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Commons Chamber

Volume 511: debated on Tuesday 8 June 2010

House of Commons

Tuesday 8 June 2010

The House met at half-past Two o’clock

Prayers

[Mr Speaker in the Chair]

Oral Answers to Questions

Treasury

The Chancellor of the Exchequer was asked—

Economic Growth

1. What assessment he has made of the effect on economic growth of the programme of expenditure reductions announced on 24 May 2010. (918)

The Treasury’s assessment is that the effect will be positive. The in-year reductions in spending are part of the Government’s efforts to bring down the budget deficit, the level of which threatens the recovery. This weekend the G20 stated:

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries”—

including Britain—

“to reduce their deficits in 2010”.

I welcome the Chancellor to his place, but will he have the candour to admit that his strategy is very risky, because it risks putting this country back into a double-dip recession? In any case there will be losers, so will he say who they will be?

Let us be clear about who the losers would be if we did not deal with this record budget deficit. The whole country would lose out, because there would be higher interest rates, more businesses would go bust and international investor confidence would be lost. The hon. Gentleman needs to examine what is happening in the rest of the world, and realise that because Britain has the largest budget deficit of any advanced economy, we have to get on and deal with it.

I welcome the Chancellor to his position. Will he give an absolute assurance that the coming Budget, and future Budgets, will always be presented first to Parliament, and that they will not have to be pre-notified to, or approved by, Brussels?

My hon. Friend has my absolute assurance that I would not sign up to that. Indeed, I have made that position clear to ECOFIN, and my hon. Friend the Financial Secretary to the Treasury, who is taking my place at today’s ECOFIN meeting, has also done so. It is absolutely certain that future Budgets will be presented first to the House of Commons.

I, too, welcome the Chancellor to his first Treasury questions. I know that he prefers the safety of the Treasury courtyard, but I am sure that the House will be on its best behaviour with him this afternoon. Since the 1970s, almost no country has cut its deficit significantly without increasing inequality. Will he make it a central goal of his deficit reduction plan to ensure that inequality does not rise?

I thank the right hon. Gentleman for his welcome. He is Labour’s “man of letters”, and it is good to see him still on the Front Bench. The point that I make to him is that Labour had 13 years in government, and inequality increased during its time in office. What we will do is deal with the very large budget deficit bequeathed to us by him and his colleagues in a way that is fair and reasonable, and protects people across the country.

It is clear that in the past few days a new system of public expenditure control has been put in place. What will the Chancellor do to ensure that Parliament is fully informed about the new system? Will he publish a full explanation of exactly how it works?

I think that we have the two candidates for the chairmanship of the Treasury Committee here today. [Interruption.] I do have a vote, but I am not going to exercise it on that matter. The point that I should make to my hon. Friend—I shall speak about this a bit more in our debate on the Queen’s Speech later—is that we are publishing today details of the framework that we will adopt in conducting the spending review. I will say more about that at the time of the Budget—and I will, of course, answer questions about it in detail before the Treasury Committee, whoever is in the chair. Parliament will also have a number of opportunities to discuss it, and when the spending review is finally produced in the autumn it will, of course, be presented to this House. I want all Members of this House, from all parts of it, to engage in the big national challenge of resolving how we get this country to live within its means.

Tax (Pensioners)

2. If he will assess the merits of increasing the level of financial assistance to pensioners through the tax system. (919)

This Government are committed to supporting pensioners to ensure that they can live with the respect and dignity they deserve. We have already said that we will restore the earnings link, protect key pensioner benefits and ensure that the retirement age can rise if pensioners want to continue working in order to support themselves. We think that, despite the fiscal deficit left to us by the former Government, that is the fairest way to proceed.

I thank the hon. Lady, and welcome her to her position—but I am somewhat disappointed in her answer, because she has not identified exactly how she will support our elderly people at a time when cuts will be made all over the country and will affect everyone, including pensioners. What priority will she give to pensioners? What kind of increased payments will be made to cover some of the cuts, which will hit pensioners harder than anyone else?

The hon. Gentleman seems to have missed the fact that this Government are having to tidy up a huge financial mess left to us by the previous one. We have made it clear that, despite that mess, we want, first, to protect key pensioner benefits—the benefits that Labour Members claimed we would take away—such as free bus passes, free prescriptions, free eye tests and the winter fuel allowance. That is a range of benefits that the Labour party said we would remove, but we are going to keep them. I can assure him on that, so he can go back to the pensioners in his constituency and explain why he was telling them mistruths during the last election.

Budget Deficit

In the past month, we have created an independent Office for Budget Responsibility to bring credibility to the Government’s forecasts, undertaken and completed in-year budget reductions of £6.2 billion and, today, laid before the House the process for the spending review that will take place this summer. In two weeks’ time, the Budget will set out a credible plan to accelerate the reduction of the budget deficit so that investors are reassured, interest rates can be kept lower for longer, and the recovery can be put on a stable footing.

I note those excellent plans. Will the Chancellor of the Exchequer tell the House how many conversations he has had with colleague Ministers of Finance, and how much support and encouragement he has had from them to deal with our deficit?

I attended the G20 in South Korea this weekend. The G20 communiqué calls on countries with significant fiscal challenges—we have the highest budget deficit in the G20, so that includes us—to accelerate the reduction in the structural deficit. It has also been part of the European Union discussions that I have taken part in, that countries with significant budget deficits need to get on and reduce them. I am afraid that the Labour party, as it continues to oppose what we are doing, finds itself outside the international mainstream.

Has my right hon. Friend the Chancellor read yesterday’s International Monetary Fund report, which warns that the current crisis management was no alternative to fundamental economic restructuring? Does he agree that the previous Government either naively or deliberately chose to mislead the nation?

My hon. Friend is absolutely right. I have, of course, seen the IMF report, and the lesson we learned is that you have to fix the roof when the sun is shining. That is what the previous Government completely failed to do. They had 13 years to fix the national finances, and now it is up to us to clear up the mess that they left behind.

Has the Chancellor received any apologies from the previous Government for the mismanagement of the economy over the past 13 years?

No, but we did receive a letter from the former Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), apologising for the fact that there was no money left. We will discuss this issue in the debate on the Queen’s Speech. I note that the Labour party has tabled a motion, which it is asking us all to vote for, noting

“the need for a clear plan to bring down the deficit”.

I look forward to hearing that clear plan in the shadow Chancellor’s speech.

No, sadly I have not, but I discovered that he had a large bust of Oliver Cromwell sitting behind his desk, and that when the Irish peace negotiations were being conducted they had to be held in another room.

In my constituency, the number of people claiming jobseeker’s allowance has increased by 147% in the past five years. Does the Chancellor agree that unemployed people in Kingswood would be best served by decisive action to tackle Labour’s legacy of debt now?

I agree absolutely with my hon. Friend. Of course, we inherited rising unemployment from the previous Labour Government and it is a fact that all Labour Governments have left office with unemployment rising—[Hon. Members: “It’s falling.”] Opposition Members say that, but they are not looking at the unemployment figures, which show that unemployment is rising, that we have the highest youth unemployment in Europe, and that a record number of children are growing up in workless households. That is what we have inherited from the Government who had 13 years to sort out these problems. We will sort this out, and give people real life chances.

I welcome the right hon. Gentleman to his new position. Has he calculated what his announcement of a £125 million reduction in the police grant means, in terms of fewer police officers and fewer special constables in Derbyshire?

All public services have to find efficiencies, and that is true of the police service, as it is of every other service. I have to say to the hon. Lady, and all Opposition Members, that if they are going to play a serious part in the discussion about how to reduce Britain’s record budget deficit, they need to come up with their own proposals instead of attacking every proposal put forward by the Government.

When the most recent Chief Secretary to the Treasury, the right hon. Member for Yeovil (Mr Laws), made his debut two weeks ago—which became, of course, his swansong—my hon. Friend the Member for Manchester Central (Tony Lloyd) asked him whether he could give any idea how many jobs would be lost as a result of the deficit reduction package. His answer was that it is not right to pluck figures out of the air. Can we have some more concrete evidence from the Chancellor?

Our plan is to increase employment in this country by putting the public finances on a sound footing. It is about time the Labour party understood that it left behind the largest budget deficit in the EU and the G20. All over the world, people are looking at sovereign credit risks. This Government are determined to do something about the problem before people start looking at Britain.

The Chancellor could take the opportunity today to spell out to us how he and his coalition colleagues hope to popularise their cuts agenda. We seem to be being told that the public will be consulted on which spending should continue and which cuts might be made. How will that “axe factor” approach to government play out?

I congratulate the hon. Gentleman on the pun—but this is a very serious national challenge, which whoever won the election was going to have to face. The 11% budget deficit will not disappear. A very large part of it is structural, and so will not automatically reduce as growth returns to the economy. We want to make sure that all political parties, including his, and the brightest and best brains across Whitehall and the public sector, as well as voluntary groups, think-tanks, trade unions and members of the public, are all engaged in the debate and discussion about how, collectively, we deal with the problem. After all, it is our collective national debt.

First, may I welcome the Chancellor and his team to the Front Bench? I hope that he will join me in sending our good wishes to my right hon. Friend the Member for East Ham (Mr Timms), who remains a member of the Opposition Treasury team and who I am glad to say was in very good heart when I saw him a couple of weeks ago. He is looking forward to returning to the House at an early opportunity.

Unemployment is high today, but it is half what it was in the 1980s. Repossessions in the past couple of years are half what they were in the 1990s. Our economy is growing and our borrowing is coming down. Does the Chancellor accept that all of that is because we, in common with other countries—yes, as part of an international consensus—were prepared to take action to save our economy as we went into recession? Every one of those measures was opposed by him when he was shadow Chancellor.

It sounds as if we are rerunning the general election campaign. First, may I pay tribute to the work that the right hon. Gentleman did over three years, I think it was, as Chancellor of the Exchequer? He did the job in very difficult times, with the best of motives. Although we did not always agree with each other, as he has just made clear, he was always very courteous to me. I also thank him for the fact that I inherit from him a far more functional and less chaotic Treasury than the one that he inherited from his predecessor.

I make the point to the shadow Chancellor that the situation that we inherited from his Government—I do not say that he is solely to blame for this—is an extremely critical one. We have a very large budget deficit at a time when, as I have said, countries around the world are having to look at sovereign credit risks. We are having to deal with that, and with rising unemployment and growing inequality in our country. Regional disparities are growing as well, and we have to deal with those problems.

The right hon. Gentleman talks about the international consensus. He surely must have noted how, in the month since the general election, the EU, G20, the IMF, the OECD, and of course our own Governor of the Bank of England, have all warned us about the consequences of not dealing early with our budget deficit, and not accelerating the reduction in the budget deficit that he proposed in his March Budget.

I agree that there are many issues that need to be resolved, in this country and others. No doubt we will return to them when the debate on the Gracious Speech resumes.

I want to ask a specific question about the Office for Budget Responsibility that the Chancellor is about to set up. When that body makes its recommendations, will he undertake that it will publish all the underlying assumptions that lead to them? Will he ensure that its deliberations, rather like those of the Monetary Policy Committee, are open and available for all to see?

I should have joined the right hon. Gentleman in wishing the right hon. Member for East Ham (Mr Timms) a speedy recovery. I understand that he has now sworn in, which is fantastic for everyone here concerned. The fact that he was assaulted in his constituency surgery doing his job as a constituency MP makes the incident all the more chilling, and we all wish him very well.

Let me deal specifically with the right hon. Gentleman’s question. We have set up the Office for Budget Responsibility on a non-statutory basis because we need to pass legislation to make it statutory. The model that we have followed is the approach taken by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) when he set up the Monetary Policy Committee. Sir Alan Budd will be available to answer questions from the Treasury Committee on exactly the kind of points that the right hon. Gentleman raises—such as the underlying assumptions. It is ultimately up to him how he publishes his information, and I do not want to prejudge that, but the purpose of the exercise is for people to have confidence in official figures and growth forecasts, and confidence means transparency. I am sure that the spirit of what the right hon. Gentleman says will be taken on board by Sir Alan.

Consultants

4. If he will estimate Government expenditure on external consultants in (a) 1997 and (b) the last year for which figures are available. (921)

Information on 1997 central Government expenditure on external consultancy is not held centrally, but records for 2007-08—the first year for which figures are available—show that spending on external consultants was £773 million in central Departments. In 2008-09 that rose to £1.1 billion for central Departments, or £1.57 billion when the whole of central Government is taken into account. Future expenditure will fall significantly as a result of the freeze on consultancy spending recently announced by the Government.

I thank my right hon. Friend the Chief Secretary for that answer, and welcome him into the job. He should note that the figures show gross profligacy and a waste of taxpayers’ money that affects everybody in the House, all my constituents in Watford, and everybody in this country. I should very much like the Chief Secretary to assure us that that disgraceful waste of money will not happen again.

My hon. Friend is right about waste and inefficiency, and consultancy is not the only example. I can give him two or three more. The Department for Business, Innovation and Skills spent £12,000 on branded golf balls over three years. The Ministry of Defence spent £232,000 on eight paintings in a single year. The Department for Communities and Local Government has spent £6,000 on deluxe espresso coffee machines for nine new, but empty, regional fire control rooms. He can rest assured that the actions that we take will ensure that that kind of waste and inefficiency will never happen again.

Order. I know that the Chief Secretary will want to stick to the narrow subject of external consultants.

He works at No. 10 Downing street—[Interruption]—and I will give the hon. Gentleman a full response if he wants one.

Economic Growth

The Government are taking action to support enterprise and create a fair, competitive and efficient tax system to deliver the private sector-led recovery that will be the foundation of future growth. Fundamental to this strategy will be tackling the budget deficit and providing a stable macro-economic environment that will underpin private sector investment and growth. Further details of the action that the Government will take to secure future growth will be included in the emergency Budget on 22 June.

We agree that investment, enterprise and modest tax rates will help the economy grow out of the inherited mess. In addition to the academic work of Arthur Laffer and Sir James Mirrlees, will my hon. Friend hold in mind the situation of an elderly lone mother who may have put money aside to buy a house, and after decades may wish to sell it, without too high a capital gains tax bill?

Obviously, this Government will want to encourage hard work and enterprise, just as the Government in which my hon. Friend served with much distinction in the 1980s did. As for specific tax measures, I am sure that my hon. Friend will understand that with only a fortnight until the Budget, I do not intend to make any specific comments. None the less, I am grateful for his remarks.

I congratulate the hon. Gentleman on his elevation to his post. I also take the opportunity to thank the Chancellor of the Exchequer for taking time out during the general election to come and support my re-election in Harrow West. The Opposition recognise that the new politics is not designed to help Labour Members, but I am grateful for the little bit of Tory love that came my way.

Can the hon. Gentleman tell the House who in the Government will have the final say on whether and which regional development agencies will survive? Will it be the Business Secretary—once a supporter of RDAs—or will it be the Chancellor? No one expects it to be the Chief Secretary. Is not the real truth that RDAs such as One NorthEast are playing, and could continue to play, a key role in helping to deliver new jobs in new industries crucial to Britain’s economic future, such as renewable energy and advanced engineering?

I thank the hon. Gentleman for his kind words. I should congratulate him on being re-elected on this occasion, but I also note that my hon. Friend the Member for Harrow East (Bob Blackman) is here, which is a bit of a triumph for us. On the hon. Gentleman’s specific points, the decision will be made collectively. The Government will work in a cohesive manner in making those decisions.

When I was in business, it was the oldest trick in the book for managers to come in with hopelessly optimistic growth estimates. Does the Minister think that that was endemic in the last Administration, and has he greater confidence, now that we have the impending Office for Budget Responsibility, that it will not be the case with our Administration so that, for the first time in many years, we will have realistic growth estimates?

It is clearly very important that we have credible growth projections. We look forward to hearing the projections from the Office for Budget Responsibility. As for the previous Government’s record, time will tell.

Transport infrastructure is of course important for economic growth, and as the hon. Gentleman’s right hon. Friend the Chancellor will know, as a Cheshire MP, there is a very important project, the Mersey Gateway project, which is crucial to the economic regeneration of Cheshire and Merseyside. Will that be excluded from the proposed cuts that his Government are making?

The Government will make a decision on all matters considering the value for money and considering the very difficult financial circumstances that we find ourselves in, bequeathed by the previous Government.

Equitable Life

7. What steps his Department is taking in respect of payment of compensation to Equitable Life policyholders. (924)

9. What steps his Department is taking in respect of payment of compensation to Equitable Life policyholders. (926)

15. What steps his Department is taking in respect of payment of compensation to Equitable Life policyholders. (932)

The coalition Government have pledged to make fair and transparent payment to Equitable Life policyholders, through an independently designed payment scheme, for their relative loss as a result of regulatory failure. The Queen’s Speech announced the Government’s intention to introduce a Bill in the first Session of Parliament to enable payments to be made to Equitable Life policyholders. On the same day, the Government also announced that an independent commission would be established to design the payment scheme. These steps are a strong sign of the Government’s commitment to deliver on their pledge.

More than 60 of my constituents in New Forest East, and indeed even one of my own relatives, will be delighted to know that the Government intend to implement the recommendations of the ombudsman. Can he tell me when this is going to happen—and can he guarantee that the Independent Parliamentary Standards Authority will not be put in charge of making the payments?

I thank my hon. Friend for his question. The intention is that Sir John Chadwick’s report will reach its conclusion in mid-July; at the same time the independent commission will be established. We are making progress in this area—in contrast, I am afraid, to the dither and delay of our predecessors.

I am grateful to my hon. Friend for his previous answer, but he will be aware that many of us have had to put in place our own means of keeping constituents who have got caught up in Equitable informed of what is happening, so poor has been the Government communication programme. So will he say a little more about his plans to keep that group of people informed as the payment scheme goes through?

I suspect that one of the reasons why the previous Government were so poor in communicating progress was that there was very little progress to communicate. As I mentioned earlier, we are keen to ensure that there will be progress, that we have the independent commission in July, and that we will have the conclusions of Sir John Chadwick’s report; we intend to make progress there. I hope that we will have more information to give my hon. Friend in mid-July. This is a matter that has caused enormous anxiety for many people, and it is right that we keep people up to date with exactly what progress we are making.

I would like to follow up those questions on Equitable Life. Over 1 million policyholders were affected by the fact that the previous Government did not accept the ombudsman’s proposal that they be compensated. I am particularly worried that many people have died during the whole process; the previous Government was rather cynical in that respect. May I be assured that, through this process, we will ensure that people are compensated quickly? That needs to be done.

We are keen for the independent commission to design the scheme, but one of the points that we have made clear is that the dependants of deceased policyholders should be included in the scheme to address that point. Clearly, however, my hon. Friend highlights the need to move quickly, after 10 years of inadequate progress.

On the question of Equitable Life, there can be few constituencies that do not contain people who are waiting for payment or people who have died while waiting for payment. Is it not shocking that one of the main perpetrators of the Equitable Life fraud—for that is what it was—will, after last weekend, be able to take up a senior position in a financial institution? Can the Government re-examine what happened in that process, so that these people are not allowed to have senior financial positions in future?

I hope that the hon. Gentleman will understand that I am not going to be drawn on an individual case without all the information in front of me. He has made his point very clear.

First, would the Minister care to share with the House the date that the cheques will arrive through the doors of those who are still waiting for payment? That is the key. My second question is, as people have, tragically, died while the process has gone on and on, will there be compensation for the families that have missed out as well?

Order. To ask a second question was very cheeky on the part of an experienced Member, but I know that the Minister will not be tempted to follow suit.

I fully understand the hon. Gentleman’s concern about delays. He knows as well as I do where a lot of the blame for that lies. I made the point earlier that dependants of deceased policyholders should be included in the scheme. As for a specific date, the only thing I can say is that we are clearly making much more progress than the previous Government did.

Bearing in mind the fact that many of the policyholders are getting older—[Interruption]—surely it is vital that we get money into their hands as quickly as possible.

I do not want to be pedantic, but all of them are getting older. The hon. Gentleman rightly says that there is a need to move quickly. I think that we all feel that. I am pleased that the Government have already announced in the Queen’s Speech that there will be a Bill on this subject. We have already announced a date for the establishment of the scheme. We are making progress. That is a very welcome change from what we have seen in the previous 10 years.

Child Poverty

8. What recent discussions he has had with the Secretary of State for Work and Pensions on the future of Government targets to eradicate child poverty; and if he will make a statement. (925)

The coalition Government have announced that they want to see an end to child poverty in the UK by 2020. We now have 1.9 million children living in workless households in the UK. The OECD says that we have the highest proportion of children living in workless households of any OECD country—nearly 18%. That is one of the reasons why my right hon. Friends the Chancellor and the Secretary of State for Work and Pensions have been discussing that matter. One of the early outcomes of those discussions, as I am sure Members will be aware, is the announcement of the review by the right hon. Member for Birkenhead (Mr Field) of child poverty and life chances. We think that that will be an informative way of engaging people in the debate, and of coming up with some policy options, which we can then feed into our consideration of child poverty.

The hon. Lady will be aware that disabled children are much more likely to live in poverty and have much reduced life chances. Given that, and given her Government’s decision to abolish the child trust fund, can she tell me how many disability organisations they consulted prior to that decision, and what assessment they have made of the impact that that decision will have on thousands of disabled children throughout the country?

We are providing support for disabled children and their families. In fact, regarding the child trust fund, part of the package was the funding of 8,000 extra week-long breaks for the parents of disabled children—breaks that we know are well valued.

Does my hon. Friend agree that the main reason for the scale of child poverty in this country is that we have inherited a benefit system that punishes thrift, work and traditional families? If the right hon. Member for Birkenhead (Mr Field) does indeed think the unthinkable, will we, unlike the previous Government, support him?

Unlike the previous Government, we all recognise that child poverty is about much more than just money. If we are to be successful in improving children’s life chances, wherever they start their lives in this country, we need to look at a little bit more than the child tax credit; we need to look far more broadly. We need to look at issues around health and education. That is one of the matters that we will consider over the coming months. It is vital to realise that if we do not tackle the root causes of child poverty, we are very unlikely to tackle the symptoms. Of course, the ultimate way of tackling child poverty is sorting out our economy and getting people back into jobs, so that children are not in workless households in the first place.

Under the previous Conservative Government, child poverty doubled; thanks to the efforts of the Labour Government, with the minimum wage, working families tax credit and child benefit rises, 500,000 children were taken out of poverty. Today, will the Minister, whom I welcome to her new position, not just commit to tackling the targets that the Labour Government set, but support the means—the minimum wage, working families tax credit, and child benefit?

The previous Government managed to raise a number of children who were just below the poverty line just above it, without tackling the fundamental causes of why they were in that position in the first place. What is particularly depressing is that it is as if nothing has been learned from the experiment of the past 13 years. Clearly, we need to look more broadly, rather than just at giving households in poverty money. We need to help them to get back into work. It has to be wrong that in this country, the marginal tax rates for those in low-income families who are going back to work can be in the 90th percentile range. We would never dream of taxing people who are rich that much, but we tax people who are poor at those rates.

Economic Growth

10. What recent assessment he has made of the level of growth in the UK economy compared with those of other OECD countries. (927)

The independent Office for Budget Responsibility will publish forecasts for growth in the UK ahead of the emergency Budget.

There is too much deprivation in Dover and Deal. We need more jobs and money locally. What action will the Government take to increase the trend growth rate of this nation, so that the people of Dover and Deal get more jobs and money, and Britain does better?

The best thing that we can do to increase growth and create jobs in this country is tackle the enormous budget deficit that we inherited from the previous Government. By taking firm action to reduce the deficit, we can restore confidence in the economy and help the private sector to create jobs. That is what we need to do.

The £80 million loan to Sheffield Forgemasters was an investment designed to encourage the growth of the advanced manufacturing sector of the economy, not just across south Yorkshire but across the UK as a whole. Will the Government bear in mind that investment, and the long-term context, when they make a decision on the future of that loan?

I am grateful to the hon. Lady for making that point, and I have certainly heard what she said. Obviously, we are reassessing carefully projects approved by the previous Government between 1 January and the election, and we will make an announcement in the near future.

Devolved Administrations

11. What his policy is on the mechanism for the provision of funding from the Exchequer to the devolved Administrations; and if he will make a statement. (928)

The Government recognise the concerns expressed by the Holtham commission about the system of devolution funding, but as we made clear in the coalition programme for government, the first priority has to be reducing the deficit.

I thank my right hon. Friend for that answer, and for the acknowledgement in the coalition agreement of the work of the Holtham commission. Its message was that there was historical underfunding of Wales to the tune of £300 million a year; that was backed up by Lord Barnett himself and a Lords Committee. Does my right hon. Friend accept the report’s conclusion that Wales has, historically, been underfunded? We acknowledge that cuts will be borne right across the UK, and across all its regions and nations, but will he use this opportunity to confirm the Government’s commitment to fair funding across the country?

In the coalition agreement, we say that we recognise the concerns raised by the Holtham commission, but the priority must be to reduce the deficit. We also said that once the forthcoming referendum has taken place, there will be a Calman commission-like process. The Calman commission looked at greater financial accountability for the Scottish Parliament, and a similar process for Wales might help to address some of my hon. Friend’s concerns.

Will the Chief Secretary please tell us why his party campaigned throughout the election against immediate spending cuts, but is now, in return for jobs in the Cabinet, willing to risk tens of thousands of jobs across the country?

The hon. Gentleman just needs to look around the world to see that the argument for rapid fiscal consolidation is becoming stronger by the day. He should look at the G20 and the independent assessments. Clearly, making the sort of decisions that we are making now—the £6 billion exercise and the decisions that will no doubt be announced in the Budget—is absolutely essential to create a responsible basis for the public finances and return the country to the right economic track.

Tax Avoidance

Tackling tax avoidance is essential, and we will make every effort to do so. We are committed to preventing avoidance through deterrence, and by ensuring that we have a robust legislative framework. We detect avoidance early using the disclosure of tax avoidance schemes rules and other information. We tackle avoidance quickly where we find it by strengthening legislation or through the operational work of Her Majesty’s Revenue and Customs.

Recent research has shown that up to £120 billion a year is lost to tax avoidance. Will the Minister ensure that he looks at the way in which HMRC works, and does better so that people will not have to pay higher taxes and receive poorer services as a consequence?

I am grateful to the hon. Gentleman for his question. We would disagree with the number, as the tax gap estimate produced by HMRC is £40 billion. None the less, that is a significant sum, and it is absolutely right that people pay the tax that is due, and HMRC will continue to pursue matters to reduce tax avoidance.

Is not the general view correct, and the estimated tax gap of £40 billion a significant underestimate? Will the Minister explain how cuts to HMRC staffing and capacity are to be aligned with attempts to close the tax gap?

Staff in HMRC have been reduced for many years, from 97,000 to 69,000. Any Government will want to ensure that HMRC’s resources are deployed as effectively and efficiently as possible, and we will certainly seek to do so.

Bingo Industry

We keep all taxes under review. It would not be appropriate to discuss taxation in relation to bingo before the Budget in a couple of weeks, but we are keen to have a dialogue with the industry.

Does the Minister agree that sometimes it is possible to increase revenue by reducing taxes?

I think that my hon. Friend is probably referring to the well-known Laffer curve. I am sure that he is aware, too, that the tax on bingo participation clubs was reduced in the last Budget from 22% to 20%. As I said, I look forward to talking to the industry over the coming months.

Is it not the case that bingo is taxed more severely than other more dangerous forms of gambling, and that the Government would do well if they at least brought them into line?

I know that that argument has been made by the industry, and I am aware of its campaign on fair taxation. We want fair taxation. One of the Government’s key priorities is tackling the budget deficit, and ultimately the best way for us to support not just bingo clubs but other companies in Britain employing staff is to get the economy back on its feet, creating jobs so that people have money in their pocket to spend, including in bingo clubs.

Budget Deficit

We have received a number of representations on the budget deficit, not least from many other European countries, which are now taking steps, as we are, to reduce their deficit—a point that still seems lost on the Opposition.

I am grateful to my hon. Friend for answering my question and for her arrival at the Dispatch Box, which is very welcome on our side of the House. Will she take a representation from me on reducing the Budget deficit? Can the emphasis be put on cutting public expenditure, rather than increasing taxes? Does she have any idea of the proportion that will be raised by tax increases and by public expenditure cuts?

We have said that we want to see the bulk of the deficit reduced by restraining public spending. I know that a number of other countries have taken proportions of roughly 80%:20% on restraining public spending and increasing taxes. We are particularly keen to cut out as much of the waste as possible. As we work our way through the previous Government’s horrific spending plans—not that they had any projections into the future—we will do our best to make sure that we do not just bring down our public spending, but use this opportunity to ensure that it delivers better public services for the public whom it is there to serve.

In The Sun the Deputy Prime Minister wrote about the enticing prospect of progressive cuts. Can the hon. Lady explain what a progressive cut would look like?

The hon. Gentleman might be better off directing that comment to the Deputy Prime Minister. I did not see it in the paper. We are conscious of the need to make sure that we can protect front-line services that people depend on. We have already debated pensions this morning, for example, and we are doing our best to protect money that supports the most vulnerable in our society.

Topical Questions

The core purpose of the Treasury is to ensure the stability of the economy, promote growth and employment, reform the banking system and manage the public finances so that Britain lives within her means.

Whether the amount lost by tax avoidance or tax evasion is £100 billion or £40 billion a year, it is a lot of money which could go a long way to tackling the deficit. Will the Chancellor tell his ministerial colleagues sitting next to him to give a higher priority to tackling tax evasion and tax avoidance so as to make sure that those who are most able to pay the costs of the deficit do so, rather than those who are least able to pay?

T6. At a time of low investment returns, which mean that many people in the private sector are struggling to fund a pension for their retirement, what steps will be taken to tackle the ballooning public sector pension bill? (949)

The Government will establish an independent commission to look at public sector pension provision. We will make an announcement on that in due course.

T3. Has the Chancellor yet had a chance to have a one-to-one with the Secretary of State for Work and Pensions to discuss the thing that would most affect the structural nature of the deficit: early intervention with our babies, children and young people to ensure that we do not accumulate massive costs of failure that need to be met much later? If he has not done that, will he undertake to do so, please? (945)

I have had several conversations with my right hon. Friend the Secretary of State for Work and Pensions on this issue and on the broader issues of welfare reform. I broadly agree with the point that the hon. Gentleman makes—he made it forcefully in the last Parliament—that support for children in the early years can yield real results later on. We will bear that in mind as we conduct our spending review.

T2. While the Chancellor is reviewing the projects agreed by the previous Government since 1 January, may I commend to him the Better Healthcare Closer to Home programme and the plans that it has for St Helier hospital? May it draw it to his attention that the plans were very enthusiastically endorsed by the new Secretary of State for Health when he visited my constituency just a couple of days before the general election? (944)

I am grateful to my hon. Friend for his question and pay tribute to his assiduous campaigning on the issue over many years. He will know that we are carefully reassessing the projects agreed by the previous Government between 1 January and the election, and we will make an announcement shortly. He will also know that it is right that we are making sure that each and every one of the many projects that were announced is affordable and represents value for money.

T5. I was disappointed to see no mention of the credit union movement in the coalition agreement. Although I admit that I have not yet got my head around what the big society is, I hope that there is a role in there for the credit union movement. When can we expect the Legislative Reform (Industrial And Provident Societies and Credit Unions) Order 2010 to be laid before the House? (948)

We do support credit unions. In fact, one of the first things that the new Secretary of State for Wales did on her appointment was to visit her local credit union in Wales. We have said that we want vibrant, sustainable credit unions. We are looking at the legislative reform order to which the hon. Lady referred and I hope that we can come back with some further dates in the next few weeks. As she can imagine, the focus right now has been on the emergency Budget, but I am aware of the order and officials are talking to me about the time lines for it.

T4. There was great relief in the tourism sector when the furnished holiday lettings rules were scrapped just before the election in the wash-up. What will the Government do to ensure that the rules are EU compliant, but do not disadvantage tourist operatives in the way that it was feared that the old rules would do? (947)

My hon. Friend raises a very good point, and what was proposed on the furnished holiday lettings rule would have caused great difficulties. There is an issue with the EU law, but I can assure him that we are working hard on the matter and we hope to be able to say more in the next few weeks.

T8. The Chancellor will be aware of the public and cross-party support given to the proposal to turn British Waterways into a sort of national trust for the waterways of the UK. That was given official endorsement in the last Budget. Can the Chancellor confirm his intention to pursue this proposal, and perhaps give an idea of the time scale within which it might be brought about? (951)

If the right hon. Gentleman will allow me, I will look into the details of the proposal to which he refers and write to him.

T7. In 2008-09, our contribution to the EU was £2.5 billion. This year it will be £6.4 billion. Why does every budget have to be cut except the EU’s, which can increase by 150%? Is it not a case not of ring-fencing, but of gold-plating? (950)

I am sure that my hon. Friend will be glad to know that in my first ECOFIN I proposed to the Council that we freeze the EU budget, and there was support from other countries around the table. [Interruption.] If the hon. Member for Rhondda (Chris Bryant) is supporting an increase in the EU budget, he should tell the House.

I welcome the Chancellor and his team to their new posts. As part of the consultation on cuts that is being announced today, would he be prepared to visit Dudley, so that we can discuss the importance of maintaining investment in education and training as our No.1 priority, so that we can bring to the area the new industries and jobs on which our future prosperity will depend? While he is there, I can take him to Priory road, and he can see the devastating impact that his decision to cut spending on housing is having on that community.

I am always very happy to visit Dudley. I have done so many times in the last three or four months—which was half successful.

We have found additional money to support social housing. We discovered that the housing commitments made by the Labour Government just before the general election were completely unfunded. We have found money to fund additional social housing, which during the past 13 years the previous Government almost completely failed to do.

T9. Further to excellent question of the hon. Member for Bristol East (Kerry McCarthy), can the Minister who was briefed to answer the excellent Question 25, in my name, now give a more substantive answer? What will the Government do to support credit unions such as the excellent one in Colchester? (952)

The best thing that we can do to support credit unions is make sure that they are on a sustainable footing. When I talk to Conservative Members, many of them say that they want to see their credit unions merge. We need to ensure that credit unions can offer a broader range of products to local people, and we need to look at how credit unions operate. Interestingly, although complaints to the financial services ombudsman are broadly increasing, when it comes to credit unions they are falling. The most recently released statistics show that just one in 66,000 complaints related to a credit union. The hon. Gentleman is right to ask how we can support credit unions. The Prime Minister has been supportive of them and we look forward to seeing what more we can do to support them over the coming months.

If everybody has to share the burden of cutting the budget deficit, will the Chancellor start at the very top, and call upon the royal family to tell them that under no circumstances will they get a single penny of the £7 million increase that they are demanding in the civil list?

We will be making an announcement on the civil list in due course, but if the hon. Gentleman is looking for cost savings, perhaps early retirement is something that he could consider. [Interruption.]

Does not part of the contribution to the EU budget result from the surrender of the UK rebate in 2005 by the previous Government, which will cost taxpayers in this country up to £9 billion over six years and was given in return for nothing? Should we not add that to the Chief Secretary’s list of waste by the previous Government?

My hon. Friend is absolutely right. The former Prime Minister Tony Blair gave away the UK’s budget rebate in return for absolutely nothing. We were promised at the time that it would give us leverage over CAP reform, which never arrived, and I am afraid that that is just one of the many decisions that the previous Government got wrong.

Growth throughout the UK economy has often been geographically uneven. Has the Chancellor considered what help a rural fuel derogation might bring to the highlands and, in particular, the islands of Scotland; and can I volunteer my own constituency, Na h-Eileanan an Iar, for any pilot project?

The Government are well aware of the benefits that a rural fuel derogation might bring to remote parts of the economy. We are examining that issue, which is contained in the coalition agreement, and we note the hon. Gentleman’s interests from his own constituency.

Under the previous Government, unemployment in Harlow was the highest in west Essex. Do the Government agree that a low-tax, low-debt economy is the best way to bring jobs back to Harlow?

May I say how particularly pleased I am to see my hon. Friend in the House? His victory was one that I found particularly satisfying on election night.

My hon. Friend is absolutely right that the ambition of a low-debt, low-tax economy is one to which people who care about the long-term economic future of this country should aspire. The key challenge, of course, is getting there, and that means dealing with the 11% budget deficit.

The right hon. Gentleman will know that the budget deficit at the time of the Budget was £22 billion less than was predicted four months earlier in the pre-Budget report, showing that the major engine for reducing the deficit is economic growth. Will he give an undertaking that the cuts that he intends to make will not cut the capacity for economic growth in Britain, thereby increasing the deficit?

May I congratulate the hon. Gentleman on his return to the House, as we both served on the Public Accounts Committee when I first arrived in the House? I make this point: he makes an original observation that somehow the British budget deficit is low, when, actually, of course, it is an 11% budget deficit and we are borrowing £156 billion—[Interruption.]

Order. Can I just remind right hon. and hon. Members of the basic principle of “Erskine May”: good temper and moderation in parliamentary exchanges at all times?

Mr Speaker, you are absolutely right.

I make this point to the hon. Member for Swansea West (Geraint Davies). The serious observation that he makes about investment in productive economic assets is one that is reflected in the document that the Treasury produced this afternoon.

A Select Committee in the other place found that reform of the Barnett formula could lead to a reduction in the budget deficit. In terms of the imperative of achieving that, will not the Treasury team look once again at that Select Committee report?

I am happy to look at the report, but as I said in answer to earlier questions, we made it clear in the coalition programme for government that, although we recognise those concerns, the priority must be to address the budget deficit, and that is what we are going to do.

The ambition, of course, is to try to get unemployment falling, but it is rising at the moment. That is the situation that we inherited—as is inequality, which we inherited too.

Is the Chancellor aware of the recent Institute for Fiscal Studies report which showed that, going into the recession, the budget deficit in the UK was already one of the highest in the developed world?

I am absolutely aware of that report, because my hon. Friend drew it to my attention about three months ago, for which I thank him.

Everybody is assuming that the budget cuts are based on the Canadian model, which itself was based on 3% growth and not least on strong growth in the American economy. I want to ask the Chancellor something in all seriousness. If there is not equivalent strong growth globally and within the eurozone, will that not mean that we get all the pain and none of the gain?

There does seem to be collective amnesia on the Labour Benches. They were in government for 13 years, they ran up the largest budget deficit in the European Union and they handed over office to us after an election in the middle of a eurozone crisis. The threat to the British economy is what will happen if we do not deal with this budget deficit. Let me say to the hon. Gentleman and all Labour Members that until they have their own proposals to deal with the problem that they have bequeathed the new Government, they are not going to be taken seriously.

I ask my right hon. Friend the Chancellor to outline to the House exactly what not tackling the deficit would mean for my constituents in Elmet and Rothwell and for their mortgages.

Unfortunately, my hon. Friend would have to tell his constituents that interest rates would start to rise and international investor confidence would be lost. Today, one of the credit rating agencies has published a report that makes the observation that the UK’s deficit reduction plan is particularly weak. That is the situation that we have inherited, and we are going to put it right.

A range of announcements will be made in the Budget across a whole range of issues, but as the Chancellor has said repeatedly, one of the key tests of measures is fairness, to ensure that we do not repeat the mistakes of the previous Government in allowing inequality to widen and in missing child poverty targets.

Does my right hon. Friend intend to continue using the very expensive PFI funding for future capital investment in the NHS? The most expensive to date has been in Wythenshawe hospital, where the NHS will pay back 16 times the original capital value. More prudent borrowing in the past would have delivered the investment without adding to the deficit.

The hon. Gentleman makes a very good observation about the hidden costs of PFI liabilities. After the Office for Budget Responsibility creates an independent set of national economic forecasts, it will go on to look at PFI liabilities. The deficit and national debt that we have been talking about are, of course, only half the story; there is the hidden iceberg of the PFI liabilities that the Labour party ran up over 13 years as well.

Point of Order

On a point of order, Mr Speaker. Yesterday, the Prime Minister said that the coming spending review was going to change our whole way of life and that today the Chancellor and Chief Secretary would publish a framework for this year’s spending review. I am not seeking to reopen your decision in relation to my request for an urgent question, and I would normally have expected a statement in the House from the Chancellor in relation to what I took to be an important document. I understand that his argument is that he will be able to speak in the Queen’s Speech debate; the problem is that because of the order of speakers, he speaks after me. In fairness to him, he did offer to let me have a copy of the document at 2 o’clock, but sadly it did not get to me until I was just walking into the Chamber.

Given what you said on your re-election, Mr Speaker, I really think that it would be far better, especially on matters as important as this, if the Chancellor, as well as other Ministers, were prepared to come to the House and defend the decisions that they are taking. As it is, I have had a quick look through the document, and there does not seem to be very much substance in it at all, which may be why the Chancellor decided not to give a statement. But the principle is an important one.

I am grateful to the right hon. Gentleman for his point of order. If I were uncharitable, I would think that he was in some sense seeking to continue an earlier debate—but I am not, so I assume that he is not. My judgment is that the matter in question, which is extremely important, can be debated very fully today. However, I trust that any major announcement to be made in due course, on this or any other matter, will be made first in the House.

Speaker’s Statement

The House will know that the election of Deputy Speakers took place today, and the ballot was closed at noon. The counting is finished, and I have the results.

Before I announce the results, I would like to take this opportunity to thank, on behalf of the whole House, the two temporary Deputy Speakers who have helped to chair the House during the Queen’s Speech debate. The hon. Member for York Central (Hugh Bayley) has brought to the House his experience of chairing Public Bill Committees, and he has done so with great care and good sense. Sir Alan Haselhurst was a newcomer to the Chair 13 years ago, when Betty Boothroyd was Speaker. He has served as Chairman of Ways and Means with distinction through three Parliaments, guiding the House in the Chamber and helping its work behind the scenes. I particularly thank him for all his wise counsel to me during my first year as Speaker. I know that the House will benefit from his judgment and commitment in other ways in this Parliament.

This also gives me the opportunity to pay tribute in the House to Sir Michael Lord and Sylvia Heal, who retired from the House at the general election having served the House so well as Deputy Speakers from 1997 and 2000 respectively. The standard set by these three Deputy Speakers in their combined service in the Chair of some 36 years will be an inspiration to their successors elected today.

I will now announce the result of the ballot held today for the election of Deputy Speakers. Mr Lindsay Hoyle was elected Chairman of Ways and Means. Mr Nigel Evans was elected First Deputy Chairman of Ways and Means. Dawn Primarolo was elected Second Deputy Chairman of Ways and Means. They will take up their posts tomorrow. I congratulate those elected, and I look forward to working with them.

The results of the count, under the single transferable vote system, will be made available as soon as possible in the Vote Office and published on the intranet.

Debate on the Address

[6th Day]

Debate resumed (Order, 7 June).

Question again proposed,

That an humble Address be presented to Her Majesty, as follows:

Most Gracious Sovereign,

We, Your Majesty’s most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.

Economic Affairs and Work and Pensions

I inform the House that I have selected the amendment in the name of the Leader of the Opposition. Standing Order No. 33 provides that on the last day of the debate on the motion for an Address to Her Majesty, the House may also vote on a second amendment selected by the Speaker. I have selected the amendment in the name of Angus Robertson for that purpose. The vote on that amendment will take place at the end of the debate after the amendment in the name of the Leader of the Opposition has been disposed of.

I beg to move an amendment, at the end of the Question to add:

“endorse the successful steps taken by the previous administration to return the economy to growth, to keep people in their jobs and homes, and to support businesses; note the need for a clear plan to bring down the deficit; respectfully believe that securing the recovery and robust future growth should be central to that plan; further believe that such a plan must be fair and protect front line public services; therefore oppose your Government’s measures to cut the support provided by the Future Jobs Fund for tens of thousands of young people out of work, to damage growth in the regions by scaling back regional development agencies, and to cast uncertainty over support for key low carbon sectors like the nuclear supply chain and lower carbon vehicles; further note that a rebalanced British economy must be built as the UK emerges from the recession; and therefore urge your Government to reconsider the removal of investment allowances which support manufacturing businesses seeking to grow.”

I congratulate all those Members who have made their maiden speeches over the past few days, and commend the speeches that we will hear from new Members during the debate this afternoon.

Before I turn to what I suspect will be the main focus of the debate—the economy—I want to mention a number of Bills in the Gracious Speech on which the Chancellor might want to respond in the course of his speech, which will follow mine. The Government want to bring before the House several measures on which the Opposition can offer complete support or, I hope, can be constructive in their support. The first is the terrorist asset-freezing Bill. That piece of legislation is necessary as a result of a recent decision by the Supreme Court and we will certainly support the Government in getting it on the statute book as soon as possible. I am grateful for the co-operation I received when I was Chancellor from the then shadow Chancellor and his Liberal counterpart.

I appreciate what the Chancellor said a few moments ago about the Office for Budget Responsibility currently operating on an extra-statutory basis, but I hope that the principles on which it will operate—with as much openness and transparency as possible and with us being able to look at the deliberations of the budget responsibility committee and understand its reasoning before it reaches a recommendation—will be part of its practice now and will be in the legislation when it comes before the House. I welcome the fact that Sir Alan Budd, who has been appointed acting chairman of that office, has made it clear that he is willing to speak to all hon. Members. That is important, as the office will work only if it is seen to be non-partisan.

On Equitable Life, all of us know that the process has been long and drawn out. I think the Government may have already found that the process is not straightforward and that the ombudsman’s ruling was not as clear-cut as some people thought. We therefore commissioned Sir John Chadwick to investigate the matter, and I am glad to say that he will report in July. I had thought he was going to report at the end of May, which is what he had told us, but it may be that he has had further discussions with the Treasury. [Interruption.] The Chancellor is saying from a sedentary position that it was at his request. That is fine, but I wonder whether he will make provision for whatever Sir John recommends in his June Budget, or whether the fact that Sir John is reporting in July means we will have to wait for a further Budget to see what provision is being made.

On the financial services regulation Bill, we had many exchanges across the Floor of the House in the last Parliament on this matter, but I simply say to the Chancellor that it would be helpful if he could perhaps tell the House exactly what the coalition agreement is in relation to who has responsibility for regulation. We have read conflicting reports in the newspapers about whether the Financial Services Authority is to be brought within the responsibility of the Bank of England and whether it is the Governor or Lord Turner who is to be responsible for the regulation of the financial services industry. Other reports say that no decision has been made and the decision has been parked. It is important that we have some certainty about that, because the very nature of such things means it is inevitable that some problem may arise quickly. It is therefore important to know who is in charge, as we do not want the FSA and its staff to be concentrating more on their future than on what is happening in the financial services industry.

On the point about banking regulation, the shadow Chancellor will remember the closure of the Bank of Credit and Commerce International and the Bingham report. That report was commissioned by the previous Government and its conclusions mentioned an independent regulator. It is important that we look carefully at the issue of regulation and that we do not hand back to the Bank of England all the powers for regulation. In his conclusions, Lord Bingham recommended that that should not happen.

My right hon. Friend will know that I have always had reservations about transferring responsibility for regulation to the Bank of England, as I am not sure that it is the best body to deal with it. Certainly, for much of the past 10 years, it has had a good and distinguished record on monetary policy, but I am not so sure whether it should have widespread responsibility for regulation.

My right hon. Friend is also right to draw attention to the Bingham report. The Chancellor will no doubt recall, or I am sure his officials will remind him, that Lord Bingham produced two reports—one was published and one was not. I strongly advise him to read the second, unpublished report, because it sheds considerable light on some of the problems that arose. Perhaps after such a length of time, it might be possible to reconsider whether that report should be published, because I think many of the people concerned would not be so badly affected.

On the Bingham report, if the shadow Chancellor has read the confidential parts, why did he resist the publication of that second report? That is something that some of us who have been concerned about the liquidation of BCCI for 20 years have urged him to do.

I think it was providing a response to a parliamentary question from my right hon. Friend that obliged me to read the report. I remember spending two days reading it and giving my decision. However, I do not have the benefit of the advice I received, which I now need to remind me why I refused his request at that time. All I can say is that I refused his request for entirely the right reasons but, 10 years later and in the spirit of freedom of information, I am not saying that it definitely should be looked at, but the present Chancellor or whoever is dealing with the issue should look at the matter and perhaps 10 years further on someone else looking at that report might reach a different conclusion. I reiterate, whatever decision I reached was right for the reasons I gave at the time.

May I also tell the Chancellor that it would be helpful if he took the opportunity to spell out the Government’s policy on the banks in which the Government have shareholdings—Northern Rock, Lloyds, the Royal Bank of Scotland—because that is a matter of interest, especially now that RBS is talking about disposing of its Williams & Glyn’s branches and others? I believe it is the view of both main political parties that there ought to be more competition in the system, so a clear statement on Government policy on how we do that would be helpful. We do not want to end up selling a tranche of banks to another big UK operator, because that would mean that we would not get the competition we want.

I was interested to re-read last Friday the Business, Innovations and Skills Secretary’s criticism of the banks’ failure to lend, but it is not entirely clear to me what the new Government are doing to increase bank lending. It would be useful to hear from the Chancellor, or at least one of his colleagues, in the fairly near future on that.

However, the main focus of today’s debate is, inevitably, the economy, as it was in Treasury questions for the past hour or so. Yesterday, predictably, the Prime Minister, as the Chancellor did today, sought to lay the blame for everything the new Government plan to do on the previous Government. There is nothing new in that: new Governments frequently blame their predecessors and it is the easiest thing in the world to do. It is equally unsurprising that the Prime Minister and the Chancellor should go around the country and other parts of the world and say, “The situation is much, much worse than we thought. It’s all terrible and we will have to do terrible things.” By a stroke of good fortune, they have the Liberal Democrats to front up some of the difficult decisions they must take.

Did not the shadow Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), rather than the new Government, reveal the desperate state in which the shadow Chancellor left the country’s finances?

Forgive me if I have misunderstood the hon. Gentleman, but throughout the three years when I was Chancellor, I do not think that I ever, on any occasion, concealed from anyone the difficulties that we and other economies would face as a result of the deepest global downturn in the past century. There can be no doubt about that.

However, I should tell the hon. Gentleman and his colleagues that by 2008, it was clear that this country, and every other major developed country in the world, faced the catastrophic consequences of the failure of the banking system. Had we not taken action to stabilise the banking system—many of those decisions were opposed by the Conservatives—and to ensure that we supported our economy when private sector investment dried up and died away, we would have had a situation in which recession tipped into depression. That is why we took the action that we did. We were right to do so, and the Conservatives were wrong to oppose us. Our economy is now growing, and as I said earlier, unemployment is half that in the downturn of the 1990s, and borrowing is coming down, because of the action we took in 2008 and 2009. We took that action along with most developed countries.

Will the shadow Chancellor explain why, if he was so open about the state of the economy, he would not hold a comprehensive spending review, and why he would not publicise the impending debt payments of £70 billion that the people of this country must pay for his profligacy?

First, I said on many occasions that the right thing to do was to hold a spending review this year, before the end of the current review period ran out. There is still a lot of uncertainty, as I shall explain later, and the hon. Lady would do well to remember that at present, while we are coming out of recovery, our growth is modest. I hope we will see recovery secured, but what is happening in continental Europe and other parts of the world shows that we are not out of the woods yet and there is still a lot of uncertainty around. On the hon. Lady’s main point, however—which I dare say her colleagues will make too—our borrowing and debt levels rose for exactly the same reason as they are rising in America, Japan, Italy, France, Germany and just about every other country in the world: because we went through the deepest global recession in modern times. The hon. Lady might also want to remember that until well into 2008 the Conservatives, far from condemning our spending, were supporting our spending plans. They are therefore in no position to say now that they were opposing all this in times past. That is simply not right.

I will give way to my hon. Friend the Member for Huddersfield (Mr Sheerman), and then I shall make some progress.

Will the shadow Chancellor join me in recommending Sam Brittan’s article in the Financial Times last week entitled “Now is the time to ask: ‘What crisis?’”? He is a Conservative and he supports the coalition Government, but he says that it does nobody any good to exaggerate the state of the British economy, which he believes is much stronger than that of most of our competitors.

I think it is necessary for anyone charged with responsibility for the British economy to take a measured approach. If things are difficult, they have a duty to speak out, even when that causes them some problems, as I found out myself a couple of years ago. I think it is better that we do that, than not. Equally, however, it does no good to go running around saying the situation is absolutely terrible and dire, because sooner or later we may find that the markets call our bluff; we may find that one day they say, “Whatever you do, it isn’t enough.” I believe that that approach is as irresponsible as saying nothing about a difficult situation.

We must discuss these matters in a reasoned and rational manner, because while it is important that we identify the things that need to be put right, equally we must not give an impression counter to the fact that, fundamentally we have an economy that is coming through this period, that we can get through it and ensure that we have growth, which is absolutely critical in the future. Running around scaremongering and raising all sorts of fears could have the perverse effects of turning market sentiment against us, which we do not need, and of dampening consumer and investor confidence, which is simply not necessary.

The shadow Chancellor says that Government Members are scaremongering by pointing out that the Budget deficit is 13%. We are not scaremongering; we are scared, as the position is extremely serious. The recession was so deep in the first place because the right hon. Gentleman’s colleague, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown)—who has not been seen of late—ran things so badly that the money ran out, which meant that we were more exposed before the recession. The shadow Chancellor should therefore be apologising to the House for the mess that his right hon. Friend and the previous Government have left behind.

No, I do not agree with that. I think the hon. Gentleman will find that an awful lot of things that went wrong in 2007 were a result of what went wrong in the banking system, not just here but in other parts of the world as well.

Does the shadow Chancellor agree with this statement by the Governor of the Bank of England:

“I don’t think you can compare the UK with Greece. There are big differences”?

I suggest that not the least of the differences between our countries is that our debt-to-GDP ratio is about half that of Greece.

The Governor was making a very fair point, as he does on many occasions. It is interesting that even in the past couple of days Government members—the Prime Minister yesterday, and one or two of his ministerial colleagues—are rowing back from direct comparisons with Greece because that may have been very convenient to them in opposition, but it might not be such a good idea now that they hold office.

Our economy is experiencing growth at present, and that is because of the action we took over the past couple of years. I do not intend, as the Chancellor said, to fight the last general election again or to go through everything that happened over the last two or three years—that is, perhaps, for another occasion—but I do say this about the action we took. The fiscal stimulus we put in place—the VAT reduction; the decision to bring forward capital spending; the measures we took to protect people’s jobs and ensure that if people were out of work for a short period we could get them back into work as quickly as possible; the time to pay scheme, which is still helping hundreds of thousands of businesses throughout the country; the car scrappage scheme; and the action we took internationally—have all come together to make sure we came through this recession. Interestingly, although the predominant position of the financial services industry in this country meant that it took us longer to come through into recovery than it took some other countries, Britain has had two quarters of growth whereas other countries, particularly those in continental Europe, have seen their growth slip back and, in some cases, they have slipped into recession. What that tells me is that had the previous Government not taken the action that they did over the past couple of years we would not now be in a position to say, “Yes, our economy is growing.” Equally, our action has meant that although our borrowing is still very high and needs to come down, it is coming down faster than many people believed, even a few months ago.

I wish to assure the shadow Chancellor that Conservative Members appreciate that the previous Government had to borrow money during the recession. What baffles us is why they borrowed money during the boom.

I am grateful to the hon. Gentleman for accepting what is obvious: the fact that during a recession Governments do have to borrow in order to support their economies. However, I should remind him that during the earlier part of the previous decade the Conservative party supported our spending programmes, saying that they would stick to our spending levels. The Prime Minister, when he was Leader of the Opposition, said that as recently as 2008. The hon. Gentleman was not here during the previous Parliament, but I can assure him that I do not recall any Conservative standing up to say, “Don’t build a new school in my constituency. Don’t build more housing. Don’t open a new hospital.” Conservative Members were not saying that at all; they wanted more spending in just about every area. So the idea that the Conservative party was behaving in a way that would have meant that there was no borrowing and that the Conservatives would have behaved any differently is absolute nonsense. The hon. Gentleman just has to accept that.

Does my right hon. Friend agree that some of the measures that have now contributed to the deficit were being demanded by manufacturing industry in order to sustain the corporate manufacturing base needed for us to grow out of recession, the car scrappage scheme being one case in point?

I agree with my hon. Friend. The new Government will find that for every industrialist or manufacturer who says that public spending needs to be cut, in areas that benefit from such spending people take a rather different view. The car scrappage scheme is an example of that, and it made a huge difference to the car industry and the motor vehicle industry in general. As the hon. Member for North West Leicestershire (Andrew Bridgen) said, the action that we took did involve more borrowing and it does result in increasing debt. However, the point is that the cost of failing to act would have been far greater.

The Chancellor was talking about the international consensus. I know something about that, and I can tell hon. Members that over the past three years it was very much in favour of our continuing to support our economies; of course, as we come through to recovery we have to get the borrowing down. Nobody disputes that, and at least two of the parties that fought the previous election were absolutely clear about it—it was never clear what the third party was in favour of, and its position remains something of a mystery even today.

The shadow Chancellor rightly says that there was an international consensus, and I supported many of the actions that he took. However, in this financial year, when recovery is not secure, why did he leave the economy without a fiscal stimulus? Ours is one of only two countries in the G20 without a fiscal stimulus, and I still believe it was absolutely necessary for us in order to secure recovery and prevent our slipping back into recession.

What economists call the “automatic stabilisers” are still operating and are still supporting the economy. I have always been clear about this, and I believe that the deficit has to be reduced. One of the reasons why I wanted to halve it within a four-year period was that I wanted to get it down in a way that did not damage the economic or, indeed, the social fabric of the country while that was being done. Obviously I do not know what the new Government are going to come up with, but I suspect that they will not go too far before they start seeing that when they want to reduce expenditure quickly that sometimes has severely damaging consequences. We shall wait to see what happens, but I believe that that is a substantial risk.

Before I leave this point I should say something further because a number of hon. Members mentioned our spending in the earlier part of our Government. It is not just about what we did during the recession; it is about the fact that over the relevant 10-year period, there was an unprecedented decade of growth such as this country had not seen before, as well as low interest rates, low inflation and falling unemployment. Gross domestic product per capita grew faster in this country than in any other G7 country even after one takes into account the effects of the financial crisis. The economic environment was one that this country had not had for many years. Of course, we had to deal with the effects of the banking crisis and the downturn that followed, which had a very severe effect on our public finances as well as other public finances.

My right hon. Friend did a phenomenal job as Chancellor of the Exchequer. The measures that he has just outlined and the success were considerable, but is it not also true that back in 2002 his Government, and my Government, finally paid off the second world war and post-war debt that was run up with the Americans in 1947? The final bonds were paid off not by the Conservatives in the 1950s, 1960s or 1980s, but by the Labour Government in 2002. [Interruption.] That is absolutely true.

My right hon. Friend is right. No doubt there will be another occasion to revisit the lend-lease arrangements that the then Government entered into in the 1940s, although I commend to the House Lord Robert Skidelsky’s excellent third volume on Keynes, which deals with this matter quite extensively. Some people thought that we got a pretty bad deal in 1943, but there you are.

I shall give way to the hon. Gentleman who I think used to advise the Chancellor at one point.

The shadow Chancellor has mentioned the banking crisis several times. With hindsight, does he regret the system of banking regulation that was introduced in 1997, and recognise that it failed?

No, I do not think that was the main problem. The system of regulation that we introduced in 1998 brought together about eight or nine different regulators—self-regulators, as the Conservative party used to be very keen on self-regulation. The problem in relation to the Financial Services Authority, the American regulators and most other regulators was that they simply did not understand the systemic risks that arose in the previous decade or the consequences of the failure of one bank for another. The system in this country was not the problem, but there was undoubtedly a failure on the part of regulators right across the world, including in our country. The FSA’s inquiry into what went wrong in Northern Rock demonstrated that the FSA had spotted problems in Northern Rock in February 2007 but had not taken action. I shall say this in the nicest possible way to the hon. Gentleman: he might want to have a word with one or two of the people who were running Northern Rock—members of his party—who might have had a better look at what they were supposed to have been doing when they were running that bank.

I thank the shadow Chancellor for giving way. May I say that as a bystander, rather than a participant, in the last Parliament, I was always struck by his excellent manners? As a mother of three children, I am very hot on manners. In particular, when my children make a mess that I have to clear up, I encourage them to say sorry. Would the shadow Chancellor like to apologise to the Government and the people of Britain for the mess he has left for this Government to clean up?

I am glad that I gave way to the hon. Lady for at least the first part of her intervention. I do not agree with her on the second part, but I should like to address that point now. It is true that our borrowing has risen very substantially—

I shall not give way. I want to make some progress, because I know that many hon. Members want to make their maiden speeches, and I do not want to be blamed for not allowing them to do so. I might give way before I finish, but not just now.

As I was saying, borrowing has clearly increased, but that has to be put into perspective. Our deficit for this year is broadly similar to that of the US. All other major countries have had the same problem.

We went into the recession with the second-lowest level of debt of any of the G7 countries, but IMF projections for this year show that our debt is lower than that of France, Germany, Italy and Japan. Yes, we have to get our borrowing down and make sure that we start to bear down on debt, and I agree with everyone who says that it is far better to spend money on things other than debt interest. However, it is worth making the point—because it is one that the present Government never do make—that this problem does not affect our country alone. It has affected all countries, and certainly all the developed countries.

It is not a surprise that borrowing and debt went up, because our tax revenues fell dramatically in 2007 and 2008. Our spending on unemployment and social security went up because tax credits were there to help people who lost their jobs. Yes, that was increased expenditure but, if we had cut then, the risk was that we would turn a recession into a depression. That was a cost that I was certainly not willing to contemplate.

We made an active choice to allow borrowing to rise to support the economy. As I said, that policy was supported by the then Conservative Opposition right up until 2008. It was not as though they were saying anything different immediately before that, but I fundamentally disagree with the analysis that the Chancellor made when he was shadow Chancellor. He said:

“Even a modest dose of Keynesian spending”

was

“a cruise missile aimed at the heart of a recovery.”

He said that in 2008, when the banking system and the world economies were close to collapse. That seems to me to be complete nonsense. Of course we will have our arguments about how and at what rate we reduce our deficit, but I simply do not accept the argument that by implication he seems to be advancing—that somehow the previous Government should have been cutting spending just as we were going into a recession. I know of no other Government who were doing that.

The construction sector is one of the most important barometers of the national economy, and I was privileged to serve as construction Minister. If that spending by Government had not taken place in the last two years, would we not have had a massive increase in the level of unemployment in the construction industry? That would have opened up the horrific prospect of having 3.5 million people unemployed—a level that we reached twice under the Conservative party.

That is indeed right, and many people in the construction industry say that an already difficult situation would have become much worse if we had not done what we did in 2008-09. Not many Conservatives or Liberals—we must include the two together—now stand up and say, “Actually, in retrospect, we shouldn’t have been supporting the construction industry.” I rather get the impression that they are telling local industries in their constituencies something entirely different.

I will give way, for the last time, to the hon. Lady, whom I last met in a BBC studio. I got the distinct impression that she did not like Scottish accents, so I cannot resist.

Will the shadow Chancellor clarify his party’s position on our proposed spending reductions? Before the general election, it was my distinct impression that the Labour party was planning public expenditure cuts of up to 25% across some Departments. In my constituency of Stourbridge, we were extremely concerned when the results of a freedom of information request on the NHS in the west midlands revealed plans for significant cuts to doctors, nurses and beds in our area. By anyone’s definition, they must be front-line services.

I agree with that. If the hon. Lady is worried about spending cuts, she is going to have an interesting time over the next few months. I look forward to the exchanges that she has at future Question Times.

As I draw to a close—

No, I am not going to give way. I want to draw attention to one of the biggest problems that I see in the future. I know that Governments in countries right across the world have to get their borrowing down and reduce their deficits. However, I am particularly worried that, if we do not have some countervailing pressure to support growth and measures to get growth in our economy, we run the risk of having many years of it merely bumping along the bottom, sometimes growing and sometimes not. That will inevitably mean that we will have higher unemployment and that aspirations and sentiment will be affected.

I see that especially in the EU at the present time. The EUROSTAT figures published last Friday went almost unreported in this country, but what is worrying is that we see that Germany’s growth in the first quarter of this year was 0.2%. We see France’s at 0.1%. We see Greece not surprisingly, back in recession. We know that Spain has unemployment of more than 20%. I am glad that the Chancellor enjoys going to ECOFIN so much, and long may he enjoy that. I am fascinated that the Conservatives now find so much succour in Europe. All I can say to him is that I worry that rather too many finance Ministries, yes want to get their deficit down, but are not concentrating on the structural reforms that are necessary within the EU or on measures to achieve growth in the future. That is a real threat.

It worries me that the present Administration here in the United Kingdom also fall into that camp. It is interesting that in the past six months the Prime Minister has made only one speech on growth. It flickered into life in November just before the CBI conference last year. We do not hear what measures the Government intend to put in place to get the rebalancing of the economy that we want to see—measures to encourage private sector investment to come back. It is not coming back yet in sufficient volume to take the place of the public sector investment that the Chancellor wants to take away. We have to have a clear, strategic look at this to make sure that we can get growth in this country as well as in the EU, which after all is our major export market.

I do not want to disappoint the shadow Chancellor, but I am much more interested in the reasons why, when he was Chancellor—despite the tissue of self-justification that we have just heard—he was never prepared to refer to the true level of debt. He said that no Conservative raised it, but a number of us raised the true level of debt from 2008 onwards. Does he deny that the true level, according to the Office for National Statistics, is £3.1 trillion and not the amount that he has been describing over the past few months?

When comparing the judgments that we make about what is necessary fiscally, I do not think that bringing on to the main balance sheet PFI, Network Rail and everything else particularly helps. However, if that is the course of action that he has managed to persuade the Chancellor to take, we will look with great interest at the Budget in a couple of weeks. I just do not think that it is a particularly accurate or informative way of looking at the accounts. I have said that before to the hon. Gentleman.