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The Government have a public financing system on a merry-go-round of borrowing and buying debt, particularly using the publicly owned banks, at the expense of everybody else. The small business people I speak to in my constituency and elsewhere tell me that it is still a
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nightmare trying to get the borrowing that they need to carry out their business, let alone expand it. Individuals are still finding it extremely difficult to borrow money that they might want to start up a business or buy an asset that they could productively use.

Angela Watkinson (Upminster) (Con): My right hon. Friend stresses the importance of small businesses, which create local jobs for people who are unemployed. Once people are employed they pay tax, which goes into the Treasury, instead of living on benefits that come out of the Treasury, so it is a double whammy and a double benefit to the Treasury and the community.

Mr. Redwood: I wish the Government would consider seriously the people who are unemployed and would like to set up a business of their own. They need access to bank credit, which they clearly do not have at the moment because of the distorted and broken banks and the regulation that is reinforcing that distortion. Those people also have a problem with the benefits system, and a good reform would be to make it easier for people to use the cover of benefit to get started. As my hon. Friend rightly says, we could then have a double win, because they would go off benefit altogether at a certain point and we would have tax revenue coming in as they started to pay themselves a salary or an income from their business. I hope that that point will be considered.

The Government are in a hole with their argument that all this public spending and borrowing is sustaining the economy, and that it would relapse without it. They have against them the problem of international comparisons, but also that of historical comparisons. If we look at recoveries from previous, rather shallower recessions in this country, we notice a certain common characteristic. Usually, the recovery got under way when the Government of the day admitted that they had a budget problem and took action to control the budget deficit through a combination of tax increases and spending cuts. In 1981, famously, quite big reductions were made in spending to curb the budget deficit, and from the day of the announcement of those cuts the economy accelerated away into one of its long and successful periods of growth. Something similar happened after the exchange rate mechanism disaster of the early 1990s. Again, it was when the Government got a grip on the deficit that we ushered in a very long period of expansion under two different parties.

Mr. Philip Dunne (Ludlow) (Con): Does my right hon. Friend agree that, in addition to the Government's historical problems, they have a current difficulty in that they seem incapable of securing the support of a single Back Bencher for the vital debate on the most pressing problem that faces this country? Only those Back Benchers who support the Opposition, not the Government, have spoken.

Mr. Redwood: That is a wise observation. Only one Labour Back Bencher is even present to hear of the Government's travails.

Stewart Hosie: The right hon. Gentleman makes an interesting point about recovery from the 1980-81 recession. He will of course recall that, even after its technical end in 1981, unemployment continued to rise for three full years.

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Mr. Redwood: That is a sad truth. All of us who lived through that were miserable about it, but it was good that we started to recover. The evidence shows that cutting public spending did not impede, but enabled the recovery. I remind Labour Members of Conservative Front Benchers' main claim on that point: we do not recommend spending cuts because we want to cut spending; we have come into politics because we want good public services-obviously, all politicians like to be involved with success in public services-but we believe that cuts are now essential because of the interest rate threat, which my hon. Friend the Member for Tatton correctly identified.

The reason that Governments had to make cuts-and, in some cases, provide for tax increases-to get out of previous recessions was that, if they had not controlled the deficit, the deficit would have controlled them. If we do not control the deficit, it will exact an extremely high price on the rest of the British economy in the form of much higher interest rates and rationed credit, when we need low interest rates for longer and a more plentiful supply of credit from the private sector to get the productive economy moving again.

Our problem is that we have a banking crisis and a crisis of over-borrowing. If we persist in over-borrowing in the public sector, we will not strengthen, but undermine or weaken the recovery. We will make progress more difficult, delay the necessary action and when the cuts-forced by market crisis, collapse of sterling or a bond crisis- eventually come, they will be more rapidly administered, more brutal and less well thought through. It is far better to plan and start to take action now so that the markets begin to say, "Ah, they are serious; they understand it. We can give them a bit of time because we now know that they want to get on with it."

If we constantly repeat, "Tomorrow, tomorrow-mañana, mañana", the markets will not believe a word we say, our interest rates will continue to rise, as they have done in the past year, and our currency will continue to fall, as it has done in the past year. The Economic Secretary appears to think that that is funny. He should wake up to the reality over which the Government are presiding. Interest rates should remain low-we do not want them driven higher by market movements. Our currency is being driven lower, and we need a floor in sterling before the situation gets out of control. I hope that the Treasury sees the need for that. It would be good if it could persuade the Prime Minister-the First Lord of the Treasury-that he also has some duties, and that he does not fulfil them by tarting up a few words as a Fiscal Responsibility Bill. He has the power to instruct the Government to start to tackle the problem.

Apart from the absence of Labour speakers, the interesting point about the Government is the absence of any commentary on how they might start to control the deficit by controlling public spending. Let me begin with an observation and then make an unpopular comment. A substantial reduction can be made in the number of people employed in the public services while delivering a good level and quality of public service in crucial areas. We currently do too many things badly. The Government have recruited another million public sector employees in the past 12 years and they have not always chosen well the roles into which to put those people. Often, they have complicated and made the process of public service delivery less efficient by over-recruiting in the wrong areas.

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The first thing I would do to try to tackle the deficit is put a control on all new recruitment. Every year, 5 to 10 per cent. of public employees leave, find better offers, retire, go off to have children and do not want to return to work. That means that the work force can be reduced quite rapidly over four or five years without compulsory redundancies and the costs and disruption they bring. If one has a strongly enforced natural wastage policy, one can give one's existing public employees much better chances of promotion and career development because some posts will need filling. They tend to be more interesting and better posts, so people can be accelerated into them and that can create a better life for them. We need to control our costs and do more with less. The biggest cost throughout the public services is that of labour.

Of course, we need all the teachers, nurses, doctors and uniformed personnel that we have-I am not talking about those front-line jobs. However, most public employees are not in those jobs. We can introduce better processes, ensure that we do more with less and simplify the tasks. If we simplify the regulatory system, we need fewer regulators; if we simplify the tax and benefit system, we need fewer people clerking and administering those systems. That is what we need to do. Any company would do it when faced with the need for cuts on a proportionate scale that the Government face.

Companies do not immediately ask, "How can I cut my most important service to the public?" or, "Can I close down all my shops to show that I'm in a financial mess?" or, "Can I get rid of all the key personnel so that I can do a really bad job?" Companies ask, "Which people can I do away with so that it's least damaging to the business? To whom can I give more authority and promote, who can then do more for less? How can I win more business with fewer people?" A company has to work like that, particularly in a global marketplace. For example, every year, manufacturing companies are normally asked by their leading customers to cut their prices because of the power of global competition. They therefore have to get on with delivering more for less. They cannot do that by skimping on quality; they must also improve their quality every year, otherwise competitors will do better for less.

My unpopular point is that Members of Parliament must show that we ourselves can do what I have outlined. As I understand it, the current expenses system budgets for every Member of Parliament to have three full-time staff. I think we can do our work with two. I do not want to be unkind to current colleagues, so I believe that we should say to all new Members of Parliament that they will get an allowance for only two full-time staff. Those who are already here can carry on with three-I do not know whether you, Mr. Deputy Speaker, employ three staff, but I do not, so I know that the work can be done with fewer-but when one leaves, the Members should move on to the system of two full-time staff. That is a minimal sacrifice that we should make to show the public sector that more can be delivered for less. A Member of Parliament can do a perfectly good job with two rather than three staff, and that makes a contribution. Armed with that moral authority, we can then approach the big parts of the civil service and say, "Look, this is what we're doing; this is our contribution, and now we'd like you to do something similar. We
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don't want you to take out one in three-perhaps one in 10-but we need to act to make an impact on this huge deficit."

Let us consider pensions. Members of Parliament, unbeknown to the public and unbeloved by them, have already worsened the terms of our pension scheme for everybody who is here. We have to make bigger contributions and there has been some dilution of the benefits-rightly so because the costs were large and the deficit was getting out of control. We are therefore contributing to tackling the deficit. I think we need to go further, and to say to new MPs that like all private sector schemes, the MP scheme is closed to new Members. We have to work our way through our pension problem in exactly the same way that people are working their way through many private sector problems-they have realised that they are not affordable any more, and that they have to make cheaper arrangements for new staff. We are going to have to do the same in many public sector pension schemes that are far bigger and more important than the MP scheme, but it is important to do it first for that scheme, so that we lead by example and have some moral authority when we come to tackle the problem.

There are many other ways in which we could start to curb the deficit. I have no intention of repeating speeches that I have made in the House before and of naming individual programmes and areas of work that I would like to see discontinued, such as the identity card and regional government agenda and so forth, which we could simply abolish and scrap. I am pleased to say that there are many such schemes that could be scrapped, which would start to fight the deficit.

The issue of process is terribly important. The public sector in Britain must learn to do more for less. It must learn to raise quality every year and to cut the price every year, which is what organisations in the private sector must do year after year if they wish to be successful. It is not impossible. Indeed, one of the joys for any new Government is that they will inherit such an inefficient mess that the early improvements in efficiency will be relatively easy. It is far more difficult to take over a company that has been through 10 or 20 years of such processes because the obvious, low-hanging fruit will have been taken-as private sector people would say, the obvious inefficiencies will have been squeezed out. A new Government will have many inefficiencies to squeeze out. They will have to be bold and strong and do such things in a sensible time scale and in a way that does not disrupt the rights and loyalties of existing staff. I think that can be done, and it will begin to curb the deficit.

This afternoon and this evening is, I am afraid, a waste of time and money. Parliament stands ready to do something serious, and the Government deliver a nonsensical Bill to bind themselves or their successor in a way that is not binding and incurs no penalties. What we need is a Government who know how to run the public sector. We need a Government who understand that the world does not owe us a living and that it is moving on rapidly. We need a Government who understand that industry and Governments elsewhere are far more efficient and smart, and far more able to do more for less. This Government seem not to understand that.

If we do not wake up soon, we could have a currency crisis, a bond crisis and a public financing crisis. We might then have a public sector management crisis
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because cuts done in panic, on a big scale and too quickly, could be very damaging. If we put the processes in place now, we might start to get confidence back and we would begin to curb the deficit earlier, which is what we need to do.

8.31 pm

Ms Katy Clark (North Ayrshire and Arran) (Lab): It is a pleasure to have the opportunity to contribute to this debate. I suspect that many of the speeches that we have heard so far will be the kind of thing that we will be hearing in debates over the coming months as we go towards the general election.

I will not be able to support the Government in a Division on Second Reading this evening, but for very different reasons than those others have outlined. I agreed with much of what my right hon. Friend the Member for Birkenhead (Mr. Field) said. He made a powerful speech and articulated very clearly the scale of cuts that we are facing, which I do not think the British people really appreciate at the moment.

In his helpful contribution, my right hon. Friend highlighted one powerful issue that we need to be aware of: the influence of market. The right hon. Member for Wokingham (Mr. Redwood) and a number of others on the official Opposition Benches spoke about the influence of the market on decisions that Governments will make over the coming period, but the irony, which seems to have been lost, is that the markets put us in this position-there was a failure to regulate, but a completely irresponsible approach by the free market put us in this situation. In my view, the Government had no alternative but to take the type of action that they have taken in the past two to three years. The Chancellor was correct that there was no alternative to taking banks into public ownership and bailing them out, and to the fiscal stimulus.

One problem is that there is an over-skewing of our economy in favour of the financial sector. In Britain, much of the financial stimulus has gone towards the financial sector. Our manufacturing base has not had the type of financial injection it has had in some other countries. Perhaps they did not go through some of the experiences that we had in the 1980s and 1990s, when we saw the demise of so many traditional industries and the flourishing of the City and the financial sector. Obviously, at times, that has had benefits for us. I am not in any way trying to minimise the huge financial input that the City and the financial sector have had into this country, but they have put us in difficult situations in the recent period.

I cannot support the Bill because of the scale of public sector cuts that will be required if it is implemented. I am simply not willing to vote to cut essential services for some of the poorest people in this country. We need to have a massive debate not only on why we got into this situation and how we ensure that it does not happen again, but on how we deal with the deficit that we face. In peacetime, Britain has never before faced such a deficit. We have only had to deal with such situations during times of war.

I do not defend every penny that the public sector spends. Anyone with an ounce of sense realises that the public sector does not do everything in the most efficient way, and some things could be done more cheaply, although in some cases more money needs to be spent to provide a better service.

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Mr. Redwood: The hon. Lady says that she supported bank nationalisation. Does she think that it was right to put huge sums of money into very expensive subsidies to banks but not into failing industrial or retail businesses?

Ms Clark: Each situation needs to be looked at on its merits. With the banking sector, there was no alternative, because if the banks had collapsed, the economic situation would have been much worse, given that the economy depends on them. I would have welcomed greater support from the Government for the manufacturing sector, and I will support any such provision in the times to come. The retail sector is in a slightly different situation. There is a long-term argument for retaining a steel industry and other parts of the manufacturing sector, because we will rely on them in years to come. Once we lose those sectors, they will be very difficult to recreate. Those of us from the north and Scotland-the more industrialised areas-know of the proud industrial traditions of this country. We were at the forefront of manufacturing and development, but that is no longer the case in many sectors of the economy.

The right hon. Member for Wokingham (Mr. Redwood) talked about substantial reductions in public sector jobs. If we are to follow the advice of all the Front-Bench teams, especially of the official Opposition, we will see substantial cuts in public sector employment, which will have massive economic implications, especially in those parts of the country that are more heavily reliant on public sector jobs. As has been pointed out, if jobs are lost in the private sector, tax revenue is lost and we no longer have the benefit of the production by that individual. But the same is true in the public sector. There is a huge cost to the state in the loss of employment in the public sector and, at a time when we have to be alert to the risk of growing unemployment, any solution that involves cuts in public sector jobs is a very short-term approach.

In recent months we have had much debate about the possibility of a double-dip recession, and that is a genuine risk. It is difficult to predict when we can start to consider how to reduce the deficit, and that is one reason why I feel it would not be helpful for any Government to have the restraints in the Bill placed on them. No Government, of any political persuasion, would have been able to predict some of the economic experiences that we have had in the past three years. As a Labour MP, I do not want to see my Government constrained in that way. I want Ministers to be able to respond to events, use their judgment and do everything that they can to protect the British economy and the British people. Therefore, as a matter of principle, I am not convinced that a Bill is the most helpful approach.

However, the real reason why I feel unable to support public spending cuts of this nature is the types of cuts that they will likely mean to some essential services. I have voted against various Government proposals that have amounted to substantial public expenditure, including Trident replacement and the identity cards scheme, and I believe that there will be a range of other Government initiatives, such as the NHS computerisation programmes, that perhaps we should look at as well.

I am not saying that there are not areas of public spending that very legitimately we need to look at. Of course, we are currently embroiled in overseas armed conflict. I have never voted in the House on those issues because there have not been any votes since I was elected in 2005, but before I became an elected representative
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in this place I marched against those conflicts. We need to have a serious discussion about our society's priorities and values. My concern about the Bill is that yet again the poor will pay the price when those who have the power and run the show make mistakes. Bizarrely, over the past one and a half to two years, the debate has gone from being about the mistakes made by those running the banks to how we can most effectively and severely cut public spending, and of course it will be my constituents and those of every Member in this House who will pay the price.

I understand the reasons for the Government's stance. However, over the coming months we must be extremely careful in our approach towards the public sector, particularly education, health and the other essential public services on which the most vulnerable in society rely. Many of those services have been fought for by individuals and communities generation after generation, and if we start down the path of closing community halls, libraries and other services, they will not come back easily. I would like injected into this debate a discussion about not just cuts, but our society's values, and we need to say very clearly that it is not those at the bottom of the heap who have got us into this mess. As we move forward, we must also say that it is our role as elected representatives to ensure that they are not the people who pay the price.

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