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David Taylor:
My hon. Friend is rightly introducing a philosophical dimension to the debate by talking about the size of the state and the fact that it has grown.
Would he link to that the need to review more closely the democratic accountability for some aspects of the public sector spending increases that we have seen, such as in relation to the Learning and Skills Council or the inevitable private finance initiative, where there has been relatively little responsibility and accountability for politicians in any council or in Government?
Rob Marris: My hon. Friend has the advantage of sitting next to me—
David Taylor: I was not looking.
Rob Marris: He can see on my notes, which he says he was not looking at, that PFI and quangos are the next part of my speech.
I return to wealth creation for a moment. Wealth creation is sometimes posited by conservative—and Conservative—commentators as stemming from the private sector and not from the public sector. There is a myth that the private sector creates wealth and the public sector spends it. The hon. Member for Lancaster and Wyre (Mr. Wallace) seemed to be intimating that. He then rushed on to extol the virtues of the university in his constituency, what it was doing for research and what that would do for wealth creation. I may be wrong—perhaps there is a private university in his constituency, but the university of Lancaster is a public institution.
An accountant came to see me in my constituency a while ago, pushing the same nonsense line. I asked, “Are your staff literate?” “Of course,” he said. I said, “Who do you think taught them to be literate? Did they all go to private schools?” “Oh no, they didn’t,” he replied. I asked, “Do they ever get sick?” “Yes, they do,” he said. “Well,” I asked, “do they get treated by private medicine or the NHS?” “The NHS,” he said. So I said, “Don’t tell me it is only the private sector that creates wealth.”
Of course the private sector is a major driver of and contributor to wealth creation in this country and should be fostered for that, but when we are having a discussion on the size and role of the state, we should remember that the state itself, through the public services that it provides, has a role in wealth creation. One of the big factors that is tipping General Motors and Chrysler over the edge—it has not yet tipped, and we hope will not tip, Ford Motor Company over the edge—is the huge amount that they have to pay out for health insurance. Ironically, the big corporations in the United States of America now say to the Federal Government under President Obama, “Bring in some kind of national health service; we can’t afford to pay all this stuff.” The NHS in the United Kingdom has a role to play in wealth creation, and we should never overlook that when we discuss the role and size of the state.
There are problems with the role of the state, as my hon. Friend says. I have always been very dubious about the private finance initiative, and I must say to my right hon. Friend the Financial Secretary to the Treasury that I am surprised that we are continuing with it and, in fact, bunging it £2 billion to dig it out of a hole. It seems to me to be a contradiction in terms. Under this Government, sadly, quangos have proliferated, so I am glad that the Learning and Skills Council, which my hon. Friend the Member for North-West Leicestershire (David Taylor) mentioned, will be abolished. I have been pressing for that for several years.
The state has a fantastic role to play, but there is a price. If, unfortunately, there is to be a change of Government, the figures for Government borrowing in the ensuing years will still be very similar. This year, there is a debt of £175 billion, or 12.4 per cent. of GDP; next year, it shrinks to £173 billion, or 11.9 per cent. of GDP; then to £140 billion in 2011-12, or 9.9 per cent.; and, in five years’ time, we will reach a £97 billion deficit. Those are huge figures and, when we talk about such big figures, we as politicians and as citizens must ask: what are we getting for it, are we getting what we want, how big a stake do we want and what do we want the state to do?
Some of that debt is inherently supportable by me and, I suspect, many of my constituents when it is invested in bricks and mortar. The majority of my constituents who buy a house, like the majority of people throughout the country, do so on a mortgage; they borrow money to invest in bricks and mortar and, 25 years later, when they have paid it off, they have something to show for their money.
We will also be borrowing money to pay benefits, however, and I support that. I do not want it to be a long-term thing, but I do not want people starving in the street or in poverty. We are borrowing money for education, and the state has a huge role to play in education. The state should provide free education in school; subsidise universities—as it does to the tune of about £10 billion—and further education colleges; and provide the national health service. When economic times are tough, that requires borrowing money to keep people alive—literally, in the case of the NHS. There should be a big public debate.
There is another big public debate that we have not had, or have had only tangentially, about the role of taxation in social change. I hear the figures bandied about—about how the 50 per cent. tax rate will drive people out the country, about the Laffer curve and about how the tax take will go down. Of course, one has to be aware of that issue, but there is also a basic issue of equality. Professional footballers in this country earn in two weeks more than the Prime Minister does in a year.
Rob Marris: Somebody says, from a sedentary position, “They deserve it.” Come on, let us have a mature debate.
Mr. David Chaytor (Bury, North) (Lab): Will my hon. Friend give way?
Rob Marris: No, I do not have time.
We need a mature debate about our society’s inequalities, which have increased under this Government, as they did under the previous Government. I find that regrettable. A 50 per cent. tax rate may be counter-productive in terms of revenues, but it says something to me about the kind of society in which I want to live, and about what that society stands for in terms of equality. The tax system and tax revenues have a role to play in social change on international development—in stopping people starving throughout the world. Taxation has a role not only in the revenues that it raises, but in the messages that it sends about child poverty and the position of
pensioners in our society. There is also a role for it in trying to address the tremendous environmental problems that our society and the world face. The way in which we use those levers, and the goals that we seek to achieve with them, however, do not get discussed enough at a philosophical level in the House. Instead, we charge on to the fine print. That can be extremely important in matters such as the rise in beer duty, which is causing a big problem in my constituency, where there is a big brewery; I think that the Government have got that wrong. However, if we concentrate too much on the micro picture, we miss the macro picture. This House, of all places, should be debating the kind of society we wish to have, how we are going to get it, the role and amount of taxation that gets us to that goal, and the role, efficacy and procedures of the state in that overall picture.
I would caution Conservative MPs on this issue. Most of the progressive policies that we have had in this country in the past 100 years did not come from Conservative Members but are now supported by Conservative Members. One of the most recent examples is the national minimum wage. Apart from the Disability Discrimination Act 1995, every single piece of anti-discrimination legislation, which is now widely supported across the political spectrum, was brought in by a Labour Government. That also applies to measures on basic workers’ rights—health and safety at work and so on—progressive income tax, greater equality in our society, and tackling poverty. I would say this to Conservative Members: be careful where you are today, lest you again get left behind tomorrow.
9.1 pm
Mr. Robert Syms (Poole) (Con): I declare my interest in the Register of Members’ Interests as a director of a family business.
In the market system—the capitalist system—there are always ups and downs. Recessions are very much part of the system; the trick is to ensure that the ups are high and the downs are very modest. For the past decade or so, the Prime Minister, when he was Chancellor, lectured us about abolishing boom and bust. A lot of the problems that we face today arose because the then Chancellor believed his own phrases. I have never seen a Government totally abolish boom and bust. At a time when the economy was growing, and when it was clear that that was not going to continue because of imbalances within the economy, the Government did not make preparations for more difficult times ahead.
The spending that the Government undertook was predicated on a tax take that was heavily skewed towards the City. We talked about bonuses earlier. In terms of tax take, the Government were one of the biggest beneficiaries of the very large City bonuses. We have seen a major housing boom, which generates stamp duty and the other associated tax revenues. It is a pity that the Government did not heed the warning signs and start to run surpluses, as in the German economy. The German economy entered the difficult times with a 3 per cent. surplus, whereas our economy had a 3 per cent. deficit. That is why we are now talking about a figure of 12.4 per cent., on the Government’s forecasts, and that could be far worse if the IMF is right, if growth does not spring back as rapidly, or if the spending plans are not met. We are therefore more prone to the
ups and downs and storms of a world economy. The charge against the Government is not that they could have avoided some of the difficulties that the global economy is causing, but that because they spent so much the British economy is more vulnerable to what is going on. As a result, we are in for a very difficult time over the next two or three years, certainly in terms of unemployment and what that will mean for many of our constituents.
I am not sure whether the Government growth forecasts will be met; I hope so, because that is key. I suspect that with devaluation, with quantitative easing, and with reflation in the United States and in China, next year the Government will be more right than the IMF, but I am a little more sceptical about 3.5 per cent. for the year after. It takes quite a long time to unscramble a financial crisis. Some households are better off because of lower interest rates and mortgage payments, but they will initially choose to pay off credit cards and car loans, and to save money. The question is when they will feel confident about their own jobs and their own position and start to spend money again.
Growth would be the easiest way out of this problem, but I suspect that whoever wins the general election in 2010, the reality is that there will be very difficult decisions to be made about spending and tax. There has to be an honest debate about what the state can do and how we can raise the money that is needed. Unless we deal with the budget deficit, particularly its structural elements, our children and grandchildren will pay a very high price for many years.
Because we have ended up running into the recession with Government spending too high, and because in the Budget 12 months ago and the pre-Budget report the Government took rather too optimistic a view of the economic prospects, their room for manoeuvre has been rather limited. We have now had a modest Budget with the Government taking a few eye-catching measures, but their inability to do much more has been clear, particularly after the strictures of the Governor of the Bank of England.
It is a pity that the Government invested money by cutting VAT by £12 billion. The hon. Member for Wolverhampton, South-West (Rob Marris) was absolutely right that wealth is generated by both the public sector and the private sector, but it depends on what the public sector invests its money in. To take the example of California, its private sector wealth was generated by the universities and the highways, built largely by Governor Brown in the 1960s and Reagan in the 1970s. That allowed Palo Alto, Silicon valley and other business areas to develop, on the basis of the knowledge economy and the fact that people could drive around. There was a good climate for development. Part of the problem with the debt that we will have is that not enough of it is going into building houses and roads, which have a long-term legacy, and rather too much into paying people who are unfortunate enough to lose their jobs. I cannot see any way around that, but I join in the criticism that many of my colleagues have made that some cuts in investment are having to be made to accommodate those who are losing their jobs and need support through this difficult time.
The level of debt will be difficult, and every child could be born owing £22,500, so that needs to be dealt with. We have heard about the importance of the savings ratio. I think that it will rise because of the circumstances, but as a nation we need to develop more savings. Our banking system collapsed because there were too few savers and too much money was being borrowed on international capital markets.
There are a number of things that the Government could have done in the Budget. The unified business rate on empty properties was mentioned earlier, and it is causing people a lot of difficulty. If we are not careful, we will go back to people taking roofs off properties to avoid paying tax.
We are in for a very difficult time as a nation over the next two or three years. Generally speaking I am an optimist, and although at the moment it is very difficult to be anything but pessimistic when we look at the figures, if the economy starts to grow and the hard work and innovation of our nation kicks in, I am sure we will get through it. Those of us in politics owe it to our constituents to be honest about the choices that people face and their alternatives, because in the long term it does us no good to pretend that the world is a different place from the place that it is.
9.8 pm
John Howell (Henley) (Con): It was interesting to hear in the opening remarks of the Secretary of State for Innovation, Universities and Skills that he is clearly one of those who believe that the verb “to cut” is one of those irregular verbs in the English language—I make efficiency savings, you cut, and presumably he undermines the whole British economy.
Over the past month I have held a series of events in my constituency to help local businesses, especially small and medium-sized enterprises, in the recession. The reasons for doing that are pretty obvious. First, the help had been extremely fragmented, so no one had the total picture, and what information there was had been slow in coming forward and was incomplete. To follow on from the comments of my hon. Friend the Member for New Forest, West (Mr. Swayne), none of the Government help has reached any of the businesses that came to those meetings.
The formula for putting the meetings together was the fairly simple one of getting all the help providers and the companies in the same room for the first time. At the first meeting, we needed more than 20 stands for help providers in order for businesses to get a complete picture. More than 200 people attended and two messages clearly emerged: whatever the Government have promised, none of it is getting through; and, although the Government appear to recognise that there is a problem, there was general mirth about the view that the approach was coherent or co-ordinated.
The drying up of loan finance is the real problem, exacerbated by the punishing charges that the banks impose and the lack of social responsibility that they have shown. There are several examples of that. An engineering company with a long history of excellent cash and debt management, which had made little if any use of its overdraft, suddenly found the facility withdrawn. An important safety net had been removed, with huge risk to that company’s reputation. Another
company asked why, if the Government were so keen for the banks to show social responsibility, its overdraft had been renewed with an increase of 1,000 per cent. on the bank charges. Perhaps the ultimate summing up came from a company that said:
“This does not reflect the urgency and support for SMEs that the Government is encouraging the banks to adopt.”
For many companies, the individual measures for business in the Budget may or may not be fine as far as they go, but as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) pointed out, they are largely peripheral to the main issue. They show the pretence of action when none is happening. Restoring supervision to the Bank of England is more likely than anything else to change banks’ behaviour and inject some social responsibility into them. The companies that attended my events expressed huge doubts about whether they can access any of the money that it is suggested is available, or whether the Government or the banks can disburse it.
The Government have been quiet about business deregulation. Yet, when times are hard, it is all the more important to get regulation right so that it does not add unnecessary bureaucracy. Business deregulation has been downgraded—perhaps the Financial Secretary will comment on whether he has genuinely downgraded its importance. What happened to regulatory budgets? They appear to have been quietly shelved. Responsibility for the matter seems to have been shuffled off to a new better regulation sub-committee of the National Economic Council. What a humiliation for an important agenda, once chaired by Tony Blair, to be relegated in that way.
Much has been made of the fact that we are considering a Budget for jobs. The Government may have been thrashing about, trying to predict the rise in unemployment, but it was clear from my visit earlier in the year to the European Commission that it already had projections of unemployment hitting 3 million. I would have more faith in the Government’s ability to and sincerity about tackling unemployment if they had not wasted five months before recognising the impact of the stock of long-term unemployed on the recession.
In October, the Work and Pensions Committee heard evidence from the Social Market Foundation that the stock of long-term unemployed was expected to rise substantially—to three or four times the current number. By December, the Minister for Employment and Welfare Reform told the Committee in reply to question 194 in evidence to the “DWP’s Commissioning Strategy and the Flexible New Deal” report that,
“despite the most virulent horror stories of doom and gloom from some, there are no projections that say that the pool of longer term unemployed is going to grow along the same sort of trend as unemployment is at the moment.”
In February, Ministers serving on the Welfare Reform Public Bill Committee said that they were taking precautionary measures because of a belief that the stock of long-term unemployed could increase three or four times and that they were consequently reviewing the flexible new deal contracts. It is not unreasonable to expect the Government to have anticipated that earlier, but it would, of course, have blown the myth of the end of boom and bust.
Several hon. Members mentioned the VAT cut, and I want to comment on that expensive and time-consuming measure for business. That error has now been compounded
by the timing of the increase at one of the biggest sales periods of the year and the cut generating its own bureaucracy, as we see from the anti-avoidance provisions that will be introduced in the Finance Bill.
I could not believe that the Government tried to claim that the VAT decrease had worked. Strictly speaking, of course, it will never be possible to say with certainty that it has worked, because a direct comparison with the counter-argument—that is, what would have happened without it—cannot logically be made. We are therefore reliant on proxies, looking for a surprisingly large increase in the sales of items subject to VAT relative to those that are not subject to VAT. Any claim by the Government relying on the fact that non-food sales, which attract more VAT, have done better completely obscures the fact that they are based on volumes rather than values, so the cut is unlikely to account for any deep discounts that we saw over that period. Such data are unclear anyway, with so many factors playing a part, such as postponed purchases finally being made and the effect of interest. Any Government claim that the VAT decrease has done its work is largely no more than wishful thinking and spin.
The International Monetary Fund identified 64 banking crises around the globe between 1970 and 1999. It showed, as did other studies, a similar pattern in many of the crises. What burst the bubbles was different in each case, but it is right to ask why the Government did not recognise that sequence. One is tempted to answer the question by saying that the Government were so confident that they had ended boom and bust that they did not believe that a crisis would happen in the UK and had actually started to believe the spin of their own fiscal rules. As a result, the appalling economic state of the country has now been found out and we are all paying the price in this Budget of despair.
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