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I should like to see higher revenues for the Treasury-perhaps through an increase in taxes, preferably one that would change the balance between the contributions of the rich and those of the poor-along with a much larger state pension and free long-term care. I also think that we need to build many more council houses. Other people call them affordable or social houses, but I call them council houses. I want councils to be given the job of building houses as they built them in the past-quality
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houses. Almost all the ones in my constituency have been sold. After the war, when we had a broken-backed economy, we were able to build decent council houses with gardens for working people. Why have they become unaffordable all of a sudden now that we are a much richer country?

Simon Hughes: I believe that I represent more council tenants than any other English Member. One of the reasons for the problem is that Governments of both colours have never allowed all the money that has been paid to remain with councils to be spent, and has never allowed the money that came from the right to buy to be given back to them. Does the hon. Gentleman agree that we will solve the problem only if we allow councils to build houses, continue to own them and keep the money to spend, so that the generation of council properties can be maintained?

Kelvin Hopkins: I entirely agree. It was the Housing Finance Act 1972 that set us in this direction. I opposed it at the time, as a councillor.

We also need green energy projects. We must invest much more in alternative forms of energy which do not pollute or create greenhouse gases. We will experience a serious crisis within a few years; we are approaching peak oil.

As for savings, the hon. Member for North Southwark and Bermondsey (Simon Hughes) mentioned Trident. I simply do not believe that we need Trident: as I said earlier, I think that it is being retained for reasons of political machismo. Savings could also be made by abolishing ID cards. However, I do not want to go on about savings too much, because I do not think that we should be looking to them for extra cash. I think that we should try to collect a little more of the tax that is owed to the Treasury every year. We should try to collect some of that £120 billion.

It has been suggested that if we do not address our deficit, the returns on long-term gilts could rise, because those from whom we borrow will be worried about our future economy. If we had a strong economy, the return on gilts would fall, because people would feel more confident. If we flatten our economy by cutting, increasing unemployment and driving ourselves back into a recession or even a depression, people will be much more worried about the economy than they will be if we spend now, when we need to. If we ensure that the economy is strong, the return on gilts and long-term interest rates will fall. That is what is happening in Germany. When Angela Merkel returned to power she embarked on a targeted reflationary strategy, which is why German long-term interest rates are lower than ours. I think that we should follow the German example in this respect, although not in all respects. The Germans have got certain things right, such as manufacturing.

Cutting unemployment is the key to success. We want reflation, not deflation. As for reducing the deficit, we will do that in the longer term. The process will be largely automatic, but if we need to address a structural deficit we can do so by collecting more taxes-by means of tax changes, but closing the tax gap would be my priority.

I think that we have the potential to build a strong economy for the future. I think we have finally recognised that the era of neo-liberalism-the era of globalisation
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and laissez-faire capitalism-has failed. It has brought us to the brink of catastrophe. I am sad to say that Members on all three Front Benches have supported that strategy for many years. I remember saying in my maiden speech that I had come here to oppose neo-liberalism, and I do not regret saying it. I think I was right then, 13 years ago, and I think I am right now. In a sense, the fact that we have looked over a chasm has proved my point. Countries must return to more managed economies. I do not mean strategically controlled, publicly owned economies, but I think that countries should choose their own interest rates, fiscal policies and exchange rates, and intervene when it is necessary to ensure that their economies work, retain their strength and, indeed, become stronger. When we have achieved that, we can co-ordinate reflation between the countries of the world, and we can all grow together and become stronger together. That is the way forward, not the lunacy of the last 30 years.

3.9 pm

Mr. Michael Fallon (Sevenoaks) (Con): First, I remind the House of the interests recorded in the register.

I hope that the hon. Member for Luton, North (Kelvin Hopkins) will forgive me if I do not attempt to explain to him why he might be wrong to think that neo-liberalism is on its last legs. It might be worth reminding him as well that it is still the policy of his Government in principle to join the euro. I agree with his point about tax collection, however. The Treasury Committee recently looked at the state of Her Majesty's Revenue and Customs, and morale there is not good; I certainly agree with the hon. Gentleman on that. Whichever party wins the election in May will need to take a fresh look at HMRC; an awful lot of tax is not being collected, and when the Committee last looked at it, we found a rather dispirited and poorly led service that requires urgent attention.

Yesterday, we saw a very rare sight: a pre-election Chancellor who could not give an election Budget. The public finances are in such a sorry state that he could not have afforded a giveaway Budget even if he had wanted one. He called it all workmanlike, but I call it impotent: it was impotent on the public finances, and impotent on the real economy.

Like my hon. Friend the Member for Macclesfield (Sir Nicholas Winterton), I am seriously concerned about the economy's future growth prospects. The Chancellor continues to forecast growth of more than 3 per cent. for next year, but the latest independent forecasts-from the first fortnight in March, and gathered together and published by the Treasury-show an average growth forecast for next year of just 2 per cent. I therefore think the Chancellor is being optimistic. Manufacturing output is still falling, business investment has halved, and exports have fallen by 12 per cent. over the last three months, which is one of the sharpest falls on record-my hon. Friend the Member for Macclesfield gave the export figures for just last month, I think. I am not sure whether we will have a hung Parliament, but we have certainly got a hung economy; it is half in, half out of recession.

I see that in my constituency: the high street continues to struggle, small businesses cannot get the credit they need, and a third of those registered as unemployed in
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the Sevenoaks constituency are under 25 years of age. After all the initiatives on youth unemployment and all the extra investment in education and training, that is a shocking figure, and it is worth adding that it has increased by 14 per cent. over the last 12 months. I am therefore seriously concerned about the prospects for economic growth.

Turning to the public finances, only a Labour Chancellor could describe a deficit of £167 billion as some kind of improvement on his original forecast. This Government cannot escape responsibility for their appalling record in managing the public finances. They have not balanced a Budget for nine years, and seven of them were years of growth-indeed, they were years of continuous growth-when there was an explosion in the value of receipts: income tax receipts from the financial sector, stamp duty receipts from the housing sector, increased employment yielding yet more tax, and increased corporation tax coming in from a booming economy. Yet for nine long years they have failed to balance the Budget. As we all know, the deficit now stands at some 12 per cent. of GDP, but the structural deficit-which, with respect, I think the hon. Member for Luton, North was a little cavalier about-is 8 per cent. of our GDP and will not be magicked away simply by growth.

Tackling that deficit will require firm action on the spending side and, almost inevitably, on the tax side too. That is why this Government have pencilled in some £19 billion of tax increases. Those are now in the pipeline, although the Government have skilfully ensured that most of them will not really kick in until April 2011. The structural deficit is some £70 billion to £80 billion. Some £19 billion is coming in from tax increases and some contribution is no doubt coming from growth, but what the Government have not told the House is the detail on the £30 billion or £40 billion that simply has to come from reductions in public spending.

Simon Hughes: The hon. Gentleman is well respected for his position on the Treasury Committee. He may be about to do this, given his analysis that additional receipts will not solve the problem and that significant spending reductions will have to take place, but will he now say where he thinks a Conservative Government should find those? We have not heard that from his Front-Bench team.

Mr. Fallon: I was just coming to that, but I do not want to let the Government wholly off the hook on their record. I said that they had wasted the good years, so let us consider the summary: unit labour costs in this country are back to pre-exchange rate mechanism levels; public sector productivity has actually fallen over the past 10 years; and so unreformed are our public services that only half our school leavers get five good GCSEs.

The Government are now borrowing so much that even on current bond yields it is cheaper for the Italians to service their borrowing than it is for us to service ours; our Chancellor and Prime Minister are running our public finances worse than Signor Berlusconi is running his. This should have been a Budget that set out in more detail plans to tackle the deficit. The key difference between the Conservatives and the Government is that we know that we cannot sit on our hands for
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another 12 months. That is also a key difference between us and the Liberal Democrats. To be fair to them, they have spelt out some cuts, but they are saying that none of those cuts should take any effect until April 2011. I simply do not understand that argument.

If we think that identity cards, for example, are the wrong way forward and will not better protect us against terrorism, how would a new Government in May or June making an immediate start and getting rid of those jeopardise the economic recovery? If we think that government should be smarter, and that we should freeze recruitment in Whitehall and cut back on consultancy and some of the unnecessary public bodies, how will that suddenly tip us back into recession? There are savings and economies that need to be implemented now, and the Government need to get going. I shall explain how.

Simon Hughes: Statements by my colleagues have made it clear that although further decisions have to be made to take effect in 2011, some things, such as the scrapping of the ID cards system, can and should take place in the coming financial year. So, I hope that the hon. Gentleman will not misrepresent the fact that we are clear that some savings need to be made in the year that is just about to start.

Mr. Fallon: I am grateful for that clarification, because we were perhaps under the illusion that the Liberal approach was savagery, but not yet; we now find that the savagery is going to start in 2010-11. We cannot sit on our hands for a whole 12 months. Many of these economies and savings will not jeopardise the recovery and hurl the country back into recession.

How does all this need to be done? As the Governor of the Bank of England has been saying time and time again, there needs to be a credible plan that will capture the confidence of the markets, and that needs to be spelt out. Secondly, the bulk of the savings have to come in the first Parliament. Spreading these reductions over six, eight or nine years is too leisurely. The bulk of the deficit has to be tackled in the first Parliament.

Thirdly, the bulk of this deficit reduction surely has to come-this is where I obviously disagree with the hon. Member for Luton, North-from spending reductions, rather than yet more tax increases. Tax increases are already in the pipeline. There are to be tax increases on national insurance contributions, which will affect anybody earning more than £20,000 a year and all the businesses that employ them. Employers' contributions are going up from next April-that is in the pipeline. In addition, we have now discovered, from the small print of the Budget, that everyone is going to pay more in income tax straight away, this April, because of the failure to index the allowances, so the bulk of the reduction has to come from the spending side rather than the tax side.

Fourthly, the process has to be open and honest and must have public consensus behind it. I agree with the hon. Member for North Southwark and Bermondsey (Simon Hughes) on that point. That is why it cannot be done through the chaotic press releases from various Whitehall Departments that my hon. Friend the Member for Tatton (Mr. Osborne) read out this morning-the continuous sleight of hand over various spurious efficiencies. It has to be done openly and honestly. That is why I welcome my hon. Friend's proposal for an office for
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budget responsibility. There is nothing new about such an office, as a similar office signally improved and helped the Government of Canada to make the reductions that they had to make because there was an independent juror who could properly vet the Government's proposals and help them to judge whether those proposals were fairly balanced.

As well as restoring public finances, the Budget should have been used to fire up the economy. We have to recapture the missing 5 or 6 per cent. of our gross domestic product that was lost during the financial crisis. As in any Budget there are some measures that I welcome-there are measures to help businesses, even small businesses-but I note that an awful lot of the measures seem to set up organisations to be run by Lord Mandelson, including various investment banks and panels. I think that we must first reduce the cost of employment. Businesses in my constituency, particularly small businesses, are now tax credit administrators. They have to look at student finance and check people's immigration status, so they are virtually working for the Government. There is a perverse incentive on small businesses almost to do everything possible not to take on an extra body. We have to look at the cost of employment. That means looking again at the increase that is threatened on everyone from April 2011. If my right hon. and hon. Friends on the Front Bench are right in proposing to exempt all new businesses from national insurance payments for the first 10 employees whom they take on, why should not that also be right for all small businesses? Of course, we need to reduce those costs.

We must also do more to help exporters. Like my hon. Friend the Member for Macclesfield, I am seriously concerned about the deterioration of our export position. The Government could do more on that, as public finances allow. They should consider withholding tax, as it is difficult for companies that do not have large trading operations in this country to have profits to offset against the profits they earn overseas. We ought to consider the balance, in relation to withholding tax, to see how we can better help exporters.

Finally, we need to do more about early-years funding. The private equity industry in this country, with which I am connected, has been much maligned, but has performed a very good service in helping medium-sized businesses, such as family businesses, to proceed to the next level. What we have not been so good at is providing start-up, or risk, capital. That is done so much better in the United States. I think that we need to look again, as public finances allow, at the eligibility and thresholds of venture capital trusts, which are a minor part of business incentives and simply do not encourage the kind of investing and risk-taking culture that new businesses need if they are to start up and get the capital backing that they need.

Those issues are not opposites. It is essential both to rebuild public finances and to re-energise our economy if we are to rebuild the confidence that we need among businesses and in the markets, but the Budget will not do that. Hon. Members might remember sitting mock exams in March, when they were at school, in preparation for the real thing in the summer. Yesterday's Budget was a mock Budget, and the Government failed it. In the end, I suspect that whoever wins the coming election will have to introduce a real Budget later in the summer.

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3.20 pm

Harry Cohen (Leyton and Wanstead) (Lab): It is a pleasure to follow the hon. Member for Sevenoaks (Mr. Fallon), whose case is always coherent, even if I do not agree with his solutions. I do not agree with his assessment of yesterday's Budget, either. I think that it was a steady-as-you-go Budget designed not to choke off the recovery. I saw that the front-page headline of the Daily Mail today called this a Budget of envy and spite-I do not know what world those people live in! I think that it was a result of the extra 1 per cent. of stamp duty on the sale of homes with a value of more than £1 million, which just shows the agenda of the chief journalists and political editors of papers such as the Daily Mail. We know where they are coming from and people should not be taken in by their hyperbole.

The Budget was designed not to choke off the recovery, but the Tory alternative of heavy cuts would do just that and be grossly unfair. It was not public service workers, ordinary working men and women or even the middle class who brought about the crisis and the near economic collapse; it was the reckless bankers and speculators and those like the Tories who wanted virtually no regulation or control of the banks at all. However, those without the blame are being asked to pick up the bill, and it is a heavy one. The heavy cuts that the Tories are looking to impose on them are unfair.

I still think that we need substantial banking reform. It must never happen again-that must be the watchword -and the structural change is not in place. Let me quote President Obama in a speech on 21 January this year:

He went on to say:

We should be saying the same for the UK taxpayer, too.

On the "too big to fail" argument, President Obama said that he had made it the policy in the United States that there would be no further consolidation of the financial system. I think that that should be our Government's policy too, and, in addition, we should require the break-up, division or sell-off of any financial institution that, if it failed, could inflict major damage on our economy. No bank, hedge fund or any other financial institution should be in a position where it has to be protected by a taxpayers' bail-out, probably involving a huge amount of money, because if it fails-probably by its own recklessness-it wrecks the economy. That position of blackmail has to end.

That brings me on to the situation with hedge funds. If they fail, they risk the interests of taxpayers, too. In his speech, President Obama referred to the hedge funds and said:

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He emphasised that again when he said:

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