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Of course, if we consider what has happened, the downturn in our economy and in other economies at the beginning of this year was far more severe than most people expected. Data have shown that most economies, our own included, suffered a severe shock in the first quarter of this year. To account for that, the majority of external forecasters are revising their predictions for this year and next. That is not surprising. Today, the average external forecast for 2009 is much lower than it was in April. Some, such as the OECD, are forecasting growth of minus 4.7 per cent. However, I believe that notwithstanding that we expect to see growth around
the turn of this year. It is also interesting that whereas external forecasters at the time of the Budget said that my forecasts for next year were optimistic, the same external forecasters are now predicting more or less what I predicted for next year. Things have changed during the course of this year and, provided we make the right calls, they will change for the better next year and the year after.
Mr. Pelling: These are still very modest numbers in terms of economic growth, which shows the dangers of cutting public spending now and snuffing out the economy. However, I am very concerned about the story on the front of today's Guardian about moving public sector jobs away from the south-east. Croydon has 29 per cent. of its jobs in the public sector. Is it the Chancellor's intention to take those jobs away from Croydon to elsewhere in the country?
Mr. Darling: It is important that all parts of the country share in the benefits of public spending. I know that Croydon is a big employer, particularly through the UK Border Agency. Obviously, when we consider how to disperse jobs to different parts of the country, we do not want to damage a local economy without ensuring that we take compensatory steps. Decisions will have to be taken from agency to agency and from group of workers to group of workers, but I think that the idea of dispersing jobs is important.
A number of hon. Members mentioned financial services reform. We will return to it next week, and like the shadow Chancellor I think that we should debate the Financial Services Bill more extensively next week-I sense that that is the mood of the House. Giving statutory responsibility for financial stability is very important. As I have said on countless occasions, I do not share the shadow Chancellor's view that the FSA and the Bank of England should be merged. The fact of the merger would create a lot of uncertainty, especially at a time such as this when there is still a lot of work to be done. I believe that the organisations have distinct responsibilities and that the organisations can work together. Indeed, the new council for financial stability will ensure that proceedings are rather more open and transparent in the future, which is important. I have also made the point that other countries have many more regulators than we do.
The legislation will also provide for the implementation of the Walker report. Like the shadow Chancellor, I welcome the conclusions of Sir David Walker. We will implement them in full and the legislation will allow us to do that when we need a statutory change. There might be an argument for having more bands, or wider bands, in relation to the disclosure of income. I am not in favour of disclosing the names of individuals, for reasons that I think that most people would understand, but it is in the public interest for people to know the range of payments that are made. Sir David Walker has done a very good job of work, not least because one thing that clearly went wrong over the past two years was that it is obvious that a number of non-executive directors simply did not do their jobs. They were not asking the questions that they should have asked and they were not holding the chief executives to account. That has to stop and David Walker's measures will go some way towards ensuring that.
I said that supporting the economy is important and so, too, is ensuring that we strengthen our fiscal position as the recovery is established. The pre-Budget report will take place in just under two weeks, and the House will understand why I do not propose to go into any of the detail that I will need to set out at that stage. I shall return to the question of the fiscal responsibility legislation at that stage, too.
The House should be in no doubt that it is important that we should ensure that, as recovery is established, we halve the deficit over that four-year period. I set out that proposal last year and repeated it at the Budget. That remains the Government's policy and it is something that we will do. It is very important, not just because borrowing needs to come down-it has inevitably risen because of the downturn-but because it is part of the conditions that we need to ensure growth in the future. It has to be done in a way that does not damage individuals and businesses at the same time.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): As the Chancellor says, the pre-Budget report is coming soon. It will be coming at a very difficult and important time for the economy, and the House should scrutinise it effectively. In business questions, the Leader of the House said that she would not timetable debate for the pre-Budget report. Is that at the request of the Chancellor? Does he not want to see his pre-Budget report fully debated, or is he willing to have it debated and is the Leader of the House not providing him with the time for it?
Mr. Darling: I missed that exchange, exciting as it must have been. I am more than happy for the pre-Budget report to be debated and I hope that the usual channels will make that possible, preferably before the House rises for the Christmas recess. There is certainly no barrier on my part.
The shadow Chancellor was telling us that he too believed that we had to be more responsible. However, he needs to have a good look, not only at his plans for reducing the deficit, but also at the plans announced by him and his colleagues for additional spending. It is remarkable that, at a time when they are telling us that we should not be spending so much, the Opposition have produced proposals on the married couples allowance and inheritance tax, as well as on getting rid of the top rate of tax at 50p and changing pension tax relief- [ Interruption. ] Some Opposition Members ask when the shadow Chancellor said that, but he has done so at just about every opportunity. We see shadow spokesmen and spokeswomen jumping up and down promising to spend more here, there and everywhere.
The Conservative party's proposals on inheritance tax remain its policy, but I have been looking at the impact and the total cost of all its proposals. What I have mentioned so far amounts to only about £10 billion of promises, but there are others as well. The more interesting question is, who gains? We know that all the benefit from the inheritance tax proposals would go to about 2 per cent. of the largest estates, and that 98 per cent. of the public would not benefit.
Again, if we look at the Opposition's married couples allowance proposal, we find that the highest earners would receive 13 times as much of the benefit as people
at the other end of the income scale. If we look at the 50p increase, it is patently obvious that people at the top end would benefit, as they would from the proposal to reverse the pension tax relief.
The Leader of the Opposition said that his party cared about poverty and inequality, but it is not surprising that he was cheered at the Tory party conference. People there obviously knew that he did not mean it and that he would not let the richest down. The Conservative proposals would benefit people at the top end of the income scale. Nothing has changed with the Conservative party.
Mr. George Osborne: For the sake of the record, will the Chancellor confirm that the Government are proceeding with their cuts in inheritance tax for the next financial year?
Mr. Darling: The hon. Gentleman will have to wait until the pre-Budget report for details on all tax matters. What I am not proposing to do is to make changes to inheritance tax whose only beneficiaries would be a handful of people. As the hon. Gentleman probably knows, they are the ones who stand to gain from his proposals. Nor will I introduce a change to the married couples allowance that would mean that the highest earners would get 13 times as much as other people. At a time like this, that seems to me to be grossly unfair and wrong.
Mr. Osborne: I asked a very specific question. In the 2007 PBR-and people will remember that that was a week after the Tory conference-the Chancellor announced a three-part cut to inheritance tax. The third part of that cut is due to take place in April next year. I want to know whether the Government are still committed to the plans set out in their previous Budgets.
Mr. Darling: As I said, the hon. Gentleman will have to wait until the PBR for details on all matters of tax. He would expect that at this time, but I repeat that his policies are not just the wrong things to do for the economy. At a time like this, it cannot be right to go out of his way to give the tax cuts that he is proposing to people at the top end of the income scale. That seems absolute nonsense-
Mr. Osborne: Will the Chancellor give way on that point?
Mr. Darling: No, as I have given way on it already.
Mr. Osborne: Will the right hon. Gentleman give way?
Mr. Darling: Once more, and that is the lot.
Mr. Osborne: I want to press the Chancellor on this point. He is introducing a 50p tax rate next April. I presume that that will go ahead and that we do not have to wait until the PBR for confirmation. He has announced pre-financed plans for a cut in inheritance tax next April, and I want to know whether that cut will take place or not.
Mr. Darling: I did not think that the hon. Gentleman would be adding anything new to the debate.
Rob Marris: His friends want to know.
Mr. Darling: From a sedentary position, my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) says that the shadow Chancellor's friends want to know. That is probably absolutely right.
I want to conclude by saying that the one matter about which I expected the shadow Chancellor to have something to say was growth, yet he said absolutely nothing about it. We must make sure, for the sake of skills and employment, that we have the right infrastructure in the future. That is essential, especially in the transport and energy sectors, where this country has been badly served over decades. We are beginning to make real changes, and to see real improvements. It is also essential to support businesses, when it is right for the Government to do so. If we do not, we simply will not see the growth that we expect.
Mr. Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab) rose-
Justine Greening (Putney) (Con) rose-
Dr. William McCrea (South Antrim) (DUP) rose-
Mr. Darling: I give way first to my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke).
Mr. Clarke: I am very grateful to my right hon. Friend. I believe that the Government behaved very courageously when they repeated the commitment to devoting 0.7 of gross national income to overseas aid by 2013. We have heard absolutely nothing from the official Opposition on that. Does that omission concern him as it does me?
Mr. Darling: That is another subject about which I have heard many Opposition Members talk, but my right hon. Friend is absolutely right. Our commitment to development is very important: it is part of our responsibility and it is in the interests of this country.
I shall give way to both of the other hon. Members who rose, and then I shall stop.
Justine Greening: I am grateful to the Chancellor for giving way, but an examination of spending habits suggests that people in the top 10 per cent. income bracket will gain nearly £800 a year from his VAT cut, while those in the bottom 10 per cent. will gain only about £100. That VAT stimulus will be paid for through a rise in national insurance payments that will tax jobs that otherwise would have gone to unemployed people. Does he not agree that that is surely totally inequitable?
Mr. Darling: I do not agree. I know the view that the hon. Lady takes on the VAT cut in general, but I think that it has benefited the whole economy and the whole population. It is nothing like as skewed as some of the proposals that she backs-such as those on inheritance tax, for example.
I shall give way for the final time to the hon. Member for South Antrim (Dr. McCrea).
Dr. McCrea: I thank the Chancellor for giving way. He is talking about growth, which is very important, but does he accept that many small and medium-sized businesses are struggling? They need more consideration so that they can get bank loans at a reasonable interest rate. What more can he do about that?
Mr. Darling: I agree with the hon. Gentleman. The figures show that the amount of commercial lending is broadly the same now as it was just before we got into the banking problems in August 2007. Many businesses, for understandable reasons, have repaid very substantial sums, but we still have to make sure that credit flows into the economy-something that is particularly important as the economy begins to recover. That is why we are continuing to work closely with all the banks, and not just the ones that we own, to make sure that the credit is available. It is also of critical importance that people are able to see how much that credit costs, not just in terms of interest rates but in terms of fees and everything else. That is important in every part of the country, including Northern Ireland.
It is absolutely essential to have a policy on growth, and it is quite clear that the Opposition do not have one. Growth was barely mentioned in the shadow Chancellor's speech today, but the Government have taken action in relation to broadband provision, businesses, innovation and planning to ensure that we do get growth in the future.
People cannot say that they want to go for growth while in the same breath they commit to pulling support from the economy. We have to make sure that we get the economy into recovery. We need to get that recovery established, and ensure that we reduce our borrowing over a four-year period in a way that does not damage the economy. That is very important, but it is also important that we get growth for the long-term future.
In today's debate, we have had confirmation that the Opposition would not have done what was necessary 12 months ago. They have opposed every measure that the Government have introduced. They had no answers then, and it is clear that they have none now.
This Queen's Speech sets out some important measures that will make a difference to the economy. I commend the Gracious Speech to the House.
1.48 pm
Dr. Vincent Cable (Twickenham) (LD): My party's approach to the Queen's Speech is summarised in the amendment put forward by my party leader and my colleagues. Essentially, it is that the limited time that remains in this Parliament should be used for some modest political reforms and that devoting it to the range of legislation proposed in the Queen's Speech is not justified. However, two economic Bills-on fiscal policy and on banking-have been announced and it seems appropriate that we take the opportunity to discuss them.
I shall start with the question raised by the Conservative spokesman concerning Britain's place in the current economic crisis. It seems a good place to start: why is Britain in the worrying position of having suffered a recession that is deeper and longer than that faced by other developed countries?
Essentially, there are two reasons. One is that the consumer boom, which was based on inflated asset prices-particularly for housing-and consumer debt, was allowed to get out of control. There was a great deal of complacency about that.
The bigger reason, which the Chancellor has just given from the Dispatch Box, is that Britain is unusually dependent on the banking sector. We had a major international banking crisis; British banks' balance sheets account for roughly 4 to 5 per cent. of our gross domestic product-far in excess of the United States or most European countries. It was inevitable in those circumstances that a major banking crisis would inflict great damage on the British economy. In that sense, the Chancellor was absolutely right in his analysis. It is unfortunate that his predecessor, now the Prime Minister, went around claiming that we would get out of this recession much sooner than everyone else, because the underlying structural problems were so obvious, and the Chancellor has correctly identified them.
Let me proceed to two specific issues, one of which is the fiscal responsibility Bill. We have all had our fun with it. The Conservative spokesman had a bit of fun today, with jokes about the Chancellor being hauled off to the Tower of London, and about unenforceable legislation. I shall try to approach it in a different way, to try to understand what the Government are trying to do.
Is there a role for declaratory legislation, which sets an objective that is not intended to be enforced or cannot be enforced? Does such legislation actually have a role? The point that has been made to me, and has also been made from the Back Benches, is that such legislation has been introduced in other contexts; for example, climate change. I think all parties have signed up to targets in that context. That is a serious point.
There are two differences, however. First, setting quantitative targets that have a major impact on long-term business planning is different from setting financial targets in a rapidly moving economic world. There is a fundamental difference. The climate change targets are important, too, because they link directly to treaty obligations, so there is an argument for embedding them in law. I accept that. It is an interesting precedent for the law being used to set good objectives that cannot be enforced. Let us apply it to the present case. Is it sensible or helpful for the Government's fiscal objectives, which I think are to halve their estimate of the structural deficit within a Parliament, to be embodied in law?
The Government have created a dilemma for themselves. If there is a rapid economic recovery, which I know the Government hope for and some of their projections suggest will happen, the objectives are far too modest, because if there is rapid growth it will be possible to reduce the fiscal deficit more rapidly. On the other hand if, as I fear may be the case, the British economy does not recover rapidly, we shall have all kinds of impediments. The banking system will not be working properly. The monetary policy stimulus will have to be terminated within the next year or so, in all probability, so we shall not have growth. In those circumstances, the Government's modest objectives may be much more realistic. However, we do not know which of those two futures will evolve.
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