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"I don't think it is fast enough."
On Tuesday-another day, another audience-when he was asked about reducing deficit, he replied:
"Of course, there is a danger, if you do too much too early, you would choke off some demand."
That is precisely the argument between the two political parties. Certainly on Tuesday, the Leader of the Opposition seemed to agree with our point of view that, yes we have to reduce the deficit, but we have to do it in a way that is orderly and does not damage demand.
Of course, that comes to the heart of the problem that the Conservatives have. They cannot tell us what action they would take. Not once in the 10 minutes that he spoke did the shadow Chancellor actually say what he would do either in protecting services or in reducing debt. Indeed, all we do know is that he is committed to taking action more quickly. He gave the impression just now that he wanted to cut the deficit, perhaps in the next Parliament, but if we do that we will end up having to cut something like £25 billion more. If that is his policy, he will have to spell out where he is going to take that money from. Who would feel the brunt if that money were taken away?
The shadow Chancellor went on to criticise us for having a lack of aspiration. Both of us expect to be judged-the British public will choose-but I have to tell him that I represent a constituency in which people are aspirational. They want to get on and they want to do the best they can for themselves and their families, but they honestly do not see that the first priority in that is giving a tax break to a tiny minority of the top estates in this country. I really think it is time that he rethought his priorities. We believe that public services help many people in this country. People accept that they have to be paid for and they accept the value of hospitals and of
the schools that their children go to, but they also want to make sure that as we come through this crisis, just as we had to take difficult decisions with the banks over a year ago, we take difficult decisions now but in a way that reduces the deficit but does not damage our economy at the same time. Yes, all of us need to be fully engaged in that, and all of us are. What we have heard from the shadow Chancellor today is long on politics and very short on good ideas.
Dr. Vincent Cable (Twickenham) (LD): I thank the Chancellor for sending me his statement, even though it was missing 43 paragraphs.
What is clear from the statement is that the economic position of the country is still very grave. We know now that we are 5 per cent. poorer than we were a year ago, and that the Government estimates of borrowing for this year and next year are higher than even they had forecast. What we needed was a national economic plan, but what we have got is an election manifesto.
There have been genuinely great Labour Chancellors in the past-Stafford Cripps and Roy Jenkins, among others-but they would not have been obsessed, as the Chancellor is today, with drawing tactical dividing lines. There are small things that one welcomes, such as initiatives on jobs for young people, on technology and on environmental policies. This is a good Budget for bingo and boilers; I think that is what it boils down to.
The underlying problem, however, is that for the past decade or more, the British Government have been over-dependent for their revenues on the fickle fortunes of the banking industry. We have had an economy that has been built on sand-on the assumption that property prices rise for ever, and on consumer borrowing-and the economy is now being rebuilt on sand, because the only signs of real recovery that we have are rising house prices and booming bank profits at a time when industry is continuing to decline.
Let me speak specifically about the banks. The Chancellor has clearly been provoked into action by the extraordinarily stupid and arrogant behaviour of the RBS board. What he has come up with, to the extent that it is intelligible, is an extraordinarily complex mechanism. Will he explain precisely how he will stop the banks converting their bonuses into basic salary? He talks about avoidance measures, but how is he going to stop that? Will he give us a worked example of what it means in reality?
Let us take as an example Mr. Bob Diamond of Barclays Capital, who has just walked away with £27 million on the back of a taxpayer guarantee. How would that be affected by the Government's proposal? Surely it makes more sense, as I think the Prime Minister entertained when he went to the G20 summit, not to try to tax bankers separately from other high earners, but to have a levy on bank profits because the banks depend on a taxpayer guarantee. Until they can be broken up and can stand on their own two feet, they have to pay for the insurance that the taxpayer provides.
The heart of the Chancellor's statement was about the borrowing requirement and the long-term problem of the structural deficit. What we needed was a clear, long-term way of dealing with this problem. What we had, to the extent to which we can understand the early statement that he made, was that there is an increase in
tax-approximately £6 billion to £7 billion a year-much of which will be in the form of national insurance. Let us be clear about what will now happen. Any worker earning more than £7,000 a year will pay 32 per cent. marginal income tax and 12 per cent. national insurance contributions. All the money raised in additional tax will go to public spending, and none will be used to pay down the borrowing requirement and the deficit. That is a complete distortion of the priorities that the Government should surely have.
In respect of timing, it is obviously right that we heed the advice of the Governor of the Bank of England and others that, if the economy is continuing to stagnate, it makes no sense to embark on rapid cuts in public expenditure and reducing the deficit. That is the problem that the Conservatives have got themselves into, but it is also right that, if there is rapid growth, the Government must get on with dealing with the deficit. What the Government have assumed today is that there will be high rates of economic growth-3.5 per cent. in 2011-but what is the basis for that assumption?
It is a little like the old story of the economist who is given a tin of food to eat and says, "Let's assume the existence of a tin opener." The Government are saying, "Let's assume economic growth." Why? Have they made any estimate of the very real risk that the economy will revert to a double-dip recession or continue to stagnate? What is the risk of those things happening-is it one in 10, one in five, or one in two? Surely we cannot operate on the basis of a single-line forecast that is based entirely on optimism and very little else.
To the extent that we can understand what the Government are doing about cutting public spending growth, it comes down to two items. Perhaps the Chancellor will confirm that. One of the items involves hitting low-paid workers by cutting the proposal for personal allowances, which I understand has been postponed or deferred. The other is the approach adopted to public sector pay. On the assumption that the Government have made, a 1 per cent. increase for a low-paid manual worker is a real cut. Of course, it is worth 10 times as much for a permanent secretary on £150,000 a year as it is to a worker on £15,000 a year. If there is to be restraint-and we have argued for it-surely it should be a flat sum across the board. We have argued that it should be £8 a week for everyone. That is the heart of the issue of fairness, which the Chancellor claimed was at the heart of his statement.
Of course it is right that we should be concerned with fairness in the tax system and in public spending priorities. The hon. Member for Tatton (Mr. Osborne) keeps saying that we are all in this together, but that is simply not right: we are not all in this together, as some people have done much better than others.
The Government's claims to fairness are absolutely bogus. The Chancellor's big, totemic step of the last year was to introduce a 50 per cent. tax rate, but he has delivered a gift-wrapped invitation to tax avoidance by keeping capital gains tax at 18 per cent. He had an opportunity today to deal with that, but he has done absolutely nothing about it. Unless there is fairness, the public will not accept the fact that, for the next five years or longer, there is going to be a real hard slog for the economy. The Chancellor has not set out the way forward that we need.
Mr. Darling: I disagree with the hon. Gentleman. We have set out a plan to reduce the country's deficit over a four-year period, and I believe that that will be done in a sensible way that will not damage public services or the fabric of the economy. Yes, the settlement will be tighter and it will be difficult, but I am surprised that the hon. Gentleman did not set out some of his proposals in relation to universities, for example.
I think that choices will have to be made, but I believe that people will recognise that, with public spending having grown over the last 10 years, we can proceed with a much tighter settlement than we have had in the past. However, as I said earlier, I believe that we can protect front-line services at the same time.
I listened to what the hon. Gentleman had to say about tax. He did not say what he would do, but that is one of the luxuries of being on his Benches. I think that using national insurance is a fair approach, and I said I would take steps to make sure that people earning under £20,000 would not be affected.
The hon. Gentleman asked about growth. I have set out my forecasts, which are not dissimilar to those of the Bank of England. Indeed, I remember that after the last Budget he and many others criticised my forecast that the economy would grow by between 1 and 1.5 per cent. next year, whereas the consensus among most commentators now is that that is broadly right.
The hon. Gentleman asked about the financial services industry. Yes, it has been a major part of our economy. I am not sure where he stands on these things nowadays, but I believe that it will remain an important part of the economy. It employs 1 million people in this country and, properly supervised and regulated, it is important. However, I think-and I think the hon. Gentleman thinks so too-that people responsible for banks should bear it in mind that they have had a lot of public support, directly or indirectly, and that their priority should be to rebuild the banks' capital. He asked how the system would work. He seemed to hint that he would have imposed a windfall tax on the banks. I think that would be a mistake, because it would amount to telling the banks to build up their capital position while at one and the same time taking the money away from them. Some of the banks that might be affected by such an approach are those that, arguably, did a little bit less to contribute to some of the problems in the first place.
The way that the system will work is quite simple-there will be a levy of 50 per cent. on bonuses of more than £25,000, and there will be anti-avoidance measures. The hon. Gentleman asked what will happen if people get the money paid in income, and the answer is relatively simple-they will pay income tax on it. That is how the system operates and, unless he is saying that there should be an incomes policy for all bankers, which would be difficult to operate, I disagree with him.
The hon. Gentleman said that I was searching for tactical dividing lines; I have rarely been accused of doing that. I think that the divisions between us and the Conservatives, and between us and the Liberal party, are perfectly there to be seen. We do not have to go looking for them.
John McFall (West Dunbartonshire) (Lab/Co-op):
It is right for the Government to use this pre-Budget report to maintain investment in the economy. The private sector is on its knees at the moment because of the banking catastrophe that we are experiencing. It is
only the Government, through the help that they are giving to business and individuals, who are keeping the economy going.
However, given the need in the future to cut the fiscal deficit, increase capital liquidity requirements for financial institutions, unwind the £200 billion of quantitative easing and eventually to move interest rates away from zero, will the Chancellor consider further developing a macro-economic framework to deal with those issues?
Mr. Darling: My right hon. Friend is absolutely right. The priority is to deal with the aftermath of this downturn and I set out proposals for that. I will continue to take every step possible to ensure that we get the deficit down. It is absolutely a prerequisite for making sure that we have sustainable long-term growth in the future. It is something that must remain a priority for the Chancellor at all times.
Mr. Speaker: Order. Twenty-two hon. and right hon. Members are seeking to catch my eye. As usual, I should like to accommodate everybody, and therefore I reiterate my usual appeal and exhortation that each hon. Member ask a single brief supplementary question, and of course that the Chancellor of the Exchequer provide an economical reply.
Mr. John Redwood (Wokingham) (Con): Why has growth been non-existent so far, when the Chancellor's policy is meant to be about promoting growth?
Mr. Darling: There has been no growth in the last year for perfectly obvious reasons. Because of the crisis in the banking sector that has affected this and every other country in the world, there has been a very severe downturn. I would have thought that that was very obvious.
Hazel Blears (Salford) (Lab): Politics is clearly the language of priorities, and I am delighted that my right hon. Friend has set out this Labour Government's priorities of supporting young people into jobs and apprenticeships. That stands in stark contrast to priorities of the Conservatives who have chosen to benefit the 3,000 wealthiest estates in the country.
Will my right hon. Friend ensure that his measures to support apprenticeships are directed to communities like mine in Salford where, in the last Tory recession, 75 per cent. of young people were without jobs and hope? We need these measures to build on our success.
Mr. Darling: Yes is the short answer. It is important that we carry on expanding the number of apprenticeships because, not just now when unemployment is clearly too high but also in the future, we will need qualified people with the skills that our economy needs.
Mr. Edward Leigh (Gainsborough) (Con):
The previous Gershon efficiency savings were found, after independent audit by the National Audit Office, to be largely unproven. Given that, it is difficult to believe that these new efficiency gains will be backed by evidence. To prove me
wrong, will the Chancellor pass all his assumptions and proposals on efficiency savings to the NAO for independent audit?
Mr. Darling: I do not accept the general premise underlying the hon. Gentleman's question that efficiencies cannot be made. For example, we managed to reduce the amount of money that we were paying to drug companies from the NHS. I remember from my time at the Department for Work and Pensions that we reduced the number of middle management employees to ensure that the then Benefits Agency, which formed part of Jobcentre Plus, was more efficient. So I simply do not accept the premise that underlies his question.
Mr. Michael Meacher (Oldham, West and Royton) (Lab): Does my right hon. Friend really believe that a one-off, short-term bonus tax is sufficient to achieve his aim of permanently changing City culture? How does he justify the prospect of cutting public services and still not imposing a windfall tax on banks, when those bank profits have been fortuitously inflated by quantitative easing, by the offsetting of £80 billion of past losses against tax, by the elimination of rivals in the financial crash and by a vastly expanded market in Government bond sales?
Mr. Darling: My right hon. Friend should bear it in mind that if-when-banks return to profitability, which must be one of the objectives in the longer term, they pay corporation tax on those revenues. On tax and bonuses, I want to try to get banks to think long and hard about paying out large sums when, frankly, they ought to be building up their strength. I have said often enough in the House that I am not against the payment of bonuses in themselves-they can be a good way to reward and incentivise people-but if banks are going to pay those very high bonuses, it is right that the taxpayer should see some benefit from that.
Mr. Brooks Newmark (Braintree) (Con): How much worse off will constituents of mine who earn £25,000 be as result of the Chancellor's national insurance increase?
Mr. Darling: I said in my statement that, yes, national insurance will go up, and that is necessary because we want to ensure the services that the hon. Gentleman's constituents and mine receive. If they are unfortunate enough to go to hospital or they go to see their doctors or schools, they recognise that they get a benefit from that. I certainly do not think that they want to go back to the days of the past, when a lot of those services were very seriously run down.
Mr. Richard Caborn (Sheffield, Central) (Lab): I welcome the statement, particularly for the wealth-creating sectors and manufacturing up north-in 1997, we inherited industrial deserts, particularly in areas such as South Yorkshire-and the investment has been made by Rolls-Royce in the Advanced Manufacturing Park. May I prevail on the Chancellor to consider the short-termism of the marketplace? Indeed, I think that everyone appreciates that the statement today tries to tackle some of the problems, but long-term investment in wealth creation and our manufacturing is not four or five years, but five, 10 and 15 years. I hope that that is borne in mind and that the Treasury and the shareholding Executive will get that change of culture.
Mr. Darling: My right hon. Friend represents a part of the country that was at the wrong end of the 1980s recession. On many visits to his part of the country, I have found it impressive to see how former coke works and coal mining areas have been completely transformed and, on the same sites, high-tech industries and cutting-edge developments in advanced engineering employing a lot of people. He is absolutely right to say that we need to encourage that not just for the next five or 10 years, but for decades after that.
Julia Goldsworthy (Falmouth and Camborne) (LD): The Chancellor applauded the flexibility of working tax credits, but no additional support has been offered to two of my constituents who work in a factory and whose hours have been reduced to a three-day week since July. They are not entitled to working tax credits, redundancy pay or jobseeker's allowance. Was it not an omission not to include support for them in the pre-Budget report?
Mr. Darling: We have tried over a number of years to improve the help that we give to people who lose their jobs or go on to short-term working. Yes, we are always looking to see how we can improve that, but it is partly constrained by what we can do. The hon. Member for Twickenham (Dr. Cable), who speaks for the Liberals from the Front Bench, rather gave the impression that he wants the Government to spend less rather than more, but the hon. Lady is absolutely right to say that we need to ensure that we help people to stay in work.
Mr. Frank Field (Birkenhead) (Lab): May I compliment the Chancellor of the Exchequer on how he has acquitted himself not only today but for the whole period that he has been Chancellor? It has served the public interest well. Given that the Bank of England will shortly cease to print money to buy Government debt and that the Government will have to go into the real world to raise that money, what will be the impact over the coming year on long-term interest rates, given what he has announced on public expenditure levels for the same period?
Mr. Darling: First, I am grateful to my right hon. Friend. On quantitative easing, the Monetary Policy Committee will have to reach a decision on when it stops that work and then on how it unwinds what it is doing. It is very conscious of the fact that it needs to do that in an orderly way that complements what the Government are doing. Indeed, I think that I made it clear when I announced the scheme that there will be some discussion when it is wound down to ensure that that is done in the right way.
Mr. Stewart Jackson (Peterborough) (Con): The OECD believes that early and ambitious fiscal consolidation will strengthen the recovery. Why does the Chancellor think that it is wrong and he is right?
Mr. Darling: Yes, but the OECD is not arguing for going far faster and therefore damaging jobs and the fabric of the economy. I can assure the hon. Gentleman that-whether it is the OECD, or the International Monetary Fund of which 186 countries are members-none of them support the sort of approach that the Conservatives are advocating.
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