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24 Nov 2008 : Column 508

Mr. Speaker: Order. We must have order. [Interruption.] Order. We must have order. The Chancellor is in order; if he were not, I would tell him so.

Mr. Darling: It is clear from all we have seen this afternoon that the Conservative party is reverting to type, and has absolutely nothing to say to help the people of this country to get through a difficult time. Yes, there is a choice— [Interruption.]

Mr. Speaker: Order. Mr. Grayling, I have asked for order. I expect a Front Bencher to respect the Chair. [Interruption.] Just shouting “Answer” is not good enough. That goes for the Conservative Chief Whip as well. He should be quiet as well. [Interruption.] Order. If the Chancellor is out of order, I will tell him. I will tell him how to conduct his affairs if he is out of order.

Mr. Darling: Not only are the Conservatives not listening to anyone in the House; the problem with them is that they are no longer listening to people outside either. [Interruption.]

Mr. Speaker: Order. Mr. Mackay, do not shout across the House. [Interruption.] Order. We must have good order. The Chancellor has finished, and I am calling— [Interruption.] Order. Members should bear in mind that this was a statement put to the House, and that Back Benchers who are shouting will run the risk of not being called to question the Chancellor. So let us have good order.

Dr. Vincent Cable (Twickenham) (LD): Perhaps I may start with some of the positive points with which we can agree: the statement on repossessions, the action on small business lending, the programme for home improvement, and the postponement of the decision on retrospective vehicle excise duty.

This is not a normal pre-Budget statement. We are experiencing a national economic emergency, and what is required, alongside radical cuts in interest rates and radical action on bank lending, is a serious tax cut concentrating on the low paid. The Chancellor has based his plans essentially on a temporary small cut in value added tax. I note that he is relying on the advice of a former Conservative Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), in that regard.

What I fail to see is how the economy receives a major stimulus from, for example, a £5 cut in the price of a £220 imported flat-screen television or a 50p cut in a £25 restaurant bill. Surely it would be much more sensible to put money directly in the pockets of low-paid workers by cutting their income tax, rather than offering them a pathetic £25 and, if they earn over £20,000 a year, the prospect of tax increases.

The Government have at last, after 11 years, acknowledged that there is a problem of inequality relating to the tax system. What they propose is a higher rate of tax for very high earners, after two years—possibly. What is needed, surely, is a comprehensive approach which involves cutting income tax for low-paid middle-income families and removing the vast plethora of tax reliefs and allowances from which the wealthy benefit, rather than this very limited fig leaf for redistributive policy.

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What I find wholly incredible about the statement is the assumptions that the Government make about the future trajectory of the economy. They simply assume that after one bad recession year there will be an economic recovery. Buried in the Red Book is the assumption that after next year, the public sector need make no contribution whatever to economic growth. However, the problem is a very deep one. This is not just a conventional recession. We do not just have the home-grown problem of the bursting housing bubble and personal debt; we have the imported credit crunch.

As far as the banks are concerned, the problem is very deep. The Prime Minister tours the world, a little bit like a celebrity heart surgeon, lecturing the uninitiated on how to carry out financial heart transplants, but meanwhile the patient back here is suffering very badly, because the banks are cutting credit and greatly increasing their margins. I welcome what the Chancellor said about the Royal Bank of Scotland’s announcement yesterday; that was a positive step. I do not, however, know whether he is aware that today Barclays, whose balance sheet is twice as big as the Government’s entire public debt, is in the process of negotiating a deal with Arab investors on such extortionate terms that it is bound to make a drastic reduction in bank lending at the expense of its British customers. It is all very well for the Government to say that they are setting up a panel to monitor bank credit, but what is the Chancellor doing to enforce the conditions that the banks have apparently agreed to?

I welcome some of the Government’s comments on public investment, particularly on housing, but let us just consider the status of the Government’s commitment on housing, with their £700 million programme of social housing. The Government have a once-in-a-lifetime opportunity. Land is available very cheaply in the current market, and they could make a programme of large-scale social housing construction, meeting housing need and providing employment in the construction industry, but despite the rhetoric and the promises, virtually nothing is currently happening. It is not happening because the housing associations are loaded with bad debt that they acquired in dodgy deals with developers, and the Treasury is blocking any fundamental reform in the housing subsidy system. Nothing is happening.

To conclude, we have a very serious national economic crisis. The Conservatives do not acknowledge it, so they do not propose to do anything. The Government have rhetoric, but the rhetoric is not matched by their actions.

Mr. Darling: Although I do not agree with a lot of what the hon. Gentleman said, his response was a great deal more thoughtful than the shadow Chancellor’s.

I appreciate the hon. Gentleman’s welcome for some of the measures that we have taken, particularly in relation to repossessions, but our announcements on both VAT reduction and the extension and increase of the amount of money that will go to basic rate taxpayers will help people on low incomes through what are undoubtedly difficult times. The hon. Gentleman’s proposal for reducing income tax also comes with a promise to cut public spending very substantially—by about £20 billion—which would impact on the living standards of the very people he is concerned about.

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On lending to businesses, I agree with the hon. Gentleman that we need to make sure that we hold to account those banks in which we have shares. The Royal Bank of Scotland group has now agreed to take the Government money, and its announcement this weekend was extremely helpful. Assuming the Lloyds-HBOS merger goes ahead, that transaction will be completed in January, and we will need to make sure that they, too, are held to account. The additional Government help I have announced today of £1 billion being made available to small businesses is also important and will make a difference. The hon. Gentleman said that he wanted banks to do more, but although I agree with him on that, he does not seem to agree with us on the action we are taking to spend more to encourage businesses and to give them the money they need to get through this difficult time, including the measures I announced this afternoon to help them pay their tax bills and to help small businesses that are exporting.

On housing, we are providing substantial sums to enable the building of more social housing, as well as to ensure the renovation of homes. Whenever anything is announced, the Liberals always call for more, yet it is not entirely clear how on earth they would be able to fund any of it given the fact that their tax and spending policies simply do not add up. I understand what the hon. Gentleman says, but I simply do not agree with him.

I think that what we have announced today will go a long way. We are putting about £18 billion into the economy between now and April 2010. Such action is supported not just by a wide range of people in this country, but, increasingly, by countries across the world as absolutely essential, and the hon. Gentleman at least understands what the shadow Chancellor does not: many of the problems all of us face today are truly international.

John McFall (West Dunbartonshire) (Lab/Co-op): In these serious and profoundly risky global times—witness the fate of Citigroup, the biggest financial institution in the world, in the United States today—I welcome the financial stimulus, which is the only option, and, in particular, the social initiatives that will help families, vulnerable groups and businesses. I welcomed the £37 billion recapitalisation of the banks, whereby the Government guaranteed the debts and liquidity, but there is still pessimism in that market. Alongside the October statement came a credit guarantee scheme. Will the banks ensure that it is used further, with Government support, so that lending to businesses indeed takes place and that money circulates, helping jobs and communities?

Mr. Darling: I am grateful to my right hon. Friend, who rightly says that, in addition to everything that I have announced today, it is important that we ensure that the banks maintain their lending. I have said in this House before that banks sometimes fall over themselves to try to get customers in the good times, and they must understand that it is in their interests as much as everybody else’s that they continue to lend to people when times are difficult. We need to ensure that we hold those banks in which we have shares to account. As I have indicated today, and as he said, the credit guarantee scheme involves a lot of taxpayers’ money—almost £100 billion has been subscribed to already—and we
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are entitled to see the banks treat their business customers, and, indeed, their personal customers, properly. Banks need to be held to account on that, and they need to deliver.

Mr. Kenneth Clarke (Rushcliffe) (Con): Given that the Chancellor has turned to a temporary fiscal stimulus, as he was bound to do, because, as the right hon. Member for West Dunbartonshire (John McFall) has just said, the bank rescue scheme that was announced a few months ago has not yet fully worked and is not fully operative as far as credit guarantees are concerned, so credit is difficult to get and very expensive, is it not essential for the Chancellor to ask two questions about that stimulus? First, is it affordable now? Secondly, will it be repayable in the short to medium term, so that we can rapidly get back to fiscal stability?

In addition, does the Chancellor not accept that having set out the past state of the public finances, which is rapidly deteriorating as recession hits us, he should have told the Prime Minister that £20 billion-worth of additional fiscal stimulus was not affordable? When the Chancellor looks ahead and starts saying that even on his optimistic forecasts we will be borrowing £115 billion next year and £105 billion in 2010, does he accept that he runs the risk of the foreign exchange markets and the securities markets refusing to believe that that is credible and repayable, given the threats to sterling and the risk to the interest rates that he will have to pay on his bonds? This country clearly risks having a more severe depression than any other major western country. Does this reckless gamble not run the risk that it will eventually be worse still and that the recovery will be long and painful?

Mr. Darling: I understand, from what the right hon. and learned Gentleman said on Saturday, that he thought a reduction on VAT on a temporary basis would help the economy.

Mr. Clarke: If affordable.

Mr. Darling: Yes. I believe that it is affordable. To put it another way, I share the view held by many that if we do not put this money into the economy now, the recession that we will face will be longer and deeper than it would otherwise be, and a greater cost will be borne, not only by the country as a whole but by every man, woman and child in this country. I am not prepared to take that risk. I believe that the Government have a responsibility to support people and to support businesses, and I believe that through the measures that I have announced today—substantial measures that will bring the budget back into current balance—it is affordable. The two objectives I had were to support the economy now and to ensure that we can live within our means in the medium term, and both those things are eminently deliverable.

Sir Gerald Kaufman (Manchester, Gorton) (Lab): May I thank my right hon. Friend for the announcement that he has made of enhanced investment in public sector building, which will increase still further the superb rebuilding of high schools and primary schools in my constituency? Under the Conservatives, those schools were so neglected that they were degenerating into slums. As the person who originally allocated the
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money for new build to housing associations under a previous Labour Government, may I also thank him for the money that he is putting into social housing, which the Conservatives also neglected and ruined? Together with the school building programme, that will—happily—increase employment among building workers in my constituency.

Mr. Darling: My right hon. Friend is right to draw attention to the fact that what happened 20 years ago meant that many children were educated in schools built by the Victorians and did not have the facilities to which they were entitled. We all suffered as a result, and that is why maintaining public investment—especially in education, but also in other areas such as transport—is essential. The Conservative party has nothing to say on that, except to go back to the same policies that it was advocating in 2001 and, to a large extent, in the early 1980s.

Mr. Michael Howard (Folkestone and Hythe) (Con): The Chancellor told us that if the economy performs more strongly than he predicts—however unlikely that is, we must all hope that it will—he will review the tax increases that he has proposed this afternoon. What will he do if recovery takes longer than he predicts?

Mr. Darling: I made it clear that we will, of course, review the position, as we would from Budget to Budget, but I have also made it clear that having put in place this fiscal stimulus—and recognising that tax revenues are likely to be affected for some time, especially because of what has happened to the financial services industry— we have to be prepared to raise revenue to ensure that we have sustainable public finances in the long term. I am prepared to take those decisions. There were two parts to what I announced today, as I have been making clear for some time: helping the economy, but also ensuring that we live within our means in the medium term.

Several hon. Members rose

Madam Deputy Speaker (Sylvia Heal): Order. A considerable number of Members are hoping to catch my eye. We will all be helped if Members can restrict themselves to one question and put it as briefly as possible.

Frank Dobson (Holborn and St. Pancras) (Lab): May I congratulate my right hon. Friend on his decision to pump extra money into the economy? May I also congratulate him on targeting that money on the worst- off families and individuals? Putting money in their pockets and handbags is fairer than anything anyone else has suggested, and they are also the most likely to spend it and benefit the economy generally. That is in contrast to the Opposition Front Bench—

Madam Deputy Speaker: Order. I hope that the right hon. Member will now put his question quickly.

Frank Dobson: Does my right hon. Friend agree that his proposals are better than a few shouted slogans from a Tory party that would do absolutely nothing?

Mr. Darling: I am inclined to agree. It is obvious from what we have heard this afternoon that the Conservative party has no answers to deal with the problems that we face today. I find that surprising, but that is the choice that it has made.

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Mr. Michael Fallon (Sevenoaks) (Con): Will the Chancellor confirm that we will now be paying more in debt interest on all his borrowing than on the entire education budget? What kind of achievement is that?

Mr. Darling: Of course, interest rates are now substantially lower than they were in the past. The result is that the cost of the debt that we have is less than it would otherwise have been.

Mr. George Howarth (Knowsley, North and Sefton, East) (Lab): I congratulate my right hon. Friend on the targeted approach that he has taken, which is a fair response to the world crisis and to the question of how to deal with it in our economy. However, may I disagree with him slightly? I am afraid that he is quite wrong about the Conservatives. They, too, have reverted to type and they do have a response: massive cuts in public spending.

Mr. Darling: I stand corrected.

I might also say, in relation to the point that was just made by the hon. Member for Sevenoaks (Mr. Fallon)—I knew I had the figures somewhere—debt interest payments were 31/2 per cent. in 1997, and in 2010-11 they will be 2.6 per cent.

Alistair Burt (North-East Bedfordshire) (Con): Will the Chancellor now answer one of the questions posed by my hon. Friend the Member for Tatton (Mr. Osborne), which he shamefully avoided at the beginning of his response to my hon. Friend? Why does the IMF believe that coming out of recession this country will be worse placed than so many others?

Mr. Darling: One problem that we face is that we undoubtedly have the world’s largest financial centre and, because of that, we are more directly affected in relation to revenues than would otherwise be the case. If the hon. Gentleman cares to look at all the IMF assessments, particularly the assessments that were produced earlier this year, he will see that they were extremely complimentary about the conduct of the economy over the last 10 years. The IMF drew attention to the fact that different countries are affected in different ways. I believe that we can be confident for many reasons that we will get through this, but one of the essential parts of that is ensuring that we support the economy now.

Mr. Chris Mullin (Sunderland, South) (Lab): Although there is much to be welcomed in my right hon. Friend’s statement, his announcement on empty property rates will not save a number of the companies in my constituency—and, I am sure, elsewhere—that are destined to be put out of business by that tax. Pallion Engineering, for example, is due to see an increase in rates from £55,000 to £277,000 in a single leap. That would put it out of business. Did the Chancellor not consider giving total relief from that tax in regeneration areas, as some of us had urged him to do?

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