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It is true that worldwide inflation is rising and that growth is slowing. America may well already be in recession, a point acknowledged today by the US Treasury Secretary. For all of those who doubted that the credit crunch was going to be real some months
ago, it is perfectly obvious that it is both real and biting. Yet most commentators believe, as reflected in the Red Book forecasts, that although growth will slow this year in Britain, it will rise again next year. I thought that my right hon. Friend was right to point to the fact that in every single quarter of every single year since 1997—despite the turbulence that there has been in global markets at different points during those 10 years—Britain is the only G7 country that has been able to avoid negative growth in any single quarter.
The macro-economic policy framework that was put in place in 1997 has stood the test of time and I believe that the continuation of that approach is the best safeguard against global economic uncertainty. I speak about confidence for another reason. Confidence about the underlying state of the British economy is important for another reason. Unless we are confident about it, the danger is that there will be a disproportionate response to what are currently serious problems. The danger is over-reaction, which is why I thought that my right hon. Friend the Chancellor was right to resist the siren voices of those who are calling for, as the best response to global uncertainty, the return of economic protectionism.
When I look across the Atlantic at the United States, I think it is a tragedy that the ugly sound of economic protectionism has returned in that country above all others, which has been built on confidence about its place in the world and openness in its markets. Incidentally, protectionism has returned across the political spectrum—in both the Republican party and, sadly, the Democratic party.
In Europe, protectionism is as much a commodity of the right as of the left. It is striking that whereas Chancellor Merkel in Germany and President Sarkozy in France push full-steam ahead on other aspects of reform, when they speak about economic reform the message becomes somewhat blunted. For them, defence of the national economic interest comes first. That is why European Commission President Barroso was right when he said in a recent Financial Times interview that the two things to resist in the current climate are the return of both protectionism and over-the-top regulation.
Nobody doubts that the US sub-prime mortgage crisis, the Northern Rock collapse, the Société Générale scandal in France and the global credit crunch necessitate a re-examination of how financial institutions operate. A highly integrated global economy brings many benefits, but it brings big risks as well, as the current turmoil in the financial markets demonstrates. That is why we will need to hammer out a global agreement on ensuring greater transparency in the future. My right hon. Friend the Prime Minister was therefore right when he called yesterday for a re-examination of how global institutions, including the International Monetary Fund, operate, to ensure that global stability is maintained. In a world of global financial movements, more global co-operation is what is required, not less. That is why it is also right to resist the tide of anti-Americanism and the wave of Euroscepticism, both of which are all too prevalent in sections of our society.
Let me proffer one word of advice to the Conservative party. If it is serious about becoming a moderate, mainstream, outward-looking party, which is what it professes to want to be, instead of always standing against Europe, now is the time to embrace Europe,
because a key lesson to be drawn from the events of the past few months is that no country is now able to stand alone. Nor should we seek to do so because, notwithstanding the self-evident risks, open markets and free trade are the best way to deliver results. The economies that have done best in recent times are those that have been most open. To see that, we need only compare the performances of Thailand and Burma or, even more graphically, North Korea and South Korea; we need only look at the experiences of the countries of Asia or Latin America, which by opening their markets—if not yet always their politics—have produced the biggest reduction in poverty that the world has ever seen.
It is not only developing nations that are benefiting from a more open and globalised economy. Notwithstanding the noise about protectionism and the threat of competition from India and China, over recent years the EU managed to increase its proportion of world exports, and over the past 10 years Europe has created some 18 million new jobs.
I am particularly proud that over the past decade the British Government have championed that pro-globalisation approach. The message has been that wealth creators can be sure of a warm welcome here. That message, and the framework of policy that lies beneath it, has helped the City of London become a world leader in financial services.
Tony Baldry: Does the right hon. Gentleman think that the £500 million that will be raised through the non-dom tax will help to send out a signal that the City of London will still be a magnet for those coming from overseas to do business here?
Mr. Milburn: I should say two things to the hon. Gentleman. First, that is a good question to put not only to Labour Members but to his Conservative Front-Bench colleagues—let us remember that the Conservative party also made a non-dom proposal. Secondly, as we seek to maintain economic prosperity and stability in the future, it is important that our policy formulation on not only regulation but taxation sends the message to global investors and institutions that Britain is open for business, rather than closed. Opposition and Government alike have a responsibility to ensure that that is not put at risk.
If I were being candid, I would say that it is perfectly obvious that during the past few months the relationship between the Government and the business community has been sorely tested. I hope that the Budget draws a line under those tensions and that our future policy programme will build on the key lesson that we have surely learnt over the past 10 years—that the economy thrives best when the Government focus primarily on helping to create wealth rather than penalise it.
Stewart Hosie:
I agree with a great deal of what is being said, particularly the critique of protectionism, but we have an £87 billion deficit in our trade in goods. I want to avoid protectionism, but we need to help manufacturing and, therefore, the whole economy. Is it right for the Government to have taken so much from business in last year’s Budget, the pre-Budget report and this Budget? Last year, the CBI was talking about £5 billion, and another couple of billion has been taken this year. Is that not the wrong thing to do at this time?
Mr. Milburn: Of course it is right that we help business. The hon. Gentleman was talking about manufacturing in particular, and I have no problem with that. The best way to help manufacturing is not artificially protecting it. We learnt a lot of lessons during the 1970s and 1980s, when Governments tended to develop a pretty poor record of picking winners, but people could be certain that losers developed a pretty consistent habit of picking Governments. We should bear that lesson in mind. Open markets and free trade are the best way of delivering results. Of course there are limits to the role of free markets and Governments have a responsibility to ensure that markets operate both efficiently and fairly, but equally, we must recognise that there is a limit to the role of Government and the centralised state.
The second area about which I wish briefly to speak is the Government’s role in tackling poverty and inequality. For me and, I suspect, for all Labour Members, it is a matter of great pride that a Labour Government have presided over the biggest falls in child and pensioner poverty that this country has ever seen, but we must also be candid about the fact that, despite rises in living standards and falls in poverty, a big inequality gap still scars our country. The ossification of British society— the slowing down of social mobility—that set in over many decades will clearly take more than one decade to unfreeze. Unfreezing it means recognising, as Amartya Sen, the Nobel prize winner for economics has rightly put it, that families and communities can suffer not only economic disadvantage but cultural, social, housing and educational disadvantage.
The Budget’s proposals to lift many more children out of poverty are welcome, but if we are not only to raise the glass ceiling but break through it, we must do more to empower individual citizens, especially the poorest, to exercise more choice and power in the way that better off people nowadays take for granted. Social mobility will not advance if we think that only wealth is unevenly distributed in our society. Power is also unevenly distributed. Equity demands empowerment. Never mind its succeeding economically, if Britain is to get moving again socially, people need more than just support from the tax and benefits system and they need more than just help getting a job, a house, training or child care. They need to enjoy far greater control and to have a bigger say in how they lead their lives. That is why I welcome what the Prime Minister calls
“a new politics that places power...in the hands of people themselves.”
Although many of the Budget’s measures are welcome, it could have done a lot more to make the notion of a state that empowers, not controls, the defining idea of the next phase of my party in government. For example, it could have allowed individual citizens, especially the poorest, to take control of their own budgets, not just in training, as the Red Book suggests, but in health, in old age and particularly in education. In those aspects of the public service where it is less easy for the individual to exercise direct control—most of us are hardly in a position to choose our own police officers, for example—the Budget could have set out how power could be relocated to local communities.
I would have liked to have seen the Budget be far more ambitious in seeking to make Britain more of an asset-owning democracy. We know that asset owning
works. Those with assets tend to spend less time unemployed, and they enjoy better health and greater independence in their lives. Indeed, evidence from the US suggests that home owners are far more likely to engage in local politics and local neighbourhood organisations. As Larry Summers once famously said, “No one ever washed a rental car.” Why? Because ownership encourages people to act responsibly and independently.
Spreading asset ownership is crucial to tackling inequality and speeding mobility. That is because the most substantial inequities in today’s society are no longer between income groups but between those people who own shares or have a pension or own a home, and the people who rely purely on wages and benefits. That is why I welcome the Government’s efforts to increase housing supply in general, and the Budget’s proposals to make homes more affordable through new equity loan schemes in particular.
Of course Britain needs more social housing, of that there is no doubt. But given a choice, most people would prefer to buy rather than to rent. The US sub-prime mortgage problem should not be allowed to derail the ambitious Government plans to extend home ownership to far more people. More than 1.5 million social tenants aspire to own their own home, and it is progress that 95,000 households have been helped into home ownership through shared equity schemes, but far more needs to be done. With fewer people able to afford to buy outright, and more young people dependent on their parents for financial help to get on the housing ladder, further reforms are clearly needed.
Mr. David Winnick (Walsall, North) (Lab): Given a choice, most people want to buy their own home. We do—I doubt whether there is a single Member of Parliament who does not own their own home. But does my right hon. Friend accept that many people, certainly in my constituency, would struggle to get a mortgage—even in better circumstances—and therefore need to rent? Does he agree that we therefore need a substantial number of new social rented properties to be built?
Mr. Milburn: Of course we need more social housing, and the Chief Secretary, when she was Minister for Housing, will have argued strongly with the Treasury for more money for housing. Now she is in a position to put her wallet where her heart is, and I am sure that she will tell us later that she is going to do that.
Mr. Milburn: As my right hon. Friend suggests, I will be at risk of being handbagged if I continue.
Many people want to fulfil their aspirations to own their home. The idea that they have to be able to pay 100 per cent. of the cost is unrealistic for many people, which is why we must have flexibility in how these shared ownership schemes work.
To put the issue in perspective, the Government spent £38,000 million on income-related social security benefits last year. Spending on tax credits amounted to an additional £17,000 million. Of course, that total of £55,000 million of expenditure makes a real difference to families struggling to make ends meet. But that sum dwarfs the £400 million that the Government spend on
helping people to buy their own home. I believe that it is time to shift the balance. It is not dependence that we should seek to foster, but independence. The welfare system would enjoy far greater popular support if people thought that that was what it was doing.
Social mobility cannot be bought through social security payments and an old-fashioned safety net welfare state system. It can happen only if people are helped on to the ladder of opportunity and independence. To secure a Britain that is genuinely socially mobile, we have to do more than tackle poverty. We have to unleash aspiration. That requires not less of a state—as Opposition right hon. and hon. Members believe all too often—but a state that is prepared to empower and not to control. If we do that and open our country to aspiration and effort by fundamentally changing the distribution of power in our society, I believe that the progress that we have been able to make in the past 10 years will be complemented by even more progress in the next 10.
5.35 pm
Mr. Kenneth Clarke (Rushcliffe) (Con): I refer hon. Members to my entry in the Register of Members’ Interests in case they are not familiar with my business interests or wrongly believe that they will influence what I say.
It is a pleasure to take part in the Budget debate and to follow the right hon. Member for Darlington (Mr. Milburn), who has just given us a remarkable and interesting speech. He does not need to persuade me of the virtues of the free market and an open economy and of the evils of protectionism. I agree entirely about the importance of a sense of ownership to the stability of a society and I quite agree that we will not restore the social mobility that we require in this country simply by building up welfare payments and welfare safety nets.
The right hon. Gentleman did not need to address me; he was addressing a small selection of his Back Benchers. I hope that he will allow me to indulge myself, as a long-serving Member, by saying that I enjoyed the expressions on the faces of the right hon. Members for Holborn and St. Pancras (Frank Dobson) and for Oldham, West and Royton (Mr. Meacher), whom I remember as distinguished spokesmen of their party over many years. They would have regarded most of the sentiments in his speech as anathema; I suspect that, to a certain extent, they still do so. He might address more of those remarks to his colleagues.
To be fair, like his right hon. Friends, the right hon. Gentleman has chosen the luxury of the Back Benches and the freedom to discuss such subjects. He has recently been given to producing very interesting articles in the newspapers about the next election being up for grabs. He said that he believes that his party will not win that election unless it demonstrates some vision of what society wants. He then started to use words about supporting aspiration, which were entirely taken from the Conservative lexicon and were never those of the Labour party.
With the greatest of respect, the right hon. Gentleman has chosen the wrong debate. I assume that he wished to support a Budget that showed some vision of a society where people can be empowered to improve themselves, and that he wanted to hear, with a
new Prime Minister, statements made by a new Chancellor that showed a grasp of the great issues facing this country. He cannot conceivably claim that we are discussing a Budget that does any such thing.
We all realise, as my hon. Friend the Member for Rutland and Melton (Alan Duncan) and the hon. Member for Taunton (Mr. Browne) said and as others will reflect, that this was a mini-Budget. It was absolutely devoid of vision and almost empty of any particular measures of any great consequence or significance. The Chancellor appeared to be the victim of events and not in control of any of them. I find that alarming.
Let me be fair to the Chancellor, as I belong to the trade union of Chancellors of the Exchequer. He did some good things; I am glad that he got out the old Gladstonian red box. His predecessor so hated any hint of tradition that I feared it had been lost. The Chancellor—unlike the Secretary of State for Business and whatever—takes scrupulous care when describing the evils of the past to talk about the problems of the early 1990s and has not slipped into that irritating habit of describing past problems as though the Government were in any way an inheritor of what they talk about when they go back to the 1980s and early 1990s.
I shall not even criticise the Chancellor for being boring, although he obviously was; I shall credit him for trying to minimise interest in the Budget that he was announcing, and to reduce the prominence of his own role in what is going on. Unfortunately, he does have a prominent role, and so far he has not responded to events.
In his Budget statement, the Chancellor repeated the word “stability” over and over again, with an almost soporific rhythm. The same word was repeated a fair number of times today by the Secretary of State, the name of whose Department I honestly cannot remember yet. It used to be called the Department of Trade and Industry, and no doubt it will be called that again one day.
Less than a week has passed since the Chancellor’s speech about stability, but the economic environment in which business is trying to earn its living does not look very stable. Seismic events have taken place in the markets, and the future uncertainty is very difficult to read. The credit squeeze is becoming serious on both sides of the Atlantic, and it is clear that we are in the middle of a quite unprecedented financial crisis. Everyone agrees that there will be a marked slow-down in economic growth, but no one knows the extent to which the financial crisis will have a knock-on effect on the real economy. There will be a slow-down, but how many jobs will be lost and how many businesses will fail? Will the financial crisis even lead to the recession—that dreaded word—which, although not with us yet, is certainly on the horizon?
At times like these, the business community needs to have a reasonable level of confidence in the ability of the Administration, the Chancellor of the Exchequer, the Treasury and the Governor of the Bank of England to handle events. The Chancellor sounded remarkably complacent as he made his Budget statement. The one message that he wished to give was that the British economy was
“better placed than other economies to withstand”—[ Official Report, 12 March 2008; Vol. 473, c. 285.]—
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