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The sterling exchange rate has fallen after its 11 years of over-valuation. The evidence that it was overvalued is the persistent structural trade deficit that we had through that period. We are starting to see the trade deficit turning round and some improvement in our
trading position as a result of the recent depreciation. So, we have started moving in the right direction in some respects.
Also, the nonsense of the golden rules on public debt has been abandoned and measures are starting to be taken to sustain economic activity—not enough and they are late, but we are pointing in the right direction. Even at a gross Government debt of 80 per cent. of gross domestic product, which is what is forecast, the UK would still be below the average for advanced economies as a whole, which is quite astonishing. The economic contraction in Germany and Japan will be greater over the next two years than that in Britain, so this is a world crisis and it affects some countries more than others. The countries that are particularly affected are those with trade surpluses, because they are starting to lose export orders. We are the other way round and we do not have that problem; we have others.
Let me come to taxation and public expenditure. The bleatings of a handful of the mega-rich and their media friends about the 50 per cent. top rate are, quite frankly, pathetic and— [Interruption.] Indeed, and their friends, wherever they may be. They are pathetic and contemptible. I may say, too, that if a handful of ageing pop stars and money-grubbing bankers leave the country as a result, I say good riddance. Seriously, my concerns are about the jobless and the poor, who will really suffer from this recession.
Mr. Graham Stuart: I remember looking through last year’s Red Book and being struck by the fact that the largest single tax remains income tax. Of that, 40 per cent. is paid by just 5 per cent. of taxpayers. An old socialist such as the hon. Gentleman will see that as an illustration of how unfair a society this is, but it struck me that if two of those five left the country because of overly high tax rates, the poor in my constituency and his would suffer as a result.
Kelvin Hopkins: I thank the hon. Gentleman for his intervention, but in the Budget debates of last year and the year before I suggested much more radical tax changes that would reach further down, with tax rates on the mega-rich higher even than those suggested by the Government. We should go back perhaps a little way towards where we were in 1979—not all the way, as I do not want to tax him at 98 per cent., but a 60 per cent. rate on him would not be that punitive.
I believe in progressive taxation. Our taxation is not sufficiently progressive and I like to think that, one day, our Government will move again in that direction, travelling back a little way to where we were in the more just society we had in the 1970s, 1960s and 1950s, when there was a Conservative Government who did not resile from that approach.
We should consider the Conservatives and their right-wing friends. I am afraid to say that the Institute for Fiscal Studies is no longer the neutral organisation that I used to think it was. The International Monetary Fund criticises Government policy, but when has it ever got it right? The last time the IMF criticised a Government who tried to do something about their economy in a recession was when it refused to accept measures taken by the Malaysians during the far east economic downturn of 10 years ago. The Malaysians were told, “Whatever you do, don’t put on exchange controls.” Well, the
Malaysians put on exchange controls and devalued their currency. Their economy bounced back immediately. When has the IMF ever got it right?
This Budget is the beginning of a move in the right direction, but it is still early days. We will have more Budgets and they will be much more serious than this one. We will have to spend more, borrow more and tax more if we are to get out of this mess, but I believe that we are starting to address the economy seriously, rather than playing games. Over the past 10 years, I have seen those on the three Front Benches cosying up and stroking each other over neo-liberalism, saying how much they all agree. At long last, we are starting to see a divide. I want to widen that divide, because the approach from the left—from a democratic socialist perspective—is the only way forward. If we move back towards at least a social democratic consensus of the kind that we had in those post-war years, we will do better.
We have protectionism now in a number of respects, but we are moving towards a world in which it will grow. That will enable all economies to be stimulated without fear of being overwhelmed by imports or whatever. We are moving towards a world that worked and away from one that has caused catastrophic problems—not just for the developed world, but, more importantly, for the poor world. Those people have suffered.
Our economy is seriously imbalanced. The financial sector was given its head and that has not worked. It has brought desperate problems for us and we must reinvest in manufacturing in particular and all those other areas of the economy in which we can do so well. I could say a lot more, but perhaps I have said enough for the time being.
7.45 pm
Mr. Desmond Swayne (New Forest, West) (Con): As a neo-classical liberal, I could not disagree more profoundly with the world view of the hon. Member for Luton, North (Kelvin Hopkins). Indeed, I wonder whether we grew up in different worlds. He described, through rose-tinted spectacles, the 1970s. My recollections are so different: revising for my O-levels by candlelight because of the chaos engendered by the social democratic ideal that he described.
Kelvin Hopkins: The 1970s were following the end of that post-war era, when it all broke down. The first big recession came about in the 1970s directly as a result of the breakdown of the post-war world.
Mr. Swayne: They were the result of it—the stagflation and everything that went with it, although however much I might disagree with the hon. Gentleman, it is a privilege to follow him in the debate, because he is assiduous in this Chamber, courageously doing his duty to hold the Executive to account. For that, we should all be grateful.
I hope that, at some stage during the debate on the Budget resolutions, we will get a full exposition of the Government’s growth forecasts and how they were arrived at. Perhaps the Minister plans to give us that exposition when making the winding-up speech from the Treasury Bench. It is important that we get it, because, to be charitable, those forecasts have proved controversial. However much the hon. Member for Luton, North might disparage the International Monetary Fund’s forecasting, it was noticeable that, within minutes of the
Chancellor sitting down last Wednesday, the IMF came up with a very different set of forecasts. That is important because this is the post-dated Budget.
All the important decisions on what is to happen are not in the next financial year. How we are to deal with the enormous, crushing deficits is not to be decided in the next financial year. That has all been put off for future years and decisions. Therefore, the forecasts become ever more important than they were in the past. That is why it is important that those on the Treasury Bench should give an account of those forecasts.
The way in which this debate began was, of course, ridiculous—with the Secretary of State for Innovation, Universities and Skills announcing that it is about what the Opposition propose, rather than the Government’s Budget resolutions. The reality is exactly as I said: this is the post-dated Budget, the do nothing Budget, the Budget that will not tackle the elephant in the room—the huge deficit. It is extraordinary that the Government had so little to say about their forecasts and the deficits that will build up. It is extraordinarily important that those should be dealt with. I would of course prefer that those deficits were dealt with in the next financial period. Let us take it on the chin now, rather than have the economy flinching, knowing that the blow is to come, as that will be so damaging for confidence in the future and, in particular, as we attempt to recover.
I want to say a few words about the New Forest. We had high expectations of what might come out of the Budget because we had been hit so hard by the recession. In fact, the growth in unemployment in my constituency has been higher than almost anywhere else in the country since the end of last summer. I put that down largely to the fact that so many people have commuted to financial services industries in and around Bournemouth and Southampton and that we have headquartered a disproportionate number of construction companies. Principally, however, I put it down to the enormous number of small businesses in the industrial estates around the market towns. They have been very hard hit by the credit crunch.
The world that the Secretary of State described of the real help that is being provided now to small business and getting credit flowing again does not bear any relationship to the reality faced by small businesses in my constituency. I am approached every Friday at my surgeries by small businesses that have viable order books; they are good businesses, but are experiencing enormous cash-flow problems. Their difficulty is that they are still being serviced by zombie banks, which are still withdrawing credit or providing it only on impossible terms.
Lorely Burt: Does the hon. Gentleman agree that it is most unfortunate that while the Government have poured billions into the banks, there has been no finance for non-bank lending? None of that type of finance—lease financing and financing for the buy-to-let market, for example—is available for the small business entrepreneurs to whom he refers.
Mr. Swayne:
I agree that those are important avenues, but I still support the initial banking rescue and the second banking rescue. They were both necessary, but far from sufficient. The problem is this: were I a prudent
and risk-averse banker—I wish we had had more of those over the past 10 years—I would be arguing against making loans to the very small businesses for which I am demanding action now. That is the irony. The banks’ balance sheets are stuffed with an enormous amount of high-risk assets—toxic assets, if you like, Mr. Deputy Speaker. The last thing that a prudent banker should do is to start taking on more high-risk lending—and let us face it, lending to small business in a recession is relatively high risk. Given the state of their balance sheets, banks should be averse to taking on more of those assets and to making more of those loans to small businesses.
The Government’s second banking rescue attempted to deal with the problem of toxic assets by saying, “Right, we’re providing a guarantee—a form of insurance.” That was necessary, but it was not enough, because that guarantee does not cut in until the banks lose virtually all their capital base. The prudent banker will still hoard his cash and try to rebuild his balance sheet rather than make loans to the small businesses in my constituency that desperately need them. If we are to deal with that problem, and to stop the banks being zombie banks and get them lending again, we have to deal with the new loans that we are encouraging them to take on. We have to provide the guarantee and the insurance to that new business rather than dust the old toxic business that already pollutes their balance sheet. That is why we have been asking since well before Christmas for a much more ambitious loan guarantee scheme. All the schemes that the Government have announced have not delivered a single loan to constituents in the New Forest. That is the difficulty that we face: credit is not flowing, and it has to if we are to recover from this recession.
I want to conclude by saying a bit about the Government’s monetary policy. I would have thought that the Budget statement and debate ought to have at least focused on elements of that. I support, by and large, the main plank of monetary policy, which is a significant reduction in interest rates, however painful that may have been to a very high proportion of savers in my constituency—hon. Members should bear in mind that I have, I think, the second-highest age profile of any parliamentary division. Those people have saved all their lives and done the right thing, but they are now suffering very much in order to see interest rates reduced for people who often enough have not done the right thing. The Budget should have been much more generous to those savers to compensate them in other ways for the important policy of reducing interest rates.
However, it is the other aspect of monetary policy, which is scarcely mentioned, that concerns me more—the whole business of quantitative easing. I would have thought that the Chancellor would have given us an exposition of precisely where we are with this key departure from conventional monetary policy. It is extraordinary that the Bank of England has created bank deposits to a significant proportion of our national income—printing money, as the euphemism goes. We have not had a vote on that. We have not had a statement on it. We have not even debated it. It is extraordinary in a free Parliament that is supposed to have its finger on the pulse of Government policy that that has gone so unmentioned.
I am not saying that I am against the policy. I know that economists such as Tim Congdon believe that it is right, but there is a series of questions that we ought
properly to have scrutinised—how much, when, when do we stop, and where are we in the cycle? All those issues have never been discussed or scrutinised. I begin to wonder whether that might after all provide some part of the explanation for the extraordinary growth statistics that were brought before us last Wednesday, with the so-called trampoline bounce. Could it possibly be an inflationary bounce? Could it possibly be a bounce that will destroy the savings of those who still have some left?
7.57 pm
Emily Thornberry (Islington, South and Finsbury) (Lab): This Budget has been given at a time of unprecedented turmoil in the economy and of great uncertainty about the future. The figures that we learned last week on levels of Government borrowing remind us of the seriousness of the economic situation. The road ahead of us will be much tougher than the road behind us, but even if spending slows in the immediate future, the huge investment in public services over the past decade will provide a lasting legacy for our country.
Thanks to that investment, my constituents are benefiting from a new hospital at University College hospital, £1 billion to rebuild Barts hospital and new investment in the Whittington hospital. All Islington’s secondary schools are substantially or entirely being rebuilt, youngsters are benefiting from substantial investment in the buildings that contain our primary schools, and we have many new children’s centres. That, of course, is not to mention the £157 million that has gone into bringing social housing in my constituency up to decent homes standards. Those are the many dilapidated roofs that we fixed and new roofs that we built while the sun was shining. Now we are faced with a challenge on a very great scale, and I believe that any Government would be failing in their duty if they did not act boldly and bravely at such a time. In their response to such hard times, politicians can now show what their true priorities are and where they lie.
When I left university in the early 1980s—
We used to wait for the milk round to come with various employers, but in 1982 it did not come. No one wanted us. I went into the unemployment centre in Poplar and said, “I’m here. I’ll take any job. What jobs are available?” The guy behind the desk laughed.
Rob Marris: So my hon. Friend had to become a barrister.
Emily Thornberry: So I went back into education and carried on studying. Eventually, I managed to get employment as a barrister, but for a time, on leaving college, I faced not knowing what future I had and what chances I had—frankly, moving from university straight into employment was not one. Therefore, I remained in education until I was able to get another job, but it was desperately frightening, and many other people in my generation did not have the opportunities that I ended up having.
Now as a Labour MP, I am supporting a Government who will not allow the generation that is now leaving college and school to face a decade of unemployment, of no future and no hope. A generation of working people, pensioners and families will not go to the wall, as they were allowed to do in the early 1980s.
Mr. Graham Stuart: That is exactly what is happening now. At the end of 12 years of this Labour Government, more 16, 17 and 18-year-olds are not in education, employment or training than when the Government came to power. More people under 25 are unemployed. A whole generation is at risk of the very thing that the hon. Lady is talking about. She should face up to that reality.
Emily Thornberry: The reality is that the assistance that is available now to young people leaving college and school would not be available to them if we had a Conservative Government.
This Budget is first and foremost about protecting people in the downturn. A Labour Government's instinct in a recession is to protect and support, not to step back and let the invisible hand of the market take its cruel and arbitrary toll.
I welcome the £1.7 billion for Jobcentre Plus to help to tackle the rise in unemployment. In particular, I believe that the Government's job guarantee for under-25s out of work for a year shows state intervention at its best and most necessary.
Beyond the immediate effects of this recession, this is a Budget about the future, and I welcome that, too. I welcome the bold plan of the Secretary of State for Energy and Climate Change to end atmospheric carbon emissions from coal-fired power stations. Many of my constituents are very concerned about the high emissions from coal-fired power stations operating here and around the world. It seems that in Britain there is a new generation of such stations about to step into production, and there is clearly concern about what that will mean.
Stewart Hosie: Will the hon. Lady give way?
Emily Thornberry: No, I will not give way again.
The fear among environmentalists has been that our short-term energy needs may lead to a massive carbon footstep backwards. I therefore welcome announcements made in the Budget that no new coal-fired power stations will be given permission unless and until they show that they include carbon capture and storage facilities on that plant. Although of necessity such facilities will be small scale to start with, as the technology develops, coal power stations will be expected to extend CCS to the whole plant. Environmentalists such as me have been seeking such assurances and I am grateful to the Secretary of State for his assistance and commitment to that issue.
The Budget introduces many other welcome moves towards a low-carbon future: the increase in landfill tax, our continued commitment to the fuel duty escalator, the sustained momentum on vehicle excise duty, the money available for better energy efficiency for small business, public buildings and homes, and the increased investment in renewable energy generation, particularly from offshore wind. I am pleased that the Budget marks the world's first legally binding carbon budget.
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