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"This is a kill or cure budget",
"risks choking off the recovery."
The Chartered Institute for Personnel Development said that it
"will curb the demand for the goods and services that...drives business investment and exports."
BNP Paribas-hardly a bedrock of socialism-said:
"We expect GDP will be much weaker than the Budget projections".
Lombard Street Research said that
"there remain risks that aggressive fiscal tightening causes the UK recovery to stumble."
"There is undeniably a very serious risk that this accelerated and intensified fiscal tightening could derail a still fragile UK economic recovery."
This afternoon, we have been presented with a contrast. In Toronto, international leaders gathered to agree that the need now was for what they called "growth-friendly" fiscal consolidation, yet at home we are presented with a Budget that suffered the instant indignity of its independent reviewers telling us that it will not speed up recovery, but will slow it down. It will not put more people in work, it will put more people on the dole. It will not move the Chancellor's party-it is so kind of him to join us-from the 1980s, because at the heart of the Budget is an old calculation: unemployment is a price worth paying. That is a philosophy that the Opposition cannot and will not accept.
Only in the fine print of the Red Book does the scale of the Chancellor's bet become clear. The Chancellor promised that he would be up front with us, but in the small print of the Office for Budget Responsibility report we see that he is gambling on growth of £192 billion in business investment and exports to pull us through. Last week, he told us he was all for caution, but now we have learned that he is relying on business investment that is higher, not lower, than Labour's projections, helped no doubt by the cancellation of support for firms such as Sheffield Forgemasters and cuts to investment allowances for manufacturing firms.
What do manufacturers think of that? The Engineering Employers Federation said that manufacturers
"will now be left wondering where the necessary growth and investment will come from, given the cuts to investment allowances and capital budgets."
Last week, the Chancellor liked to tell us he was all for caution, but now it turns out that he is relying on trade figures not seen in this country since 1974 and only beaten once-in 1950. Yet the prospects for trade in Europe, where half our exports go, are not better than when the March Budget was written; they are worse. Where, exactly, will all those exports go?
I wanted to know whether we had ever had a recovery like the one the Chancellor is gambling on in the next three years, so I asked the Library to do some research, and it said that only once has business investment and trade recovered in the way that he prays for, since the Library started collecting figures in 1966. Now, he is relying on the same performance for the next three years in a row. It is like betting not just on England winning the World cup, but on winning the next three World cups in a row. His strategy is nothing short of a massive bet on a recovery that has been hard-fought by businesses and families in this country. But of course, it has been made possible by the Liberal Democrats' support, not least the imprimatur of the Secretary of State for Business, Innovation and Skills, who is not in his place tonight. Thus the man who made his reputation attacking casino banks has ushered in casino economics to the Treasury.
It is now right to give the Business Secretary a little credit: he at least had the decency to give the House an extended mea culpa for his change of heart. In January, as some hon. Members will remember, he told the House that he agreed with my right hon. Friend the shadow Chancellor about the way forward. Now, he agrees with the Chancellor. At least he spared us the nonsense that, somehow, Britain risks becoming Greece-a country still in recession, with debt twice the level of ours and no ability to devalue its currency.
All this is hinged, it seems, on the words of the Governor-words, I notice, that were entirely absent from the Monetary Policy Committee's minutes for May. In essence, the Business Secretary made markets his defence-it was not his fault; the markets forced him-but somehow, he forgot to mention that those were the same markets in which interest rates were falling during the election. The MPC's minutes for May are, in fact, very helpful. They note that 10-year spot rates were declining, not rising, by about 30 basis points in the month before the election.
The tragedy, of course, in the Budget is that there was an alternative. No doubt we will hear from the Chief Secretary a pretence that, somehow, he inherited no plan. Of course, nothing could be further from the truth, because until May he agreed with our plan. Labour's plan to halve the deficit by 2013, with debt as a share of our national economy falling by 2016, is bang in line with the G20 communiqué announced to the House by the Prime Minister today. I notice that Sir Alan Budd agreed that we were on track to deliver that plan, not least because the public finances were £30 billion better than expected.
Mr Byrne: I will give way in a moment, because I want Government Members to hear this: far from the absence of detail in the Budget, the Budget prepared by the then Chancellor of Exchequer and presented to the House in March set out to the last penny £19 billion-worth of tax rises and, yes, £20 billion-worth of spending cuts, including £1 billion in cuts from the reform of public sector pensions, £1.2 billion in savings from welfare, £3.5 billion in holding down public sector pay, £5 billion in cuts to lower-priority programmes and £11 billion in savings through the biggest shake-up of Whitehall in a generation. That was on top of £15 billion of efficiencies in this year alone-all carefully broken down by Department.
Matthew Hancock (West Suffolk) (Con): Will the right hon. Gentleman give way?
Mr Byrne: I will give way to the hon. Gentleman. Does he accept that the nonsense about there being no plan that we have heard in the debate was complete rubbish?
Matthew Hancock: Does the right hon. Gentleman think that there is no money left, or does he no longer agree with himself?
Mr Byrne: We can see at whose feet the hon. Gentleman has been training.
Our plan was different from the one the Chancellor presented. Unlike the plan that we heard last week, our plan really did have fairness at its heart. Last Monday night, the Chancellor's spin doctors made fairness his key Budget test, and by Tuesday lunchtime he had failed it. The night before the Budget, we are reliably informed, Lobby journalists were equipped with an analysis of the Budget's impact on different groups of citizens, yet somehow, someone forgot to tell the press that the picture was only fair because it included Labour measures. The Government would not dare to present a Budget to stand and fall on its own merits; they had to borrow ours. It did not take long to hear why.
What was the Budget's impact on pensioners? Age UK says:
"Our research shows that cuts of this scale will be disastrous for older people"
and warns that thousands of lives will be lost. What is the impact on children? Save the Children says:
"Freezing child benefit...will hurt the poorest parents most, rather than their richest peers".
A 20% VAT rate means driving some of the poorest parents into the arms of loan sharks. The Child Poverty Action Group said:
"This is a disappointing budget for child poverty...The increase in VAT is a regressive measure which will impact hardest on poorest families."
Perhaps the final word should go to the Institute for Fiscal Studies. In a phrase that will come back to haunt Government Members, it said that the cuts to benefits will
"hit the poorest hardest and keep on hitting them harder year on year".
Six days on from the main event, the Government's progressive credentials already lie in ruins.
The price of keeping down unemployment in the worst global recession for 60 years was a price worth paying. It was the price of a national defence in a global storm. When we left office, unemployment was 500,000 lower than people expected a year ago. Repossessions were half the level of the 1990s, and company insolvencies were just a third of the rate they reached in the recession of the early 1990s. We are proud that we got the country though the recession in one piece and that we have delivered a return to growth.
It is true to say that no Government would have had an easy time in this Parliament, but the difficulty of the task demands that we do not take gratuitous bets with the nation's hard-fought recovery and that we pay down the debt in a way that is fair. The Budget fails both those tests, and we will campaign for a plan that is better in this House and beyond.
9.46 pm
The Chief Secretary to the Treasury (Danny Alexander): And this from the man who wrote the note saying, "There's no money left", the most infamous letter in recent British political history. However, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) gave us not one single word of apology for his Government's actions.
Our good, full debate has been illuminated by the excellent maiden speeches made by the hon. Members for East Surrey (Mr Gyimah), for Maidstone and The Weald (Mrs Grant), for Airdrie and Shotts (Pamela Nash), for Thurrock (Jackie Doyle-Price), for Pudsey (Stuart Andrew), for Truro and Falmouth (Sarah Newton) and for Glasgow Central (Anas Sarwar). I served on the Scottish Affairs Committee with the father of the hon. Member for Glasgow Central, so I know that he has big shoes to fill.
This decisive emergency Budget sets out a credible plan to deal with the record deficit that we inherited from the previous Government. It is a tough Budget, and it needed to be tough to reverse the dreadful state of the public finances with which they left us. However, it is a fair Budget that recognises that we are all in this together and that those with the broadest shoulders must carry a greater share of the burden. The previous Government left behind the second largest budget deficit in Europe. Thanks to their incompetence, we are now borrowing £1 for every £4 that we spend, which is a gap of £149 billion this year.
The right hon. Member for Birmingham, Hodge Hill was right to say that at the centre of the Budget was one big judgment: we must go further and faster to reduce the deficit to protect this country and its people from the biggest economic risk of failing to act. If we had failed to act as we have through the Budget, the consequences would have been severe, and the poorest would have suffered the most. We only have to look at Greece to see what happens to countries that do not live within their means: more businesses going bust and higher unemployment.
The Liberal Democrats and Conservatives have come together to tackle the debt crisis facing our country. We have taken the tough decisions that the Governor of the Bank of England and the G20 called for, but that Labour ducked.
Alec Shelbrooke (Elmet and Rothwell) (Con): Will my right hon. Friend give way?
Danny Alexander: I will press on, if hon. Members do not mind.
At the weekend, President Obama praised the action that we have taken, describing it as necessary and courageous. Yesterday's G20 communiqué made the situation clear when it said:
"Those countries with serious fiscal challenges need to accelerate the pace of consolidation",
and no major country has more serious fiscal challenges than those that the previous Government left Britain. Her Majesty's Opposition seem to have adopted the strategy of Fabio Capello: they blame everyone else and deploy the same formation of arguments, leaving a gaping hole in their own defence. They refuse to accept responsibility for their mistakes, let alone apologise.
This Budget stands for three things: responsibility-taking action to eliminate our structural deficit; freedom-helping the businesses that we rely on to rebuild our broken economy; and fairness-protecting the most vulnerable while ensuring the contribution of all. Failure to deal with the deficit is the greatest threat to growth. Failure to act now would mean higher interest rates hitting businesses, hitting families and hitting the cost of repaying the Government's enormous debt, losing jobs and losing growth too. This Budget takes action now to restore confidence in our economy-the confidence that is needed to underpin the recovery that we all want to see. This Budget's forward-looking fiscal mandate will eliminate the deficit in five years and puts us on track to get debt falling by 2015-16. The Office for Budget responsibility, in fact, forecasts that the measures in our Budget will lead us to meet that challenge a year early.
Before I outline our plan, let me remind the House of the previous Government's commitments. They were planning £50 billon of cuts, about which they had nothing of substance to say. Some of their leadership contenders-I do not see any of them here-are rowing back even on that plan. Our emergency Budget sets out the path of public spending for the next five years with the following additional measures: an extra £17 billion comes from reductions in departmental spending, £11 billion from reductions in welfare spending, £3 billion from lower debt interest payments and £8 billion from net tax increases.
As has been observed by all sides in this debate, we know that this will be painful, but it is absolutely necessary to secure the growth and prosperity that this country needs in the future. The last Government's spending plans implied a reduction in departmental budgets of 20%. We are committed to real increases in NHS spending and to protecting international aid, and this Budget implies, as the Chancellor said, that other Departments will face an average real cut of 25%. We will set out the details of those cuts in the spending review, and we will consult widely to inform those plans. In fact, we launched our consultation on Friday, and we have already had more than 20,000 substantive responses from public sector workers, setting out ideas for areas where they know savings can be found. If only we had had a single serious suggestion from the Labour party.
We have taken the tough decision to increase VAT by 2.5%. With a structural deficit some £12 billion larger than the previous Government told us, we had a difficult choice to make: whether to fill that hole by making yet
more spending cuts or to increase taxes. Further spending cuts would, I believe, have made it impossible to protect the most essential services in the spending review, so the VAT rise was unavoidable.
Mr Anderson: Does the right hon. Gentleman agree with his colleague, the hon. Member for Bermondsey and Old Southwark (Simon Hughes), who said, only on 15 June:
"I hope we don't get a VAT rise because it is the most regressive form of tax"?
Danny Alexander: No party went into the election promising to increase VAT, but the hon. Gentleman should make no mistake: the rise in VAT is a result of the public finances that we inherited from his Front-Bench colleagues. One could say that it is a Labour inheritance tax.
Huw Irranca-Davies (Ogmore) (Lab): Will the right hon. Gentleman give way?
Danny Alexander: I shall press on. I have already given way.
In response to the points raised by my hon. Friend the Member for St Ives (Andrew George), I can say that we have already demonstrated our commitment to transparency by publishing data on the distributional impact of the Budget measures, which has never been done before. We are committed to continuing with that level of transparency in future fiscal events, and we will continue to look at whether we can further improve the breadth of information provided. Parliament will, of course, as my hon. Friend requested, continue to have full scrutiny of the Government's decisions, and I hope that the information that we have already provided, and will provide in future, will facilitate that debate.
Michael Connarty (Linlithgow and East Falkirk) (Lab): Will the right hon. Gentleman give way?
Danny Alexander: No, I want to press on.
Thirdly, this is a Budget for fairness. Fairness underpins this Budget, and fairness runs throughout this Budget. This is the first Budget to include an analysis of the distributional impact of its measures. It shows that overall the richest will contribute most to deficit reduction, and it will have no measurable impact on child poverty by 2012-13. That is a good start, and of course we will take further action to underpin fairness on future occasions and in future Budgets. It is important to stress to the House the fact that the principles that have shaped the Budget will also shape the decisions that we make in the spending review, too.
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