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Volume 525: debated on Tuesday 22 March 2011

The Chancellor of the Exchequer was asked—

Financial Regulation

1. What assessment he has made of the effects on the economy of the trade in mortgage-backed securities and collateralised debt obligations. (47918)

The rapid increase in mortgage-backed securities and collateralised debt obligations contributed to a build-up of excessive and unstable levels of private debt in the UK in the years running up to the financial crisis. Although we would wish to see a properly regulated securitisation market reopened to help with lending, this must happen under a much more effective supervision regime. That is why we are abolishing the failed tripartite system and have restored to the Bank of England the responsibility for monitoring overall levels of debt in the economy. We have already established a new Financial Policy Committee to assess risks to the stability of the system, such as the emergence of excessive debt.

Although I accept the analysis in the first half of the right hon. Gentleman’s answer, I wonder whether the fact that financial services companies donated 51% of all funds to the Conservative party has led to a conflict of interests that prevents adequate regulation.

I think that I pointed out in an earlier exchange that an ex-Lehman Brothers and RBS banker contributed to the leadership campaign of the shadow Chancellor, so if the hon. Member for Sefton Central (Bill Esterson) wants to make that point again, and if you would allow, Mr Speaker, perhaps he could intervene.

Does the Chancellor agree, as I do, with the Governor of the Bank of England in asserting that if we are to avoid another banking crisis in this country, we must have a complete separation between commercial and investment banks, which of course create these collateralised debt obligations?

If my hon. Friend will allow me, I will keep my personal views on this matter private while we await the publication of the independent commission that has been set up to look at this issue, and which I, the Business Secretary and the whole House will have to consider. It is producing its interim report in April, and will produce a final report in September. Let us remember that the commission was set up by this Government to ask the difficult questions of the kind that he is asking, because we are determined not to repeat the mistakes of the past.

Looked-after Children (Saving Schemes)

2. If he will bring forward proposals for a scheme to provide looked-after children with a savings account or trust fund funded by contributions from the Exchequer; and if he will make a statement. (47919)

In October, the Government announced that we will create a new tax-free children’s savings account to be known as the junior ISA. We expect the accounts to be available from this autumn, and will be setting out details of how they will work next week. As the hon. Lady and the right hon. Member for Wythenshawe and Sale East (Paul Goggins), who is my constituency neighbour, will know, Barnardo’s and Action for Children have proposed that these accounts be used to support saving for looked-after children. I know that these children face particular challenges, and I can tell the House that the Department for Education will work with others to make the necessary funding available to ensure that we can provide the support that they deserve. We will work with charities and interested parties to develop detailed proposals funded by the Government, so that junior ISAs can best support these children.

There were warm words on this last summer when the child trust funds were abolished, and there are warms words now, but will the Chancellor tell us when such a savings scheme, backed by the Government, will be introduced for looked-after children?

I have just announced the money for the scheme that the hon. Lady asked me about, and we will now engage with Barnardo’s and Action for Children. I have seen their report, “On Our Own Two Feet”, and we will provide the funding to make the scheme a reality for looked-after children.

As chairman of the all-party group on looked-after children and care leavers, I warmly welcome my right hon. Friend’s announcement today. Is he aware that the proposal has widespread cross-party support? The fact that the Government have listened to all representations and taken steps to make provision for the most vulnerable children in our society is extremely welcome.

I thank my hon. Friend for those words of support. I know that he has personal experience, through the work his family have done with children in care, of the contribution that society can make to helping these children. Frankly, all Governments have struggled to provide a decent level of care for the children to whom we owe the greatest obligation. As I said, I will engage with interested Members of Parliament, particularly my constituency neighbour, the right hon. Member for Wythenshawe and Sale East, and the two charities that produced the report to make this a reality and get it up and running as soon as possible.

May I remind the Chancellor that he broke his original election promise—a promise he made in the general election and ripped up on 3 January—to provide a trust fund for the poorest third of families? I welcome his announcement today, but we will look at the detail. We pushed on this issue in Committee on the abolition of the child trust fund Bill, and my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) has pushed outside that Committee. We welcome this announcement, but can the Chancellor say what that contribution will be and, given that this is a Department for Education issue, as he has said, whether the provision will extend to Scotland, Wales and Northern Ireland, as the trust fund originally did?

First, of course we will ensure that the scheme is available across the UK, although the exact design has to be determined with the charities. I have listened to the case made not so much by those on the Opposition Front Bench—if the right hon. Gentleman does not mind my saying so—but by the right hon. Member for Wythenshawe and Sale East and the two charities concerned. The sum of money involved will be around £5 million.

There is a bit of good neighbourliness breaking out on the eve of the Budget. I welcome the announcement that the Chancellor has made this afternoon. Three quarters of young people leaving care do so with no savings whatever, yet they are expected to be almost totally self-reliant. As ever, the devil will be in the detail, but I am certainly prepared to work with the charities and his Ministers to ensure that we get a scheme that is effective in giving support to care leavers.

I thank the right hon. Gentleman for his support—we are one big happy coalition on this issue. I will ask Treasury officials to engage with him so that we get this right. We have to work in a way that is not bureaucratic, but gets money to those who really need it. Having looked at the issue, I think perhaps the best route is to work closely with the charities that know the sector best. Let us work together and make the scheme work.

VAT (Road Fuel)

3. If he will estimate the revenue to the Exchequer attributable to receipts from the increase in the standard rate of value added tax on road fuel. (47920)

5. If he will estimate the revenue to the Exchequer attributable to receipts from the increase in the standard rate of value added tax on road fuel. (47922)

The VAT forecast is estimated on an aggregate basis, as registered traders are not required to record in their VAT return the type of goods or services on which VAT has been collected.

I agree with the Prime Minister that VAT is a regressive tax that hits the poorest hardest. Today’s figures show that the rise has also pushed up inflation, hitting people in their pockets and at the pumps. Will the Treasury team look again at the VAT rise on fuel—which is hurting motorists, hauliers, businesses and families across the country—and reverse it?

I welcome the hon. Gentleman’s concern for motorists. However, I note that when the VAT rise passed through Parliament on 13 July 2010, he did not vote against it. I assure him that the Government are looking at what we can do to support motorists, hauliers and businesses with the cost of fuel, but I have to say that his party’s proposal on VAT is illegal, unworkable and unfunded.

Does the Minister agree with the Transport Secretary—who, on the “Daily Politics” show on 2 March, dismissed the rise in VAT as a spurious argument—or does she agree with my constituents that by adding £1.35 to the cost of filling up a 50-litre tank with fuel, the VAT rise is the wrong tax at the wrong time?

Perhaps the hon. Gentleman should talk to his former Prime Minister, Tony Blair, or the right hon. Member for Edinburgh South West (Mr Darling), the former Chancellor, who both said that our decision to raise VAT was necessary to tackle the huge deficit that was left by his party. Again, if he is so concerned about the VAT rise, how come he did not vote against it last July?

Will my hon. Friend confirm that the Government inherited plans for six increases in fuel duty from their predecessor, four of which have yet to come into effect? Of all the groups of people who are quite reasonably concerned about the increasing cost of fuel, surely the least qualified is the Labour party.

My hon. Friend is absolutely right. In fact, the previous Government introduced 12 duty rises during their time in office. As he pointed out, they also legislated for a further six rises, bringing in the fuel duty escalator, and these would have been on top of inflation rises. It was absolutely amazing to see the Labour party table a motion last week bemoaning the amount of tax that motorists are paying, when they legislated for all—

Order. I am grateful to the Minister, but we must concentrate on the policy of the Government.

I am sure that the Chancellor will respond to the concerns of the motorist tomorrow in a fiscally responsible and environmentally sustainable way, but does the Minister agree that road fuel duty is a blunt instrument for taxing motoring, and that what we need in the long run is a more flexible, market-oriented mechanism for taxing road use?

Obviously, my hon. Friend has his ideas about how he would like to see motorists being taxed in relation to the environment. He will be aware that the way in which vehicle excise duty is structured encourages motorists to purchase and use cars with lower emissions.

On the day that diesel prices have hit a new high and inflation has jumped higher still, making the squeeze on living standards even worse, why do not the Government admit that they got it wrong on VAT and give struggling working people some much-needed support by reversing the Tory VAT rise on petrol, which would take 3p off the price of a litre? Just do it!

The hon. Lady says, “Just do it!”, but she should know that that is simply not legally possible. She fully understands that. The reason that the Opposition are talking about that is that the fuel duty rises that are coming through were legislated for by Labour, so they are desperately looking for something to say about an issue that they themselves created. She knows that her policy on the VAT rise is illegal, totally unworkable and completely unfunded. Labour wants to take seven years to support motorists; we want to see what we can do to support them now.

Will the Minister tell us by how much duty has risen in recent years, and whether the person who put the duty up is in the House today?

When the Labour Government came to power in 1997, fuel duty was 36.86p per litre. By the time they left office, it had risen to 57.19p per litre. As I am sure my hon. Friend is aware, one of the architects of those tax rises was then the chief economic adviser to the Treasury; he is now the shadow Chancellor.

Employment (VAT Rise)

4. What assessment he has made of the effect on levels of employment of the increase in the standard rate of value added tax. (47921)

8. What assessment he has made of the effect on levels of employment of the increase in the standard rate of value added tax. (47925)

The Government have taken urgent and unavoidable action to tackle the deficit and to put the public finances on a sustainable footing. That is essential for jobs and growth. Raising the standard rate of VAT is an important element of the plan and, in November, the Office for Budget Responsibility’s forecast, which took full account of the VAT increase, was for total employment to rise by 1.1 million in 2015.

I thank the Minister for that answer. Will he tell us what impact the VAT rise has had so far on himself and his family?

The VAT rise of course leads to increased prices in the shops, and that affects everyone in the House.

The Chief Secretary to the Treasury had a meeting—a crisis meeting, according to The Daily Telegraph—with senior retailers a few weeks ago. Was there any discussion of the impact of the VAT rise at that meeting?

I did indeed meet senior retailers from the British Retail Consortium and we discussed a whole range of issues in a private meeting. If the hon. Gentleman is interested in the consortium’s views, he should listen to what its director general said on 20 October, the day of the spending review. He said that delays in public expenditure cuts

“would just store up more pain for later, risking increased borrowing costs, higher taxes and more job losses.”

Which does my right hon. Friend think is the lesser evil: a rise in VAT that does not apply to food or children’s clothes, or taking almost 1 million of the lowest paid workers out of income tax altogether?

I certainly think that our Government have got their priorities right when it comes to lifting the burden of income tax on low-income workers. The increase in the personal allowance by £1,000, which will come into effect in April this year, will ensure that 880,000 low-income workers will no longer pay income tax. Furthermore, 23 million basic rate taxpayers will see a tax cut of £200 next year.

Has my right hon. Friend considered the letter sent to him by the chair of the tourism group of the Sutherland Partnership, which outlined the importance of tourism for employment in the area and the barriers that VAT is creating, particularly in relation to road fuel? Is there anything that the Government can do to mitigate that effect?

I have seen that letter and, as a fellow highland MP, I am fully aware of the impact that high fuel prices have on families and individuals. We have already taken steps to deliver a 5p duty discount to island communities, and I hope that we will be able to do what we can tomorrow, but that will be a matter for the Chancellor to announce in the Budget statement.


Manufacturing is now expanding after years of contraction. In order to support it, the June Budget contained four reductions in the main rate of corporation tax and a cut in the small companies rate from 21% to 20%. The manufacturing sector is expected to gain over £250 million annually when the package is fully implemented. We have committed ourselves to 75,000 more apprenticeships and nine university-based centres for manufacturing. Tomorrow’s Budget will set out further details of the Government’s plan for sustainable, private sector-led, balanced growth.

On Friday I visited Kirk Environmental, a company in Nelson that specialises in turning waste into electricity and usable biogas. It is experiencing rapid sales growth internationally, is recruiting more locally, and is at the forefront of the United Kingdom’s transition to a low-carbon economy. What incentives is my right hon. Friend providing to encourage such companies to invest more in Pendle and in the United Kingdom?

As I am sure my hon. Friend knows, in the spending review we allocated £860 million to the new renewable heat incentive, and earlier this month, in the House, my right hon. Friend the Secretary of State for Energy and Climate Change announced the introduction of the first phase of the scheme. It provides financial incentives to support a range of technologies and fuels, including those involving the use of biogas. I hope that that will help excellent companies such as Kirk in my hon. Friend’s constituency.

Does the Chancellor regret the fact that manufacturing declined by 50% under the last Government? What plans has he to reverse that trend as we rebalance our economy, so that companies actually start to make things again in the United Kingdom, as they are already doing in South Basildon and East Thurrock?

My hon. Friend is right. The share of manufacturing in our economy halved during the years of the Labour Government. However, there is good news today: the CBI industrial trends survey shows that total order books are growing for the first time in three years. We are determined to move from an unbalanced economy that placed all the bets on the City of London to an economy that grows across the regions and in all sectors.

The trade-weighted exchange rate has fallen by 20% in the last few years. Manufacturing has not increased as much as we expected, and there are even worse figures for the investment industry. What is the Chancellor doing to ensure that we gain the advantages of that exchange rate depreciation?

I do not know why Opposition Members want to talk down the British economy. What the chief economist at the CBI said contrasts with the hon. Gentleman’s remarks about manufacturing. The chief economist said:

“The outlook for UK manufacturing output growth is very encouraging.”

We are going to support manufacturing. We have the corporation tax cut that I announced in last June’s Budget, and we have the new centres for innovation and manufacturing. We are going to help manufacturing, whereas Labour shrank manufacturing.

Talking of making things, a small manufacturing firm in my constituency is investing in the development of a new engine. If it moved into production, hundreds of jobs would be created in the 15th most deprived area in the country. Will the Chancellor tell us why the Government have cut Labour’s investment allowances, which would be just the thing to help and support a small and vital manufacturer like the one in my constituency?

Manufacturers, including the one to which the hon. Lady has referred, benefit to the tune of £250 million from the reductions in corporation tax that we announced in the June Budget. That is what we have done to support British industry. As I have said, under the Labour Government British industry shrank: while the share of the economy taken by financial services grew by a third, the manufacturing share halved.

Does my right hon. Friend agree that, as we see signs that business confidence in the economy is being restored, tomorrow’s Budget presents a key opportunity to support the high-technology entrepreneurs who put their own wealth at risk in starting the businesses of tomorrow?

Yes, we will support enterprise and innovation in tomorrow’s Budget, but my hon. Friend will have to be patient and wait until then to hear about the precise measures that are involved.

Manufacturers up and down the country and the whole House are awaiting the Chancellor’s long-delayed growth strategy to be published tomorrow, but I have a copy of that document with me today. It says:

“Growth comes first for this Government”

and that their strategy will

“underpin private confidence, investment and job creation.”

The Chancellor has no need to worry however, as I will not be handing this document to the press. I read it last night and, frankly, there is nothing in it worth leaking. Has this document been audited by the Office for Budget Responsibility? Is the Chancellor really clear that getting rid of maternity and paternity rights and enterprise zones will boost jobs and growth in our economy? Is this going to be enough to stop the Budget growth forecast tomorrow being downgraded for this year and next?

I am not sure that that is the document in question—but if the right hon. Gentleman hands it over, I will have a look—because we are not getting rid of maternity and paternity rights, so I do not know where he got that from. Besides, I have a copy of his document, and it contains all the spending commitments he has been making. If he cannot control his own Front-Bench colleagues, how on earth is he going to control the nation’s finances?

Is this really the best the right hon. Gentleman can do? I bet he will have Treasury officials scrabbling around all afternoon trying to deliver a further 1p cut in corporation tax tomorrow and a further tax cut for the banks. Let us wait and see. The fact is that a year ago inflation was low and unemployment was falling, and a year on, as we see today, inflation is up to 4.4% and borrowing is higher than a year ago, not to mention unemployment. If the Chancellor will not listen to me, will he listen to his colleague who said:

“We must not cut Government spending too soon and risk plunging a fragile recovery back into recession. Cuts without economic growth will not deal with the deficit”?

The Business Secretary was right. Why will the Chancellor not listen?

The right hon. Gentleman really needs to brush up on his question practice, but let me say this to him: the idea that we were somehow left a fantastic economy by the Labour party is quite the most ludicrous claim in the country, and the only reason he makes it is because he was responsible for the economic mess that left this country on the brink of bankruptcy.

One of this country’s great manufacturing success stories is world-leading subsea engineering that has grown up on the back of investment in the North sea oil and gas industry, based in my constituency but working throughout the United Kingdom. What reassurance can the Chancellor give my constituents that the Government will build on their constructive relationship to ensure a fiscal regime that maximises investment in North sea oil and gas production and exploration and that boosts the manufacturing that supports that?

Of course we want to ensure that we prolong the life of the North sea fields. One area on which we can work with the industry is ensuring greater certainty about decommissioning costs and about the tax regime that was operated under previous Governments and how that will apply over the next 10 years. I hope to work with the industry on that.

Public Expenditure Reductions

9. If he will review the pace of proposed reductions in public expenditure to take into account GDP figures for the fourth quarter of 2010. (47926)

I welcome the hon. Lady to the House. The short answer to her question is no. Of course, growth in the final quarter of last year was disappointing, but, as we always said, the recovery in the early stages would be choppy. Deficit reduction is the essential precondition for growth, and the OBR’s November forecast stated that we would see growth in every year of the forecast.

Will the Chief Secretary explain to my constituents who are either unemployed or facing redundancy how his Government’s catastrophic economic policy is in the interests of the country? Clearly, we are not all in this together.

I hope the hon. Lady will take the opportunity to explain to her constituents that it is the legacy of the previous Labour Government that has caused the enormous mess and all the problems in our economy. They left us with the largest Budget deficit in Europe, and one of the largest in the world. Countries in our position have to take the sort of action we have taken, or risk being in a much deeper mess. If that is what she is advocating, I suggest she tells her constituents.

We are spending £120 million a day on debt interest—£1 billion by the end of next week. How many representations has my right hon. Friend received from reputable international and national organisations advising him to slow the pace of deficit reduction?

None. The hon. Lady will be aware of the report that the OECD published last week, which strongly endorsed our plans. Its general secretary, Angel Gurría, said that the fiscal position we inherited was “clearly unsustainable” and that the

“consolidation measures and plans that the”—


“have put in place were therefore vital.”

I agree with that.

Today’s inflation figures show a sharp leap in the retail prices index to 5.5%, the highest level in 20 years. That hits not only living standards, but public service expenditure plans. Is the Chief Secretary sticking to the coalition agreement guarantee of real-terms growth for the NHS in each year or is he resolutely sticking to his plan A, regardless of economic realities?

We are sticking to the spending plans that we set out in the spending review, and that is the right thing to do. Of course I understand that inflation has an effect on people’s living standards, which is why it is particularly important to emphasise the increase in the personal income tax threshold—£1,000 extra on the threshold—that comes into force this April, which will put £200 back into the pockets of hard-working people in this country. That is the action this Government are taking to help people through these difficult times.

Budget Deficit

Excluding capital expenditure, the Office for Budget Responsibility forecasts revenue to exceed current expenditure by 2015-16. This is further evidence that this Government believe that the country should live within its means.

I am grateful to my hon. Friend for that answer. The shadow Chancellor was reported as saying in Saturday’s The Daily Telegraph:

“The idea that Labour profligacy caused the crisis is utter tosh.”

Does my hon. Friend agree that the only tosh to be seen in that statement is the suggestion that Labour had not created the mess we are in? Is it not the case, as the CBI has said, that the previous Government’s target of balancing the budget by 2018 was set too far off to—

Order. We are asking about current policy, and some of these questions are simply—[Interruption.] Order. We have got the gist.

My hon. and learned Friend is absolutely right, and a number of organisations, both at home and abroad, have criticised the lack of ambition of the previous Chancellor’s plans. That is why the Obama Administration, the International Monetary Fund, the OECD, the Institute for Fiscal Studies, the CBI, the Governor of the Bank of England, 35 leaders of British businesses, the European Commission, the World Bank, three major credit rating agencies and the world’s biggest bond trader have been backing our plans—the only person the shadow Chancellor can find to back his is The Guardian.

Public expenditure is to be matched by revenue in 2015, but has the Treasury made any estimate of the amount of growth and employment that will have been forgone by these policies of making too-deep cuts too quickly?

The hon. Gentleman should pay attention to the forecast produced last year by the OBR indicating that the economy would continue to grow in each year of this Parliament.

Does my hon. Friend agree that real progress on growth has to be made through not only matching expenditure, but cutting the deficit, and that the OECD says that the only way we will get future growth is by ensuring that the deficit plans are continued and this Government pursue their policy?

My hon. Friend is absolutely right. The OECD is one of a number of organisations that have supported our plans. The IMF has said:

“The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability.”

That theme continues to come across from international organisations, which demonstrates that we are on the right track to get this economy growing again and ensure that Britain continues to live within its means after a decade of a Labour Government who maxed out on the nation’s credit cards.

Budget (Impact Assessments)

11. If he will (a) prepare and (b) publish an assessment of the relative effect of his forthcoming budget on women, families and ethnic minorities. (47928)

Consistent with the approach taken at the June Budget, the Government will publish analysis on the Budget’s overall impact on households across the income and expenditure distributions in the Red Book. The Budget is an overall statement of economic policy containing a wide range of measures, and it is not possible to make a robust assessment of its overall impact on specific groups.

I am surprised by that answer. Since the general election, the Government have made 17 distinct cuts to tax credits and child benefit, which are paid to women. Tomorrow, the Chancellor will announce increases in personal allowances, which will benefit millions more men than women. Does the Minister think it is fair that money should be taken from women to give it to men?

All I can say is that I am surprised that the hon. Lady is opposed to increases in personal allowances and I suspect that she might be somewhat lonely in the Lobby opposing it.

Is the Minister aware of my freedom of information request from last September which found that the previous Government never carried out an equalities impact assessment—not in the March Budget, the December pre-Budget report or the March 2010 Budget? They never did it either.

Order. I am sorry but I must repeat, and I hope that the message will be heeded, that questions must be about the policy of the current Government.

Does my hon. Friend agree that raising the income tax threshold, protecting spending on the NHS and increasing spending on social care will definitely benefit women?

My hon. Friend is absolutely right to highlight this point. Some of us recall the difficulty in getting distributional analyses out of the previous Government and it has to be said that this Government are taking great steps forward.

The Chancellor chose to hit women three times as hard as men in his Budget last year and now, as living costs rise and the public sector is slashed, he wants to hit them yet again by changing the rules around maternity and paternity leave and flexible working in small companies. Is it really women whom the Prime Minister has in mind when he talks about taking on the enemies of enterprise, and can the Minister reassure the House that it will not be women who bear the brunt of tomorrow’s Budget?

This is pretty desperate stuff. It is in the interests of the entire country that we sort out the public finances, even if the Labour party will not accept that.

Does the Minister agree that the fact that we are not cutting the NHS will really support women because they are so often carers in their family and it is so important that we support them in that important role?

My hon. Friend is absolutely right and it is striking that the previous shadow Chancellor and the previous shadow Health Secretary said that it was madness to ring-fence the NHS. That is not the view of this Government.

VAT (Road Fuel)

13. What assessment he has made of the effect on road fuel prices of the increase in the standard rate of value added tax. (47930)

I thank the Minister for that answer. Treasury Ministers are very wrong to suggest that the calls to scrap the VAT increase on fuel is illegal and unworkable. There is precedent for it: the French President recently got a derogation from EU laws for French restaurants. Will this Government stand up for UK families who have been hard hit by the rise in fuel costs and look for derogation powers on fuel duty?

A week ago, the shadow Chancellor was saying that we needed an immediate cut in the tax on fuel and now the Labour party is saying that we should start a process that will take about seven years. That does not strike me as being terribly helpful.

In terms of the value for money of decisions taken by the Treasury, whether on road fuel tax or other things, does the Minister agree that one of the best value creations of this Government has been the increase in apprenticeships, which is widely appreciated around the country? Does he agree that apprenticeships are critical both to our growth strategy and to the reduction of youth—

Order. I am sorry, but that question suffers from the disadvantage that it bears absolutely no relation whatever to the question on the Order Paper.

May I suggest a much quicker way of changing the VAT rate without that being illegal—by pulling out of the European Union?

To be fair, if we wanted to reduce tax on fuel through the VAT rate that is exactly what we would have to do, so perhaps that is not the best way of doing it.

Budget Deficit

The Government have received a number of representations for the Budget referring to the need to reduce the budget deficit. In addition, the Government’s strategy has been endorsed by a number of organisations, including the OECD, which said in January that the Government should

“stay the course…The fiscal situation in the UK absolutely requires this approach”.

The Government’s plan to eliminate the deficit by 2015 is in stark contrast to the Darling plan, which was simply to reduce it by half. What assessment has the Minister made of the likely impact of the Darling plan on the level of debt and the cost of servicing it?

If we had continued with the previous Government’s deficit reduction plan, debt would still be rising in 2015, not falling, meaning that we would have to spend an extra £3 billion in one year on debt interest while still having to make spending cuts. The lack of ambition in the previous Government’s plan put our credit rating at risk, thus threatening the prospect of higher interest rates and putting a brake on the recovery.

When such representations were being made, was the Minister conscious of the effect that these cuts might have on young people in our country? Did he look at last week’s level of unemployment among young people? When will his Government do something for young people in this country?

The legacy left by the previous Government was that youth unemployment was continuing to rise. The other problem with which the Opposition left us was that our children and grandchildren would have to pick up the tab for Labour’s mismanagement of our economy. We need to get the deficit down to create the foundations for economic growth to ensure that more young people are back in work.

The Chief Secretary to the Treasury has certainly received representations from me on such measures, including about the estimated loss to the Exchequer of more than £100 million due to tax avoidance through low value consignment relief on VAT. Will the Minister at least confirm that the Government’s conclusions on that will be shared with us in tomorrow’s Budget?

Economic Growth

15. What recent assessment he has made of the effect on economic growth of the spending reductions set out in the June 2010 Budget. (47932)

16. What recent assessment he has made of the effect on economic growth of the spending reductions set out in the June 2010 Budget. (47933)

The independent Office for Budget Responsibility’s November economic and fiscal outlook takes into account the spending plans set out in the 2010 spending review. The hon. Gentlemen ask about a recent assessment, and I can tell them that the OBR will publish an updated forecast alongside tomorrow’s Budget.

Durham university’s economic model shows that between 45,000 and 50,000 individuals will lose their jobs in the north-east of England as a direct result of public expenditure cuts, including 20,000 in the private sector. What message does the Minister have for those individuals and also for the 10.2% of the north-east population who find themselves unemployed?

Coming from a Labour Member, given that unemployment rose during his party’s time in government, people will find that pretty hypocritical. The only way in which we will get sustainable jobs and a sustainable economy that is not as reliant on the public sector will be to carry out our deficit reduction plan. The hon. Gentleman will hear more about our growth review tomorrow.

Is not the Minister aware that all the independent indicators and forecasters suggest that there will be a sustained period of low growth below forecast, and that almost every single economic indicator is going in the wrong direction? Can she not therefore see that the Chancellor’s plan is simply not working? Why are the Government in denial about that?

I simply do not agree. As we have heard, every independent forecaster is backing our fiscal consolidation plan. The hon. Gentleman talks about evidence, but the retail sales volume grew strongly in January. The Chartered Institute of Purchasing and Supply purchasing managers index grew faster in January than analysts expected, while manufacturing reached a record high. Only today, the CBI industrial sector survey says that orders are going up. Our economy is rebalancing over time, and although the hon. Gentleman says that there is no evidence for that, there is such evidence. There is job creation, and that is what we will need if we are to turn our public finances around.

Is it not the case that the Government’s debt reduction plan is absolutely right, as we see in the gilt market and the country’s credit rating? Is it not also true that, throughout history, coalition and Conservative Governments clean up the economic mess left by socialists?

My hon. Friend is right. The consequence of that economic mess is that Labour Governments always leave unemployment higher than when they came into office. It is always that that we seek to tackle. He is right that there is no alternative plan. We have heard about a defunct plan for VAT and petrol, but we have not heard from the Opposition any plan to tackle the deficit. They said they would have some thoughts. Clearly, they are totally thoughtless.

The Government inherited the largest budget deficit of any major country, yet today the UK enjoys one of the lowest interest rates of any major country. Does the Minister have an explanation for that?

My hon. Friend is right to point out that the previous Government maxed out the country’s credit card. Worse still, they want us to hand on those debts—their debts—to our children and grandchildren. The reason that we have been able to enjoy lower interest rates for our borrowing than countries such as Ireland is that the markets know that we have a plan to get our public finances back into shape. That is benefiting this country every day.

Topical Questions

The core purpose of the Treasury is to ensure the stability of the economy, promote growth and jobs, reform banking and manage the public finances so that Britain finally starts to live within her means.

More than 1,500 people in Sutton will be taken out of paying income tax altogether from next month as a result of the increase in the tax threshold. What estimate has the Chancellor made of the number of people who will be taken out of paying tax altogether in 2015, when the tax threshold is increased to £10,000?

I think my hon. Friend is getting a little ahead of himself. The commitment is to a real-terms increase in the personal tax allowance in each and every year. People will have to wait for the Budget tomorrow. The increase of £1,000 in the personal tax allowance has taken 900,000 people of out of tax.

T4. Writing in The Independent at the end of 2009, the then shadow Chancellor said:“If I become Chancellor, the Treasury will become a green ally, not a foe.”Will that pledge be reflected in tomorrow’s Budget? (47946)

T2. The Financial Services Authority’s mortgage market review stated:“Our existing regulatory framework has been shown to be ineffective”and that“regulatory reform is needed to reduce the probability and severity of future financial crises”.Does the Minister agree? (47944)

My hon. Friend is right. The mortgage market needs reform, but it needs stability as well, which is why I welcome the statement by the FSA today. It says that it will not introduce reforms this year and will take into account overall economic stability before it introduces any further changes. It has also made it clear that lenders should not pre-empt any conclusions from its review.

T5. Can the Chancellor confirm that between 1990 and 1997 the proportion of tax paid on a litre of fuel rose from 59% to 75%? Can he also confirm that the proportion of tax paid then fell by more than 10% between 1997 and 2010? (47947)

What I can confirm is that Labour left us with six duty rises. Now they are wriggling desperately to find some excuse to get off the hook they put themselves on.

T3. Can the Chancellor tell me when the Treasury’s detailed investigation of the feasibility of incorporating a general anti-avoidance rule in British tax law will conclude? (47945)

My hon. Friend is right to highlight the matter. We have asked Graham Aaronson QC to undertake a study on the matter and he will report in the autumn.

T6. Following the announcement last week by Lloyds of more job cuts, many of them in my constituency, to a work force who have showed total loyalty to the company, and as the Government own a large percentage of the company—a company that made more than £2 billion profit last year—will the Chancellor intervene to protect people’s jobs and livelihoods, and stop the constant drip-feed of job losses by Lloyds? (47948)

Of course we are concerned when people lose their jobs, including in the banking sector, but what Lloyds is undergoing is the process of merging HBOS with Lloyds bank, which was waved through by the previous Government.

T7. I have had the privilege of talking to the Chancellor about a charter for entrepreneurs that I drew up, based on discussions with entrepreneurs in and around Cambridge. I am sure he will not want to pre-empt what he will say tomorrow, but can he say that he has looked carefully at some of those issues, in particular reforming the enterprise investment scheme and enterprise management incentives, and making research and development tax credits easier for small companies? (47949)

I have a copy of the hon. Gentleman’s document here. He has some excellent ideas on promoting enterprise and entrepreneurs. He will have to wait until tomorrow to see how we respond to them.

T8. Can the Chancellor not see that the figures —current and forecast—for inflation, unemployment, growth, borrowing and even the deficit are all way off his target? Can he not see that the plan is not working, or is it a sad case of him not wanting to see? (47950)

What I would say to the hon. Gentleman is this: we inherited a record budget deficit and there was no credible plan to deal with it. We put a plan in place and it is supported by the international community. The result of all this is that we have interest rates that are closer to Germany’s, despite having been left a deficit that is bigger than Portugal’s or Greece’s.

Will the Chancellor make every effort to keep the House informed about the cost of our operations in Libya by providing an estimate at the earliest opportunity? Will he also tell us whether those costs will be funded from the Ministry of Defence budget or drawn from the Treasury reserve?

My hon. Friend alerted me to the fact that he might ask this question. The House will understand that it is too early to give a robust estimate of the costs of the operations in Libya, but I can say that they should be modest compared with some other operations, such as Afghanistan. The MOD’s initial view is that they will be in the order of tens of millions of pounds, not hundreds of millions. I can tell the House today that whatever they turn out to be, the additional costs of operations in Libya will be fully met from the reserve.

T9. The Chancellor said on Sunday that the present financial difficulties were the result of “a decade of overspending”, so can he tell the House why in July 2008, 11 years into a Labour Government, the then Leader of the Opposition, now the Prime Minister, told the CBI conference“we are sticking to Labour’s spending totals”? (47951)

What we did on coming into office was set out a credible plan to reduce the budget deficit that has moved this country out of the financial danger zone. One month ago, the shadow Chancellor told his entire Front-Bench team not to make any spending commitments, and after that they committed to more than £10 billion of spending commitments. They have opposed £50 billion of the cuts. It is completely incredible, and that is why they cannot find any reputable organisation in the world to agree with them.

How high would inflation need to be before we halted further quantitative easing, stopped printing money and raised interest rates?

The Bank of England’s Monetary Policy Committee is of course independent. It is set a target by the Chancellor, and I expect the Bank to pursue that target.

T10. Contact a Family and the Children’s Trust have been campaigning for a change to the current rule that suspends disability living allowance payments for children under 16 once they have spent 84 days in hospital. The cost of this is around £3 million, compared with the overall deficit reduction measures of £80 billion. As this is a financially driven measure, will the Chancellor undertake to discuss the funding issue with colleagues in the Department for Work and Pensions so that some of the most severely disabled and sick children and their families continue to receive the financial support required when they need it most? (47952)

The Secretary of State for Work and Pensions is bringing forward proposals to reform the disability living allowance system and replace it with a new personal independence payment. I am sure that he will have heard what the hon. Gentleman said and will be very happy to discuss the matter with him.

The previous Government’s beer duty escalator was damaging to pubs, ill-considered and did not raise the revenue that it should have done. Considering that the Prime Minister has said that he wants this to be a pro-pub Government, will we get some good news for pubs tomorrow?

The hon. Gentleman will have to wait until tomorrow’s Budget, but he will recognise that in the emergency Budget last year we left beer duty frozen.

The Chancellor knows that the long-term solution to the spikes in fuel prices is a stabiliser or a regulator, and hopefully we will hear about that tomorrow. However, is he aware that the price rises in fuel over the past four of five weeks equate to an additional £1,000 a year for running every truck in the country? Does he not agree that that is hugely inflationary and utterly unsustainable?

Of course, the very sharp rise in the world oil price has posed a challenge to lots of economies—all but the oil-exporting economies. That is one of the headwinds currently facing the global economy. Specifically on fuel duty and other issues, the hon. Gentleman will have to wait for the Budget.

Will my right hon. Friend undertake very carefully to consider improving the diversification of financial services provision in the way that United Kingdom Financial Investments Ltd divests itself of taxpayers’ shareholdings in the banks?

I am very happy to consider a number of ideas that have been put forward, but we have not yet reached that stage. If we sold the bank shares today, we would still be making a loss as a nation. That is an indication of the scale of the banking crisis. When we come to put those banks back in the private sector, I am sure that there will be a healthy debate in this Parliament and elsewhere about how we treat the proceeds.

Ministers will be aware that there is a sunset clause in the Debt Relief (Developing Countries) Act 2010, which comes into effect in June. Does the Treasury have a view about renewing this important landmark legislation, which tackles the worst abuses of vulture funds?

I am grateful to the hon. Gentleman for asking that question. That legislation will remain on the books and—I do not think we have announced this formally before—we will put it on a permanent footing.

Is my right hon. Friend aware that the Governor of the Bank of England confirmed to me recently in the Treasury Committee that without the current austerity measures, our international borrowing rates would be some 3% higher?

Of course, the Governor of the Bank of England is one of many people who have pointed out that there was no credible plan when we came into office and that we have put a credible plan into place.

The Chancellor and other Ministers have cited investor confidence as the reason why they cannot revise their original plan for fiscal consolidation, but Jonathan Portes, the immediate former chief economist at the Cabinet Office, said:

“This is not a justification, economic or otherwise, for”

not changing policy. He said that

“it relies on an odd view of market psychology, one that says markets have more confidence in governments that never adjust policy, even when it is sensible, from an economic perspective, to change course.”

Why is he wrong?

Our country’s credit rating was on negative watch when we came to office and as a country we did not have a credible plan to reduce the budget deficit. Since that plan has been put in place we have been able to see the effects because our market interest rates and our spreads over bunds have come down. We have interest rates that are closer to Germany’s despite, as I have said, having a budget deficit left to us that was higher than either Greece’s or Portugal’s.

Would my right hon. Friend the Chancellor like to inform the House which organisations have made representations to him that the deficit should be halved over the course of this Parliament?

The Chancellor might know that my constituent, Jenifer Herald, employs 40 people in Northern Ireland in a number of Subway cafés. The chief executive officer of that company has written to the Chancellor to say that inconsistent VAT policies for toasted sandwiches are damaging the growth of that industry. Does the Minister intend to review how VAT applies to toasted sandwiches and does he, like me, want to get his toasted sandwiches at a reasonable price?

I am grateful to the hon. Gentleman for his question. I, too, have received many representations on this point. Of course, we keep VAT under review within the restrictions that exist.

Is the Minister aware that according to the Institute for Fiscal Studies, if we only halve the deficit rather than close it completely over the lifetime of this Parliament, we will spend an extra £10 billion on interest? Does he think that that is money that would be better spent on schools and hospitals in this country rather than foreign investment bankers?

I certainly do. This country is spending £120 million a day on debt interest, which is now one of the largest items of Government spending. These are taxes we raise from people and money we borrow to pay debt interest. The truth about Labour’s plan is that it would mean billions of pounds more in debt interest—something that will become clear later in the Parliament.

I am sure the Chancellor and his Front-Bench colleagues will be aware of the recent Scottish Affairs Committee report on the computer games industry in the UK, which states that there are “compelling reasons” for introducing tax relief. Will he tell me, the House and people in my constituency, where the industry is very important, just what progress has been made?

That industry, like other industries, will benefit from the policies that we have introduced to ensure that we grow more strongly and have pro-business policies. On video games tax relief, we looked at it and did not feel that it achieved good value for money for the taxpayer.

May I welcome the recent visit by the entire Cabinet, including of course my right hon. Friend the Chancellor, to the city of Derby, near my constituency? Manufacturers and wealth creators have been waiting for a long time for some support in the east midlands, and I would be grateful if my right hon. Friend could set out what plans are in place to assist that important area.

At that meeting at Rolls-Royce, John Rose made a very compelling case for how little we had done as a country to support our manufacturing sector. We will set out policies tomorrow to assist, and we have already, as I said, put in place four annual reductions in the corporation tax. More broadly, we have to get away from a model of growth that was pursued over the last decade—based on excessive debt, and growth in one sector, the City of London, in one corner of the country, the south-east. We must have more balanced and sustainable growth in the future.

Does the Chancellor of the Exchequer recall saying at the end of 2007:

“Today I can confirm for the first time that a Conservative Government will adopt these”—


“spending totals…to…the year 2010-11”?

Does he regret calling the article, “Tories cutting services? That’s a pack of lies”?

The Chancellor has a strong commitment to open and transparent government. Will he therefore ask his officials to look again at the number and value of special severance payments paid by foundation trusts, which must be reported to his Department but which his Department is not currently willing to disclose?