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the global slow-down. He stated that with an air of complacent confidence, but the biggest question marks of all hang over the inheritance left by the Prime Minister to his successor as Chancellor, and over the Chancellor’s ability to produce measures to deal with the problems that have arisen.
The events of the past day or two throw into stark contrast the reactions to events, and the decisions that have been taken, on either side of the Atlantic. There has been another bank failure, although I accept that the analogies between Bear Stearns and Northern Rock cannot be stretched too far. However, when the crisis finally came, the decision taken on the other side of the Atlantic was dramatic and rapid. Within a matter of hours—and certainly within a very few days—steps were taken for the US Government to intervene and reassure the many organisations that are creditors or counterparties to Bear Stearns. A private sector partner was found after only a couple of days and, with the business transferred into new private sector ownership, the risk to the American economy and taxpayer was minimised.
On this side of the Atlantic, we had the much smaller problem of Northern Rock. In contrast with what happened in the US, decisions were taken here that were followed by several months of indecision. Ultimately, a bank that the Chancellor had said that the Government did not wish to nationalise was taken into complete public ownership. That was followed by the preposterous statement that it would be business as usual while a strategy about where to go from here was devised.
I shall comment about Northern Rock only to the extent that it is relevant to the economic problems that we face, but it appears that the strategy for the bank’s future will cost jobs in the north-east as the mortgage book is reduced. However, it was still possible to read in the newspapers—certainly at the weekend—that Government-owned and backed Northern Rock was offering the leading savings rates in the market to any depositor who wanted to buy the equivalent of gilts with no risk to capital value, and receiving a rather greater return, so we have some way to go.
In the Budget, the Chancellor produced nothing to add to any air of authority. He gave no indication that he thought that serious global problems might be about to have a serious impact on the UK, and he did nothing to regain the confidence of the business community that he was either the person to do anything about it or in a position to do so. It is not as though there were no warnings. The Chancellor has had an awful lot of bad luck since he took over—for which he has considerable sympathy from me. One bit of bad luck was taking over from the predecessor who is now his boss and who, certainly at the time of the pre-Budget report, gave every indication of not allowing the Chancellor to produce any scintilla of a measure of his own to deal with matters. Subsequently, the Chancellor hit a lot of serious economic problems, but they were not unforeseen.
As my hon. Friend the Member for Rutland and Melton said, the economic cycle was bound to come to an end and preparations for that should have been made long ago. The nature of the end of the cycle became clear a long time ago. To make sure that I would not be giving too many hostages to fortune, I looked
back to what I said in the debate on the Prime Minister’s last Budget. I found that I had been talking about the risks to the American economy because of what was already happening in the American housing market.
By the summer it was clear that the American housing market was in a state of collapse and the beginnings of the credit squeeze were coming. Throughout the autumn, it was obvious that the impact of the credit squeeze on the British economy was becoming pronounced and that slow-down was imminent, so it cannot be said that the Chancellor had no time to prepare a strategy and that there was no opportunity to give us a greater description of how he would help to ensure that the British economy would not be too badly affected by the inevitable consequences of what is now happening.
The content of the Budget was trite. The Chancellor followed the party line set out by his predecessor for the previous 10 years. Almost all the phrases, apart from the missing word “prudence”, were taken from the standard lexicon of the previous Chancellor since he took office in 1997. I have been trying to work out how they arrived at that modest package of measures. It seems to me that above all else, the authors—who probably included the Chancellor, but more importantly, included the Prime Minister—were dominated by the absolute determination to try to show that they would still comply with the previous Chancellor’s fiscal rules. My advice to the present Chancellor is to stop doing that.
Nobody left on God’s earth still believes in the previous Chancellor’s fiscal rules, apart from him and such loyal acolytes as he still has in the Treasury helping to produce such things. The rules are completely incredible. The movement of the date of the cycles has been utterly ridiculous. Not only has the calculation of the national debt always excluded Railtrack and significant parts of the private finance initiative, which were due to come on to the books this year but for an accounting change that has been mysteriously delayed for 12 months because it cannot yet be accomplished, but it now calmly leaves out Northern Rock. Of course, the Government always intended to leave out Northern Rock. About three weeks ago, I received an answer to a parliamentary question saying that Northern Rock was contingent debt so it would not have to be counted. Given the danger that the Government may have made the statisticians slightly more independent than they were a year or two ago, there has been a change, but the Government are still coolly ignoring the debt as though it will be only temporary. We all hope that it will be, but we do not yet know how much will be called in.
David T.C. Davies (Monmouth) (Con): I am grateful to my right hon. and learned Friend for giving an excellent and informative speech. Can he tell us whether the public sector pension deficits are included on the balance sheet?
Mr. Clarke:
To be fair, they never have been, but my hon. Friend raises an extremely valuable point: if anybody is looking to the future of the national finances, as they should do, they will see that the extent of the unfunded, public sector pension obligations that will start to hit the next generation is extremely alarming. The Government’s failure to get on with any
serious reform of public sector pensions will be paid for by future Governments of every colour—and by future taxpayers, but that is another matter. Things that should be in the rules have been left out, and keeping to the fiscal rules is a bit of an illusion.
It was obviously decided that this is no year to raise a lot of taxation, and I agree with that decision. Every Budget for some time now has raised taxation, as carefully and as stealthily as possible. If the rules were to be complied with properly, it would be necessary to raise billions of pounds in taxation—the Institute for Fiscal Studies suggested £8 billion—but it would have been most unwise to do so, given the extent of the economic slow-down that we will face. However, small or smallish amounts of taxation—a couple of billion of pounds-worth or so—have been raised to bring us just within the fiscal rules, taking us to just below 40 per cent. of gross domestic product, if the other forecasts are right. Again, that is a quite ridiculous guide to policy, and I do not think that it will work.
The Treasury’s borrowing forecasts have been totally and utterly unreliable for years now. I see no reason for believing that the forecasts in this year’s Red Book are any more likely to be achieved than those in the Red Books for several years past, or even than those in the Chancellor’s first attempt at a pre-Budget report last year. We will have a sharp economic slow-down. The figures in the Red Book for the likely take from corporation tax and value added tax are almost incredible. The practice of producing, for our delectation, a set of tables showing yet again an unfortunate and unforeseen rise in public borrowing next year, followed by a happy recovery two or three years later, has lost all credibility. If that was the core of Budget policy making, as it seems to have been, it was not rising to the urgency of events; it was not even a very sensible way of tackling the problem of the public finances, which should always be the first duty of a Chancellor presenting a Budget.
So where have we turned to for taxation this year? As the hon. Member for Taunton said, we have largely turned to the tax revenue-raising measures that the previous Chancellor put in last year’s Budget and postponed for a year. Aside from that, a very old-fashioned approach has been taken. Labour Chancellors used to be more reluctant to go for fags and booze, but they did so this year. They have also turned to large cars. The mood has changed. The British have always had a puritan spirit, and that spirit is alive and well in the British media and among the British public. Although the British indulge in sin on a considerable scale, they always feel that they should pay tax on it, which is why we have always raised a disproportionate amount of our revenues from excise duties of one kind or another; that has been a popular feature of the British fiscal system for 200 years.
One problem was clearly described by the hon. Member for Selby (Mr. Grogan): parts of the industries affected—the beer and pub industry—are not in a great state to raise much more revenue. However, to be fair to the Chancellor of the Exchequer, he did not pretend that the rises were to do with binge drinking and pleasing the Daily Mail, as I thought he would. I heard him give an interview, and he did say that the measures were intended to raise money. The problem with taxes on beer and alcohol is that they are somewhat regressive. They fall
disproportionately on the households of the less well-off, when the proportion of total income is taken into account. That, coupled with last year’s changes doing away with the lower rate of income tax, undoubtedly make it a slightly regressive Budget for the second year running. The taxes on large cars are not sufficient to change the behaviour of people who can afford to buy them, so it is really a rather unoriginal way of raising tax.
Of course, income is also raised through capital gains tax and the tax on non-doms. I do not have strong feelings about either of those. Capital gains tax should be made more simple. I am worried about having a capital gains tax rate that is below the marginal rate on income tax; I think that we will see many of our accountant friends back in the business of turning people’s income into capital gains. That was the backbone of many people’s practices 20 or 25 years ago.
I do not think that many non-doms will flee these shores, but I simply say that it is extremely unwise to consult on taxes. I do not understand why we have a pre-Budget report. We should have Budget purdah. I say: announce it on the day, and if the details are wrong, sort them out and correct them in the Finance Bill. I accidentally found myself in consultation on ending European duty-free travellers’ allowances. I had to listen to accounts of the number of airports that would close, and the tens of thousands of airport workers’ jobs that would be lost if I did not seek a derogation from the decision. I do not think that everybody will flee the City of London and go to live in boring islands overseas.
The capital gains tax change was unwisely made. It was wrong not only to break Budget purdah but to announce the measure in a pre-Budget speech that was really nothing more than a political extension of the exchanges in party conferences. It was wrong to announce, almost overnight, decisions on which no proper work had been done, and to do the work of getting the detail right—for retiring entrepreneurs and so on—in public, faced with a tremendous clamour.
To conclude, what the Budget lacked was any notion of how the Government would face impending economic problems if the situation worsened. The Chancellor looks like a rabbit transfixed by the headlights. He is a boy standing on the burning deck and whistling inconsequentially the old tunes of his predecessor. There are many similarities between the British and American economies: we have had a housing boom; financial services are a large part of our market; and there is a credit squeeze here. This is no time to raise the tax on small businesses. We will have inflation and public debt as problems next year for sure; I hope that we have no worse.
5.57 pm
Mr. Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab):
It seems to be a feature of our post-Budget debates that it is my lot to be called after my namesake, the right hon. and learned Member for Rushcliffe (Mr. Clarke), and I welcome the opportunity to speak after him today. We have our name in common, and perhaps one or two other things, too. I shall, if I may, confide in the House—if the right hon. and learned Gentleman objects I shall stop straight away—that occasionally we receive each other’s mail. Not long ago I read a postcard that said, “Mr. Clarke, I will never vote for you again. You are a disgrace to the Tory party.
You have betrayed us on the Common Market and on so many other issues.” I took that as a compliment, not just to me but to the right hon. and learned Gentleman.
Perhaps I am being too kind to the right hon. and learned Gentleman today, but if I may say so, his post-Budget speeches are improving. I have been in the House long enough to remember his speeches as Chancellor, when he stood at the Dispatch Box, doing an impression of a poor man’s Brian Rix, pulling up his trousers and checking his braces to make sure that they were still in place. More than that, I remember some of the policies with which he identified himself and those that he supported. I pay tribute to him as a former Chancellor for the improvement in his speeches. He did not go so far today as he has on previous occasions, predicting the “we’re all doomed” scenario that we have heard so often. He has not quite reached, if I may say so seriously, the standing of Nigel Lawson who, to his credit, when pressed by others, particularly on “Newsnight”, to help talk us into a recession and even worse, has resisted that temptation. The threat of recession is one of the issues that we must address in the Budget.
In last week’s response to the Budget from the Leader of the Opposition we barely heard reference to the problems that we see occurring across the pond. Are we to believe that since the days when the right hon. and learned Member for Rushcliffe was Chancellor, right up to this week, no Chancellor of the Exchequer has had to take on board the challenge of globalisation and, particularly in the past week, the backdrop of turbulence, credit crunch and so on, and pretend that those factors do not exist?
I spent a great deal of time with my constituents at the weekend, and they are fully aware that times are difficult in the international context. They saw the Budget as well balanced and one that addressed the problems that we face in the United Kingdom, against the international backdrop that I mentioned. Yes, the Budget speech mentioned stability. Oddly enough, stability is important to people in my constituency, where employment matters, where we recall unemployment at 3 million, where we recall negative equity, and where we remember very high interest rates, not only on Black Wednesday but for many years around that time.
I asked people whether they preferred the economic policies being pursued by the Government—the low unemployment, the low interest rates, the low inflation and the rest—and despite criticisms that they might have, which I hope to reflect in my speech, about some elements of the Budget, I know the choice that my constituents will continue to make.
The Budget rightly focused on hard-working families and children living below the poverty line. The priorities were correct. I have some reservations, as I said, but I am a realist and I acknowledge the grim realities of the global economic slowdown signalled by the sub-prime mortgage crisis on the other side of the Atlantic. I hope, like my colleagues, to be constructive in the debate.
Rather late on Friday evening I was invited by BBC Scotland to take part in an early morning programme. Given the lateness of the hour, it was not possible, but I listened carefully when the programme was broadcast.
Apparently, somewhere in the long documents that are produced as part of the Budget presentation, there was a reference to the fact that people with learning disabilities are obliged to fill in great long forms in order to find jobs. As co-chair of the all-party group on learning disabilities, I know that 65 per cent. of people with learning disabilities have made it clear that they want to work. If there are impediments to those people finding and keeping jobs, I am sure the Government, and especially the Department for Work and Pensions, will employ the sensitivity that that situation invites. Advocacy, which I have long supported in the House, especially when I was fortunate enough to get an Act of Parliament on the statute books, might apply in that situation and in others, as the Government rightly pursue their policy of making employment opportunities available to the great majority of our people, including those who experience disability.
There were many good points in the Budget. First, the high-profile restatement of the ambitious targets concerning child poverty will help galvanise the cause. The increase in child tax credit and the substantial increase in first-child benefit will help us towards the target and will help many of my constituents. Secondly, the plan to take more pensioners out of income tax, alongside the rise in pensioners’ minimum income to £124, is welcomed by many. I am delighted to deliver that and other good news to my constituents in Coatbridge, Chryston and Bellshill. I would welcome Opposition Members joining me in that task.
Mr. Prisk: The right hon. Gentleman has a strong record of helping the more vulnerable in society. Does he therefore share my concern that the net effect of the tax changes that the Government are planning is that those just over the £5,000 personal allowance see a marginal tax rate of 60 to 70 per cent.? Surely his Government should do better than that.
Mr. Clarke: The hon. Gentleman makes his point well. I hope that if he serves on the Committee considering the Finance Bill, or if he gets the opportunity to express that view on the Floor of the House, he will do so. I hope we can discuss his comments rationally.
In an excellent speech, my hon. Friend the Member for Selby (Mr. Grogan) made an important point about the Budget’s influence on an issue that is raised again and again in my constituency—antisocial behaviour. Some people might think that that is an odd thing to relate to a Budget speech, but my constituents identify the availability of cheap alcohol as a direct cause of many of the problems that they face day in, day out.
On Saturday, during the annual St. Patrick’s day celebration that we have in my town, Coatbridge—a great cultural event—I met many people and discussed antisocial behaviour, which is not all that amusing in my constituency. I was accompanied by Superintendent Henry Campbell, who does an excellent job, and a man called Jackie Charlton, who is probably well known in all parts of the House and who graced us with his presence. We met many people who raised the issue of antisocial behaviour and alcohol misuse.
Alcohol misuse is estimated to cost £7.3 billion in crime and antisocial behaviour. We know that about 17 million working days are lost each year through alcohol-related absence from work. I welcome the fact that the Chancellor recognised that and, as I said, I
found constituents who thought the same way. I am beginning to think that Budgets are a little like football matches. We see a match, then read a report of it in the newspaper, and it is not quite what we thought we had experienced.
From an industrial constituency like mine that is suffering the effects of antisocial behaviour, I warmly welcome what the Chancellor has done, together with the measures taken by the Scottish Executive, in fairness both to the present Executive and the previous one, as well as the alcohol harm reduction strategy for England. Those measures are having some success and progress is being made.
I am sorry that the hon. Member for Argyll and Bute (Mr. Reid) is not in his place at the moment. I welcome the increases—which, frankly, I thought rather modest—in duty on alcohol, including spirits. The scotch whisky industry has not done too badly of late. Spirits make up many of the ingredients of the flavoured drinks that appeal to young people and cause mayhem. If we are to address the problem of spirits, we cannot ignore the fact that whisky is one of them. Not only were the rises right, but the revenues are being fed back into fighting poverty. We Labour Members welcome that aspect of the Budget; we recognise that the issue remains a challenge.
As for my personal reservations about the Budget, I cannot recall any Budget about which I did not have some. Again, my hon. Friend the Member for Selby raised points that I want to make. I welcome the increase in fuel allowance. It is right that people—especially the elderly—should have the benefit of that increase, given that energy prices are so high. However, I do not want our welfare policies to subsidise the big profits of energy companies, and that prospect remains a big worry for me.
I welcome what the Chancellor did on prepayment meters and social tariffs—the increase from £50 million to £150 million. However, although some companies said that they were practising a social tariffs policy, people thinking that they really meant it were cheated. We need to consider such matters much more carefully. In other words, I want to say to the Chancellor and our colleagues on the Front Bench that given the problems of energy companies and the policies that they are pursuing, and given the role of Ofgem, we have to have a much more robust approach. In January, we will again have price rises, followed by massive profits in April. There will be another bonanza for shareholders and executives, but another winter of discontent for the less fortunate.
Spring is now on the way; heaters will soon be turned down and sweaters will start to come off. However, before long we will face the same problem again. Incidentally, I would have encouraged the Chancellor to extend the provisions on the fuel allowance to families with disabled children and perhaps, in time, to other families with people who endure acute disabilities. Before we know it, it will be winter 2009, when winter fuel payments will be rolled back to the pre-Budge rate. I recognise that the commitment this year is a one-off, but I hope that each year the fuel allowance will be reviewed and a realistic payment will be delivered to those who very much deserve it.
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