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“We have both a fiscal catastrophe and wild swings from boom to bust. You can blame this government in general and Gordon Brown in particular for that failure”.
This Budget was also fundamentally dishonest on a number of counts. First, the Chancellor sought to give the impression that a black hole in the public finances could be sorted out by increasing the higher tax rates. Even if the 50 per cent. rate of tax were to bring in the Treasury’s most optimistic yield, it would bring in only about £7 billion. To put that into context, the Government are planning to spend up to £4 billion on recruiting management consultants for the public sector over the next four years. So, £7 billion will not necessarily go a very long way and it is also a long way off meeting the £175 billion needed. Last week the Institute for Fiscal Studies also noted that raising the higher rate of tax, even to the 45p in the pound that was first thought of, might lose the Treasury money as it moves the wrong side of what economists call the Laffer curve after the economist who pointed out the tendency of punitive taxation to yield diminishing returns.
It will, of course, be a footnote to the 2009 Budget that it marked the death of new Labour when the Chancellor said the words,
“the new rate will be 50 per cent.”—[ Official Report, 22 April 2009; Vol. 491, c. 244.]
Was it not the present Prime Minister who, when he was Chancellor of the Exchequer, said on the “Today” programme in January 1997 that
“we will leave the basic rate of tax unchanged and we will leave the top rate of tax unchanged”?
That pledge was explicitly repeated in the 2001 and 2005 general elections—a tax promise that we were told reflected the spirit of new Labour and a commitment not to punish success. I suspect that the speech that we heard earlier this afternoon from the right hon. Member for North Tyneside (Mr. Byers), a former Labour Secretary of State for Trade and Industry, which condemned the 50 per cent. tax rate, will be well worth reading and re-reading.
It is dishonest of the Government to try to pretend that higher taxes can meet the need to sort out public finances. No Government for 30 years have sustained tax receipts above 37 per cent. of GDP, yet the Government are proposing that spending should rise to 48 per cent. of GDP, almost as high as in the mid-1970s, when the IMF came in.
The Budget was also dishonest in its basic assumptions about the economy’s likely performance. That point was tellingly made on Friday when official figures showed that in the first three months of this year the British economy contracted at the fastest pace for 30 years, with a slump in manufacturing that was the worst since records began 61 years ago.
To my mind, the greatest dishonesty of the Budget was that it deliberately postponed until after the next general election any difficult decisions about public spending and controlling public spending. From 2011, public spending will grow in real terms by just 0.7 per cent. a year. Even in the tightest years of Margaret Thatcher’s first Government, public spending increased by more than 2 per cent. in real terms. When I raised those points with the Secretary of State earlier in the debate, he accused me of raising a distraction. I shall say it again: the Government propose, after the next general election, a tighter level of public spending than we ever saw under Margaret Thatcher. However, we have not had a scintilla of a suggestion from any Minister about where they expect to make savings.
Disingenuously, Lord Mandelson toured the radio stations on Friday, challenging us to say how we would reduce spending. That was disingenuous because his words sought to give the impression that a Labour Government could and would maintain high public spending while the figures are there for everyone to see in the Budget. From 2011, public spending will grow at just 0.7 per cent. a year, which will inevitably result in some serious re-approaches to public spending. The country deserves better than a year of pre-election name-calling and a year of the Government of the living dead. We must all sort out sensible processes to engage everyone in an honest debate about how we can restructure the state. We need an honest acknowledgement that together we need to get a grip on Government spending and public spending and we need to decide how we can best achieve that. The Government will not even tell us how the vast amount of borrowing will be repaid. By next year, the Treasury expects Government debt interest payments alone to equal spending on education and defence combined.
At present, many of my constituents are understandably concerned about the taxes on the many that this Budget introduced: the increase in fuel duty, the reintroduction of the fuel duty escalator and the increased tax on beer. Those were all unwelcome, regressive moves. The ongoing challenge of this Budget—the reality to which every right hon. and hon. Member in this House has to face up—is the question of how we most effectively reduce public spending while, at the same time, maintaining decent public services. We need a grown-up and honest debate that engages everyone from now onwards.
We cannot simply spend the coming year between now and the general election catcalling at each other. This issue is far too serious. If we are to maintain decent public services and get our public finances in order, that will require sensible, proper, grown-up and mature debates. I think that the country expects no less of us all.
8.34 pm
Mr. Graham Stuart (Beverley and Holderness) (Con): It is a great pleasure to take part in this debate and to follow my hon. Friend the Member for Banbury (Tony Baldry). I am a company director and I refer the House to my entry in the Register of Members’ Interests.
Many memorable Budgets have been announced in the House over the years: Lloyd George’s people’s Budget immediately springs to mind; the great reforming Budgets of the late 1940s and, more recently, Geoffrey Howe’s famous 1981 Budget. Those were great speeches, delivered in times of social and economic unrest.
The 1909 Budget paved the way for radical social reform, including the introduction of the old-age pension and the first foundations of Britain’s welfare state. In the post-war period, universal health care, full employment and a cradle to grave welfare state were introduced—far-reaching reforms that have stayed with us to this day. Geoffrey Howe, battling against recession and record inflation, took the politically brave decision to reduce Government spending and increase personal and indirect taxation. In the process, he created the confidence and paved the way for a decade of economic growth and prosperity.
This Budget could have taken its place alongside some of those greats. Certainly, the current situation demanded that of it: unemployment rising faster than ever before and record debt and borrowing—the worst recession for more than 60 years. We needed a Budget that looked to the future and offered a compelling vision for a better Britain. Instead, we had a Budget that was all about the Prime Minister’s short-term survival and little else. Spin, re-announcements and political dividing lines are all we ever get from the Government, and the Budget was loaded with all three.
The single thing missing from the Budget speech was a narrative for getting us back on to the straight and narrow. That is what great Budgets do; they tell people the facts about the scale of the problem and set out clearly how the country can recover. Unfortunately for the Prime Minister, he is incapable of doing either of these things. For months he denied there was a recession at all. Then he said it would be less severe than the 1990s. Then he said it would be over by June. Now he is trying to convince us that in the midst of the worst economic downturn for 60 years or more, the economy will grow by 1.25 per cent. next year and a miraculous 2.5 per cent. by 2011. Last November in the pre-Budget report, he told us that growth would be minus 1 per cent., but last week he had to downgrade that figure to minus 3.5 per cent.—one of the biggest and quickest downgrades in the history of forecasting.
The Prime Minister’s problem is that nobody believes him any more. Not for nothing has The Economist called the Budget
“a dishonest piece of pre-election politicking.”
The managing director of the International Monetary Fund says that the Chancellor may have set out deliberately to mislead us. More than 50 per cent. of those polled by a PoliticsHome survey said they did not believe the Government’s economic forecasts, which is hardly surprising when we consider what the Chancellor conveniently failed to mention in his speech in this Chamber.
The Chancellor did not mention the £45 billion black hole in the nation’s finances, the equivalent of £1,430 for every family living in Britain. He did not mention
the spending cuts worth 2.3 per cent. a year for each Department from 2011, as was so powerfully explained by many colleagues on both sides of the House.
Today, the Budget has been torn apart by speakers on both sides of the House, whether the powerful speech against the 50 per cent. tax rate made by the right hon. Member for North Tyneside (Mr. Byers), the tour de force by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the speeches by other colleagues on the Conservative Benches or, perhaps more powerfully still, the almost robotic reading out of the line to take by the Secretary of State for Innovation, Universities and Skills and the hon. Member for Islington, South and Finsbury (Emily Thornberry). Both of them are honest and decent people; no wonder their heads were down as they read those lines so insincerely to the House.
The many, not the few, will ultimately suffer from the recession. There are already 2.1 million people in the dole queue. The increases in national insurance contributions will hit those earning more than £20,000 a year. The rise in fuel duty will hit motorists every time they fill their car’s tank. Every drinker in every pub will have to fork out yet another rise in beer tax. Cuts to departmental spending will ultimately affect the most vulnerable in our society.
We have already seen the impact over the past few months—for example, on further education colleges, as the hon. Member for Barnsley, Central (Mr. Illsley) pointed out so powerfully earlier when he described how there was simply a fence around what was almost a bombsite at his FE college. We are waiting to see whether the Government can put right the mess they have made. Although the Chancellor pledged an extra £300 million, it will help only a small number of colleges.
Meanwhile, however, the Government’s historic target of halving child poverty by 2010 will be missed because the Chancellor could not afford to give anything more than an extra £20 a year for child benefit. As the right hon. Member for North Tyneside said, that is profoundly regrettable. Social justice was to be this Government’s guiding light. It was why members of the Labour party fought to bring this generation of Ministers to the Dispatch Box. They had the noble ideals and aspirations of improving the life chances of those with least, narrowing the gap between the haves and have-nots, and trying to create a fairer society, but instead we see the situation to which I referred earlier in the debate. There is no better measure of the failure of the Government’s education policies than the number of young people not in employment, education or training—NEETs. That number is increasing by the day as a direct result of the Government’s failure on education and the economy.
The truth is that poverty is still entrenched in too many communities. Social mobility itself has proved immovable. The circumstances into which a person is born still have an overwhelming influence on all aspects of their life. In 2007, the Sutton Trust funded a report to examine the educational achievements of children born between 1970 and 2000. It found that those born in the poorest fifth of households, but in the brightest group at the age of three, dropped from the 88th percentile for cognitive tests at age three to the 65th percentile at the age of five. On the other hand, those from the richest households who were least able at the age of three moved up from the 15th percentile to the
45th percentile by the age of five. As that trend continues throughout the early years, children from affluent households are likely to overtake their poorer counterparts by the age of seven, and that is happening at the end of 12 years of a Labour Government who promised that they would focus on education, education, education.
In 2007, the OECD concluded that the UK had the lowest levels of mobility of the 12 advanced countries studied. In 2006, the organisation placed Britain bottom of a ranking of 54 nations for the closest relationship between school test scores and parental background. No one on either side of the House can be happy with those statistics.
My hon. Friend the Member for Surrey Heath (Michael Gove) has set out in detail the extent of the challenges and problems that the country faces in encouraging academic excellence among those from less-affluent backgrounds. Some 55 per cent. of secondary schools in the most deprived parts of England do not achieve the expected benchmark of 30 per cent. good GCSEs, compared with just 3 per cent. in the least deprived areas. Pupils who are eligible for free school meals, but among the top 20 per cent. for ability, are about half as likely to go to university as their wealthier peers.
The Budget will do nothing to address those tragic failings. The child poverty target is set to be missed by some 600,000. The Chancellor was unable or unwilling to provide the necessary funding to narrow the gap further, despite the Joseph Rowntree Foundation saying that lifting children out of poverty could save the country at least £25 billion a year.
Regardless of who is in power in future years, money will be extremely tight for the Department for Children, Schools and Families. The Prime Minister’s pledge—do we remember that?—to match the funding of state schools with that of private schools will not be realised. Perhaps this was the right time for the Chancellor to talk about school reform. Reform should be the new buzz word for Government as they talk about getting value for money, but we heard nothing new about the flagship academies programme. Under this Prime Minister, the Government have stepped back from the freedoms and hope that they offered to those with least in our society. We heard nothing about the continued disparity between the best and worst-funded local authorities, and nothing about getting more and better qualified teachers into the classroom, which is a key driver for pushing up standards.
The Government could have made the tough decisions that would have put this country back on the right track. They could also have made some critical short-term decisions that would have benefited the economy enormously. If they had recognised that the VAT cut was a monumental waste of money and had postponed it, it would have saved the Exchequer £8.5 billion, which could have been targeted elsewhere or used to pay off debt. Cancelling the identity card scheme would have freed up billions; introducing a proper credit guarantee scheme would have helped large and small businesses to get credit moving again.
The Government could have increased personal allowances for pensioners or scrapped income tax on savings for basic-rate taxpayers, rewarding those who have tried to do the right thing. They could have been up-front with people about where the axe will fall with regard to public spending. Unfortunately, the Prime
Minister is incapable of being straight with people. He is incapable of thinking long-term, or of putting the interests of the country before his interests or those of the Labour party. New Labour has squandered the greatest economic legacy in living memory. When Gordon Brown entered the Treasury in 1997, inflation stood at 2.6 per cent. Growth was strong, and Government borrowing—
Madam Deputy Speaker: Order. May I remind the hon. Gentleman about referring to Members of this House by their constituency or proper parliamentary title?
Mr. Stuart: I apologise, Madam Deputy Speaker. Growth was strong and Government borrowing was coming down. The Prime Minister will leave Downing street having presided over the worst economic crisis for more than 60 years, having left us with the worst borrowing figures in our history, and having wasted a once-in-a-generation opportunity to reform our great public services. That is the true cost of 12 years of Labour.
8.46 pm
Rob Marris (Wolverhampton, South-West) (Lab): I think that we are inching our way there as a House. We are at a big fork in the road, and the details are important. Following on from the closing remarks of the hon. Member for Banbury (Tony Baldry), and the speeches that I heard in the Chamber on Wednesday by my right hon. Friend the Member for Birkenhead (Mr. Field), and the hon. Member for Esher and Walton (Mr. Taylor), we need to look at the big picture.
As I say, our society is at a big fork in the road. That was hinted at somewhat in the exchanges between the Conservative and Government Front Benchers today, but neither of them went far enough. My right hon. Friend the Secretary of State for Innovation, Universities and Skills opened the debate with a solid speech backing up the Budget and the reasons for it. The right hon. and learned Member for Rushcliffe (Mr. Clarke), speaking for the official Opposition, gave a slapdash but polished performance in his usual way. His speech was witty and good, but it did not even tackle what I think is the big picture.
We all know, as constituency MPs, that when our constituents approach us requesting that the Government do something, whether at national, regional or local level, it is almost invariably—but not always—to do with spending money. There are those who come to us and say, “Don’t spend our money on identity cards” or “Don’t spend our money on Trident.” That would save money, but that is not what motivates them to come to us. In my experience, and from talking to hon. Members over the years, I know that that is what constituents say. They state, “The Government ought to be doing this”, and the “this” to which they refer costs a lot of money.
Both today and earlier in the debate on the Budget, Conservative Back Benchers have quite properly raised their concerns about social issues, child poverty and so on, and have decried the Government for not having had more success on those issues. They have implied, and sometimes explicitly said, that they want a Government to spend more money on those sorts of things. However, as human beings, residents of the United Kingdom and politicians, we all know that resources are finite. That is why we are at a big fork in the road.
People in this country and around the western world face a growing debate on the size of the state. Should the state consume 30, 40 or 50 per cent. of resources, or more, as happens in some countries? Should the state be shrinking or growing? Those are the kind of big-picture public debates that we do not often have in this House. Nor do we often have the sort of debate that I am talking about—I am not an academic—in our society. People do not ask, “How big should the state be? How big are we comfortable with it being? If it is bigger, what do we get in return for a bigger stake? Is that what we want?” We do not have enough of those debates. Such debates may sound overly academic and philosophical, but they are intensely important to the future of our society and the future of our economy.
Mr. Swayne: Those are precisely the debates that we used to have when I was a student. It was healthy that there was that political divide and argument on those points. The problem is that we have arrived at the current situation with an enormous proportion of the national income being consumed by the Government, particularly in the future as the debt grows, not as a consequence of any thought-through, discussed or debated action, but purely by accident and incompetence.
Rob Marris: I disagree with the hon. Gentleman in that regard. We have come to this pass partly by happenstance—my word, not his—because of changes in the world that are reflected in our country, and contributed to by certain actions in the large financial sector in London, but we have also come to this pass in terms of the size of the state, which has been growing in recent years, because of a political decision by the Government, which I support. That was to expand the size of the state and to increase state spending. We increased borrowing to pay for part of that, and we quite nakedly increased taxation to pay for part of that, and I think we were right to do so.
It is a charge levelled today, and it was certainly levelled by the right hon. Member for Witney (Mr. Cameron) when he responded to the Budget, that Labour failed to fix the roof when the sun was shining. I reject the second half of that charge, inasmuch as there has been massive capital and social investment by the Government in the past 12 years, but I recognise the first half of it. In spite of the “golden legacy” rhetoric that we got from the right hon. and learned Member for Rushcliffe today, those on the Conservative Benches, by using that phrase repeatedly, accept the fact that the roof was leaking in 1997—[Hon. Members: “No, it was not!”]
Had the right hon. and learned Member for Rushcliffe, when he was joking about Members going to the gym, told me that he had been to the gym earlier, I would have been astounded, as I was by his gall in extolling the virtues of the FE sector. I remember that in his final year as Chancellor of the Exchequer, the capital spend allocated for FE was nil. That takes some brass neck. The roof needed fixing, and we have gone some way to doing that in the past 12 years, but we need a broader debate about the role and the size of the state. We need a debate about wealth creation.
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