Projections for the public finances are based, as is normal, on the lower end of these forecast ranges. As the economy continues to rebalance following the recession, my forecast for the following years is unchanged.
We have already seen inflation rise above 3 per cent. in the first month of this year, increasing the cost of living. The inflation figures released yesterday show a rise of 3 per cent. Although high compared to recent years, this is a far lower sum than the peaks in inflation of over 10 per cent. in the 1990s and 20 per cent. in the 1980s, and as the Governor of the Bank of England has said, the present increase in inflation should be temporary, and results from the ending of the VAT cut and other one-off factors.
I want, however, to help families and business through this period, so I have decided to stage next month’s increase in fuel duties. Instead of the planned increase, fuel duty will rise by a penny in April, which is less than inflation, and it will be followed by a further one penny rise in October, and the remainder in January. The staging will ease the pressure on businesses and family incomes at a time when other prices are increasing. By the time the full rise comes in at the beginning of next year, I am forecasting that inflation will be back at 2 per cent. I am today writing to the Governor of the Bank of England in the usual way to confirm that the inflation target remains unchanged at 2 per cent. With interest rates also expected to remain low and stable, this is essential for future growth.
The cost of stabilising the financial system and stimulating economies has meant an inevitable increase in Government borrowing here and around the world. This has been exacerbated by the sharp fall in tax revenues during the recession. The importance of our financial industry, which provided £1 in every £4 of corporation tax, has meant that we have been particularly badly hit. In the pre-Budget report I forecast that public sector net borrowing would reach £178 billion this year.
We now have hard data rather than forecasts on tax revenues for 11 months of this financial year, and as a direct result of the action we took in supporting the economy at a difficult time, tax receipts in December, January and February have been better than expected. More resilient consumers and retailers have meant that VAT receipts are now £3 billion higher, better company profits have led to higher corporation tax receipts, and with more people having stayed in work, income tax revenues are stronger.
These are the results of the deliberate choices we made over the last two years. At the same time, spending—including spending on benefits and tax credits—has been broadly in line with my forecast. As a result, I can tell the House that borrowing this year should now be £11 billion lower, at £167 billion. In 2010-11, in part because of one-off factors boosting receipts—such as this year’s tax on bank bonuses—borrowing will be £163 billion.
It would not be sensible to assume that this year’s surplus in receipts will be maintained in full in the medium term, but with the economy recovering in later years, together with the revenue from tax increases already announced, borrowing will fall to £131 billion in 2011-12, then to £110 billion; in 2013-14 it will be £89 billion; and it will reach £74 billion in 2014-15—£8 billion lower than was forecast in December. This will mean that debt is £100 billion lower by 2013-14 than was expected at the time of last year’s Budget.
As a share of the economy, borrowing is forecast at 11.8 per cent. of gross domestic product this year. It will fall to 11.1 per cent. next year, then 8.5 per cent. In 2012-13 it will be 6.8 per cent., then 5.2 per cent., and fall to 4 per cent. in 2014-15. This means a reduction in the deficit from 11.8 per cent. to 5.2 per cent. It will have more than halved over a four-year period.
The structural deficit, which takes into account the economic cycle, is estimated to be 8.4 per cent. of GDP this year and to fall to 2.5 per cent. by the end of the period. That is a reduction in the structural deficit of over two thirds, removing the bulk of the structural deficit by the end of the next Parliament. And as I have said before, should the economy perform better than expected, we will be able to do more to reduce the deficit.
In 2007 Government debt as a share of the economy was lower in the UK than in every other G7 country except Canada. Debt has increased across the world as a result of this global recession. According to the International Monetary Fund, net debt as a share of GDP is expected to reach 82 per cent. in Germany, 83 per cent. in France and 85 per cent. in America. As a result of our action to support the economy, I can forecast that public sector net debt here will reach 54 per cent. of GDP this year. It will then increase to 75 per cent. by the end of the forecast period in 2014-15, but net debt as a share of GDP will begin to fall the year after that. Even at its peak, debt will be in line with the average of the G7 economies. This is the fastest deficit reduction plan of any G7 country and we will meet our statutory obligations. To start cutting now risks derailing the recovery, which is already bringing down borrowing more rapidly than expected. To go faster, in the face of uncertainty, would mean taking a huge risk with people’s jobs and incomes, and with our country’s future. I am not prepared to take that risk. We have worked too hard as a country to come through this recession to throw it away now.
I know there are some demanding immediate cuts to public spending. I believe that such a policy would be both wrong and dangerous.
We will need to work as hard to establish a platform for sustained growth, jobs and prosperity in the long term. Since the start of the global crisis, I have always been clear that support for the economy now must go hand in hand with a clear plan to reduce borrowing. Our plan is to reduce borrowing by £78 billion in cash terms over the next four years. We are set to achieve that goal by a combination of three elements: tax; public spending cuts; and, of course, growth in the economy.
First, on taxes, I have already made difficult decisions, and I have been guided by our values of fairness and the need not to undermine the recovery. The one penny increase in the main rate of national insurance contributions will not affect anyone earning under £20,000 a year; nor will it come into effect until April next year, by which time I expect that the recovery will be stronger and more secure. The 50 per cent. rate of income tax will come in next month, but it affects only those with earnings over £150,000 a year—the top 1 per cent. of earners. For people with incomes over £100,000 a year—the top 2 per cent.—we will gradually remove the value of their personal allowances. Tax relief on pensions will be restricted from next year, but again only for those with incomes above £130,000 a year.
Among all the tax rises since the beginning of this global crisis, 60 per cent. of them will be paid for by the top 5 per cent. of earners. We have not raised these taxes out of dogma or ideology; we are determined to ensure that our overall tax regime remains competitive. But I believe that those who have benefited the most from the strong growth in incomes in the past years should now pay their fair share of tax. I have no further announcements on VAT, on income tax or on national insurance rates.
I can confirm that duty on beer, wine and spirits will increase as planned from midnight on Sunday. Alcohol duties will also be increased by 2 per cent. above inflation for two further years from 2013, and the planned increase in fuel duty and landfill tax will continue for one year from 2014.
A long-standing anomaly has meant that cider has been under-taxed in comparison with other alcoholic drinks. I intend to correct that, so duty on cider will be increased by 10 per cent. above inflation from midnight on Sunday, and in September changes will be made to the definition of “cider” to ensure that specific strong ciders are taxed more appropriately.
Tobacco duty will increase from today by 1 per cent. above inflation and then increase by 2 per cent. in real terms each year until 2014. I have also decided to freeze the inheritance tax threshold for a further four years, and this will help to meet the cost of care for older people. My right hon. Friend the Secretary of State for Health will shortly set out further proposals. Altogether, our tax plans will raise £19 billion towards reducing borrowing.
The next element of our fiscal plan is to control public spending. But to cut spending now, before the recovery is self-sustaining, would be short-sighted and counter-productive. That is not just my view, but that of Governments around the world, the International Monetary Fund, the World Bank and the OECD. I know that others take an opposite view. Indeed, the House will remember that in his Budget response last year the Leader of the Opposition even then demanded immediate action to cut spending. If we had listened to him, the result would have been to deepen the recession and delay the recovery, and to see more businesses closing and many more jobs lost. As a result, borrowing would have been higher, not lower. We did not follow that course; nor did any other G20 country. Cutting support now would take demand out of the economy, pull the rug from under the recovery and delay our return to sustained growth.
So we will stick to our spending plans for next year, which will see a 2.2 per cent. real-terms increase. That will allow more time for the private sector to invest and create jobs, ensuring that the recovery will continue and strengthen. It will also mean that we can maintain the improvements that we have put in place for our front-line services over the past 13 years—improvements that have seen 118 new hospitals, 1,600 new schools, and tens of thousands of extra doctors, nurses, police and teachers.
In December, I set out how we will protect spending on those front-line public services, on which we depend. That enabled us to guarantee NHS health checks every five years for the over-40s; referral to a cancer specialist within two weeks; extra maths and English tuition for all seven to 11-year-olds who fall behind; a place in education or training for every 16 and 17-year-old; and to maintain funding for police officer numbers. I can confirm that we will honour those guarantees.
I can also confirm that we will allocate over £4 billion from next year’s reserve to fund operations in Afghanistan. I know that the whole House will want to join me again in paying tribute to the courage, commitment and professionalism of our armed forces, who represent all that is best in our country.
We can offer these guarantees for front-line services—and deliver our plan to reduce the deficit—only through continued reform and efficiencies, and through holding down increases in spending overall. If unemployment is lower than predicted, as has already been the case, the cost of paying benefits will be lower. Debt interest costs have also been lower than expected. Even so, it is clear that the next spending settlement from 2011 onwards will be very tough—it will be the toughest for decades. Even before the spending review has been held, we have already identified cuts and efficiencies of over £20 billion, through limiting pay, reducing programmes and making savings. In December, I set out savings of £4.4 billion in public sector pay and pensions by 2012-13. There will be reductions in the pay bill for senior civil servants. Overall, we intend that public pay settlements will be held at a maximum of 1 per cent. for the two years from 2011. We will also implement reforms to ensure that public pensions are affordable.
Secondly, we need to identify savings across every part of the public sector by delivering services more efficiently; they will be tough and challenging, but they are achievable. We have already saved £26.5 billion from departmental budgets between 2005 and 2008, but we need to go further. At the pre-Budget report we committed Government Departments to find over £11 billion of new savings through reforms, without damaging the front-line services. Departments will publish today details of how they will make these savings from 2011, as we work towards the spending review. We will also find savings by relocating civil servants from expensive London offices to elsewhere in the country. In the long term, I am announcing that the number of civil servants in London will be reduced by a third. As a first step, 15,000 posts will be relocated within the next five years. I can tell the House today that 1,000 posts from the Ministry of Justice will be moved out of central London, saving £41 million.
Thirdly, on top of those savings, we have already identified £5 billion of cuts in specific programmes, which were announced in December. I can confirm that they will go ahead as planned. Fourthly, it has always been our goal to reform the benefits system so that it makes work pay. The current approach to calculating housing benefit pays very high rates to a small number of tenants in expensive areas. That discourages employment and is unfair. I can tell the House that we are taking steps to address that, so from October next year the most expensive properties across the country will be excluded from the housing benefit calculation in each area. In addition to measures to prevent fraud and error, that will save nearly £250 million a year by the end of the forecast period.
That is over £11 billion from greater efficiencies, £5 billion from scaling back or cutting lower priorities, and over £4 billion from reducing the cost of public sector pay and pensions. In total, that is £20 billion-worth of savings to reduce borrowing and protect front-line services—even before the spending review.
There is one other area that can help to reduce Government debt. I announced at last year’s Budget a programme to secure £16 billion through asset sales, and we are making considerable progress. On the student loan book, we are looking to appoint advisers in the next couple of months to develop a sales proposal. On the Tote, we are on track to launch the sale process this summer. We are also finalising options on the sale of the Dartford crossing. The proceeds from these sales will make a significant contribution to reducing debt.
The third element of our plan to reduce borrowing is economic growth. As we have already seen in the enhanced tax receipts since December, a stronger economy can make a major contribution to reducing borrowing. The raw materials to fuel growth are here in abundance. No country has more talent, and we remain the world’s sixth biggest manufacturing nation. We have world-class industries, advanced manufacturing, bioscience, aerospace and the creative sector, whose products are in demand across the globe. We have worked hard to create the environment where that ingenuity and entrepreneurial flair can thrive, doubling investment in our science base, and having low interest rates and inflation and the lowest rate of corporation tax in the G7.
However, our competitors are not standing still. The opportunities and jobs of the future will come from the new markets and new locations, particularly in the east. We cannot take growth for granted. Again we have a choice: we can sit back and hope for the best or we can recognise the role that Government can play in providing a launch pad for businesses to succeed. Of course, it is the private sector, with its drive and ingenuity, that will create jobs and prosperity, but just as the Government have been critical in reducing the severity of the recession, it is the Government who have a crucial role in building our country’s strengths. Together with the Secretary of State for Business Innovation and Skills, I have been working to find effective ways to enable small businesses to grow, to invest in key national infrastructure and skills, and to promote research, innovation and enterprise.
Access to finance is vital for small businesses. It was understandable that banks reduced lending to repair their balance sheets, but it caused problems for companies and the wider economy. In return for support during the financial crisis, we have made banks accept their obligations to lend more. In the past 12 months, RBS and Lloyds, which make up half the market, have lent £38 billion to small and medium-sized businesses. However, as recovery gets under way, we need to ensure that viable small and medium-sized enterprises continue to get the credit that they need. So, over the next year, I have agreed that RBS and Lloyds will provide a total of £94 billion of new business loans, with nearly half going to SMEs.
There are still companies that are unfairly denied credit and that feel powerless to challenge such decisions. I want to change that position and to give them the right to have their credit complaints properly examined. To help them and the economy, I will set up a new service to fast-track credit complaints from SMEs. This new credit adjudication service will examine lending decisions to see whether they are fair. It will have legal powers to enforce its judgments if it believes that credit has been wrongly denied. But, ultimately, the best way to open up credit for business is to boost competition. We have already made sure that the restructuring of Lloyds and RBS, which will see 900 branches change hands, will bring new entrants into the market. At least five new banks have already either established themselves as business lenders or are in the final stages of setting up. We want even more competition, so the Financial Services Authority will improve and speed up the licensing processes for new banks.
We want successful businesses to be able to attract equity and venture capital, as well as bank loans. The Government already offer a wide range of support for businesses to help to unlock additional private investment, but businesses find that the wide variety of options can be daunting, so we are bringing together all those initiatives under a new national investment corporation to be called UK Finance for Growth, which will streamline and improve our offer to the SME sector. The new body will oversee the Government’s £4 billion range of finance support for businesses. That will also include a new growth capital fund, which will have a specific role in providing fast-growing companies with the private capital that they need. Commercial banks have so far agreed to contribute more than half of the £200 million committed to that fund. It will eventually provide £500 million of finance.
In addition, in this Budget, I am taking forward a range of proposals to help larger firms to access non-bank sources of lending. Small businesses throughout the country count central Government as one of their key clients. Building on the recommendations of the Glover review, I will increase by 15 per cent. the proportion of central Government contracts that go to small and medium-sized firms. That could mean new business worth an extra £3 billion from central Government alone and up to £15 billion across the wider public sector. In addition, we are taking steps to speed up payments to businesses from Government Departments, so that 80 per cent. of invoices will be paid within five days.
I will also provide extra support to small businesses through the tax system. The improved time to pay scheme has helped businesses to spread £5 billion-worth of tax payments over a timetable that they can afford. Between them, those businesses employ more than 1.4 million people. The extra time has also helped businesses to pay more of the tax that they owed. That double benefit has convinced me that the scheme should be extended for the whole of the next Parliament.
On top of giving small businesses more time to pay taxes, I want to reduce their taxes, and to help them invest and expand. First, business rates are a fixed cost from the moment a company moves into its premises. The Federation of Small Businesses says that that is the third biggest cost after salaries and rents. To help fledging businesses set up, as well as existing ones, I have decided to cut business rates for one year from October. That means a tax reduction for more than half a million small businesses in England, 345,000 of which will pay no business rates at all. That includes 90,000 industrial premises, 60,000 offices and almost 100,000 shops.
Secondly, I am determined to make sure that the tax system does not hold back decisions to invest during the economic recovery. Scrapping investment allowances, as some have proposed, in order to pay for an overall rate of corporation tax, makes no sense at all. It would mean, for example, that manufacturers and many smaller companies would see their tax bills increase, whereas banks would get a windfall profit. So, instead, I want to help small businesses to expand by doubling the annual investment allowance to £100,000. As a result, 99 per cent. of businesses will be able to deduct from their taxable profits in the first year all investments in plant and machinery.
Thirdly, I am going to make it more attractive for wealth creators and innovators to set up their own businesses. To do that, I am doubling entrepreneurs’ relief for capital gains tax. At the moment, the first £1 million of lifetime gains are taxed at a lower rate of 10 per cent., rather than at the main rate of 18 per cent. That threshold will now increase to £2 million, enabling entrepreneurs to benefit more from their effort and investment. I can also confirm today that I am not increasing the main rate of capital gains tax.
Better access to finance, improved procurement, lower taxes and more time to pay—this is benefiting hundreds of thousands of small businesses and providing the backbone of future economic growth and jobs.
Investment in both traditional and new infrastructure is also vital if our economy is to grow and our businesses are to succeed. We have to move goods and people around the country and around the globe. It is no good supporting high-speed rail links in principle but declining to back plans that might lead to local controversy. The Government are taking forward plans for a high-speed rail link from London to the midlands and then to the north and Scotland. In government, we have taken the tough decisions to improve our transport links and to cut delays in our planning system. Plans for Crossrail and Heathrow, along with high-speed trains, will improve transport in this country and will support some 100,000 jobs over the coming years.
Roads, of course, are an essential part of our transport network. The bad weather of the past few months has taken a damaging toll on their condition, so I am providing £100 million to pay for repairs to local roads throughout the country and £285 million to pay for improvements in the motorway network, including by expanding capacity by allowing hard-shoulder running. For that and other measures there will be consequential provisions, where appropriate, for Scotland, Wales and Northern Ireland.
Improving our infrastructure also requires us to renew and modernise our energy supplies. Again, our competitors are not standing still. China is building a new power station every week to meet its growing energy needs. We need to take long-term decisions to secure our supplies, while moving to a low-carbon economy. That means replacing our ageing nuclear power stations and investing in renewable energy along with sustainable transport.
In last year’s pre-Budget Report, I set up Infrastructure UK, to advise on how our country can achieve those vital goals. Today, it published a new strategy setting out a route map and the investment that will be needed. To deliver this ambition, which is vital for future jobs and the health of our planet, I am setting up an investment bank. It will control £2 billion-worth of equity, half of which will come from assets, including the channel tunnel rail link, and the rest will be matched by private investment.
That equity will unlock billions more of finance from the private sector. The fund will focus first on investing in green transport and sustainable energy, in particular offshore wind power, where Britain is already the world leader. To strengthen the position further, we are offering £60 million to develop ports to host manufacturers of offshore wind turbines. That will help the UK to secure new inward investment deals and support thousands of extra jobs in these sectors.
The UK has the potential to be the world leader in the digital economy. Realising this ambition would create thousands of new businesses and hundreds of thousands of new jobs. It would also open the way for public services to be delivered more effectively and at lower cost. Access to high-speed broadband is essential to deliver these goals. We have taken the decision to ensure that the benefits are spread to rural as well as urban areas and are not limited to the better-off. The 50p monthly landline duty will unlock private investment and enable 90 per cent. of the country to access the next generation of fast broadband by 2017.
I now turn to how we will give targeted help to British industry to realise its global potential. The role of modern government is to work with key sectors to help them compete and prosper. We will not go back to the interventionism of the past, but nor can we return to the hands-off approach of the free-marketeers.
It is also through partnership, not indifference, that Britain can and will succeed. It is a source of pride that 50 per cent. of all Ford diesel engines in the world are now produced in Britain’s cutting-edge engineering plants. That is testament to the commitment of their staff and the high quality of their research and development, but the Government have also played a part, with financial support, in this success story.
The Government, again, cannot develop and manufacture electric cars, but we can provide the support to help these projects to take place in Britain. The announcement by Nissan last week that it is to produce in Sunderland its first mass-produced electric car was a vote of confidence in British engineering and its work force, but this ground-breaking venture would not have happened without our support to unlock this private investment. It is precisely that co-operative approach that will ensure our country competes successfully on a global scale.
The same partnership is being built in the life sciences sector, which already employs over 120,000 people. Our approach can be seen in the patent box, for example, which offers tax breaks on income from patents held in the UK. That will lead to more products being manufactured here in this country.
Our creative industries are also a huge source of jobs, wealth and pride. I will offer help to the computer games sector, similar to the steps that are helping to restore the fortunes of the British film industry. It is a highly successful and growing industry, with half its sales coming from exports, and we need to keep British talent in this country.
From advanced manufacturing to pharmaceuticals, and from digital communications to creative arts, it is the ideas that are driving their success. Building on the Hauser review, we will ensure that the UK’s technology and innovation centres achieve their potential to commercialise new British discoveries. We have also strengthened the links between universities and business to ensure that ideas are harnessed for commercial success, but we need to do more, so we will set up a £35 million university enterprise capital fund to provide direct support for university innovation and spin-out companies.
Along with the impact of new ideas, it will be the ambition of young people that will carry this country to success. We need to invest in skills, education and our centres of learning. Over the past 13 years, we have increased the number of places and funding for universities by 25 per cent. Almost 400,000 more of our talented young people now go on to university than in 1997. Given this unprecedented rise in investment and the need to tighten public spending overall, universities must make efficiency savings while focusing their funds rigorously on quality teaching and research. We are determined to achieve that without damaging key skills and our economic strengths. To help them to do this, we are going to provide extra one-off funding of £270 million in 2010-11 through a modernisation fund that will help universities to create 20,000 more university places, largely in key subjects such as science, technology, engineering and maths, starting in September this year.
The extra places allow us to strengthen our offer to our young people and ease parents’ concern that their child’s first taste of life after school or college will be a prolonged spell on the dole queue. We have seen in past recessions what a waste of potential that was and the long-term damage that it caused. Because of the choices that we have made, every school and college leaver, as well as every recent graduate, under the age of 24 will receive personal help and new opportunities. That will be delivered by a guaranteed place in education or training for all 16 and 17-year-olds, a guaranteed job, work experience or training for every 18 to 24-year-old, supporting a higher number of apprenticeships, and more university places for those who want them.
The cost of this £2.5 billion one-off growth package to invest in Britain’s future will be met partly by switching resources from existing budgets and, as I said, by the higher revenues from the tax on bankers’ bonuses. I expect that cost to be repaid many times over in the coming years in new jobs, new opportunities and greater prosperity.
This recession has had an impact on people across the world. It is often the most vulnerable who are affected most—those in insecure jobs or on modest incomes. While people are suffering hardship, it is all the more unfair that some are escaping their tax obligations. I am determined to continue our successful drive to prevent avoidance and evasion.
Measures in this Budget will bring in additional tax worth £500 million each year, while protecting £4 billion-worth of revenues by 2012-13. These steps include tax agreements such as that already signed with Liechtenstein, which is expected to bring in around £1 billion of extra revenue. I can also now tell the House that we are ready to sign tax information exchange agreements with three additional countries: Dominica, Grenada and Belize. I have a further announcement to make: we expect these deals to be signed within a few days, which is rather quicker than the 10 years it has taken Opposition Front Benchers to exchange information with the deputy chairman of their party.
We are proud of our achievements in helping families and tackling child poverty. For the new born, there is an additional element of the child tax credit, as well as the child trust fund—something which, I know, will now be even better news for certain Members of the House. Pre-school children are benefiting from a massive expansion in free child care places, and I want to do more to help the parents of one and two-year-olds by increasing by £4 a week the money paid through child tax credit from 2012. That extra money will be paid for all children who need it, whether their parents are married, living together, or living apart.
We have also tackled pensioner poverty. In 1997, hundreds of thousands of pensioners lived on a basic state pension worth about £62 a week. From next month, because of above-inflation increases in the basic state pension and the introduction of the pension credit, every pensioner will be entitled to a weekly income of £132.60. We have announced increased personal allowances for older pensioners, which will mean that, from April next year, no one over 75 will pay any tax on the first £10,000 of their income.
The cold weather conditions of the past few months have underlined the importance of the winter fuel payment for many pensioners. Over the past two years, those payments were temporarily increased to £250, and £400 for the over-80s. Without action today, the winter fuel payment would have decreased in value this coming winter, but I have decided that that would be unfair, so I will guarantee this higher winter fuel payment for another year. That means that 9 million pensioner households will receive at least £250 this winter to help with their fuel bills. In line with our values and fairness, help for pensioners, families and homeowners over the coming year is paid for by closing down tax loopholes, as I have already announced.
I believe that the Government have made the right choices to rebuild our public services. When faced with the upheaval of the global recession, we made the right choices to support the economy, businesses and families. Because of the steps we took, opposed by the Conservatives, the recovery has begun, unemployment is falling and borrowing is better than expected. The choice before the country now is whether to support those whose policies would suffocate our recovery and put our future at risk, or to support a Government who have been right about the recession, right about the recovery, and right about supporting people and businesses in this country to build a prosperous future. I commend the Budget to the House.
Provisional collection of taxes
Motion made, and Question put forthwith (Standing Order No. 51(2)),
That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—
(a) Stamp duty land tax (relief for first-time buyers) (motion No. 5.)
(b) Alcoholic liquor duties (rates) (motion No. 8.)
(c) Tobacco products duty (rates) (motion No. 9.)
(d) Amusement machine licence duty (rates) (motion No. 17.)
(e) Insurance premium tax (separate contracts) (motion No. 42.)
(f) Stamp duty land tax (partnerships) (motion No. 45.)—(Mr. Darling.)
Question agreed to.
I now call upon the Chancellor of the Exchequer to move the motion entitled “Amendment of the Law”. It is on this motion that the debate will take place today and on the succeeding days. The remaining motions will be put at the end of the Budget debate on Tuesday 30 March.
Budget Resolutions and Economic Situation
amendment of the law
Motion made, and Question proposed,
(1) That,—It is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(a) for zero-rating or exempting a supply, acquisition or importation;
(b) for refunding an amount of tax;
(c) for any relief, other than a relief that—
(i) so far as it is applicable to goods, applies to goods of every description, and
(ii) so far as it is applicable to services, applies to services of every description.—(Mr. Darling.)
So there we have it—Labour’s big idea is a stamp duty cut on homes worth less than £250,000. Where on earth did they get that one from? That has been Tory policy for three years. The Chancellor came in copying our inheritance tax cut. He leaves as Chancellor copying our stamp duty cut.
The only new ideas in British politics are coming from the Opposition. The only things that Labour brings are debt, waste and taxes. Here is a first. The centrepiece of this Budget, the stamp duty cut, has already been torpedoed by a Treasury Minister. This is what the Economic Secretary said about the policy:
“raising…stamp duty…threshold to £250,000 would not be an effective use of public money”.—[Official Report, Finance Public Committee, 21 May 2009; c.108.]
First, the Government denounce it, then they embrace it.
That is not all. Remember our tax plan for super-strength cider? When we announced it, the Chancellor’s spokesman said that that was illegal. It is now official Government policy. Remember our proposal for 10,000 extra university places? The Higher Education Minister said:
“It is clear, as has been demonstrated in the House today, that this fatuous proposal of an extra 10,000 places is elitist”—[Official Report, 16 March 2010; Vol. 507, c. 802.]
That is what the Government said about it. Once again, they have been caught taking the public for fools. The Chancellor spoke for an hour. He could have done it all in a sentence. Labour has made a complete mess of the British economy and is doing nothing to clean it up.
One figure in the Red Book stands out above all others. They have doubled the national debt and, on these figures, they are going to double the national debt again. In this election year they are borrowing £167 billion. We are meant to be impressed that that has turned out a few billion lower than the last disastrous forecast, but it is still—hon. Members should be ashamed of this—more than every single Labour Government in history ever borrowed, added up together. That is what they have done. Like every Labour Government before them, they have run out of money, and they are leaving it to the next Conservative Government to clean up the mess.
Today the Chancellor had his last chance to do the right thing for the country. He totally failed. [Interruption.] Labour Members are leaving. The taxis for hire are on their way out of the Chamber. The Government are just going to carry on spending, carry on borrowing and carry on failing. The biggest risk to our recovery is five more years of the present Prime Minister—five more years of falling confidence, five more years of bloat and debt and taxes, five more years of Britain closed for business. Most members of the Cabinet are looking at their Blackberries. They cannot think of a single reason why the country should have another five years of the Prime Minister, so I say let us have an election and put them out of their misery.
Let us have a look in detail at the appalling mess that the Prime Minister and Baldemort seem to find so funny. Here are some of the things that the Government did not tell us in the Budget. They boasted about trade. They did not tell us that page 171 of the Red Book just published says that the trade deficit has risen by £7 billion. They told us about investment. They did not tell us that page 169 of the Red Book shows that business investment is falling by 5 per cent. this year. Almost everything that they have told us about the economy has turned out not to be true.
The Government told us they would be prudent. The Chancellor has just said that they will borrow £734 billion over the next six years, giving us a national debt of £1.3 trillion. They have confirmed in the Red Book that the deficit this year at 11.8 per cent. of GDP is the worst in the OECD except for Ireland. That is what the Labour Government have left us with. They talked about education and its importance. Next year they will be spending more on debt interest than on educating our children. They told us endlessly that they had abolished boom and bust, but the figures show that they have given us the deepest recession since the war. The figures show that we lost 6.2 per cent. of our GDP in total.
The Chancellor endlessly boasted about the action that the Government had taken. We have the longest and deepest recession since the war. They should be ashamed. They speak endlessly about their brilliant judgments, yet we were the first into recession and the last out of recession. They talk endlessly about their great judgment and about how well prepared we were. We went in with the biggest Budget deficit, and we come out with the largest Budget deficit. And of course they promised us real help now, yet more businesses went bust in this recession than in any other, and more people have gone bankrupt under Labour than ever before in our history.
What about all the schemes that the Chancellor mentioned, which were launched with great fanfare? How many people did they help? Let us take the mortgage support scheme, which was announced in December 2008. The Government said:
“This is real help for homeowners”.
So how many households did it help? Fifteen. That cost £66,000 per household helped; or, to put it in currency that the Cabinet can understand, that is about 13 days of Geoff Hoon’s consultancy fees.
The Government told us endlessly how brilliantly they had done on unemployment and what a triumph they had achieved. One in four adults of working age in our country are not in work. They talked about European comparisons. We have more young people unemployed than anywhere else in Europe.
To be fair to the Prime Minister, there is one forecast that he got spot-on. He told an audience of bankers:
“What you as the City of London have done for financial services, we as a government intend to do for the economy as a whole”.
That is a pledge he met in full.
Thirteen years on from 1997, we can now see what has happened. In 1997, debt was £350 billion. Now it is getting on for £860 billion. In 1997 the deficit was £6 billion. That is what the Labour Government inherited—a £6 billion deficit. Today it is £167 billion. In 1997 we were ranked seventh in the world for competitiveness. Now we are 13th. We were fourth in the world for tax and regulation. Does anyone want to know what we are going to do? We are going to get back to fourth in the world for tax and regulation.
The hon. Gentleman slept through the Chancellor’s statement; I am glad to see that he has woken up for my reply. Does he know where we stand today? Having been fourth in the world for tax and regulation, we are now 84th and 86th. We have gone from the top of the premier league to the bottom of the conference in 13 wasted years—and we say that it is time to sack the manager. No wonder “Match of the Day” did not want him.
So that is the mess: what about their plans to clear it up? Pitiful. The big argument in British politics today is this: they say, “Don’t do anything before the election—let’s just sit tight and keep our fingers crossed”; we say that we need real action to get our economy moving, and urgently. We need a credible plan to deal with Britain’s record debts, starting now, and we need to show the world that we are back open for business.
Let us start with the debt. The Chancellor repeated his hope to halve the deficit by 2014. Let us be clear about what this means. It means that in four years’ time we will have a deficit almost as big as when Denis Healey went to the IMF in the 1970s. We are not the only ones who think that this is completely inadequate. The CBI has said:
“Current plans to halve the deficit over four years are too little, too late.”
The OECD has said that
“more ambitious fiscal…plans…would strengthen the recovery.”
The European Commission says that the Government’s plans are “not sufficiently ambitious”. The Prime Minister used to bang on about how we needed a “global early warning system”—do we all remember that one? Well, how many more warnings does he need? The lights are flashing and the alarm bells are ringing, but he is ignoring them and doing nothing for this country.
A credible plan requires action now, and all we got was delay. The risk to recovery is not in dealing with the deficit now—it is in not dealing with the deficit now. The Prime Minister and the Chancellor are having a good chat—they are probably discussing what sort of fees they can charge after the next election. They should listen. Every family knows that when your debts mount up you need to start paying them off or things only get worse, and it is time for the Government to learn the same lessons. The Prime Minister and the Chancellor—
The Prime Minister and the Chancellor faced a choice between bold action in an election year and just playing politics, and once again they chose politics. This Prime Minister will never get a medal for courage—although it has to be said that most of his Cabinet get mentioned in “Dispatches”.
A credible plan also requires some honesty; instead, we got double-dealing. All those figures they told us about debt are based on their growth forecast. So let us have a look at the growth forecast—their record of predicting growth. In 2008, they said that we would grow by 2 per cent.; in fact, the economy grew by 0.5 per cent. In 2009, they predicted a decline of 3.5 per cent.; in fact, we shrank by 5 per cent. Now they say that the economy will grow by 3.25 per cent.; the independent experts say 2.1 per cent. The Chancellor told us, standing there at the Dispatch Box, that his forecasts were the same as the Bank of England’s: they are not. The Bank of England is forecasting 3.1 per cent. this year and 3 per cent. next year, compared with his forecast of 3.5 per cent. With the former Chancellor, you used to have to go through the fine print before you found out about the rubbish in the Budget; this time, the rubbish came straight from the Dispatch Box. Having given us the lowest decade for growth since the second world war, they are now predicting one of the highest. They have given us the biggest bust in British history, and now they are forecasting an almost permanent boom. Why on earth should anyone believe what they say any more? What we need is a proper independent office of Budget responsibility, which we would set up to set independent forecasts and to keep the Chancellor honest.
We need to get Britain back open for business. Again, this Budget completely fails the test. The Chancellor spent half an hour talking about helping business, but the fact is that he is raising £19 billion of extra taxes, many of them charged on business. Why? Because they flunked the difficult decisions on spending and they are raising tax after tax after tax. There are the fuel duty rise, the broadband tax, and the new taxes on small businesses. He talked about a cut, but he did not mention what happens on 5 April, when the revaluation and the end of transitional relief come in, hitting every small business in the country. Biggest of all is the rise in national insurance, which is a tax on every single job in our country. They want to tax your car, your phone, your business, and your jobs. These are the ticking tax bombshells that are timed to go off the day after the election, and that will destroy our recovery. Instead of more waste, more spending, and more taxes, what this Budget needed to do was to ease the burden on our families and businesses and let enterprise flourish. That is what a Conservative Government will bring. Let us freeze the council tax. No tax on new jobs for new businesses. Lower corporation tax rates and lower small business tax. Radical school and welfare reform. That would be real action to get our economy moving.
This Prime Minister is going around telling everyone, “Stick with me—stick with what you know.” But that is the whole problem—this country is stuck with him. Our economy is stuck. Business is stuck. Nothing is moving. Then there is the arrogance of it. “Stick with me.” “Why?” “Because I doubled the debt, I put up your taxes, I wrecked the economy, and I mortgaged your children’s future.” It is like the captain of the Titanic saying, “Let me command the lifeboats.” It is like Robert Maxwell saying, “Let me reinvest your pension.” It is like Richard Nixon saying, “I’m the man to clean up politics.” Does the Prime Minister really expect the British people to turn round and say, “Thank you for nearly bankrupting the economy?” Find me the small business owner who would wake up to a Labour victory and say, “Thank God we’ve got five more years of this red tape and taxes.” Find me the family who would think, “Great, national insurance is going up and we’re all going to be better off.” Find me the international business that would think, “Yes, now’s the time to invest in Britain.” No one has yet thought of a question to which the answer is five more years of this Prime Minister—and that’s because there isn’t one.
We need an unleashing of enterprise across this nation. We need a plan to boost employment through welfare and school reform. It is time that this country had a radical change of direction. We need a Conservative Government to clean up the mess made by this Labour Government and to stop another five years of debt, waste and taxes. Britain does not need this Prime Minister and this Chancellor—it needs new energy, leadership and values to get this country going again. That is the argument that we will take to the country the moment this man runs out of time and calls that election. [Interruption.]
Order. The House should also hear the response of the leader of the Liberal Democrat party. Can I say to the House, as many hon. Members seem unaware, that there is a clear convention that the responses to the Budget by the Leader of the Opposition and the leader of the Liberal Democrats are not interrupted?
This Budget has been billed as the preface to the Labour manifesto. Based on what we have seen today, it will not be a manifesto but an obituary. The Prime Minister may have wanted a “giveaway Budget”, but what we got was a “given up Budget”. This is not the preface to a new Government but a footnote to 13 years of failure. After 13 years, the gap between rich and poor has widened. The poorest 20 per cent. pay a higher proportion of their income in tax than the richest—so much for fairness under Labour. We have had the most prolonged recession since the 1930s, and the spectacle of state-owned banks doing deals that put British people out of work. We needed real change. We needed a Budget that gave us honesty on spending and fairness on taxation. We got neither.
The spat that we have just seen, with the Leader of the Opposition saying that cuts should come now, is a phoney war about when to make cuts to cover up the fact that he and the Chancellor are both the same. Neither has the courage to come up with the details of the cuts that we will need in the years ahead to tackle Britain's deficit. Neither is being straight with the British people about the tough times ahead.
This Budget was a Budget in denial about the scale of change needed—it was about as honest as the CV of the right hon. Member for North Tyneside (Mr. Byers). It is built on growth figures that are unlikely to materialise. It is built on false comfort from a small drop in borrowing that does not affect the structural deficit; we are still borrowing £450 million every single day. Above all, it is a Budget in denial about the unavoidable cuts and savings ahead. The Chancellor claims to have identified billions of pounds of cuts, but there is only real detail about a tiny fraction of the total. Everything else that we have heard today is insubstantial waffle about so-called efficiency savings and a tiny saving in the relocation of civil servants to places outside London.
On the other side of the Chamber, we have heard tough talk about the need to be honest on the deficit, but the Conservatives have barely a fig leaf of detail to back up their claims. They say that we need more than £40 billion of cuts by the end of the next Parliament, but they have published details about just £2 billion. Their demands for honesty come straight from the Karl Rove school of politics: make the biggest fuss about the subject on which you have the most to hide. Labour is in denial and the Conservatives are talking tough to cover the truth—they offer more of the same.
We needed a Budget that gave us honesty in spending and fairness in tax. We got neither. We Liberal Democrats are putting our cards on the table. We have identified a first instalment of £15 billion of cuts that can be realised by 2012-13: saving £500 million a year by ending Government contributions to child trust funds; saving £1.3 billion a year by stopping means-tested benefits for the top 20 per cent. of tax credit claimants; cancelling identity cards and second-generation biometric passports, saving £2.5 billion over the next Parliament; and making longer-term savings, too, by saying no to the like-for-like replacement of Trident. Those are savings that we will need to start implementing once the economy is strong enough to take the strain. The Chancellor could have made some of those choices today, and so could the Leader of the Opposition, but what do we hear from both of them? Nothing. Lots of noise and no honesty whatever.
One of the Government’s most shocking sleights of hand in recent months has been to try to duck blame for the recession. Yes, there were global forces at play, but most of the problems started right here at home—the over-dependence on the banking industry, the personal debt bubble encouraged by this Government and the over-inflated housing market that Labour did everything in its power to stoke up.
On the stamp duty reforms announced today, of course we welcome any moves to make the system more progressive, but with 1.8 million families still on a waiting list for an affordable home, it is quite astonishing that this Budget was completely silent on the urgent need for more affordable homes for all. The Chancellor has added to that by a change to housing benefit announced today that will make life impossible for low-income families in high-price areas such as London. Labour should stop trying to kid people about this recession. They got us into it, and only by being honest about how we got into this mess will we ever be able to get out.
I turn to a few details of today’s Budget. The Chancellor has only slightly modified his wildly over-optimistic growth forecast, to between 3 and 3.5 per cent for 2011, against a consensus everywhere else from independent forecasters of 2 per cent. He cannot bury his head in the sand just to hide the truth about how long it will take to reduce the deficit.
The Chancellor spent a good portion of his speech boasting about the £11 billion he claims to have saved on unemployment costs and through unexpected higher tax revenues. He is living in a fantasy land. This Government still came in £167 billion over budget last year. That is no record to boast of. Someone living off their credit cards and thousands of pounds in debt is not suddenly flush with cash just because their phone bill comes in slightly cheaper than he predicted. We are not better off; we are just ever-so-slightly less worse off.
Even with unemployment lower than originally forecast, we still have more than 2 million people unemployed and 8 million economically inactive. Of course it is sensible at a time of mass unemployment to direct money to help young people especially. I only wish the Chancellor had had the courage to go further and shorten the guarantee for young people from six months to three months. One in five young people are still out of work, and waiting around for six months before they get any help pushes many of them into a state of real desperation.
I welcome, of course, the way the Chancellor has more or less carbon-copied our long-standing proposals for an infrastructure bank and support for green industries to stimulate more job creation. On fuel duty, I note the Government’s decision to stage future increases, but they are missing the point. There is a fundamental problem with fuel duty in rural areas where using a car is not a luxury but a necessity. The real priority should be to help rural areas, not just a staged reprieve.
One of the most shocking omissions from this Budget was the failure to address the systemic failures in our banking system. We bailed out the banks to the tune of £1 trillion, and they are hoarding money that should instead be lent to businesses, killing off sound businesses and people’s jobs. The banks are even helping to support deals that put British people out of work, such as the Kraft takeover of Cadbury.
The failure to get the banks lending is the absolute centrepiece of the Government’s economic mismanagement. The Chancellor today promised new bank lending targets, but why should anyone believe a word he says after what happened last time he made such promises? RBS and Lloyds were told to increase net lending by £27 billion. Instead, they have decreased it by £41 billion. Moving to gross rather than net lending targets is a con that will let the banks off the hook again.
The Government must now recognise that their heavy pressure on the banks to rebuild their capital bases is limiting bank lending and threatening the health of the economy in the longer term. The banks end up hoarding money instead of lending it. The priority for the nationalised banks in particular should be putting money into the real economy, not into their balance sheets.
Turning to bankers’ bonuses, the Government raised more than £2 billion—more money than they had expected—from their tax, but that is because the banks refuse to change their behaviour. It is amazing how much the banks are willing to pay to get back to business as usual. A decent Budget would have set out a plan to ensure that they can never do that. We must ensure that the high street banks on which families and small businesses depend are never again put at risk by the casino culture of investment banking. As the Governor of the Bank of England has repeatedly recommended, we need to separate high street and investment banking for good. Until that split is introduced, all banks will remain the beneficiaries of a unique, open-ended guarantee against failure from the taxpayer—a guarantee that they should pay for. That is why last year we proposed a new levy of 10 per cent. on the profits of the banks until they can be split up.
I will give the Chancellor credit at least for some consistency. He has always opposed our plan for that, as he has today, while the Conservatives first ruled it out, then ruled it in, only for their latest proposed bank tax to fall apart in less than 24 hours. Both parties are wrong. Britain is unique in the world in the liabilities of our banking industry relative to the size of our economy. We do not have the luxury of time and we have to protect ourselves against a future collapse.
Finally, on tax, the other gross disappointment in this Budget was the failure to make our tax system fair. Under Labour, the bottom 10 per cent. pay a staggering 48 per cent. of their income in tax, while the richest pay 34 per cent. The Chancellor took pride in saying today that he would make no big announcements on tax. How can he look at a system such as that and say, “Let’s have more of the same”? Indeed, his comments seemed to suggest a freeze in income tax rates, which would, if earnings rise, once again hit the poorest hardest. So much for fairness under Labour. How can he happily accept that it is okay for a banker in the City of London to pay a far lower rate of tax on their capital gains than their cleaner does on their wages? So much for fairness under Labour.
The Liberal Democrats propose the most radical tax reform in a generation, hard-wiring fairness into Britain’s taxes once and for all. We will ensure that no one pays tax on the first £10,000 that they earn, paid for by closing loopholes that unfairly benefit those at the top, by a mansion tax and by higher taxes on aircraft. That would mean complete freedom from income tax for 3.6 million more low earners and pensioners, and £700 in the pockets of tens of millions more. Crucially, it would be a down-payment to the British people, who are about to take the brunt of the biggest fiscal contraction in post-war history. It would be a declaration of intent—yes, there will be change, but we guarantee it will be fair. Action on tax is the only way to ensure that we can take people with us down the difficult road of deficit reduction. Only the Liberal Democrats are prepared to make real changes in tax to help the millions of people who simply need a break.
After 13 years of Labour, Britain is ready for something different. As we stand on the brink of an election campaign in which there is everything to play for and the future of the country is at stake, my message is simple: this Budget is the old politics, and the old politics is not good enough any more. It is time for honesty in spending and fairness in taxes, and the only party that offers both is the Liberal Democrats.
I welcome the Budget and commend the Chancellor for his stewardship over the past year. Not only the leader in The Times this morning but individuals I have spoken to in the City over the past year have remarked on his stewardship of the economy.
The results of the banking crisis, though, remain with us to this day. Whether it is higher unemployment or difficulties getting credit, people are still feeling the effects. We must recognise that that still has the potential to generate public anger and resentment. It is safe to say that the message that was repeated to us at the time of the pre-Budget report was that the outlook was uncertain. For instance, the Treasury Committee stated:
“The picture on bank lending remains uncertain, to say the least. While we do not want to return to the times of easy credit, the Government must remain aware of the risk that lending will not support renewed private sector growth as the public sector retrenches.”
I am grateful to the Chairman of the Treasury Committee for giving way. Is the right hon. Gentleman aware that, last year, in respect of Lloyds bank, which is partly state owned, the amount of loans outstanding fell by £50 billion, despite all the ministerial exhortations?
The Treasury Committee has persistently focused on that issue, and this morning I was at a business breakfast with small business representatives, who outlined the problems with lending. At the time, we said to the Chancellor that the lending agreements had to be more transparent—there is a problem with them—but I welcome the additional £90 billion that the Royal Bank of Scotland and Lloyds will provide. We really need to get that lending to small businesses, so the initiatives in the Budget are welcome.
To some extent, however, the uncertainties, whether about credit or the wider economic outlook, remain. The fear of a double-dip recession raises its head every now and again, and monthly data releases are analysed to within an inch of their lives—only to be revised in the following month. In the face of those uncertainties, the Government must act as a buffer, providing support to the economy as the private sector recovers from the banking crisis and resultant recession. That of course has a worrying effect on the public finances, but at times of crisis it is necessary for a Government to support people. The Government must ensure that hope for a better future is not lost, and that will be a theme of the general election. Yes, times are difficult, but we must offer hope and a future to people if they are to maintain their faith in the parliamentary system.
None of us can deny that the choices that we are to make on spending or taxes are difficult, and good decision making requires accurate and timely information. That is why the Treasury Committee, in its report on the pre-Budget report, urged the Government to provide more information. On one such point, we noted:
“There is a sense that the Treasury are using uncertainty to suit themselves. Despite substantial uncertainties they still produce some forecasts out to 2014-15 and illustrative projections out to 2017-18. We can see no good reason for the Treasury failing to produce illustrative figures for future expenditure, at least the projected split between DEL and AME. We recognise that there will be uncertainty in these figures, but they are produced as part of the Spending Review process”.
So, with the spending review process in the autumn, I look forward to those figures becoming clearer.
The deficit will have to be tackled, but perhaps more importantly it has to be seen to be tackled. We must satisfy the markets and, more importantly, the people that the deficit is in hand, regardless of our political affiliations. I should like to offer the following notes—some may say, crumbs—of comfort from the Governor of the Bank of England, who, at the Treasury Committee’s hearing on the February inflation report, said:
“I think it is very clear we have political consensus on the need for fiscal consolidation. We have a very good track record in the past at meeting our obligations. We have our own currency which gives us greater freedom of manoeuvre and we also have a public debt which has a much longer maturity so that we are not faced with the same rollover refinancing problems which affect many other economies. The UK should be grateful that we have the maturity of our public debt which is almost twice that of any other country.”
That comment is very important, particularly in the face of the deficit hawks who want to cut now and cut severely.
We must tread the path of the next few years carefully. The public sector will have to step back and allow the private sector to play a leading role in growing our economy, but we must ensure that the timing is right and we do not crowd out private sector growth with too much debt-fuelled public sector spending. [Hon. Members: “Hear, hear.”] But, the dangers are equally treacherous on the other side. If the private sector is so sickly, as it is at the moment—whether owing to a lack of confidence or credit, or because it cannot grow as fast as needed—we risk losing more people to unemployment. So I welcome the Government’s commitment to support people and businesses during these difficult economic times.
There is some evidence to show that the Government’s action on the economy is working—the number of companies being wound up falls far short of the numbers seen under the previous Tory Government in 1992. To withdraw that support too soon, in the name of balancing the books, would be nothing less than economic suicide. Thousands of people’s livelihoods depend on that support remaining in place until the economic recovery is secure. If we were to withdraw it, the fiscal position might deteriorate, not improve, because we would have to deal with the costs of mass unemployment and mass business insolvencies. They would not just represent short-term costs on the public purse, but would create lasting, long-term problems. Mass unemployment turns into worklessness, as we saw in the 1980s, and unnecessary business insolvencies lead to permanent losses in the skills and productivity of the UK's work force.
The Treasury Committee was especially concerned about young people in the current economic climate. We noted:
“We remain concerned over the levels of youth unemployment. While the story for the overall labour market has been more positive than might have been initially hoped at the start of recession, the young have, as we feared, been badly hit. We note the Government’s measures in this area, and will continue to monitor their impact.”
I welcome the measures on youth unemployment, because I speak not only as a parliamentarian, but as a former school teacher: one who taught in the ’70s and ’80s; and one who met his former pupils 10 years later, married or with partners with children, and asked them whether they had a job. They told me no. The impact on many young people, and at an early age, is terminal, and that is why we have to support them through that time of hardship.
Let us not forget that 600,000 young people leave full-time education each year, and it is vital that they have education, training or employment opportunities. Labour market economists, supporting what I said earlier, say that a person who suffers six months’ unemployment aged 18 can feel the effects for decades. Even when they reach 50, they might still earn less than they would have had they not been unemployed. So, without the Government’s targeted support for young people, we could go back to the 1980s and see a new generation of worklessness in the UK. All of us must strive to ensure that that does not happen.
I entirely agree with the importance of ensuring that we do not throw a whole generation on the scrap heap, but, given that the right hon. Gentleman just said that six months is a long period to allow people to go without work and without developing the habits of work, does he agree that it would be better to adopt the proposal of a three-month period before the guarantee came into effect?
That is an idealistic position. I do not know enough about the statistics in terms of three months or six months, and some young people get lost in the statistics. The important thing is that we help people after six months, but if it were felt that there was a detrimental effect after three months, and if it were possible to implement the proposal, I would quite happily support the hon. Gentleman’s suggestion.
I mentioned public anger, but I shall refer to that later, because I mentioned also financial inclusion, and I certainly welcome the Government’s policy on basic bank accounts. As the Chancellor and others know, the Treasury Committee from the previous Parliament forged the policy to ensure that we have a 10-year plan for financial inclusion. We pushed very hard for the Government to act on the problem, and all of us must realise that banking is not a luxury, but vital for our society and our economy.
There was a social contract between the banks and the public: as long as the banks were able to provide basic, essential functions to the public, particularly saving and lending, bankers’ bonuses and excesses were tolerated. But no more. With the onset of the financial crisis, the banks stopped being able to carry out those functions, people no longer felt that their money was safe and the banks stopped lending to businesses and households. That social contract has broken down, and we must bear that in mind for future policies.
Considerable public anger is now directed at the banks, and that is understandable given the economic difficulty that many families face. However, given the importance of financial services to the economy, we will not have a secure economic recovery until the financial sector is also on the road to recovery. So it is important that we address the issue of concern and public anger, and restore confidence in the financial sector.
I mentioned financial inclusion. The Government’s proposals on basic bank accounts is very welcome, and work is being done already by the Financial Services Authority and the Treasury in respect of data for banks on where people open accounts and where lending is made to businesses and individuals. However, all of us have seen, in our own areas, the proliferation of cheque cash shops, payday companies and doorstep lending in places with little or no banking provision. We need clarity about to whom the banks are lending and not lending. For example, there is a lack of access to cash machines in ethnically diverse areas—a fact that has more potency than a diversity indicator itself. Underneath the figures lies an explanation for why we lack sufficient provision of those basic bank accounts, and we need to go further to ensure that we get that information across.
Even today, 1.75 million people do not have a bank account.
I would like to take this opportunity to thank the right hon. Gentleman for his service to the House as Chairman of the Treasury Committee. However, will he expand on the role that the post office network can play—there is a meeting about this later—in opening up the banking system to many people who are currently un-banked? That trusted brand could work in the basic banking sector, meeting the needs in local communities that have no outlets of any other financial institution. Perhaps more should be done to drive forward the concept of the post bank.
I agree with the hon. Gentleman. As he knows, our Committee and others did some work on the Post Office card account and the struggle to retain it. That is important, but we have to take it a step further. A Post Office card account itself is insufficient, because it provides limited services. The ambition for the Post Office, over the next eight or 10 years, is to be a financial services provider, so that there is solidity in Post Office services. That is quite an ambition, but it is very important, given that the Post Office is a trusted brand, as he said, and given that 95 per cent. of the population live within a mile or so of a post office. We need to encourage the Post Office to get that facility going. I am a little discouraged by the fact that Alan Cook, who used to run National Savings and Investments, and then joined the Post Office and drove this agenda, is now leaving. However, we need some added urgency, and I look forward to further Government measures on it.
It is not enough for people to have basic bank accounts, because figures show that 60 per cent. of those with such an account make full withdrawals every month. In other words, they do not use the direct deposits of the bank system, and they do not use their bank accounts to pay their utilities bill, which would make them cheaper. At the moment, basic bank accounts for such people are meaningless, so we need to do more work—simply having a basic account is not the answer.
The money guidance service set up by the FSA has a crucial role to play in the financial inclusion agenda. For example, arising from discussions with those involved, I have been told that the majority of people over 60 do not claim pension credit, and that lots of people in social housing do not have basic bank accounts. I would like to think that a number of organisations, not least the money guidance service, could be tools of financial inclusion. That agenda has to be pushed and promoted even more.
On Monday, the Treasury Committee unanimously agreed three reports, and in the next week or two, we will be putting them out. A feature of our Committee has been that we have considered the evidence and agreed our reports on the basis of unanimity. The report that I consider the most important relates to the issue of banks being too big to fail and too important to ignore. Let us remind ourselves that the crisis has cost 25 per cent. of global gross domestic product, and that the reason for the crisis was that financial institutions took part in risky activities that were both mispriced and misallocated. The bail-outs, necessary though they were, have not ended the mispricing.
The bail-outs have shown that there is an implicit subsidy to banks and financial institutions, which is unfair when considered in relation to other businesses. Banking reform is essential, therefore, to ensure a more stable and less volatile system. That is essential in the United Kingdom, where the banking sector is worth 500 per cent. of our GDP. The fact is that we have big banks and limited choice, and as a result we have insufficient lending to non-financial institutions, as anyone who speaks to the CBI, small businesses or the manufacturing industry will hear. Banking reform in the UK is essential.
I urge the Government to ensure that banking reform takes place, irrespective of what is happening elsewhere. The visits undertaken by the Treasury Committee in the past six months to a year, whether to the United States or Europe, have impressed upon me that countries’ electorates will not tolerate a second bank bail-out. I suggest to the Government that the test of reform will come when the risk is transferred from the Government to the banking sector, and a large financial institution is allowed to fail smoothly. As others have said, banking is currently in a position where it privatises its profits and socialises its losses. We have to eliminate that practice.
We have to have engagement with the public. At the moment, that engagement is insufficient. In October 2007, the Treasury Committee visited Japan, and I spoke to policymakers at its central bank. They said that we should take back the message that two things are essential: first, that we have to recapitalise our banks—and recapitalise them early—which the Government have done. Secondly, we need a strategy to deal with the public anger, concern and resentment. I have taken that message forward and helped to establish the Future of Banking Commission, which the right hon. Member for Haltemprice and Howden (David Davis) has agreed to chair, and which the hon. Member for Twickenham (Dr. Cable) has agreed to sit on. We also have the eminent economist, Roger Bootle, and others on the commission.
We have established the commission to look to the future and ask basic questions about what the banking system is for and how it can best serve the interests of customers and regional economies. Those are basic issues, and we would like to present our report to the next Government in June. We want to take forward the message that financial architecture change is essential. However, that will not take place in the next two years—it will take quite a long time. I say that because Basel II took 15 years. So we are in this for the longer term, and it is important that politicians and policymakers stand side by side in ensuring that we get a better, more stable and reformed banking system as a result.
As kindly mentioned by the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), this will probably be my last speech in the House. I well remember reading the late John Biffen’s autobiography. He had a flat on the south side of the river, and he came across Waterloo bridge everyday. He said that, during his long time here, when he spied the House of Commons every morning, and entered it, he got a bit of a thrill. I share that sentiment. It has been a privilege for me to represent my area in this Parliament, and I am grateful to lots of people, including not only my office staff, but the staff of the House. The House is a very fraternal institution. It might not look like it from the outside, but people are always ready to help others. The attendants, police, and the staff in the Tea Rooms, are always very welcoming and warm. I will miss that.
I will also miss the Treasury Committee staff. When I give speeches in the City and elsewhere, it is clear that people think that the Committee is a Department serviced by an awful lot of people. In fact, there are only six people involved, together with three economists. We seem to have done a bit of a David and Goliath exercise, and kidded people that we are the equivalent of a Department of State. The effort that the staff have made over the nine years that I have been on the Committee has been enormous.
I also want to pay tribute to all my Committee colleagues, particularly the hon. Member for Sevenoaks (Mr. Fallon), who has been the Chairman of the Sub-Committee. I see other Members here who have also been part of the Committee. We have always made it our business to take the evidence and to produce unanimous reports. The unanimity of those reports has given out a profound message and helped to inform the debate here. I hope that it has also helped to build a bridge to the public, to help us to ensure that public engagement is restored. The past nine years have been the most fruitful years in my parliamentary career.
Lastly, I would like to thank my family and my constituents, who have supported me consistently for 23 years. Some people have asked me why I am giving up now. I remember that when Terry Wogan left Radio 2, he said, “I’m giving up now because we’re still in love and the music is still playing.” Well, the music is still playing for me. I wish everyone who is going to be part of the next Parliament every success in rebuilding trust and confidence in this institution, which is the bulwark of our democracy.
It is a great privilege to follow the right hon. Member for West Dunbartonshire (John McFall), who has played a distinguished role in our economic debates over the years. I wish him well in his retirement. His contributions will be long remembered here.
The Prime Minister—both as Prime Minister and as Chancellor of the Exchequer—has always believed that words were a substitute for reality. He believed that simply by repeating his commitment to prudence, he could distract people’s attention from his practice of imprudence, which involved building up the largest unsustainable growth in expenditure that this country has experienced in many a long year. He believed that by repeating his assertion that he had abolished boom and bust, he could make us think that he had done so, until the reality exposed him and burst his credibility.
Now, the Prime Minister asserts that the problems are all global, and tries to convince us that he had no part in the problems and could have done nothing to mitigate or avoid them. However, two Anglo-Saxon economies similar to our own—Canada and Australia—were prudent and did not go in for excessive boom. As a result, they avoided the rigours of the bust when the problems hit countries such as Canada’s near neighbour. So, more could have been done in this country to mitigate and prevent the problems from which we are suffering, of which this Budget is a symptom. We could have avoided the present levels of non-employment, for example. The Government claim that the unemployment figures are encouraging, but they do not tell us how many people have withdrawn from the labour market because they are discouraged, and because there are no jobs available.
Ultimately, however, the problems that we face can be summed up by the size of the deficit that we face. The Chancellor has tried to convince us that because the forecast of £178 billion has come down to the current estimate of £167 billion, that would somehow make a significant difference to the scale of our concerns. But £167 billion is unprecedented. It cannot for an instant be tolerated, excused or minimised. There are only three ways to reduce the deficit. The first, and worst, is to raise taxes. The second, better, way is to cut spending. The best way is to encourage growth. Raising taxes might be unavoidable, but if we are elected to government, we will do all we can to avoid raising taxes.
By contrast, raising taxes is the first choice of the present Government. They have already put up taxes today, stealthily and with little mention, by an extra £19 billion, as my right hon. Friend the Leader of the Opposition pointed out. That is a burden that we have already had to pay. When the Prime Minister was asked what action he had taken to reduce the deficit, the three measures that he mentioned were all tax increases. That is this Government’s instinct and their practice, and if they are returned to office we must fear that such measures will form the bulk of what they introduce. It is inevitable that they would be forced to introduce measures to reduce the deficit more quickly than they are now proposing, in rather unspecified ways.
Better than raising taxes is cutting expenditure. Indeed, even the Labour Chancellor recognises that large reductions in spending are required, even with the higher taxes that they are proposing and those that they have already introduced. The Institute for Fiscal Studies has pointed out that, on the Government’s own projections, they are set to undo almost all the increases in expenditure that they introduced over the first 10 to 12 years of the Labour Government. The Prime Minister is a “Duke of York” leader, who marches his party, and the country, up to the top of the hill with massive and unsustainable increases in spending, then marches us down again, while undoing them. It is small wonder that he has not spelled out in detail any proposals in a spending review. That has been postponed until beyond the election, because it would be the ultimate confession of failure if he were to spell out in detail what he needs to do.
Does my right hon. Friend agree with the businesses of St. Albans that as the Prime Minister was not a very good Chancellor in the good times, they have much more to fear in the bad times? He was very business-unfriendly in the good times, and they are fearful for their businesses now that there may be bad times ahead.
My hon. Friend is absolutely right. Many of the businesses in her constituency employ people who live in my constituency, and they share the view that she has just expressed.
If we are to cut spending, we must try to do so without cutting services. That goes without saying. There is huge scope for doing that. If the public sector had matched the productivity increases of the private sector, rather than undergoing a productivity decline, much of what is required to get the deficit down would simply not be necessary. In short, the failure to achieve efficiency in the public sector is the cause of the problem, and the reason why there is now scope for making savings without making cuts in services. The Labour Government are prepared to tolerate waste and inefficiency, and they place no requirement on the public sector to match or emulate the constant improvements in productivity that are required in the private sector. That provides the problem, as well as the scope for reducing it.
We want to get on with the job. We do not want the savage cuts that the leader of the Liberal Democrats was calling for—although he seems to have resiled from that position recently. We want to get on with the job, because the sooner we tackle the problem, the less painful it will be. It is just like tackling an illness: the sooner we start to treat it with antibiotics, the less likely we are to have to resort to surgery. The sooner we start to cut the deficit, the less painful it will be. Departments would be able to rely on freezing recruitment, rather than introducing redundancies. If redundancies were necessary, they could be voluntary rather than compulsory. Starting the process now would be less painful than having it forced upon us after the election, without preparation. Another Labour Government would be forced to start that process, were they returned to office.
We do not believe that starting to take these measures would destroy the recovery. Nor, of course, did the Government, as the Institute of Directors has pointed out. A Treasury document from back in 2003 said that there could be such as thing as an “expansionary fiscal contraction”—reducing the deficit with expansionary effect. It said that such a contraction
“is most likely when a country is facing a critical fiscal situation and takes strong action by cutting unproductive spending, and this is accompanied by further structural reform and an exchange rate depreciation.”
In precisely the circumstances we are now in, a reduction in the deficit is likely to have an expansionary effect through restoring confidence, releasing resources and enabling one to take a more relaxed monetary policy than would otherwise be the case.
The best solution to our problems is the restoration of growth. Growing economic activity, with growing tax revenues and reduced unemployment, must be the best way to eliminate a large part of the deficit, but restoring economic growth depends on three things. It depends on confidence, it depends on cash, and it depends on a competitive exchange rate. I believe that the process of getting on with tackling the deficit will itself have a positive effect on confidence, as it did in previous recessions when we finally began to tackle the problem. A new Government will help restore confidence in the economy, too, as people see that those who got us into the problem are no longer being relied on to get us out of it.
As for more cash, people talk about the Government reducing their spending and taking cash out of the economy. What puts cash into the economy is banks lending more than they receive back in repayment. That is what creates cash in a modern economy. If we are to have a growing economy, we must have a growing money supply—not outstripping the growth of the economy, but growing in line with it and with its potential. We are not seeing that at present. We have seen the banks taking back more money than they are lending out, and we have seen a reduction and a tendency for the money supply and the economy to decline. We want to see the Government ensuring that the money supply grows in line with the underlying capacity of the economy. It can do so by quantitative easing. If it does, I hope it will do so more by ensuring that such easing takes place through dealing with private sector rather than public sector liabilities—exchanging them for cash and getting that cash straight into the private sector. That must be done.
The final element is a competitive exchange rate. That, thank heavens, we have. We have it solely because we were wise enough not to enter the euro area, so we have a more competitive exchange rate than we otherwise would have had. That gives us an opportunity, not a certainty. It is vital that we take that opportunity and create conditions of which our businesses can take advantage. I believe that we will be in that happy position only if we get rid of the Government who got us into this problem and replace them with a Government who have competence, confidence and the commitment to getting our problems under control as soon as possible.
I am grateful to be called so early in the debate, and to follow the right hon. Member for Hitchin and Harpenden (Mr. Lilley). He was talking about the imbalance between services and manufacturing in our economy, which developed over many years. In fact, I believe it has developed over about 30 years. We must not underrate what manufacturing industry does for our country, employing about 2.6 million people in the UK. In 2007 it accounted for 12.5 per cent., or £154.9 billion, of our national economic output. I was very pleased to hear from the Chancellor today about a number of measures to help our industry and to help the small and medium-sized business sector.
I think that even the right hon. Member for Hitchin and Harpenden would agree that we are living, and have lived, through a worldwide recession. Although it is perfectly normal and natural for him to blame that on the Government, all Governments in the industrialised western world of whatever colour or political persuasion followed the same route. That applies to Germany, France, Spain, Italy and any other such country. It was the only route to save the nation. Everyone knows that.
The Leader of the Opposition talked about the worst recession since 1945. He had to be reminded, as he was by the Chancellor, that the recession did not become a depression. When we talk about unemployment, we recall all the forecasts and statistics suggesting that it would rise to 3 million, but that never happened. The measures that we took to reach the economic situation today have kept this nation on an even keel.
The right hon. Member for Hitchin and Harpenden made a fuss about the debt standing at £167 billion. The Chancellor said, however, that revenues from Her Majesty’s Revenue and Customs have brought it down to £163 billion. It is very high; we accept that. It is, to use a phrase used by a Conservative Chancellor in another context, a “price well worth paying” to save the nation from what would have been a very serious depression.
The right hon. Gentleman also mentioned cutting public expenditure. We fully understand that this is a basic element of Conservative policy. Margaret Thatcher—now Lady Thatcher—did precisely that in 1979: she reduced public expenditure and she reduced the public services. The right hon. Gentleman needs to explain to me how he can cut public expenditure without cutting services. Of course, he draws a distinction in respect of front-line services, but the fact is that the Conservative party policy is to cut public expenditure and to balance the books. We understand that; it is the philosophy that Conservatives have.
If we really want to understand Conservative party philosophy, we can look across to the United States and the Republican party, which has fought tooth and nail to prevent a national health service of some description from taking its place in their country and economy. That is a remarkable fact; it is what the Republican party stands for. In our country, it is the Conservative party that stands for balancing the books. The phrase is often used; it is perfectly normal and natural, but it is also a policy, and it will have consequences.
I agree with the right hon. Gentleman when he says that his party will not go down the route of the savage cuts suggested by the Liberal party—the £15 billion-worth of cuts they have promised us if they were in government, which would have an extraordinary impact on the British economy.
I am trying to follow the hon. Gentleman’s argument. There is no disagreement between the two main parties that cuts are going to have to come, so the matter is purely a question of timing. The hon. Gentleman’s argument is effectively that the Labour Government, if they were to remain in power, would also have to cut services.
I am grateful for the hon. Gentleman’s intervention, but the Chancellor of the Exchequer has laid down a policy of deficit reduction over four years up to 2014. [Interruption.] Well, there is a balance in the economy. We have talked about growth, and the right hon. Member for Hitchin and Harpenden talked about growth, cuts and taxation, so there is a balance. There will be a review of public expenditure a little later on in the year.
If one wants to argue the toss about what cuts we might make, I can tell the right hon. Gentleman and the House that we would not cut the work of public sector workers in health, education, social services or local government. All those people serve the community; they are not simply public sector workers for the sake of it; they serve our community and they help the disadvantaged in our communities, trying to get them into work.
There is a balance between public and private sector, but the Conservative balance is not a real balance, as it is biased towards cuts. When we hear it said that they must “start tackling the problem”, does that mean an emergency Budget, in the unlikely event of a Conservative Government? Conservative Members nod their heads. Will it mean emergency taxes as well as an emergency Budget being imposed on our public sector workers, destabilising our economy? Is that what the Conservative party promises? We will take that message to the country. Which of our public sector workers—our health, education, social services and local government workers—will lose their jobs? If there were to be a Conservative Government and an emergency Budget, those people should be told—and we will tell the nation.
Will we not also be able to tell the nation, quite clearly, that the Chancellor was explicit about the £57 billion reduction in the economy that would take place in 2013, one third or so through tax rises and two thirds—about £40 billion—through cuts? Will we not be able to confirm to the same public sector workers that the Labour party is intent on making the same cuts? The hon. Gentleman’s arguments simply do not add up.
I can tell the hon. Gentleman that there is not the slightest prospect of a Labour Government in the future adopting the policies proposed by the Conservative party. We believe that a deficit reduction over a period will give this nation state a financial soft landing. What the Conservatives promise us—they do not offer it—is a hard landing for the economy and for those in work.
Conservative Members can take their campaign to the country. We too will take it to the country. The Conservatives will send to the country—those who are in the Chamber are nodding—an emergency Budget and emergency cuts, and we shall see unemployment rise. I shall come later to the point made by my right hon. Friend the Member for West Dunbartonshire (John McFall), but that is what is being offered in this Budget debate.
I do not think I am the only Member present who is a little confused by the hon. Gentleman’s argument. Surely the point is that we need honesty in this election as never before. All the parties must say how they will reduce the deficit. The Liberal Democrats have clearly set out their plan for the next five years, and we must be honest about the fact that it will involve cuts. The question is where the cuts will be made, not if or when they will come.
I will follow the argument of the right hon. Member for Hitchin and Harpenden. The economy requires growth, it requires reductions in public expenditure, and it may require taxes. It is a question of balance. It is not a question of an emergency Budget which says, “We’re now going to cut public expenditure, and we’re going to make people in the public sector unemployed. That is our recipe, and you’ll take the medicine.”
Is the hon. Gentleman aware that the Department for Environment, Food and Rural Affairs has already taken some £320 million out of its operating budget, and is now employing some 1,500 fewer people? Yet DEFRA would claim that its outputs have been sustained. This is called “improved productivity”. Does the hon. Gentleman accept that fact?
What I accept as a fact is the statement made by the Chancellor of the Exchequer that we shall be looking for efficiency savings. That is what the Chancellor said in his Budget speech, and that is what we accept.
The right hon. Gentleman reflects Conservative party policy, and I salute him for that. Conservative party policy is to cut. It is to go back to 1979 and Lady Thatcher, who said as Prime Minister, “I will cut,” and that is what she did. I shall be happy—and I am sure that the country will be happy, and that my Labour party will be happy—if we spend a great deal of time establishing what the Conservative cuts will be, and I would be grateful to Conservative Members if we could establish that. I would like to move on, Mr. Deputy Speaker, but I shall be quite happy to go on answering their questions.
If I may say so, it is a bit offensive for the hon. Gentleman, in this House of Commons, to read from a Red Book—which I assume is the Red Book containing this Budget—and expect me to have read it, given that I have been sitting here since 11 am and the document has only just been made public.
Let us return to the point. Yes, there will be a reduction in public expenditure. The Chancellor has said it, and the Prime Minister has said it, but we have used the phrase “efficiency savings”. We are not going to cut in the way that the Conservative party promises—not offers—to cut, and that is the message that we will take to the country. I will ask every public sector worker in my constituency, “Do you think your job is safe under a Conservative Government?” You will find, Mr. Deputy Speaker, a battleground there, and I will wager that you will be surprised by the result.
I agree with the hon. Gentleman that it is unfair to expect him to have read the Red Book. He will, of course, be aware of what was said by a junior Treasury Minister—the Exchequer Secretary to the Treasury, the hon. Member for Portsmouth, North (Sarah McCarthy-Fry)—on 5 January, which is some time ago. She said:
“The Government have made it clear that reducing spending accounts for two thirds of the action the Government are taking to reduce the deficit following the crisis-measures that will reduce the deficit by £57 billion in 2013-14.”—[Official Report, 5 January 2010; Vol. 503, c. 126.]
Is it not time for the hon. Gentleman to come clean and concede that there will be £40 billion of cuts in a single year in 2013-14, and the Labour party is at it?
I do not think it is necessary to refer to a speech made by a junior Treasury Minister on 5 January, because the Chancellor of the Exchequer said exactly the same today. He said that in 2012-13 there would be £57 billion less in the economy than there is now. The point is—it is difficult for me to labour it sufficiently—that that position will be reached by means of a variety of measures. It could be reached through the efficiency savings that have already been mentioned, and, as the right hon. Member for Hitchin and Harpenden said, it could even be reached through taxation. What we do not promise is what the Conservatives promise: cuts which will affect public services.
I should like now—with your leave, Mr. Deputy Speaker—to return to the subject of the Budget. At the beginning of his statement, the Chancellor of the Exchequer pointed out—this has not been quoted by the Conservatives, or, I believe, by the Liberal Democrats—that we have lived through a global recession. We have lived through a repeat of the 1930s. We did not do the same as we did in the 1930s, however. We did not let 12,000 banks go to the wall. We saved them, and put money into them. We introduced quantitative easing, which saved the banks. We did not go from a recession to a depression; we avoided that. We did not even reach the 3 million unemployment figure that was forecast—with some joy, I have to say. We have steadied the economy, as other nation states have done. Of course we need banking reform, but it must take place on an international basis. It is not possible for one country to introduce it without taking the rest of the group of 20 with it.
Incidentally, while we are throwing figures around the Chamber, why do we not cite what the Chancellor said about the £8 billion that came back to the Bank of England? Why do we not talk about the great success of the car scrappage deal? Last year, we were arguing about it. I have a copy of the speech that I made last year, and I will say very clearly what I said last year.
“In one car dealership in Middlesbrough alone—Jennings of Middlesbrough—there are 470 people who work there, and throughout the north-east. It invests in the latest equipment and it services and maintains our cars and vans. This helps to make our small and medium-sized enterprises viable. Anything that helps such businesses to continue, including the scrappage deal, is welcome. I predict”
—we can be prophets with honour in our own country—
“that while it is available, it will have the same impact as the similar schemes in France and Germany, and that the 30 per cent. loss of sales by car dealers will be rectified. We should not overlook the fact that our car dealerships play their part in the local community. They are, for example, investors in local charities. This will be a welcome proposal for them.”—[Official Report, 22 April 2009; Vol. 491, c. 290.]
The Chancellor of the Exchequer confirmed today that car sales had increased by 30 per cent.
Does my hon. Friend agree that it would have been better for the car scrappage scheme to focus on making the money available only to those who bought more fuel-efficient cars, rather than enabling them to trade up and buy bigger engines with greater cubic centimetre capacity which polluted more?
That concept might well have produced a better scheme, but the fact remains that the scrappage scheme saved our car dealers and our car industry. Sales increased by 30 per cent. There are all sorts of fuel efficiency measures in London. I have to congratulate the Mayor of London on his biodiesel scheme, which enables people to avoid the congestion charge. But, of course, everything can be refined and improved.
I would have loved to spend much more time dealing with the speeches of the Leader of the Opposition and the leader of the Liberal Democrats. They both reminded me of a business man who wishes to take over a football club. He is very successful in his business. That business man goes into the football club. He leaves his acumen at the gates, and he enters a world of total unreality: everything is unreal and bizarre. The team end up being relegated, however, and that unreality is replaced by a fast-moving reality.
The Leader of the Opposition’s speech was totally nonsensical: it had no meaning, and it made no sense, because it was written before the event. It was meant to please those sat behind him, and to get a cheer and a wave, but it had no significance to the national economy. I must add that the leader of the Liberal party’s speech was no better, and I draw that comparison because both of them get carried away by the media. They think that catching the headlines for the 10 o’clock or 9 o’clock news makes a policy, but that is not the case. We will make sure that we fight the coming general election on principles and policies, not personalities and press statements, and I was therefore disappointed by both party leaders’ statements.
Although my right hon. Friend the Member for West Dunbartonshire is not in his place, I want to congratulate him: he has toiled for many years in his role as Chairman of the Treasury Committee, and he has rendered contributions of great significance to our economic debates and made some very fine remarks on the subject. I suppose, however, that after nine or so years in that post it is understandable if he has become a little conventional in his thinking, and whereas he said that we have to satisfy the markets, in fact we do that quite ably. Our last Treasury bond issue was oversubscribed. The markets have full confidence in our economy, and our ratings have not been downgraded. We are not Greece. When addressing a youthful audience, the Leader of the Opposition made the following aside: “We are now on the same level as Greece.” That is not the case, however. Such false arguments are made because it is easy to catch the headlines with them, but that is not a policy. The ratings agencies support our economy and the Government’s measures, and they have, in fact, maintained the ratings that we as a sovereign state have had for many years.
Is the hon. Gentleman aware that the sum total of this year’s bond issue almost exactly matches the amount that has been bought in quantitative easing by the Bank of England? Does he not therefore understand that this huge increase in the deficit has so far been absorbed, because on one day the bonds are sold in Eastcheap and on the following day they are picked up by the Bank of England in Threadneedle street?
I hope that the hon. Gentleman understands that this is the world of funny money and this programme of buying back our own debt cannot last, and that although it was necessary at the time when it was initially implemented, as soon as the economy stabilises, which it is doing now, the programme will have to be stopped or even reversed and that would be hugely costly for a generation to come.
That is another wild and woolly forecast far removed from reality from the Conservative Benches. We are talking about a nation state. The Chancellor made the point that we are the fourth largest economy in the world. We are not a tin-pot economy, therefore. The hon. Gentleman talks of funny money. His party colleague, the right hon. Member for Hitchin and Harpenden, mentioned quantitative easing. They should get together and try to work out what they are talking about. With a general election coming up, it is important that the Conservatives get their act together but, unfortunately, that is not happening.
My right hon. Friend the Member for West Dunbartonshire mentioned the private and public sectors, and he correctly said that if the policy is not right, it leads to unemployment. That was the great scourge of the ’30s, and we have sought to avoid it. That is why unemployment is coming down. That is also why, unlike the French economy, we do not have a 10 per cent. unemployment rate. The French have had such a rate for years, and it has caused many severe ructions in their economy.
My right hon. Friend also mentioned youth unemployment. We have done all we can over the years; we even introduced the national minimum wage for employed youth in order to get people into work. I am making an important point, but Conservative Members do not seem to get it. They have completely lost touch with reality, and they do not understand that destabilising the economy leads to unemployment, and that is not a price worth paying in this time.
May I now return to the speech that I wished to make in the interests of my constituents, on the basis of what the Chancellor has said? A long time has passed since the good news was brought from Ghent to Aix, as Robert Browning said in his great poem. Browning did not say what the good news was, and I leave that to historians.
I thought it was the battle of Blenheim. Regardless of what Browning’s good news was, however, there most assuredly is good news on the Teesside scene, and also the national scene and economy.
On the national scene—I am glad the hon. Member for Dundee, East (Stewart Hosie) is in his place because as a Scottish Member of Parliament this will be of great interest to him—Total SA has announced a £2.5 billion development investment in the North sea west of the Shetlands. This will be a strategic development of two new gas fields—Laggan and Tormor—lying in 600 metres of water in the harshest environment in the United Kingdom, and the fields will be developed using the latest technology. The fields contain more than 1 trillion cubic feet of gas, plus some condensates, equating to about 230 million barrels of oil equivalent. This will create 117 jobs a year in the Shetlands over the lifetime of the project, and some 2,200 jobs in Scotland. The fields will be able to provide the nation with 20 per cent. of its gas when they come on stream, and the fields themselves represent some 17 per cent. of the nation’s gas reserves. As the Prime Minister said in today’s Question Time, the investment has been helped by the Chancellor’s decision to provide up to £160 million-worth of tax relief for each gas field that qualifies for the support. As the Chancellor of the Exchequer has said, the Government recognise the importance of the United Kingdom oil and gas industry to our economy and the dependable foundation it provides for the nation’s energy security.
The goods news, however, has gone further than from Ghent to Aix. Yesterday, Total announced that it has passed to Corus a letter of award for the gas pipelines that will link the gas fields with the mainland. The contract will be worth nearly £200 million. It will involve building 350 km of pipelines, safeguard 250 jobs at the Corus Hartlepool mill and add a further 100 jobs for up to a year. The order was won against strong global competition, but it shall be the Corus world-class, large diameter Hartlepool pipe facility that will manufacture the pipes, thus securing jobs, and creating new ones, on Teesside. Also, £200 million of orders shall be added, and there is the £60 million Tees valley industrial programme, put together by the Government in recognition of the need to accelerate industrial transition and seize new opportunities in low-carbon and advanced manufacturing in the area.
It is estimated that the two-year Tees valley industrial programme will create 3,000 new jobs in the short to medium term and sustain over 10,000 jobs in the long term. The Tees valley industrial programme builds on One North East’s existing £130 million investment in business, support and skills in the Tees valley to run from 2009 to 2012. In the last 10 days, One North East and its partners have unveiled the first of a number of investments via the £60 million programme to support engineering apprenticeships in the Tees valley, help workers with business start-up opportunities and help businesses in the Tees valley to be more energy-efficient. These investments alone amount to about £10 million.
The mothballing of the Teesside cast products blast furnace is a sad blow to Teesside, an industrial cradle that has seen over many years the obliteration of its shipbuilding and module yards, and the destruction of the coal industry in neighbouring Durham—and now a further diminution in steel production. However, as Corus Steel Tubes in Hartlepool testifies, the industry is not entirely extinct. The more the steel market returns, with the help of the £200 million contract from Total, the more likely it is that the blast furnace will be de-mothballed.
I am always averse to waving documents in the Chamber, but I yield to an American habit that has developed over the years. I would like to show hon. Members a magazine—[Interruption.] You shake your head, Mr. Deputy Speaker, so my little moment of glory is—
Order. I do not know about yielding to American habits in this House, but visual aids are certainly discouraged.
I am grateful to you, Mr. Deputy Speaker, although I managed to get my little flash in before you rose to your feet.
I would like to draw the House’s attention to “Vision”, a supplement of the Middlesbrough Evening Gazette, which describes
“how Teesside’s iron fist could forge a new beginning.”
“Vision” is also published with The Journal in Newcastle, and it gives the same message of optimism for two industrial areas that have lost nothing in their vibrancy, their determination or their work ethic, notwithstanding the global recession. Earlier I mentioned low-carbon and advanced manufacturing. Teesside fully intends to take advantage of the low-carbon sector, because the Tees valley is well placed to do so. It has its port lands, both at Teesport and Victoria harbour in Hartlepool—lands attached to the Corus plant. There are also offshore wind farms and biofuels, while in the Tees valley there are already facilities to capture carbon dioxide and store it under the North sea, with possible links to assisting the oil and gas sector.
However, in addition to developing a low-carbon economy, the Tees valley, and Middlesbrough in particular, is leading in other sectors that will hopefully assist the long-term future of the economy, and specifically in the digital-creative sector. Middlesbrough council, in partnership with Teesside university, has developed Digital City, building on the university’s burgeoning reputation in computer sciences, to retain graduates in the town and create policies and graduate businesses in the sector. In short, the mothballing of the blast furnace at Redcar might cast a deep and long shadow, but if one combines the £60 million investment programme with the original £130 million investment from One North East for 2009 to 2012, along with the £200 million pipeline contract, we can see £390 million of investment flowing into Teesside. I agree with my Evening Gazette that Teesside’s iron fist could forge a new beginning.
Lest it be thought that the private sector was excluded—I welcome the Chancellor’s statements today about small and medium-sized businesses, as well as the various measures that he is taking—I should say that local entrepreneurs have a considerable track record on Teesside, having created the Wynyard business park, which has attracted 58 new businesses and £250 million of private investment, creating 1,200 jobs in the past few years. The Secretary of State for Health recently confirmed the creation of a new £464 million state-of-the-art hospital on the site to service the communities of Stockton and Hartlepool.
What we need, and what we are getting on Teesside, is a new start—a fresh start, for the people and for industry, for our future. It is good to go down memory lane—even I can tickle the fancy of the Conservatives by going back to 1979 and the noble Lady Thatcher cutting public expenditure—as long as one does not stay there. It is good to look at the past, with its heritage, but it is more important to look to the future, with its hope, and to do so with a determination and focus built on skills, a work ethic and fraternity within society. We have seen many things on Teesside, but it builds itself again and renews itself again, and it will continue to do so. It is incumbent on us all in the area to show leadership, work together, unite among ourselves and unite our community so that all will gain individually, and society will also gain.
Let me end on the Budget, which is most important to Teesside and the people who live and work there. It is, of course, the final Budget of this Government—there will be a general election before another Budget—but it is also a parameter-setting Budget. It will give the community, who study the Budget carefully, hope in their future—hope under a Labour Government. Given the response of the Conservatives, the Budget will also let the community see through the shallowness of Conservative policy and, on many occasions, the idiocy of Conservative policies. When it comes to the vote, those on the Opposition Benches will find, probably to their dismay, that they will still be there after the next election.
I remind the House that I have declared in the Register of Members’ Financial Interests that I provide business advice to an industrial group and an investment management company.
This was the go nowhere Budget—it was almost the do nothing Budget. It was also the dither and fiddle Budget. I sometimes think that Ministers have still not understood how big an economy they are seeking to influence and how much money and resources they command, now that about half the entire national income goes through the public accounts under their mismanagement. It is, for their information, a £1.4 trillion economy. This Budget provides, on their scoring, a stimulus of £1.4 billion for the first year and a small reduction in the amount of resource available from the public sector in the following two years. Even at the peak of the Chancellor’s proposed intervention this year, therefore, he is playing with 0.1 per cent. of the national income, so we can immediately see that this Budget is not serious. It is not trying to change anything real in this nearly moribund economy, nor is it trying to do anything big to stimulate growth or recovery.
The hon. Gentleman is quite right.
I also agree with the hon. Member for Middlesbrough (Sir Stuart Bell) when he rather kindly said that he saw the Leader of the Opposition as a new manager coming in to take over an ailing football club. He was absolutely right that the UK Government football club, under its current management, has slipped down several divisions and is facing further relegation. He is absolutely right that there are no star players who can win matches. He is also absolutely right that the wage bill is bloated and gross, and that the club is facing bankruptcy. Indeed, the club has all the conditions, which the hon. Gentleman perhaps did not have in mind, for better and new management.
What we need is new management to stop further relegation. The hon. Gentleman should understand how far this country has already been relegated, as my right hon. Friend the Leader of the Opposition said in his passionate and eloquent speech today, when he pointed out that a country that was fourth in the world for competitiveness—which means more jobs, more exports and more ability to make a decent living—has managed to sink to 84th in the world under this Government, with their too many taxes and their too many regulations.
To understand why our economy has suffered so badly and is not growing rapidly, we have to understand the nature of the national and public finances created by the disastrous mismanagement of this Government. It is now easiest to understand the national finances as being two rather large banks, under Government control and with substantial Government shareholdings, with a medium-sized Government attached. That is because the two banks that the Government partly or wholly nationalised are considerably bigger than the national income—or they were when they took them over—and we need to understand what is happening in those banks in order to understand the background to the Budget, what is happening in the national finances and why the recovery is so sluggish. Unbelievably, the Government proclaim that they have created sustainable and stabilised banking, in the Chancellor’s words, but in fact they have done exactly the opposite, by their blundering into owning so many bank shares and their inability to manage those banks properly.
Over the past year, to December 2009, the Royal Bank of Scotland slimmed its balance sheet by £700 billion. When it was taken over by the state, RBS started with a balance sheet of £2.2 trillion, or one and a half times the national income. However, at the end of last year that had fallen to £1.5 trillion only, just a little over the national income. When I asked the Prime Minister about that recently in Prime Minister’s questions, he seemed to be completely unaware of that fact. One would have thought that it was the dominant economic fact that might concern him and his colleagues. At a time when they say they want growth and expansion, their bank—the bank they took over and they say they have stabilised—has shrunk its balance sheet by £700 billion, or by the same amount as total public spending in the year.
Of course, the bank shrunk assets and liabilities and was reducing risk. Of course, some of that had to take place. Some of it involved withdrawing loans in overseas economies and not in the British economy, because RBS is a global bank. I put it to the Chancellor and to his representative, the Financial Secretary to the Treasury, who is left to hear the debate, that they will not have a vigorous and strong recovery if the biggest bank in the country, under regulatory and ministerial instructions, is all the time slimming its balance sheet that rapidly. Although a lot of that slimming took place through instruments other than loans and although some of it was not in the UK, all of it is withdrawing liquidity, risk management and financial instruments primarily from the business sector, which is bound to have an impact.
To reinforce that process, Lloyds bank was doing something similar on a more modest scale. Lloyds was a £1.1 trillion bank and by the end of last year it had fallen to a £1 trillion bank—it had taken £100 billion out. Between the two banks that the Government owned, £800 billion was withdrawn. We know from the corporate plan and from the remarks of the chief executive of RBS—approved by the Government, who are the principal owners—that another £300 billion will be taken out of the balance sheet of RBS over the current year. Again, I put it to the Government that if that is the plan, although it might make business sense—I presume that the aim is to turn the thing round into a profit-making bank by getting rid of risk—it is not good news for the British corporate sector trying to use RBS as well as Lloyds. It will make it almost impossible to meet these ministerial exhortations and targets to increase lending.
The Lloyds reduction of £100 billion was more damaging in a way, because Lloyds does rather more lending and has rather more assets in the UK relative to the size of its balance sheets, and £50 billion of the £100 billion Lloyds slimming was a reduction in loans. It does not tell us in the figures that I saw how many of those were outside the UK, but clearly quite a bit of it was UK lending. At the very time when the Government told us they had nationalised the bank to stabilise it and to allow it to lend money, it was doing the opposite and going through a severe restructuring that entailed lending less.
That is the fundamental reason why this economy is not going anywhere: the banks have been broken and they are being nursed back to health in a way that contracts rather than expands activity. I do not know why the Government cannot see that, although I can understand why they never want to talk about it. They pretend that they are not responsible for this £2.5 trillion of assets at risk and that it is somehow nothing to do with them, yet come the Budget they say, “We stabilised the banks. Job done—no problem. All is well.”
I am intrigued by the right hon. Gentleman’s analysis. I share some of his thoughts, but by extension I assume that he is suggesting that we should have a much more directive role in running RBS and Lloyds, and should perhaps seek to foster an underpricing of credit to the business sector. Is that what he is really thinking?
I would be very happy to make a positive recommendation because I would like my country to recover quicker and for there to be more jobs and prosperity. I suggest that instead of mouthing the words “countercyclical regulation” but doing the opposite, the Government should try some countercyclical regulation. I and a few others were telling them in 2006-07 that everything was overheating and that they should have tightened the regulation of the banks. They did not; they made a big mistake. What we are now saying—those of us who have got the cycle right—is the opposite. They are now tightening too much at the bottom of the cycle. We must be somewhere near the bottom of the cycle—I hope that we are through the bottom of the cycle and have just begun to turn up. This is the point at which they should be relaxing the regulatory controls on cash and capital, particularly for the two nationalised banks, which nobody is going to worry about because they know they will just print whatever it takes to meet the obligations of those banks.
The regulator should be told to think countercyclically. The cash and capital controls should be relaxed at this stage of the cycle and tightened in a couple of years’ time when the recovery is under way.
I think our prime requirement in this House is to look after the interests of the taxpayers who have funded these banks and who are principal shareholders in them. Of course, in company law there are responsibilities to minority shareholders not to oppress them. What I have suggested is to change regulation of all banks so that it does not favour or target nationalised banks in particular. That would help the banks and would be in the interests of the minority shareholders, as well as the majority shareholders, because it would be permissive and would allow the banks to have bigger balance sheets for a bit, which would allow them to make more money. This contractionary impact on the balance sheet must be bad news for the shareholders. Of course, the banks need to be more prudent than they were in 2007-08, when the Government helped force them into difficulties, but making them super-prudent now is not serving the interests of recovery or the national economy.
We were told by the Chancellor in the Budget statement that we were not going to be losing any money on these banks and that they had been a very wise investment. That is not what the Red Book says. It points out, quite accurately, that there have been £60 billion of losses so far and that when it was written—presumably very recently—we were sitting on a £12 billion loss on the shares in RBS and Lloyds. That is double the loss on the early gold sales and confirms the Prime Minister’s record as a rather bad investment manager, because he seems to sell at the wrong price and to buy at the wrong price.
Let us hope that we can work our way out of it, but there is no immediate sign of the Lloyds and RBS share prices getting to the point where they are not only above the taxpayers’ purchase price, but sufficiently above it and sufficiently robust to accept dumping all those shares back on to the market to find willing buyers. If we look at these banks’ profit and loss record, that is not at all surprising. Of course, since they have been under Government influence, we have had losses of £8 billion in 2008 and £2 billion in 2009 in RBS, and of £6.7 billion in 2008 and £6.3 billion in 2009 in Lloyds.
Again, we are not told this in any public statement by Ministers; we are not even told it properly in the Red Book. When we are the majority shareholder in RBS, those RBS losses are our losses. When we are the most important minority shareholder in Lloyds, a big chunk of those losses are our losses. Ministers should do rather better than just coming to the House and saying, “We have got these lovely bank shares and we are going to sell them one day at a profit.” Lots of investment managers would like to be able to claim that about their worst investments, but what we need is proper analysis of what has gone wrong with those bank shares so far, how the Government think they will start making decent returns on capital, and how that might provide a background for getting some of the taxpayer’s money back.
It was very fortunate for the Government that Lloyds decided to give an unusual interim update on its trading position very recently, before the Budget, and I believe it is giving another briefing today, at the very point at which we are debating the Budget. It would have been a courtesy to the House if Ministers had shared those very important statements with the House—both the one updating on profits, which was positive, and the one today, which I do not know about because I have been in the House listening to this debate. Given that we have such a huge financial interest on behalf of taxpayers in these banks, surely the Government should report to us in a detailed way on what is happening. It is a matter of great public interest. We are invited to debate £1.4 billion of petty cash, but we are not allowed to debate the changes worth hundreds of billions of pounds in the balance sheets of these very large banks.
The economy is not recovering at anything like the pace that any of us would want. Most private-sector forecasts say that the recovery will be very slow and drawn out. As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) noted, Governments of both parties trying to get out of recession have cut public spending pretty early on, and that has fuelled and helped extra growth. That is what happened in the 1970s: a Government of the Labour disposition were reluctantly forced into cuts by international bodies, and that allowed growth to take place.
The same thing happened, winningly, in 1981 and 1992, when Conservative Governments realised that controlling the public-sector deficit was an important part of freeing resources, keeping interest rates down and creating more money in the private sector. It was literally from the day when the Government announced public expenditure controls that the economies at those dates took off. They grew far more positively on those three occasions than has been the case with the fitful recovery that started in the final quarter of last year.
The Government need to understand that they have a very serious problem that all their remedies are making worse. Taxing more undermines confidence: taxing rich and successful people more means that they go abroad, and taxing businesses more means that they work less hard, or that they close down in this country and take their activity elsewhere.
Ministers must know that this is happening. It is not a scare invented for the sake of the debate by someone who believes in free enterprise; it is what is actually happening in the £1.4 trillion economy that they are trying to influence. Ministers should get out more and understand what the threat to this country is.
The Government have racked up these enormous debts, and we have got into the incredible position where £1 of every £4 spent in the public sector is now borrowed, or borrowed and printed. As my hon. Friend the Member for Chichester (Mr. Tyrie) remarked, the printing has to stop some time. It may have stopped already; the Bank of England has certainly put it on pause.
When the markets believe that there will be no more printing, reality will come home and the impact will be very negative. The Government intend to borrow £150 billion or £200 billion, but the Red Book shows that this year’s gross gilt issue amounted to £227 billion. That is because the Government have to refinance expiring debt as well as finance the extra debt being built up. When the markets realise that the Bank of England is no longer around to buy £200 billion or £227 billion of debt to help things on their way, people will want a lower price at a higher interest rate for lending money to the British Government.
That is why we are so worried. If we allow that process to happen—as Greece, Ireland and Iceland did—the interest burden can spin out of control very quickly and become extremely expensive. The Red Book shows that interest on debt, at £43 billion in the current year, is already a more expensive programme than the defence budget, which is put at £40 billion. However, the cost of the debt interest will shoot way above that—first, because the debt is increasing too rapidly, and every extra bit of debt comes with an interest burden; and secondly, because the interest rate will rise if the Government do not do anything.
The hon. Member for Middlesbrough rightly said that we have not yet been through the embarrassment of a credit rating downgrade, and I hope that we do not go through that. Credit rating agencies know how difficult politics is, from their experiences through the crisis, and it would be very surprising if they decided to downgrade an important sovereign nation like Britain just ahead of a general election. That would clearly be a very political statement, and seen as such. However, the hon. Gentleman should not be too calm in thinking that everything is well, as the markets are downgrading British sovereign debt all the time. He must understand that we are paying 1 per cent., or 100 basis points, more than Germany to borrow money for the same length of time.
Why are we having to pay 1 per cent. more, and is it important? Yes, of course it is important, because 1 per cent. extra on 3 per cent. is a 33 per cent. extra charge on the cost of borrowing money. When one wants to borrow £150 billion—or £200 billion, £500 billion or £700 billion; whatever the total will be when it is all added up—the sums involved are absolutely colossal. In four years time, the defence budget will not be the one main budget smaller than the interest burden: much bigger budgets than that will be smaller than the interest burden, because compound arithmetic will catch up.
All previous recessions have ended when Governments have got a grip on the public finances. The Labour party is of course right to say that no one comes into politics to sack teachers and nurses and make hospitals worse. None of us on this side of the House has ever wanted that, and it is quite unfair to suggest that we do. However, the state employs 6 million people, and front-line teachers, nurses and doctors are only a very small minority. That means that we have to look at the whole panoply of the state’s administration and bureaucracy, and that we have to discover ways to do more for less, as we are running out of money.
I am listening to the right hon. Gentleman with great interest. He speaks with great fluency and knowledge, but when he talks about nurses, doctors and all those in the public-sector professions, he reminds me of the words of Oliver Cromwell when looking at the corpse of King Charles I. Cromwell said that what had happened had been a “cruel necessity”: is that what the Conservatives are offering public-sector workers?