I would like to make a statement regarding the Office for Budget Responsibility’s first autumn forecast. I will also, with your permission, Mr Speaker, inform the House about further measures that the Government are taking to support economic growth, including the new growth review launched today and a far-reaching programme of reforms to our corporate tax system. Following yesterday’s announcement by European Finance Ministers, I would like to take the first opportunity to update the House about the Irish situation and the UK’s involvement.
Copies of the OBR’s autumn forecast were made available in the Vote Office earlier today. We should take a moment to recognise the significance of this occasion and the practical demonstration of this Government’s commitment to transparency and independent forecasting. Today is the first time that Members of this House will engage in debate about an autumn forecast produced by the independent Office for Budget Responsibility, rather than conjured up by the Chancellor of the Exchequer, and available to read two hours before the statement. This is also the first forecast by the new independent chair of the OBR, Robert Chote, with the other members of the budget responsibility committee, Stephen Nickell and Graham Parker, whose appointments were approved by all Treasury Committee members from both sides of the House. As a result, I am sure the country can have full confidence in the independence of these forecasts.
The OBR report published today includes some 150 pages of information—an unprecedented level of detail and transparency, much of it of the kind available to previous Governments but never before published. I should like to thank the budget responsibility committee and the staff of the OBR for their hard work in putting together this autumn forecast. I hope that we now entrench this major improvement in the making of fiscal policy by passing the legislation currently before Parliament.
Although today’s figures are of course independent, they are still just forecasts, and we must treat them with a degree of caution, as one should treat any economic forecast. Indeed, the OBR is explicit about that, illustrating the uncertainty surrounding any economic forecasts with the use of fan charts rather than claiming the infallible certainty that my predecessors asserted when they provided their forecasts. The only thing that was infallible and certain was that those political forecasts were usually wrong.
With that caution in mind, let me turn to the forecast. After the deepest recession since the war, the greatest budget deficit in our peacetime history and the biggest banking crisis of our lifetime, recovery was always going to be more challenging than after previous recessions, but the message from the Office for Budget Responsibility is that Britain’s economic recovery is on track. The economy is growing, more jobs are being created and the deficit is falling. Its central forecast is for sustainable growth of over 2% in each of the next five years, and employment rising in each and every year. Indeed, employment and gross domestic product are higher in every quarter and every year than in the June forecast.
At a time when markets are gripped by fears about Government finances across Europe, today we see that the Government were absolutely right to take decisive action to take Britain out of the financial danger zone. Britain is on course both to grow the economy and balance the books, something that some people repeatedly said could not happen.
Let me take the House through the detail of the forecast. The forecasts for the economy are broadly in line with those produced for the June Budget, despite the more challenging international conditions. I should also like to point out that they are very similar to the European Commission forecasts for the UK, which also happened to be published today. Indeed, the European Commission today forecast that Britain would grow faster over the next two years than Germany, France, Japan, the United States of America and the average for the eurozone and the European Union.
The OBR forecasts real GDP growth of 1.8% this year, 2.1% next year, 2.6% in 2012, 2.9% in 2013, 2.8% in 2014 and 2.7% in 2015. Growth this year is now expected to be considerably higher than was forecast in June. In the OBR’s judgment, some of that improvement is likely to be permanent and some of it a temporary impact of stock-building. As a result, it forecasts that the rate of growth next year will be 0.2 percentage points below its forecast in June. It also predicts above-trend growth for the four years after that, but the level of GDP, or indeed the overall size of our economy, is forecast to be about half a percent higher next year than was forecast in June, and indeed higher throughout the whole forecast period.
Some have made predictions of a so-called double-dip recession, and although the OBR points out that
“growth has been volatile, as this is a common characteristic of post recession recoveries”,
its central view is that there will be no double-dip recession. Its forecast is growth next year of more than 2%, and it expects that in the slowest quarter of growth, the first quarter of next year, it will be 0.3%, rising back to 0.7% by the last quarter of next year. It also forecasts that consumer prices index inflation will fall from 3.2% in 2010 to 1.9% in 2012, once the short-term effects of the VAT rise and other temporary factors fall away.
Crucially, the OBR forecasts a gradual rebalancing of the economy as we move away from an economy built on debt to one in which we invest and export—again, something that some people said would not happen. It expects more demand to come from business investment, which is set to grow by over 8% for each of the next four years, as well as exports, which are expected to grow on average by over 6% per year. That new model of sustainable economic growth will rebalance the economy towards investment and exports and away from an unhealthy dependence on private debt and public deficit. It will bring to an end the unsustainable situation that saw families save less and less each year, so that they ended up, in the words of today’s report,
“effectively borrowing money to purchase increasingly expensive houses.”
The OBR also published today a full forecast for the labour market—something that, I should like to point out, previous Chancellors chose not to do. Employment is forecast to grow in every year of this Parliament. Total employment is expected to rise from 29 million to 30.1 million—that is over 1 million additional new jobs. Thanks to faster-than-expected growth in the economy, the OBR now expects the unemployment rate to be slightly lower this year at 7.9%, instead of 8.1%. Its forecast for the unemployment rate for next year is unchanged from the June Budget at 8%. For future years, the OBR predicts a gradual decrease in unemployment, with the rate falling every year. By the end of the Parliament, the OBR forecasts that it will fall to just above 6%, which is about 500,000 fewer unemployed people than at the beginning of this Parliament.
The trend in the claimant count is similar to that for the internationally recognised labour force survey measure of unemployment. However, the level is expected to be higher. The OBR explained that the revision is mainly due to a change in the way that flows from employment and support allowance on to jobseeker’s allowance will take place as a result of the new work capability assessment. In other words, more people are assumed to be flowing off ESA and on to JSA. That is a key part of our reforms to create a welfare system that encourages people to seek work and reduce costs to the taxpayer. In short, we will stop hiding people who can work in the incapacity statistics. Crucially, in each year, fewer people are expected to be on both of those out-of-work benefits combined than in the June forecasts.
I can also tell the House that following the spending review the OBR has recalculated its estimate of the reduction in the headcount in the public sector. In June, the OBR forecast a reduction in headcount of 490,000 over the next four years; in its latest forecast, that estimate has come down to 330,000—a reduction of 160,000. The bulk of that revision results from the action that we have taken to cut welfare bills rather than public services. Our difficult choices on child benefit, housing benefit and other benefits, each of which the Labour party opposed, mean that fewer posts will be lost across the public sector. Those headcount reductions that still need to take place will happen over four years, not overnight, and the OBR forecast is that private sector job creation will far outweigh the reduction in public sector employment. Its forecast states:
“A period of rising total employment alongside falling general government employment is in line with employment trends during the 1990s”
when total employment increased by 1.3 million over six years while general government employment fell by about 500,000.
The most important point is this: the lesson of what is happening all around us in Europe is that unless we deal decisively with this record budget deficit, many thousands more jobs will be put at risk in both the private and the public sectors.
Let me summarise the forecast for the public finances, which shows that Britain is decisively dealing with its debts. Borrowing this year is expected to be £1 billion less than was forecast in June. The OBR forecasts that public sector net borrowing will fall from £148.5 billion this year to just £18 billion in 2015-16. Government debt as a share of GDP is projected to peak just below 70% in 2013-14 and then to fall to 67% by 2015-16, so the debt ratio is now expected to peak at a lower point compared with the June forecast—just below 70% instead of just above it.
On the OBR’s central forecast, we will meet our fiscal mandate to eliminate the structural current budget deficit one year early, in 2014-15. The same is true for our target to get debt falling as a percentage of GDP. Indeed, to use the OBR’s own words,
“the Government has a slightly wider margin for error in meeting the mandate than appeared likely in June.”
For the first time, the OBR has also tested the resilience of the fiscal mandate against two alternative scenarios for the economy that critics have put forward, and in both cases the mandate is met.
It is clear that our decisive actions have proved to the world that Britain can live within her means. The Government have taken Britain out of the financial danger zone and set our economy on the path to recovery. That is the judgment not only of the OBR, but of the International Monetary Fund, the OECD, the European Commission, the Bank of England and all the major business organisations in this country. Already, our efforts are paying off. Today’s forecasts show that the cost of servicing the Government’s debt has come down. Compared to the June forecast, the OBR predicts that we will save £19 billion in interest payments between now and the end of the forecast period. That is £19 billion that will no longer be paid by British taxpayers to private bondholders and foreign Governments. It is £19 billion that would have been wasted, but will instead be saved.
This is an uncertain world, but the British recovery is on track. Employment is growing, 1 million more jobs are being created and the deficit is set to fall: the plan is working, so we will stick to the course. That is the only way to help confidence to flourish and growth to return, and I urge those who seriously suggest, when they see what is happening to our neighbours across Europe, that we should abandon the decisive plan we are following, and instead borrow and spend more, to think again. What they propose would be disastrous for the British economy, would put us back in the international firing line we have worked so hard to escape from and would mean higher deficits and jobs lost, and we should reject that path.
Stability is a necessary precondition for growth, but it is not enough. Our economy’s competitiveness has been in decline for more than a decade, undermining its ability to create jobs and grow, which is why we have already announced four annual reductions in corporation tax, axed the jobs tax, cut the small companies rate, expanded loan guarantees, simplified health and safety laws, invested in science and apprenticeships and promoted exports through major trade missions.
Let me set out some of the other things that my right hon. Friend the Secretary of State for Business, Innovation and Skills and I are announcing today to support growth and a rebalancing of our economy. In the Budget, I set out a plan to reduce the main rate of corporation tax to 24%—its lowest ever rate—demonstrating our commitment to tax competitiveness. I can now tell the House that today we are publishing the most significant programme of corporate tax reforms for a generation, for consultation with the business community. We propose to make the UK an even more attractive location for international business and investment by reforming the outdated and complex rules for controlled foreign companies. We have seen a steady stream of companies leaving the UK in recent years, and this Government, unlike the last one, are not content to sit by and watch our competitiveness leach away and our corporate tax base be undermined.
Another tax issue of crucial importance to our corporate sector is the tax treatment of income from intellectual property. For a long time, we have argued that we should increase the incentives to innovate and develop new products in this country, so to encourage high-tech businesses to invest in the UK and to create high-value jobs here, we can confirm that we will introduce from April 2013 a lower 10% corporate tax rate on profits from newly commercialised patents. We have been consulting the business community, and I can tell the House that as a result of this measure, GlaxoSmithKline will today announce a new £500 million investment programme in the UK, including new manufacturing in Hertfordshire; a £50 million venture capital fund to invest in health care research; a new facility at the university of Nottingham to develop green chemistry technology; and the building of GlaxoSmithKline’s next biopharmaceutical plant in this country, with sites in the north of England and Scotland under consideration. In total, it estimates that 1,000 new jobs will be created in the UK over the lifetime of these projects.
Today, we are also launching a cross-government growth review. This will be a determined, forensic examination of how every part of Government can do more to remove barriers to growth and support growth opportunities. Too often, the natural inclination of Government is in the opposite direction, creating new regulations, putting up new barriers, and making life more difficult for entrepreneurs and innovators. We are starting to turn the super-tanker around. Together with the Department for Business, Innovation and Skills, the Treasury will lead an intensive programme of work, involving all parts of Government, using evidence provided by the business community and reporting by next year’s Budget. We will identify reform priorities that can benefit the whole economy. Specific priority will be given to improvements to the planning system and employment law, more support for exporters and inward investment, and reforms to the competition regime. At the same time, we will begin a new sector-by-sector focus on removing barriers to growth and opening up new opportunities. Some of the resulting changes will be substantive on their own; others will help particular industries in specific ways. Some changes may be controversial if they confront vested interest, but brick by brick we will remove the barriers that are holding Britain back.
Finally, I would like to update the House on the international assistance package for Ireland. I attended the various European meetings in Brussels yesterday. We agreed a three-year package for Ireland worth €85 billion, which is
“warranted to safeguard financial stability in the euro area and the EU as a whole.”
Of that, €35 billion will be used to support Ireland’s banking sector, with €10 billion going towards immediate bank recapitalisation and €50 billion being used for sovereign debt support. Ireland will contribute €17.5 billion towards the total package, and the remaining €67.5 billion will be split, with one third coming from the IMF, one third from the European financial stability mechanism, and one third from bilateral loans and the eurozone facility. The terms of the IMF loans will be determined over the coming weeks. In principle, our bilateral loan is for £3.25 billion, and we will expect the loan to be denominated in sterling. The rate of interest on the loan will be similar to the rates levied by the IMF and the eurozone. The loan to Ireland is in Britain’s national interest. It will help one of our closest economic partners manage its way through difficult conditions.
I should also tell the House that the eurozone Finance Ministers met without me to discuss a permanent financial stability facility. I made it clear in the subsequent ECOFIN meeting that the UK will not be part of that. The president of the euro group made it clear that the UK will not be part of the permanent bail-out mechanism, and that the European financial stability mechanism, which was agreed under the previous Government in May and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.
When we came into office, Britain was in the financial danger zone. Our economy was unstable, our public finances out of control, our country—[Interruption.]
Our economy was unstable, our public finances were out of control and our country was on the international watch list to avoid. We took decisive action. Now, the independent Office for Budget Responsibility has confirmed that the British recovery is on track, our public finances are under control, 1 million jobs are set to be created and our economy is rebalancing. Today we are taking further measures to secure growth and create prosperity. We are doing so based on the foundation of stability that we have now secured. Britain is on the mend, and I commend this statement to the House.
Let us move from bombast to reality. Here is what the OBR says:
“As we discussed in Chapters 3 and 4, past experience and common sense suggest that our central forecasts for both the economy and the public finances are almost certain to be wrong and that there are upside and downside risks to both.”
The only question is on which side of wrong they actually fall.
This Government have committed our country to a rate of fiscal consolidation that has been attempted only twice in living memory, and on both occasions by countries that benefited from strong growth in a benign global environment. In the current economic crisis, no country other than Ireland has attempted to cut so deeply, so quickly. The Chancellor is always telling us that we have the highest fiscal deficit in the G20. That is not true: the US has a proportionally higher fiscal deficit than ours, and the Americans plan to reduce it by less than half over the next five years. Japan, which has roughly the same level of deficit, has learnt from its experience over the past 10 years and plans to cut by less than a quarter. The Chancellor has chosen to take an unprecedented gamble with people’s livelihoods and the country’s future, and he has done so on the basis of a fundamental deceit: that when he assumed office, the public finances were worse than expected. The OBR exposed that deceit last year, and it has confirmed it today, so will the Chancellor now tell all those Back Benchers behind him—all those Tories who claim to their constituents that things are worse than they expected, and of course those who tell them that they have never had it so good—that they will have to find a new excuse? Nothing in his statement today can hide the fact that it was the balanced approach of my right hon. Friend the Member for Edinburgh South West (Mr Darling)—[Hon. Members: “ Where is he?”] Snowed in, in Scotland, probably. It was the balanced approach of my right hon. Friend that saw growth return at the beginning of the year, saw the recovery gain momentum and led to nearly 1 million fewer people claiming out-of-work benefits than predicted. That was the previous Chancellor, not this one.
As expected, the OBR has produced a higher growth forecast for this year than at the time of the emergency Budget, but this is the result of an approach that this Government have rejected. The reckless gamble that coalition Members support is still to come; the Chancellor is in the casino, but he has not yet spun the wheel. The OBR’s judgment of the future matters more than its revised forecast for a year that is almost over.
Does the Chancellor accept that the OBR does not expect the fast momentum built up this year to be maintained? Indeed, it is explicit in saying that it expects a slow recovery. Next year, as spending cuts begin to take effect and the VAT hike dampens demand, the OBR is revising its growth forecast down from 2.6% before the emergency budget to 2.3% immediately afterwards and to 2.1% now—it is going south. Looking beyond next year, the forecast for growth over the first four years of the recovery is reduced to an average of 2.4%. This compares with a 3.1% average growth in the far from pain-free recoveries from the two Tory recessions in the 1980s and 1990s. That growth was largely driven by growth in the financial sector and in public services, neither of which will be in a position to help this time.
Lower growth means fewer jobs, and in this weak recovery the OBR, having changed its mind, is now forecasting something that the Chancellor could not bring himself to say—namely, that unemployment will rise next year. It no wonder that the Conservative-led Local Government Association pointed out last week that front-loading cuts in local authorities will lead to 140,000 job losses next year, which is much higher than originally expected. The Chartered Institute of Personnel and Development estimates that the increase in VAT on 4 January will cost 250,000 jobs, more than three times as many as our proposed increase in national insurance, which the Conservatives called a tax on jobs.
The Chancellor tells us that public sector jobs will be protected by his decision to cut welfare benefits, but this works both ways: can he tell the House what the additional hit to private sector jobs will be from those welfare changes? For families up and down this country, a jobless recovery will be no recovery at all. This Government have no interest in protecting jobs, no alternative measures if the gamble fails and, worst of all, no plan for jobs. Indeed, since just last week their growth plan has actually shrunk, from a White Paper that was supposed to contain proposals, to today’s promise to talk: there will now be a debate, a discussion.
The Government’s plans rely on a huge increase in exports and business investment. Let us hope they materialise. But it is a gamble to assume that cuts on the scale envisaged, with cyclically adjusted public borrowing reduced by 8% of gross domestic product in just five years, will automatically be compensated for by exports. Exports need markets, and there is nothing to suggest that the global economic climate will assist us in achieving the kind of boost to growth that we have not seen for 60 years.
The Chancellor talked about his plans for corporation tax. Everyone wants a tax system that supports business, but he has abolished investment allowances for manufacturing to pay for a cut in corporation tax that will give a further £1 billion to the banks. Can he tell us what sense there is in helping companies that make large profits for little investment, at the expense of businesses that will invest heavily in the UK? We were very pleased to hear his announcement on GlaxoSmithKline and the patent box. We were pleased because that was our proposal. It was me, as Secretary of State for Health, with the former Business Minister, Lord Dyson, who argued for that in Cabinet. That is why it was in last year’s pre-Budget report. It is an excellent proposal. It was a Labour proposal.
Here is an idea for the Star Chamber that the Government are going to form. Why not help UK advanced manufacturing in the civil nuclear supply chain by giving an £80 million loan to Sheffield Forgemasters? That is an idea that they can chew over for the next four months.
The Chancellor talked about developments relating to Ireland. As I said last week, we support the financial assistance offered to Ireland, but the lessons of Ireland cannot be ignored. As a Financial Times leader said last week,
“a slower pace of consolidation might have been its best bet at encouraging growth.”
That is a lesson for us as well.
The Chancellor’s analytical ability in respect of Ireland was demonstrated in his 2006 article, which has been widely quoted, but in 2008, just two years ago, confident that Ireland would not be affected by the financial crisis that was just emerging, he said that Ireland now had
“a ‘future fund’ of assets built to provide security against future shocks and liabilities. Their public finances are well placed. Their competitiveness has risen. Their institutions are stronger.”
“used the fat years to prepare for the lean years.”
The Chancellor was wrong about Ireland, and he is wrong about the United Kingdom. The autumn statement does nothing to alleviate the summer madness that led him to gamble so recklessly with our future.
I think the shadow Chancellor made the mistake of writing his response before he had seen the OBR’s forecast. He predicated all of it on there somehow being lower growth, when in fact growth is higher in every quarter and every year than was predicted in the June forecast. I assume that he also wrote his response before the European Commission produced its forecast today. I am sure that he has now seen it. He read out a list of countries, but the European Commission predicts that over the next two years we will grow more quickly than Germany, France, the United States of America, Japan, the eurozone and the EU average. If one is going to read out a list of countries, one might as well start with the most accurate and recent forecast for their economies.
As I have said, the shadow Chancellor’s response was not much of an analysis of what the OBR has said today. He skated over the fact that because of the welfare changes that we have introduced, we have been able to reduce the public sector headcount reduction that is required by any deficit reduction plan—including, presumably, the plan that he will one day propose. He should at least acknowledge that the welfare changes achieve that. He and the leader of his party have some important choices to make in the next few months as we vote on some of these measures. They must decide whether they will support welfare reform or would rather see a higher number of public sector job losses, but that will be a decision for them.
The shadow Chancellor said that he did not believe in the rebalancing of the economy, and that the assumptions for exports and investment that I had made were fanciful. They are, of course, the estimates made by this independent body, the appointment of whose members, as I have said, was ratified by the Treasury Committee. The shadow Chancellor accused me of having no alternative measures to present. I thought that that was a bit of a cheek, because as far as I can tell the Labour party has a blank sheet of paper as its new economic policy. He talked of the importance of protecting intellectual property and supporting the growth of patents, and then praised, I believe, James Dyson. The last time I checked, it was we, rather than the shadow Chancellor, who had consulted him, but so be it.
I welcome the support that the Opposition have given to our decision to offer a bilateral loan to Ireland. We will have to put legislation before the House, and I will of course keep the shadow Chancellor informed of the details when they are negotiated along with the IMF, eurozone and other bilateral contributions. I should have mentioned that Sweden and Denmark have also provided bilateral loans.
I come back, however, to the point that this forecast shows 1 million new jobs being created over the next four or five years. It also shows growth of over 2% in each year; it shows the economy rebalancing; it shows Britain getting to grips with its debts. Yet all the shadow Chancellor could come up with was this: he said he had read a Financial Times editorial in the last week—and I note from his interview this morning that that is how he does his homework; he says he photocopies articles from the FT. Well, I went one better and actually got a copy of the FT, and he said this in his FT interview this morning:
“I am a great believer in the philosophy that if you’ve not got anything to say, keep your mouth shut”.
In June, the Red Book was forecasting that the savings ratio would remain broadly steady at about 6% for the next five years, which is quite near its long-run average for the previous 40 years. On page 67 of the most recent document however, the new forecast assumes a fall in the savings ratio to just over half that, and for the remainder of the Parliament, at only 3%. Is the Chancellor worried about that fall in the savings ratio, and will he consider measures to address it?
Yes, I have, of course, seen the forecast for the savings ratio and we will want to address it. It has the savings ratio returning to its average of before the recession, and I think all parties in this House, and certainly the Government, will want to find ways of encouraging saving more effectively than was the case in the past, and to address that particular problem.
I am not aware that the OBR makes that forecast, but obviously everything we are doing—whether increasing free nursery care provision for some of the poorest two-year-olds or introducing the pupil premium—is designed to encourage social mobility and to give those on lower incomes a chance to increase their incomes over this Parliament.
I thank the Chancellor for the guarantee of no bail-outs for other European countries. Does he think the European Central Bank will make available all liquidity needed by major banks in euroland, as it should do because it tells us they are all solvent?
Obviously, the ECB is independent so I will not speak for it. What I have said about the European financial stability mechanism is that we now have a verbal agreement—I will, of course, want to secure it over the coming weeks—that that mechanism will not form a permanent part of the bail-out mechanism that the eurozone wants to put in place from 2013, and we will not be part of that bail-out mechanism. Indeed, if it requires a treaty change, our consent to that change would, of course, be required.
I thank the Chancellor for his statement. What assurances has he received from Ireland to ensure the multibillion pound loan now given to it will not be allowed to be used to have a fire sale of assets that the Irish state now owns in Ulster and, indeed, across the whole of the United Kingdom? Can the Chancellor also tell us what progress he has made with the Northern Ireland Executive on a reduction in corporation tax so we can compete fairly with a nation that has a corporation tax rate of 12.5%?
The Irish bank restructuring package will now take several weeks—at least—to put in place, and we are, of course, very aware of the interconnectedness of the banking systems of Ireland and Northern Ireland, and, indeed, the whole UK. That is one of the reasons why we are making this bilateral contribution; it is one of the reasons why we are in the room discussing the conditions and the banking package. I am certainly conscious of the fact that some of the Irish banks have significant assets in the UK, and we have a very real interest in the future of that. That is why my hon. Friend the Financial Secretary came to Northern Ireland earlier this week, and I want to make sure that the Treasury, as well as the Secretary of State for Northern Ireland of course, remain in very close contact with the Northern Ireland Executive and Members from Northern Ireland.
Corporation tax has genuinely been a matter of debate in the European Union. I do not think that has been any secret; it has been in the newspapers. Some member states wanted to attach conditions to Ireland’s corporation tax rate, and I do not deny that that 12.5% rate is a real challenge for companies in Northern Ireland. That is why the Secretary of State for Northern Ireland is looking at that and at packages to help the competitiveness of companies in Northern Ireland. But I took a position, which was that it is not really for other member states to dictate the tax rates of sovereign nations, even when they are seeking international assistance. The rates of tax levied by the Irish Government should be a matter for the Irish Government and the Irish Parliament. If the shoe was on the other foot, we would not want to be accepting, in this country, decisions imposed on this Parliament about tax rates. This should be a matter for the elected Parliament of the country. I do not deny that that 12.5% rate is a challenge for Northern Ireland, but I did not feel it was right to use the position we found ourselves in to get Ireland to increase that corporate tax rate.
Yes, I can assure the hon. Gentleman that that is certainly not the purpose of the measure and that tax avoidance is what we are going to seek to avoid. The measure is there to keep pace with the changes in corporate tax regimes that have been introduced in many other countries, not only Ireland, which we have just been talking about, but countries such as Belgium and the Netherlands, which have also made corporate tax changes that attract international companies to headquarter there, rather than in the UK. We have to keep pace with those changes, which is why we are taking the measures that we are.
The Chancellor and the Business Secretary have apparently postponed the long-awaited growth White Paper. Officials say that this is because of the lack of serious content. Can the Chancellor tell us when we can expect this long-awaited document? In which financial year?
What we have published today is a series of documents, which the hon. Gentleman has perhaps not had a chance to see yet. Some of them are on corporate tax reform, on intellectual property and on how in time for the Budget—after all, a White Paper proposes measures that will then be legislated for—we will have measures that will address the competitiveness of British industry. Our measures will specifically look at things such as the competition regime, the approach we take to attracting inward investment, how we improve our employment law and specific sectors. If he wants to involve himself in that process, I will make sure he can be part of it.
Given the forecasting record of the Chancellor’s predecessor but one, who was frequently in error but seldom in doubt, is not the strength of these forecasts that they were prepared by independent officials, who cannot be and were not overruled by politicians?
That is, of course, a very significant feature of what is happening today. It is completely unprecedented for a Chancellor to present an autumn forecast that has been produced independently by people who have been verified by the all-party Treasury Committee and who had their own separate press conference. In addition, Members have had a couple of hours to look at this document. If one thinks back, for example, to a year ago and the pre-Budget report, when the previous Chancellor produced the autumn forecast, one recalls that he rattled off the numbers. There was absolutely no opportunity for the shadow Chancellor to have examined those numbers or to have looked at the document, or for any other Member in the House to have done so. It was the Chancellor’s judgment, rather than an independent judgment. Our approach is a major improvement to fiscal policy making in this country. The legislation is before the House of Lords, and I hope that when it comes to the House of Commons it will have all-party support.
What the Irish banks are getting, in many cases, is a capital injection. As in the UK, the banks have been very poorly regulated. We are improving our regulation system. If the hon. Gentleman does not think we should be supporting the Irish banking system, the impact of his proposals on his constituents in Derbyshire would be very severe.
The shadow Chancellor says that he is concerned about what he calls slow growth in coming years. Does the Chancellor agree that steady, sustainable and private sector-led growth is exactly what the UK needs after the bubble that was inflated and then burst by the previous Government?
My hon. Friend makes an extremely good point. What is happening here is a rebalancing of the economy. I hear the shadow Chancellor muttering away about what he calls slow growth, but according to the European Commission forecasts today our growth is more rapid than that of Germany, France, the United States of America or Japan, as well as than the EU average and the eurozone average. I am not sure what his proposals are to increase that growth rate but if he has some, now is the time to produce them.
In the last decade, under the Government of which the hon. Gentleman was a member, for every 10 jobs created in the south-east only one was created in the midlands and the north. That is the situation that we have inherited and the economic model that we have to change. It is precisely because we want to see exports and investment increase that we are aiming for a more geographically balanced model of economic growth. Announcements such as the one we have made today on the investments by Glaxo will help that, as will the first-time-ever tax cut for new employees that is specifically directed at regions outside the south-east.
The Chancellor has said that he sees private sector growth being driven by business investment and by exports. In its report today, the OBR has revised down its forecast for business investment in four of the years between 2010 and 2015. Of course, we have seen the dramatic uncertainties in the eurozone, which is our main export market. If exports and business investment do not turn out to be what he expects, where does he see private sector growth coming from?
One of the primary tasks of the OBR is to assess whether we will hit the fiscal mandate. The very fact that the fiscal forecasts are not a matter of controversy in the House today shows what we have done to get the British public finances under control. The OBR assessed specifically the scenario that the hon. Gentleman volunteers and said that the fiscal mandate will be met under those conditions. In fact, rather perversely, that helps the fiscal forecasts because of the tax base being more focused towards consumption.
Of course, I am a believer in trying to reduce the tax burden and trying to reduce taxes. However, I have always believed that the best way to achieve that is from stable public finances, otherwise one cuts taxes one year and has to put them up the next. So I am a fiscal conservative with a small c as well as a tax-cutting Conservative with a big C.
In reference to the answer to my hon. Friend the Member for Streatham (Mr Umunna), the Chancellor, through the OBR, is suggesting that there will be 8% growth in business investment yet there is scant sign of it at present Net trade, it has been suggested, will increase by 6% in each of the next four years yet, according to the Governor of the Bank of England, there are doubts about whether the euro area or the United States will deliver the sort of export growth that is being suggested. Is not the Chancellor just a little worried about the optimism in the estimates and is he concerned about whether they will be delivered over the next four years?
The hon. Gentleman says that I made the forecasts, but they are independent forecasts by Mr Robert Chote, whom I do not think anyone would claim is in anyone’s pocket. He is totally independent. The hon. Gentleman is on the Treasury Committee, which interviewed Mr Chote for the job and passed him. These are Mr Chote’s, Mr Nickell’s and Mr Parker’s estimates and they have made a central forecast. He says that there is scant evidence, but that is not what the Office for Budget Responsibility believes. It is independent and it has forecast that business investment is set to grow by more than 8% for each of the next four years and that exports are set to grow by an average of more than 6% a year.
This has been one of the most difficult issues that the international community and, of course, the Irish people have had to wrestle with. For reasons of financial and economic stability, it was decided that it was not possible and would not be sensible to ask the senior debt holders in the Irish banks to take a haircut. That is exactly what did happen in late 2008, in some of the US bank rescues, with pretty disastrous effects, so that is why that decision was taken. Subordinate debt holders in the Irish banks will suffer losses and I think that is appropriate.
Given that the nearest year for prediction in the OBR report suggests that growth will fall in relation to previous predictions—it was 2.6%, then 2.3% and is now 2.1%—what confidence can we have that predictions further out than now will be any more reliable? Is it not likely that growth will not rise as much as predicted?
I said right at the beginning of my remarks that these are economic forecasts and that we should treat them with the caution with which one should treat all economic forecasts. At least we explicitly acknowledge that and the forecasts are independently produced. What we have here is a central forecast; previously, Chancellors just gave a number and asserted that that was the forecast come hell or high water. That is not what the OBR is doing today. However, one can take confidence that its growth forecast for next year is in line with those of most independent commentators and forecasters. It happens to be very close to the numbers that the European Commission produced today, which were not available to the OBR or the British Government until today. We can have confidence that it is part of a group of people who look to the UK and see it growing sustainably over coming years and jobs being created.
All the talk is of cuts, but with spending still rising despite these so-called cuts and with debt as a proportion of GDP rising to a staggering 70%, will my right hon. Friend remind the House that, to coin a phrase, there is no alternative to further massive efficiency savings, particularly in ring-fenced Departments such as Health where there has been a catastrophic decline in productivity in the last 10 years?
I certainly agree with my hon. Friend that an essential part of this programme for public expenditure is getting greater productivity in the public services. As the former Chair of the Public Accounts Committee, he has much to offer. The Treasury is engaging with him on this, I hope, and will engage further with him in the coming months. He is absolutely right that, in a period when there is less money available, if we do not have reform, we will have deterioration in the service. That is why we have got to have reforms and why Parliament is being asked to support those reforms in the next few months.
The OBR’s central forecast is for a “relatively sluggish medium-term outlook”, which it says
“reflects…the impact of the Government’s fiscal consolidation.”
Can the Chancellor confirm that it follows from this that if the Government’s fiscal consolidation had been less severe, the medium-term outlook would be less sluggish? In other words, he has cut too far and too fast, just as Ireland has.
The short answer is no. We inherited a situation of very deep recession, a major banking crisis and a record fiscal deficit. I thought—although one is never sure—it was common ground across the parties that at least we had to do something to address the fiscal deficit, not that we have heard specific measures from the Opposition for doing that. In the summer, the OBR produced a comparison of the growth forecasts under the previous Government’s plans and under the plans of the current Government, which showed that over a period of time we were putting forward a much more sustainable path for growth that would lead to higher growth in the future. It also avoids the downside risk—the tail risk—of a major fiscal event, which would be a major loss of confidence in the UK. It is pretty remarkable that here we are today debating the numbers, and that is fine, but we are not having to worry about the UK’s creditworthiness, unlike some other countries in the European Union, even though we inherited the largest budget deficit in the EU. We have taken measures to take ourselves out of that firing line, and now we have sustainable growth and jobs are being created.
It is not a bad test of the policy offered to the Government from the Opposition to consider what would happen if we actually did it tomorrow. If the shadow Chancellor stood up tomorrow, or if I adopted his plan, and announced that the UK was backing off its fiscal consolidation plan and that it would take much longer, where do we actually think the UK would be within about 30 minutes of that statement?
I am naturally pleased that the number of job losses in the public sector has been revised downwards, but I am very concerned that it seems that the £18 billion of welfare cuts, which will affect the poorest, will be picking up the price tag. Was that the Chancellor’s explicit decision and policy, and if so does he think it was fair?
I do of course think the spending review was fair, but as I said at the time—[Interruption.] If the Opposition would actually produce a spending review, perhaps we could compare the two—but they do not want to do that.
The point I was making to the hon. Lady is that I said at the time of the Budget and the spending review that I was making a conscious decision to seek further welfare reform to try to reduce the rapidly escalating costs of the welfare state. That was a challenge that anyone doing my job would face, and I said that if we were able to find further welfare reforms, we would be able to reduce the cuts in Departments, and that is exactly what we were able to do.
May I congratulate the Office for Budgetary Responsibility on a thoroughly transparent, comprehensive and technically excellent report? It marks a first in this country. Can the Chancellor give us an assessment of any remaining threats he sees to financial stability from the eurozone countries?
There is of course concern about the high deficits, particularly in the eurozone. Let us hope that the action taken yesterday to stabilise Ireland, and also the clarification that eurozone Ministers offered about the future permanent bail-out mechanism and the involvement of private sector creditors in that, will help to achieve stability. That is certainly what the intention was yesterday.
Stockport council will tonight announce proposals for cuts, with the likely loss of 400 jobs. That will have a devastating impact on my constituents who are affected, but it will also lead to loss of confidence by those with jobs that they will have jobs in the future, which might lead to reluctance on their part to spend money in the economy. Is the Chancellor concerned that such lack of confidence will affect new jobs and future growth?
Of course, I have enormous sympathy with anyone who faces a job loss, but we are creating the economic conditions where they will be able to find a new job, I hope. There is support from the welfare system. We expect more than 1 million new jobs to be created over the coming years. I make this observation to the hon. Lady, who was Parliamentary Private Secretary to the previous Chancellor: if the Labour Government had been re-elected in May, they would be cutting billions and billions of pounds from public spending, this year, next year and in the years ahead. That was in the March Budget plans, even if they are not the plans that the shadow Chancellor is sticking to. If the hon. Lady is able to find a way of cutting many, many billions of pounds—£40-odd billion—from public spending without in any way affecting the local government settlement, she should please let me know.
The short answer to my hon. Friend is yes. One of the specific aspects that we want to look at is how Government should be helping businesses grow, rather than standing in the way of that. That includes procurement for Government. The Government spend too much of their money on the largest companies in the country and not enough on some of the smaller companies. That is one of the things that we seek to improve.
On public sector jobs, the Chancellor says that headcount reduction will happen over four years, but as he knows, some local authorities are facing budget reductions of 20 or 30% next year alone, due to front loading and loss of specific grant. Will he consider rephasing the cuts to local government so that we do not see 140,000 local government job losses next year?
I said at the time that it was a challenging settlement. I have removed some of the ring-fencing—indeed, almost all the ring-fencing—to allow local authorities the maximum flexibility to deal with that, but unfortunately I inherited a situation where the country was borrowing £1 in every £4 that it was spending. At a time when people are looking at European countries, we can see what happens to European countries that have high budget deficits and no credible plan to deal with them, so I have had to take those decisions. As I say, if the Labour party wants to put forward a plan to remove the structural deficit without affecting the local government settlement, let us hear it.
I warmly welcome the announcement that you made of the investment by GSK into our British economy today on the back of the 10% tax rate for patents and innovation. Can you tell us more about the competitiveness measures that you are taking to help this country on its way out of the mess left behind by the Opposition?
We are looking at two specific things. One is the controlled foreign companies regime. This is what we believe will help encourage large multinationals to choose the UK as a place to put their headquarters, rather than in Holland or Belgium, for example, where some companies have chosen to go. In a world in which companies can increasingly choose where to locate and countries are being aggressive in trying to attract their location, these tax measures will make us one of the most competitive places in the world for a company to locate its headquarters. On the patent box and the lower corporation tax rate for intellectual property, of course the GSK announcement is just one of many, I hope, from companies that depend on intellectual property and patents to power their business. Again, that will make us very competitive versus other countries.
The OBR confirmed today that we will borrow £1 billion less. Last week, we decided to make a £7 billion loan to the Republic of Ireland, yet apparently we could not afford to make an £80 million loan to Sheffield Forgemasters. Is that not proof, if any were required, that the Chancellor has deliberately talked down the British economy and, more importantly, that these policies are damaging the British economy?
I think that is one that was prepared earlier. UK growth is forecast to be higher than that of Germany, France, many other European countries or the United States of America. It is also the case that the OBR is forecasting the creation of a million jobs. When it comes to the sovereign loan to Ireland, that is of a totally different nature from industrial support. It will be set out in the terms that I bring before the House of Commons. It is £3.25 billion, rather than the number that the hon. Gentleman gave.
My right hon. Friend has today reinforced the need for exports to help our recovery. What can he personally do to help reverse the situation whereby we export more to southern Ireland than we do to all the BRIC countries—Brazil, Russia, India and China—put together?
Since the Government were created there has been an absolute focus in foreign policy and trade policy on trying to increase our exports to those BRIC countries. The Prime Minister led major trade missions to India and China, the Business Secretary was very recently in Russia and I think that a trip is being proposed for Brazil, so we are seeking to expand our exports to the BRIC countries and, indeed, to some other important emerging economies such as Indonesia, Turkey and so on. We do not want to export less to southern Ireland or to anyone else in the advanced world; we just want to increase our exports to emerging economies.
We know that the deficit is the price that has been paid to avoid a depression—a price that the Chancellor would not have paid. To reduce the deficit, will he consider using three methods: first and foremost, a proper jobs and growth strategy; secondly, fair and progressive taxation; and, thirdly, savings over a greater period, instead of simply casting half a million public sector workers on to the dole, triggering the unemployment of another 1 million private sector workers and ending up with the unfair, unnecessary and failed policies of the Conservative past?
That was a complete load of nonsense. The independent forecast shows that we are projected to create 1 million jobs, and that the economy will grow more quickly over the next couple of years than the economies of most of our European competitors. Frankly, we inherited from the previous Government an absolutely catastrophic situation in which people called into question Britain’s ability to pay its way in the world. That was the situation we inherited, but I think we have done many things in the past six months to ensure that the British economy is now on the mend.
What words of comfort can the Chancellor offer the construction industry and the thousands of unemployed building workers who are still reeling from his Government’s decision to scrap the Building Schools for the Future programme and end housing targets? Does he not accept that a private sector-led recovery will be impossible without a vibrant construction industry? What will he do to support the industry?
We certainly want to support the construction industry. It is one of the specific sectors that we are looking at, as the growth review that we publish today sets out. If I can just correct the hon. Gentleman, however, I must say that the capital investment programmes of this Government are actually higher than the capital investment programmes set out in the March Budget. If he is not aware of what the Labour party fought the election on, so be it.
I welcome my right hon. Friend’s statement and, in particular, today’s OBR forecast, which sees projected public sector job losses drop from 490,000 to 330,000. Based on the previous 490,000 figure, PricewaterhouseCoopers projected that half a million jobs would be lost in the private sector. Will my right hon. Friend comment on the likely reduced impact on private sector unemployment as a result of today’s lower projected job losses in the public sector?
The OBR also makes a projection for private sector employment and takes into account all the potential impacts on that, and it finds that a net 1.1 million jobs will be created over the period: there will be 30 million people in employment at the end of this Parliament, compared with 29 million today.
In bringing forward their national insurance proposals the Government accept that their fiscal consolidation programme will have a disproportionate affect on those areas of the state that are more reliant on public expenditure. What other countervailing measures is the right hon. Gentleman considering?
We have created the regional growth fund to look specifically at areas that need support and investment. We have been able to announce some significant transport investment in other parts of our country. The national insurance tax reduction, which the hon. Gentleman mentions, refers explicitly and only to job creation outside the south-east and east, and I have deliberately taken that decision to try to create a more geographically balanced economy than the one I found when I took this job.
It is clear from the response that we have heard today that the Labour party is still in denial about the huge deficit that it created. I congratulate my right hon. Friend on coming up with a workable, viable and transparent plan that can take us out of this mess.
I take my right hon. Friend back to the permanent fiscal stability facility, which will not come online until 2013. What will happen if another eurozone country requires a bail-out? Will Britain’s involvement be kept to a minimum?
I thank my hon. Friend for his initial comments. I say this about any future action that we may or may not have to take. On the bilateral loan, I said last week that there were some very specific— I stress the words “very specific”—circumstances that would lead us to support Ireland because of the interconnectedness of our economies. I also said that the European financial stability mechanism, the EU fund, was something that the previous Government had signed up to, and that the UK could not block its use because it operated under qualified majority voting. I had to deal with that situation, but by finding now what I think is a way forward that means that the mechanism disappears in 2013, we have taken a bad situation and made it a lot better.
Has Ireland’s fiscal consolidation been successful?
The point that I would make—[Interruption.] Ireland has had to take some incredibly difficult decisions to deal with its fiscal deficit. Its Government have announced, with the support of all the major parties in Ireland, with the exception of Sinn Fein, that they are going to have to take further austerity measures next year and over the next three or four years. If they did not take those measures, the country’s situation would be even more difficult.
Frankly, we should have some respect for the incredibly difficult situation in which Ireland finds itself. We should take some comfort that, because of the measures that we have taken on our public finances, we in this House are able to help the country and that we are not in the firing line in the way that we would have been if the Labour party had won the election.
Despite the excessive nay-saying from the Labour party, is the Chancellor aware of a recent report from Barclays bank that outlined that the majority of businesses in the north-west—our region—are looking to expand in the year ahead? Will he tell the House what steps he is taking to support small and medium-sized enterprises, which, in the years ahead, will be the growth engine for job creation?
We avoided the increase in the small companies rate that the previous Government wanted to introduce even in a recovery. We have been able to avoid the damaging part of the jobs tax. Of course, my hon. Friend is absolutely right. The forecast in this report and the forecast from many other people is for jobs to be created in the private sector across the country, including in the north-west—a part of the country that both of us represent in the House. Frankly, one can see again today that the Labour party wants to talk down the economy, does not believe independent forecasts and talks down the regions. It is no wonder that people rejected it at the election.
Was the Chancellor talking a “complete load of nonsense”, as he put it earlier, when he said:
“Look and learn from across the Irish Sea…What has caused this Irish miracle, and how can we in Britain emulate it?”
Does he recognise that a private sector recovery has not happened in Ireland? Why should following the same policies be any different here?
If the hon. Gentleman cannot tell the difference between the economic situations in which Britain and Ireland find themselves today perhaps he should not turn up to these events.
I just make this observation. This is an independent report, produced by Robert Chote. [Interruption.] I have had a lot of chuntering from Opposition Front Benchers about the independence of the Office for Budget Responsibility. We set it up on an independent basis and we have given all members of the Treasury Committee the right to approve or reject the members of the budget responsibility committee. We will see whether Opposition Members, including Front Benchers, support this legislation when it comes before Parliament. At the moment, it does not sound as if they will support it, but perhaps they will change their minds.
Does this apparent good news mean that the Government can now spare the blushes of the disgraced Deputy Prime Minister and of Government Members by scrapping plans to hike university tuition fees, or is this really about pure ideology—rich kids can afford to go to university and poor kids cannot?
I will tell the hon. Gentleman what this issue is about: the hypocrisy of the Labour party. Labour Members set up Lord Browne’s report, and the shadow Chancellor was in the Cabinet that agreed to that. Lord Browne has reported, and now they are all walking away from it—it is absolutely pathetic.
Compared with June, the OBR predicts, in table 4.21 on page 118, that we will save £19 billion in interest payments. Contrary to what the shadow Chancellor said, are not the choices made by my right hon. Friend the right ones to ensure that we have this £19 billion to spend on schools and hospitals rather than putting it in the pockets of foreign Governments and private bondholders?
My hon. Friend is absolutely right. This is one of those issues that is perhaps less commented on, but very relevant. We are reducing the debt interest payments that we inherited from Labour, and the debt interest bill—the money that we have to pay out to private bondholders and foreign Governments to borrow—is coming down from the number that we inherited. That is £19 billion that would otherwise, if we followed the Labour party’s plans, be being paid to foreign Governments and private bondholders. That is how Labour Members want taxpayers’ money spent; we have other plans for it.
Instead of lending to Ireland to repay the European Central Bank and bolster bank capital relative to large impaired assets, might it not make more sense to help Ireland to de-leverage by buying some of those written-down assets directly, particularly where they are in the UK and are not well managed by the National Asset Management Agency?
The support for Ireland had to be a co-ordinated international effort with the IMF and other European member states, and we have taken our part in that. I do not think that coming up with our own unilateral package would have been particularly easy when, as I said, the IMF was organising this international effort. I have already said in reply to an earlier question that of course we will want to look at the impact of the banking reorganisation in Ireland on some of the assets that are managed in the UK, and I will keep the House informed about that.
I welcome my right hon. Friend’s statement, particularly on the investment of GlaxoSmithKline in a new facility at the university of Nottingham near Erewash. Does he agree that ring-fencing the science budget, bolstered by his coming to this House today and presenting figures of growth and stability for the UK economy, sends out a clear message to the rest of the world that the UK, particularly the east midlands, is an excellent place in which to invest and build?
I completely agree with my hon. Friend, who has been a powerful champion of the east midlands and of her constituency in the few months since her election. I know that she will welcome the announcement by Glaxo, which is because of the decisions that we have taken. Of course, the support for job creation in the east midlands and across the country would not be there if we had a fundamentally unstable economy of the kind that this Government inherited in May.
The Bank of England Monetary Policy Committee sets interests rates, and does so independently. The purpose, in part, of the measures that we have taken to reduce the deficit is to give the Monetary Policy Committee the maximum possible flexibility and freedom in setting the appropriate monetary policy to stimulate demand in the economy. I believe that that has enabled it to keep interest rates low, which helps to stimulate the economy.
Will the Chancellor confirm that the corporation tax reforms that were announced today will make the UK more attractive as a holding company jurisdiction and help to make the UK a pre-eminent corporate headquarters centre, as much as a financial centre?
My hon. Friend is absolutely right that the reforms will help to do that. They will help the UK to be an attractive place for international companies to locate, invest and create jobs. The changes to the patent regime will help a number of sectors, such as pharmaceuticals. I mentioned GlaxoSmithKline, but of course Pfizer is a big employer near Dover, and I hope that it, too, will benefit from the announcements that we have made.
I was right here at the back, Mr Speaker.
In my constituency, 46% of the workers are in the public sector. In one Edinburgh seat, the figure is 66%. Those are huge numbers of public sector workers and many of them will be laid off. What additional help can the Chancellor give to constituencies that contain large numbers of public sector workers?
First, we are seeking to reduce the impact of the fiscal consolidation that would have taken place under either the Conservative or the Labour party in office. We are doing so in a way that, as the OBR has today shown, has a reduced impact on public sector headcount loss. Secondly, we are putting in place a comprehensive Work programme to help people who are without work to find work. Thirdly, today’s forecast is that more than 1 million new jobs will be created over this Parliament. That will help all constituencies, including the hon. Gentleman’s.