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When the Treasury Committee visited a number of regions in the UK just over a month ago—we went to Edinburgh, Belfast and Halifax—we came across owners of small businesses who feared bankruptcy, home owners who feared repossessions and many more people who simply feared the unknown. Mention has been made of help for young people, particularly students and school leavers, about 600,000 of whom will be leaving education this summer for an uncertain job market.
In the past, there existed a social contract whereby individuals as well as companies were free to prosper or fail on their own merits, but with the collapse of the banking sector and the necessity to rescue the banks, which took devastating risks with ordinary people’s money, that social contract has been damaged. Trust and confidence in the banking sector need to be re-established. That will not be an easy task; it will be a long and painful task. In the midst of that, people are looking for a fairer society, which is why I welcome a number of the measures announced by the Chancellor today.
The Treasury Committee will be scrutinising the Budget over the next week; indeed, we will have three evidence-taking sessions and will, I hope, be able to report to the House in time for Second Reading of the Finance Bill a week on Tuesday. When we scrutinised the 2008 pre-Budget report, the Committee recognised the uncertainty of the economic outlook, but was concerned that the Treasury’s forecasts were on the optimistic side, as has been proved. In the next week or two, we will cast a scrutinising eye over these growth forecasts and the plans over the next six or 10 years to balance the budget to achieve an even fiscal landscape.
I have already mentioned the Treasury Committee visits around the country. We found that access to lending was an important issue then, as it still is now. The banks claim that they are increasing access to credit, but we heard in our visits that small businesses were still unable to access the lending that they need to keep going. The work of the Lending Panel, which the Government have established, is hugely important. I would like to see the results of that panel published at least every quarter, so that we can keep a handle on exactly what the banks are doing and on how much lending is actually taking place.
Lembit Öpik (Montgomeryshire) (LD): On those visits, was the right hon. Gentleman aware of, or did he come across, the fact that quite a few businesses, far from getting more lending, are experiencing a squeeze on their overdraft facilities, which are being reduced by the very banks that are promising to be more generous? Will he and his Committee’s investigations perhaps consider whether anything in the Budget might force the banks to be more generous with their overdraft facilities, and certainly not reduce them, when companies are desperate to invest?
John McFall: What we did hear from businesses was that they would rather be paying higher interest rates than, say, some of the arrangement fees that the banks were imposing on them—in a number of cases, four or five times the value of what they were paying the previous year. Those are hidden charges from the banks, so they go on the profit and loss account. There is a need for transparency here and for a lot of work to be done, but I welcome the measures that the Chancellor announced today with regard to business support.
The Chancellor mentioned the public finances. There is legitimate concern about the sustainability of Government borrowing and it is vital that in our plans for economic recovery the path back to a balanced budget is clearly outlined. Next week, the Committee will be looking at that, as well as at the efficiency programme that the Chancellor announced. In an inquiry over the next month or so, the Treasury Committee Sub-Committee will consider where those efficiency cuts are taking place. Mention has been made of the fact that it will not be front-line jobs that are involved and we hope, for sure, that that will be the case. We will certainly be subjecting the Department to that scrutiny to ensure that front-line jobs are maintained.
Mr. John Redwood (Wokingham) (Con): How much does the right hon. Gentleman think the Government could easily borrow in the next two years without forcing interest rates up?
John McFall: As I said, the Budget has been presented against an uncertain background, but the right hon. Gentleman should look to some of the economic gurus whom he respects, such as Sam Brittan of the Financial Times. Sam Brittan will say that we should be quite relaxed about public borrowing at the end of the day. Indeed, I refer the right hon. Gentleman to Sam Brittan’s article of 27 March, in which he says that in the second world war we borrowed against a bank rate of 0.5 per cent. What for? To ensure that we went to war producing guns that killed people. So why, in the words of Sam Brittan, should we not borrow to ensure that we get people back to work and off the dole—a lifetime penalty?
Mr. Frank Field (Birkenhead) (Lab): Is not there a real difference between now and the age that Sam Brittan writes about? When we were trying to balance our wartime budget, other major allies were in surplus and only too willing to lend to us. They are also now in deficit and wishing to borrow.
John McFall: There is a major difference. We have a global crisis—it is being experienced across the whole world. I was in the United States last week and people are talking about the budget deficit being 12 per cent., the sustainability of US accounts and the stress testing of US banks, so certainly we are in a different world. If people do not grasp the fact that we are in a global downturn and that we are avoiding a depression in the world rather than a recession, they have not got it.
I would rather see public borrowing to keep young people out of unemployment as I witnessed it when I was a school teacher in the 1970s and 1980s. Let me characterise that. Walking down my local high street, I would meet pupils whom I taught 10 or 15 years previously. I would be introduced to their wives and children, but then they would turn round and tell me that they had not had a job.
I want that type of society to be dispelled. I want to ensure that we have a society where young people have an opportunity and an ambition that they can realise. To do that, we must ensure that we assist them in every way we can with the public finances. That is hugely important. At the end of the day, as Martin Wolf said recently in the Financial Times, given that the Government can borrow at a lesser rate of interest than others, we
can see borrowing as an investment for the future, whereby we keep people in jobs and get tax revenues back, which will assist the Government when growth returns to the economy.
I have been asking for a Budget that will ease the pain of the recession and help those who are feeling it most keenly by keeping them in their jobs and in their homes. I have been seeking a Budget that protects the most vulnerable people in our society and that prepares the economy for the future—an economy that is changing enormously. I welcome the comments and commitments made by the Chancellor regarding climate change and green technology.
The Chancellor’s announcements regarding the steps that he will be taking to support the labour market are welcome, but I feel that we have to be alert and that perhaps more has to be done. We had the news this morning that unemployment is 2.1 million. That is still rising, despite the fact that some are saying that the economy will turn at the end of the year. We will still face rising unemployment, so this is a crisis with a human face. Unemployment can cause massive psychological and emotional strain. As we know, it affects not only the unemployed, but their families and friends and their wider communities. It has a particularly lasting impact on young people, so it is important that the Government help young people. The measures announced today are welcome in that regard.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): In the north-east of Scotland specifically and across the UK, 500,000 jobs depend on investment in the North sea. The Chancellor has gone some way to recognise that with his scheme for the field allowance, but that scheme was dreamed up in a time of much higher oil prices, when the challenge was how to get incremental developments. Will the right hon. Gentleman’s Select Committee consider whether the needs of the wider industry could be addressed by taking it further into current developments and by bringing forward tax relief for new entrants, so that they can deal with the missing cash flow caused by the banking crisis?
John McFall: I welcome the commitments made by the Chancellor today to provide funding to open fields that were previously unprofitable. That is good, but I give him advance notice that we will question him about North sea oil when he appears before the Committee next week. I am flagging that up pretty early.
I want to keep focusing on unemployment. A couple of weeks ago, I hosted a meeting in Parliament with Professor David Blanchflower, the departing member of the Monetary Policy Committee. He predicted that unemployment could be 4 million by 2011 or 2012. That is a dismal background, but it illustrates why we need to keep helping people if there is such a background. If that is the case, we will find that the Government are spending money to assist people.
Statistics from the House of Commons Library, sourced about a year ago, showed that every unemployed person would cost the state £10,000. That does not cover welfare benefits or local authority benefits such as free school meals or whatever people get, but if the figure is indeed £10,000, having 4 million unemployed would result in £40 billion a year being spent by the Government. Is it not sensible to try to avert or avoid that unemployment by spending at this particular time?
On the most vulnerable, the Government have produced ambitious targets on child poverty, but today, 30 per cent. of children in the United Kingdom still live in poverty. The Government’s commitments on child poverty, while admirable, still have a long way to go to ensure that we eliminate child poverty by 2020. In my constituency, one child in four grows up in poverty, according to the End Child Poverty campaign.
The Joseph Rowntree Foundation estimates that child poverty costs the UK £25 billion each year in extra spending on social services, health, housing, education, crime and so on. The Government’s moves to create jobs are important in the light of the fight against child poverty, because long-term parental unemployment is one of the biggest causes of child poverty. We will not be able to reduce it significantly while unemployment is rising. I welcome the Government’s commitment in that particular area.
The Government’s commitment to investing more money in building homes will directly benefit children living in poverty, because the shortage of affordable housing is one of the biggest barriers to eradicating child poverty. However, measures to meet the Government’s housing targets and to protect the homes of children whose parents have lost their jobs are really important steps to reducing the number of children growing up in poverty.
Other vulnerable groups mentioned by the Chancellor—pensioners and those in low-paid work who do not have children—will also benefit from the Budget. I welcome the Chancellor’s measures to help pensioners, especially the savings initiative and particularly in the ISA field.
Lynne Jones (Birmingham, Selly Oak) (Lab): My right hon. Friend mentioned investment in housing. Does he share my disappointment that only £100 million is to be provided for council housing? That will secure about three council houses per constituency, and is surely inadequate, given that more than 1.5 million households are on council waiting lists and given that a large number of housing revenue accounts are paying money directly to the Exchequer—many millions in the case of Birmingham council tenants.
John McFall: The £100 million is over and above the money that local authorities are already receiving, and is intended to support energy efficiency measures. I welcome that £100 million from the Government, but is there still a long way to go? Of course there is. Some years ago the Government commissioned a report from Kate Barker, who was a member of the Monetary Policy Committee at the time. According to her, between 120,000 and 140,000 houses needed to be built each year. That is an ambitious target, but we are moving along the path towards it. However, we also need to prepare the economy for the future.
The Chancellor mentioned the banking and financial sector. That sector will not contribute the same amount to the economy as it has in the past. It will shrink: everyone has acknowledged that, not least the Governor of the Bank of England when he appeared before our Committee. We need to rebalance the economy, and ensure that it functions in all the regions.
The banking practices mentioned by the Chancellor generated the highest yields, but they also generated a
massive amount of risk, which ultimately led to a global banking crisis and which we are no longer prepared to accept. In the future, our economic growth should not be driven by risky banking practices. At this stage, it is important for us to take a long-term view and to invest in areas that will be drivers for growth, including high-value manufacturing. Our infrastructure will also need investment to support a post-recession economy which, as I pointed out earlier, will be less centred on the City of London. The Treasury Committee is conducting an inquiry into the banking crisis, and we hope to publish our first report in the next week or so. We intend to produce another report on corporate governance, followed by reports on consumer issues and international regulation and co-operation.
I suggest to the Chancellor that any financier whom he meets—and any whom I meet—should be told that it will not be business as usual in the future. Some people in the City have their heads down, thinking that the storm will pass and that in a couple of years they will be able to renew the old practices and the old ways of doing things. The old practices and the old ways of doing things should be consigned to the dustbin of history, and new ways, involving putting customers at the forefront of banks and financial services’ interests, should be promoted.
Corporate governance should mean good management of companies. As the Chancellor knows, it was a shocking lack of corporate governance that led to the demise of the Royal Bank of Scotland and HBOS. In the case of the Royal Bank of Scotland, the problem was the acquisition of ABN AMRO. The then chairman of RBS, Tom McKillop, told the Committee that the bank had bought ABN AMRO at three times the market value price. It bought the company on 15 October 2007, a month after the crash. That was a mistake that brought the bank down. The chairman of HBOS, Lord Stevenson, acknowledged that there had been mad, risky lending and no oversight of the risk assessment, and that that had brought the bank to its knees.
On the boards of those banks were people whom we would term the great and the good—very influential people with a track record in the financial services industry—but they did not make a squeak, because profits were coming through the door. They turned their faces in the other direction. We must have a corporate governance system that ensures that risk is assessed. At the end of the day, the long-term interest of the company rather than the short-term interests of the executives should prevail. Sadly, it is the latter that we have seen in the banking crisis to date.
Mention has been made of the public debt and whether we can afford it. I would turn the question around, and ask whether we cannot afford it. Opposition parties will argue that we need to cut public spending dramatically, but cutting public spending dramatically is the wrong way to go about things at present. It would appear from the comments of the Leader of the Opposition that if the Conservatives were in power the cost would be even higher, because they would fail to take action to protect jobs and homes.
Last year, the public debt was estimated at 8 per cent. of GDP. Seven per cent. of that debt was a result of the automatic stabilisers; only 1 per cent. was a result of the fiscal stimulus. The Conservatives have said that they are signed up to the Government’s proposals on the automatic stabilisers. All that we are talking about here
is a 1 per cent. fiscal stimulus, and we need to ensure that we help people with it. I suggest to the Leader of the Opposition that he is on the wrong track in that respect.
A fairly wide debate is taking place on the fiscal stimulus and its affordability. Only this week the National Institute of Economic and Social Research, one of the country’s leading economic think-tanks, said that the United Kingdom could still afford a fiscal stimulus, and suggested that the Budget should contain a stimulus amounting to 2 per cent. of GDP—£30 billion.
On the subject of the public finances, let me again quote Martin Wolf of the Financial Times. On 18 March, he wrote that:
“it makes no sense to avoid action that would greatly lower the real economic costs of the crisis now, to eliminate a hypothetical and avoidable fiscal crisis later on. This would be like committing suicide in order to stop worrying about death.”
Given the Government’s commitment to helping people and to making this a Budget with a human face, I welcome the initiatives announced today, but are they enough? I fear not. Will the Treasury Committee be scrutinising the Government on their public debts and their commitments to assist the most vulnerable people in society? We certainly will. We look forward to renewing our engagement with the Government next week, when the Chancellor will come before us.
2.7 pm
Mr. John Redwood (Wokingham) (Con): I am a director of a couple of companies. I have declared my interests in the Register of Members’ Interests.
This is really the Damian McBride memorial Budget. It is a Budget of the spinners, by the spinners, for the spinners. It is a Budget with all the black arts around it. It is a Budget that wants people to believe that it will all be fine in a couple of years’ time. It is a Budget built around numbers that are entirely fantasyland economics. It is a Budget which pretends that there will be massive growth in two years’ time, and that that growth will miracle away the enormous deficit and the huge debts that will be the Government’s only legacy.
This is a Government who, just a few months ago, were in denial that there was even a recession on here in the United Kingdom. This is a Government who would not admit six months ago that they would preside over the worst collapse in any major western economy, as measured by the public finance figures. This is a Government who a year ago, at the time of the then Budget, said that there would be a little drop-off in the growth rate, but that Britain would come sailing through because they were married to Prudence and had abolished boom and bust.
The Government are not married to Prudence, Indeed, the Prime Minister—the former Chancellor—divorced her many years ago. Now they are holding a drink and drugs party on the poor lady’s grave, inviting everyone to come along and spend as much borrowed money as possible. I do not think that the current Chancellor has ever met the lady Prudence. It is quite obvious from his figures and his representations today that he does not have a clue about the fact that it is necessary to balance the books at some point. He has no clue about how to balance the books, and, as my right hon. Friend the Leader of the Opposition so powerfully observed, it will take another team of Ministers to deal with the awful job of cleaning up the mess.
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