Skip to main content

Commons Chamber

Volume 512: debated on Wednesday 23 June 2010

House of Commons

Wednesday 23 June 2010

The House met at half-past Eleven o’clock


[Mr Speaker in the Chair]

business before questions

London Local Authorities Bill [Lords]


That the promoters of the London Local Authorities Bill [Lords], which was originally introduced in the House of Lords in Session 2007–08 on 22 January 2008, may have leave to proceed with the Bill in the current Session according to the provisions of Standing Order 188B (Revival of bills).—(The First Deputy Chairman of Ways and Means.)

Oral Answers to Questions


The Secretary of State was asked—

Business Relocation

1. What recent discussions she has had with ministerial colleagues on encouraging the relocation of businesses to Wales. (3032)

Before I answer my hon. Friend, I am sure that the House will want to join my right hon. Friend and me in expressing condolences to the family of the right hon. Lord Walker of Worcester, whose death at the age of 78 was announced earlier this morning. A distinguished Member of the other place and a former Secretary of State for Wales, he was a good friend to the Welsh people.

My right hon. Friend the Secretary of State and I are committed to attracting more inward investment to Wales, as we believe it will be a key driver for future economic growth.

First, may I associate myself with what my hon. Friend said about Lord Walker? May I also take the opportunity to welcome my hon. Friend the Under-Secretary and my right hon. Friend the Secretary of State to their new responsibilities and to wish them well in the challenges that lie ahead?

Given the recognition even by the First Minister both in an interview on “The Andrew Marr Show” and during the Welsh Labour conference this year that there are not enough private sector jobs in Wales, does my hon. Friend agree that success depends on driving up private sector jobs in the Principality in the future?

Yes, my hon. Friend is entirely right. The private sector is the key to future growth in Wales, which is why yesterday’s Budget announced a major package of corporation tax reform that is aimed at making Britain—and, of course, Wales—one of the most competitive parts of the G20. In particular, the exemption of up to £5,000 of employer national insurance contributions for each of the first 10 employees, which applies outside London and the south-east, will be of benefit to Wales.

May I associate myself with the condolences expressed to the family of the late Lord Walker and also congratulate the right hon. Lady and the hon. Gentleman on their appointment to their posts?

Yesterday, there was a recognition by the Government of the need to grow economies outside the south-east of England. We have argued long and hard about the overheating of the south-east and its cost to the north of England and Wales. Will the Minister consider the idea of either regionalising corporation tax according to gross value added or devolving it altogether to the Welsh Assembly so that the needs of business can be met and real support provided for it?

I am glad to hear that the hon. Gentleman welcomes the announcements in yesterday’s Budget. The announcement of the exemption of up to £5,000 of national insurance contributions for new employment outside London and the south-east will certainly be of benefit; to that extent, it is a major departure, which I am sure that the entire House will welcome.

May I press the hon. Gentleman on the question of corporation tax? Does he have any problem with that? At the end of the day, it is his Government’s policy in the north of Ireland, so why does it not apply to Wales?

I am sure that the hon. Gentleman will welcome yesterday’s announcements. There is no plan to regionalise corporation tax further in the United Kingdom, but I am sure that yesterday’s announcements will offer a major boost to the Welsh economy.

National Assembly for Wales

2. What recent discussions she has had with the First Minister on the proposed referendum on the law-making powers of the National Assembly for Wales. (3033)

8. What recent discussions she has had with the First Minister on the proposed referendum on law-making powers of the National Assembly for Wales. (3040)

May I also echo the words of my hon. Friend in recognising the tremendous work that the right hon. Lord Walker of Worcester did in this House as one of my predecessors as Secretary of State for Wales from 1987 to 1990? I am sure that all our thoughts are with his family at this sad time.

I have had regular discussions with the First Minister on the proposed referendum on the law-making powers of the National Assembly for Wales.

Given that so few people in Wales actively voted for the National Assembly in the first place, will my right hon. Friend consider having a turnout threshold for any referendum on whether to give the Assembly more powers so that at least a respectable number of people vote before we make any constitutional changes?

I do not know whether my hon. Friend is aware of it, but there was a threshold of 40% for the previous referendum. I am afraid to tell the House, however, that I am bound by the Government of Wales Act 2006, in accordance with which there is no threshold, but a simple majority. It is therefore important, I believe, that the electorate in Wales uses its right to vote on an important issue. I hope that when the referendum is run, they will turn out in numbers.

No work was done in the Department on the question prior to the general election. I am pleased to tell the House, however, that the project board has produced a question and a preceding statement for the referendum on law-making powers for the National Assembly for Wales, and I am sending it today to the Electoral Commission for the 10 weeks that it needs to carry out its work in proving that question. In the short time I have been in the office, I think I have achieved more than my predecessor did in the time from 17 February, when notice was given to him that a referendum was required.

May I congratulate the right hon. Lady on her new job? Despite what the London commentariat say, it is a very important job indeed. She will know that, during any referendum, the question of Members of Parliament from Wales will be an issue. Will she confirm that she agrees with her previous statement that there should be 40 Welsh MPs?

I thank the right hon. Gentleman for his warm welcome. When I dealt with him from the other side of the Dispatch Box, I always found that his courtesy was unfailing. He refers to the potential boundary changes and the reduction of the number of MPs—I am sure that no one outside the House will be arguing for more highly paid politicians. However, I take very seriously the representation of Wales in the House, and nothing will be done in reducing the number of MPs that will disproportionately affect the share of voice that Wales has in the House and at Government levels.

Would the Secretary of State like to campaign for a yes vote in the referendum, or will she consult the electorate of Buckinghamshire first?

I am very proud to be the first woman to occupy the position of Secretary of State for Wales, and I was born and brought up in Wales. It is singularly important that the people of Wales decide on the referendum and the outcome, and I will campaign for neither a no vote nor a yes vote. I and my Minister will remain neutral, which is the proper thing to do. The hon. Lady needs to familiarise herself with her own party, as I believe that there are split views in the Labour party as well.

The Secretary of State will be aware that some of us on these Benches will campaign with great enthusiasm for the referendum, and were disappointed that the referendum that we hoped for in October did not come about. Does she think the fact that it did not occur reflects on the inactivity of the previous Government? Furthermore, in welcoming her news about the question, may I ask whether the Government will make a speedy commitment to a referendum in the spring of next year?

I thank my hon. Friend for that question. As we said in the coalition agreement, and as I said before the election, I am determined to allow the people of Wales to decide in a referendum. It is only polite to accede to the request of the Assembly, which, after all, voted unanimously for a referendum, and I am sad that the previous Secretary of State commenced no work on the question and confined himself to work on the order that we will eventually lay before the House. I am pleased to confirm that I am sending the preamble and question to the Electoral Commission.

May I just gently ask the Secretary of State to face the House rather than having her back to the Chair? That would be very helpful.

May I join in the commiserations to Lord Walker’s family on his death?

May I congratulate the right hon. Lady, especially on being the first woman Secretary of State for Wales? However, as accounts given to the media have traduced the truth, I must ask whether she is aware that as Secretary of State, on Monday 10 May, in the Wales Office, I specifically asked and received an assurance from senior officials that work I had put in train months before would have enabled a referendum to be staged this October. Before she answers, may I remind her that whatever she has been saying to the media, she must not mislead this House, especially as she will not have seen the official papers detailing my preparations for the referendum?

I thank the shadow Secretary of State for his welcome. I cannot comment on the advice received by the former Administration; however, I do have access to documents that have indicated to me that no work was done on the question before the general election. If the right hon. Gentleman wishes to have a discussion with me about the matter, he is quite able to do so, but no work was done by the Department. The only work carried out was on the order that was to be laid before the House. This was the first question that I asked when I walked into the Department.

Independent Commission on Funding and Finance for Wales

3. What recent discussions she has had with the Chancellor of the Exchequer on the findings of the Independent Commission on Funding and Finance for Wales. (3034)

My right hon. Friend the Secretary of State has discussed the issue of funding for Wales with the Chief Secretary to the Treasury, and also met the hon. Gentleman last week to discuss the subject. I hope that the hon. Gentleman found that helpful.

I welcome the Minister and the Secretary of State to their posts.

Notwithstanding the review that has been promised after a successful referendum, there is clear and understandable concern about the difficulties that will be faced in Wales because of the necessary measures being taken to reduce the deficit. Will the Minister commit himself to a dialogue with Gerry Holtham and with Treasury colleagues to ensure that Wales is given a fair deal, given its historic levels of underfunding and the severe pressure put on the Welsh Assembly Government?

The Government are committed to ensuring that Wales is properly funded, but it is clearly right for the Treasury’s energies to be concentrated on tackling the deficit left behind by the Labour party. We will certainly give careful consideration to the Holtham commission’s final report, which is to be published this summer. My right hon. Friend the Secretary of State has already met Mr Holtham, and intends to have further meetings with him.

Do the Minister and the Secretary of State recall that last November the Treasury was persuaded to accept an historic reform ensuring that Wales was not disadvantaged under the Barnett formula? Why are they not ensuring that the agreement to protect the Welsh Budget is implemented? On Barnett, the Chancellor promised on 12 February 2010 to

“move on it pretty quickly, as soon as a new Government is elected.”

How on earth can the Secretary of State and the Minister have allowed that pledge to be dumped in the long grass? Instead of capitulating immediately to savage cuts, why do they not stand up and fight for Wales as their Labour predecessors did?

Having read the so-called pledge that the right hon. Gentleman received from the Treasury, I think it fair to say that it was almost meaningless. As he knows, the Holtham commission is due to report substantively next month. My right hon. Friend and I intend to have further discussions with Mr Holtham, and it would be wrong to pre-empt his decision.

Armed Forces Day

4. What discussions she has had with the Secretary of State for Defence on marking Armed Forces day in Wales in 2010. (3035)

Let me begin by paying tribute to the brave Welsh men and women serving in our armed forces throughout the world, particularly in Afghanistan. They are doing a very difficult job, and I am sure that all Members present will join me in thanking them for their bravery and dedication.

I am delighted to be attending the national Armed Forces day event in Cardiff this Saturday, along with my right hon. Friend the Secretary of State for Defence, His Royal Highness the Prince of Wales and the Duchess of Cornwall. My hon. Friend the Minister will also be attending the north Wales event in Caernarfon in July.

The Secretary of State will know that the whole country is looking forward to Armed Forces day. Last week we were delighted when the Prime Minister and the President of France met veterans at Royal hospital Chelsea, in my constituency. Can the Secretary of State tell us what specific proposals there are to involve veterans in the ceremonies in Cardiff on Saturday?

We should be very proud that Cardiff was chosen for this year’s Armed Forces day celebration. On Monday, when I attended the ceremonial Armed Forces day flag-raising event at Cardiff castle, I was privileged to have several conversations with some of our veterans who were present, representing veterans from all over the United Kingdom. I understand that they will play a prominent part in the ceremonies on Saturday.

May I ask the Secretary of State to reflect on the impact of yesterday’s Budget on us in Wales, and in particular on public sector workers? Already 250 jobs have left my constituency. How many public sector jobs does the Secretary of State expect us to lose during the current Parliament?

Well, I thank the hon. Gentleman for that question, but I find it hard to make a linkage to—

I am sure it will not be beyond the ingenuity of the Secretary of State somehow to respond in order, although I accept that this is a testing one.

I am not sure how I will make that linkage to Armed Forces day, but I would say that for those who are low paid in the public sector I was delighted to see that the Chancellor had chosen not to freeze their pay for two years and to give them an increase of £250 in each year, which I am sure the hon. Gentleman would welcome. I also welcome that our Prime Minister went to Afghanistan and announced the doubling of the pay for our brave soldiers when they are serving on our behalf overseas.

Does my right hon. Friend agree that one of the best tributes we could pay to the armed forces would be to offer them the best training—world-class training—and that the proposed defence technical college for St Athan could well offer that training? What discussions has she had with the Secretary of State for Defence about this project, and about the delays caused by the last Administration?

May I welcome my hon. Friend to his rightful place in the House, representing the Vale of Glamorgan? He knows what a strong supporter I am of the case for the training college at St Athan, and all I can say is that this is yet another example of how the Labour party did not stand up for Welsh interests. Labour did not get on with this project when it had the opportunity to do so when it was in government. May I also remind my hon. Friend that planning permission for this project was granted by a Conservative-led local authority back in 2009?

Cabinet Committees

6. What recent discussions she has had with the Prime Minister on the representation of the interests of Wales in Cabinet Committees. (3037)

May I add my congratulations to the right hon. Member for Chesham and Amersham (Mrs Gillan) and her ministerial colleague on their elevation to the Government Front Bench, but will she confirm that the previous Secretary of State sat on as many as a dozen Cabinet Committees and his ministerial colleague sat on up to a dozen as well, and in the light of that—and of the delay in the referendum date, as well as the appointment of a lovable rogue whom I like very much indeed but is an arch devo-sceptic as Chairman of the Select Committee on Welsh Affairs, and the attack on Welsh MPs—will she tell us why this is not telling the Welsh that they—

Oh dear me. I think the hon. Gentleman needs to catch up with the procedures of the House because I believe Select Committee Chairmen are now elected. That has nothing to do with the Government. Perhaps if the hon. Gentleman had spent less time sitting on Committees he would know about the changes that were made in the House. I must remind him that what impresses the electorate is not the number of Committees a Member sits on, but what they do for Wales. We have already done more for Wales in the five weeks we have been in office than the previous Administration did over 13 years. The hon. Gentleman might also like to note that we have reduced the number of the Committees that he sat on in his ministerial capacity to 11. It is better to have a small set of fully functioning Committees where relevant people continually discuss related issues than for Members to be able to boast that they are sitting on a lot of Committees.

May I also give a warm welcome to the Secretary of State for Wales and say, as somebody who might well be chairing a Committee, that I am sure that the vast majority of people in Wales will want us out and about in Wales trying to put right the problems that the Labour party created rather than sitting around in Committee Rooms?

May I congratulate my hon. Friend on securing his new position on the Welsh Affairs Committee? I wish him well, and I hope he will bring education about devolution to this House, because I remember reading the last Select Committee report, which said that it was disappointing that, even after 13 years of the previous Administration, the Welsh Affairs Committee had found that

“Whitehall has not fully engaged with the complex nature of the devolution settlements.”

The ignorance of devolution arose under the last Government, and I hope my hon. Friend will, through the good offices of his Select Committee, put that right.

I congratulate the right hon. Lady on her appointment as the Secretary of State for Wales. As my right hon. Friend the Member for Neath (Mr Hain) has said, she is the first woman Secretary of State for Wales. However, she follows a time-honoured tradition of Conservative Welsh Secretaries who represent English constituencies. She represents Amersham and Chesham, or is it Chesham and Amersham? Anyhow, it is somewhere in Buckinghamshire. Could the Governor-General, or should I say the Secretary of State for Wales, tell me how many times she has visited Wales since her appointment?

I do not know whether I should welcome the hon. Gentleman’s remarks or just feel sorry for him. I have lost count of the number of times I have been in Wales since I was appointed, but I think it is about nine or 10 already. If that is the best he can do for a question—to ask how many times I have been on a train—when we are facing such economic troubles in this country, then I do feel sorry for him, which was my first emotion.

Manufacturing Industry

7. When she next expects to discuss with ministerial colleagues the situation of manufacturing industry in Wales. (3038)

My right hon. Friend the Secretary of State has discussed various aspects of the Welsh economy, including manufacturing, with ministerial colleagues and will continue to do so in the coming weeks and months.

How many representations has the Minister made regarding the future jobs fund and the damaging loss of more than 600 jobs in north Wales? If he made representations, why were they so ineffective, and if he did not make representations, what is his purpose in life?

The future jobs fund is an uneconomic way of funding new employment, and it does not provide real jobs. Yesterday’s Budget statement provided firm foundations for real jobs in Wales, and that is the way that Wales will go.

Would not jobs and manufacturing in Wales be helped by a decent employment initiative? The future jobs fund has provided 500 jobs in Blaenau Gwent in recent years. It has had a terrific impact in an area with high unemployment of nearly 12%. Will the Minister or the Secretary of State please visit Blaenau Gwent? I invite them to come and find out about employment in my borough.

I refer the hon. Gentleman to my answer to the right hon. Member for Delyn (Mr Hanson), but, yes, I would be delighted to visit Blaenau Gwent. I look forward to receiving his formal invitation.

Defence Technical College

9. What recent discussions she has had with the Secretary of State for Defence on the proposed defence technical college at St Athan. (3041)

This proposal is being considered as part of the strategic defence and security review, which was debated in the House on Monday. The review is due to be completed by October and I will ensure that the Secretary of State for Defence is made fully aware of the importance of our armed forces to Wales.

I do not feel sorry for the right hon. Lady; I welcome her wholeheartedly to her post. However, she gave a rather partisan answer to the earlier question about the defence technical college in St Athan, and I urge her to recognise that this issue has involved a cross-party alliance in Wales. All the political parties in Wales have been supporting it, so will she meet a cross-party group of MPs so that they may put the arguments strongly? This is about protecting our armed forces, particularly the soldiers from Wales, who deserve the best training they can possibly get.

I congratulate the hon. Gentleman on having raised this matter not once but three times in the past week or so. I have read the replies to him from both the Secretary of State for Defence and the Prime Minister. The Prime Minister said:

“Everyone who has spent time in south Wales with the military knows that there is an incredibly strong case for the St Athan defence training establishment.”—[Official Report, 2 June 2010; Vol. 510, c. 430.]

I would be delighted to meet a cross-party group to discuss the future of St Athan. The hon. Gentleman will know that it was one of the first things that I signed up to when I was appointed as shadow Secretary of State for Wales. I will not demur from that support.

Public Expenditure

10. What her most recent estimate is of the level of public expenditure per capita in Wales in 2010-11. (3043)

The latest public expenditure statistical analysis published by the Treasury in April included data up to 2008-09, in which identifiable public expenditure per head on services for Wales was £9,209 while the UK average was £8,206.

Would the Minister agree that it is the quality of public money spent that matters, not the amount? Will the Government concentrate on quality rather than quantity?

My hon. Friend is entirely right. The former Government seemed to regard it as a matter of success that they spent money that the country could not afford. We recognise the need for Wales to be properly funded, but yesterday’s Budget statement provides a firm foundation for good-quality jobs in Wales.

May I join the Secretary of State in paying tribute to Lord Walker? I do so genuinely, but I am led to reflect on the fact that, since 1987, the Conservative party has not had a shadow Secretary of State or Secretary of State who represented a Welsh seat.

On the issue of law-making powers for the Welsh Assembly: after the boundary changes, what is the Secretary of State’s opinion of how many Members the Assembly ought to have?

Bizarrely, the question appears to be addressed to my right hon. Friend, whereas in fact I am answering. We must await the report of the Electoral Commission, when in due course that issue will be considered.

Prime Minister

The Prime Minister was asked—


I am sure that the whole House will wish to join me in paying tribute to Marine Paul Warren from 40 Commando Royal Marines, who died on Monday, and to the member of 40 Commando Royal Marines who died yesterday. We should constantly remember, and show our support for, the services and sacrifices made on our behalf by our armed forces and their families.

This morning I had meetings with ministerial colleagues and others. In addition to my duties in this House, I shall have further such meetings later today.

The coalfield communities regeneration programme breathed new life into places such as Wigan after the devastation caused by the pit closures in the 1980s. Michael Clapham’s review is very welcome, but the decision to freeze the funding will devastate our economy all over again. Can the Prime Minister reassure my constituents that he is not simply seeking to close down the coalfields all over again?

Of course I can give the hon. Lady that assurance. Let me first of all congratulate her on her election to this House, and say how much we want to make sure, in spite of the difficult decisions that we have had to make in the Budget, that we go on helping and regenerating communities that face difficulties. I have visited the site in Wigan where the new Lads and Girls club is to be built. That is the result of excellent joint work between the private and public sectors, and we need many more projects like it. We will have more to say about that next week.

Q2. The Prime Minister will be aware of the vital contribution of the 23,000 Territorial Army and other reservists who have fought in Afghanistan, Iraq and the Balkans in the last six years. So far, 22 have lost their lives in those operations, and the ones who survive are twice as likely to get post-traumatic stress disorder than their regular counterparts. What recognition and support can my right hon. Friend give to the thousands of employers who routinely allow staff to volunteer, train and engage in reservist activity and who, by doing so, are critical to our military success in those operations? (3683)

My hon. Friend is absolutely right to raise the contribution that our Territorial Army plays in serving our country. He is also right to remind us how many people have served in Iraq and Afghanistan. There are some 600 volunteer reservists serving today. Standing up for our armed forces is not just a Government responsibility: it is a social responsibility, and something that we should all do. We should pay tribute to those businesses that help people to volunteer and take part. We should remember their service in doing that as well.

May I join the Prime Minister in paying tribute to Marine Paul Warren from 40 Commando Royal Marines, who died on Monday, and to the member of 40 Commando Royal Marines who died yesterday? They fought with bravery and they died in the service of their country.

The Chancellor announced yesterday that the Government will bring forward relinking the basic state pension to earnings to 2011 rather than 2012. Can the Prime Minister tell us how much money the Treasury has set aside to pay for that next year?

Actually, what the Chancellor did yesterday was more complex than that. He said—[Interruption.] This is an extremely important point, and hon. Members will want to listen. We have a triple lock in place to make sure that the pension upgrade is at the highest level possible. Next year, therefore, because of what we expect will happen with the retail prices index, the pension will be upgraded and increased along with it. When the right hon. and learned Lady gets to the Dispatch Box the next time, will she confirm that Labour’s plans were to uprate benefits by less than the consumer price index?

There was nothing complicated at all about the question, but it was one that the Prime Minister did not seem to want to answer. The answer is that the Government have not set aside a single penny for that big promise to pensioners. Next year prices are due to go up more than earnings, so bringing forward the earnings link by a year does not give pensioners anything extra. But although pensioners get nothing from that change we all know they will pay more in VAT. The Chancellor promised to provide help for pensioners. I am sure that pensioners, including those in the Southwark Pensioners Action Group, or SPAG, which the hon. Member for Bermondsey and Old Southwark (Simon Hughes), knows well, will want to know: are pensioners better off or worse off as a result of the Budget?

I have to say to the right hon. and learned Lady that there is a danger in asking the second question without having listened to the first answer. The first answer is that the pension will be uprated by RPI, which is likely to be higher than earnings next year. In terms of how much money we are putting into the state pension system—[Interruption.] How much, they ask? We are putting in £1 billion over the Parliament—£1 billion. What a contrast. In 13 years, Labour never linked the pension back to earnings. We have done it in two months.

The Prime Minister is not being straight about this. We know that there will be no increase in the pension from linking it with earnings a year early. A pensioner will not benefit from the cut in tax from raising the personal allowance either, because they do not get that if they are over 65, but they will pay more VAT. The Chancellor promised to help pensioners. Will the Prime Minister not admit that pensioners will be worse off under his Budget?

Perhaps I could recommend to the right hon. and learned Lady the Budget Red Book, although in her case I suspect it is the unread book. If she looks at page 41, she will see £1 billion going into the state pension system in this Parliament. What a contrast. We all remember the 75p increase for pensioners. Under our triple lock system, that can never happen again.

Page 41, table 2.1, item 48 states:

“Basic State Pension: introduce triple guarantee”.

Money set aside: zero. The Prime Minister is not being straight about his promise to pensioners.

Can I ask the Prime Minister about families with children? Families with children, with an income of less than £40,000, may be breathing a sigh of relief that they still have their tax credits, as that was on the news last night. But is it right? Can he confirm that—as he promised in the election—families on less than £40,000 will not lose their tax credit?

What we are doing is making sure that the less well-off families get the most money. What a contrast again. Since 2004, child poverty went up by 100,000 under a Labour Government. In this Budget, child poverty does not go up by a single family.

Once again, the Prime Minister is not answering the question. The truth is that, despite the Chancellor’s promise, the Budget small print shows big cuts in eligibility for tax credit. The Prime Minister promised that no family on less than £40,000 a year would lose child tax credit. Will he admit that that is not the case? Will he admit that there are families on a joint income of £30,000 who will lose all their tax credits?

The point that the right hon. and learned Lady has got to address is who left us in this mess. Who left a budget deficit of £155 billion, with absolutely no proposals to deal with it? Who put forward—[Interruption.]

Order. I apologise for interrupting the Prime Minister. This level of barracking is unacceptable, and I can tell the House that it is detested by the electorate. It must stop.

Thank you, Mr Speaker.

Who put forward £50 billion of cuts, without outlining a single penny piece? The whole country can see what is happening here: one party put us into this mess; two parties are working together to get us out of it.

I think that what the electorate detest is broken promises, and people will want to know how the right hon. Gentleman’s Budget will affect them. He was not straight with pensioners. He was not straight with families. He was not straight on VAT. When the Chancellor got up to present his Budget, he proclaimed:

“I am not going to hide hard choices…in the small print of the Budget documents. The...public are going to hear them straight from me, here” —[Official Report, 22 June 2010; Vol. 512, c. 167.]

Is not the truth that that was his first promise and that he broke it even before he sat down?

The right hon. and learned Lady talks about broken promises. We remember, “No more boom and bust.” What happened to that promise? We remember, “Prudence with a purpose.” What happened to that one? We remember, “We’ll protect the poorest,” when Labour took away the 10p tax rate. The fact is that the Labour party has got absolutely nothing to say about the biggest problem facing this country, which is the massive budget deficit. It might be adopting Greekonomics, but we are sorting out the problem.

Given the size of the structural deficit that we have inherited, how many apologies has the Prime Minister received from Opposition Members for what they have left behind?

First, may I welcome my hon. Friend, who, I know, will speak with great passion for his town of Blackpool? We should congratulate it on its footballing success recently. On that note, I am sure that the whole House will want to show its support—[Interruption] yes, including all Members—for the England team this afternoon in their key game.

I have not yet received a single apology for the appalling mess that we have been left, but at some stage, the Labour party will have to wake up and realise what a mess it made of the British economy.

Q3. Will there be fewer police officers at the end of this Parliament compared with the number that we have today? (3684)

What we want to do— [Interruption.] Opposition Members have got to start getting serious about the task that we face. We want to do everything that we can to keep police officers on the streets, to have money going into our schools and to keep up spending on our hospitals, and the only way that we are going to be able to do it is if we deal with the problems of excessive welfare spending. So if hon. Members want to see police on the streets and if they want to see well-funded schools, they have got to back us on housing benefit and on welfare reform. That is the way that we can keep spending up.

Will the Prime Minister join me in congratulating the Daily Mirror on highlighting the terrible 172% increase in unemployment in Tamworth during the recession? Further, will he encourage that august journal to place the responsibility for that grizzly legacy squarely where it lies?

I thank my hon. Friend for his question. I think that I am right in saying that it was in Tamworth that I came face to face with the Daily Mirror chicken, which was one of the most enjoyable episodes of the election. He is right about the unemployment figures, and one of the most important things that we have got to do is to introduce our work programme, which will be the biggest, boldest scheme in the history of this country to get people back to work. That is what needs to be done, and that is the best route out of poverty.

Q4. A 25% cut in public spending in Wales, together with a hike in VAT, will hit Wales especially hard. Does the Prime Minister now accept that he and his Liberal friends have let Wales down? (3685)

I do not accept that at all. The worst thing for Wales would be to continue with the budget deficit and rising debt, and to see our economy slide down. The choice in terms of the Budget is the road to recovery from this party, or the road to ruin offered by the Labour party.

Is the Prime Minister aware of the interesting progress in the European project for fusion research, of the opportunity for a materials testing facility to come to the United Kingdom, and of the suitability of Dounreay to deliver that work? Will the Government support such an application?

My hon. Friend speaks with great knowledge about scientific issues. It is important that we lead in such areas. His constituency, with Dounreay, obviously has a huge technical edge, so I shall take his representations seriously.

Q5. I am sure that the Prime Minister is aware of the send my friend to school campaign, in which my young constituents at Victoria primary school in Airdrie are involved and about which they will be writing to him this week. The campaign aims to ensure that the Government direct the £8.5 billion that was committed by the previous Labour Government towards universal primary education by 2015. The matter will be discussed on 7 July at the education summit in South Africa, which is tied in with the World cup. Has the Prime Minister personally spoken to President Zuma and other African leaders about their pledges, and will he confirm that a review of the Department for International Development’s funding will not compromise our pledge? (3686)

First, I welcome the hon. Lady following her election; I think that I am right in saying that she is the youngest Member of the House of Commons. She is quite right to talk about the millennium development goals and aid spending. It is good that it is common cause across the House of Commons that, despite the difficult decisions that we will have to take, we should meet the target of 0.7% of gross national income. We are committed to doing that, which means that we can continue to support the poorest people in the poorest countries. We will be addressing such issues this weekend at the G8 in Canada.

Q6. Yesterday, there was support on both sides of the House for raising the income tax threshold by £1,000. Does the Prime Minister agree that a Government who do that have to explain where the money is coming from? (3687)

My hon. Friend makes a good point. I noticed yesterday that everyone in the House supported the idea of raising the income tax threshold so that we take 880,000 people out of tax altogether. If people are going to support such a pledge, which could cost as much as £4 billion, they have to say where the money is coming from, but so far we have not heard about one penny piece of one saving from any Labour Front Bencher. In terms of Labour’s election for leader, it does not matter who that is, because they are not giving any figures to show where they would find cuts. Until they do that, they simply will not be taken seriously.

Q7. The building work for the new £20 million maternity supercentre in Bolton is pretty well finished, but may I be assured that the Government’s decision to review the making it better programme in Greater Manchester will not affect the expansion, and particularly the funding, of Bolton’s Princess Anne maternity unit? (3688)

Absolutely nobody is proposing closing the new unit that has been set up. The hon. Gentleman will know that decisions that were taken about Greater Manchester in the previous Parliament caused a huge amount of pain in that vital part of our country. My right hon. Friend the Secretary of State for Health is asking the NHS to ensure that we meet the needs of patients locally, instead of just conducting top-down reviews that lead to the closure of much loved units.

Will my right hon. Friend tell the House what discussions he has held with the US Administration to ensure that BP remains a strong and viable company?

I am grateful to my hon. Friend for raising that point. I have had two discussions with President Obama so far, including a very good telephone call last night. I made the point, especially in the earlier phone call, that of course BP wants to pay for the clean up and to stop the oil gushing into the gulf, and recognises that it must pay money in respect of fishermen and others who have lost their livelihoods, but we want to ensure that the company remains strong and stable for not only our benefit, but the benefit of the United States. I believe that 40% of the company’s shareholders are in the US, while 39% are in the UK, and it employs more people in the US than it does in the UK, so it is in all our interests that it is strong and secure in the future.

Q8. Yesterday, the Chancellor of the Exchequer told the House that, in April 2012, there would be no more children living in poverty than there are today. Unfortunately, two thirds of the cuts in tax credits and benefits come after that date. Will the Prime Minister give the House his forecast of the number of children who will be living in poverty by the end of the Parliament? (3689)

What I would say to the hon. Lady is that, for the first time in any Budget—certainly since I have been in the House—we have actually published the distributional tables on what happens to income. Labour never did that; we have done it for 2012-13. As for what happens towards the end of the Parliament, I am pleased to say that there will be at least another three coalition Budgets, which we look forward to introducing, to make sure that we go on to protect the poorest in our country.

In the closing days of the previous Parliament, Anthony Steen trafficked through the House the Anti-Slavery Day Act 2010 to highlight the problems of human trafficking. The Government are required to announce a day for anti-slavery day. What progress has been made on that front?

My hon. Friend makes a very good point. I admired the work that Anthony Steen did. We have not set a date and he gives me an important reminder that I must get back to my office and make sure that we do.

Q9. For more than 20 years, Sky News has provided an excellent source of impartial news and analysis. Can the Prime Minister give a guarantee that, whoever ends up owning BSkyB, it will not be allowed to turn into Fox News, and that there is no room here for shouty, reactionary propaganda passing itself off as fair and balanced news? (3690)

The very idea of shouty, reactionary propaganda being passed in the House of Commons is an appalling thought. As I am sure we all recognise, these are matters for my right hon. Friend the Secretary of State for Business, Innovation and Skills, who will be looking at them very closely.

Can the Prime Minister confirm that, until yesterday’s Budget, the benefits for some of the poorest in society were to be increased at a rate less than inflation, and therefore cut in real terms?

My hon. Friend makes an excellent point. The Labour Government’s plans were to increase benefits by less than consumer price inflation next year. They left a £300 million—they do not know this, the dupes behind the Front Bench—[Interruption.] I think dupes is an accurate description of what I am looking at. There was a £300 million black hole, and you do not have to be a “Star Trek” fan to know that when you are in a black hole, you should stop digging.

Q10. In the interests of informing the dupes behind either Front Bench, and in response to his answer to my hon. Friend the Member for Bishop Auckland (Helen Goodman), will the Prime Minister agree to publish the tables for the years following the one that has been published in the Red Book, which is very welcome, so that we can advise him on how to improve the impact of his policies on child poverty? (3691)

What a pity the hon. Lady never made that point in 13 years of Government. Where were the distributional tables in the Budget after Budget that we—the poor dupes who were sitting at the back—had to listen to the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) give over and over again? We have published the table for the first time. Between now and the years the hon. Lady talks about, there will be further Budgets, where we will make further progress in helping the poorest families in our country.

Does the Prime Minister agree with several generals, many members of the public and me that Trident should be included in the strategic defence and security review? Does he agree that if there is a case for retaining it, that would come out in the review; and if there is not a case, it should not be kept?

My hon. Friend will know that that matter was carefully negotiated in the coalition agreement between our two parties. My view is clear: Britain should retain the nuclear deterrent and we should always keep that insurance policy against great danger. Although I think that there is a case for looking at the costs of the Trident system and seeing how we can bear down on them, I do not believe that we should have the wider review that he suggests.

Q11. Yesterday, we were told that resolute action was necessary to deal decisively with our country’s debt. Does the Prime Minister believe that it is acceptable that Members’ allowances are being paid to Members of the House who neither take their seats nor participate in the work of the House? When will that injustice be remedied, as he promised before the election? (3692)

The hon. Gentleman makes a good point. My views about this issue are on the record, and they have not changed. I would like to see if we can make the argument. There is not a case for Sinn Fein Members not to take their seats. I think that at the moment we let them off the hook, so I would like to re-examine the argument and see if we can find a new way of doing this.

Q12. Saturday is Armed Forces day. In my constituency of Hexham in Northumberland we have hundreds of Royal Artillery servicemen who have recently returned from Afghanistan and will receive the freedom of the town. When they are off duty, they will receive multiple discounts from dozens of stores, restaurants and pubs that are doing their bit locally. Does the Prime Minister agree that it is everyone’s duty, not just in the House but all around the country, to go the extra mile and show the gratitude that we all have for our brave troops? (3693)

I very much agree with my hon. Friend. As I said earlier, this is something that the whole country needs to do, not just the Government. Yes, we have our responsibilities to make sure that we are living up to the military covenant and are doing all that we can for our armed forces and their families, but it is something that communities, individuals and businesses can do, too. I understand that in Hexham, there will be a nine-hour forces celebration. When those servicemen and women are off duty, there will be discounts, as he said, from restaurants and pubs, so I expect that it might get a bit lively, and I am sure that he will join in the fun.

A consequence of yesterday’s Budget and VAT rise is £26.5 million of new overheads for the NHS in Scotland. Having promised to ring-fence health spending, will the Treasury now cover those costs, or will this be another broken promise, just like Lib Dem opposition to a VAT rise before the election?

Of course, our action on national insurance contributions has saved the NHS money, which would not be available under a Labour Government. The point I would make is that that benefits Scotland. The fact that we are protecting the NHS and NHS spending means that money will be available in Scotland as well. The shadow Health Secretary has said that health should not be protected, and that the NHS should be cut. That is now, take note, the official position. The Leader of the Opposition is nodding—cutting the NHS is now official Labour policy.

Afghanistan (Military Patrols)

I thank my hon. Friend for his question. We are conducting a counter-insurgency operation in Afghanistan. He asked specifically about the military purpose of routine foot and vehicle patrols in Afghanistan. If we are going to win the counter-insurgency and succeed in what is called “war amongst the people”, we have to be among them, protecting them from the insurgents. That is how we are going to create a more stable and peaceful Afghanistan, from which we will be able to return, leaving the Afghan forces in control.

Does the Prime Minister accept that there are other ways of fighting counter-insurgencies that do not involve sending out uniformed personnel along predictable routes, day after day, to be sniped at and blown up? Will he request that his military advisers focus on long-term strategies that could achieve our strategic aims without having to pay such an unnecessarily high price?

I know that my hon. Friend takes a close interest in these matters, and I have arranged for him to meet senior officials and military advisers, so that he can explore his ideas with them. All that I would say is that the team that President Obama has put in place, and the team that we have in place of military and civilian leaders, have brought great impetus to the campaign. It is difficult to see, if we are trying to fight a counter-insurgency, how we can do so without having a number of active patrols to protect the people from the insurgents.

Order. I gently remind the House that this is a closed question on Afghanistan. Does anybody wish to come in? No. I call Mr Jonathan Evans.


Q14. Bearing in mind the Opposition’s claim that in Europe, Britain is now isolated, will my right hon. Friend indicate how on earth he managed to secure both French and German agreement to the announcement in relation to the bank levy in the Budget yesterday? (3695)

My hon. Friend makes an excellent point. In the Budget yesterday, my right hon. Friend the Chancellor announced unity between the French, the Germans and the British on introducing a bank levy. The one group of people who are isolated, and who say that we have to wait for the rest of the world before we can ask our banks to make a proper contribution, are the Opposition. Once again, they have no proposals to fill the enormous black hole that the Government are getting to grips with.

The Office for National Statistics reported that while the richest 10% spent £1 in every £25 of their income on VAT, the poorest 10% spent £1 in every £7 of their income on VAT. How, then, can the Prime Minister justify his oft-repeated refrain that we are all in this together?

What I would say to the right hon. Lady—it is an important point and the Red Book sets it out—is that the richest 10% will pay in cash terms 15 times as much in VAT as the poorest 10%. The important point to take into account and look at is the Budget as a whole. In the Budget as a whole, we can see that the richest pay the most both in cash terms and as a percentage of their income. What we have done, by massively increasing child tax credits, is to ensure that there is no increase in child poverty. What a contrast that is with the figures since 2004. The Labour party put up child poverty by 100,000. That is the difference.

Speaker’s Statement

Under the Order of the House of 15 June, I will now announce the determination of the party make-up of the Backbench Business Committee, which will be elected on Tuesday 29 June. Four members shall come from the Conservative party, two members shall come from the Labour party, one member shall come from the Liberal Democrat party. These proportions—[Interruption.] Order. These proportions reflect the proportions of parties in the House. It follows, of course, that nominations may be received only in respect of members of those parties.

Points of Order

Order. The hon. Member for Cardiff West (Kevin Brennan) is in danger of becoming over-excitable, and I know that he would not want to be. Let me respond to the point of order from the hon. Member for Wrexham (Ian Lucas). What he has raised is not a point of order—

Order. I require no help from the hon. Gentleman. It is not a point of order; it is a matter of taste, and we will have to leave it there.

Further to that point of order, Mr Speaker. In the light of your ruling, could we rename the session that we have just had, “Prime Minister’s Tantrums”? Is it not more accurate to describe the Liberal Democrats, rather than Opposition Back Benchers, as dupes?

There is nothing disorderly about the remark that the hon. Gentleman has just made, but unfortunately his attempted point of order suffered from the disadvantage of not being a point of order. However, he has made his point very clearly, and it is on the record. I have a hunch that he knew that before he got up to speak.

On a point of order, Mr Speaker. Given your statement on the Backbench Business Committee, does that mean, therefore, that we in the smaller parties are excluded from it? In a Committee that is designed to increase accountability and democracy in the House, how can that be right?

I am grateful to the hon. Gentleman for his point of order, and I recognise that he and other Members will be dissatisfied with the situation. However, what I want simply to say to him is twofold: first, the Committee is being constituted in accordance with party strength in the House; and, secondly, we are operating in accordance with the Standing Orders of the House by doing it that way. Not to proceed in that way would require us to revisit Standing Orders. Now, whether we should do so or not is a matter for the House to decide, but I am stating the factual position to the hon. Gentleman and for the benefit of the House.

On a point of order, Mr Speaker. I wonder whether I could have your guidance on how Back Benchers in the Opposition parties with only two Members on the Committee can get a fair hearing when there are five Members from the Government Benches.

The operation of the Committee is a matter for Members on the Committee and for its Chair. I am sure that the hon. Gentleman has every confidence in the capacity of his colleagues to discharge their responsibilities on the Committee, and I am sure that he would not have wanted to suggest otherwise.

Further to the point of order asked by the hon. Member for Perth and North Perthshire (Pete Wishart), Mr Speaker. Referencing your previous admonition to the House about what the public think outside, as opposed to Members inside, is it not ridiculous, and will it not seem so to the public and to the people we represent in the smaller parties, that we are excluded, by whatever device, from the Backbench Business Committee, and from other Committees in this House as well? Would you, Sir, be open to a consideration of how we may meet to discuss how the smaller parties can be properly represented in such Committees in this House?

I understand the hon. Gentleman’s point, and I understand his frustration, but I have already ruled on this. The House can always look at these matters. I would gently say to him that it would be unwise for the Chair to speculate on the ridiculous.

Further to that point of order, Mr Speaker. Could you tell me, and the House, why some Back-Bench Members are more equal than others in respect of membership of the Committee?

I am a little concerned that the hon. Gentleman is trying to continue the debate. I cannot believe, knowing his normal regard for order, that he would do that, but I have a worrying hunch that he might be making a first attempt. He has made his point, and I think that we will leave it there.

Ways and Means

Budget Resolutions and Economic Situation

Capital Gains Tax (Rates)

Debate resumed (Order, 22 June).

Question again proposed,

That provision may be made in relation to the rates at which capital gains tax is charged.

Before the shadow Chancellor rises, may I appeal to hon. Members who are leaving the Chamber to do so quickly and quietly so that we can hear him? I call Mr Alistair Darling.

I welcome the opportunity to open the second day’s debate on the Budget. There are two tests to be applied to this Budget. The first is what it does to ensure that we can secure the recovery and get long-term sustainable growth, and therefore support jobs. The second is what it does in respect of fairness and, in that context, what it says about the promises made by the parties that now comprise the Government.

I expect that over the next few days many points of detail will be explored, but I want to look at some of the bigger issues, especially the context against which this Budget needs to be judged. Before I do that, I welcome the Secretary of State for Business, Innovation and Skills to his place. I have not had an opportunity to cross swords with him in this Parliament, and I look forward to doing that and to hearing what his views are now as opposed to what they were a mere seven or eight weeks ago.

I want to start with the context in which the new Government made their decisions on this week’s Budget. Yes, that context has to be the need for us to reduce our borrowing—no one disputes that, although there are very live and real arguments about how fast and the extent to which the deficit ought to be reduced. However, I believe that it must also be seen in the context of growth. For some, like the Business Secretary, what I have to say will not be news because, after all, he largely agreed with the approach that I took during a lot of the last Parliament. However, he seems to have become rather more forgetful in the past few weeks, so a reminder may be useful.

On 28 April, which the right hon. Gentleman may now regard as being ancient history, but for most of us does not seem that far away, he said:

“The deficit problem is easier to solve if there is growth. That is why the next government has to recognise the fragility of the economy and not take action which would precipitate a double dip recession leading to more unemployment and even bigger budget deficits.”

I agree with the sentiments behind his statement. He was right on 28 April, and my guess is that he will still be right on 28 June, but I cannot understand why he has changed his mind in the intervening period. Growth is slightly stronger than before the general election, because at that time we thought that it was just 0.3% in the last quarter. However, although it has improved, it can, on no view, be said to be anything other than pretty modest and pretty fragile. I believe that the measures announced in the Budget yesterday present a risk of derailing that recovery, and worse, of giving rise to a situation in which our economy simply bumps along the bottom for a number of years. In that way, we would not get the growth that we need, and we therefore would not get the jobs. Worse still, of course, we would not have the funds to reduce our deficit and, therefore, our debt.

The past three years have been tough for businesses and families throughout our country and, indeed, many are still experiencing the problems that arose because of the recession. However, as I said, we have seen a return to growth, but it is only 0.3% in quarter one; unemployment has stabilised and begun to fall; and tax receipts are higher than expected, which is why our borrowing is £11 billion less than I forecast in March. All those improvements are a direct result of the action that the previous Labour Government took.

Throughout this debate and for some time to come, doubtless we will hear the now familiar mantra that everything that is wrong and all our problems are confined to one country alone—ours—and that they are due solely to the actions of the previous Government. Like any Government, we got some things right and some things wrong, but I am absolutely certain that the action we took to stop this country tipping from recession into depression was right, as was the action we had to take to stabilise the banking system. I will not yield to anyone who says we should have done differently. We needed to stabilise the economy and to keep people in their jobs and homes. We took that action because we do not believe that in such a situation people should be left to sink or swim. Those actions were taken largely with the support of the Liberal Democrats when they were in opposition, but everything has changed in the past seven weeks.

I will give way to someone who is perhaps an unreconstructed member of the Liberal Democrats, especially one who represents a constituency in the north of Scotland that may be the subject of change because of his leader’s determination to reduce the number of constituencies, particularly in his neck of the woods.

I am grateful to the right hon. Gentleman for those kind words, but I suspect I would be out of order if I responded.

May I bring the right hon. Gentleman back to the point he was making and remind him that when the Northern Rock crisis hit, my right hon. Friend the Business Secretary immediately proposed that nationalisation was the correct way forward, and that the Government whom the right hon. Gentleman represented prevaricated for six months before taking that action?

The hon. Gentleman raises an interesting point. He is right that the right hon. Gentleman called for nationalisation at an early stage. The current Chancellor, however, was dead against that. I imagine that if that situation arose now, the Chancellor’s view would prevail and the Business Secretary would have to do what he is told. The hon. Gentleman is absolutely right that at the time I agreed with a lot of what the Business Secretary was saying. For reasons that I will not go into just now because of the various legal requirements and other considerations, we did not nationalise Northern Rock until February 2008, but we were absolutely right to do so then. The Chancellor still thinks that we were wrong, but I am glad to say that the current Secretary of State for Justice believes that our action was right. The action we took, whether in relation to Northern Rock, the rest of the banking system or the rest of the economy, was critical.

While we are reflecting on recent history—the Chancellor yesterday spoke of the levels of debt prior to the economic crisis and blamed a long history of alleged Labour overspending —will my right hon. Friend speculate on why the Conservatives supported the Labour Government’s spending plans right up to the end of 2008?

The Conservatives did so because they thought it expedient, but at the end of 2008, they decided to change tack. In all we heard yesterday, the Chancellor did not explain why, if everything was going wrong and we were spending too much in the previous few years, he was quite happy to support such spending right up until the end of 2008.

I am listening with great interest to the right hon. Gentleman’s exposition of what the last Labour Government did. However, if everything is so good, why is our economic and financial position so much worse than those of our competitors after his tenure as Chancellor of the Exchequer?

It is largely because we have a very large financial sector that contributed about 25% of all our corporation tax receipts. When the banking crisis hit, those receipts fell. There is something in the argument that has been advanced on both sides of the House in recent years—although, perhaps in retrospect, sadly not as much as it might have been over the past 30 years —that our economy has become dependent on the financial services sector, particularly on tax receipts. I think we would all like to see that rebalanced. Of course, there is a big question about how we do that, and I cannot for the life of me see how cancelling the help to Sheffield Forgemasters, for example, will go anywhere towards helping that rebalancing. However, I shall come on to that in just a moment.

At the moment, our recovery is fragile. What makes matters worse is that the position in our main export market, Europe, is extremely worrying. I am far less optimistic than I was in March about what is likely to happen in the European Union economies over the next year. Growth in France has fallen back; in Germany, it is pretty flat—just positive; other countries have tipped into recession; and Spain has unemployment over 20% and other well-understood problems. On top of that, whereas the predominant view certainly until the beginning of this year was that we had to support our economies to ensure that we established growth, the Chancellor is right that he can pray in aid the change of view among some of his counterparts, such as in Germany, which is now pursuing policies to reduce the deficit that will impact on demand, not just in that country but within other parts of Europe as well. Germany is our major trading partner. If demand there is suppressed, and if taking large sums of money out of our economy here has the effect I suspect it will have, the result will be reduced demand, which will affect business confidence, its propensity to invest and, therefore, our ability to grow and generate the receipts we need to get our borrowing down. That is a real concern.

There is no doubt that, over the past few months, the balance in the approach has moved away from what one might characterise as the Keynesian towards the more orthodox. I, for one, think that that is a profound mistake.

Does my right hon. Friend share my worry about the much-cited examples of the quite savage cuts agendas in Canada, Sweden and elsewhere? They were done against the backdrop of growing export markets, monetary policy and currency devaluations. His analysis of what is happening in the eurozone at the moment should fill us with caution, if not dread, because if the Chancellor’s judgment is wrong, this country is going to hell in a handcart.

My hon. Friend’s point about Canada is an important one. Yes, Canada reduced its deficit quite dramatically. As a result of that country’s provincial set-up, a lot of the action was taken by the provincial governments rather than the national Government. It was taken, however, an the back of a growing US economy. Given the relative size of the Canadian economy compared with the US economy—it is much smaller than the Californian economy alone, for example—there is no doubt that the Canadians could do things on the back of their next-door neighbour’s rising prosperity. Our problem is that our next-door neighbours, the EU, are not in the same position at all—indeed, quite the reverse. Equally, when Sweden was going through a similar exercise, it was helped by the fact that the economy of much of Europe was growing at the time.

Does the right hon. Gentleman agree that he should also consider the example of Spain, of which I am sure he is more than aware, when talking about our EU neighbours? Despite having a lower debt-to-GDP ratio than us and a lower budget deficit, it is on the verge of a sovereign debt crisis. Its banks have been frozen out of the borrowing markets for the past three weeks, and it has reportedly held emergency meetings with the International Monetary Fund, the EU and others to try to arrange a bail-out package. Does that not make what we had to do yesterday even more critical?

There is another difference, of course. Official unemployment in Spain is more than 20%. The Spanish construction industry is in dire straits. A lot of Spain’s smaller banks, which are heavily tied to that industry, are finding things difficult. There is a world of difference between the Spanish economy and our own, just as there is a world of difference between the Greek economy and our own.

Just about every day in the run-up to the election, the hon. Gentleman’s party was anxious—desperate even—to compare our economy with the Greek economy. To his credit, the Secretary of State for Transport—he is not here today, but I made this point to him when we were debating on the television last night—said that Britain was nothing like Greece. The idea that we are in the same position as Greece or Spain is complete nonsense. Our economy is much larger and much stronger, and our ability to service our debt is much greater. The average maturity of our debt—as the hon. Gentleman knows, I assume—is 14 years, whereas in Greece the average maturity is three years and in continental Europe it is about five years.

Of course we have to get our borrowing down and ensure that we can get debt down as well. No one would disagree with that. The question for us is how do we do that in a way that maintains growth, so that we can ensure not only that we get growth in our economy and that we do not damage our future prospects, but that we do so in a way that is socially and politically fair? That is the difference, but to compare us with those smaller countries is, frankly, ludicrous, as many in the hon. Gentleman’s party realise.

Did the right hon. Gentleman really believe that the previous Government had ended boom and bust, and is that why he put no money away for the rainy day that has now arrived?

The hon. Gentleman was not here in the last Parliament, but I was asked that on numerous occasions. No Government can ever eradicate economic cycles. They have been around for years, and I expect that the current Government will find that they will be around for years as well. What I would say to the hon. Gentleman is this. Just before we went into this crisis, we had the second lowest debt level of the G7, behind only Canada, and although we had a structural deficit, it was much smaller—[Interruption.] Yes, we were borrowing to build schools and hospitals, but when they were sitting here on the Opposition Benches, Conservative Members used to call for more spending on schools, hospitals and the police, not less.

The point is that whatever we do, when we get that borrowing down, we have to ensure that we do it in a way that does not damage the fabric of the economy. Indeed, the Secretary of State for Business, Innovation and Skills said that he was

“very much opposed to the Conservative approach of rushing into cuts…regardless of the condition in the economy. That’s not sensible.”

He was right then and he would have been right now, but he is pursuing a different policy.

No, I am going to make some progress.

The current context is a fragile recovery, with growth in Europe sluggish. Crucially, however, we cannot assume, as the Government seem to, that it is axiomatic that if we cut back on public expenditure, the private sector will come in and take its place. That is not guaranteed at all. We have seen that in Japan and other countries. Indeed, the private sector often relies on public sector spending in many ways, whether through investment and support or directly, because it supplies goods and services to the public sector.

As I have said, borrowing is too high and we need to get it down. As I said to the hon. Member for Bexleyheath and Crayford (Mr Evennett), our receipts from income tax and corporation tax fell, as did our stamp duty receipts when the housing market went down, but that would have happened—indeed, it did happen—to every other major economy. We are not talking about something that was confined to the United Kingdom. Of course, as unemployment goes up, social security spending goes up as well. Indeed, it is interesting that if we look at what has happened to other countries across the world, we see that the deficit this year in this country is about the same as it is in the United States. If we look at debt and the IMF comparisons that were published in 2009, we find that our debt was less than that of Japan, Italy, Germany and France, and, looking ahead to 2015, it will still be less than that of the United States, France, Italy and Japan.

The idea that we are talking about a particularly British problem simply does not stack up. It is not true, but it is used as a convenient excuse for what the Conservative party always wanted to do. The truth is that the Conservatives supported our spending plans right up until the end of 2008—the hon. Member for North West Leicestershire (Andrew Bridgen) might want to consider this point. Indeed, when the now Prime Minister was challenged—I think by some right-wing newspaper—as selling the pass, he said that those spending plans were “tight”. That was the word he used. He said:

“This is why we are sticking to Labour’s spending totals. Taken alone, these are tight.”

That is what he said in 2008, but now the Conservatives turn around and say that what happened would not have happened if they had been in power for the past five years and that things would have been completely different.

Let us be clear: we all want to see borrowing come down, and we need to ensure that that happens. It is also clear that we need to understand the consequences of what we are doing, so that we do not damage our economy or damage the social fabric of this country. However, to suggest that we should not have done anything to support our economy as we went into recession or that we should not have stepped in to prevent the banking system from collapsing—and it was hours from collapsing—is simply nonsense, frankly. Indeed, if we had not done what we did, the cost, in terms of increased borrowing and higher debt, would have been far higher even than it is today, so that argument simply does not stack up.

We need a sensible plan to get borrowing down, but if we get this wrong we will cause major problems, given the scale and speed of the Government’s action. Again, the Business Secretary said a few weeks ago that

“it would be foolish to rush in significant cuts now which take the economy down even further, which lead to an even bigger deficit problem”.

He was right when he said that, yet the view of the Government of whom he is now a member is rather different. To be fair to the Chancellor, he has been consistent. He has wanted to take this risk for some time, and he is now taking it in great style. Even better, from his point of view, is that he has got the Liberals to front it up. No wonder that, once they are out of this Chamber, Conservative Members are laughing at the very idea of getting the Chief Secretary to the Treasury fronting up the cuts last week in his boss’s constituency. That is indeed new politics; I just wonder how long it will last. All I can say is that if things get better, there is no way that the Conservatives will allow the Liberals to front up any good news when it comes.

I am concerned at this time that we run the risk of derailing the recovery, which is why I took a different view. I thought that we should halve borrowing over four years, rather than go further and faster. Looking at the Office for Budget Responsibility’s forecasts published yesterday, I am concerned that it has downrated the growth forecast for this year, which it published a week before, from 1.3% down to 1.2%, and that it has downrated growth in 2011 from 2.6% to 2.3%. The OBR therefore recognises that growth is going to be suppressed as a result of what is being done.

I am honoured that the right hon. Gentleman has taken the time to give me tuppence-worth of his attention. Will he comment on whether he supports the creation of the Office for Budget Responsibility, bearing in mind his own predictions? In March he stated in this place that the growth forecast for 2011 was 3.25%, but now the Office for Budget Responsibility says that the forecast is 2.6%.

I am glad that I gave way to the hon. Gentleman, because the last time we touched on whether I supported the creation of the OBR, I think that the Chancellor said that I had always opposed it. However, I was careful before the election, and I think that I am right in saying that I did not oppose it as a matter of principle. The present Government decided to set up the OBR. If it works, it is worthy of support, so we will support the legislation in principle, but we will look at the detail. One interesting question is whether the OBR should be responsible to the Treasury or to Parliament—to this House in particular.

Let me come to the forecasts. Forecasting, as I am sure the hon. Gentleman knows, is an art rather than a science. Let us just see, because as I understand it, the OBR is being advised by exactly the same civil servants who advise the Chancellor, and who advised me a few months ago. However, I note that when Sir Alan Budd announced the OBR pre-Budget report a week last Monday, he said that one of the reasons why he had changed his estimate was recent developments, including what is happening in Europe. As I said earlier, I am less optimistic now than I was three months ago about what is likely to happen to growth.

No, I think I have dealt with that point.

There will be some people who argue that the private sector would see faster growth and job creation if there was a swift consolidation that supported looser monetary policy. However, with inflation down, interest rates at 0.5% and bond yields coming down—they were coming down before the election, as well as after it—there is no evidence of suppressed private sector demand, so that argument does not stack up. I am concerned that we may see a situation when there are not the right conditions or the right confidence to bring forward business investment. I am happy to welcome the proposed reduction in corporation tax rates and other business help, but what governs whether businesses come forward with investment is whether they are confident that the economy is going to be growing so that people will buy their goods and services. That is what I am concerned about.

I am also concerned that the Office for Budget Responsibility forecast shows employment taking a hit of about 100,000 compared with what we had forecast previously. The Chartered Institute of Personnel and Development foresees unemployment rising and sticking around 3 million for this entire Parliament. The history of Japan in the 1990s—and, indeed, our own history back in the 1930s—provides a lesson in what happens if we get all this wrong. Wherever we sit in this House, we should all be concerned about rising and persistent unemployment. Not only is it an economic waste; it is also a social catastrophe, as we have seen on many occasions.

I shall give way to the hon. Gentleman, not least because I had the pleasure of visiting what is now his constituency during the election campaign, and I can see that my contribution there did not quite work out.

I thank the right hon. Gentleman for giving way—and, indeed, for visiting North East Somerset, where he will be welcome again. He has mentioned Japan, and what Japan got wrong. What it got wrong was massive overspending, as a result of which it is now forecast to have a debt to GDP ratio of 246%. Surely that overspending is exactly what we need to avoid.

What Japan got wrong was snuffing out a recovery at a very early stage and never really getting over it. As the hon. Gentleman knows, the Japanese have had complete stagnation for a long period now. The debt is just going up and up, and understandably they are very concerned about it. The new Prime Minister was the finance Minister until a few weeks ago, and understandably, he has huge problems on his hands.

The tests we need to apply to the Budget relate to growth and jobs, which I remain very concerned about; there is a substantial risk there, and I would like to have heard more said about policies to promote growth so that we do not end up with years of very sluggish growth at best or, even worse, bumping along the bottom for some years.

I have said that one of the tests that needs to be applied to this Budget is its fairness and another relates to the promises made about it before the election. Where better to start, then, than with VAT? During the election there was a lot of discussion about that. The Conservatives, like ourselves, said that they had no plans to raise VAT. I remember having a discussion with the Chancellor when he announced his plans not to go ahead with at least some of the national insurance increases, and he said that he would fund that from efficiency savings. I remember saying that I thought that was highly doubtful, and that they would have to raise money from another big tax. Sure enough, VAT is going up.

Interestingly, for some reason, not much was said about efficiencies yesterday, although they loomed very large during the election. We now know that “no plans” on the Tory side meant exactly what Geoffrey Howe said in 1979 when he said he had “no intention” of doubling VAT. Of course he was factually right, as it only went up from 8% to 15%. It was the same with John Major when he was Prime Minister in 1992, and said he had “no plans” to raise “extra resources from VAT”: of course, VAT went up. Even last year, the Prime Minister said in opposition that putting up VAT was regressive. He said:

“You could try, as you say, put it on VAT, sales tax, but again if you look at the effect of sales tax, it's very regressive, it hits the poorest the hardest. It does, I absolutely promise you.”

I assume he was not absolutely promising to do that, but was trying to point out to the questioner that he thought that VAT was regressive. Yet here we have it—VAT going up to 20%, as I always suspected would happen.

What I find even more curious is how on earth the Business Secretary can back this proposal. He cannot have been unaware of the Liberal campaign which spent two days dealing with the “Tory VAT bombshell”. We saw the posters all over the country. They said a Tory Government would come up with “a secret VAT bombshell”, but the only secret appears to be that the Liberals intended to vote for it when it was introduced. The hon. Member for Bermondsey and Old Southwark (Simon Hughes), who is no longer in his place, said last week that he thought VAT was

“the most regressive form of tax”

in that it “penalises the poor”. When the Business Secretary said during the election that he would

“hardwire fairness back into national life”,

did he have this in mind?

I see that there are, wisely, only four Liberal Democrats in the House at the moment; the others are no doubt explaining to their constituents why it is that when they said, “Vote for us and keep the Tories out,” they completely misunderstood the position. It seems to me that this is not just a broken promise, as there are real issues at stake. I was criticised for what I did with national insurance, but I wanted to ensure that pensioners would not have to pay the increased tax and I wanted to protect people earning less than £20,000—of course, that has not happened.

The Chancellor keeps saying that we are all in this together, but the headlines in The Financial Times today suggest otherwise. Under the headline, “Well paid breathe collective sigh of relief”, the article quotes someone from RBC Wealth Management saying:

“Many high earners will be breathing a sigh of relief.”

Does that not prove that we are not all in it together?

My hon. Friend makes a fair point. It is interesting that the Liberal Democrats promised us that if they went into coalition they would get something in return on capital gains tax. They wanted a 40% CGT, yet they appear to have settled for 28%.

The Chancellor says it is 10% higher, but when I raised capital gains tax to 18%, I remember the angry campaign waged against it by Conservative Members. They said that 18% would discourage enterprise and was a terrible thing, but they seem to have changed their minds on that absolutely and completely. By the way, we are not going to oppose the increase in capital gains tax; especially when there is a higher 50p rate of tax, sooner or later action would have to be taken to stop the real risk of leakage. As I think the Chancellor said yesterday, the real gain from raising capital gains tax comes from income tax receipts. The position of the Liberal Democrats, however, was quite different.

There are other areas, too, where questions of fairness will be raised. Where in the manifestos of either of the political parties that form the Government was it said that they were going to index benefits to the lower inflation index of the CPI—the consumer prices index—which takes about £6 billion away from people whose income, generally speaking, is not that great? Where was it said in their manifestos that they were going to cut more than £100 in relation to child benefit, or to freeze that benefit for three years? Other changes also deserve very close examination. Everybody knows that housing benefit is in need of reform, as is the disability living allowance, but as we all know, these are complicated, difficult and sometimes controversial issues. It will be interesting to see whether the coalition Government can deliver all the things they promised yesterday.

The shadow Chancellor said that action would have had to be taken on the CGT rate sooner or later, but I cannot remember him criticising his predecessor when the Labour party reduced CGT from 40% down to 18%. Is he now saying that that was the wrong thing to do, or not?

I am not saying that, and I am bound to say that I do not remember anybody—and certainly not the Conservative party at the time—criticising the reduction of CGT down to 10%. It was believed that it would help and encourage entrepreneurship—[Interruption.] The hon. Gentleman might like to have a long look at that, but I am sure that many arguments can be mounted both ways. As he knows, I made changes in 2007; I remember that the Conservative party’s complaint then was not about the reduction of CGT, but about my increasing it to 18%. As I said, with income tax rates at 50%, it is sensible to keep an eye on this.

I believe that people will find it difficult to characterise a number of measures announced yesterday as fair. On tax credits, the Chancellor said that the Government were going to start to taper away tax credits from household incomes of over £40,000, but that is already true now. In the following year the threshold goes down to £30,000. As we always said during the election—when it was denied—people on incomes as low £15,000 will be affected. Look at table A.5 on page 64 of the Red Book: it is there; it is all set out. It shows that cuts in entitlement to tax credits go far further than the right hon. Gentleman set out yesterday.

I think that the Liberals will have some difficulty in characterising these things as “progressive cuts”. I understand that the leader of the Liberal Democrats points to the table published in the Red Book, which makes it look as if people at the top end are bearing a fair share of the reductions and tax increases, but it shows that only because the Government have published a table showing measures yet to be introduced, including our national insurance increases. The top decile will be paying more because of measures that I, not the Chancellor, introduced. It is slightly disingenuous of the Prime Minister to give the impression, as he did at the end of Question Time, that what the Conservatives are doing is redistributive and fair. That is not the case.

The shadow Chancellor has told us that he supports the rise in CGT. Does he also support the rise in the personal allowance by £1,000, the re-linking of pensions to earnings and the freezing of council tax? If he does, why were they not in his last Budget?

Our policy, as the hon. Gentleman will know, was to restore the earnings link from 2012. I can see that bringing that forward to a year in which earnings are likely to be very low had a political attraction. I think that was the subject of exchanges at Prime Minister’s Question Time, and it will not have the cash effect that is thought. As for personal allowances, I am in favour of taking people out of tax if at all possible, but the same people who are being taken out of tax will be paying increased VAT.

Further to the intervention of the hon. Member for Crewe and Nantwich (Mr Timpson), will my right hon. Friend expose the nonsense of the supposed council tax freeze announced by the Government and the small amount of money given to local authorities at the 2.5% level? Is not the rug being pulled from under local government through swingeing cuts to grants? How on earth are local authorities supposed to plan ahead and make their budgets? Surely they will not be able to do that until they see the spending review.

I noticed that the spin on Tuesday morning was that council tax was to be frozen in England next year. By the time of the speech, however, the Chancellor was saying that if local authorities did certain things, he would see what he could do to help them, which is not quite the same.

Let me put some questions to the Secretary of State for Business, Innovation and Skills. On the Chancellor’s proposed levy on the banks, will the Secretary of State tell us precisely what the French and German Governments propose to do? I, too, had discussions with my French and German counterparts, but it was not always clear that they were proposing to do precisely what we might have done. Things have clearly developed, and I would like to know what those developments are.

The Chancellor announced measures to help development outside London and the south-east. He mentioned regional funds and other help, so will the Business Secretary give us further details? The Chancellor also mentioned that he wanted to change the approach to pensions tax relief. He made the point that the Labour Government had had a number of discussions; legislation went through on the nod, I think, just before Dissolution. Does the Chancellor’s alternative mean reduced annual allowances? My recollection is that that would affect far more people than we proposed to affect, and is therefore less progressive?

People are right to be concerned about the overall thrust of the Budget in relation to the effect on growth and jobs. Yes, we need to get borrowing down—we all know that—but we must do it in a way that is sensible and will result in us coming through all the problems and being able to grow and secure jobs in the future. The Budget also fails the fairness test. Over the next few weeks and months, we will consider yesterday’s announcement and, equally importantly, the cuts to departmental spending. The Business Secretary’s Department is not protected. Perhaps he will say what the effect of a reduction of a quarter in his budget would be, given that he is responsible for science, universities and business support.

We will return to those big questions. Like all Budgets, this one will be judged in the fullness of time. We are coming through a difficult period, and the action taken by the Labour Government was totally justified. We must be careful not to derail that effort and end up undoing all the work done over the past few years.

This is the first opportunity that I have had to debate with the shadow Chancellor from this side of the Dispatch Box. May I start by paying tribute to him? I have always said publicly, and am happy to continue to do so, that in many respects he was one of the people who emerged from the wreckage of the previous Government with an enhanced reputation. He did so for two reasons. First, he inherited an enormous banking crisis that was in part the result of the naivety and negligence of the treatment of banking before he became Chancellor. He dealt with it decisively in the autumn of 2008, through liquidity and part nationalisation, and I reassert that he deserves credit for that. Secondly, he has at his core a strong element of honesty and integrity, which occasionally involves him blurting out the truth. There was the famous occasion when he came back from a holiday in the Hebrides and uttered the blasphemous four-letter word “cuts” for the first time, much to the annoyance of his next-door neighbour in Downing street.

The question to which the Government have wanted an answer is this: why were we left £50 billion of cut commitments without any explanation of what they were going to be? On 12 June, the shadow Chancellor gave us an insight into what had been going on. He said:

“I wanted to show more examples of what we could cut, and more examples of what we could switch. But there was a more limited appetite for that than you might think.”

It was not just the appetite of his then next-door neighbour, who is now being blamed for everything, that was limited. I think that there was a limited appetite here and there, and as a result we have been left with the responsibility of spelling out what those painful cuts are.

There is another comment which is not a direct quote of the shadow Chancellor, and he might not even have said it, but let me give it to the House, as I think it reflects quite well on him. He is said to have made an insightful observation on the nature of sovereign debt crises. Apparently, he told the Cabinet, “The ice seems solid the moment before it cracks.” That captures beautifully the dilemma that the Government now face with a sovereign debt crisis in the background. I wish to return to that issue, but first I will briefly answer the technical points that he threw in at the end of his speech.

As I understand it, the French-German proposal is a balance sheet levy similar to what is happening here. The proposals relating to regional rebalancing, which are an important part of the Government’s proposals, have two elements: £5,000 relief from employer national insurance contributions for new companies with up to 10 employees outside the east, the south-east and London, and a fund that will be distributed on the basis of bids received for good projects, especially those with a high-technology and environmental component. The details on that will emerge in due course.

Why, if the Government are so keen on rebalancing the economy regionally, did they turn down the loan to Sheffield Forgemasters?

The hon. Lady knows the reason; it has been explained several times. A lot of questions had to be asked about the affordability, value for money and risk of that project. What was a very highly geared project promised extraordinary rates of return to the private promoter. We looked carefully at all the evidence, and the project clearly had positive aspects, but we decided that in the circumstances of a Government with highly constrained public finances, we could not support it.

I have answered the question; I do not want to pursue it.

Were the private promoters able to take the project forward, we would be delighted, because as a commercial project it has many attractions. However, the Government could not commit large amounts of money to such a project.

The shadow Chancellor made a series of challenges, which I will take systematically. He asked why we, and I personally, have endorsed austerity policies and especially quick cuts; he asked about the issues around fairness and value added tax, with which I will deal; and he asked about the important economic question of how we get growth emerging from a period of austerity, and I will try to answer that. First, however, let me explain why I changed my mind—for I did change my mind—about the necessity for early action on the budget deficit. Let me describe the sequence of events, because I think that it is quite important.

As the shadow Chancellor knows, because he was still Chancellor then, when the election took place there was, in the background, a major sovereign debt crisis in Europe. The day after the election, when there was a hung Parliament, the then Prime Minister suggested to me, I think for reasons for courtesy, that I talk to some senior officials in the Government and the governor of the central bank about the existing situation, in order to obtain their assessments of what was going on. I did so. The leader of my party talked to the governor, and I have talked to him since.

The advice that I received, uncompromising and unequivocal, was that the incoming Government, whoever they were—we did not know who they would be at the time—would have to act immediately and decisively on the budget deficit, because there was a serious threat to this country. I took that advice, but was left with a nagging question. The former Chancellor was presumably receiving the same advice. What would he have done? Was he proposing to disregard it? The line of policy that he is developing now suggests that he would have liked to disregard it, but was he going to do so, or was he going to be responsible, accept the advice and act on it? Because he is a responsible and serious man, I think he would have accepted it.

We now know, because the figures are becoming clear, that in the current financial year, when, as the shadow Chancellor said, the economy was fragile, he was introducing a fiscal tightening of £23 billion. The new Government have introduced a tightening of £6 billion. The last Government did not announce that fiscal tightening—it emerged in the small print from the Institute for Fiscal Studies—but the shadow Chancellor did it, and he clearly did it with good reason. The problem was that it was never clear what the Government were doing, it was done in a very chaotic way, and some Ministers—including Lord Mandelson, my predecessor—plainly wanted to support the Chancellor and to act in the public interest, and got on with those cuts. When I entered the Department, people such as further education lecturers and scientists were being made redundant as a result of the measures that had already been initiated by the Government in response to the crisis that they knew existed.

The right hon. Gentleman may well have had his damascene conversion, for who knows what reasons, but does he not owe an apology to the millions of people who thought when they voted Liberal Democrat that they were voting for a pro-growth strategy and against these massive cuts? Should he not apologise to his own electors?

No; we are trying to deal with the problem that the hon. Gentleman and his colleagues left behind.

Since the right hon. Gentleman referred directly to me and to advice and discussions that I may have had, let me say to him that there has never been any argument in the House about the fact that we needed to reduce borrowing. The discussion was always about when the reduction should start—before the election, he and I were on the same side on that—and about the extent to which, and the speed at which, it should take place.

As for Greece and the sovereign debt crisis, I am sure that the right hon. Gentleman will also have been advised that the real problem was that the rest of the eurogroup took far too long to do what was necessary to support the Greek Government. Had they done it in February, when the problems first became apparent, some, although not all, of those problems might have been avoided. As it was, they were allowed to become acute. No one is arguing that we did not need to reduce our borrowing, but we were not in the same position as Greece.

I know that we were not in the same position as Greece. I was not talking about what the Greeks and the eurozone needed to do; I was talking about what we needed to do, and the advice that we received.

There is an evidence base to look at. It is true that, as the shadow Chancellor said in his speech, the cost of borrowing in terms of bond yields was starting to fall under the last Government. That is because markets are driven by expectations, and they expected a change of Government. Since the election, however, and since this action was taken and announced, the cost to the United Kingdom of borrowing, in terms of bond yields, has fallen by 20 basis points. In Greece it has risen by 170 basis points, or 2% in ordinary language. It has risen by 94 points in Ireland, by 95 in Portugal, and by 65 in Spain. Spain is a serious, big country: we are not talking about tiny, peripheral economies. It is a serious country, which was caught up in the financial firestorm that we have had to head off from here. That was the basis on which we made decisions.

Let me now develop that immediate question into the broader issue of the Chancellor’s Budget and the magnitude of the task that we had to undertake. There is, of course, a difference between the problem of the deficit and the problem of the debt. There is a public debt problem, which is growing rapidly, but as the Chancellor has pointed out and as I have often pointed out myself, it is not greatly out of line with what is happening in many other countries, or with what has happened historically. The real problem for the United Kingdom is the massive level of public borrowing. That is why markets are important. The deficit in the last financial year was 11% of GDP; in the current financial year, it is 10.5% of GDP. That money—£155 billion—must be borrowed. My views on that, on how it should be dealt with, and on the kind of radicalism that is needed had nothing to do with the formation of the coalition. My views were set out a year ago, when I wrote a pamphlet which did, indeed, bear a strong resemblance to what the Chancellor produced yesterday in terms of scale, scope and speed.

Let me tell the shadow Chancellor why I feel strongly about the need to act in such a decisive way in terms of fiscal policy. There are two reasons. First, I saw the disaster unfolding under the last Government, when they were overtaken by a major financial crisis for which they were not prepared and to which they had massively contributed. Of course there is a global problem—we know that—but its impact has been much more serious in this country than elsewhere. That is because the Government allowed household debt, in relation to income, to rise to the highest level in the developed world; because they acted and planned on the assumption that house prices rise for ever, although we know from the evidence that they go up and down roughly every 17 or 18 years, as they have done for the last 300 years; and because they created, encouraged and fostered an almost Icelandic dependence on major international banks, the combined magnitude of whose balance sheets represented 400% of our economy.

The Government allowed that to happen. Some of us warned about the dangers, and they took no notice: they said that we were scaremongering. But the crisis hit them, and, having experienced it once, we on this side of the House are determined that such a financial crisis should not happen again as a result of sovereign risk. That is why we are decisive, and why we feel that we need to act.

If what the right hon. Gentleman says about the banks is true, why has the Budget been quite so lenient with them? Why has it taken only £1 billion from them, when the rest of the country is having to pay £14 billion as a result of the measures in the Red Book? What will his Department do to prevent the banks from passing even that £1 billion on to their customers?

That was a very strange intervention. It may reflect the fact that the hon. Gentleman—whom I respect a great deal—has rejoined the House following the election, and may not be familiar with the arguments that led up to it. He will know, however, that the last Government were going to phase out their bonus tax. We have reintroduced a stable system of taxation on banks, the incidence of which will increase over time. Of course, many things need to happen to the banking system. We will discuss, as colleagues, how we should deal with such matters as bank lending, on which there is an outrageous record of bank dysfunctionality.

It seems to me that, to rectify the problems, the right hon. Gentleman has signed up his party to a Budget that represents a massive gamble for the country. What happens if it fails? What is plan B?

The hon. Gentleman says that a gamble is being made. Certainly there is a risk. There are risks in tightening fiscal policy too quickly, but there are also risks in doing nothing, or in doing less. We have had to balance those risks, and we have concluded that we must act.

Since the questions are coming from Labour Members, let me now give the other reason why I feel strongly about the need to act decisively in the way in which the Chancellor acted yesterday. Thirty years ago, as an adviser, I occupied the office that I now occupy as a Minister. It was the end of a Labour Government who had chosen to ignore the build-up to a major financial crisis. As some people will remember, the painful measures—the taxes, welfare cuts and spending cuts—were not taken by choice. They were imposed from outside by the International Monetary Fund. Because I was there at the tail-end of that Government, I saw the consequences, not the least of which were the massive divisions that opened up. People in the Government such as Denis Healey, Roy Jenkins and my boss, John Smith, believed that the Government had to be responsible, but there were a lot of others—I sense a growing echo of this feeling on the Opposition Back Benches today—who said, “We don’t need to do anything, we can fight the gnomes of Zurich and drive them underground, we can ignore the rest of the world and we do not need to act.” It was a disastrous alternative strategy, and the Labour party is in great danger of returning to that territory.

That is why I have come to the same position as the Chancellor of the Exchequer. We come from different political traditions; I do not try to hide that. As it happens, my role models as Chancellor of the Exchequer include Sir Stafford Cripps and Roy Jenkins, because they understood the need for sound public finance and they combined tough action on budgets with fairness. That is the tradition that we have continued.

Let me list some of the measures in this Budget with which I am proud to be associated. There is the lifting of the tax threshold by £1,000, towards the £10,000 mark. There is the action on capital gains tax, which is not just a tax-avoidance measure, but is about fairness. We have acted on public sector pay not just by freezing some salaries but by giving special help to people on low pay in the public sector. We have introduced the bank levy. We have done what the Labour Government failed to do in 12 years and introduced a triple-lock to protect pensioners—the shadow Deputy Leader of the House, the hon. Member for Worsley and Eccles South (Barbara Keeley), could not quite get her head around what the triple-lock is—and in addition supported pensioners through improved pension credit, which is a major cost on the budget going forward. We took action to head off any increase in child benefit, too.

Let me read a comment on child poverty made not by a politician, but by Barnardo’s, one of the leading charities. Yesterday it said:

“There’s some pain in this Budget for the poorest families, but we recognise the government has done what it can to protect the most vulnerable.

Our calls for child tax credits to be redirected away from more wealthy families to the poorest have been heard—an action we highly commend.”

I do not doubt the right hon. Gentleman’s motives during his journey over the years and the past few weeks, but does he give credence to the fact that there is an alternative that could minimise the risk to his communities and mine? It is not to do with rejecting an agenda of cuts, efficiencies or reprioritisation; it is to do with timing. It is not just me saying that, or the “dupes” on the Labour Benches. Paul Krugman, “Danny” Blanchflower, Will Hutton and many other economists are saying, “Minimise the risk; just delay, and make the decisions at the right time.”

I think that the gentlemen to whom the hon. Gentleman refers are mostly talking about competitive deflation in the world economy, which is, of course, absolutely disastrous. The Chancellor referred in his speech yesterday to the fact that other countries that are in surplus have to do the opposite of what we are doing in terms of fiscal consolidation. The Chancellor made that very clear in relation to action to be taken by the Chinese and action that should be taken by countries such as Germany. Of course we understand the wider context.

Let me return to the criticisms about value added tax. The shadow Chancellor put the question in a personal way when he asked why I was supporting the increase in value added tax. The three of us—the shadow Chancellor, the Chancellor and myself—went around the television studios during the election campaign; we were the three Chancellors, a bit like “The Three Tenors”. We had our several encounters and each of us was asked time and again, “What do you think about value added tax?” As I recall, all three of us gave an identical answer: “We have no plans to increase value added tax, but we have not ruled it out.” The reason why we are now having to confront the matter is that there is a bigger structural deficit than was appreciated and action had to be taken. That could have been a tax measure, or it could have been a spending cut. Is that what Labour Members are saying? Do they want more cuts in spending? Do they want another tax? What do they want?

I was just wondering what impression the Liberal Democrat poster about the Tory VAT bombshell was meant to give.

Anybody who read my comments on tax policy over the past year would, I think, hardly imagine that there was a surprise or a bombshell, because I said on many occasions that if taxes had to be increased, it made much more sense to tax expenditure than income or corporate income or employment. That was my view, and I expressed it on many occasions.

I wish to associate myself with many of the measures that we as Liberal Democrats can take pleasure from in the Budget, including the increases in personal allowance and in pensions. On VAT, to what extent does my right hon. Friend accept that we could have explored alternatives, including increasing capital gains tax still further or increasing the bank levy to ensure that the balance of tax increases was more proportionate?

The Government did look at the possibility of raising capital gains tax further. They did serious analysis and the conclusion was that it would not raise any more revenue. That was the problem. It certainly would not have raised anything remotely like £10 billion. That is why we cannot evade this issue.

Let me turn to the central concern about value added tax, which is expressed on both sides of the House: the worry about regressiveness. I checked back on what independent analysts were saying about value added tax and its income distribution effects. It is worth looking at the work of the Institute for Fiscal Studies, which has conducted a distributional analysis based on expenditure. It came to the conclusion—this is its word, not mine—that value added tax was fairly “progressive” because of the exemptions that are given for zero rating, as food, children’s clothing and other essentials are key items in the expenditure patterns of poorer people. [Interruption.] The top 10% of the population pay three times as much in value added tax as the bottom 10%. [Interruption.]

Opposition Members are expressing righteous indignation about what they regard as regressive measures. Let me tell them which is the most regressive tax: it is council tax. Do they remember what happened to council tax under the Labour Government? On average, it went up 70%. Taking into account rebates, for the poorest 10% of the population it rose by 93%. It is the most regressive tax of all, yet they lecture us in this sanctimonious way about regressive taxation. They have no basis for doing that.

Finally, let me turn to the crucial issue of growth, which the shadow Chancellor raised. He is right that growth does not happen automatically; of course it does not. How do we proceed from the austerity that has to happen—from cuts in public spending—to growth in business investment and net exports, which we want to see? That is a genuinely important question, to which there are no simple answers. The perfectly fair point has been made that there are risks involved here, just as there are risks, which we judge to be bigger, in doing nothing, so let me try to answer this question seriously. If we are going to get growth, it will come partly through demand and partly through supply. How do we sustain demand? Essentially, we do so through monetary policy. That is what happened under the last Government. The reason why the economy kept on going through the recession was not Government fiscal stimulus. That was trivial, and it has now been withdrawn anyway. It was not for that reason; it was because we had very low interest rates, the expansion of money through quantitative easing and, of course, a big devaluation.

Those factors drove the economy in terms of demand and they will continue to do so. There is a reason for believing that that is what will happen: the Governor of the Bank of England called for this Budget and has now got it, and he has every reason to understand the need for monetary policy to support recovery.

The right hon. Gentleman says that the Budget will increase growth, but the Office for Budget Responsibility says in the Red Book, at paragraph C.18, that

“economic activity is weaker than in the pre-Budget forecast…this reflects Budget measures which restrain government spending and real household disposable income, holding back consumer demand.”

Does he agree with the OBR or does he now admit that the Budget will not increase growth?

That was not on the point I was speaking about. I know that the hon. Lady is a new Member, but I am sorry that she felt the need to read out her question in the way that she did. Nevertheless, there is a very simple answer on page 94 of the Red Book. It is a technical point made by Sir Colin Budd, who drew up this part. These issues are not comparable. Had the Labour plans been implemented, interest rates would have been higher than they now are, which would have dragged down the rate of growth and pushed up the level of unemployment beyond what it is. That is the distinction he makes. He also refers to the fact that there is a basic confusion. I noticed that the Chancellor did not repeat the point in his speech, but it was raised yesterday. That explains the hon. Lady’s genuine misunderstanding.

In addition to issues about how to stimulate demand, there is an issue about how to get business investment moving—how to get supply, and an understanding of the supply side of the economy. A lot of the Budget’s stronger points were about that issue. The Budget was about creating a tax environment within which business is confident to invest. It is about doing the things that my Department is now starting to do in conjunction with the Cabinet Office, such as looking at the 20,000-plus additional regulations that were built in by the last Government and which are shackling small business. It is about addressing the issue of bank credit that was lamentably neglected by our predecessors, and investing in things like apprenticeships, which we have started to do even within our few weeks in office.

On investment, will my right hon. Friend say a little more about the Chancellor’s words yesterday on enlarging the enterprise finance guarantee scheme, which would help 2,000 small businesses? Some 90% of our economy is made up of small and medium-sized businesses. I have had two meetings with business representatives since the election, and they all tell me that one of the major problems is bank lending to good, viable businesses—particularly those that are exporting around the world. I am sure that those are precisely the sort of businesses that my right hon. Friend had in mind as those which will give us the private sector growth that we require.

The hon. Gentleman is right, and it is the problem of credit supply to the small and medium-sized business sector that has the greatest potential to disrupt the recovery. That is why the Chancellor included in yesterday’s Budget the finance guarantee, and why we now have to work on why banks that were rescued by the taxpayers do not lend to the good companies that the hon. Gentleman describes, which are solvent, have good order books and will contribute to recovery. That is a major task that the Government now have to undertake.

The right hon. Gentleman talks about the importance of investment and about being fair to regions. The Northwest Regional Development Agency has played a critical role in setting up investment funds for businesses in the north-west and was key in setting up the centre of scientific excellence at Daresbury, which has been responsible for retaining skills in the north-west and for developing science-based businesses. Why does he want to abolish it?

I have met the Northwest Regional Development Agency and I have suggested to it that under the new structures that will be created—the local enterprise partnerships, and local businesses working with their local councils—it will have an opportunity to bid for status in order to carry forward useful projects that support development on the ground. There will be a change—those RDAs are going to be restructured—but there is a role for that kind of innovation locally.

The shadow Chancellor talked at some length about the need for growth. He is right that we need growth, but it has to be sustainable. We had a decade of what seemed at the time, at least to some Labour Members, to be strong economic growth. I am sure that hon. Members will remember, as I do, all those Budgets in which the then Chancellor told us that we had achieved the highest rate of growth since the Hanoverians—I think it was even the Roman empire on one occasion—and talked about a boom in employment. But the house was built on sand and it was all a mirage. It was not sustainable. It was based on levels of personal debt and Government borrowing that could not be sustained; it was also based on a housing market that could not be sustained and on a fragile banking system. We have to restore growth, but it has to be sustainable. That is what the Budget was about.