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The Financial Secretary to the Treasury (Mr. Stephen Timms): The Government have to date invested £37 billion in Lloyds and RBS. The Budget estimated that the one-off long-run fiscal impact of all the interventions to ensure stability in the financial system will be between 1.5 and 3.5 per cent. of gross domestic product.
Sir Peter Viggers: If the Prime Minister can express anger that the Royal Bank of Scotland should make an acquisition without fully understanding the extent of the commitments that it was taking on, how much more angry should we be that the Government have taken on commitments and made investments in banks without knowing, even now, the full extent on the taxpayers behalf?
Mr. Timms: I am not quite sure what the hon. Gentleman is saying. The implication is that we should not have stepped in to save the financial system from collapse because of the uncertainty to which he refers. The cost of doing nothing would have been far, far greater. We took decisive action. We acted quickly and we saved the system from collapse; indeed, in the debate yesterday, the shadow Business Secretary recognised that those steps were right.
Mr. David Kidney (Stafford) (Lab): One of the many damaging aspects of the greed and recklessness of the bankers is that markets do not know the extent of the losses that they made in deals. In cases where the British taxpayer now has a stake in banks, are we getting to the bottom of those losses so that we can start to restore confidence in markets?
Mr. Timms: Yes, we are. A great deal of detailed work is going on at the moment to negotiate the specific terms for participation in the asset protection scheme. My hon. Friend is right; in particular, the future valuation of assets is very difficult, but I know that he will agree that the cost of not acting would have been far greater than what we have done.
Mr. John Redwood (Wokingham) (Con): Is there any limit to the amount of financial risk and debt that the Government should assume? Can the right hon. Gentleman tell us if they are using any prudential rule at all to stop us heading towards national bankruptcy?
Mr. Timms: The right hon. Gentleman will have seen what my right hon. Friend the Chancellor said in the Budget about returning the public finances to balance by 2017. He will also have seen the estimate I have mentioned already that the overall cost of all the interventions we have set out in the Budget will be between 1.5 and 3.5 per cent. of gross domestic product. It was absolutely vital that we took those measures.
David Taylor (North-West Leicestershire) (Lab/Co-op): A moment or two ago, our right hon. Friend the Chancellor confirmed the Governments intent to return state-owned banks to the private sector as soon as it was expedient so to do. Does my right hon. Friend the Minister agree that the problems of organisations such as Northern Rock and Bradford & Bingley started with demutualisation back in the 80s, and would it not be a good idea, rather than just floating those two organisations back into the private sector without wider consideration, to consider remutualisation of at least part of their business, as at the moment that model has greater attraction and confidence among the wider community than does traditional banking?
That must be a matter for the management and shareholders of those organisations. [ Interruption. ] I would say to my hon. Friend that we certainly need to learn lessons in regulation from what went wrong in the
past, and Lord Turners report has been valuable in that regard. We need to make some changes, and we need to agree them internationally, to avoid repeats of those mistakes. In particular, we need to avoid the calls of those who, over many years, wanted minimal regulation of the financial sector.
Mr. Mark Field (Cities of London and Westminster) (Con): Although I appreciate that the Treasury is reluctant to commit to any timetable about divesting its interest in the banks, how will we all know when the financial system has been fixed?
Mr. Timms: What we are looking for is a restoration of the flow of credit, in particular to mortgage borrowers and to businesses. We are some way from that position yet, but as my right hon. Friend the Chancellor mentioned, the Bank of England is now publishing a monthly report on trends in lending. We shall be scrutinising those reports carefully, as I am sure will the hon. Gentleman. We want to see the flow of credit go back to normal.
The Chief Secretary to the Treasury (Yvette Cooper): The pre-Budget report set out the Governments approach to the fiscal framework as a result of the recession and the global credit crunch. That approach has continued as part of the Budget.
John Howell: Given that the Governments fiscal framework has been shown to be pure fantasy, why should we have confidence in any fiscal framework that the right hon. Lady wants to put in place for the future? Will she adopt our policy for an office of Budget responsibility?
Yvette Cooper: If that is the hon. Gentlemans only proposalto create a quangoI do not think that it will create a proper approach to the fiscal framework. We all know that the global credit crunch and the worldwide recession are affecting the public finances, and they are affecting revenues from the City and from other sectors, too, but the right thing to do is to support the economy through the downturn, to invest so that we can bring borrowing back down because the economy is growing, which will obviously save us more in the long run.
Kelvin Hopkins (Luton, North) (Lab): My right hon. Friend has wisely relaxed the rule on public borrowing [ Interruption. ] Necessarily so. Would it not now be sensible to abandon entirely any future private finance initiatives, given that they were apparently justified on the basis of restraining public borrowing? Would that not be a sensible time to start to bring PFI services back in-house and to look at ways to bring all PFI schemes back into the public sector, which would save billions of pounds for the public purse over the next 30 years?
Yvette Cooper: The PFI schemes that were introduced have improved timeliness and cost-effectiveness in many cases. There is still interest in putting private sector equity into such projects, but there are difficulties with private sector debt due to the condition of the credit markets. That is why we are providing additional support to ensure that the PFI projects that are close to closure can go ahead.
Yvette Cooper: We made it clear as part of the pre-Budget report that we are not following the previous fiscal rules at the moment. It would not be appropriate to do so now because, for the first time since the second world war, the entire worlds economy is shrinking, which we did not expect even 12 months ago. That is having an impact on the public finances, which is why all countries throughout the world are increasing support for their economies. No country would support such a tight approach or cutting public spending during a recession, as the hon. Gentlemans party advocates.
Andrew Selous: Is it because the IMF thinks that Britains deficit next year will be worse than Japans and Americas that one of the Chancellors senior Cabinet colleagues apparently believes that going to the IMF would be like getting well-being care or even going to a spa to recuperate?
The hon. Gentleman has to realise that we and every other country in the world face the problem that something that started in the banking sector has led to a real global banking crisis, and that that has now spread into the wider economy. We can see the consequences of that: world trade has fallenfor example, exports from Japan are down by almost 50 per cent. That has had severe consequences for borrowing in not just our country but others. The question is what we do in the face of that. I believe that it is right to support our economy now, because if we did not, the situation would be worse for businesses and people. However, I have also made it clear, both in the pre-Budget report and last weeks Budget, that our country must live within its means, and that is why, for example, I announced measures to halve the deficit over the next five years. The two things are absolutely necessary, but I am clear that simply standing back and letting nature take its course would be disastrous and would cost far more in debt and borrowing than the action that we are taking.
Mr. Brooks Newmark (Braintree) (Con): Given that the Government intend that borrowing will be in excess of £1.4 trillion over the next four years, will the Chancellor please tell us how much debt the Government would be willing to takeboth on and off balance sheetbefore it became unsustainable?
Mr. Darling: As I was saying a few moments ago, it is important that we support the economy now. As I think the hon. Gentleman knows, as a result of what is happening, we, like other countries, have experienced a substantial drop in our tax revenues. For example, more than 25 per cent. of our corporate tax revenue used to come from the banking sector, so what has happened has had a consequence. In the face of that, he might argue that we should embark on wholesale cuts now, but that would be absolutely nonsense
Mr. Darling: The hon. Gentleman says noI agree with himbut that means that borrowing will be allowed to rise, which has a consequence on debt. At the same time, however, we must take action to ensure that we bring down borrowing and debt, and we have announced how we propose to do that. It is right and sensible to support our economy while ensuring that we have sustainable public finances in the long term.
Fiona Mactaggart (Slough) (Lab): Is the cost of this borrowing to the economy not substantially less than it was the last time that this country had substantial debts, which was under a Conservative Government, when interest rates were in double digits for five to 10 years?
Mr. Darling: My hon. Friend is right. Part of this countrys problem in the 1980s and 1990s was high inflation, which meant that the Bank of England had to raise interest rates to 16 and 17 per cent. In addition, many of the problems then were home grown. As my hon. Friend says, the difference now is that the effective rate at which we borrow is a lot lower then it was in the 1980s and 1990s. However, I come back to the same point, which is that we and other countries, faced with a worldwide problem, have a choice either to stand back and do nothing, as the Conservatives seem to advocate, or to take action. When one hears the Leader of the Opposition, as he did on Sunday, criticise the fact that our spending is increasing by £20 billion a year and imply that he would cut it, and when one realises that much of that spending is on unemployment benefit and other support for people, one really does wonder about the Conservative partys approach.
Mr. David Gauke (South-West Hertfordshire) (Con): The Budget revealed the worst borrowing figures in our peacetime history and the Governments projection that they will not get back to a balanced budget for another eight years. However, the day after the Budget, it emerged that the Treasurys projections include an unexplained fiscal tightening from 2014 of £45 billion, the equivalent of £1,450 in tax rises per household. Why was there no mention of that in the Chancellors Budget statement?
I did set out a path to reduce our borrowing over the next five years. The number the hon. Gentleman uses came from the Institute for Fiscal Studies last week. At this stage, when there is an awful lot of uncertainty out there, it is sensible to set a path
that shows that, yes, we are supporting the economy now, but we are taking action to ensure that we reduce our borrowing over the next few years. To attempt to write a detailed Budget for 2015, 2016, 2017 or 2018 would be ridiculous when there is so much uncertainty, but it is important that we set out a clear direction of travel. The hon. Gentleman criticises me for saying that I will halve the deficit over the next five years and implies that he would go further. If the Conservatives think that we ought to reduce borrowing faster, I would be interested to know when they intend to spell out in detail what they would do to meet that target, instead of just hinting.
The Financial Secretary to the Treasury (Mr. Stephen Timms): For a household with a single earner on average male earnings, the proportion of income paid in direct tax was approximately 19 per cent. in both 2008-09 and 2011-12, a little more than 20 per cent. in 2007-08 and more than 21 per cent. in 1997.
Mr. Baron: Does the Financial Secretary understand that my constituents were fed up with paying more taxes under this Government, even before the Chancellor doubled the national debt? No one is fooled: a 50 per cent. tax rate may make it look as though the rich are paying more tax before the election, but after the election it will be average earners who are paying even more tax, because of increases in fuel duty and national insurance contributions, which by 2012 will cost every family in this country an additional £1,000.
Mr. Timms: Among the pieces of information that the hon. Gentleman gives his constituents, I hope that he will point out that they will pay less as a proportion of their income in direct tax in 2011-12 than they did in 1997 and that every basic rate taxpayer is, with effect from this month, benefiting from a £145 tax cut, thanks to the increase in personal allowances, which exceeds future national insurance rises. I hope also that he will have the courage to admit to his constituents that the Conservative partys only tax promise to date is to increase the inheritance tax threshold to beyond £1 million, which would do nothing at all for 97 per cent. of estates, but would give on average a £200,000 tax cut to a tiny handful3 per cent.of estates. His constituents might have second thoughts when he explains that to them.
Mr. Peter Kilfoyle (Liverpool, Walton) (Lab): On the question of tax, specifically fair tax, is it not entirely consistent with Labour values and principles that those who have benefited most over the past 15 yearsduring the good timessuch as the 17 millionaires on the Tory Front Bench, should be the ones who pay their fair share now that we are in a downturn? Does the Minister agree?
Mr. Timms: I think that my hon. Friend is absolutely right, and indeed the vast majority recognise that it is fair that those whose incomes have risen fastest, and those in the best position to do so, should contribute more.
Mr. Mark Harper (Forest of Dean) (Con): To pick up the question asked by the hon. Member for Liverpool, Walton (Mr. Kilfoyle), why does it fit with Labour values to tax everyone earning more than £20,000 a year by increasing their national insurance contributionsthat is nothing more than a tax on jobsand to save that increase until after the election?
Mr. Timms: The hon. Gentleman should perhaps have paid a little more attention to what I said a moment ago: the increase in personal allowances in income taxthat is, in the tax-free proportion of peoples incomegives every basic rate taxpayer a tax cut of £145 from this year.
Mr. Stephen Hepburn (Jarrow) (Lab): I read with interest at the weekend that certain celebrity millionaires, such as Sir Michael Caine, are considering leaving the country because of the Governments tax moves. Could they be reminded that it is ordinary, hard-working people, who pay money to watch their films, who put them where they are? We should give those celebrities the message that if they cannot support services for those hard-working people, such as the national health service, when the country is going through a bit of a problem, good riddance to them, and we should say, Dont come back.
Mr. Timms: I say to my hon. Friend that I hope that Michael Caine is not going to leave the country, but I agree with him that at a time of crisis in the world economy it is fair to ask those who are in a position to do so to contribute more.
Mr. Philip Hammond (Runnymede and Weybridge) (Con): I think the situation is even worse than my hon. Friend the Member for Billericay (Mr. Baron) fears. My hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) put his finger on it: the small print of the Budget Red Book shows us that if we fast-forward a couple of years, even with roaring growth in line with the fantasy forecasts that the Chancellor gave us last Wednesday, a further £45 billion-worth of tax increases would still be required. Will the Financial Secretary to the Treasury confirm that that equates to £1,450 a year extra tax per family? Is not the truth that behind the spin about taxing the few with a 50p tax rate, the reality is a secret Labour stealth tax bombshell, targeted at the many and timed to go off after the next general election?
Mr. Timms: I think I remember that poster. I can say to the hon. Gentleman that for the household that the hon. Member for Billericay (Mr. Baron) asked me about, and that we talked aboutthe household with the single earner and two childrenthe proportion of income spent on tax has gone down since 2007-08. It has gone down significantly since 1997, and we will protect the well-being of those families in the years ahead, both through our investment in public services and through the way in which we manage the tax system.
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