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As for the national insurance increase, the moment it was announced I said what I have said throughout-I cannot remember whether I said it first in the House-namely that national insurance was the worst possible tax base for the Government to turn to if they wanted to raise revenue in a recession. It is a tax that should be avoided at a time when a Government are trying to nurture a weak economic recovery. It is not only an income tax on everyone in work, but-more important, in my opinion-a tax on jobs. It stops employers hiring new staff, and discourages them from retaining the staff
whom they already have. It also puts pressure on their wage costs. The Federation of Small Businesses estimates that it would probably have cost 57,000 jobs had it been allowed to stand.
Ms Keeble: The right hon. and learned Gentleman spoke of delaying tactics. He has now been speaking for nearly half an hour without addressing himself to the real issue of the debate: the Budget, and in particular the education budget. The only proposal that he has come up with so far is not to increase national insurance contributions, which would add £6 billion to the deficit. What I want to hear, and what I am sure others want to hear, are his proposals relating specifically to the education budget and, in particular, the schools budget, which the Institute for Fiscal Studies has described as the biggest single unprotected budget that the Tories have.
Mr. Clarke: That brings me to my next point. First, there are the efficiency savings, which have been debated a fair amount publicly in the last day or two. Secondly, we will have to move on to a public spending round. We will have to move on to addressing the programmes of individual Departments, and they will be addressed. The education Department is only one of them.
I shall explain the problem to the Opposition in a moment, but as things stand-as I think has just been conceded-the education Department faces a real-terms cut in its current spending over the next few years. It is also down for £1 billion-worth of efficiency savings, but no one can adequately explain where they will come from. No one in most Departments can explain where the pencilled figures for efficiency savings are supposed to come from.
Mr. Clarke: I will give way to the Secretary of State for the last time. We are both taking up too much time.
Ed Balls: We are, but I want to make sure that we are absolutely clear about the position, and to give the right hon. and learned Gentleman time to explain his own position clearly.
On 19 March, under the headline "Cameron overrules Clarke on NICs", the Financial Times quoted the right hon. and learned Gentleman as saying:
"We will only know if we can afford it"
-the national insurance freeze-
"in the [first emergency] 50-day budget."
What has changed between then and now?
Mr. Clarke: I do not know whether the Secretary of State does the research for the Prime Minister, who is also very fond of quoting me, but he has just used the same quotation twice.
As I have just explained, I certainly agree that there should be no tax reductions, or abandoning of tax increases, unless it can be explained how they will be paid for. What I said was what I said, and what has happened since then is this: we have had the reports from Gershon and Reed, and we have settled down and studied them. We have worked out that of their £12 billion savings, £6 billion can certainly be secured. That can pay for what we have proposed. As I have just said, increases in national insurance are particularly disastrous.
What a responsible Government should have tackled is the public spending programme for the next three years. They should have produced a review of the changes that were needed to address the deficit. That has not been done, and it is extremely difficult for an Opposition to do it. A strange background is provided to the debate by what I consider to have been the most cynical of all the decisions made by the Government in the last 12 months: the deliberate decision to put off a public spending round in the run-up to an election.
According to the Government's own programme, there was supposed to be a full public spending round. That would have informed everyone's debate, and would have set out priorities properly. The excuse given for its postponement was pathetic: "uncertainty". No one believes that. Everyone knows that it was postponed because the Government did not want to address any of these questions in the run-up to an election. That displays unforgiveable cynicism. We as the Opposition party keep getting pressed by exasperated journalists and members of the public to give details of what cuts we would make, but even when the information available to us is not complicated further by the explanations offered by the Childrens Secretary, but is set down on paper in English prose, it is not adequate to address that question. Similarly, Secretaries of State need to take advice from within their Department and negotiate with the Chief Secretary and his officials before they can draw up a possible programme. We need to have a public spending round, but this Government suspended that out of cynicism-out of pure electoral opportunism.
Ed Balls: If the right hon. and learned Gentleman cannot have any confidence in the £11 billion of savings we have said we can find, how can he have any confidence that he can find a further £6 billion of savings to pay for his national insurance freeze? He has just dug a very deep hole for himself. He has just explained why he was completely right a few weeks ago when he did not think this NICs tax freeze could be paid for. He has confirmed that now, which is why people know that what is actually going on here is a secret plan for an increase in VAT.
Mr. Clarke: We have set out the five bases Gershon says we should pursue, but we have not allocated figures to individual Departments as we are not in a position to do so. However, the Children Secretary has, for his own reasons, tried to allocate figures, and he has allocated the £11 billion in such a way that nobody in any Department has the first idea of how they are supposed to produce these savings. With the greatest respect to the right hon. Gentleman, I say to him that to suggest that that is an adequate substitute for a public spending round is a pathetic response.
We should have had a proper Budget. Not only would we then have had a better debate, but it would have been more challenging to both Opposition parties if the Chancellor of the Exchequer-who holds that office despite the Children Secretary's wishes-had been allowed to come to this House and say to us and the Liberals from the Dispatch Box, "These are my tax plans and my spending plans for Departments over the next three years. Which of these tax changes are you going to vote against? Are they tough enough for you? Would you like them to be tougher?" It would have been more challenging to the Opposition parties if he had
said on the spending plans for Departments, "How would shadow Ministers for spending Departments on your side of the House react to these plans? Are the Opposition parties going to settle for these plans, or are they going to toughen them up-or weaken them?"
If that had happened, we would have had a serious debate. The public would have been less disillusioned with politicians as a whole, we would have been put on the spot, and-who knows-we might have done what the then Leader of the Opposition and the then shadow Chancellor, who is the current Prime Minister, did in 1997: we might have said, "We agree with your fiscal policy." We might have said what Blair and the current Prime Minister said then, on the advice of the current Childrens Secretary: we might have said, as they did after my Budget in 1997, "We accept your spending plans, we accept your tax plans, and we are going to stick to them."
The Government should have produced a proper Budget, but instead they have not produced any serious fiscal or spending plans. Optimistic growth forecasts, inchoate figures and a complete refusal to hold a public spending round is the only background to the practically content-free statement the Chancellor gave the other day.
Mr. Clarke: I must move on now.
As we have turned this into a business debate rather than an industry debate, I shall briefly touch on the implications for small businesses and the contribution made to this debate from afar by Lord Mandelson and his Department for Business, Innovation and Skills. What we should all be talking about is how to return to growth: what is the future for British enterprise, and how do we make this economy successful again? However, until we tackle the debt problem, we cannot do so; there will be no return to normal growth until we satisfactorily address the deficit and the debt problem.
Let us consider the current prospects for businesses. We have no fiscal stimulus, and if this Government survive, business faces a national insurance increase. Business faces a considerable increase in business rates-I believe it will be £1 billion in the year about to start-and the small business corporation tax rate is increasing from 21 to 22 per cent. in April 2011. So the first thing that business faces is an increase in taxation.
Obtaining credit is the big problem for small business, and that is holding back growth on a great scale. Lord Mandelson accepted as much with some vigour in a speech he made about the behaviour of the banks a few days ago. What is in the Budget to tackle this? What is pulled out of the hat on the eve of the election? The answer is a credit adjudicator service. Apparently, some sort of new tribunal will be resorted to by every business man who cannot get the credit he thinks he ought to get from his bank; there is to be an appeals system. A whole new profession of sub-lawyers and separate risk managers could be about to appear. The banks are to be determined by some tribunal, some official or perhaps some political adviser. When someone is worried about their credit, they will have to say how marginal their constituency is and whether the Labour candidate is a Blairite or a Brownite. That might have a very significant effect on
someone's success when they appear before the credit adjudicator service. It was rightly ridiculed by Richard Lambert, and nobody has the first idea as to how it is meant to act as an answer to the credit problem.
Lord Mandelson is trying to sell his whole Government on "active government" and "interventionist government", but when he was last at the Department of Trade and Industry he did not take that view at all. Indeed, I often quote with approval one of the things he said when he first came into what is now the Department for Business, Innovation and Skills. He was against the Government picking winners, saying that the history of this had usually been losers picking the Government. That is a very good description of the industrial strategies of the past. It was a very witty remark, with which I wholly agree.
However, suddenly we find that "active government" means that there is a kind of slush fund of grants from various parts of government. They have been holding back various grants and financial approvals that they could have given in the past few months and are now releasing them in a sudden rush on the eve of the election. The allocation to the noble Lord's budget in BIS is a one-off £750 million, which he got as a kind of dowry when he turned up-he called it a strategic investment fund. What has happened, as the Financial Times showed in some research a couple of days ago, is that no less than £7 billion-worth of grants or financial approvals have been given in the past week or two. This has been done by three Departments in particular-the Department for Transport, the Ministry of Defence and BIS-with the money to be spent on trams, trolley buses and defence contracts. Some of these grants to industrial enterprises are doubtless worth while, but this is happening all over the place; I advise anybody in a marginal seat who is looking for Government money to get in a bid quickly in the next few days.
Let me discuss one of these grants. I shall not oppose it, because I do not know enough about it, and I shall go on to explain why I do not get up to oppose such grants. So let me give approval to one of Lord Mandelson's recent grants. Some £8 million has gone to the refurbishment of Blackpool tower; the iconic tower and Winter Gardens in Blackpool has suddenly got a grant.
Mr. David Gauke (South-West Hertfordshire) (Con): Two marginal seats.
Mr. Clarke:
Heaven forfend. I like the tower and I always go there when I am in Blackpool. My party used to go there and I also have fond memories of it as a child. The tower is a national monument and £8 million is no doubt money well spent. [Interruption.] I am being told that Blackpool has a Conservative council. Indeed it does, but it has two Labour seats, both of which used to be Conservative seats. This is, thus, a mere coincidence. One of my hon. Friends was unkind enough to mention that after a wait of all these years £8 million has gone to Blackpool tower. This is part of the £7 billion that is suddenly being disbursed. Where is the money coming from? It is being borrowed. Is it the Government's money? No, it is the taxpayer's money, which the Government hope that eventually some Chinese investor will help to finance. At the moment, the necessary bonds are presumably being printed by or bought by the Bank of England. [Interruption.] The only person
who Lord Mandelson ever consults on political tactics is the Children Secretary. They are the architects of new Labour, a movement that we all know is, in essence, a media management and party political campaigning organisation.
Lord Mandelson would, of course, want to know whether or not I oppose each and every one of those grants. it. He knows perfectly well that if I say that I oppose a certain grant, that information will go to the relevant place and people will say, "If you vote Conservative, there will be x million less in Barsetshire." People will say that there will be less of a grant for this or that, so I do not do that. I have a good reason for looking at those grants, some of which-the bigger, more substantial ones-I would probably approve of, but I have no access to the business plan. I am not able to ask any great, international company, "Why are you not able to get this money from your normal sources? Why can't you go to the markets?" I cannot say, "Explain to me why the taxpayer must borrow this money to make a contribution," so I do not oppose the grants. When I used to shadow the old industrial strategy of Wilson and Callaghan, I did not oppose them all because I could never get enough information, but sometimes one could look at the political map and get a pretty good indication of why grants had been so surprisingly successful. It is cynical electioneering and the election must bring it to a satisfactory end.
That grave problem is not addressed by the Budget, the background to which is appalling. The decline in manufacturing as a proportion of gross domestic product has been faster than at any time in our history. The most worrying manifestation of the crisis is the huge fall in the level of business investment. When business investment goes off a cliff at a faster rate than at any time since records began, which I think was in the 1960s, that tells us how near we are to the end, and, in reality, how likely we are to have growth. That is what happened in the second half of last year, and it tells us we are at risk.
Labour caused the crisis in the first place. When the Prime Minister was the Chancellor, he contributed to the global crisis. It was not just Wall Street; it was also the City of London. It was a failure not just of regulators in New York, but of the Prime Minister's own regulatory system in London. Everyone outside the Anglo-Saxon world knows that Bush and Brown, when he was Chancellor, were two of the principal architects, by their negligence-two of the principal contributors-to the folly that we all suffered from because of the hubris of bankers.
The Prime Minister lost control of public sector finances when he was the Chancellor. While he was bound, by his electoral pledge, to follow my policies and my figures until 2000, he was the Iron Chancellor, whose work was based on prudence. If only he had stuck to my rules-balance the Budget over the cycle; no more than 3 per cent. deficit on GDP; and limit debt to GDP ratio to 40 per cent.-all of which were hit and maintained when Labour stuck to my fiscal policy for its first three years of government. Thereafter, it went completely mad and ignored all the warnings.
The hon. Member for Twickenham (Dr. Cable) constantly claims that he foresaw the dangers. I think he would agree that when he and I spoke in Budget debates, we used to say the same things about the sea of debt that
was piling up and the fact that the level of household debt, let alone Government debt, was unsustainable. We were treated as a couple of Jeremiahs who did not understand the modern economics that the current Prime Minister was taking such credit for. He gave knighthoods to successful bankers; he did not regulate them. And he did not doubt for one moment that he could sustain the whole thing on the basis of what was the most foolish and extraordinary bubble.
I spent last night reading a very interesting book by Malcolm Balen about the South sea bubble. Although it is not quite so bad, this financial bubble is quite high up the league table. It is worse than the dotcom nonsense we had about 10 years ago, and is absolutely absurd. In this case, I do not believe for one moment that there is the slightest hint in the House of Commons of the corruption that was at the heart of the South sea bubble, but the sheer incompetence and the credulity of the worst Chancellor of the Exchequer we have had in modern times, and the iron control of the new Labour movement that made sure there was no real challenge until the crash came in 2008, is, to a certain extent, reminiscent of past financial scandals. The outcome should be that the Government pay the penalty. They have caused and contributed to the crisis and they currently have no answer to precisely how they will get us out of debt and deficit. They cannot seriously offer themselves for re-election.
It appears that most former Cabinet Ministers are planning their future careers in various branches of private enterprise. Where legitimate, I wish them success in the private sector phase of their careers, although one or two have been going near the wind when it comes to what they are contemplating.
I very much hope that most of them are thinking about what they can take up as an alternative to government for the next few years, as the British economy cannot possibly stand their return. This hopelessly inadequate Budget is the last sad epitaph to a history of failure.
5.45 pm
Dr. Vincent Cable (Twickenham) (LD): I too came along this afternoon under the impression that this was to be an economic debate. I am pleased to see that the first detachment of cavalry from the Treasury has arrived, and maybe there are others to come.
As this is the end of the Budget debate, many of the arguments have been aired already, either in the Chamber or outside. One useful aspect of coming in at the end of the debate is that we have a chance to compare the arguments that we are having here with what is happening in the real world in our constituencies, as I tried to do over the weekend.
Essentially, our debate has centred on when cuts will be made, which the shadow Business Secretary characterised a few moments ago. Should we make them now? The Government view, which I broadly support, is that the economy is rather too fragile for us to embark on cuts at this stage, whereas the Conservatives tend to argue that the cuts should be made more rapidly. That is the debate that we are having: right or wrong, there are arguments on both sides, but I find it very difficult to reconcile that debate with what is happening on the ground.
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