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Stephen Hammond (Wimbledon) (Con): It is a great honour to be called to speak in this debate, and I am delighted to follow my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes). Deciding exactly what to say is one of the problems for tail-end Charlies in this debate, because although there is a lot to talk about, so much has been said before. I do not seem to get invited to the same number of things as the hon. Member for Hornsey and Wood Green (Lynne Featherstone), so I spent my one-line Whip night off last night, and indeed this morning, reading the contributions that other hon. Members have madethat shows what an exciting chap I amand I found that it appears that Budgets are judged by certain tests.
The Secretary of State for Work and Pensions opened todays debate by saying that it should be about people, not statistics, but of course he spent the remainder of his contribution making up statistics and fantasy policies of which to accuse the Conservative Front-Bench team. He missed out the key statisticsthe amount of debt with which this Government will saddle future generations and the fall in total managed expenditure that will result. He was completely wrong in what he said, because the statistics are what this is about, for it is they and the forecasts that underlie what the Chancellor has put into the Budget that will determine the fate of people.
Many hon. Members have observed that every Budget is judged by certain tests, and it seems to me that those tests are threefold. The primary and central test of a Budget is whether it does and will improve the health of our economy and the wealth of our people. In todays economic climate, one might judge that by considering whether a Budget delivers the real help that people need in the recession. One of the concerns expressed by a number of hon. Members has been that some of the help that is available is too little and too late.
Like other hon. Members, I have received representations from businesses in my constituency over the past three or four months. People tell me that they have heard about various Government schemes to ensure that banks start lending but that are not happening in reality.
Representatives from one business came to see me here less than six weeks ago, with exactly that problem, and that business is now relocating to Toulouse rather than staying in Wimbledon.
Another test should be whether the Budget will put the public finances back into order and deliver sustainable growth. Beyond the central tests, there are two other tests, the first of which is the unravelling test. How long does it take before the forecasts are found to be inaccurate? How long does it take for the consequences of the measures announced to be revealed? Everyone will remember the dramatic 2 per cent. cut in the basic rate of tax, but it only took half an hour to work out that it came at the expense of those paying the 10p tax rate. This Budget has failed that test spectacularly. Even as the Chancellor was speaking, the borrowing numberswhich are linked to the growth numbersbecame incredible, and my right hon. Friend the Member for Witney (Mr. Cameron) rightly accused the Chancellor of swallowing the numbers rather than announcing them.
The third test is the devil in the detail test. Much has been written over the years about the 1997 smash and grab raid on UK pensions, but there are some equally pernicious measures in this Budget on pensions, including the tapering of relief and the limit on one-off contributions that will hit the aspirational and wealth-creating class whom we need to encourage.
Other hon. Members have spoken about some of the other devils in the detail today, including the point that the support through the tax credit is £20 a year, not £20 a week. The biggest failure of the devil in the detail test is that anyone earning £20,000 a year will see an increase in tax through their national insurance contribution.
The central test is the health of the economy. As the right hon. Member for Birkenhead (Mr. Field) said, at the moment we are taking 38 per cent. in tax and spending 48 per cent. If the forecasts are wrong, those numbers are wrong, and they are wrong in a harmful direction for the economy. The slowing of growth is the norm for economies in economic cycles: recessions are not, and the UK has had only three recessions since the second world war. Page 200 of the Red Book states clearly that
the current downturn is forecast to be much deeper than that of the early 1990s, but not as deep as that of the early 1980s.
Mr. Hayes: As my hon. Friend will know, recessions have a shape. The Government do not know whether this is a V-shaped recession or a U-shaped recession. Their projections for growth suggest a V-shaped outturn to the recession, and that is not just optimistic but suggests a degree of magicnot so much Dumbledore or Gandalf, but more Tommy Cooper.
As macroeconomic stimulus builds and credit conditions ease
annual growth of 1Â1/4 per cent. in 2010
3Â1/2 per cent. in 2011.
Let us forget the fact that the IMF disagrees with the 2010 number, and the fact that the Chancellor has just put up the 2011 growth number by a whole percentage point against the figure in his pre-Budget report. The real test of credibility is found in testing against the evidence of history. History teaches us first that recessions are not common, and secondly that quick recoveries from recessions are not common either. Typically, once a trough is reachedthis is the point about a U-shaped or V-shaped recessionit takes two years to return to trend growth rates.
Let us consider the two recessions that are referred to in the Red Book. During the recession of 1979 to 1982, the first quarter of negative growth happened in the first quarter of 1979. However, the recession was not evident until the fourth quarter. We had consistent negative growth through to the first quarter of 1981 and we did not return to trend growth until the first quarter of 1983. The recession of the 1990s followed a shallower but similar pattern. The first quarter of negative growth was in Q3 of 1990 but it was not until Q3 of 1993 that we returned to trend growth.
It seems to me that what the Chancellor has postulated, which is that we will see a growth of 3.25 per cent. in 2011, borders on the incredible. The first negative quarter of growth in this recession was in the third quarter of 2008. We have had three quarters of negative growth since then. It is quite clear from the Chancellors prediction for the fall in GDP this year that we will continue to see negative growth quarters up until the fourth quarter of this yearlet us be optimistic and say that that will be the last quarter of negative growth. The point is that we will not see any return to trend growth until at least two years after that, which takes us well beyond the Chancellors expectations for 2011.
Mr. Brooks Newmark (Braintree) (Con): The implication, if I understand what my hon. Friend is saying, is that there will once again be a hole in the Governments budget. If growth is not V-shaped, then the tax revenues that the Government have assumed will be collected will not magically appear. Does my hon. Friend share those concerns?
Stephen Hammond: My hon. Friend, as ever, gets to the point that I wanted to make rather more quickly and more eloquently than I did. I am making exactly that point. These statistics and these forecasts do matter, because they matter for people. When they are proved to be wrong, the hole in the public finances will be even bigger, the debt mounting on people will be even bigger and the tax receipts that will have to be raised in the future will be even bigger.
I accept that there are international causes to this recession, but it is not true that, as one hon. Member said, this is a very different depression or recession from any other. If we look at history, by what are recessions characterised? They are characterised by a sharp drop in house price inflation and a drop in business investment as a percentage of GDP. Company profits and corporate profitability fall as a share of national income. There is a sharp rise in unemployment, a rise in inflation as measured by the retail prices index and a rise in short-term
rates. We can all agree that, barring the last two, those features are present in this recession. A number of people would also argue that the difference in inflation as measured by RPI and the consumer prices index shows that a lot of people are experiencing that hike in inflation, because the CPI has been deflated by the mortgage impact.
A number of people, including in particular the right hon. Member for Oldham, West and Royton (Mr. Meacher), made the point that there is a big difference in lending levels at the moment. The base rate might be at 0.5 per cent., but the banks are lending to the companies that need to make the investment at levels closer to LIBOR and over LIBOR. The banks are not allowing companies to borrow at rates that will allow them to make the investment they need.
Mr. Hayes: My hon. Friend illustrates the point that one of the differences between responses to earlier recessions and to this one is that it is much harder for the Government to pull policy levers that have a direct effect. Interest rates are a classic example; another is what economists call saturationpeople are unlikely to spend on capital goods they already have. Cars are a good example, which is one reason the Governments car scheme is unlikely to succeed.
Today, a number people have spoken about John Maynard Keynes, of whom much is made by the Prime Minister. However, we have forgotten two of Keynes central propositions, one of which was about counter-cyclicism. After years of growth, the public finances ought to have been in a position to bear large fiscal stimuli, but because the Government spent all the way through the good times, the public finances are not in that order.
The second point is taken as an absolute shibboleth even though it is not actually what Keynes said. He did not say that we should spend our way out of recession. He said that public finances and public spending might need to be raised, but that what was actually needed was to raise effective demand. There are a number of ways of doing that, which lead directly from my hon. Friends absolutely correct point about saturation.
The central point is that the Secretary of State for Work and Pensions was wrong this afternoon. The debate should be about statistics and forecasts, because they will undermine the Budget and its effect on peoples lives. It seems to me that history tells us that the Chancellors forecast numbers are unlikely to prove either credible or sustainable, that a number of the actions taken have been too little, too late, and that there is dishonesty in postponing until after the general electionwithout telling peoplethe taxes on the many and the cuts in public expenditure that the Government propose in the Budget.
The Budget will not return the economy to sustainable growth or restore public finances. As my right hon. Friend the Member for Witney said, it is absolutely true that all Labour Governments run out of money and it will be an incoming Conservative Government who will have to encourage saving, prioritise reductions in taxation on the many and spend responsibly on essential public services. This country needs that cure sooner rather than later.
Mr. Tobias Ellwood (Bournemouth, East) (Con): It is a pleasure to follow my hon. Friend the Member for Wimbledon (Stephen Hammond) and an honour to be the last Bank-Bench speaker in this important debate on the 2009 Budget. Although my words of wisdom may not be remembered in perpetuity, we shall certainly not forget this important debate.
I have a six-month-old son. He has yet to learn to say the word Daddy, let alone quantitative easing, but it is a statement of the problems we now face that, along with every child yet to be born, he is saddled with a debt of £22,500, thanks to the Government. Not since the war have we been in such a bankrupt and battered state as we are today. It is of course a global economic downturn.
Mr. Ellwood: I did not intend that my son should become the focus of the debate, but I am grateful for my hon. Friends intervention. I thought that I knew how my son would vote, but after he realises that he will have to pay back £22,000, we will be sure of his voting intention.
The extent to which countries may protect themselves from exposure by avoiding large-scale debt differs from country to country. Thanks to the Governments relaxation of the rules in the UK, banks were lending money that they did not have, to people who could not afford it, in ways that they did not understand. The Bank of Englands powers were transferred to the Financial Services Authority, which did not know how to use them, and the Government then saddled the country with debt. They even tried to change the economic cycle to conceal the debt that was being accumulated. As a result, Britain has been the worst hit economically of all G20 countries, which puts in perspective the importance of the 2009 Budget for leading the nation through choppy waters towards a calmer and more stable economic environment.
As hon. Members have repeated throughout our four-day debate, however, there has been no leadership or vision, or even a sustainable and costed plan. The Budget not only lacked honesty in spirit, but broke Labours own rules, which have arguably kept them in power for three Parliaments. As soon as the Chancellor sat down last Wednesday, every economist worth his salt was queuing up to criticise the Budget.
The first criticism was about the amount that the Government will borrow: £348 billion over the next two years. That will not only double the national debt, but exceed the total borrowing of all Governments going back 300 years. If that is not shocking enough, the Government say that borrowing will reach more than £600 billion over the next four years, which will saddle even those taxpayers who are yet to be born.
The next criticism was about the way in which the Government intend to pay the money back. A pivotal point of the Budget statementwhen, if the country had not already written the Government off, they would
have done sowas when the Chancellor claimed that the economy would grow by 1.25 per cent. next year. Let us not forget that the Chancellor predicted in the pre-Budget report that GDP in 2009-10 would be 2.5 per cent., with net borrowing at £38 billion and income receipts to the tune of £171 billion. Six months later, he had to admit that the economy would not grow by 2.5 per cent., but shrink by 3.5 per cent., and that net Government borrowing would be not £38 billion but £175 billion. The shortfall comes in because of net income receipts, because they are to be not £171 billion, but just £141 billion.
How, therefore, can we believe any prediction that the Chancellor or the Prime Minister make? The only thing that can be believed with any assurance is the Chancellors reputation as the worst forecaster in modern history. I am sure that last Wednesdays statistics will come back to haunt him in Novembers pre-Budget report.
Mr. Newmark: I am grateful to my hon. Friend. He makes a good point about debt, but it would be helpful to set out a broader picture. He talks about debt of £600 billion or £700 billion, but when that is added to what already exists, the figure will be closer to £1.4 trillion, which is 100 per cent. of GDP. While that is shocking in itself, what is most shocking is the Governments lack of transparency, as they are probably hiding an extra £1 trillion or £2 trillion off balance sheet.
My hon. Friends argument explains exactly why the IMF has dismissed the Budgetno wonder it has been given the nickname of the fantasy Budget. The IMF predicts not a recovery next year, but a worsening of the UKs situation, with not 1.25 per cent. growth, but a decline of about 4 per cent. The bottom line is that the Budget does not add up. The shortfall in tax revenues alone means that an additional £170 billion will be needed this year and next to meet the Governments targets.
Mr. Ellwood: My hon. Friend makes a valid point. We are at the mercy of the gilt markets and there is a danger that we will lose our triple A rating as a result, which would have a devastating effect on the economy.
Today, embarrassingly, many hon. Members have taken us down memory lane: rather than talk about this years Budget, we have heard all about life under Margaret Thatcher. They fail to remember that it was Denis Healey, the Chancellor at the time, who in 1976 had to go to the IMF, first for a loan and then to be bailed out completely. I have a sneaking suspicion that we are wandering down that road again. I hope not.
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