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1.36 pm
Mr. Nick Clegg (Sheffield, Hallam) (LD): I am told that during the Government’s previous 10 Budgets Prime Minster Blair did not know what the proposals would be until Chancellor Brown rose to his feet in the Chamber. This time, the situation is exactly the other way round: the Chancellor is the Prime Minister’s creature, struggling to clear up a mess left by his boss under instruction from No. 10. What we have seen today is an act of political ventriloquism. I would like to compliment the Prime Minister: I watched him very closely, and his lips barely moved all the while that the Chancellor was speaking.
This Budget has inevitably brought a lot of bad news. It has also massively over-egged and exaggerated any good news. Why, for instance, did the Chancellor not admit in his statement that the winter fuel allowance increases are a one-off? How can he bring himself to play with the hopes and expectations of some of the oldest and most vulnerable people in our society? Is this just another pre-election bribe? Are we now to expect an election in 2009?
There are tough times ahead, of course, and the world economy remains uncertain, so this was an opportunity to give whatever help possible to the millions of hard-pressed families who are feeling the pinch—whose money simply does not stretch as far as it once did—but the Chancellor has not delivered such a Budget. This is a meagre, tinkering Budget, which gives precious little help to the poor but maintains special treatment for the rich. It is a Budget designed to fill a black hole, masquerading as good for the environment. It is a Budget that will not make Britain fairer. It is a Budget that is a green cop-out.
The Chancellor bravely suggests that the problems afflicting our economy were all caused elsewhere. He has to do that; he cannot tell the truth. He cannot blame his boss; a monkey never blames the organ grinder. It is deeply disingenuous to claim, as he did, that a housing market crash in the United States is the main reason for our economic woes. The reality is that a swelling tide of personal, private debt secured against high house prices that are now declining is creating the conditions for a perfect economic storm. High oil and food prices make it difficult for the Bank of England to cut interest rates, and with Britain now up to £2 trillion in debt, the Chancellor has backed himself into a corner with no room for manoeuvre. The sustainable debt rule is in tatters, even without Northern Rock and private finance initiative projects being put on to the national accounts, and the “golden rule” has become the “gamblers rule”. Deep in the red, the Government keep betting more and more of our money in the hope that someday, somehow, they will find themselves back in the black. As we have heard today, that prospect is moving ever further into the distance.
We heard much today about the Chancellor’s wish to cut child poverty, but the meagre, piecemeal reforms that he is introducing to the chaotic tax credit system
will not get the Government anywhere near meeting their 2010 child poverty target. By my reckoning, only about a third of what is needed is being provided; the ridiculously complex set of proposals that we have heard about today will be difficult for the most hard-pressed families to understand. Using the Government’s own calculations, the Chancellor would have to find an additional £3.5 billion to stand even a faint chance of achieving their goal, and they are nowhere near doing that. The reality is that this Government’s approach to child poverty has failed. If we are to abolish child poverty for good, we must increase not only income but opportunity. We must target more investment to help the poorest children in our schools and offer them genuine opportunity for life. Crucially, we must deal with the link between poor housing and persistent poverty.
This Budget was widely trailed by the Treasury as the greenest ever, but at the first sign of political difficulty the Government have run away, by postponing the petrol duty increase until October. The fact is that the real cost of motoring has fallen consistently over the past two decades while the real cost of public transport has risen by a third. We of course welcome the Government’s increasing vehicle excise duty on the most polluting cars. Like many of the Treasury’s best proposals—nationalising Northern Rock, reforming aviation tax and increasing stamp duty thresholds—that started life as a Liberal Democrat policy. We have got used to the fact that a while after we have a good idea, the Treasury, too, finally gets round to realising it is the best way forward.
Green taxes should be revenue-neutral. They should not be treated as a wheeze to squeeze ever more money out of the British people, but should instead be designed to encourage green behaviour and cut the taxes of the most needy. By my reckoning, the figures that we have heard today will mean that the Government will be taking approximately £1.7 billion in new green taxes, but less than £1 billion of that will be spent on the poor. Much of the revenue from those green taxes, plus other duties, will clearly go straight back into the black hole that the Prime Minister and the Chancellor have created in the UK’s finances. By 2010, an additional £1.9 billion will go straight to filling that black hole. This is not a Budget for the environment; it is a Budget driven by fiscal incompetence and political desperation.
Is it not the case that the only people who will welcome this Budget are those at the top of the income scale, not those at the bottom? The Government’s policy on non-doms is laughable. Their new poll tax, which the Conservatives unsurprisingly support, will be wildly punitive for ordinary foreign workers, but it will be no more than a flea-bite for foreign billionaires, who have come to regard the United Kingdom as nothing more than a tax haven.
The Government’s approach to capital gains tax policy continues to be mired in chaos. It is frankly amazing that the Chancellor has contrived to create a tax change that has caused howls of anguish from businesses and cries of derision from commentators but still allows hedge fund managers to pay lower rates of tax than their cleaners. Surely it would make more sense to return to the capital gains tax system of Nigel Lawson—not a man with whom I readily agree—and tax capital like income. Until the two taxes are united,
we will continue to see mass tax avoidance by the wealthy, presenting their income as capital for a 23 per cent. tax break. Surely this is also the time to take a much wider look at tax avoidance by big business. It is scandalous that companies such as Tesco avoid paying millions in stamp duty by placing British properties in foreign special purpose vehicles, which are based in offshore tax havens.
Finally, the Chancellor’s announcement on fuel poverty is, once again, too little, too late. Why has he not had the guts to claw back the huge excess profits made by energy companies thanks to the emissions permits that the Government have given them for free? Some 4.5 million people still live in fuel poverty, but the Government’s 2010 fuel poverty target appears to have been conveniently shelved by Ministers. Limiting his measures to prepayment meters and only a modest increase in money for social tariffs does not go nearly far enough. Surely this is the time to compel all energy companies to introduce real, fair, social tariffs for all vulnerable people, not just those on prepayment meters.
This Budget gives no real help to families struggling with higher food bills, higher energy bills and higher debt repayments. What will this Budget do to help junior nurses, teaching assistants and soldiers serving in Afghanistan? The answer is nothing. What we have got instead is a sequel to last year’s Budget, when the Chancellor’s predecessor scandalously raised taxes exclusively on people earning less than £18,500 per year who do not get tax credits. What will the Chancellor say to those most vulnerable people when their income goes down in three weeks’ time?
After 11 years in government, Labour has today completed its fiscal fusion with the Tory Party. Both parties believe in the same kind of Budget: the kind of Budget that kowtows to vested interests, but fleeces the average family; the kind of Budget that keeps tax loopholes for the super rich, but closes in mercilessly on single mothers who have been overpaid tax credits; and the kind of Budget that uses green taxes as an excuse to take more money from the kitty of low earners. This is not a green Budget. This is not a people’s Budget. This is a tinkering, con-trick Budget that protects the rich and abandons the poor.
1.46 pm
John McFall (West Dunbartonshire) (Lab/Co-op): I welcome the opportunity to speak in the Budget debate. Given the economic instability and turbulence in the markets, I am delighted that the Chancellor referred to the targets on child poverty—a primary target of the 1997 Government—the initiatives on environmental taxation, the savings gateway and the measures for elderly citizens. He did so against a background of economic turbulence and the globalised world in which we live. Indeed, only yesterday the Federal Reserve put $235 billion into the market by providing Treasury securities to the bond market for it to accept as ordinary triple-A-rated mortgages for collateral. That was done to encourage banks to lend to one another.
We are in the Northern Rock situation because of a failure of the private sector in the United Kingdom. We face the global crisis because of a failure of the private sector in the international system. The Treasury
Committee has examined Northern Rock over the past six months, producing a report on “The run on the Rock”. Just as importantly, it produced a report a few weeks ago on “Financial Stability and Transparency”, pointing the way forward for the Government and the international community. We said that markets need a clear message about the risks that they are taking. We could see that in the Northern Rock fiasco, its board in particular did not appreciate the risks that it was taking. We are thus asking the Financial Services Authority and the Bank of England to ensure every year that their warnings are heeded, and that they come out with two or three main issues for boards to study. The boards should then report back to the FSA and the Bank of England that they have understood those messages.
I can only describe what we have seen in the markets as a bout of collective madness. How much write-down is taking place at the moment? On the Committee’s visit to the United States in December, I was told that we could be talking about $600 billion, but a senior economist at the UBS bank is talking about $1 trillion, and others are coming out with figures of $2 trillion, $3 trillion or $4 trillion. We do not know where we stand at the moment, but there is no doubt that things will get worse. We must remember the globalised background against which events in the United Kingdom are taking place.
The reason for that situation is that the low inflation and low interest rate environment of the past decade has encouraged a search for yield, which has resulted in complex and opaque products. The designers of those products often do not understand what they are producing. We had the chairman of an investment bank before the Treasury Committee, and when I asked him what a CDO-squared was, he said that he was not there to explain that. If the designers did not understand them, certainly investors did not.
Rob Marris (Wolverhampton, South-West) (Lab): Tell us.
John McFall: CDOs are collateralised debt obligations, and I shall explain the CDO-squared to my hon. Friend over a cup of tea in the Tea Room if he is interested.
Investors did not exercise due diligence when considering such products. They equated complexity with security. That has been compounded by the role of the credit rating agencies. All the members of the Committee appreciated that the credit agencies’ conflicts of interests need to be sorted out. The agencies are paid by the issuers, which is unacceptable. The Basle II international agreement must be examined, because we need to correct the perverse incentive for companies to meet the capital adequacy requirements by reducing their liquidity. That has to stop. There are both national and international elements to the current situation.
Mr. Philip Dunne (Ludlow) (Con): Does the Chairman of the Treasury Committee share my disappointment that the Chancellor did not have the courage to refer to Northern Rock on a single occasion in his Budget speech? Given that he has just taken on a potential £100 billion of public debt, surely the Budget provided him with an opportunity to explain how it would be treated in the public accounts.
John McFall: The hon. Gentleman is a very good member of the Treasury Committee, so he knows that we have been studying the matter in depth for six months and made reports to the House. I can only quote a wise old central banker from the City who said to me, “John, there have been no casualties in this. Nobody has lost any money, and the system has been stabilised.” The public’s response shows that they share that sentiment. I am not surprised that the Chancellor did not mention Northern Rock, because it has been the focus for six months, and arrangements have been put in place.
I wish to cover a number of matters. The first is economic prospects and forecasts. The second is fiscal policy and fiscal sustainability, and the third is child poverty. I was one of the 72 Members who wrote a letter to a national newspaper last week urging the Chancellor to ensure that the child poverty targets were re-established. The fourth is environmental taxation, the fifth is the savings gateway and the last is rogue trading and insider dealing.
When considering the economic prospects and forecasts, I am mindful of the globalised, turbulent background. At the time of last year’s pre-Budget report, the Treasury’s forecast was for economic growth of between 2 per cent. and 2.5 per cent. in 2008, and between 2.5 per cent. and 3 per cent. in 2009. That forecast was prepared when the wider economic situation was far from clear. When the Committee reported on the pre-Budget report last November, we cautioned that there remained a risk that the credit crunch would have a greater economic effect than expected. That has been confirmed today by the downgrading of those economic forecasts. We also observed that the Treasury’s optimism that the economy would revert to trend in 2009 was not adequately explained. When the Chancellor and others come before the Committee, we will wish to test whether the new forecasts are realistic.
I expect the Committee to focus particularly on three areas of risk. First, the Government have been looking for a growth in exports as part of the rebalancing of the economy. The International Monetary Fund is now forecasting US and eurozone growth of well below 2 per cent. for 2008, with world economic growth as a whole at its slowest rate since 2003. If exports are to grow significantly against that backdrop, exports to growing markets, including China, India and the oil-rich countries, will need to increase.
In some of those markets, the UK has not performed as impressively as some of our European competitors. On a visit to India 18 months ago, the Committee was made aware that the links between the UK and India could be developed. We were convinced that the UK’s exports to India could complement what is happening there rather than challenge it. Developments could take place in high technology, and particularly clean coal technology. I would also like to see further developments between the UK and China in that area.
Secondly, the Committee will consider the fact that the UK’s growth in recent years has been fuelled by the prosperity of the financial sector. On an international basis, that sector is the main cause of the current slow-down in the world economy. It is bearing some of the costs of its past exuberance. I believe that the British financial sector remains competitive and innovative, but
it is still to be seen whether its relative contribution to the economy will diminish during the current period of consolidation.
Thirdly, we will consider the dependence of the British economy on wealth and confidence linked to rising house prices, which is well known. In recent years, Treasury forecasters have prided themselves on defying the doom-mongers who have repeatedly forecast a sharp downward adjustment in house prices. There is a risk that house prices will prove less resilient than the Government expect in the face of the credit crunch. I expect that the Committee will explore that matter, and particularly the Chancellor’s initiatives in the mortgage market, with our witnesses next week.
Lembit Öpik (Montgomeryshire) (LD): I am pleased to hear that the Committee will examine that. While doing so, will it examine the related matter of arm’s length management organisations? Is the right hon. Gentleman willing to consider the funding arrangements for ALMOs, which look after a large amount of social housing stock? They are concerned about the limitations on how they can borrow money. Would it be reasonable for the Committee to have a little look at ALMOs when they examine the housing market in general?
John McFall: I suggest that the hon. Gentleman do a bit of homework between now and next week and send me a letter, and we will consider the matter in the Committee.
I turn to fiscal policy and fiscal sustainability. In several reports during the current Parliament, the Committee has argued that the fiscal rules need to be more forward-looking and less dependent on the dating of the economic cycle. Although the fiscal rules have served the Government and the public finances well in the past decade, the Government and others might have focused too much attention on arithmetical arguments about whether the rules have been met, and insufficient attention on underlying issues of fiscal sustainability.
On the golden rule, the most pertinent question to ask ourselves is not about public borrowing over a notional economic cycle but about the current state of the public finances and the prospects for the near future. With regard to public sector debt, it is clear that performance against the sustainable investment rule will be affected by both the public sector control of Northern Rock and the eventual implementation of international financial reporting standards, which will mean almost all private finance initiative projects appearing on the public sector balance sheet. I expect the Committee to consider in detail the impact of that, and how it is reported. In doing so, we must bear in mind the underlying purpose of the fiscal rules: to set parameters for fiscal sustainability. It remains to be seen whether either accounting changes or the public control of Northern Rock represent a threat to that sustainability.
On child poverty, I am delighted to note the Chancellor’s initiatives, but we must remember that there are still 2.8 million young people in poverty. One big issue that the Treasury Committee has tackled in recent years is financial inclusion. We have produced four reports on it since November 2006, which have stated the need for people to be included in the banking services and financial network. Those who are excluded from that network are largely socially excluded as well.
Let us not forget that 600,000 children have been taken out of poverty. That is six times the population of my constituency, more than the population of Bristol and two thirds of the size of the population of Glasgow, so the achievement is considerable—but the Treasury Committee was concerned about the idea that the Government might be resiling from their child poverty targets. I am delighted to see today that the Government have stuck to those targets. Some 700,000 more children must be taken out of poverty by 2010 if the Government are to achieve their interim target, and there will be a long way to go by 2020. I can say with confidence that the Committee will examine the Chancellor on that matter in the next few weeks.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): In relation to poverty more widely, will the Chairman of the Select Committee also examine the Government’s handling of fuel poverty, which has increased? The Government placed far too much reliance on cheap energy during a period when prices fell because the UK had a temporary surplus of supply, and now that prices are rising, more people are being pushed into fuel poverty. Will his Committee examine Ofgem’s advice that the Chancellor should consider whether he can make a one-off gain on the profits made by energy companies as a result of the issue of emissions trading licences, so as to fund a one-off investment in improving people’s housing, so that they can reduce their fuel bills?
John McFall: The hon. Gentleman makes an important point. I believe that he is a member of the Select Committee on Trade and Industry—
Sir Robert Smith indicated dissent.
John McFall: The hon. Gentleman was a member of that Committee the last time we spoke, but he has left it now. I forgot the turbulence on the Liberal Benches.
The Treasury Committee will be happy to look at those matters. Fuel poverty is defined as individuals spending more than 10 per cent. of their income on energy. Some 4.5 million people, including 2 million pensioners, suffer from fuel poverty, so it is an important matter. However, I am delighted to welcome the Chancellor’s initiative on the winter fuel allowance, which is to increase from £200 to £250 for our elderly constituents, and from £300 to £400 for the over-80s.
Sammy Wilson (East Antrim) (DUP): Does the right hon. Gentleman accept that for many pensioners, some of whom have a small private pension, who now face the loss of the 10 per cent. income tax band, the extra money made available for this year’s winter fuel payment will be more than offset by the tax loss?
John McFall: I know that personally, the hon. Gentleman is a bright and optimistic individual, but politically he is always pretty gloomy. I look at the glass as half full today, and I welcome the increased winter fuel allowance. I challenge the hon. Gentleman to go knock on his constituents’ doors and ask them whether they want that allowance to be taken away; I reckon he will get a raspberry in response. We should welcome that good initiative.
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