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Anne Main: I thank my right hon. Friend for giving way, especially as the Secretary of State for Work and Pensions did not want to hear my remarks. In response to a question about why post-16 education funding had been cut, the Minister responsible said it was because more people had applied than the Government had budgeted for. He had to admit that they had to pull out
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the financial rug because they had got their figures wrong, raising expectations that they could not meet or finance.

Mrs. May: Absolutely. The way in which the Government have failed to accept the problems that young people are facing as a result of their policies is a betrayal of young people. The issue is not just about further education colleges and university places; between August 2008 and this January, there were 4,000 fewer apprenticeship starts for 18 to 24-year-olds than in the same period in the previous year. [Interruption.] From a sedentary position, the Secretary of State for Work and Pensions keeps muttering about more spending. I remind him that we are talking about his Government’s promises, and his Government’s delivery on his Government’s policies. There are fewer university places, FE colleges are having their expansion plans cut, and there have been fewer apprenticeship starts. How does that help young people who are looking to make their way in the world?

Other aspects of the Government’s “Budget for jobs” deserve to be looked at in greater detail. On the Government’s pledge of 250,000 new jobs, 50,000 of those would come about by providing the social care sector with a £1,500 recruitment subsidy. Hon. Members may feel that that sounds familiar; indeed it does. It sounds rather like the golden hello announced back in January. The difference, of course, is that the golden hello had a £2,500 subsidy for recruitment, so far from the subsidy being better, it has actually been cut.

I hope that the Chief Secretary to the Treasury will explain in rather more detail how the new proposals for long-term unemployed young people will work in relation to the flexible new deal. What the Secretary of State for Work and Pensions has announced sounds similar to the flexible new deal that will be brought in later this year in parts of the country. We need to know how the programmes will interact. We face the prospect of the Government paying to create jobs, paying to guarantee young people those jobs, and paying welfare-to-work providers to get young people into the jobs that the Government have paid to create and to guarantee for young people. We need to ensure that we do not make the same mistakes that Labour has been making for the past 12 years by throwing money at the issue without giving real thought to how it will help people out there on the ground, and make a difference to their lives.

I want to mention briefly other aspects of the Budget. Increasing the funds available for the social fund will certainly help people during the recession. I am pleased that that measure has been brought forward, but I note that what the Government give with one hand, they take away with the other: they are raiding £145 million from housing benefit next year. Giving tenants incentives to be more flexible in their choice of accommodation was the whole basis of the local housing allowance. It was intended to promote personal responsibility, but the Government have U-turned on it, and claimants will no longer be able to keep the surplus if the fixed LHA rate is higher than their rent. That means that the impact of the Budget will be to cut money from some of Britain’s poorest households.

The mess in which Labour has left this country means that the Budget was the death knell for Labour’s child poverty targets. The Government were told that
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they needed to invest an extra £4.3 billion in benefits and tax credits if they were to meet their 2010 target. The Budget delivered £120 million. The hon. Member for Northavon (Steve Webb), who speaks for the Liberal Democrats on such issues, has already referred to the point about the cost of a pint of milk. The Child Poverty Action Group made it clear that the impact of the extra support given in the Budget amounts to less than the cost of a pint of milk a week. The Budget still leaves 600,000 children in poverty—600,000 children whom Labour had promised to help.

Steve Webb: Had the right hon. Lady been standing at the Government Dispatch Box, how much would she have allocated to tackling child poverty?

Mrs. May: Had we been on the Government Benches, the situation that we would have been dealing with, in relation to the finances of this country, would have been rather different. The reason why the Chancellor of the Exchequer found it so difficult to do anything about the matter when he stood at the Dispatch Box was that 12 years of a Labour Government have led us to the deepest recession since the second world war and to the largest Government borrowing over two years seen in peacetime history. The hon. Member for Northavon should note that what we are talking about is the reason why the Labour Government were unable to provide that help in the Budget.

I am conscious of the time, but I want to talk briefly about pensioners, because they, too, are potentially hit in the Budget. Pensioners and savers are the innocent victims of the recession. That is why we called on the Government to introduce tax changes that would deliver help and support for basic-rate taxpayers and pensioners. Sadly, however, the Government do not understand the value of saving, as all that they have ever done is spend, spend. The savings ratio has been slashed to almost five times lower than what it was in 1997; more than 12.8 million jobs have no pension provision—800,000 more than last year, and 2.4 million more than 1997. I accept that there were measures such as the increased individual savings account limits and the rise in the capital disregard for pension credit, housing benefit and council tax benefit in the Budget last year, but our proposals for the Budget and the change in savings would have put about £3 billion a year back into the pockets of pensioners and savers. The announcements in the Budget are worth only £90 million a year to savers and pensioners.

Mr. Love rose—

Mrs. May: I promised the hon. Gentleman that I would give way to him.

Mr. Love: Does the right hon. Lady welcome the forecast in the Budget that the savings rate will increase to 5.5 per cent. by 2011?

Mrs. May: I would dearly love to be able to welcome a forecast in the Budget, and I dearly hope that the savings ratio will increase. However, at the rate that the Chancellor is going, I do not think that any of the
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forecasts that he has included in the Budget are to welcomed, because I do not think that we can believe any of them.

I want to refer briefly to the tax rise on pensions. I am afraid that the Budget was more about politics than about presenting a plan for economic recovery. There is a sense of déj vu. One of Gordon Brown’s first acts as Chancellor was to raid £100 billion from pension funds, and now as Prime Minister, his latest tax hike in relation to the higher-rate relief on pension contributions will take a further £3 billion a year out of pensions. Those changes are not being implemented from 2011, as the Government would have people believe—some new rules on higher-rate tax relief for earnings above £150,000 came into effect the day after the Budget. Not only do they taper higher-rate tax relief for those earning over £150,000 but they tax employer contributions. Savings, of course, will be taxed when people begin to draw their pensions. Those proposals break the basic covenant between savers and the Government, enshrined in the Turner report on pensions, that responsible savers will be rewarded for locking up income in pensions savings for their retirement. Instead of being rewarded, however, they will be taxed several times over. The changes will add more complications to an over-complicated system, too. Any claims that the Government want to simplify pension savings and their administration have been completely undermined by what the Chancellor did in the Budget.

The Chancellor said that the measure was about fairness, but the money raised in taxes from the pensions of high earners will not go towards improving pensions for those on low incomes. It will simply help to plug the black hole in finances created by Labour. As Dr. Ros Altmann said in her response to the Budget:

Let us be clear: we do not believe that increasing taxes on pensions is the right thing to do. We do not support it, but we are not going to be dragged into playing Labour’s games. There are a number of new tax rises with which we do not agree, but this one will have to take its place in the queue. Our priority is that, of all of Gordon Brown’s tax rises, the most important ones—

Mr. Deputy Speaker: Order. I am sorry to interrupt the right hon. Lady, but she knows that we refer to colleagues not by their name but by their constituency.

Mrs. May: I apologise to the House and to you, Mr. Deputy Speaker.

Our priority is that, of all the Prime Minister’s tax rises, the most important ones to avoid are those that tax the many, not the few. The most unfair of those is the national insurance increase for millions of people earning £20,000 or more—a tax on jobs. At the very time that Britain will be trying to recover from recession, when millions of unemployed want to get back into work, Labour wants to raise a tax on jobs. We will ignore the dog-whistle politics that was presented in last week’s Budget, and focus on avoiding Labour’s tax cuts for the many, not the few.

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This country needs a Government who will be honest with people about the problems we face and the mess that we are in. We desperately need a realistic route map to recovery, instead of the fantasy forecasts from the Government that do not last even a day. I shall be helpful to the Secretary of State and suggest that the best thing he can do now is launch the leadership campaign that he has been busy planning for months and call a general election, so that Britain can have the change that it desperately needs.

5.50 pm

Mr. Peter Hain (Neath) (Lab): What was striking about the speech from the right hon. Member for Maidenhead (Mrs. May) was that it was devoid of any content on the policy alternative she might advocate. The policies advocated so effectively by my right hon. Friend the Secretary of State would be unaffordable and undeliverable if Conservative policy cuts were implemented. I shall explain why.

The economy is contracting faster than the Treasury expected only five months ago, so the Chancellor was right in the Budget to give a further fiscal stimulus, expanding the one announced in November. It brought total fiscal support through discretionary action in the Budget, the pre-Budget report and the automatic stabilisers to 4 per cent. of GDP, on top of the other action to boost the flow of credit and cut interest rates. Goodness knows where the economy might be heading now if the Government had instead followed Conservative strictures, and had not acted promptly to adopt a Keynesian response to the crisis.

The Budget also did the right thing by boosting public investment this year to £44 billion, compared with the £35 billion the Chancellor was planning to spend 12 months ago. These are exactly the right policies and priorities to stop a slide into slump, and exactly the right strategy to ensure that the recession is not deeper and longer.

Conservatives seem to forget that the purpose of extra public borrowing is to make up for the collapse in private spending brought about by the global financial crisis. By helping families who are in danger of losing their homes and their livelihoods, and by helping firms that cannot spend because their banks will no longer lend, Government can stop economic casualties turning into social catastrophes. Without such Government action and borrowing, millions more jobs, and tens of thousands more businesses, would be in jeopardy.

Borrowing is rising because of the impact on UK public finances of the world economic crisis, not the so-called public spending extravagance beloved of the leader of the Conservative party and his right-wing media allies. The Institute for Fiscal Studies reckons that the global financial crisis is costing the Exchequer around £90 billion per year, owing to lost tax revenues and higher social security costs. The fiscal stimulus since last year’s Budget accounts for only about £26 billion of the nearly £400 billion increase in Government debt to 2012, or roughly one fifteenth of that total.

No one here or elsewhere in the world foresaw the severity of the crisis currently gripping the global economy. Perhaps that is why, after 15 years of expanding UK employment, and Labour’s 11 years of unprecedented stability and growth, much of the media appear both
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bewitched and bewildered by the prospects for Government borrowing and national debt. In one surreal moment last week I heard the Chancellor on the BBC “Today” programme being asked by Evan Davis about Government borrowing for the Budget, not last week or even next year, but in 2014.

Even more preposterous is media speculation about borrowing and debt in 25 years’ time, when the average Budget forecasting error is £12 billion for net public borrowing looking just one year ahead. Many commentators have become spellbound by long-term forecasts of public sector borrowing, and are quite unable to focus on the benefits that such borrowing brings, or to contemplate the truly horrendous alternative without it.

Stephen Hammond (Wimbledon) (Con): I have been listening carefully to the right hon. Gentleman’s arguments about forecasting errors. That implies that the Treasury’s forecasting is so bad that we should not take any notice of it.

Mr. Hain: The hon. Gentleman will know if he looks at Treasury forecasts that under all Governments, there is always an element of error. The point that I was making is that the amount is much more significant than all the figures being flung about by the Conservatives and their media allies.

Several hon. Members rose

Mr. Hain: Given that, like others, I am time-limited, I shall make some more progress.

It was only a few years ago that Britain finally finished paying off its 1947 American loan that helped to pay for post-war reconstruction. It took us more than 50 years to do so. Does anyone seriously say that we should not have borrowed on a substantial scale to rebuild the nation’s social fabric shattered by the war? Perhaps there are some Conservatives and media commentators who sympathise with Johnny Speight’s character Alf Garnett, who criticised Winston Churchill for failing to get an estimate of the costs before fighting the second world war.

As with mortgages for owner-occupied housing, good investments are things that are worth more than they cost to acquire at the time. Who can seriously argue that Governments who borrow to prevent a depression are making a bad investment, as the Conservatives appear to be saying? They have failed to learn the grim lesson of the 1930s that cutting Government spending during a recession only makes the economic situation worse, causing total spending in the economy to fall even further, resulting in more redundancies, higher social security spending and even higher Government borrowing and debt. Spending cuts in today’s circumstances would be a self-inflicted wound that would weaken, not strengthen, our ability to recover. They could turn business parks into gone-out-of-business parks and trading estates into ceased-trading estates.

By contrast, we see higher public spending and increased Government borrowing to ward off recession as the right role of the state now. In our view, Government’s job is to provide a safety net in troubled times, support and opportunity for the good times, and security and protection at all times, not to leave people in the lurch to
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fend for themselves, which the Conservatives would do. Of course the economy needs to be brought back into balance in the future, but the overriding priority today is not Government debt. It is the danger of depression and rising unemployment. The bond market must take second place to the labour market.

Dr. Ian Gibson (Norwich, North) (Lab): Will my right hon. Friend give way?

Mr. Hain: Tackling the threat of slump, which means combining vigorous fiscal and monetary policy with unconventional measures to restore the flow of credit, is vital to recovery. Of course, once we have warded off the threat of recession or depression there is no escaping our responsibility to bring the public finances back into shape in the medium term, as the Chancellor has made clear. That must mean reshaping the subsequent trajectory of Government spending and taxation, which means cuts in some past plans, deferring other ambitions and raising some taxes on a fair basis. But today’s problems must come first.

The severity of the current threat to the world economy remains widely unacknowledged, despite the evidence of world trade falling faster than it did at the onset of the 1930s great depression, and despite industrial production plunging all over the world, including in the UK. There is reluctance on the Conservative Benches to admit that this recession is different from every other post-war recession, both in its origins and in its scale. [Hon. Members: “It is worse.”] Indeed, and it is much more serious because of the global financial crisis that the Conservatives refuse to acknowledge. There is a refusal to accept that we are passing through extraordinary times that demand an extraordinary response, with action on a scale unprecedented in the post-war period.

It was Franklin Roosevelt’s new deal public works projects, combined with bank reforms and monetary measures, and not cuts, that first triggered the American turnaround that began in 1933, and then fuelled expansion over the next four years.

I have been impressed by the advice given by that lone voice on the Bank of England Monetary Policy Committee, David Blanchflower. He was the first to warn of the danger of recession and the first to call for early interest rate cuts. He has proved consistently correct in his reading of the economy. His most recent warning is that, without strong fiscal action, precisely of the kind that the Chancellor announced last week, today’s downturn could fall further and last longer than any recent recession, causing UK unemployment to soar towards 4 million next year, potentially condemning a generation of Britain’s young workers to years on the dole.

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