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Mr. Timms: I hope that the hon. Gentleman also noticed what the IFS said about the effectiveness of the VAT cut as a stimulus to the economy. When he or the hon. Member for Runnymede and Weybridge (Mr. Hammond) speak later in the debate, as I hope they will, I would welcome clarification of their view about the fiscal stimulus that has been announced in the USA. The shadow Chief Secretary, the hon. Member for Runnymede and Weybridge, told us in a debate a couple of weeks ago that there was an emerging consensus that there should be no fiscal stimulus in circumstances such as ours when there is a deficit. He will by now have noticed that this emerging consensus does not extend to the incoming US Administration. As the hon. Member for Twickenham rightly said, the US has higher debt than us and a larger deficit, and it is planning a larger fiscal stimulus. It would be very helpful if the Conservative Opposition could confirm to us their apparent view that there is a consensus that President Obama should abandon the central economic policy proposal he has put to the American people. This underlines just how isolated and out of touch the Conservative party is.
At the same time as reducing our public debt, as we did, the fiscal framework has allowed us to protect public investment. The last Conservative Government allowed public investment to shrivel: it hit a low of 0.3 per cent. of GDP in 1988, and in 1996-97the last year for which they were responsibleit was just 0.6 per cent. That abysmal record of under-investment left a legacy of decaying public services and infrastructure that every Member of this House will remember all too clearly in their own area.
Rob Marris: Does my right hon. Friend also recall that under the last Conservative Government of 1992-97, with their woeful investment record to which he has just referred, the national debt doubled, and that this Government started to pay that down? Can he also tell us what are the accumulated national debts as a proportion of GDP of other leading industrialised countries, compared with that of the United Kingdom?
Mr. Timms: My hon. Friend is absolutely right, of course, and I can tell him that every G7 country apart from Canada has a higher level of net debt as a proportion of GDP than us, and that our level is therefore comparatively low and puts us in a very good position for taking the measures we now need to take.
Under this Government, investment has grown by more than three times the 1997 level, to 2.1 per cent. of GDP this year. Next year, at 2.7 per cent. of GDP, public investment will be at a higher level than at any time in the last 30 years.
Chris Huhne: Given the case the Minister is making, is he as concerned as I am that the net worth of the UK public sectornot just the debt position, but that taken together with the asset positionis very much lower today than it has been historically, and that that deterioration has taken place under both his Government and the Conservatives?
Mr. Timms: I am not sure what data the hon. Gentleman is referring to, but I can tell him that sustained investment over a long period has enabled us to repair a lot of the damage caused to schools, hospitals, transport and other national infrastructure. In the health service, for example, in 1997 half of NHS buildings predated the national health service; that proportion is now down to 20 per cent. I therefore think the statistic the hon. Gentleman cited is a bit misleading.
Mr. Burstow: Will the right hon. Gentleman respond to a question I earlier asked my hon. Friend the Member for Twickenham (Dr. Cable) about the difficulty local authorities face in financing their capital programmes? In making good at the local level through investment in their housing stock and schoolsthe damage that the right hon. Gentleman is talking about, how can they now bridge the gap caused by their not being able to realise receipts? My local authority is partly funding its programme from £12 million of receipts that it now does not anticipate will come about.
Mr. Timms: I will come to that point. There certainly is a challenging market environment for private finance initiative deals at present, but a number of them have been agreed recently; I am thinking of the Forest Gate housing project in my own area, for examplewhich was, I think, agreed last weekand Building Schools for the Future projects, and not only of the project to which the hon. Gentleman referred.
We have been able to put right a lot of the damage caused by previous years of chronic under-investment. Today, we are in a recessionthe first to hit the UK since the early 1990s and face some of the harshest economic conditions for decades, and perhaps for a century. The nature of this downturn is fundamentally different from those the UK suffered in the past. In the late 1980s, UK GDP growth was allowed to rise to 6 per cent., well above the economys growth potential. As a result inflation rose to double digits and interest rates followed in an effort to control inflation. Domestic policy mistakes caused the economy to enter recession in 1990 and unemployment to rise above 3 million for the second time in 10 years.
Today, things are very different. The problem we face is global, with many forecasters now expecting the world economy to contract for the first time since the second world war. Bad decisions at the heart of the international financial system have meant banks losing confidence in each other and, therefore, global credit markets to freeze up.
Mr. Graham Stuart: Does the Minister share my view that the Prime Minister was wrong to suggest that the UK was uniquely well placed to deal with a recession, especially in light of the IMFs damning judgment last week that this year the country would have the greatest reduction in GDP of any of the major developed countries?
No. I agree with the Prime Ministers assessment and there are two reasons: first, as we have already discovered in this debate, we go into the recession with a low level of debt compared with other G7 countries and, secondly, we go in with a high level of employment; indeed, for several months last year more people in the UK were working than ever before. We
have gone into the recession in good shape but the effects of the downturn are now being felt everywhere around the world. Trade and manufacturing have contracted sharply in America, Europe and Asia as companies have been unable to access the credit they need, so economic forecasts for growth in 2009 have been revised sharply downwards.
Richard Younger-Ross: The Minister is exactly right in his point that the circumstance is unique and that the recession is being felt not just in the UK but in Europe and America. In the downturns of the 1980s and 1990s, the construction industry was able to take some work abroad; people moved abroadfor example, lift manufacturers took projects abroadbut at present, they are unable to do so. Does that not mean that there is greater need for investment in construction projects and the construction industry to mitigate this special andfor the construction industryvery deep downturn?
Mr. Timms: I largely agree, which is why we have taken the measures that I shall be setting out in a moment, although there are still opportunities overseasin China, for example. We have been talking with Premier Wen today about the Chinese economy, which will grow significantly in the coming year, although not at as high a rate as in recent years.
Mr. Tyrie: The right hon. Gentleman is being very generous in giving way. If I heard him correctly, I think he said that Britain now faces an economic crisis that is perhaps the worst for a century. Is he suggesting that what we may be facing is worse than the great depression of the 1930s?
Mr. Timms: I am suggesting that the world economy is facing a situation that is certainly the worst in decadeslooking at the world as a wholeand some people are saying that it is the worst for a century.
Rob Marris: Will my right hon. Friend take this opportunity, verbally, to give the bankers a kicking? Around the world, they have caused hundreds of thousands, if not millions, of people to lose their jobs and there is general recognition that, very sadly, that situation will get worse. The bankers, some of whom are now fortunately former bankers, have created a terrible situation, so will my right hon. Friend give them a verbal kicking instead ofas politicians too often doletting those charlatans and mountebanks off the hook?
Mr. Timms: My hon. Friend may have heard me refer to bad decisions at the heart of the international financial system, which I think is an accurate account of what happens. I very much sympathise with the point he makes.
Key to solving the global problem will be a global response. Working with international partners, we are taking a leading role in developing, agreeing and delivering that global response. As I said, the Chinese Premier is in London today and the Prime Minister and other Ministers are in regular contact with leaders around the world. We took a leading role in the G7 autumn discussions in Washington and the five-point action plan produced there was largely based on the UKs then recently implemented financial stability measures. Both the Prime Minister and the Chancellor were at the Washington
summit in mid-November. We hold the G20 presidency this year, and it is increasingly recognised, as Stephen Green of HSBC was saying last week, that the G20, in bringing together the biggest developing as well as developed countries, is the right group of nations to bring together to formulate solutions. My hon. Friend the Member for Preston (Mr. Hendrick) rightly expressed concerns earlier about developing countries, which underlines the importance of the G20. Through our presidency, we are driving an ambitious work plan to help tackle the problems.
The Prime Minister presented a paper to the European Council in October, outlining five key principles to improve regulation and supervision, and setting out reform of the International Monetary Fund and the World Bank. We know that there are major lessons to be learned there. It is clear that existing international systems of regulation failed to adapt to the challenges of this new, highly globalised world; we need to co-operate internationally to make major changes so that those mistakes cannot be repeated.
International action needs to be accompanied by a decisive domestic response. Our response has been threefold. First, we had the comprehensive package of support for the banking system announced in October, which has been widely replicated around the world since. Secondly, there were announcements in the pre-Budget report of a major fiscal stimulus package to support the wider economy; the measures we are discussing today are an important part of thatand I shall say more about it in a few moments. Thirdly, there was a package of measures last month to begin to replace the lending capacity lost by the withdrawal from the UK of foreign banks and other institutions and to address the barriers preventing UK banks from expanding lending, to support stability and to restore certainty in the banking sector.
Chris Huhne: I am very supportive of the fiscal stimulus, but one issue greatly concerns methe slimness of the evidence of whether anything is actually happening on the ground. Let me provide the example of two projects in my own constituency, both of which are Barratt developments that have now been mothballed. They could be picked up and got going; they could employ construction workers immediately by building flats that were initially aimed at the private sector, but could be brought into social housing. That could be got going immediately. Why is the Treasury not getting the biggest four or five developers together in a room and actually doing a deal with them to proceed with those sort of projects? Why do we not get some action on the ground?
Let me set out the measures that we are taking. Of course, the global, macro-economic action that I have described takes time to benefit the firms and individuals being hit. That is why we are taking action now with the business payment support scheme to allow firms to spread tax payments over a timetable they can manage. More than 34,000 businesses have reached agreements since that was announced at the time of the PBR. We have provided extra capacity for Jobcentre Plus; we have expanded schemes to enable those losing their jobs
to stay in their homes with support for their mortgage repayments; and there is also the VAT cut. I very much welcome what the Institute for Fiscal Studies said last week about the effectiveness of that as a stimulus measure. I think that the mistake of the hon. Member for Twickenham is his apparent belief that the effectiveness of the VAT measure is about what happened in the past, but I think that the measure will, as the IFS pointed out, prove increasingly effective as the year progresses and as the subsequent increase back up to the original rate approaches on 31 December.
We are increasing household income next year by putting an extra £145 in the pocket of every basic rate taxpayer; we have given all pensioners a bonus £60 one- off payment, and the basic state pension for a single person is going up very sharply from £90.70 to more than £95 a week in April. We are supporting families by permanently increasing child benefit to £20 a week with effect from last month instead of April, and we are increasing child tax credit by £75 a year in April, which is above inflation. So, unlike the Conservative party, we agree with the Governments of every major economy in the world who are increasing public spending now. I agree with the hon. Member for Twickenham that bringing forward major capital spending on our national infrastructure is a vital way to preserve jobs and boost our economy through this period.
Derek Twigg (Halton) (Lab): On new projects, it is obviously important to get projects moving as quickly as possible for the next year or so, but there are some huge capital projects around, particularly the Mersey Gateway bridge, which is in my constituency, worth some £700 million and might be ready in the next two or three years, following a public inquiry this year. Does my right hon. Friend agree that it is important not only to get projects on the move this year, but to plan for the next two or three years? A project of that size £700 millionwill provide thousands of new jobs and stimulate the local economy in Cheshire, Merseyside and the whole north-west.
Mr. Timms: Indeed, and I think that the total amount of transport investment being brought forward is about £700 milliona substantial contribution, with the kind of benefits that my hon. Friend describes. We have brought forward a total of £3 billion-worth of capital projects on housing repairs and insulation, school extensions, health centre refurbishments and transport improvements to provide jobs now, when the economy is under pressure, and to improve services.
Bob Russell (Colchester) (LD): The debate is about capital expenditure during the recession. Does the right hon. Gentleman agree that, when we consider existing public assets, we should be looking for renovation and restoration before demolition and new build? Surely, the existing capital could be spread further to get more projects not by destroying what we already have, but by restoring and renovating it.
Mr. Timms: It depends on the circumstances. Certainly, there is a big commitment in the programme for housing repairs and refurbishmentfor example, under the decent homes programmebut new build is needed elsewhere.
Joan Walley (Stoke-on-Trent, North) (Lab): Will my right hon. Friend tell the House a little bit about how the Treasury is working with other Departments, the Cabinet Office and regional Ministers to make sure that, where it is urgent to ensure that the capacity exists to pursue capital projects in different regionsas in north Staffordshire and Stoke-on-Trent, as I am sure he knowswe can do so quickly? He can ensure that we have a joined-up government approach to make sure that, for example, investment in new sixth-form colleges, social housing and so on goes ahead as quickly as possible.
Mr. Timms: My hon. Friend is absolutely right about the importance of the Treasury and all the Departments affected working together, and we are doing so through the National Economic Council and the regional economic councils, and by enabling Departments to look at such issues in the round, exactly as she says.
Let me pick up the issues raised by the hon. Member for Twickenham in the motion and in his speech. First, there simply is no freeze on the capital funding programme for further education colleges. Investment in college capital projects will amount to £2.3 billion between 2007-8 and 2010-11. That programme is steaming ahead. Incidentally, the equivalent programme in 1997 was zerothere was no capital investment at all in FE in 1997. More than 250 projects are under way, funded by the Learning and Skills Council, helped by the recent decision to accelerate £110 million in the current year from future budgets to help beat the downturn; 154 of those projects are due for completion this year. There has been some disappointment that a number of projects have not gone ahead as quickly as was hoped, but the programme is proceeding on precisely the scale that we said that it would, with a very large number of colleges benefiting as a result.
Julia Goldsworthy: In an earlier intervention, co-operation between the Treasury and other Departments was mentioned. What co-operation was there between the Treasury and the Department for Communities and Local Government, which vetoed any English region from applying for extensions that would have brought in an extra £671 million-worth of EU funding? Why were the regions not allowed a say on that? Was the Treasury involved in that decision?
Mr. Timms: I am not sure which programme the hon. Lady means. If she will drop me a line, I shall be happy to tell her what happened in that specific instance. I can assure her, however, that we are working very closely with all the spending Departments. In the case of the Department for Communities and Local Government, it is true that there is pressure on social housing, but we have set ambitious targets to increase provision, and over the next three years we are investing about £6.5 billion to deliver on those targets. That will include acquired and refurbished homes as well as newly built ones.
We have taken major steps to guarantee that homes are energy-efficient and well insulated. Since 2000 the Warm Front programme has helped more than 1.7 million households, and the £50 million that is being brought forward from the year after next to next year following the announcement in the pre-Budget report will improve energy efficiency and heating in some 20,000 homes. The Warm Front programme will provide 112,000 insulation measures this year, and another 108,000 next year.
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