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The recession caused by the bankers has led to unemployment, repossessions and business failures, but those outcomes have been nothing like as bad as the City analysts whom the Tories keep quoting were predicting. One reason for that is that, unlike the hysterical analysts in the City, most people running businesses live in the real world and are level-headed. They are trying to keep their firms and their work forces together so that they will still be in business when demand for their goods and services rises again. Their efforts have been backed up by the Government's determination to keep pumping money into the economy to make up for the damage
caused by the bankers. This included bringing forward investment projects, the public purchasing of goods and services from the private sector, and the quantitative easing that has poured money into the economy. It also included the temporary reduction in VAT, which was derided by those on the Tory Front Bench and their analyst friends when the Government introduced it, although it is now acknowledged as having been a considerable help.
We all have to recognise, however, that the effects of the recession are far from over. The recovery is under way, but it is quite fragile. Yet this is the moment that the Tories are choosing to demand massive, immediate cuts in Government spending. They claim that this would reduce the Government's deficit, but it would not, because it would involve more people being thrown out of work. Throwing people out of work does not reduce the deficit. Quite the reverse: throwing people out of work increases it. Every job lost is a triple whammy for the taxpayer. First, the taxpayer has to go without the goods and services that the job-losers used to produce. Secondly, the taxpayer has to fund the benefits needed to keep the jobless and their families. Thirdly, the taxpayer has to do without the tax that the job-losers would have paid if they were still in work.
Mr. Jeremy Browne: Will the right hon. Gentleman give way?
Frank Dobson: No, I must get on.
Even without counting the reduction in economic activity, keeping someone out of work costs at least £12,000 in benefits paid out and tax not taken in. That is £12,000 per person that is added to the deficit. To put it another way, throwing someone out of work is like turning a useful member of a ship's crew into a passenger who then has to be looked after by the remainder of the crew.
Mr. Hammond: The right hon. Gentleman is rightly concerned about the prospects for employment. Given that concern, does he support the Government's proposal for a 2 per cent. increase in national insurance contributions, and what does he think that that will do to the job market?
Frank Dobson: It will not help the job market- [Interruption.] Unlike the Tory Front-Bench team, I am not living in a world of fantasy. It will not help the job market, but it is a better proposition than what we have heard from the Tories. There should be no question, in my opinion, of making cuts in public investment until the economy is well on the way to recovery and the joblessness rate is way down from what it is now.
Apart from the cost of bailing out the bungling bankers, the main cost of the recession is the result of the reduction in economic activity. We are not producing all the goods and services that we are capable of producing. The economy is not fully operational and the best way to clear the deficit is to get the economy working at full capacity again. The only way to do that at this stage is to keep on pumping public money into the system until the private sector recovers.
No doubt prompted by the recent disclosure of the official papers covering the first days of the Thatcher Government, the Tories, their media friends, the bankers
and auditors and the infamously incompetent ratings agencies and their friends have started saying, "Well, yes, Mrs. Thatcher's policies may have been tough, but they worked. She transformed the economy." This myth-and it is a myth-is sadly subscribed to even by many people who should know better. The fact is-and it is a fact-that the average annual economic growth under the Wilson-Callaghan Governments who preceded Mrs. Thatcher was higher than the growth in the Thatcher years, so revered by the Tories and their City analysts.
The Thatcher Government succeeded in creating a feel-good factor by spending the massive tax takings from North sea oil and gas and the huge capital receipts from the privatisation of electricity, gas, telecommunications and other industries. These one-off assets were squandered: they were not put into a sovereign wealth fund; they were not used for long-term investment in the country's future in new manufacturing industry, in science, in research or in education; and the money was certainly not invested in training, as apprenticeships were abolished. The Tory Government used it to fund tax cuts with massive tax benefits going mostly to the rich, which appears to be the Tory policy still. Contrary to free market economic theory, the Thatcher Government did not increase economic growth; they actually reduced it.
Ms Karen Buck (Regent's Park and Kensington, North) (Lab) rose-
Frank Dobson: I give way to my hon. Friend and neighbour.
Ms Buck: On that same point, does my right hon. Friend agree with me that during those years and as a consequence of the particular employment policies he outlined, the number of children living in poverty increased threefold? The Institute for Fiscal Studies has calculated that if the policies in place in 1997 when the Tory Government were last in office had continued until the present day, 2.1 million more children would be living in poverty than are now and that as a result of the Government's policies, including those in the pre-Budget report last week, a million children will have been lifted out of poverty by the time of the election.
Frank Dobson: I agree with my hon. Friend's point.
When the Tories went into that general election 30 years ago, of course, they had an election manifesto. Needless to say, they did not keep to it. I have been reading it and it should be filed under fiction. The fact is that they did not keep their promises. They promised to honour the pensions system they inherited, yet practically the first thing they did was to cut the link between pensions and earnings. They promised, and I quote,
"a competitive and efficient coal industry",
yet they closed it down. They promised to simplify the tax system and came up with the poll tax. They promised to make better use of training resources; they closed down the Training Agency and abolished apprenticeships.
The Tories promised, and again I quote, "to master inflation"; under them, inflation ripped to record levels. In one Thatcher year, inflation hit 18 per cent. while over her whole period as Prime Minister, it averaged 7.6 per cent. a year and never fell below 3.4 per cent. They promised to make better use of NHS resources, yet they gave tax breaks for private medical insurance
and left the NHS with decrepit hospitals and staff shortages. That is only a sample of what happened in response to the Tories' famous manifesto.
Ms Keeble: History lessons are sometimes very useful. When expert witnesses appeared before the Select Committee, they said that in the event of a faster fiscal tightening, what would certainly have to go would be our proposal to bring back the index-linking of pensions to earnings.
Frank Dobson: Again, one of my hon. Friends has made a valid and important point.
That Tory manifesto was soft soap. The Tory reality was hard-faced. The Tories' real policies were not in their manifesto, but they were being advocated by think-tanks and pressure groups, and they were then put into practice when the Tories came to power. I believe that they are trying the same trick again. The Tory leadership present their party as reformed and rehabilitated, but it cannot be trusted. To find out what the Tories really intend, we need look no further than what the Tory think-tanks and supporters' groups are saying. That way, we find out what the real Tory policies are.
The TaxPayers' Alliance-a real Tory outfit if ever there was one-and the Institute of Directors are jointly advocating all sorts of slashing attacks on services that make life decent for millions of our fellow citizens. They are threatening the elderly with a freeze on the basic state pension and the income guarantee, the withdrawal of free bus passes, and the abolition of free television licences. They are threatening children and young people and their parents with the abolition of Sure Start, the ending of the education maintenance allowance, the abolition of child benefit and the child trust fund, and the ending of the interest subsidy on student loans. They are even threatening a 25 per cent. cut in spending on the arts and theatre. Furthermore, they are threatening people in the impoverished third world with reductions in aid.
Mr. Cash: Will the right hon. Gentleman give way?
Frank Dobson: As long as the hon. Gentleman promises not to mention Brussels.
Mr. Cash: I give the right hon. Gentleman that guarantee. What I do want to ask him is this. I suspect that he is keeping his prescription to himself until the end, if indeed he is going to produce it at all, but he has said many times in the past that it would be far better if we resorted to a policy of nationalisation. Does he think that that would be the right thing to do in the light of the present crisis in our banking and economic circumstances?
Frank Dobson: As far as I can make out, even bankers are in favour of nationalisation provided that it nationalises them and saves their bacon. I am not fanatically in favour of it, although I accept the point made earlier by my hon. Friend the Member for Morley and Rothwell (Colin Challen)-who is no longer present-that it would probably be a good idea to keep the east coast main line in the public sector rather than handing it back to the collection of incompetents who were running it before.
It is not just the TaxPayers' Alliance that is advocating cuts in services. Reform, which portrays itself as another influential Tory pressure group, advocates penalising pensioners for the banking crisis by abolishing the winter fuel allowance, free television licences and concessionary bus fares, and ending retirement pensions, council tax and housing benefit, widows' and war widows' pensions, carer's allowance and disability living allowance for people receiving considerably less than average pay. It is also urging the Tories to impose the same eligibility threshold for maternity pay and child benefit, and to scrap the employer-supported child care scheme, the health in pregnancy grant, the Healthy Start scheme, the Sure Start maternity grant and the education maintenance allowance.
We should beware the Tories' claims to have changed. Their supporters and paymasters have not changed. The people who will be paying for their forthcoming advertising blitz have not changed. We should resist their attacks on pay and pensions. This crisis was not caused by the potential cost of pensions for postal workers or teachers. It has not come about because social workers or nurses or bank clerks are overpaid, or because refuse collectors or shop assistants or factory workers or people gritting roads today are not working hard enough. It has come about because the overpaid bankers and their auditors could not distinguish between an asset and a liability, and the famous rating agencies could not have spotted a wrong 'un even if they had been trying.
I believe in accountability and responsibility. The banking industry and its hangers-on caused the crisis. They should have to meet the bulk of the cost of clearing it up. It is simple. It is the "polluter pays" principle. The bankers polluted the world economy. The bankers should have to pay for clearing up their pollution. Therefore, I welcome the new top rate of income tax and the bankers bonus tax. I support the proposal for a tax on all international financial transactions. I urge the Prime Minister to continue to press for a Tobin tax in collaboration with his French and German counterparts and, hopefully, shame the Americans into accepting it.
The only way we can get out of this recession and create a fairer and more equal society is if the bankers meet their fair share of the costs that they have imposed on the rest of us. The bankers have shown no signs of reining back on their excessive rewards. If the self-rewarding excess of the bankers continues while everyone else has to tighten their belts, it will lead to bitterness and social unrest. As the bankers and their public relations machines deploy their wealth and influence to scapegoat others for the consequences of the banking crisis, we are already seeing a major campaign to lay the blame on hard-working people providing vital public services. Once that sort of irrationality takes hold, once scapegoating becomes acceptable, there is no knowing where it will end. It could set loose forces that set one part of the country against another, one generation against another. It could risk giving right-wing extremists such as the British National party a hell-sent opportunity to promote petty nationalism and the politics of race and religion.
I believe deeply that our response to the recession that the bankers have created will not just determine the future of public finances. It will determine whether the
second decade of the new millennium is faced by our people united in the pursuit of fairness and prosperity, or whether we are to be torn apart by strife that could threaten our very democracy.
3.22 pm
Mr. Peter Lilley (Hitchin and Harpenden) (Con): It is always a pleasure to follow the right hon. Member for Holborn and St. Pancras (Frank Dobson), if only because it reminds us how far the rest of us have moved on over the past couple of decades. I hope that he will forgive me if I do not return to fight the old battles, which he enjoys fighting even though he lost. I see no need to re-fight them, because we won.
I have found that I can begin almost any speech on any subject, and I do, by reminding people of the slogan that Bill Clinton used to have above his desk to remind him of what was really important: "It's the economy, stupid." As we are focused on the economy today, we need another sign above our desks saying, "It's the deficit, stupid" and below that perhaps another one saying "It's public expenditure, stupid." Unless we focus on getting a grip of public expenditure and on eradicating the deficit more rapidly than the Government want, we will not get the economy of this country right. The supreme weakness of the pre-Budget report-some of us may have forgotten that we are supposed to be debating that today-is that it does not focus on those things. One has to get more than halfway through the overview at the front before there is even the coyest of mentions of the deficit:
"The Pre-Budget report announces action to maintain the path of fiscal consolidation".
It goes on to say that the three measures that maintain the path of fiscal consolidation are all tax increases. That is how the Government see the priority of solving the deficit. The report refers to public expenditure only in the last sentence, when it mentions that the Government plan is to embed
"in legislation through the Fiscal Responsibility Bill"
their measures to halve the deficit. The substitute for action, as far as the Government are concerned, is the deficit-reduction Bill. We debated that at length on Tuesday. I did not have a chance to participate then, so I hope I will be forgiven for saying now why I consider that Bill to be a mistake.
First, it is obnoxious in principle to try to bind future Parliaments. That cannot be done in practice by passing a law, but time and again this Government try to bind future Parliaments by passing legislation that has a bearing on what future Governments must and must not do. Secondly, the Bill is nonsense. It is not even legally enforceable. It is not even judiciable; it is one of those rare Bills that actually has a clause that effectively says that the courts may not take note of the law incorporated in it. It is imprudent, too, because it seeks to bind, albeit unenforceably, future Governments to follow a particular path when we cannot be sure what things will be like over the next four years-let alone the next eight or 10 years, as the Bill envisages. I think that we should probably pursue a fairly ambitious path, but it is foolish to try to lay down a law on what needs to be done in future. The Bill is also a displacement activity; it is a substitute for action because the Government want to avoid action and facing reality.
What is most wrong with the Bill, however, is that it is a recipe for delay. St. Augustine said, "Make me chaste, O Lord, but not yet" and St. Alistair says, "Make me fiscally responsible, but not until 2011." At least St. Augustine saw himself ultimately becoming chaste, but the Chancellor and the Prime Minister are probably passing on the task of fiscal responsibility to their successors, rather than to themselves.
I believe that it is better to act sooner rather than later, because there is a positive benefit in doing so. If we act sooner in taking steps to get the deficit under control, that will restore confidence; and with confidence, growth will come-and with growth, jobs will come, not least for our young people who are currently languishing on the dole queues at the very start of their careers.
There is also danger in deferring action on the deficit in that every month we do so the risk increases of our having a sovereign debt crisis and a financial collapse. That would mean higher interest rates, which would not only make controlling the deficit less easy, but hit all those people with mortgages. One thing about this economic downturn is that at least there is a section of the community that is reasonably well off, and in some cases better off, because interest rates are low: the mortgage payers of this country. They face the greatest threat from this Government's refusal to tackle the deficit speedily and strongly, because it is their interest rates that will increase.
Justine Greening: Does my right hon. Friend agree that because other countries have already come out of recession, our taking a long time to get our public finances back into shape will be a double disadvantage-both domestically and globally in competition with other countries?
Mr. Lilley: My hon. Friend is absolutely right. If we leave this too late and as a result there is a crisis, we will have to take much more brutal action: instead of companies simply not recruiting, they will have to sack people; instead of voluntary redundancies, there will be compulsory redundancies. That will be the inevitable consequence of taking too long over implementing the measures that we need to take to bring the deficit under control.
The Chief Secretary said that worries about major holders of Government bonds selling their bonds were overstated. He said that PIMCO was selling bonds because it was looking for riskier assets elsewhere. He must be the only person who thinks that PIMCO and other bond holders are selling UK bonds because they think that they are not risky enough-because they think that the Government's finances are not putting us in sufficiently great danger of bankruptcy. The truth is that they are selling them because they think that the price does not yet fully reflect the risks and dangers of financial collapse. They know that if that happens there will be higher interest rates, and they would prefer to buy them back then rather than experience the collapse in the price and rising interest rates while still holding them.
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