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The Prime Minister built his boom on excessive and increasing borrowing. For 12 years he presided over the lending of billions to individuals against inflated house prices and he has allowed the banks to lend at the most extraordinary level of leverage. His Government borrowed and borrowed with no thought of how his boom would ultimately lead to bust. In this Budget, the Government are to borrow an incredible £175 billion this year and another £173 billion next year—£348 billion in the next two years alone. That assumes that the forecasts are correct, but given that the Chancellor’s forecasts have a record of being far too optimistic, no doubt the Government will borrow even more.
The whole thing is rather like a huge balloon that constantly expanded through borrowing. The balloon grows and grows, and as long as borrowing increases the balloon continues to expand. However, eventually something pricks it and there is a huge explosion. The borrowing stops, the balloon bursts and economic growth pours out. When a balloon is pricked, the air does not come out slowly—it gushes out. That is why the recession has been so sudden, sharp and severe.
It is hard to believe that John Major’s Conservative Government were thrown out in 1997 because of any mismanagement of the finances. In fact, the economy was growing in 1997. This year, however, the Government are predicting negative growth of 3.75 per cent. of gross domestic product. How do those figures translate to the situation in Wellingborough? I have already said that unemployment there is two thirds higher and that we are in the longest recession since the war. Yet the Prime Minister is still here and the Government stagger blindly along, rather like a rabbit caught in the headlights of a car.
So what is this incompetent Government’s solution? It is to borrow even more. We are told in the Budget forecast that public sector borrowing will be 12.4 per cent. of GDP this year, and 11.9 per cent. of GDP next year. In 2013-14, on the Government’s own hugely optimistic forecast, public sector net debt will rise to an incredible 79 per cent. of GDP—in other words, twice the golden rule’s upper limit of 40 per cent. They decided not to fix the roof when the sun was shining, but, worse still, when they found there was a problem, they sent in a cowboy trader to fix it. They did not call in Trotters Independent Traders—although Del Boy might have done a better job—but Darling and Co., who, like all cowboy traders, said, “Well, guv, the problem’s a lot bigger than we first thought—it’s going to cost a lot more to fix”, and left the problem in a worse state than it was originally.
The Institute for Fiscal Studies stated in “The Green Budget 2009”:
“Labour entered the crisis with one of the largest structural deficits in the industrial world and a bigger debt than most OECD countries, having done less to reduce debt and—in particular—borrowing more than most since 1997.”
The Prime Minister’s beleaguered quest to throw money he has taken from hard-working taxpayers at trying to fix problems has left this country with an unprecedented amount of debt, which is predicted in the Budget to rise to an extraordinary £1.4 trillion. I believe that he will not be satisfied until he leaves this country bankrupt.
The Prime Minister wanted a huge second financial stimulus at the G20 summit. In fact, he travelled round the world—I remember him missing Prime Minister’s
questions because of it—to encourage everyone to adopt that second stimulus, saying that it was absolutely vital; only the courageous decision of the Governor of the Bank of England stopped this. Effectively, he tore up the Prime Minister’s cheque book and cut his credit card into pieces. It is unique for a Governor of the Bank of England to disagree so publicly with a Prime Minister, and he would not have taken such a step unless he thought that our economy was in the gravest peril. One auction of Government gilts has already failed; if the Prime Minister had had his way, that would have become a regular occurrence. The IFS says that there is a £39 billion black hole in the public finances. For families in Wellingborough, and across the country, that is equivalent to a tax rise of £1,250, or 8p on income tax.
That is what the Prime Minister has left us with, and it is quite different from what he said in his speech to the CBI in 1997:
“The British economy of the future must be built not on the shifting sands of boom and bust, but on the bedrock of prudent and wise economic management for the long term. It is only these firm foundations that we can raise Britain's underlying economic performance.”
He has done just the opposite. In 2002, he said in his speech to the TGWU conference:
“There will be no return to the short-term lurches in policy that would put long-term stability at risk. No relaxing our fiscal disciplines”.
Again, he has done exactly the opposite.
I would like to talk briefly about how the Prime Minister’s actions have affected my constituents. The Bank of England’s base rate is 0.5 per cent., yet the APR on credit cards is rising, not falling. Some banks are sending out special promotional offers—I am sure that Members have seen them—claiming to charge 0 per cent. for six months. In fact, the small print says that there is a 3 per cent. flat fee to start with, and that after the six-month period the normal variable rate will apply. One would think that with the base rate at 0.5 per cent., the variable rate for credit cards should be falling, but instead it is rising. Banks, including the nationalised banks, are raising their interest rates to between 20 and 25 per cent. At a time when the base rate is at its lowest, people in my constituency are being asked to pay bumper credit card interest rates.
Apparently, I am a valued customer of the Royal Bank of Scotland, because it sent me a rather glossy promotional booklet saying:
“An exceptional card. Impressive benefits. Too good to miss? Find out more.
With an RBS Black Card you can look forward to a level of personal attention and exclusive benefits that are second-to-none.”
So I thought I had better look at the small print, and it certainly is an exceptional card. Its APR is 51.8 per cent. a year—and that is from a nationalised bank. I kindly turned down the offer.
I am afraid that the situation for businesses is even worse. The Bank of England reduced the base rate to 0.5 per cent., the intention being that the cost to businesses would fall. Unfortunately the reverse is happening, and the nationalised banks have been particularly damaging. Instead of providing more facilities and cutting interest rates, they have actually increased interest rates, imposed extra fees and cut facilities. It is almost as though the banks saw a way of making excessive profits out of companies following their previous ghastly mistakes. I
am talking about existing, established and respected businesses that are fighting the recession but are fundamentally sound.
Ms Keeble: The chamber of commerce that covers the hon. Gentleman’s constituency and mine hosted a small meeting for me and some businesses at which it complained about charges going up from £100 or so to several thousand pounds. It is a major problem for businesses right across our area, especially the smaller ones.
Mr. Bone: I am grateful to the hon. Lady, who shares my concern about that.
I wish to refer to a specific instance in my constituency. There is an international company headquartered there, with a turnover of £170 million a year and 248 employees. It has a £16 million loan, which it is not seeking to extend. Its bank is one of the nationalised banks, and the rate is linked to 1 per cent. above base rate. If the Government’s policy was working, interest rates for that company should fall. But what has this nationalised bank done? It has said, “Oh, no. You’re not going to have 1 per cent. over base, you’re going to have 4 per cent. over LIBOR.”
The company has already had to lay workers off because of the recession. The hike in interest rates means that it will pay an additional £640,000 a year, and to cover that it would have to lay off 20 people. The only way in which it could cover the increase imposed by the nationalised bank would be to lay off 20 people in the research and development department. Although that would cover the costs in the short term, it would greatly damage the future of a leading local company in a field in which it is imperative to remain at the forefront of development. The research and development department is at the cutting edge and does groundbreaking work. It is developing products for use in wind farms and products that reduce weight for transportation—two areas that the Government want to promote. Job cuts to the department would be a huge loss.
On top of the significant extra cost that the company faces during the recession, the bank is charging unjustified fees. For example, it has demanded that the company’s budget projections are audited at a cost of £25,000. In effect, it is imposing a £25,000 fee that will merely prove that the company’s projections are right. We are not talking about a new company or a fly-by-night company; we are talking about an international company that has been in existence for a long time and is extremely well known.
The Government have announced a number of schemes to help businesses through the downturn, but that company has not been able to access any funds. It appears that a successful, innovative and respected company based in the UK does not qualify for that money. Lots of money that is inaccessible to businesses is sloshing around quangos, and numerous Government schemes, most of which are not even operating, have been announced. For example, only one agreement has been signed as part of the working capital scheme, which Lord Mandelson announced in January and which was said to be “going live” on 16 January 2009.
The position looks even more pitiful if we compare it with the practical help being provided abroad. In France, research and development operations are being encouraged through a scheme that covers 50 per cent. of the cost of
staffing research and development projects. That practical help will ensure that those companies come out of the recession with a bright future. It is not surprising that the company in my area is having seriously to consider expanding its research and development project abroad, despite having a firm preference to locate it in the United Kingdom. Surely the Government should be encouraging successful businesses to remain in the UK and not to go to France. Let us not forget that the company in my constituency is a well established, international company that is based locally and at the cutting edge of its field. Instead of receiving help and support in the recession, it is being punished by a nationalised bank and this Government. The schemes that have been implemented are simply not working, and the help that is available overseas is threatening to encourage companies from this country to relocate abroad. The Government’s policies are failing. They are failing the company in my constituency; they are failing thousands of companies across the country; and they are failing the British people.
5.8 pm
Mr. Mike Weir (Angus) (SNP): I came along today hoping to discuss the environmental and energy aspects of the Budget, which, to be fair, includes some quite good measures in that respect. Unfortunately, we were treated at the outset to a Punch and Judy show between Front Benchers on the question of cuts. Whether one calls it an efficiency saving or a cut, the effect is the same at the end of the day—there is less money for services. The Government are going to cut £1 billion from the Scottish budget over two years. The problem, other than that they are cutting money, is the danger of choking off a recovery, should it start to happen—nobody believes that it will start in the next few months.
We must look at, for example, what President Obama is doing. The state of Maryland has a similar population to that of Scotland. It will receive £2.6 billion in extra funding supporting 66,000 jobs over the next two years rather than destroying jobs with budget cuts. The Government need to look again at what they are doing in that regard. The problem is not confined to Scotland, as the First Ministers for both Wales and Northern Ireland have made similar points.
During the initial exchanges between the Front-Bench teams, the Secretary of State said that people on short-time working were being helped by tax credits. I accept that, but a loophole exists that I have taken up with the Financial Secretary to the Treasury. He was here earlier and I hoped that he would return to the Chamber to hear me make the point again, as I am still waiting for a response.
Many people in my constituency put on short time have ended up working for fewer than the minimum hours required to qualify for tax credits. For those who do not have children, that minimum is 30 hours. People are facing a double whammy—losing wages and also their tax credits—and that is causing a great many problems. I have asked the Treasury whether there is any scope for treating people whose hours have been cut as though they were still working the minimum number, as that would both avoid the double whammy that I have described and help them out of what is a difficult situation.
I appeal to the Exchequer Secretary, who is on the Front Bench at present, to give consideration to that proposal. The problem is serious, and it is getting worse as short-term working increases. Many firms are trying to hold on to people and skills rather than making them unemployed, and the proposal that I have made would be a way to help them out in that regard.
I turn now to the environmental element of the Budget. It makes a good start in some areas, although it remains well below what is known as the Stern test, which is that 20 per cent. of fiscal stimulus should go towards green initiatives. It compares unfavourably with South Korea, for example, which has achieved a rate of 82 per cent.
The Budget has made progress in respect of carbon capture and storage—a subject in which I have had an interest for many years. It is possible that I have bored successive Energy Ministers about it—
John Robertson (Glasgow, North-West) (Lab) indicated assent.
Mr. Weir: I see the hon. Member for Glasgow, North-West (John Robertson) nodding at that, but there was a good chance that Scotland could have been well ahead with carbon capture and storage through the Peterhead plant. However, Government indecision dragged on and eventually they decided not to back it, with the result that the project went to Abu Dhabi. That proved to be a disaster, and a great disappointment for the CCS industry.
Since then, the Government have set up a competition that the earlier statement on carbon capture suggested was still grinding on. The Budget papers reveal that £90 million has been allocated to fund companies in that competition to undertake detailed preparatory studies for CCS schemes, with £60 million transferred from the existing transport budgets. I understand that the purpose of the studies is to reduce the technological risk associated with CCS projects and to give greater clarity on costs, but I wonder whether it will merely lead to yet further delays. I am not sure how that interacts with the announcements about CCS made in today’s statement for, although it seemed to move things forward, it also left a lot of unanswered questions.
We are very keen, especially in the Scottish context, that the Forth basin and the Longannet plant in particular should be part of the CCS project. As I mentioned in connection with the earlier statement, Scotland has some of the largest carbon storage reserves in Europe in the North sea’s saline aquifers and depleted oil and gas fields. It also has the skills from the North sea oil and gas industry to access them, something that will be very important in the development of CCS.
The Budget also makes some tax changes to the petroleum revenue tax and those governing the use of installations for other purposes, both of which are designed to help the development of CCS. However, the Energy and Climate Change Committee, of which I am member, has been conducting an investigation into the oil and gas reserves of the North sea and one company raised a slightly different problem with me. It had a licence for exploration for one part of the North sea. It decided that it was not economic to use that licence for oil exploration, but it thought that it would be possible to use it for carbon capture and storage, which may have had the benefit of extracting some oil from that
area by pumping out the carbon. However, the company tells me that the licence conditions do not allow it to use carbon capture and storage technology, which means that it has to surrender the licence. The Government should look into whether there is any scope for giving a bit more leeway. Carbon capture and storage can also have quite a long lead-in time. Total has launched a scheme in the south of France, but there is a two-year period in which it will be looked at before a decision is taken on whether it is commercially viable, so we need to get moving as quickly as possible.
There are other things that might stand in the way of carbon capture and storage. In questions this morning, I raised the balancing charges being proposed by Ofgem and the National Grid Company with the Minister of State, Department of Energy and Climate Change. Those charges may impact on Scottish generators’ ability to invest in new plant, and in carbon capture and storage in particular. The Minister kindly said that he was prepared to meet me to discuss the issue. I will be taking up that invitation, because it is important that we look into the matter.
Transmission charges have long been a problem with renewable generation. It would be dangerous if we did not sort the issue out or if we imposed new charges that affected the ability of Scottish generators to develop carbon capture and storage, especially given that Scotland is nearest to many of the possible storage places. The Government need to look at the issue in the round and not put carbon capture and storage up against the competition without looking into its distribution and the investment that could come from energy companies.
There is also the question whether the Government are considering transferring the carbon to the offshore field or wherever it is ultimately to be buried. Is the intention to build a transmission network for the carbon, once it has been captured, or is it intended to be stored on site? Significant investment will be required if the carbon is to be transferred in order to be eventually stored. The Government also said that we would look into pre and post-combustion, which is welcome.
I also welcome the move to allow greater help for offshore wind energy. However, I noticed that there seemed to be no mention of wave or tidal energy, both of which can be very important. Again, both may be some way from commercial application, but we need the investment to get them up and running, and to strengthen the grid so that they can be fed in. I would like to ask the Exchequer Secretary whether there are any plans to extend the help for offshore wind to wave and tidal power, with a view to moving them forward. As she may know, the Scottish Government have launched the Saltire prize to try to bring that development forward, which has generated a great deal of interest from all over the world.
Angela Eagle: Because wave power is further behind than wind power, there is £405 million for technology transformation, which is aimed at things such as wave power. However, the support through renewables obligation certificates, to try to ensure that the existing potential in offshore wind comes about, is—to use the oil analogy that the hon. Gentleman has been using—further upstream. I hope that that gives him some reassurance.
Mr. Weir: I thank the Minister for that explanation, which clarifies the matter slightly. I promised to allow the final Back Bencher in, so I will end on that point.
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