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The Chancellor has adopted a programme of austerity. After the war, rationing continued under a programme of austerity. We really were all in it together, unless people bought on the black market, which of course the rich were able to do. For most people, however, it did not matter whether they had money or not, because of rationing: they could not buy things because they were
not available. It was austerity based on scarcity. This time it is different. In this kind of recession, austerity hurts only those who are on low or middle incomes.
The increase in VAT will hit people on low incomes, and it will hit small businesses. When Labour cut the VAT rate, we saw a stimulus to the economy. The increase that the Chancellor announced today will have the opposite effect. The cap on housing benefit will also hit those at the bottom most, and reforms to benefits will not provide incentives for people to go into work. Removing tax credits for middle-income families removes a big incentive for many to work, particularly in the south, where middle incomes provide barely enough to get by.
The scale of the cuts is 25% for most Departments. That is a hell of a lot of cuts. It means the loss of front-line jobs, and many people in Sefton, and elsewhere on Merseyside, will suffer as a result.
Steve Rotheram (Liverpool, Walton) (Lab): Does my hon. Friend agree that the real result of today's Budget announcement will be huge increases in unemployment, which will have a devastating effect on the areas that we represent on Merseyside? That is something that we both predicted before the election, as did our friends on the Liberal Democrat Benches, who now seem to be siding with their friends in government.
Bill Esterson: I am grateful to my hon. Friend, who is absolutely right. Before the election, in his constituency and mine, the Lib Dems made much of their opposition to cuts in the current year, saying that it would increase unemployment, hit those on low and middle incomes, and increase homelessness and business failures. They were right to say so. When they changed their tune after the election, they did so purely for opportunistic reasons, not because they are interested in representing the people in the sorts of communities that my hon. Friend and I represent.
Mr Stewart Jackson (Peterborough) (Con): How does the hon. Gentleman account for the fact that in 15 years of economic growth based on the success of the previous Conservative Government, the Government he defended at the election managed to produce social welfare dependency to the extent that more than 5 million people were on social welfare payments, with the corrosive social impact involved in that? Is that something that he defended and lauded to his constituents in Sefton Central?
Bill Esterson: I am grateful to the hon. Gentleman for his intervention. In Sefton, unemployment was running at half the level of what it was during the last Tory recession, as were home repossessions and business failures. That, to my mind, is a sign of economic success. Given that, as I said, this recession is the deepest since 1931 apart from the period after the war, that is a measure of the success of Labour's policies in seeing off the worst effects of the global recession. That is an important difference between what Labour Members see as the way forward and what the coalition is trying to do.
Mr Russell Brown (Dumfries and Galloway) (Lab):
The hon. Member for Peterborough (Mr Jackson) refers to 5 million people being on benefits. He tends to forget
something that my hon. Friend and I, and other Labour Members, recollect; there is collective amnesia about this. People were driven from being unemployed on to benefits-incapacity benefit or disability living allowance-simply to massage unemployment figures. That is what it was all about during the previous recession, and we are hearing the same thing again.
Bill Esterson: I am grateful to my hon. Friend, who is absolutely right. The reason why Labour Members who represent constituencies on Merseyside and elsewhere in the north-west did so well in the election is that people have memories of what Thatcherism meant. As other Opposition Members have said today, this is a Budget of Thatcherism, not one for sustainable growth. That should concern everyone in this country, because the Government are trying to repeat the failed economic policies of the 1980s and early '90s. My concern is that the cuts that my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) referred to will lead to the unemployment, home repossession and business failures that we saw all too often then, because of the loss of jobs in the public sector and the impact on people with small businesses.
The Liberal Democrats say that this is a Budget for fairness, but how can it be fair that an area such as Merseyside, which has some of the poorest parts of the country, is hit so hard? How can that be anything other than a very unfair way of "sharing the pain", as coalition Members have rather unfortunately called it?
The review of capital projects, which the hon. Member for Stroud (Neil Carmichael) mentioned, was first announced on 1 January. Unfortunately, the delays in the capital programme have taken out of the economy the stimulus that was following as a result of such projects. That review, announced for October, will mean taking money away from the economy at a time when it would have been most useful to support infrastructure projects and when, as my hon. Friend the Member for Great Grimsby (Austin Mitchell) so eloquently put it, the recovery is fragile. In my constituency, the Thornton relief road is a much-needed bypass that would stimulate the economy by bringing benefits to the construction industry and self-employed traders. I hope that the autumn review will mean a reprieve for a scheme that is much needed by residents and businesses alike.
Although the Chancellor's announcement that capital totals will not be cut further is welcome, it is bizarre that the capital schemes have been frozen since 1 January. The effect on the construction industry has already been severe. The industry itself says that 50% of construction projects should be publicly funded, as they currently are. The scale of cutbacks as a result of the delays has already had a profound effect, and in the case of schemes such as the Thornton relief road that is having an effect on contractors and subcontractors. They need the certainty of knowing whether the work will go ahead, and the lack of certainty is my concern about the delay.
Self-employed traders in my constituency have told me that trade has been down during the recession, but they are surviving. Unless projects such as the relief road go ahead, more small businesses will suffer. I have mentioned the unemployment figures and the rates of
business failure and home repossession, and if we go back into recession, it will be far worse this time because there is not financial support in constituencies such as mine for large capital projects, and because of the level of public sector employment. I therefore urge the Government to bring forward their review of capital projects so that we can have support for the economy now, when it is most needed, in my constituency and across the rest of the country.
The Building Schools for the Future programme is of huge significance in Sefton and elsewhere. Phase 1 was due to start this year in Sefton, but again, the delay in confirming whether the programme will happen is having a huge impact on the children at two schools in my constituency, Chesterfield and Crosby high schools. It has also had a huge impact on contractors and small businesses. The summer holiday is a big opportunity to build schools and carry out the refurbishment and rebuilding work that is part of BSF, but it will be missed this year because of the delay. Projects that were due to start in April cannot now start before November. That will have a profound impact on schools, and businesses, jobs and the wider economy will also be affected.
The Chancellor gave hope when he mentioned the bank levy, but he said that it would raise £2 billion. The VAT rise is estimated to raise £13 billion, while the freeze on housing benefit will yield a further £1.2 billion. What is fair about asking the banks to contribute just £2 billion towards the deficit, while asking those on low incomes, such as pensioners and low income families, to pay far more? The Labour Government rightly bailed out the banks to keep liquidity going in the economy. We had to do that, but, if we are talking about fairness, it is now time to make those responsible for the biggest financial crisis of our age take their fair share.
Cutting free swimming is just mean. It hits the poorest hardest-£3 per child adds up for a family on a low income or a pensioner on a fixed income. What happened to Government commitments to healthy living for young people and pensioners? They did not last when things got tough.
The Chancellor talked about risk and reward, but the reality is that the biggest banks suffer little risk, as the bail-outs show. There are plenty of rewards through bonuses. Those on low and middle incomes have little reward, but face losing livelihoods and homes if the economy goes back into recession. If we really are all in it together, the bank levy should be far higher.
In Sefton, many people work for Departments and many are self-employed. The two are related. The Lib Dem and Tory councillors in Sefton foresaw the scale of Government cuts. They voted for 400 compulsory redundancies and massive cuts in council services, which would hit the most vulnerable, the elderly and the disabled hardest. Labour councillors and the trade unions in Sefton have resisted them so far. If the Government and council cuts go ahead-from Lib Dems and Tories at both levels-thousands of staff will lose their jobs across Merseyside. Those staff will struggle with housing costs and no longer pay into the local economy, hitting local traders. The Budget contained nothing about help for those who face unemployment or struggle with mortgage payments as a result of the proposed measures.
I have mentioned how hard the Budget will hit the area that I represent. The coalition is making a huge mistake by withdrawing the stimulus to the economy
this year. The Budget risks pushing the economy back into recession. The deficit can be cut only on the back of a strong economy, which can come only with support from the public sector until the private sector is strong enough to take over.
My constituents understand that, as a country, we are in a hole. The public sector makes up nearly 50% of the economy, and we have the second highest budget deficit as a percentage of national wealth of any OECD country-it is high not only relative to our competitors, but by historical standards. According to the Library, the deficit was 11.1% last year, compared with previous peaks of 7.7% in 1993-94 and 4.8% in 1980-81. This year, we are in the ludicrous position whereby almost a quarter of all the money the Government spend is being financed by more debt.
According to the OBR, things are worse than the previous Government told us. The structural deficit-the part of the deficit that will not disappear as the economy recovers-which we should focus on, is worse than predicted in the previous Budget. My constituents recognise that the structural deficit is partly the result of a global recession. They and Conservative Members also entirely understand that it is not all the fault of the previous Government, who had to respond to a recession. However, it is also partly the result of the previous Government spending more than they were willing to raise in tax over a prolonged period.
Some Labour Members seem to have convinced themselves that the recession is all the fault of bankers. It is rather ironic for them to blame bankers when we consider that the things the banks did wrong-failure to set aside money in the good years, holding liabilities off balance sheet and constantly going to the markets to raise money-are exactly the policies that Labour pursued in government. The fact is that we were running a structural deficit of nearly 3% from 2002-03 through to the beginning of the recession. We are still waiting for an apology for that mistake, which has contributed to the problem that we face. Indeed, listening to the synthetic anger of Labour Members today has been rather difficult, because the current Government are dealing with the mess they inherited from the previous regime.
Nicky Morgan (Loughborough) (Con): Would my hon. Friend like to comment on the fact that there is not a single Opposition Back Bencher here today? It may well be a sunny afternoon, but not a single person is here to defend Labour's record when my hon. Friend is talking about some very serious matters.
Gavin Barwell: My hon. Friend's question is almost telepathic, because I was about to say that if the anger was genuine, I would have expected the Opposition Benches to be full throughout the debate, but that has not happened.
My constituents understand that the problem is due partly to the recession and partly to the previous Government. What they were looking for today is the truth, and for the Government to take the right decisions for the long term rather than chase tomorrow's headlines. They want the deficit to be tackled without undermining the recovery, and as far as possible in a way that is fair to all sections of society and that protects front-line services. In her response, the Leader of the Opposition seemed to agree with those principles-but then told us absolutely nothing about how Labour would do things differently.
The hon. Member for Leeds West (Rachel Reeves), who is not in the Chamber, said that it is the responsibility of the Conservatives to come up with the answers. It certainly is, and the Chancellor has discharged that today. However, it is the responsibility of the official Opposition to come up with a realistic alternative if they disagree with his measures. The hon. Members for Nottingham East (Chris Leslie) and for Great Grimsby (Austin Mitchell), who are also not in the Chamber, went much further and suggested that we could just grow our way out of the problem. They seemed not to understand that a structural deficit is one that will not disappear as the economy grows.
The key questions that my right hon. Friend the Chancellor had to answer today were: by how much to reduce borrowing, how quickly to do that, and what should be the balance between spending cuts and tax increases. The previous Government planned to dig deeper still into the hole by the end of this Parliament, and my right hon. Friend made the right judgment when he said that we should be in balance by the end of that period, and that we should have started paying off debt by 2014-15.
To the extent that I understand the Opposition's position, they seem to be saying that we are doing too much too soon, and with too heavy a reliance on spending cuts. There are no risk-free options-it is actually a matter of judgment of the balance of risks-and there is growing evidence that the real risk to recovery is not robust action, but inaction. Anyone who has got into debt could tell us that the longer one leaves the problem, the worse it gets.
We are not going to convince Opposition Members on that point, because they have convinced themselves that Conservative Members take some ideological joy from cutting public services. It is worth putting on the
record that that is complete and utter nonsense. I had lymphatic cancer at the age of seven and the NHS saved my life, and I have two children in a state primary school. My constituents want more police officers on their streets, and road maintenance to improve. I have come to this place wanting better public services, but they can be delivered only within a stable financial setting. That is what Conservatives stand for. There is a growing consensus on this point: the Liberal Democrats have shifted their position in the light of recent events in the money markets, and the Governor of the Bank of England, in a press conference on 12 May, said:
"it is very important that measures are taken straight away to demonstrate the seriousness and the credibility of the commitment to dealing with that deficit... I am very pleased that there is a very clear and binding commitment to accelerate the reduction in the deficit over the lifetime of the parliament, and to introduce additional measures this fiscal year to demonstrate the importance of getting to grips with that"-
"before running the risk of an adverse market reaction."
"Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their...frameworks".
"we find that decisive budgetary adjustments that have focused on reducing...expenditure have...been successful"
"typically fail to correct...imbalances and are damaging for growth."
The Office for Budget Responsibility forecasts, based on the Budget, to which the Leader of the Opposition referred, show a slight reduction in growth this year and next compared with previous forecasts; but then, forecast growth is actually stronger as a result of the measures the Chancellor announced today.
On public services, there are many public sector employees in my constituency and they will be rightly concerned about what the Chancellor's announcement today will mean for them. I welcome the commitment to protect the NHS, which clearly suffers from inflation above and beyond general inflation in the economy. That protection is well justified. I also believe there is the potential to make cuts without damaging the front line. Lord Myners, the former Financial Services Secretary, said in the other place:
"there is considerable waste in public expenditure. I have seen that in my own experience as a...Minister."-[ Official Report, House of Lords, 8 June 2010; Vol. 719, c. 625.]
Between 26 May and 2 June, the Institute of Chartered Accountants in England and Wales interviewed a number of its members, over 80% of whom believed that further efficiency savings were possible. I point out to the Treasury Bench that we must look at welfare payments, as the Chancellor said we would, over the next few months, because a 25% reduction in departmental expenditure is a significant target.
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