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Gordon Banks (Ochil and South Perthshire) (Lab): My right hon. Friend is taking us by the hand and guiding us through the Conservatives' inability to tackle today's economic crisis. Does he get the same uneasy feeling as I do when I read today's motion? We are not talking about history, but about the here and now-it condemns the Government on what they have done for business and employment. I am speaking from a business background, and this Government have done a lot for business and employment, all of it in the face of the Opposition. May I bring to my right hon. Friend's
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attention the funding for 50 jobs in Clackmannanshire that was delivered last week through the future jobs fund? In the last recession, we did not get jobs in Clackmannanshire, we lost jobs.

Mr. McFadden: I know that my hon. Friend comes from a business background. There has not only been help with the 50 jobs in Clackmannanshire; help has been given on a wider basis. For example, the time to pay initiative that we have extended to business has led to agreements with 150,000 businesses to spread more than £3.7 billion in business taxes to help them during the course of the recession.

Mr. Binley: The Minister is always most kind in giving way, and I am always grateful. If the Government have been so generous to the private sector, why has the private sector shed 1 million jobs over the past 15 months while the public sector has increased by 300,000 jobs?

Mr. McFadden: We will talk more about welfare and unemployment in this debate. Of course, unemployment has risen as a result of the global recession. However, my argument is that our response to dealing with that unemployment contrasts with the hon. Gentleman's party's policies in the past and the policies that it espouses today.

Mr. Peter Bone (Wellingborough) (Con): Will the Minister give way?

Mr. McFadden: I want to make some progress.

After countries came together to support their economies, we had the party conferences. After an unprecedented co-ordinated international action in the face of the gravest economic contraction that we had seen for decades, what was the target of the Leader of the Opposition's speech at his party conference? Was it the irresponsible financial practices that had got us into this situation in the first place? Was it the market failures that had forced Governments around the world to act? No. In 2009, after everything that had happened, his attack was on big government.

After the first great economic crisis of this century, when the actions of Governments were absolutely critical in preventing things from being far worse than they would have been, the right hon. Gentleman's attack was on big government. Let us be clear: we did not intervene in the markets because we wanted to replace them. We intervened, because a market failure of that magnitude meant that Government had to act to ease its effects and to offer help to those who lost their jobs as a result. If the Conservatives made the wrong judgment call on the recession itself, the critical question now is the recovery and what the future holds for the British economy.

Steve Webb (Northavon) (LD): The difference between our position and that of the Conservatives on fiscal stimulus is that we agreed with the Government that it was necessary. The amount of money released by the VAT cut is a substantial sum, but does the Minister accept that a lot of tiny cuts-50p off a phone bill, a small amount off something else-do not stimulate the economy as much as spending the same amount on, for example, an injection of cash into a green recovery programme, which would be labour-intensive and which would help infrastructure in the long term?

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Mr. McFadden: We combined a tax cut with capital spending-there is not necessarily a choice between the two-and the overall effect of the VAT cut was to put about £1 billion a month into the economy that would not otherwise be there.

The question is, is recovery in place and how strong will it be? There are some encouraging signs. For example, the CBI's most recent output expectations index for manufacturers shows improvement on its predecessor. The Bank of England's summary of business conditions reports that demand for consumer services has increased. Those signs are welcome, but it would be a rash politician who claimed that recovery was in place, embedded and not under any threat. If there is a recovery at all, it is a fragile one and it is very capable of being set back if we make the wrong judgments and the wrong decisions.

The right hon. and learned Member for Rushcliffe mentioned the importance of regulation. I can tell him that the World Bank's most recent ease of doing business survey raised Britain from its position as the sixth-best place in the world to the fifth-best to do business, so on that international measure we are heading in the right direction. As I said, it would be complacent to assume that the recovery will take hold come what may, or that there is no need for further Government help for the economy, yet that is precisely the advice offered by the Opposition, much of which centres on the discussion of debt. Of course, stimulus has meant a build-up of debt, which must be paid down in future. There is no argument about that, and we have set out a plan to cut the deficit in half over four years. However, when we start paying down debt, what is the time scale and what are our priorities as we do so? On those issues, there is a real difference between the parties. If we withdraw the stimulus too soon, we risk choking off recovery and sending the economy backwards, not only increasing the human pain of the recession but impairing the country's long-term ability to pay down the debt that the Opposition say that they are concerned with in the first place.

Kelvin Hopkins: I have a sneaking suspicion that what the Opposition are trying to do is frighten the Government into trying to reduce debt now, which would increase unemployment and help them to win the election. I think that my right hon. Friend would do well to ignore them.

Mr. McFadden: As I have said, it is important to have a credible plan to reduce debt, but there are major choices to be made between the parties.

Tom Levitt: My right hon. Friend will agree that it is absolutely crucial that employment is maintained at as high a level as possible during the recession and that jobs are created. Is he as surprised as I am that the right hon. and learned Member for Rushcliffe (Mr. Clarke) did not mention in 45 minutes anything to do with job creation? Is that perhaps because, if we read the Conservatives' work programme for tackling Britain's jobs crisis, we can see that it is a pale imitation, and a regurgitation, of what we are already doing to provide jobs?

Mr. McFadden: My right hon. Friend the Secretary of State for Work and Pensions will have more to say later in the debate about our plans to ease unemployment and get people back to work, but my hon. Friend the Member for High Peak (Tom Levitt) is right that we must not abandon the unemployed and must do everything we can to support employment in the economy.

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I return to the question of the stimulus and when it should be withdrawn. The former member of the Monetary Policy Committee, Professor David Blanchflower, said:

Just a few weeks ago the director general of the CBI said:

On the question of employment just raised by my hon. Friend, Kevin Green from the Recruitment and Employment Confederation, when asked about the fiscal stimulus last month, said:

Yet a premature end to the fiscal stimulus is precisely what the Opposition are advocating. The Leader of the Opposition said in his party conference speech:

But the fact is that in the present economic situation, that is not true. His attack on big government is driving him and his party to an economic stance that endangers the recovery and threatens to choke it off before it has been properly established. That is what happened in Japan in the 1990s, with the result that the downturn there lasted years and impacted even more severely on debt levels. The judgment failures that led the Conservatives to make the wrong judgments during the recession are being repeated, just as we see fragile signs of recovery.

Peter Luff (Mid-Worcestershire) (Con) rose-

Mr. McFadden: We will not take risks with the recovery. We know how essential it is for the recovery to be supported so that it takes hold properly. We are determined to pay down debt, but we will not withdraw support at the precise moment when the economy needs it.

I give way to the Chair of the Select Committee.

Peter Luff: I am grateful to the Minister. As Select Committee Chairman, I have no wish to engage in partisan politics with him. Does he agree that it is not just what the Government do, but the way they do it? In that context, why did they choose to end their showcase fiscal stimulus programme, the VAT reduction, during the January sales, immediately after Christmas, causing maximum disruption for the retail sector?

Mr. McFadden: We always said that that tax cut was a temporary one, and we gave notice of that when it was announced, so I do not think there is any surprise about that.

Let me turn to the question of individuals, as well as the economy as a whole. When the economy has contracted as much as we have seen, when trade has fallen around the world, of course people lose their jobs. No Government can say to their people that they can be protected entirely from unemployment, given the economic circumstances that we have been through, but we will not abandon the unemployed. The Government are determined to ensure that unemployed people get the help and assistance that they need to help them find another job, and we are devoting particular effort to ensuring that we do not have a repeat of the
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1980s experience, when long-term unemployment left thousands-sometimes tens of thousands-out of touch with the labour market for years, and sometimes for ever.

So we have put in place £5 billion in total to help get people back to work over this year and next year. That involves, for example, an extension of the rapid response service even before redundancies take place; after six months unemployed, help with training; help to people to set up their own business; incentives for employers to hire people; and after 12 months a guarantee of training or employment for young people aged 18 to 24, as well as other measures, such as funding for 20,000 internships, which can be a hugely valuable bridge into work for many people.

That activity stands in stark contrast to the way in which the Conservatives approached the issue when they were in power. And today, while we are putting in £5 billion to help the unemployed, the Conservatives-the right hon. and learned Member for Rushcliffe repeated this during his speech-have called for £5 billion less public spending during the recession. If that is their approach, I have to ask the right hon. Member for Maidenhead (Mrs. May) which parts of our help package for the unemployed they would withdraw. What training opportunities, what incentives to employers or other help would they abandon? Finally, for clarity, do the Opposition support the £5 billion package for the unemployed? Unemployment has risen during the recession, but we are determined to give people a second chance and to do everything that we can to stop it becoming permanent for those affected.

Mr. Bone: There is a gulf between what the Minister is saying and what is happening in Wellingborough. Unemployment has doubled in my constituency since the Government came to power, and while I have been in the Chamber today I have received a note about another company going bust. The Minister's measures are just not working.

Mr. McFadden: I must ask the hon. Gentleman to think about his constituents and how much worse unemployment would have been for them if we had not had the fiscal stimulus, the support that I have talked about or the expansion of apprenticeships. The right hon. and learned Member for Rushcliffe talked about apprenticeships, but there are four times as many apprentices now as there were when he was in power. To withdraw help for the unemployed would increase the risk of that situation becoming permanent and simply repeat the experience of people who lived through the recessions of the 1980s and 1990s, and we will not go down that road. This debate is important, because our responses to the recession and its human cost are issues upon which we will be rightly be judged, and judgment is just as important in the recovery as it is at the height of the recession.

On future industrial policy, Britain needs a Government who will support the economy's emergence from recession and help business to seize the opportunities that technological and industrial changes present-whether that is the transition to low carbon, or the advancement of digital technologies and biosciences. We have made it clear that we believe in an active role for government in helping Britain to make the most of those opportunities.

The right hon. and learned Gentleman said that our policy was just words and branding, but that is not the
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case. In recent months, we have put financial backing into aerospace, wind and wave power, the scrappage scheme extension and a number of other areas. When it comes to industrial policy, however, my criticism of the Opposition is not so much that they attack big government, as that they have nothing to say at all: nothing to say about Britain's industrial future, and nothing to say about the national capabilities that they believe that we should have. The problem for them is not so much big government as no government at all, and that is not good enough. Government may not create the jobs, but it does create the environment for employment and industry to grow. If the concern is debt, the best way to pay it down is through growth, and the best way to obtain growth is to work with industry to take advantage of the opportunities of the future.

As recovery takes hold, it is absolutely critical that we work with industry to ensure that it can take advantage of such opportunities. That is why we have put in place the strategic investment fund and allocated funding to the projects of which I speak-because we want Britain to have a recovery that makes the most of our industrial future. We believe that government has a vital role to play in that.

Rob Marris: Does my right hon. Friend share my surprise that the Opposition's motion refers to "reducing corporation tax" but not to the other half of that policy? The right hon. and learned Member for Rushcliffe (Mr. Clarke) did refer to it, and the reduction of corporation tax by the Conservatives would be funded by slashing capital allowances by about £3.5 billion a year. That would have a disastrous effect on British industry-particularly on manufacturing, and particularly on manufacturing in the west midlands.

Mr. McFadden: Absolutely. My hon. Friend makes a very good point. The right hon. and learned Gentleman talked about the business man in the midlands, but I recommend that he ask a few west midlands manufacturers what they think of the withdrawal of capital allowances for investment at this point in the economic cycle. That allowance is precisely the help that business needs to make investment decisions so that we can take advantage of the industrial change that I have described.

This debate is valuable and important, because the country faces a real choice about who offers the best path to recovery. Through the choices that the Conservatives have made, they have placed themselves against the co-ordinated action that Governments took and in favour of early withdrawal of support for our economies, and they have been silent on our industrial future. They have failed the test of judgment time after time, and through the stance that they have adopted they have shown that they would fail the test again if they had the chance to put their proposals into practice. For those reasons, I shall ask my colleagues to reject the Opposition motion and to support the Government's amendment, which offers an altogether better route to economic recovery for our country.

5.49 pm

John Thurso (Caithness, Sutherland and Easter Ross) (LD): I, too, welcome this debate, as these are extremely important issues. I particularly welcome the opportunity to discuss unemployment, which is the most pernicious effect of recession.

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It is right to discuss not only what should be done in a crisis-what emergency measures are required-but what could and should be done to deal with unemployment in the longer term and what can be done in better times to increase employment. There are two different strands to that. The first and most obvious is to assist in the creation of sustainable jobs, which will be done only by businesses. Businesses, not Government, create jobs, and it is up to Government to assist in that process and not to get in the way. It is equally important to help to increase the employability of those who are unemployed and the productivity of the work force. Liberal Democrat Members have long recognised the need to confront unemployment and its social ills, unlike the Conservatives, who for 18 years felt, as Lord Lamont famously put it, that it was a necessary price to pay; I think that his actual words were "a price worth paying". We have a strong commitment to tackling the scourge of unemployment.

Notwithstanding what I regard as something of a Damascene conversion on the part of the Conservatives, I will support the motion and ask my hon. Friends to do likewise, because it is clearly important to support those who are out of work and, in particular, to ensure that enterprise is encouraged. However, I am not at all certain that the policies advanced by the right hon. and learned Member for Rushcliffe (Mr. Clarke) would deliver on the sentiments expressed in the motion; in fact, during his speech I almost changed my mind, but I will stick with where I started.

The current rise in unemployment is a direct result of the recession, which was caused by the banking crisis. Returning the economy to growth, restoring faith in the banking system and recreating financial stability are essential precursors to improving the economy and employment. It is impossible to have a debate on employment without alluding to the wider economic problems, as the right hon. and learned Gentleman and the Minister did. The first step was clearly to rescue the banking system. The Government made a reasonable job of that and deserve credit. Nevertheless, when the Minister castigated the right hon. and learned Gentleman for not agreeing on the nationalisation of Northern Rock, I could not help but noting that my hon. Friend the Member for Twickenham (Dr. Cable) said that that was the correct course of action four months before the Government got round to it. I suggest to the Minister that there was recalcitrance on both sides of the House at that stage.

The real test is how the recovery takes shape, particularly in the financial system. To use the metaphor coined by my hon. Friend the Member for Twickenham, the financial system has had a massive heart attack, has been in intensive care and stabilised, and is now in the recovery room, but whether the patient makes it back on to the streets and returns to a full and active life will very much depend on whether we accept that we should go back to the old model-a course of action that I would not hold with-or have a different model. The old model has clearly failed. It failed to act with reasonable prudence, failed to curb the excesses of lending and remuneration, and failed to distinguish between innovation and speculation. That system cannot be allowed to return; business as usual in the City is simply not an option.

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