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Oral Answers to Questions

Volume 513: debated on Tuesday 13 July 2010


The Chancellor of the Exchequer was asked—

Economic Growth (North-West)

I am delighted to have the opportunity to answer these questions on behalf of the Chancellor, who is at the ECOFIN meeting today.

In order to support private sector enterprise throughout the UK and ensure that all parts of the country, including the north-west, benefit from sustainable economic growth, the Government announced a number of measures in the Budget, such as using the national insurance system to encourage the creation of new businesses and establishing a £1 billion regional growth fund. Later in the summer we will publish a White Paper on a new approach to sub-national growth, including local enterprise partnerships, local incentives and more powers for major cities.

I thank my right hon. Friend for that detailed answer. My question relates to the abolition of the Northwest Regional Development Agency. Does he agree with the comments of Councillor Peter Gibson, leader of the excellent Wyre borough council in my constituency, who said last week that its abolition will give us the potential to relieve the bureaucracy on the backs of local authorities and businesses and the potential for a fairer distribution of resources throughout Lancashire?

I am very grateful for that question. It is precisely because of such concerns that we have chosen to establish local economic partnerships. The Secretaries of State for Communities and Local Government and for Business, Innovation and Skills jointly wrote to local authorities inviting submissions for the establishment of those new bodies, which will be partnerships between local authorities and local businesses. That is the right way to promote economic growth in localities.

I thank my right hon. Friend for that answer. Picking up on what my hon. Friend the Member for Lancaster and Fleetwood (Eric Ollerenshaw) said about the Northwest Regional Development Agency, is my right hon. Friend aware that the North of England Inward Investment Agency, which is sponsored by the Northwest RDA and One NorthEast, currently maintains five offices in north America? In light of the record budget deficit, can he assure the House that he will look carefully into overseas offices and whether they deliver value for money?

The hon. Gentleman makes a very good point, and there is an awful lot of waste in the regional development agency system more generally. Of course, it will be for the local economic partnerships to look at such issues and work out whether they wish to come together to promote their region in a wider way, but his point serves to reinforce the argument for the structural change that we are making.

There is no doubt in my mind that the Northwest Regional Development Agency has been a bureaucratic burden on the economy of the north-west since it was started. It has also followed capricious policies that have not directed investment where it would create most jobs. How will the right hon. Gentleman ensure that money is invested in those places where it will create most jobs?

I am very grateful to the hon. Gentleman for his comments in support, I think, of the policy that we are pursuing. The local enterprise partnerships will be able to choose for themselves and direct where they think investment is needed in their localities. One major tool that they will have at their disposal is the ability, as a public-private partnership, to apply to the regional growth fund for investment in their areas. Obviously, that will be allocated in ways to be announced, but I hope that it will provide a tool for those new bodies to do precisely the sorts of things that the hon. Gentleman set out.

Businesses in the north-west will have seen the National Institute of Economic and Social Research arguing that growth will now be lower as a result of the Budget; they will have seen two reports of business confidence in their region and throughout the UK tumbling as a result of the Budget; and, just last week, they will have seen the International Monetary Fund’s devastating downgrading of its forecast for UK growth. Are not people in the north-west listening to the Chief Secretary trying to sell the Budget as a Budget for growth entitled to feel that, actually, they are being sold the emperor’s new clothes?

People in the north-west and elsewhere will have seen the Office for Budget Responsibility’s forecast, which predicts that during the course of our Budget over the next four years we will see rising economic growth, falling unemployment and rising employment. They will have seen also the OECD’s forecast and review of the UK, which was published today and includes the title, “A Strategy To Instill Confidence and Boost Growth”. That is precisely what our Budget is.

Value Added Tax (Wales)

2. What assessment he has made of the likely effect of the proposed increase in the standard rate of value added tax on the retail sector in Wales. (7693)

A full impact assessment was published on Budget day. Although it focused on the compliance costs for all businesses, it had an emphasis on retailers, as it acknowledged that they were expected to incur higher compliance costs. However, having experienced two VAT changes in the previous two years, retailers should now be familiar with the necessary system and process changes.

I am sorry but that was a really complacent answer. Much of the retail sector in my constituency is very dependent on the business that comes in through the door from pensioners. There are 13,000 of them in the Rhondda, a growing number, and they are the people who will be very heavily hit by the VAT increase, because they will have less discretionary income to spend on gifts and the things that make life worth living. Will the hon. Gentleman look specifically at how the retail sector in more distant areas—outside the main city centres—can be supported?

The fact is that we had to raise VAT because there was no money left. I do not know whether the hon. Gentleman is proposing that we should have cut spending by even more, but I do not think that that would have a lot of support on his Benches or on ours. After all, our predecessors looked very closely at raising VAT and would have done so had the previous Prime Minister not vetoed it.

What would the people of Wales make of the fact that the previous Government were going to raise VAT to 19%? Would they not surely conclude that this was going to happen under any Government elected in May 2010 because of the mess made by the last one?

The fact is that the deficit has to be reduced, and VAT is one of the few levers available to the Government to do that. Any sensible Government would consider it; and indeed, given the circumstances we are in, any Government would do it.

When the Chancellor rose to give us his Budget a few weeks ago, he promised that he would give it to us straight. He somehow forgot to tell us that Britain’s pensioners may face an £8 billion VAT bill over the course of this Parliament. Given that neither Government party has a mandate for introducing VAT increases, does the Minister agree that, at the very least, this House deserves a report on the impact of VAT on pensioners before the increase comes into effect?

We have provided more detail of the distributional impact of this VAT rise than the previous Government ever did or would have done had they increased VAT last December. The fact is that this Chancellor—like this Treasury team—has the courage of his convictions to do the right thing, unlike his predecessors, who neither pursued the policies they believed in nor had a leader they believed in.

UK National Debt

3. What recent representations he has received on the level of the UK national debt relative to that of other countries; and if he will make a statement. (7694)

The UK faces one of the largest fiscal challenges of any advanced economy. According to the International Monetary Fund, between 2007 and 2015 the UK is forecast to experience the most rapid increase in net debt of any G7 economy, with the exception of Japan. The Office for Budget Responsibility’s pre-Budget forecast shows that without further action to tackle the deficit, debt would still be rising in 2014-15. As result of the actions set out by the Government in the June Budget, the OBR projects that debt will have declined to 69.4% of gross domestic product in 2014-15— 5% of GDP lower than under the plans the Government inherited.

That was a lot of words, but the Chief Secretary did not answer the question. Why does the United States have a much higher debt than we have, and why do Canada, Italy, France, Germany and Japan all have, as a percentage of GDP, higher debt than we have? Is it true that the extent of the cuts is driven not by economics but by ideology?

No, that is not true. The plain fact is that, as I said earlier, we have the fastest growing debt and the largest deficit in the European Union apart from Ireland. In the Budget we have taken action to ensure that we prevent the key risk facing growth in this country, which is a failure to take action and a failure to restore confidence in the economy, potentially causing us the sort of problems that we have seen in other European countries. That is the problem that we need to avoid.

Does the Chief Secretary agree that it is the refinancing capability of the national debt as redemption dates are reached that really matters?

Of course that matters, but what matters more than anything is the risks that this economy would have faced if we had stuck with the plans of the previous Government, which would have risked higher interest rates, lower growth and fewer jobs, and there would have been very big risks in the future.

I am glad that the Chief Secretary at least accepts the proposition put by the hon. Member for Louth and Horncastle (Sir Peter Tapsell).

We all agree that to get debt down, growth is essential. However, has the Chief Secretary noticed this morning’s remarks by Geoffrey Dicks, a member of the Office for Budget Responsibility, who said that his office had cut its forecasts for growth by 0.5% as a result of the Budget announcements two weeks ago, and went on to say that logically, as he put it, that increased the chances of our economy slipping back into recession?

He also made it clear that he did not think that that risk was a likely one. In the Budget—this is the important central judgment that the House needs to understand—we have faced up to the fact that if we had carried on with the plans of the previous Government, the big risk facing the economy would have been higher interest rates, fewer jobs, and a reduction in growth, and we would have faced the big risk that we have seen in other countries, which we need to ensure does not happen in this country. Our Budget has ensured that that risk is avoided; the previous Government would not have done that.

Given that the IMF report said that we would have had the highest public borrowing in the G20 this year and the worst structural deficit in the OECD, has the Chief Secretary, the Chancellor or any Treasury Minister yet received a formal apology from the Labour party for the appalling state of the economy?

Sadly, there has been no formal apology. Labour Members are free to offer one during this questions session should they wish to. In fact, with the revised Office for National Statistics forecasts of the last couple of days, we have seen the predicted reduction in the size of the economy go from 6.2% to 6.4%. Even after they have left office, their recession is still getting worse.

Is the UK on the brink of a debt downgrade because the rating agencies have noted that the Government propose to cut capital allowances and therefore stifle investment, or because the agencies do not share the Government’s optimism about Europe’s capacity to buy UK goods in the future?

No, the hon. Gentleman will know that the rating agencies’ response to the Budget has been positive and ensured that we have a stronger position going forward.

Does my right hon. Friend agree that given that we are currently spending more on interest on our accumulated debt than we are on schools, police officers and other important measures, we must take difficult decisions now to release more money to spend on vital public services later in this Parliament?

I could not agree more with my hon. Friend, who sets out the case strongly. From what I read, I believe that that position was understood by the previous Government. I read the former Chancellor’s interview in The Guardian, in which he said:

“There were bits of medicine we could have administered last year that would have made things easier. Had we gone further in saying to people round the cabinet table we are not going to do this”—

Order. I am grateful to the right hon. Gentleman, but I do not think we need to dilate on the policies of the Opposition.

Capital Gains Tax

4. What recent assessment he has made of the effects of the change in the rate of capital gains tax on the number of business start-ups. (7695)

The change in the rate of capital gains tax is not expected to have a material impact on the number of business start-ups. The lifetime limit on gains qualifying for the entrepreneurs relief—the 10% CGT rate—was increased from £2 million to £5 million in the Budget. That will benefit entrepreneurs and small business owners.

I thank the Financial Secretary for his response, but does he share my concern that the change in capital gains tax will mean a reduction in businesses in the private housing rental sector, and with it, as predicted by Rightmove, a growth in rents and a shrinkage in the number of houses for rent? If so, what is he going to do about it?

I have not been promoted, Mr Speaker.

The changes to capital gains tax that we have introduced will ensure that the right tax regime is in place and that it is fair and responsible. The hon. Gentleman ought to remember, of course, that the capital gains tax rate for second homes prior to the Budget was 24%. It has now gone up to 28% for those paying higher rate taxes, but those on basic rate taxes will be paying only 18%.

Economic Growth

5. What recent representations he has received on the proposals in the June 2010 Budget intended to increase economic growth; and if he will make a statement. (7696)

The Government have received representations on a range of proposals to increase economic growth. Indeed, the Budget is about growth. It is about underpinning private sector confidence and creating the space for business to grow, redressing the balance between the public and private sector. Crucial to promoting growth is cleaning up the public finances and the mess that the previous Government left. That is why the OECD document published today described the Budget as “courageous” and “appropriate”.

Given the difficulties with time lags, for example between decision making and outcomes, how will the Chief Secretary monitor the overall impact of the stimulus given to growth in the private sector and the necessary cuts in Government expenditure, to ensure that we have a sustainable recovery and not a double-dip recession?

The measures in the Budget are set out precisely to ensure a sustainable recovery through a number of measures, particularly in the tax sphere and, following the earlier questions on regional growth, to stimulate business. Of course, it is now for the independent Office for Budget Responsibility to produce independent forecasts of growth, and it will do so at the time of future fiscal events.

The Budget VAT rise in January will affect economic growth on the islands of Scotland. Surely we need a rural fuel derogation in place before the rise. After all, the rural fuel derogation was in the coalition document, but the VAT rise was not.

The hon. Gentleman is right, of course, that the rural fuel derogation is in the coalition agreement. The Chancellor restated our commitment to investigating the matter in the Budget statement, and I can assure the hon. Gentleman that we will be coming forward with an announcement in due course.

Businesses in rural areas will have the opportunity to benefit from the regional growth fund that we are establishing and which will help to support business growth in the regions of the country, particular those areas where dependence on public sector employment is greatest. Also, new businesses in rural areas will benefit from the cut we have announced in national insurance for new employees in new businesses.

Is the Chief Secretary aware that, as part of the growth drive, the Treasury has set up a spending challenge website asking for ideas and assistance for the future, and that it is currently featuring issues such as sterilising the poor; reopening the workhouses; asking single parents who cannot finance their children to terminate the pregnancy; benefit claimants to work in sweatshops; and immigrants to be moved out of cities? Is he happy that such racist and offensive drivel is being hosted by one of his websites, and will he give the House an undertaking that the site will be moderated and that this stuff will be removed immediately?

Order. I know that the right hon. Gentleman, in answering the question, will focus his remarks on the June 2010 Budget.

I am grateful for that, Mr Speaker.

Of course, I would not wish to promote such ideas, but I am surprised that the hon. Lady pours scorn on the consultation process we are undertaking. She will know that we have also set up such a process for public sector workers. We have had more than 66,000 ideas from people who work in the public sector and who are suggesting savings that they believe can be made in their own services. That is a valuable part of the spending review process. However, we have not had a single idea from the Labour party on how we can make the savings, let alone the apology warranted for the terrible mess it left the economy in.

National Insurance Contributions

6. What representations he has received from employers in the north-west on relief from national insurance contributions for new businesses; and if he will make a statement. (7697)

The holiday on national insurance contributions will support enterprise and private sector job creation. Representations from employers have been supportive of reducing taxes on jobs, and 400,000 new businesses are expected to benefit from the holiday on employer national insurance contributions, including about 70,000 in the north-west.

It is clear that this important Budget proposal will help to generate much-needed jobs for small businesses. Does my hon. Friend agree that this is a much better way of supporting job creation in places such as Macclesfield and the north-west, and in other regions, than relying on the public sector, as the Labour party did?

My hon. Friend is right. We cannot rely on the public sector for growth, simply because we have run out of money.

How many businesses—perhaps the Minister could name them given that there are so few—will do better because of the national insurance cut and will not suffer because of the VAT increase and the cutback in demand, which will be disastrous for businesses in the north-west?

The fact is that businesses would much rather we focus on dealing with the jobs tax, which our predecessors brought in. We recognise that we have to reduce the deficit and that tax has to play a role in that, but what we can do to create jobs in the private sector is reduce the burden from national insurance contributions. This particular policy, directed at areas where the public sector is largest and where we need a stronger private sector, has to be the way forward.

Income Tax

In the Budget, the Government announced a £1,000 increase in personal allowances for under-65s. We estimate that 23 million basic rate taxpayers will gain by up to £170 per year from this measure, and that 880,000 will be taken out of tax altogether. This is the first step towards our long-term objective to raise the personal allowance to £10,000.

I am very grateful to the Minister for that informative answer. Can he give a more precise timetable for when the £10,000 threshold will be released? Will it be before the end of this Parliament? In other words, can it be even earlier than the five years that would otherwise be required?

I cannot give a precise timetable, but as I said, that is our long-term objective. I know that the right hon. Gentleman has a long and distinguished record in campaigning for that policy. I am sure that he will be pleased with the steps that we have taken so far, and I hope that others will follow.

When Ministers are thinking about the future planning for local income tax, do they not understand the concern on the Opposition Benches and in the country that this afternoon the chief lobbyist for the banking industry has been introduced as a Member of the other place, meaning that the interests of the banking industry will come before those of low-income families?

I am not quite sure that I necessarily follow what the hon. Gentleman has said, but what I would say is that we announced the introduction of a bank levy in the Budget and we have taken a lot of poorer households out of income tax. That shows the Government’s values.

Tax Avoidance

8. What assessment he has made of the level of tax avoidance during the period when the rate of capital gains tax was at 18%. (7699)

The Government estimate that prior to the emergency Budget, upwards of £1 billion of income tax revenues was forgone through income being turned into capital gains.

I thank the Minister for that reply, which shows that when the previous Labour Government reduced capital gains tax, they created an enormous loophole for tax avoidance for the wealthiest in our society. Does he have any further plans to clamp down on tax avoidance, to ensure that the wealthy pay their fair share?

There are measures contained in the Finance Bill, which we are currently debating, that will reduce tax avoidance. We take the issue seriously, but the hon. Lady puts her finger on one of the problems. There were a number of structural difficulties in the tax system as it was left to us, one of which was the wide disparity between income tax rates and capital gains tax rates, and we have been able to do something about that.

In introducing the Budget, the Chancellor justified the move to a 28% rate in the following terms:

“I asked the Treasury to examine what would have happened if we had increased the rate much further beyond 28%, and its dynamic analysis showed that that would have resulted in smaller total revenues.”—[Official Report, 22 June 2010; Vol. 512, c. 178.]

Can the hon. Gentleman justify that?

Yes, and had the hon. Gentleman been in the Chamber at about quarter past 10 last night, he would have heard me doing so at some length. The fact is that for every 1% by which the gap between income tax and capital gains tax is reduced, we get an extra £60 million from income tax. However, there is also a countervailing pressure, which is that fewer transactions are entered into. The analysis based on studies done in America and elsewhere shows that 28% is about the level at which we maximise revenue.

Low-income Families

9. What assessment he has made of the effect on low-income families of the implementation of the proposals in the June 2010 Budget. (7700)

The right hon. Gentleman will be aware that the Budget was really about achieving two things: reducing the fiscal deficit and protecting the most vulnerable in our society. I am sure that he will welcome the fact that, as we heard earlier, we have reduced the personal allowance on income tax, which means that nearly 900,000 people have been relieved from paying income tax altogether. That has also benefited 23 million people working in Britain who will benefit by up to £170 a year. Additionally, he will recognise that we have taken steps to increase the child tax credit by £150 next year and £60 the following year, which will benefit some 7,200 households in his constituency. As a result of that, levels of child poverty after the Budget will remain unaffected.

Let us get back to reality. In view of the increase in VAT, the slashing of benefits and the changes proposed for the disability living allowance, does the Chancellor have any proposals that will mean that the poorest and most vulnerable in our society are not treated disproportionately?

The right hon. Gentleman is right to raise the issue of poverty, but to pick him up on disability living allowance, just 5% of those on DLA have been receiving it for less than five years. We should be trying to tackle the root causes of poverty, rather than putting people in a poverty trap. I am sure that he would welcome, as I do, the fact that the right hon. Member for Birkenhead (Mr Field) will be leading a review into poverty, to ensure that we can do just that: tackle the root causes of poverty, rather than persist with just the symptoms.

Will my hon. Friend comment on what she believes the effect on low-income families would be if we failed to deal with the £23,000 per person debt that we were left with by the former Government?

I think that most people on the minimum wage would be shocked to hear that the amount of income tax that they pay every year is less than what the average taxpayer pays in debt interest. The best thing that we can do to help not just people on lower incomes, but all people, whether in or out of work, is to get our economy back on track. That means tackling the fiscal deficit, starting to bear down on waste in public services and also reforming public services, so that the money that we spend—money that taxpayers have provided to Government to provide public services—is spent effectively on delivering high-quality public services that they can use.

The choices that this Government have made on VAT increases, on cuts in child tax credit, on reducing maternity grant and on other public service cuts will hit the poorest people in the community the hardest. Will the Minister now publish in full the distribution analysis for the Budget, so that we can see the impact that it will have on the poorest in society, and see the difference that a Labour Government have made in comparison with this Conservative Government?

The right hon. Gentleman clearly has not read the Red Book. I think that pages 66 and 67 show the distribution analysis in cash terms and as a percentage of income. We do not need to take any lectures from members of a Government who widened the gap between rich and poor.

Economic Growth (North-east)

To support private sector enterprise throughout the UK and to ensure that all parts of the country benefit from sustainable economic growth, the Government will use the national insurance system to reduce the cost to new businesses of employing staff in all parts of the UK outside London, the south-east and the east of England. We will establish a £1 billion regional growth fund to support strategic growth and focus investment in the English regions. We will also publish a White Paper later in the summer on a new approach to sub-national growth, including local enterprise partnerships.

Does the Minister agree that Teesside represents a great opportunity for the new green investment bank, and that it would be a good location for the administrative centre of the bank?

I welcome the interest shown in Teesside as a location for the green investment bank. Throughout the north-east, on Teesside, Wearside and Tyneside, we are seeing significant investment in green technology, which is a key way of rebalancing the economy and creating more private sector jobs in the north-east.

Is the hon. Gentleman’s question specifically on the north-east? No? I know that he is from the north-west. Never mind. I wondered whether he wanted to say something about the north-east, but no.

Economic Growth (South-west)

As I stated in response to the previous question, there are a number of initiatives in the Budget to support economic growth in the regions. We estimate that up to 54,000 businesses in the south-west will benefit from the national insurance contributions exemption for new businesses, and our plans for NIC more broadly will save businesses in the south-west about £260 million.

My constituents will be very glad to hear that, because times have been tough in North Wiltshire in recent years, particularly as a result of a contraction in food production and defence. What does my hon. Friend intend to do in regard to the excellent report produced by my constituent, Sir James Dyson, on innovation and technology, which seems to point the way forward for this new Government?

My hon. Friend is absolutely right. Sir James Dyson made an important contribution to the debate on increasing the high-tech sector, and the Government are looking at the implementation of his findings. In the Budget, we announced a review of the taxation of intellectual property, including research and development, and we are committed to ensuring that the UK again becomes a centre for high-tech manufacturing.

But does the Minister agree that, in the south-west and in the whole of the UK, growth in the economy depends on growth in employment and jobs? What is his estimate, and that of the OBR, of the effect of his decisions on employment?

The independent forecast published by the OBR at the time of the Budget demonstrated that employment would rise over the course of the next five years.

Five thousand small and medium-sized companies in Gloucestershire will welcome the Minister’s comments on progress for economic growth in the south-west, but will he tell us what specific plans the Government have to deal with the red tape and bureaucracy, which many of those businesses feel is an impediment to growth?

My hon. Friend is right to point out the barriers to investment that red tape can create. That is why we have set out a series of specific measures in the Budget to reduce the burden of red tape. We believe that that will help up to 500,000 businesses in the south-west.

Budget Implications (Employment)

12. What assessment he has made of the effect on levels of employment of the implementation of the measures proposed in the June 2010 Budget. (7703)

The OBR has published its assessment of economic prospects, taking into account the measures in the Budget. It forecasts that employment will rise, reaching 30.1 million in 2015. Reducing the deficit will mitigate the risks to the recovery, create the conditions needed for growth and enable mortgage rates to be kept lower for longer. The Government are committed to supporting private sector job creation, cutting corporation tax and raising the employers’ national insurance threshold to support the economy.

I thank the Minister for his response, but as the local futures group says, Chesterfield will lose 1,374 public sector jobs—almost 3% of our entire employment base—by 2016. Given that manufacturing allowances are to be cut, which will make it more difficult for us to grow our way out of the economic difficulties, and given the VAT rise, which will make it difficult for the retail sector, is not the reality that, far from this Tory Budget being courageous, the ideology behind it is going to hit people with their jobs?

The hon. Gentleman forgets the measures in the Budget that will increase employment opportunities —the cut in national insurance contributions, the tax break for new businesses, which will benefit businesses in his constituency, and the reduction in red tape. All those measures are geared towards improving the prospects of private sector growth in our economy. We need the economy to be led by the private sector.

Given that sustainable employment can be supported only by dealing with the deficit, was the Minister grateful for the support of the shadow Chancellor, who said at lunchtime on the subject of raising VAT:

“I don’t have a philosophical problem with that”?

It is interesting to hear about views expressed after the election, which were kept silent before the election. We took the difficult decision in this Budget to lay the foundations for growth in the future and make sure that we pay the bills of the past. Sadly, that included the increase in VAT.

By tackling budget deficits, we will be in a better position to keep interest rates lower. Serious concerns were expressed before the Budget about the ability of the previous Government to tackle the deficit. The tough action we have taken has been welcomed across the world and by rating agencies. It lays the right foundation for future growth. This Government are prepared to take the difficult decisions that the hon. Gentleman’s Government ducked before the election.

Mental Health Services

13. What recent discussions he has had with the Secretary of State for Health on funding for mental health services. (7704)

I am grateful to the hon. Lady for her question. I know that she takes a great interest in these issues. We want to offer long-term solutions to people with mental health problems and provide psychological therapies to do that. Our coalition programme set out our intention to ensure greater access to talking therapies. That is why, on 23 June, the Secretary of State for Health pledged £70 million to continue the roll-out of psychological therapies across the NHS this year.

Given the dire financial situation the last Government have left us in, and the very real impact it will have on each and every one of our lives, will the Minister go further to explain the £70 million that he plans to spend on psychological therapies in the current financial year? That is particularly important when one in four of us will in the course of our lifetimes suffer from problems in our mental well-being—including finance-related stress, reminding us of our inheritance from the previous Government.

The hon. Lady is quite right to spell out the importance of tackling mental health problems, which, as she says, many people experience during the course of their lives, so it should be taken very seriously. That is why we have continued to roll out funding for the expansion of talking therapies, which in many cases are the most effective. I also note that, unlike the Labour party, we have pledged to increase health spending in real terms during every year of this Parliament to enable these sorts of problems to continue to be tackled—even in very tight financial circumstances.

Investment in mental health through the NHS is very important. Equally, however, people with mental health problems are affected by many other issues, including the caps on housing benefit proposed in the Budget. Has the right hon. Gentleman had any discussions across Government about the impact of Treasury decisions—not just giving money away, but cutting funding—on people with mental health problems?

Supporting people with mental health problems through protecting the NHS budget is the best way to achieve the outcome that the hon. Lady suggests. There is also the Work programme, which is being developed by the Department for Work and Pensions to bring together and replace many of the employment initiatives of the previous Government, some of which were highly ineffective. Conditioned management of mental health problems will be part of that programme, which will help people with mental health problems back into work, which is, after all, the best route out of poverty.

Export Growth Forecast

15. In what sectors of the economy he expects the export growth forecast contained in the June 2010 Budget to be achieved. (7706)

The export growth forecast produced by the Office for Budget Responsibility did not break it down by sector. However, we know that in 2009 manufacturing accounted for just over half of our exports, so there is a big opportunity here. We currently export more to Ireland than to Brazil, India, China and Russia combined. That is why the Prime Minister met the Indian Commerce Minister earlier this month to talk about economic opportunities for us over there. Later this month, he will lead a taskforce of UK business men to India to investigate export opportunities.

I am afraid that the Minister has not seen this morning’s report from Cambridge Econometrics, which examines the effect of the Budget on manufacturing, and predicts a decline in manufacturing share and an expansion in the financial sector to its highest share ever. Is that what the Minister means by rebalancing the economy?

Many people would consider that a bit rich coming from a member of the last Government, given that manufacturing declined at a steeper rate under them than under the previous Conservative Government. We aim to support manufacturing and, indeed, companies throughout our country through a robust and ambitious corporation tax package, through progress on national insurance, and through largely getting rid of the jobs tax that the last Government would have introduced. What we would like to hear from the Opposition is more constructive discussion about how to improve our exports.

In relation to export growth and other forecasting, will Ministers consider establishing a dynamic tax unit in the Treasury?

One of the reasons why we set up the Office for Budget Responsibility was to ensure far more independent and transparent forecasting in relation to not just exports but all economic indicators. I am sure that over time the OBR will continue to develop that forecasting to make it even more effective. Let us make no mistake: setting up the OBR was a huge step forward in terms not just of transparency, but of robust data on which the public can really rely.

Will not our exporters be hurt by the slashing of the capital allowances that went to our manufacturing industries? Is it not a hallmark of the Government’s priorities that they would rather give £400 million cashback to the banks by cutting their corporation tax than support our small and medium-sized enterprises in their export activities?

I am not sure whether the hon. Gentleman has talked to industry about its reaction to the Budget. I think that if he talked to the Institute of Directors, the CBI and the Federation of Small Businesses he would find that they welcome it, because they know it will help them to grow their businesses and grow employment. I only wish that the hon. Gentleman could recognise that and welcome it too.

Non-Departmental Public Bodies

16. What recent progress he has made on reducing the cost to the public purse of his Department’s non-departmental public bodies. (7707)

When I looked into whether the Treasury had any non-departmental public bodies, I found that we had just one, the Royal Mint Advisory Committee, which comes up to London three times a year to advise the Chancellor on coin designs. I then tried to find out how much it cost the taxpayer. The answer is nothing, because its charges have been taken over by the Royal Mint, which is an arm’s length Government company. I hope that that answers my hon. Friend’s question.

Across Government, how many quangos are there, how much taxpayers’ money are they wasting, and how will they be made democratically accountable?

The answers to my hon. Friend’s questions are “Too many”, “Too much”, and “Through the spending review and over the course of the Parliament.”

Economic Growth (South-East)

We will continue to ensure that we can support economic growth through the United Kingdom, including the south-east. As was made clear earlier, we have an ambitious package that contains a road map for reducing corporation tax year on year. I should point out that had the last Government remained in power, they would have left corporation tax as it is. Indeed, corporation tax for small companies would have risen at the very time we should be allowing companies to retain more of their profits to invest in their businesses.

As my hon. Friend will know, there is a regional growth fund that will help regions throughout our country to grow. We are also complementing the national measures that we are taking by seeking to ensure that local authorities working across various local partnerships can stimulate their own economies.

I thank the Minister for that answer. Is she aware that certain areas of the south-east have very high levels of public sector employment? I am thinking in particular of the town of Hastings in my constituency, where we have 43% public sector employment. What steps can be taken to help such areas of the south-east to benefit from the national insurance advantage proposed in the Budget?

My hon. Friend makes a good point. If we are to get our economy back on track, particularly in areas such as that which she represents where there has been a growing imbalance and instability—and unsustainability as well—in the local economy, we must have a package of measures in place that can stimulate the private sector. I have set out some of those in terms of corporation tax, and my hon. Friend is right that the regional growth fund is another key investment fund that hopefully can help her area.

Should businesses in the south-east be concerned now that the Office for Budget Responsibility has made it clear to the Treasury Committee that the Budget increases the chances of a double-dip recession?

I do not think the hon. Gentleman is right about that at all. The OBR clearly set out that it expects our economy to grow over the coming years. It expects unemployment to fall and employment to rise, and the hon. Gentleman should welcome that.

Topical Questions

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

Many small charities are extremely worried about the rise in VAT. Does the Minister think it is fair that charities be hit in this way?

The hon. Lady is right to raise the issue of charities; in fact it is an issue in which we have taken a great interest coming into government. I hope she will welcome the fact that we are continuing with the gift aid forum, which brings together a range of people interested in charities and charity tax to look at how we can stimulate gift aid and make it more effective over the coming years. The hon. Lady is also right about the impact of VAT on charities, but we have to sort out the economic mess the last Government left us, and the best way to sustain the funding of charities is to make sure people have jobs and money in their pockets that they feel they can donate.

T2. Does the recent experience of changes in VAT rates support the assumption of both the Treasury and the Institute for Fiscal Studies that there will be full pass-through of the proposed increase in VAT, or might we reasonably hope that large retailers will shoulder some of the burden? (7718)

The assessment set out in the Red Book is that it is likely that two thirds will be passed on immediately and most of the rest will be passed on over the course of the next 12 months. In some cases retailers may bear some of the increase themselves, and we will obviously be studying the matter very closely.

Does the Chief Secretary, in the Chancellor’s absence, agree that the independence and credibility of the OBR are absolutely paramount? Sir Alan Budd said to the Treasury Committee this morning that the numbers he released two weeks ago

“were not an appropriate basis for attempting to estimate the effects of the June Budget on general government employment”,

and the Prime Minister was quite wrong to claim that they were. Would it not be better for the OBR to be more accountable to this House, with its appointments being subject to confirmation hearings by the Treasury Committee, and for its deliberations to be completely open and transparent? What we have at the moment is a good idea strangled at birth by the way in which this Government have been treating it.

The independence of the OBR is not in question. That was made clear by Alan Budd in his evidence to the Treasury Committee today. This is a good idea that was brought forward by this Government, and it will be established in legislation. I do not think it was even part of the former Chancellor’s secret plans before the election, alongside a rise in VAT, a cut in corporation tax and a cut in income tax. Those are measures he should be supporting in this Budget, because he came up with them in the first place.

T4. When the Exchequer Secretary answered the hon. Member for Edmonton (Mr Love) earlier on capital gains tax, he quite properly justified the increase in CGT on the basis of a dynamic model of both income tax and CGT. Will he publish that model and its supporting evidence? (7720)

If I may help my right hon. Friend, at the time of the Budget we did publish our Budget policy costings, setting out the exact details. That information is available to him, and it was, indeed, touched on in last night’s debate.

T3. The Chief Secretary justifies massive cuts to the public sector through fears of a sovereign debt crisis as the credit rating agencies downgrade our debt, but those same agencies were giving triple A ratings to junk financial instruments right up to the crash. Can he explain whether credit rating agencies, discredited as they are, or Tory ideology is driving these cuts? (7719)

The measures we have taken in the Budget are necessary to tackle the mess that the previous Government left. The degree of denial that the Opposition are in about the mess they created, the huge debt they built up and the fact that this country has the largest deficit in the European Union outside Ireland never fail to surprise me, although they probably should not surprise me. The measures we are taking are necessary to clean up that mess and to establish jobs and growth in the future.

T5. I am sure that Ministers can understand the disappointment of my constituents when Cadbury’s new owners stated their intention to move mass production abroad from the Summerdale plant near my constituency. In the light of this and of the dramatic decline in manufacturing employment over the past 13 years—down from 4.7 million jobs in 1997 to 2.6 million jobs now—what steps are they taking to support manufacturers in this country? (7721)

My hon. Friend is absolutely right to highlight the fact that we live in a globalised world and that businesses can choose where they locate their activity. That is why we are introducing substantial cuts in corporation tax, from 28% to 24%. I was delighted to read this morning that the previous Chancellor was an enthusiast for reducing corporation tax—although we did not see so much evidence of that when he was in power. The fact is that the Budget proposals will benefit all sectors of society, including manufacturing, and we will see £13 billion more investment over the next few years as a consequence of those measures.

Many businesses in the north-west saw the value of regional development agencies and were very much opposed to their abolition. What consultation was carried out with business leaders on the proposal to abolish RDAs?

Of course we have invited groups involving local authorities and local businesses to submit proposals for the establishment of local enterprise partnerships in the hon. Gentleman’s area and across the country to replace the regional development agencies. Local businesses will be very involved in those and will help to lead them. To judge from the earlier exchange involving other Members from the north-west, it seems there has been a positive welcome for those steps.

T6. In view of the importance of this issue to Opposition Members and their colleagues in the other place, can the Minister confirm that there are no plans for the Government to introduce VAT on the sale of hardback books? (7722)

I can assure my hon. Friend of that, and that newspapers—there was a very interesting one this morning—will not have VAT imposed on them either.

Mums in my constituency who work part time in the public sector and earn, say, £11,000 or £12,000 a year are telling me that their pay is to be frozen, so far from low-paid workers being protected, as was promised, it seems they are going to be hit the hardest, because that pay freeze is pro rata. Can the Chief Secretary confirm that and tell me how many low-paid part-time public servants will be affected?

We have announced a pay policy that involves a pay freeze for people earning above £21,000 a year. People earning below £21,000 a year will have a pay rise of at least £250.

That pay rise will be pro rata, but people will benefit from the changes to tax credits, for example, and the significant increase in the child tax credit for those with children. That will help to ensure that many of the people with children in the hon. Lady’s constituency whom she is describing will not be driven into poverty, as they were in many instances were under the previous Government.

T7. I and I am sure many other Members have received many representations from Equitable Life policyholders who felt very shabbily treated by the last Government. Can the Minister give me some assurance that under the new coalition Government, they will treated a little more equitably? (7723)

My hon. Friend makes an important point. A large number of Equitable Life policyholders are very angry about how they were treated by the previous Government. We have committed to setting up an independent, fair and transparent payments scheme, further information on which will be presented to the House later this month.

The Economic Secretary, the Chief Secretary’s Front-Bench colleague, referred to the establishment of the Office for Budget Responsibility as a welcome step forward for transparency. In the interests of transparency, could the Chief Secretary tell me precisely when he saw the revised unemployment figures produced by the OBR?

The revised unemployment figures were published by the OBR on the Wednesday morning. The figures were circulated in the normal way, as happens with the Office for National Statistics, the day before in the Treasury. That is when I saw the documentation that was published. The requirements for confidentiality that apply to ONS figures also apply to OBR figures.

T8. The Chancellor took the difficult decision to increase VAT to deal with the dire economic legacy of the previous Labour Government. Will the Minister commit to reviewing the increase in VAT once this coalition Government have dealt with the deficit and got the economy back on its feet? (7724)

I can tell my hon. Friend that he is right; this decision was necessary and unavoidable. The intention is to get the public finances under control over the course of this Parliament. We will debate what we do at the end of that process nearer the time, when we will work out what we will do with the proceeds of growth.

In a speech last night to the bankers, the Financial Secretary referred to the Government’s proposals on a financial activities tax. Is it the Government’s intention that that sort of proposed legislation is just in reserve in case the bankers are too generous with themselves with bonuses, or are the Government determined to introduce such a tax? Why not go further, with a full financial transactions tax?

The Government are committed to tackling unacceptable bonuses in the financial sector, and we have put forward a series of proposals on that. We have talked about increasing the disclosure of remuneration, we have asked the Financial Services Authority to examine ways in which the link between risk and remuneration can be investigated, and we are taking forward work on the financial activities tax. Also, we have today published a consultation on a bank levy, which will raise an extra £2.5 billion in revenue from the banks.

T10. Average wages in my constituency are below the national average, so the rise in the income tax threshold announced in the Budget was most welcome. Can the Minister please give an assurance that he will maintain a focus on increasing the personal tax threshold, as the prospect of being taken out of tax altogether is far more appealing than the prospect that the previous Government offered, which was the non-stop filling in of forms to claim back just a fraction of the money that people had already earned? (7726)

I can confirm to my hon. Friend that it remains our long-term objective to raise the income tax threshold to £10,000, and we have made significant progress.

Can the Chief Secretary tell the House whether he thinks it is completely ethical for the definition of “unemployment” to be changed just before Prime Minister’s Question Time and for that be made public without telling the media that that was the case? Would he comment on the fact that the person who did this was seconded from a hedge fund and is therefore not independent? Will the Chief Secretary therefore confirm that that was the reason why this person had to resign and bring scorn—

The Office for Budget Responsibility is wholly independent. Decisions of the sort that the hon. Gentleman has described are a matter for the OBR to take on its own initiative—that is what having an independent body means.

The issue of business start-ups and supporting small companies has been mentioned this afternoon, but many of them are finding it very difficult to access bank financing. I was wondering how the Budget proposals will assist them, because growing the private sector is essential to improving our economy.

My hon. Friend is absolutely right about the importance of banks being in a position to lend in order to encourage the recovery. That is why in the Budget we announced an extension of the enterprise finance guarantee scheme by a further £200 million to enable the banks to lend to small businesses. We will be publishing a paper later this month on business finance, which, again, will put forward ideas about how we can continue to sustain the recovery by ensuring that the banks are in a position to lend.

Does not the revised forecast from the International Monetary Fund demonstrate yet again that the coalition’s Budget will hit growth and therefore jobs?

The consensus among international bodies is that growth will grow over the coming years based on the Government’s plans and that unemployment will fall. The hon. Lady might not yet have seen the OECD’s report on our economy today, which describes our Budget measures as “courageous and appropriate” and as “an essential starting point” for restoring growth and jobs in this economy. That is a position that the whole House should welcome and not criticise.

I am delighted that the shadow Chancellor believes in transparency in Government. Is my right hon. Friend minded to publish the position papers prepared by the Treasury in respect of the previous Government’s plans to increase VAT before the election?

It is striking that the one party that had a plan to increase VAT before the election—to 18% or even 19%, according to the account in one book serialised today—did not say so at the election. I am not sure that it would be appropriate for us to publish documents that were worked up for the previous Chancellor—I am not sure that that would be in line with the conventions—but the hon. Gentleman has made his point very effectively.

Has the Treasury done a calculation of the number of construction jobs that will be lost as a result of not building 700 schools? Does that not prove that public sector cuts equal private sector misery? Get that into your head.

The thing I have got into my head is that the plans laid down by the previous Government for this programme, particularly in the Department for Education, were among the most irresponsible financial planning carried out by that Government in their entirety. When that Government were planning to cut capital spending in half and increase the spending on this programme, taking no account of the pressures in primary schools, for example, that was pure irresponsibility. My friend the Secretary of State for Education has made the right decision on this matter. I know that it is painful in many constituencies, but this is one of many things that the Opposition should be apologising for, not criticising.