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3.32 pm
Mr. Jeremy Browne (Taunton) (LD): I am grateful for the opportunity to speak at the conclusion of this important and timely debate. The context of our discussion is a Government who have lost a degree of control and ability to self-analyse with regard to economic policy and who are, as my hon. Friend the Member for Montgomeryshire (Lembit Öpik) has just said, in a state of denial. It was truly bizarre to hear the Financial Secretary to the Treasury—at a time of global credit crunch and when the country is on heightened economic alert—talking about the good old days when Derek Hatton ran Liverpool city council. Surely even Labour Members must regard that as a truly incredible reaction to the circumstances that we face.
It is worth going through in turn the bald statistics on the current state of the British economy. Personal debt stands at £1.4 trillion. House prices are more than nine times average earnings, compared with five times at the start of the last housing crash back in 1990. As my hon. Friend the Member for Twickenham (Dr. Cable) said, house prices have fallen for five consecutive months. Real inflation for real people is far in excess of the official Government figure.
It is also worth pausing to consider the tale of the two Opposition parties and two very different approaches to a state of national alert. One tale is that of the Conservative party, whose future policies are as embarrassing as its past failures. Furthermore, it is worth looking back to the grim statistics—the record of the Conservative party in government—in case we forget quite how catastrophic its stewardship was of the British economy.
Between 1990 and 1997, 420,000 families had their homes repossessed. Between 1990 and 1995, house prices fell by 14.5 per cent., on average. Average interest rates when the Conservatives were last in office were around 11 per cent. and at one point reached 15 per cent. The average rate of inflation when the Conservatives were in power was 5.8 per cent. That is a truly embarrassing and appalling record and I am not surprised that they do not wish to dwell on it.
What about the Conservative party today? Its position, as I understand it, was summarised by the leader of the party, the right hon. Member for Witney (Mr. Cameron), in his Budget response on 12 March, when he said that
“in the years of plenty, Labour Governments put nothing aside. They did not fix the roof when the sun was shining. . . in good
years you put aside money for the bad years”.—[ Official Report, 12 March 2008; Vol. 473, c. 300-301.]
That point was made by the hon. Member for Fareham (Mr. Hoban) but it is not what the Conservative party was saying during those so-called good years, seven or eight years ago.
When he was the shadow Chancellor, Michael Portillo, speaking at a Conservative conference on 3 October 2000, argued for more funding and tax cuts. This is what he told the conference in the good years:
“We will cut taxes on business, so that they can compete and create prosperity and jobs. We will reform Labour’s taxes on entrepreneurs and on inward investment. . .We will help pensioners and hard-working families. We will restore a married couple’s allowance. We will cut the duty on fuel. That gives you a flavour of my budgets”.
That fiscal incontinence was not a one-off. At a repeat event, Michael Portillo as shadow Chancellor speaking at the next Conservative conference on 1 March 2001—again, in the good years that we hear so much about from the Conservative Front-Bench team—said:
“Analysts believe the Chancellor has about £5 billion more than he thought. It is perfectly possible to cut the fuel tax this year without any impact on government spending or public services. Everyone knows that Gordon Brown has a war chest.”
In other words, he wanted lower taxes and higher spending.
The truth is that the Conservatives now have just two economic policies. The first policy is to criticise the Labour party for taxing and spending too much. The second policy is to tax and spend exactly the same as the Labour party is suggesting. The Conservative shadow Chancellor told “BBC Breakfast” news on 3 September 2007:
“The Conservatives will spend the same as Labour—if there is a Conservative government there will be real increases in spending.”
I urge the House not to believe too readily the Conservative analysis and their changing tale about the economic circumstances in this country.
The Conservative shadow Chancellor started his time in office back in 2005 by making a trip to Estonia to see how he could introduce a flat-rate tax in Britain. He is now instructing his shadow Chief Secretary not to bring forward any proposals for Conservative tax cuts until 2015. It is no wonder that on 15 February the online version of The Spectator, a journal generally sympathetic to the Conservative party, commented:
“The Conservative leadership attacks Gordon Brown for being a ditherer and ordering endless reviews to put off making decisions. But the Tories are not averse to such delaying tactics themselves. The Conservatives’ policy on taxation in recent years feels like one colossal dither”.
I agree with that assessment. The shadow Chancellor and the Conservative party have no policies on the credit crunch, Northern Rock or tax.
The other Opposition party, the Liberal Democrats, by contrast, have led the debate. My hon. Friend the Member for Twickenham is too modest to say so himself, so I will quote on his behalf what he told the House on 13 November 2003—almost five years ago, before I was elected. It is worth Members listening to this. My hon. Friend said:
“On the housing market, is not the brutal truth that with investment, exports and manufacturing output stagnating or falling, the growth of the British economy is sustained by
consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level?”
It is amazing that someone could have made that speech in the House five years ago and that the Government paid so little heed to it. In response to my hon. Friend, the then Chancellor, now Prime Minister, said:
“The hon. Gentleman has been writing articles in the newspapers, as reflected in his contribution, that spread alarm, without substance, about the state of the British economy.”—[ Official Report, 13 November 2003; Vol. 413, c. 398.]
No wonder the Prime Minister has acquired a reputation for complacency and dithering.
In an interview in The Independent on Monday this week, the right hon. Member for Norwich, South (Mr. Clarke), the former Home Secretary, was asked:
“What has been Gordon Brown’s biggest mistake since taking over as Prime Minister?”
The right hon. Gentleman’s answer was:
“Allowing a sense of indecision to develop”.
For understatement, that almost matches the first line of the recent annual report from our most high-profile financial institution:
“2007 was a difficult and challenging year for Northern Rock”.
Members who are in government at the moment are equally critical. The Under-Secretary of State for Health, the hon. Member for Bury, South (Mr. Lewis), quoted in Progress, described the attitude of the British public. He said:
“at a time of growing insecurity their anger”—
that is, the British public’s anger—
“is ignited when they feel the government is losing touch with what fairness means to the mainstream majority who work hard, play by the rules and are feeling squeezed by rising utility bills, the cost of petrol and rising council tax.”
According to The Mail on Sunday, the solution to that problem has been identified at No. 10: the Prime Minister is to try a new speechwriter. The newspaper ran an article in which an insider at No. 10 is quoted at length, saying that the Prime Minister’s
“ ‘cluttered’ way of delivering the Government's messages, the lack of ‘personality’ in his speeches and the ‘stilted language that he tends to use’ ”
were among the problems stopping the Government getting over their apparently entirely positive record. The helpful, loyal source went on to say that what was needed were a “few good jokes”. We have been listening to Labour Members this afternoon and when it comes to a few good jokes, they were pretty good—although not in the way they meant to be.
Indeed, the Financial Secretary came up with this solution to the current problems in the housing market: better primary school education so that people can do their sums. As the average first-time buyer buys a house in their mid-30s, that sounds an excellent way of starting to address housing problems 30 years from now. However, it may not be an immediate solution.
The hon. Member for Newcastle upon Tyne, Central (Jim Cousins) appeared to blame all the country’s economic woes on the speeches of my hon. Friend the Member for Twickenham. If it is that simple to stop the Government’s economic problems, I am sure that, as an act of charity, my hon. Friend will make fewer speeches.
Julia Goldsworthy: My hon. Friend has been speaking, ironically, about the success of the child trust fund—
Julia Goldsworthy: He talked about the long-term potential of the child trust fund.
Mr. David Gauke (South-West Hertfordshire) (Con): No he didn’t.
Julia Goldsworthy: He did mention it. Although I can imagine the Secretary of State for Children, Schools and Families in his school playground aged seven discussing the rise and fall of the value of his trust fund, does my hon. Friend agree that the funds are not likely to have such an effect on the vast majority of primary school children?
Mr. Browne: I agree with that excellent intervention. I regret that Members of the Labour and Conservative parties do not recognise its importance. The salient point is surely this: it is woeful for a Minister to say that the Government are putting in place measures to deal with today’s housing problem and, when asked what they are, to reply, “We have a programme for better education in primary schools so that the children can add up better when they take out a mortgage in future.” Can the Government do no better than that? It is no wonder the Blairite spin doctor Phil Collins, whom No. 10 begged to rescue its drifting ship of state, is reported to have said:
“Brown doesn’t need a speechwriter. He needs a magician.”
The Prime Minister certainly needs the hard-headed, practical policies that address the current malaise and were outlined and proposed by my hon. Friend the Member for Twickenham at the start of this debate. I will dwell on three key points that he made.
First, we must stop mass repossessions and fire sales of property. Before repossessions, banks must have offered free financial advice and explored all other alternatives, such as renegotiating the terms of the loan and offering shared-equity schemes. Secondly, we must change the Monetary Policy Committee’s mandate so that house prices are taken into account when setting interest rates, which would be more flexible and responsive and enable the Bank to damp down housing booms. Thirdly, we must have better regulation. We need to come to terms with the fact that the Financial Services Authority has been found wanting and that banking regulation should include active, counter-cyclical management of bank reserves to prevent future cycles of excessive lending and contraction. Those are positive and responsible suggestions.
Instead, we have a Government with their head in the sand. The disaster at Heathrow airport provides a perfect metaphor for this Administration—huge budgets, inflated expectations, management incompetence, communications ineptitude, public anger and a state of total denial. This is a terminal 5 Government who are in terminal decline.
3.45 pm
The Exchequer Secretary to the Treasury (Angela Eagle):
The Liberal Democrat motion has been much commented on, possibly because it reads like the
storyboard for “Apocalypse Now”, or perhaps even “Bleak House”. According to the motion, we are facing an
“extreme bubble in the housing market”
and the “risk of recession”, and we must
“act to prevent mass home repossessions”.
Presumably that is why the hon. Member for Taunton (Mr. Browne) got through his entire speech without mentioning any of those things until the last minute—they obviously keep him up late at night.
Fortunately for all of us, however, that colourful and lurid fiction has no real bearing on the macro-economic reality. In difficult economic times—here I find myself in agreement with the hon. Member for Fareham (Mr. Hoban)— [ Interruption. ] —at least in part; I do not want to get him into trouble. In difficult economic times, it generally pays to remain calm and to apply a cool, analytical mind to the situation. Hysterical over-reaction, as this motion demonstrates, might attract a few cheap headlines and some doom-laden Lib Dem press releases, and it might even frighten a few voters ahead of local elections, but it is not mature or responsible, as my hon. Friend the Member for Leeds, East (Mr. Mudie) took some time to point out.
Now that we have had “Apocalypse Now” and “Bleak House”, I am going to talk about “An Inconvenient Truth”, which is that the economy is strong and stable. That underpins our whole response to the Liberal Democrat motion.
Lembit Öpik: If the Minister is telling us that the economy is in good shape, what message does she have for the people of Powys and Monmouthshire, whose average income fell by 4 per cent. in absolute terms between 2006 and 2007? Is that not a clear indication that the concerns raised by my hon. Friend the Member for Twickenham (Dr. Cable), myself and others are not theoretical but practical, as they are affecting my constituents now?
Angela Eagle: We are not complacent about the situation that we face, but we do nobody any good by being hysterical about it and talking down the prospects. When there are difficult times, economic or otherwise, it pays to remain calm, cool and analytical; it does not pay to scaremonger and run around talking about housing bubbles and, in the hon. Gentleman’s phrase, repossession catastrophes. I would caution him on his use of language.
Lib Dem Members tried to suggest that Britain’s economy is in a similar position to the early 1990s, but that simply is not the case. The truth is that the macro-economic position is much healthier than it was in the early 1990s. Britain’s economy is strong and stable. We have had over 15 years of growth, according to Treasury and independent forecasts and, as my right hon. Friend the Financial Secretary pointed out, Britain is forecast to be the joint fastest growing economy in the G7 this year having achieved the fastest growth in the G7 economies last year. We have seen the highest rise in income per head of any G7 economy since 1997. That does not mean that we are complacent about the issues that face us, or about the financial turbulence happening around
us at the moment. We are, however, in a better position to get through the turbulence that we see ahead than many other economies.
Inflation in the UK is lower than it is in the euro area or in the United States, interest rates remain relatively low, and there are more people in work than ever before. That is an important aspect of our resilience; we have to ensure that we do our best to keep the economy growing, albeit at a slower rate, during the current situation, so that we can bounce back to better levels of growth faster. Instead of being the first in and last out of any recession, which always used to be the UK’s fate, the changes that we have made to the way in which the economy is run have demonstrated that we can be more resilient and recover quickly.
In the early 1990s, unemployment topped 10 per cent. Liberal Democrat Members are attempting to persuade us in their motion, and in some of their contributions, that we have somehow returned to that period. In fact, the hon. Member for Twickenham (Dr. Cable) said that we are in a worse position now than we were in the 1990s. Potentially, we are always in a worse position, just as, potentially, we are always in a better position. Tomorrow may come, and it probably will. We can forecast that that might happen. In the early 1990s, unemployment topped 10 per cent., inflation hit nearly 11 per cent. and interest rates rose to nearly 15 per cent. In comparison, unemployment is now at 5.2 per cent., inflation is at 2.5 per cent. and interest rates are at 5.2 per cent.
Mr. Siôn Simon (Birmingham, Erdington) (Lab): For the benefit of those of us who struggle with sums and things, I wonder whether the Exchequer Secretary would be kind enough to couch what she is saying in the language of the motion that we have been subjected to by the hyperbolic Liberals—perhaps she could do so in terms of bubble size. It is alarming me to discover that people as esteemed as the Liberals think that we are in the grip of an “extreme bubble”. If we are in an “extreme bubble” now, could she tell us what sort of bubble we were in during the early 1990s when people’s homes really were being repossessed by the hundreds of thousands?
Angela Eagle: With respect to bubbles, I am not sure whether size matters or not. How large is the bubble? How long is a piece of string? It is difficult to know. The important part of coming out of a housing bubble, or the unwinding of any economic situation, is whether it is done chaotically or with stability. Because our economic fundamentals are right, we can look forward with reasonable expectation to getting out of this situation. The housing situation will be unwound in a relatively calm and orderly way, which is what people need to know.
If chaotic unwinding happens, we will be in a 1990s-style situation. If we had mass unemployment, the situation would be a lot more fragile than it is now. It does not do the Liberal Democrats any good to hope that tabling a hysterical motion, upsetting people and scaremongering will help them in the local elections. That is not mature or responsible, as my hon. Friend the Member for Leeds, East pointed out. Britain is in a far better position today than it was in the 1990s.
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