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in the year to May world agricultural prices increased by 60 per cent. and UK retail food prices by 8 per cent.;
oil prices rose by more than 80 per cent. to average $123 a barrel and UK retail fuel prices increased by 20 per cent; wholesale gas prices increased by 160 per cent. and UK household and electricity and gas bills by around 10 per cent.
Bills have gone up, but the hon. Gentleman will accept that the price of retail items such as electrical goods has dropped as China and other countries have stepped up their production. The prices of other goods have also fallen. I therefore do not accept the full implication of the hon. Gentlemans commentsthat the average is higher. That is not the case.
The Labour Government have ensured that even more money is to be given to those over 60 for the winter fuel payment this year because of the rise in fuel prices. The Chancellor keeps that under constant review. Although current prices are worrying for families, in the early 1990s inflation peaked at 10 per cent. and unemployment reached 3 million. That caused great hardship and problems. The position today is far from that.
I want to consider some other premises of the previous Conservative Government. We have dealt with the national debt, but we also need to consider borrowing, which we are all concerned about. The Government have halved borrowing as a proportion of national income, reducing it from 3.4 per cent. between 1979 and 1997 to half that and less now. Tory borrowing peaked at 7.8 per cent. of national income in 1993, which is equivalent to £110 billion today. Borrowing next year will be well under half that, at around 3 per cent. of national income. Labours highest borrowing is less than the average borrowing between 1979 and 1997.
The reason we have been in a good position to weather recessions that have affected countries and why, without in any way being complacent, our economy is well placed to weather the global problems that are affecting us, with higher food and oil prices, is that we
have worked with business to ensure that, at 28 per cent., our corporation tax is the lowest in the G7 and that our tax rate is the most competitive of any major economy. We have made three cuts in corporation tax since the Conservatives set it at 33 per cent.a full five points higher than it is under this Labour Government. That is one of the reasons we have 750,000 more firms operating than we had 11 years ago. Those are important facts, which the Opposition spokesperson chose to ignore.
What else made those years, in the Governor of the Bank of Englands parlance, the NICE years? The reason is partly that more people are now in work than at any time in our historyI think that the figure is 29.5 million. We can be proud that in the NICE years we took 700,000 children out of poverty.
Nigel Griffiths: It is nice, too, that we took 1 million pensioners out of poverty. I am pleased at that, but I know that we have got much more to do. It is good that we have put well over 1 million people into work through the new deal and it is great that 1.5 million people have benefited from the national minimum wage. I just wish that the whole House had supported those nice policies in the NICE years. It is great that we have got the extra police, the extra nurses and the extra consultants.
If the Conservative handling of the economy during those 18 years was so wonderful, why are all the figures that I am quoting paralleled by figures going in the opposite direction during those years? Not only were those years not the NICE years; they were the nasty years. They were the years when the Conservatives thought that they way ahead for people was by investing in a private health service and in private health care, not the NHS. They despised people who sent their children to state schools, and few people believe that they have genuinely reversed those policies.
The Conservatives presided over the two worst recessions since the war. Unemployment doubled, hitting 3 million not once, but twice. Interest rates rose to 15 per cent. The Conservatives should not lecture us about inflation. Inflation under the Conservatives was 10 per cent., with mortgage rates averaging 11 per cent. More than 1 million people were in negative equity and 250,000 people lost their homes. One in five families had no one in work and one in three children grew up in poverty. Yet in spite of the makeover, the Conservatives would still scrap the new deal. They opposed tax credits, which have helped both families and senior citizens, and they would divert money from public services. That is their real agenda, and that is why I
Mr. John Redwood (Wokingham) (Con):
The Chief Secretary to the Treasury and the Government make a pathetic case. They say that the rising inflation rate is entirely down to world events that they cannot control, although occasionally the Prime Minister, in his Canute-like mode, goes into embarrassing overseas meetings fatuously to lecture people who are not as guilty as he is over the price of petrol and diesel at the pump. The Government
also seem to resent the fact that many millions of formerly very poor AsiansIndians, Chinese and othersare at last able to get some purchasing power in the world so that they can have a greater fraction of the standard of living that we take for granted, by buying more energy and better food products.
We are saying to the Government that it was eminently forecastable over the past 11 years that there would be a big increase in demand for food and energy from Asian sources. That is very welcome. We were all extremely grateful that the Asian economies did so well in supplying us with an ever-increasing volume of very competitively priced goods, which kept our inflation rate down despite the errors being made in inflation policy in this country. Now, however, the Government are saying that it is all the Asians fault for daring to buy all these other things with the money that they have earned buy selling us those cheaper goods, even though the Government did absolutely nothing for 10 years to increase our capacity in agriculture or energy, when they should have been making a contribution to the world situation.
Mr. Simon: The right hon. Gentleman is noted for being an intelligent and erudite Member of the House. If he has a case to make, surely he can do better than to use Aunt Sallies and say that the Government are blaming everything on the Indians and the Chinese. That is ridiculous. If he has a case, why does he not put forward a proper argument instead of all that sort of nonsense?
Mr. Redwood: If the hon. Gentleman had been here for the Chief Secretarys speech, he would have heard her say that the increase in demand was all down to world circumstances, and that it had come not from Europe but from India and China and other much more successful, faster-growing economies in Asia. The hon. Gentleman has failed to make his case.
Over the past decade, the Government could have made the decision to allow the private sector to develop the marginal fields in the North sea instead of taxing it to the hilt and putting it off. They could also have made decisions on renewable energy, nuclear energy or other kinds of energy that do not require carbon. Instead of having to have the great debate now on new power, we could have had new power stations already up and running. We have had 10 wasted years under this Government, and we now have higher energy prices as a result.
On agriculture, instead of constantly agreeing with everything that comes from Brussels, the Government could have put some substance behind their rhetoric of reforming the common agricultural policy. Instead of having years and years of big subsidies for set-aside to prevent farmers from growing the grain that the world needs, we could have had a policy that actually promoted the growing of grain in order to make a contribution to the world scarcity of grain, both for direct eating by human beings and for eating via the animals that are increasingly in demand in the Asian countries.
That is where the Government have gone wrong, but they wish to take every credit for the cheap goods coming out of Asia, which they say is down to their economic management. Now, they wish to take no blame for the scarcity of basics that is driving prices up, and with which they have singularly failed to help.
John Hemming: The hon. Member for Edinburgh, South (Nigel Griffiths) did not seem concerned about the fact that families on lower incomes were more dependent on basics, or the fact that, while the consumer prices index shows a 10p in the pound spend on food and non-alcoholic beverages, and 12p in the pound on housing, water, gas, electricity and other fuels, it also shows a 14p in the pound spend on restaurants and hotels. Does the right hon. Gentleman share my view that we should examine how families on low incomes are affected by Government policy?
Mr. Redwood: That is what I and my party have been saying, and it is one of the reasons behind this debate. The hon. Member for Edinburgh, South (Nigel Griffiths) is as remote from the reality of modern Britain as those on his Front Bench clearly were during the Crewe by-election. They seemed to have no idea that the retail prices index basketlet alone the consumer prices index basketdoes not reflect the reality of low-income households, which are spending a much bigger proportion of their income on food, energy, heating their homes and trying to get some transport. The Minister admitted that those costs had shot up, and those are the people whose incomes are being most tightly squeezed.
Mr. Redwood: I am well known for believing that because there is such a rip-off at the pumps in this country and a rip-off on North sea production, we should be reducing the rates in order to keep the amount of tax coming in at the forecast level rather than over it. I suggest that the hon. Member for Edinburgh, South (Nigel Griffiths) contain himself; who knows, my Front Benchers may well come up with such a proposal in due course, but we are interested in the Governments proposals. It is their problem; they created it. They have the power to say to the House today, We are very sorry. We are collecting far more revenue at the pumps and from the North sea fields than we forecast we would in the Budget. This is a rip-off. We will give some of it back to the public.
About £500 million of extra revenue came in from oil and petrol in the first six weeks of the financial year, but what are the Government doing with it? They have not told us how they are wasting that £500 million, but we know that they have wasted billions on computerisation, unneeded regional government in England, ID cards, too many officials and administrators and too many external consultants coming in to do the jobs that officials do not seem to be able to do so that we are paying twice for everything that goes on in the Government. That amounts to massive waste, which the Governments own Gershon review admitted, as confirmed by Conservative party work.
At the core of the debate there should, I think, be a serious examination of one of the most misleading soundbites of the past 11 yearsthe soundbite that the Government created an independent Bank of England, which dealt with the inflation problem and gave us economic stability. The House should remember that the Government almost lost their Governor of the Bank of England when they shoved through their bodged reforms of the Bank in 1997-98. Far from making the
Bank independent, they stripped it of its responsibility to manage public debt and its responsibility to have day-to-day supervision of the clearing banks.
When the credit crunch and the crisis hit, the Bank of England was blind and deaf to its own money markets and did not know minute by minute what the Governments debt position wascrucial to the functioning of the money marketsand it did not know minute by minute what the clearing banks position was, when they were clearly extremely short of funds. That meant that at the crucial point where the Bank needed to be expert at running the money markets to enforce the rates laid down by the Monetary Policy Committee, it was not able to do so. There was a complete collapse of monetary control across the August through to October period as they lurched from boom to bust in their handling of the economy. It was a failure of the Treasury, as well as the Bank of England; it was the tripartite system, led by the Chancellor, that led to the run on the Banka disgrace in an advanced economy that makes its living primarily out of financial services through export markets. It was a disgrace that this Government presided over such an embarrassing situation when all previous Governments had been able to keep the banking system just about liquid enough, even in bad times, so that there was never a run on the banks for more than 100 years.
All that happened because of those bodged reforms. The Monetary Policy Committee is alleged to be independent. The Governments best case is that the MPC was made a bit more independent; clearly, the Bank of England was very badly damaged by being made less independent, as it lost big functions. Even the MPC was not really made independent, however. Let us remember the record. Before the 2005 election, the Government clearly wanted lower interest rates, so they fiddled the target. They replaced the retail prices index targetthe RPI is used in all the index contracts; the RPI is used for wages and indexed debtand substituted the consumer prices index. Why did they do that? They did it because they knew it would go up less quickly, which would mean easier money and lower interest rates. I see the Economic Secretary shaking her head, but she is an intelligent woman and she knows that that is why they did it, and the adjustment to the target rate was not sufficient to take into account how big the gap was between the more truthful RPI and the less truthful CPI in respect of the prices that people were having to pay in our economy. We had that damage.
There is also the problem that we were never told why some members of the independent MPC were reappointed and others were not. I tabled questions asking about the criteria for reappointment. I asked whether there was some external test for reappointment, whether the voting record was examined and whether only the dovish ones who would vote for lower rates before elections were reappointed. No answer was forthcoming from the Treasury. This Government, who introduced the Freedom of Information Act 2000, will not even tell a Member of this House of Commons why they reappointed some MPC members but not others. They will not even tell me what the criteria were for trying to create some independence for that committee.
When the crisis struck in August and September, the MPC was as much use as a bunch of people having a tea party but no control over the financial markets. There is no point in setting independent bank rates if we cannot
enforce them in the market. The Bank needs to have enough control over the money markets and enough knowledge and skill within those markets that its rate is the crucial rate. It lost control and the damage was there for all to see.
We have a Government who mis-sold the proposition that they created an independent Bank. They have mis-sold the proposition that they created stability as they created instability. They have still not got a grip on this situation. We had the big lurch from too much liquidity and low interest rates between 2003 and 2006 to interest rates being too high and too little liquidity in 2007. We had the run on the Rock. We then had a welcome reduction in that illiquidity. Money was belatedly injected into the markets and interest rates were lowered a bit, because the Government suddenly realised that fighting slowdown or recession was more important than fighting the inflation that they had already created.
More recently, we have had a lurch the other way. The Bank and the Treasury seem to be worried again about the inflation, which they cannot control because it relates to their past mistakes. This lurch is happening at exactly the point where the housing market is in collapse, the property market is in collapse, there is a second phase to the credit crunch and there are problems with mortgage banks and others because of the extreme squeeze that the Government are putting through. The price of that lamentable failure of monetary policy, the botched reform of the Bank of England and the lurch from boom to bust and from boom to bust again in credit and money markets will be severe for people in this country to pay.
My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary, valiantly tried to get the Chief Secretary to say something true from the Dispatch Box. He said to her that the adjustment to the credit crisis and the inflation crisis triggered by the Government must surely come through lower living standards. That is what the Chancellors policy is all about when he says that people cannot have RPI-matching pay awards. He has said that public sector pay should go up by considerably less than RPI and is now trying to talk the private sector into exactly the same position. Perhaps he has not realised that a lot of the private sector came to that conclusion a long time ago because it is struggling to remain competitive in an extremely competitive and difficult world.
I hope that the Economic Secretary will remedy the defect created by the Chief Secretary and admit to the House that, yes, it is now Government policy to squeeze individuals and families for at least a year to try to deal with the excesses that the Government have put into our economy. Looking at what the Government have been doing for the last couple of months, it is quite obvious that they have no intention whatever of the public sector making any contribution to reducing the excess spending and credit in our economy, which desperately needs to be sorted out after the boom yearsthe years of neglect, the years in which the Bank and the Treasury so singularly failed to stay married to prudence and to keep things under control.
I have often pointed it out in the House that I believe that the Government balance sheetthe nations balance sheethas under this Administration seen a ballooning of debt, but not of £550 billion or £700 billion. If the
unfunded pension liabilities, which would be on any company balance sheet, the private finance initiative, the public-private partnerships, Northern Rock and all the other promissory notes that they have issued, as well as all the debt that they are now adding to the balance sheet were all added in, the true figure would be about £1.5 trillion.
I am beginning to feel that I have underdone it, because on no occasion has a Minister rushed to the Dispatch Box to say, The right hon. Gentleman is over the top. The actual figure is so and so. The Government have never put out a press release countering my blogs exposition of this. The Economic Secretary looks downwards, so I suspect she is saying, Gosh, weve got away with it. He thinks its only £1.5 trillion.
Let us say that the figure is about £1.5 trillion. That is colossal. It means that the IOU cupboard will be full to bursting by the time the new Conservative Government get in and try to sort things out. It means that we have no room for manoeuvre because the Government have been so wanton over the past few years, yet in the past few weeks they have found £2.7 billion of extra borrowing to try to impress the voters of Crewe. Didnt they do well? They have found a lot of extra borrowing for transport systems in Manchester and the north-west, presumably because they are worried about their position in that region. They have found a lot of extra money to win the 42-day vote, and might have to find a lot more to win that vote all over again, assuming that their lordships disagree.
This Government are now on a rakes progressthey have not merely divorced prudence but fallen in love with a much wilder lady who clearly believes that the public sector must have everything, however much has to be borrowed, putting more and more pressure on the individuals and families whom we all represent.
The charge against the Government today is that their reforms of the banks failed; their monetary policy failed desperately badly in 07 and is still wobbly today; they do not have a grip on the money markets and the interest rate structure, let alone the inflationary consequences; they have absolutely no grip on public spending, which is why all the pressure will be on individuals and families; and they do not seem to care about the way in which our constituents are having to suffer.
If the Government want to solve the long-term problems, as they always say in their rhetoric, will they please make some decisions, even at this late stage, to get some transport capacity and energy capacity in, and to move away from such a strong dependence on inefficient carbon-burning machinery in both sectors? That is the way to do something about energy costs. Will they please go to Brussels and get some change to the common agricultural policy, because we need a policy that promotes and generates much more agricultural activity? We need to see the plough moving up the hillsides out of the valley beds. We need much more land brought back into use. The world needs food, and we need to make our contribution; it is no good blaming the Chinese and the Indians.
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