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The hon. Gentleman and his colleagues will know how important to Northern Ireland’s economy is the ongoing political stability that we need to maintain. Clearly, the ability to bring about a devolved Government to Northern Ireland has had a major impact on the confidence of business. I will turn in a moment to the successful conference that the Assembly organised, which is a tribute to the work that is going on. The fact that companies from around the world are now investing with confidence in Northern Ireland is very much to do with the ongoing political stability that the hon. Gentleman and others have worked so hard to achieve. We all need to work hard to sustain, foster and encourage that for the sake of the ongoing stability of the economy and
the extra jobs that will be generated by inward investment. I am setting the context, not seeking in any way to minimise the points that he and others will make about specific problems that he and his constituents are experiencing.
Northern Ireland has, like the rest of the UK, enjoyed sustained economic growth for a number of years. Exports have risen by 70 per cent. over the past decade, and its economy has a promising future as it benefits from a successful peace process. I congratulate the right hon. Member for Belfast, East (Mr. Robinson) and the hon. Member for Belfast, North (Mr. Dodds), both of whom are in their seats, on the recent US investment conference, which attracted twice as many potential investors as were originally expected. That shows the potential that there is in Northern Ireland, particularly when put alongside companies such as Fujitsu, Bloomberg and Bombardier announcing investments there.
I am confident that Northern Ireland and the rest of the UK will weather the storm that we are experiencing internationally. The Government are taking action to respond by supporting our economy, our families and our businesses. This year, we are using the flexibility that our fiscal rules give us to increase borrowing to support the economy at a time when it needs it. That allowed us to delay the increase in fuel duty that was due in April.
The hon. Member for East Londonderry spoke about other ways in which we might support families. His motion indicates that he believes that a windfall from higher oil prices could be used for that purpose, as do other political parties that have made great play of this. If he will allow me to say so respectfully, this shows how Opposition politics fail to appreciate Government responsibilities. Let me draw his attention to the article IV inspection by the International Monetary Fund that took place in May. In a document that is publicly available on the Treasury website, the IMF says:
“For over a decade, the United Kingdom has sustained low inflation and rapid economic growth—an exceptional achievement...the fruit of strong policies and policy frameworks, which provide a strong foundation to weather global challenges.”
“The 2008 budget judgment was appropriate, as was its commitment to fiscal tightening over the next few years.”
“The inflation targeting regime should remain unaltered...Key elements of the fiscal framework”.
That is a very important endorsement of the direction of Government policy that Opposition parties who call for quick fixes should bear in mind before propounding such policies.
Mr. Peter Bone (Wellingborough) (Con): Given the Minister’s comments, are we to assume that the inflation target will not be changed, that the fact that it is way over the permitted boundaries is not acceptable, and that the Bank of England is being called in to ask it what is happening?
Jane Kennedy:
The hon. Gentleman will know that the inflation target is a medium-term target. He will also appreciate the very strong endorsement that we are seeing from independent commentators from a number of sources about the underlying policies that this
Government have introduced and remain strongly in support of, and which have brought about this sustained period of economic stability. I am confident that that ongoing stability will prove very important in helping the British economy to weather the storm that we are experiencing and face in the coming weeks. Maintaining that stability will be equally important to Northern Ireland. I remind the hon. Gentleman that the last time we debated this, the hon. Member for Runnymede and Weybridge (Mr. Hammond) boiled it down to the difference between his party and mine. He said
“there are no easy or quick solutions and no magic wands. The essence of our argument against the Government is that we have entered this downturn—and it is a downturn—”
I do not think that anybody is arguing with that—
“uniquely ill prepared to deal with it.”—[ Official Report, 24 June 2008; Vol. 478, c. 162.]
My suggestion to his party and to those who would argue for a different course of action is that the IMF profoundly disagrees with that. I think that parties that purport to present themselves as ready for government ought to bear in mind how important the underlying strength of the economy is, and no action should be taken that would jeopardise that stability.
As higher fuel prices lead to less demand, we might even receive less revenue from fuel duty than we otherwise would have done, so the concept of a windfall is profoundly misjudged. VAT is a percentage of the price, so it rises with fuel prices, but as people spend more on fuel, there is likely to be an impact on VAT revenues from elsewhere in the economy, leaving the overall level of VAT roughly the same—particularly as businesses can reclaim the VAT that they spend on fuel. It is also compulsory under EU law to charge VAT on fuel, and the House should remember that the UK has one of the lowest rates of VAT on fuel in the EU.
As well as suggesting that we were going to get a windfall—and I do not think that we will—the motion also tells us how to spend it, and suggests a review of winter fuel payments and tax credits. I am, of course, always happy to listen to proposals from any Member, but hon. Members will know that tax credits support around 20 million men, women and children across the country, and those credits have made a major contribution to lifting hundreds of thousands of children above the poverty line. They mean that 3 million out of Britain’s 7 million families with children now receive more in tax credits and child benefit than they pay in income tax. Let me say that again: of the 7 million families with children in the UK, almost half now pay less in income tax than they receive in benefits through tax credits and child benefit.
Sammy Wilson: I have listened to the Minister’s argument, and it is a refinement of the argument put forward time and time again to excuse the Government for not reducing fuel duty at a time when money from VAT on fuel and North sea revenues would be expected to rise. The explanation that she has given is not borne out by the figures that the Government published in the Budget report for 2009, which do not show, over the next three years, either a fall in North sea revenue duties or VAT duties. How does she square what she says with the Government’s published figures?
Jane Kennedy:
It is not clear that there would be a net gain to the Government as a result of the increase in oil
prices. The analysis that I have given to the House of the impact of the changes is based on the best available information. Despite the case that Opposition parties are making for an opportunity to grab at this perceived or suggested windfall, the truth is very different. There is no opportunity to do what is suggested by the hon. Gentleman’s party or the official Opposition.
Dr. McCrea: Although the Minister said that the United Kingdom has one of the lowest VAT burdens, she did not say that it has one of the highest rates of tax burden on fuel in the EU. Let us have all the facts.
Jane Kennedy: But the hon. Gentleman will know that VAT rates are very difficult to adjust in the face of the European Union rules under which we work. I say to him and the hon. Member for East Antrim (Sammy Wilson) that the Government responded to the increase in pressures on household costs by not raising fuel duty in the Budget in 2008, and the Chancellor will keep all those factors under review—as he always does—when considering the measures introduced in the pre-Budget report.
Mr. Bone: I really do not think that the Minister should be allowed to move on while she is trying to give the impression that we are somehow better off than the European Union. The duty we pay in this country is over 50p per litre. The EU average is 25p per litre. To talk about VAT rates—I will not say it is misleading because I would not be allowed to—is moving away from reality. The fact is that the duty is twice as much.
Jane Kennedy: The fuel duty we apply is based on the sound approach that we introduced. In fact, it was the hon. Gentleman’s party that introduced the fuel duty escalator. We moved away from that on the grounds that it was unsustainable. Had we stuck with his party’s fuel duty escalator, which was introduced, if I remember rightly, for environmental reasons, fuel duty would now be 35p a litre higher. We are sensitive to the costs that apply to motorists, but this debate should not go by without taking note of the Royal Automobile Club report on the costs of motoring, which shows that the total cost of motoring, including the cost of fuel, has fallen by 18 per cent. in real terms over the past 20 years. Hon. Members will have read accounts of that report today, so I will not labour the point, but it is worth noting.
Turning to winter fuel payments, they are an important part of the increased support that we have provided to pensioners over the past 11 years. In the Budget, we announced that households with people over 80 years old will receive an additional £100 alongside their winter fuel payments this year, while households with those over 60 will receive an additional £50. That will benefit 9 million households nationwide, including Northern Ireland. It is not true to say that we have not acknowledged the difficulties of dealing with rising fuel prices.
Mr. Gregory Campbell: I thank the Minister for being kind enough to give way again. She alludes to the proposed increase in the winter fuel payment, and all hon. Members say that that is a step in the right direction. But can she not accept that that increase is significantly short of what the people who avail themselves of the benefit need to pay for oil? That is the point.
Jane Kennedy: I acknowledge that the situation means that families throughout the UK are facing increasing costs. We have made a contribution towards helping them to do that. I accept that I cannot make promises to the hon. Gentleman that will mitigate the effect of all those costs. We have acknowledged the situation by taking action to help families with older people in their households, and we know that fuel costs cause them great anxiety because of the need to maintain a warm environment, particularly for older people in poorer health.
I do not accept that we have not been doing enough. We have been supporting families for the last 11 years, and we are continuing to do so today. In fact, we are providing even more support, recognising the tougher time that people are facing. At the same time as we are helping people to deal with the challenges, we are tackling their causes, including the ongoing credit squeeze. We are supporting the Bank of England’s special liquidity scheme, which is helping to stabilise the financial markets and to promote confidence. We are also working to strengthen mortgage finance markets, which funded about a third of new mortgages last summer, but which have since frozen. During my visit to Northern Ireland on Monday, I was interested to note that house building appeared to have slowed, when it had grown very strongly there. I accept that Northern Ireland, like other parts of the UK, is experiencing the challenges that the British economy is facing.
Mark Durkan (Foyle) (SDLP): My right hon. Friend referred to the fact that the banks are benefiting from the Bank of England liquidity scheme. In circumstances where all of us, as taxpayers, are essentially underwriting liquidity for the banking sector, should it not be doing more to ensure greater liquidity in the construction and property sector? Businesses in that sector in Northern Ireland are going under. Many feel that they will be made to walk the plank soon by banks, partly because of the lack of liquidity in circumstances where house prices are falling. But people cannot buy houses because the cost of mortgages is too dear.
Jane Kennedy: My hon. Friend asks an important question, but it is important for the House to understand that we are not underwriting the banks in the way in which he suggests. Questions were asked about that earlier in Prime Minister’s Question Time, and hon. Members know that the Government are taking seriously the measures that need to be put in place to support and reform the banking system and encourage confidence. We are working closely with the financial industries and the banking sector to ensure that we get the legislation right before we introduce it in Parliament. However, I appreciate that the anxiety that my hon. Friend described is real.
Mr. Oaten: Given the attempts and efforts that the Financial Secretary describes, is she concerned that so many individual banks are not passing on changes in interest rates to their customers? Indeed, the rate that is advertised and offered to new borrowers on most new mortgage products has increased. That applies especially to those transferring from previous fixed rate deals.
Jane Kennedy:
We would like the banks to pass on the changes, but that is a matter for each bank and its relationship with its borrowers. I note the hon. Gentleman’s
point, and, while I am speaking to him directly, let me deal with his question about electricity prices being higher in the UK. I apologise for not having figures immediately to hand on relative electricity prices in the European Union, but I am conscious that the nature of the electricity market in the UK is different from structures in other member states. Northern Ireland Electricity advises that, following the 14 per cent. tariff increases in domestic electricity prices, Northern Ireland prices will be 2.1 per cent. above those in comparator regions in Great Britain, 9 per cent. lower than the western European average and 9 per cent. lower than those of the Electricity Supply Board in the Republic of Ireland. None of that will be of comfort where prices are increasing, but it is worth the House bearing in mind the context of the price rises.
David Simpson (Upper Bann) (DUP): The Financial Secretary mentioned an increase in the price of electricity, but does she know that Northern Ireland faces another 14 per cent. increase come audit time?
Jane Kennedy: I dealt with that point in my reply to the hon. Member for Winchester (Mr. Oaten). I hear what the hon. Member for Upper Bann (David Simpson) says.
Although we can support the economy, and support families here in Britain, the global credit crunch and rising food and fuel prices across the world are international problems, which need international solutions. As hon. Members know, my right hon. Friend the Prime Minister was in Japan earlier this week discussing world food prices, and we are continuing to press for reform of the common agricultural policy because it is unacceptable that the EU continues to apply high tariffs to many agricultural imports, especially at a time of such high prices.
Jane Kennedy: I am grateful to the hon. Gentleman.
Agreeing a successful deal on the Doha development agenda will also help remove distorting subsidies and restrictions, and we will continue to push for a deal up to and at the World Trade Organisation ministerial meeting. We are also working with our international partners to achieve a world response to rising oil prices, including greater investment to help achieve enhanced supply capacity in the medium term, and moderating future demand growth by improving energy efficiency and exploring alternatives to oil. If the world is not producing enough fuel or food to meet rising demand, that challenge requires an international response.
Clearly, times are tough. People are paying more for their food, energy bills and petrol because of rising prices around the world at a time when we face a continuing credit crunch, which has meant increased mortgage costs for some. However, as I said, I believe that Britain is well placed to respond, and we are responding. The same is true in Northern Ireland. Inflation has been low for several years, there has been sustained growth, and unemployment rates are among the lowest in the UK.
Maintaining calm and developing appropriate and proportionate responses in the current global economic turbulence do not equate to complacency. I stress that we are not complacent. That is why the Government
continue to work with our international partners to respond to the global challenges and support families across Britain, including in Northern Ireland. I urge hon. Members to oppose the motion, however well intentioned—I am grateful to the hon. Member for East Londonderry for introducing it—and I commend the Government amendment instead.
2.25 pm
Justine Greening (Putney) (Con): I congratulate the hon. Member for East Londonderry (Mr. Campbell) on securing a debate on a subject that is vital for many people throughout the country. There is no doubt that the rising cost of living is one of the most pressing issues for millions of people in Britain today. That includes families, pensioners—indeed, pretty much everyone on low and fixed incomes, who struggle to cope with increased prices. Many are younger people who are starting out on their working lives and are therefore on much lower incomes than other people. They find that food is getting more expensive and fuel bills are increasing at an alarming rate, as we discussed earlier. Mortgages are harder to come by and the cost of transport—whether cars, buses or trains—continues to rise. A report by Asda stated that the cost of transport had increased by 6 per cent. between May 2007 and May this year.
We live in uncertain times. Today’s economic pressures will not go away any time soon. Given that grim outlook, I am worried that the Government have fundamentally misunderstood the dire position that people face. Ministers tell us that our economy is in great shape, and much better than it was 20 years ago. However, people in today’s Britain are already living frugally; many are already struggling to keep their heads above water financially. Disposable income has fallen by 6 per cent. That means that by May this year, families had 6 per cent. less to spend on leisure and entertainment than they had in May last year. A cost of living index, which Capital Economics researched for The Daily Telegraph, showed that a typical family that spent £100 a week on food a year ago now pays an extra £406 annually on groceries. Families clearly face difficult challenges.
Many people have all their disposable income committed; they simply have no more money to give the Government. The savings ratio is a tenth of what it was in 1997 and many people have nothing in reserve. For the many who live on the tipping point, life is not happy. It is stressful for families who are doing all they can to get by in such challenging times. It is unbelievably frustrating and stressful for people to be in a position where, although they are doing everything possible to keep the cost of living down, they face a constant daily challenge to make the household budget add up. They end up feeling that they have no control over their situation and little influence over events as they unfold. They need a Government who offer them the hope of a way out of their troubles.
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