“Within minutes Britain would be in financial turmoil.”

As I have just said, the Greek Prime Minister’s experience shows that simply talking tough does not make someone credible and does not boost market confidence if the plan is not working.

The reason why there is now a question mark over the Chancellor’s credibility is that in recent weeks and months we have had an economy that has not been growing; fewer people in work and paying tax than there should be; and more people on benefits than there should be. That makes it harder to get the deficit down. We have had stagnant output for six months and we have forecasts being downgraded left, right and centre. This is not about bad news now and short-term pain. All that makes it harder to get the deficit down and undermines our long-term credibility, investment and

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confidence. As the former chief economist at the Cabinet Office, who is now head of the National Institute of Economic and Social Research, said:

“You do not gain credibility by sticking to a strategy that isn’t working.”

That is the situation we are now in.

Stephen Metcalfe (South Basildon and East Thurrock) (Con): Whichever number we use—the £12 billion or the £51 billion unfunded tax cut—can the right hon. Gentleman tell us where that money might come from, or is he happy to bundle up further debt that we can then pass on to our children and grandchildren?

Ed Balls: I have just made it absolutely clear that if we do not have a credible plan that works, it makes it harder to get the deficit down, not easier. Borrowing is now going to be £46 billion higher because of an economic plan that is not working. That is the reality.

Several hon. Members rose

Ed Balls: No, no, no.

A year ago, we had a balanced plan: people paid their fair share, there were spending cuts and there were tax rises, but it was cautious and was not a pre-ordained political timetable or a headlong lunge. That is what the Chancellor should be doing now. He should be adopting a more sensible approach to deficit reduction, which would allow him temporarily to reverse the VAT change right now. He should also reopen the spending review and have a steady approach to spending cuts. A 20% cut in police budgets, front-loaded, is complete criminal justice madness. He should take up our plan to repeat the bank bonus tax, build houses and get young people back to work. As I have said, a temporary VAT cut now would put money into people’s pockets, boost confidence, push inflation down and give our flatlining economy the jump-start it urgently needs. That would be a better way of getting the deficit down.

Barry Gardiner (Brent North) (Lab): My right hon. Friend will know that the UK taxpayer will still be contributing to any bail-out of Greece through the International Monetary Fund, but will he comment on the fact that if Greece does fail and subsequently other countries follow that failure into default, that could precipitate the end of the IMF? The loans that the UK taxpayer is making to the IMF would then never be repatriated.

Ed Balls: The IMF is there to help countries through situations like this. We are a shareholder and a contributor to the IMF and that is quite right. It is a different matter our putting liquidity money into a eurozone strategy that patently is not working because it is flawed. My argument to the Chancellor is that it is ironic to see a British Conservative Chancellor backing the German Finance Ministry’s view over sanity and common sense. We have not seen that in our country for a very long time.

Charlie Elphicke: I put it to the shadow Chancellor that this is not just about the business of the unfunded VAT cut that he proposes; it is also about some £10 billion-plus of spending commitments on the Welfare Reform Bill. Billions here, billions there—that does not add up to a credible economic policy from the Opposition.

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Ed Balls: “I’ll protect border services, blasts Elphicke”, reads the headline.

“The UK Border Agency will not suffer due to Government spending cuts,”

claims the Dover MP. If the hon. Gentleman wants to have a debate with me about credibility and support for spending cuts, I will have it every day of the week.

It is the Chancellor’s credibility that is in trouble.

Several hon. Members rose

Ed Balls: I have taken lots of interventions and I am coming to my conclusion.

That is why we have consistently said that the Chancellor should have a plan B. At the end of August 1992, three weeks before Black Wednesday, the then Prime Minister and his then special adviser stood in front of the Treasury at 8 am and said:

“There are going to be no devaluations, no leaving the ERM. We are absolutely committed to the ERM. It is at the centre of our policy. We are going to maintain sterling’s parity and we will do whatever is necessary, and I hope there is no doubt about that at all.”

That was almost certainly written by the current Prime Minister. Hon. Members have to learn these lessons. It is true, as my hon. Friend the Member for Luton North (Kelvin Hopkins) said a moment ago, that back then the pound was constrained by a fixed exchange rate. It was very hard for the Prime Minister and the Chancellor of the day to change course, even though they could see that their policy was not working. Had we joined the euro—and as we have all said, thank goodness we did not—that would have been an even greater constraint on UK economic policy, but neither constraint exists now. The objectives for monetary and fiscal policy have lain squarely in the Chancellor’s gift and this is the fundamental problem: he has made a political decision to set a political timetable for a political goal that defies economic logic, and the evidence is growing week by week that he has got this wrong. The lesson of monetary and fiscal policy too, over the past 20 years, is that changing course when things are not working is not a knee-jerk reaction and does not damage credibility. It is the only way of being in control of our destiny and averting the crisis being forced on us.

Let me quote some wise words:

“The weak thing to do is just to keep ploughing on and say, ‘I can’t possibly change, because I might have a difficult time at a press conference.’ The tough, strong thing to do is say, ‘Yes, we can make these plans better’.”

That is what the Prime Minister said yesterday, explaining the U-turns on sentencing and the NHS. He has obviously learned some lessons from his time as special adviser to Norman Lamont. My only plea today is that the Chancellor starts learning the lessons of history too. The cautious thing to do is not to plough on and hope for the best, but to act now before we lose more ground. Unlike Norman Lamont, who was tied to the exchange rate mechanism, the Chancellor can choose. He does not have to box himself in this way, so stubbornly. He does not need to make the Major-Lamont ERM mistake all over again.

Margot James (Stourbridge) (Con): The right hon. Gentleman referred to the previous Government’s policies when they embarked on a very timid programme of tax increases and public expenditure cuts a year and a half

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ago. Does he not accept that that was completely inadequate then and that the only reason it was accepted was because the international markets knew that there was a general election coming and that his party was way down in the polls? They lived for a better day.

Ed Balls: I have been, in a friendly way, critical of the Chancellor’s engagement and participation in international affairs and matters of global economic management, but he does go to the meetings and sign up to the communiqués. As the Chancellor in June 2010, after the general election, he went to the G20 and signed up to the communiqué that said that Governments should halve the deficit in the next four years, which was precisely the plan we had, which they tore up. We are not going to take lectures from the Conservatives on credibility. As I have said, the credible approach is not to plough on regardless when things are not working but to change course before it is too late.

This is my conclusion.

Several hon. Members rose

Ed Balls: I have taken loads of interventions and I am not going to do doubles.

The fact is that the path that our economy is being taken down is, I think, the wrong one, and the evidence is supporting that. It could prove very dangerous for growth, for jobs, for public services, for our living standards, for the deficit and for our mortgage rates too.

Several hon. Members rose

Ed Balls: No, I am going to conclude.

At the very least, it looks set to be a path of slower growth and higher unemployment than needed to be the case. There is an alternative, it is more credible than the current plan, not less, and it is not too late to change course. The Chancellor has a choice; he is not stuck, this time, in the ERM or the euro. He cannot fall back on the idea, as back then, that Labour supports his policies, because we have set out a very clear and different alternative, including on VAT, this year. Most of all, he cannot say he has not been warned. We are on a path of slower growth, higher unemployment and more child poverty than was forecast a year ago. The Chancellor has a choice. On the anniversary of his first Budget, he should agree with our motion and admit he got it wrong. If he is prepared to start putting economics before politics, it is not too late to change course.

1.49 pm

The Chancellor of the Exchequer (Mr George Osborne): I beg to move an amendment, to leave out from “House” to the end of the Question and add:

“welcomes the fact that in the last year a record 520,000 new private sector jobs were created, with the second highest rate of net job creation in the G7, exports grew by 13 per cent. and manufacturing activity was 4.2 per cent. higher and the latest labour market data showed the largest fall in unemployment for more than a decade; notes that the Government inherited a budget deficit forecast to be the largest in the G20; further notes that the previous administration and now Opposition has no

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credible plan to deal with the deficit and that the Shadow Chancellor’s recent proposal for a temporary cut in VAT has been widely criticised for lacking credibility and would put the stability of the economy at risk; notes that the Government has introduced a permanent bank levy that raises more revenue than the previous administration’s one-off bonus tax and that the Government has set out a credible plan that has been endorsed by the IMF, OECD, European Commission and the CBI, that has led to greater stability, lower market interest rates and an affirmation of the UK’s credit rating that had been put at risk by the previous administration; and notes that this stability provides a platform for rebalancing the economy and the Government’s Plan for Growth that includes reducing business taxes, investing in apprenticeships, creating a new Green Investment Bank, reforming the planning system, reducing the burden of regulation and reforming the welfare system to make work pay.”

I very much welcome this debate, and it was certainly worth attending for that priceless phrase, “I do my politics on the record”. That is right up there with, “There will be no whitewash at the White House”, “I did not have sexual relations with that woman” and “No more boom and bust”. Really, we must put that phrase away, because we will need it in the weeks ahead.

It is good that we are discussing the economy, and the shadow Chancellor made a speech about what has happened to the economy over the past year—the subject of this debate—but he completely failed to mention that exports are 13% up, manufacturing is 4% up, investment is 6% up and, most importantly, the 520,000 net new jobs in the private sector. Remember the question a year ago, “Where will the jobs come from over the next year?” Well, we have had 500,000 answers from businesses around this country—indeed, the second highest job creation rate in the G7—but that is not a fact that we are likely to hear from the Opposition, because they are determined to talk this economy down. That is the truth.

Kevin Brennan (Cardiff West) (Lab): What estimate is the Chancellor using for the time lag between his fiscal actions and their effect on growth?

Mr Osborne: The decisions that we took in the first few weeks on coming to office provided stability for the economy. That can be seen in the fall in market interest rates and the affirmation of our credit rating. Those things happened within weeks. Of course, some of the structural reforms that we are taking will take longer to come into effect, but that is why our package includes immediate action to bring stability; medium-term action to bring down tax rates, which is happening now; and of course the long-term reforms that I will talk about. That is the point that I should like to make to the hon. Gentleman and others.

I said a year ago, not recently, that the recovery would be choppy. How could it be anything other than choppy, when we are recovering from the greatest recession since the 1930s, the biggest banking crisis in our history, landed with the biggest budget deficit in peacetime? That is the inheritance that the Government has had, and yes, there have been other factors—international headwinds, such as the oil price—[Hon. Members: “Oh.”] Well, there has been a 60% rise in the oil price, which has apparently passed the Opposition by. In the words of the International Monetary Fund, despite all this,

“the repair of the UK economy is underway”,

and the truth is that the Opposition simply do not want to hear it. They broke it, and they cannot bear to see anyone else fixing it.

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Nadhim Zahawi: I can inform the Chancellor that, in the west midlands, unemployment has fallen by 28,000 this quarter. At the height of the previous Government’s economic drive, employment in the west midlands still shrank.

Mr Osborne: My hon. Friend makes two good points. First, there was a very welcome recent reduction in unemployment—the biggest fall for a decade. Secondly, he draws attention to one of the most staggering facts about the past decade: private sector employment in the west midlands fell in the decade leading up to the financial crisis. That shows how unbalanced the British economy became under the last Labour Government.

Toby Perkins rose—

Mr Osborne: I will give way, and then I will come on to the shadow Chancellor.

Toby Perkins: If the Chancellor feels that the economy was so unbalanced, can he explain why he was still saying in 2008 that he would follow Labour’s spending plans?

Mr Osborne: We fought the 2005 election and, sadly, lost it, saying that Labour’s plans were unaffordable. In 2008, we made it clear that we were coming off Labour’s spending plans. [Hon. Members: “You didn’t.”] We did. I happened to be there—I am not sure that the hon. Gentleman was. We came off Labour’s spending plans in 2008, and thank God we did, because we earned a mandate to make the necessary changes to put the economy back on track.

Several hon. Members rose

Mr Osborne: I will take a couple of interventions in a short while, but let me make the point that, since the shadow Chancellor took office, two things have happened. The first thing is that the measured economic credibility of the Opposition has steadily fallen, and the other thing is that the reported divisions in the Labour party have steadily increased. If anyone wants to know why its economic credibility is falling and why the divisions are increasing in the Opposition, the speech that we have heard told it all: not one word of apology, not one passage of serious reflection about why it all went wrong. The shadow Chancellor started talking about the fact that the Prime Minister was the special adviser in the early 1990s. He himself was the special adviser for the past decade in the Treasury—not a mention of the fact that he was the chief economic adviser when the advice was so catastrophic, not one mention of the fact that he was the City Minister when the City exploded. That is the record of the right hon. Gentleman.

The amnesia reached new heights in the right hon. Gentleman’s speech last week to the London School of Economics. Consider this recent quotation from the speech that he gave—this is from the man at the centre of British economic policy making for last decade:

“when I am asked in interviews what I would be doing differently to cut the deficit, the first thing I say is that I wouldn’t be starting from here.”

I can assure him that none of us would like to be starting from here, but the main reason why we are is sitting right opposite me.

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Alec Shelbrooke (Elmet and Rothwell) (Con): Does my right hon. Friend agree that it says everything that we need to know about the Opposition’s economic policy when the shadow Chancellor’s immediate reaction to the IMF report was, “They don’t know what they’re talking about”?

Mr Osborne: It went beyond that—my hon. Friend makes a good point—not only did the shadow Chancellor attack the IMF, but he also attacked in the speech that I have just mentioned the IMF’s acting managing director. So he laid into the Governor of the Bank of England a couple of months ago, and he is now laying into the IMF’s acting managing director. Anyone who disagrees with the shadow Chancellor, which means most of the world, has become his political opponent.

Ian Austin rose—

Mr Osborne: Of course, I give way to one of the henchmen.

Ian Austin: I want to apologise to the Chancellor for something that I said yesterday. On who said what in 2008, I said yesterday that the Chancellor had praised the previous Government’s spending plans in 2008, despite now condemning what he refers as a decade of over-investment. I was wrong, and I want to apologise. In July 2008, it was in fact the Prime Minister who praised Labour’s then spending plans. He said:

“we are sticking to Labour’s spending totals.”

It was in 2007 that the Chancellor said that a Conservative Government would match our spending plans.

Mr Osborne: The hon. Gentleman should get better handouts if he is one of the shadow Chancellor’s close advisers. [Hon. Members: “Answer the question.”] I have answered the question. At the 2005 general election, we fought against Labour’s spending plans. In 2008, the year that he mentions, we came off Labour’s spending plans. Thank God that we did, because it has given us the mandate and the power to put the public finances back on track.

The extraordinary thing about the shadow Chancellor is that he takes credit for the things that went right. On Bank of England independence, he has completely written out of the script the then Prime Minister and Chancellor. He now takes sole credit for keeping Britain out of the euro, although, as far as I am aware—I am happy to take an intervention—the Labour party’s official policy is still that we join the euro in principle. Is that right? I do not know whether the policy has changed. [ Interruption. ] We have heard quite a lot from the Labour party in the past couple of hours about being on top of the detail. Surely, the shadow Chancellor knows what his party’s policy is on the euro. [Hon. Members: “He doesn’t.”] Oh, dear. Let me give him a clue. When I became Chancellor, I had to close down the euro preparations unit in the Treasury.

Of course, the shadow Chancellor takes credit, but he is nowhere to be seen when the discussion turns to the fiddled fiscal rules, the failed tripartite regulation, the doubling of the debt, the bank collapses and the destruction of our pensions—none of those things has anything to do with him at all. Now, he is at it again. This is what a member of the shadow Cabinet said a couple of weeks ago:

“he increasingly thinks his party is heading for the buffers and doesn’t want to be in the cab when the collision comes.”

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His boss was called Macavity, and it turns out that Macavity has a kitten—son of Macavity. There is a reason for all this: because he cannot construct a credible story about the past that does not cast himself as a villain, he lunges forward in opposition from one incredible uncosted policy to another.

Barry Gardiner (Brent North) (Lab): Will the Chancellor give way?

Mr Osborne: I will take interventions, but let me make this point.

Since this is an Opposition day, let us examine the latest idea of a £51 billion—£13 billion a year—unfunded commitment on tax. This means that the shadow Chancellor has presumably abandoned the Darling plan for this year, because the commitment was not funded in that plan, and that members of the Opposition Front-Bench team were not only too embarrassed to mention it at Treasury questions yesterday but, as we now know, they were not consulted. The shadow Cabinet was not consulted.

I will give way on this point. On television at lunchtime, the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), was asked eight times whether he supported the policy of the shadow Chancellor and he did not give an answer. Perhaps the shadow Chancellor will tell us whether the last Labour Chancellor of the Exchequer supports his plan—yes or no.

Ed Balls: The previous Chancellor was the last man to cut VAT temporarily to get the economy moving. What is the right hon. Gentleman talking about? Let me ask him a very precise question. He says the cost of this temporary VAT cut, which I said should be in place until the recovery is secured, would be more than £50 billion. Exactly how does he get that figure, and how many years does that mean we will have to wait before the recovery is secured, following his reckless deficit reduction plan?

Mr Osborne: The figure is calculated like this: if we implemented it, we would be in a fiscal crisis. That would delay the recovery by at least four years. That is how I come to £51 billion.

Several hon. Members rose

Mr Osborne: I give way to the former forestry tsar.

Barry Gardiner: The right hon. Gentleman will recall that a year ago the predictions in terms of unemployment did not reflect the 510,000 new jobs which he boasted at the Dispatch Box today about having created in the economy. He will also remember that the OBR predicted 2.6% growth, which has not happened. How does he account for the fact that, despite the 500,000 extra jobs in the economy, growth has flatlined and the 2.6% growth predicted has not been achieved?

Mr Osborne: The hon. Gentleman draws attention to the 520,000 net private sector jobs that are being created. It is also the case, as we saw yesterday, that the tax receipts have not only held up, but are ahead of forecast. The IMF said that an interesting question arises when that is put alongside the GDP figures. These forecasts are independent. That is one of the fundamental changes that we made. The Office for Budget Responsibility is independent. It is also a central forecast, rather than a

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cautious forecast, as used to be the case. That was another important change we made. We shall see as the economic data come in. We should welcome the public finance data last week and we should certainly welcome the unemployment data.

I give way to my constituency neighbour.

Graham Evans (Weaver Vale) (Con): I am grateful to the Chancellor. Does he agree that manufacturing is the key to the long-term prosperity of our country, and that under Labour the number of people employed in manufacturing halved?

Mr Osborne: Indeed. The share of manufacturing as a proportion of our economy halved as well. That is how unbalanced the British economy became. Financial services boomed—we all know that; manufacturing halved as a share of our economy. One of the things that we are seeking to do is rebalance our economy.

Geraint Davies rose

Mr Osborne: Let me make a little progress and then take some more interventions.

We are all being asked to vote tonight on the proposition put forward by the shadow Chancellor. We are all being asked to support his motion calling for a big unfunded tax cut. This is what the Financial Times commented when it heard about that. It said that the shadow Chancellor’s argument “increasingly sounds irrelevant”

and that it is

“favoured by those who are unwilling to face up to the true problems facing Britain’s economy today.”

The Economist said that the shadow Chancellor’s speech was

“steeped in cynical electoral politics, thinly disguised as an economics lecture.”

Well, there is always The Guardian, isn’t there? Not on this occasion. The Guardian said that the shadow Chancellor’s economic policy was the “wrong prescription”

and went on to say:

“The big job for Labour . . . is not to dream up a couple of policies but to work out a cogent position on the deficit”

and that there is

“No sign of that yet.”

No sign of a cogent position on the deficit—that was not a comment from the Government, the right-wing press or the IMF, but from The Guardian. That shows just how alone the shadow Chancellor is.

Several hon. Members rose

Mr Osborne: Let me make this point, then I will take interventions.

The position is worse even than that. Hon. Members might remember reading a couple of weeks ago about those leaked documents about project Volvo, the secret plan drawn up by the shadow Chancellor to rebrand his party. The president of Volvo Cars rushed out a statement saying:

“If only the Labour Party had been like today’s Volvos—dynamic, agile and innovative—perhaps the UK economy would have been in a better place than it finds itself today.”

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Kevin Brennan: While the Chancellor is on that subject, can he give a simple answer to a question—yes or no? Did he have advance knowledge that The Daily Telegraph had obtained the shadow Chancellor’s private papers, or any advance knowledge of the stories that it planned to write—as he raised the issue, yes or no?

Mr Osborne: This is a debate about the economy. We all enjoyed reading those papers in The Daily Telegraph.

To get the better economy that we all want to see requires the three things that this Government have provided—

Alec Shelbrooke: Is it not also telling that after the Opposition have spent a year banging on about the American model and what the Americans were doing, we heard nothing today about the fact that President Obama had to introduce austerity measures because his massive input of billions into the economy did nothing except raise unemployment and increase the deficit?

Mr Osborne: The interesting thing is that in the United States the debate in the Congress has turned to discussions about the US budget deficit. The proposal from President Obama in his speech at George Washington university bears some striking similarities to the British Government’s plan, and is similar in pace, scale and composition between tax and spending measures. It shows that this is the discussion that the world is having, but it is not a discussion of which the shadow Chancellor is a part.

Ed Balls rose

Mr Osborne: Maybe he wants to be part of it.

Ed Balls: To follow up the question from my hon. Friend the Member for Cardiff West (Kevin Brennan), and because this is a serious matter, I would like to give the Chancellor a second opportunity to answer. I answered his questions and questions from the Government Back Benches on my conversations with the Leader of the Opposition. Did the Chancellor have any advance knowledge or sight of papers taken from me which went to The Daily Telegraph without my knowledge? I would like him to answer the question.

Mr Osborne: We all read those papers in The Daily Telegraph. They revealed that the shadow Chancellor knew before the then Chancellor of the Exchequer came to the House of Commons that the 10p tax rate that Labour Members all voted for would hit the poorest in our country.

Kelvin Hopkins rose

Mr Osborne: The hon. Gentleman may not have voted for it, but the rest of his colleagues did. That is the absolutely astonishing revelation from those papers.

Kelvin Hopkins: I hope the Chancellor will not describe me as a henchman. Writing yesterday, Lord Skidelsky said that taking £112 billion out of the economy in the next four years will be a massive fiscal contraction, and he described it as

“the royal road to stagnation, not recovery.”

What does the right hon. Gentleman have to say to Lord Skidelsky?

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Mr Osborne: Of course there are economists, including Lord Skidelsky, who have made their views clear, but there are just as many—indeed, more—economists on the other side of the argument. The economic institutions that govern our world—the IMF, the OECD, and the European Commission, which does not govern our world, but produced a recent report on the British economy—all made the same point. We can set ourselves completely against world opinion, as the shadow Chancellor has done, because he cannot admit that the country had huge problems coming up to the financial crisis. He cannot do that or he would put himself centre stage. That is what this is all about, but the world has moved on and the Labour party has not yet moved on with it.

Mr Redwood: The Red Book says that current public spending will rise 3.8% this year in cash terms and it is running a little higher than that at present. Given that there is to be a public sector pay freeze, is it the intention that there should be a real increase in public spending this year? Does that not put the debate into some kind of context?

Mr Osborne: My right hon. Friend draws attention to the fact that although we have had to take very difficult decisions—everybody understands and sees that—we are not facing the sort of catastrophic scenario painted by the Opposition. The shadow Chancellor talked about Greece perhaps having to default and leave the euro, and as it is not in primary balance and it has a big budget deficit, that would lead to even more draconian cuts. The truth is that if we had not put in place a credible, measured, staggered plan to reduce the budget deficit, we would have been forced by the international markets into making much deeper cuts.

Several hon. Members rose

Mr Osborne: I have taken several interventions, and I will take some more after I have made a little progress.

The Government have put in place three measures: first, a credible plan to deal with the deficit; secondly, a plan for growth that supports the private sector and rebalances our economy; and thirdly—astonishingly, the shadow Chancellor did not mention this—a plan for the banking sector, to ensure that we deal with the problems we currently face while also preventing a repeat of the banking crisis in future.

Let me address each of those in turn. In terms of the budget deficit, our understanding is based on the following points. Britain has a large structural deficit; it emerged before the recession began; it will not go away automatically as the economy recovers; and it puts our whole economy at risk. We only have to look at what is happening in other parts of Europe to see that that is the case. Almost all the independent observers of the British economy agree with those points, including the crucial fact that we had a structural deficit before the crisis struck. The OECD and the International Monetary Fund estimate that before the crisis Britain had the largest structural deficit of all the G7 countries.

Tony Blair states in his memoirs that

“from 2005 onwards Labour was insufficiently vigorous in limiting or eliminating the potential structural deficit.”

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[Interruption.] The shadow Chancellor says, “Rubbish.” I thought that he conducted his politics on the record, and I am not sure that Tony Blair would have agreed with that; the last time he checked, he was the Prime Minister and First Lord of the Treasury in 2005.

My predecessor as Chancellor, the right hon. Member for Edinburgh South West, says that by 2007

“we had reached the limits of what I thought we should be spending.”

What is the shadow Chancellor’s view? It is this:

“I don’t think we had a structural deficit at all”.

No one agrees with him on that; he is in complete denial.

Andrew Selous (South West Bedfordshire) (Con): At that point in 2007, what did the then Government do? They increased spending by £90 billion, far above the level of inflation, and going against the advice we now know they got from the Treasury. Was that not seriously negligent?

Mr Osborne: The entire economic record of the previous Government was negligent, which is why no one is going to trust Labour with the economy again.

Lilian Greenwood (Nottingham South) (Lab): I hear what the Chancellor says, but just before the collapse of Northern Rock in 2007 did he not write in The Times that his party would match Labour’s spending totals? Why is he now pretending that did not happen?

Mr Osborne: I have already been asked that question three times, and I have answered it, explaining that—[Interruption.] Well, I will repeat it. We fought the general election in 2005 arguing that Labour was borrowing too much. We came off Labour’s spending plans in 2008, in the approach to the last general election, and thank God we did, because it gave us the mandate to take the difficult decisions we have had to take.

Several hon. Members rose

Mr Osborne: Let me just make the following point before taking another intervention. The majority of Labour Members voted for the right hon. Member for South Shields (David Miliband) to be their leader. He did not get the job however, but this is what he would have said in the acceptance speech he never delivered, and it goes to the heart of the challenge we face:

“Step one is to recognise what is obvious: that we did not abolish the business cycle. We should never have claimed it. You can’t in a market economy. And public spending plans cannot depend on it. Nor can you write your own fiscal rules and then be the judge and jury for how they are calculated and when they are met.”

That is absolutely right, and it is why last May we created the Office for Budget Responsibility, a step that the shadow Chancellor opposed in Parliament when he was a Treasury Minister, although I hope his party now accepts it. That is also why a year ago we introduced the budget plan to get the deficit down and have a credible programme for recovery—and which is why we are having this debate today.

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Mr William Cash (Stone) (Con): The Chancellor’s analysis of what went wrong under the Labour Government is completely right. However, does he agree that our current strategy must be about growth as well as reducing the deficit through making cuts? I know he understands that and would like to achieve growth, but we cannot achieve it, either in our own economy or in Europe, if 4% of our GDP is taken up with the costs of over-regulation, as has recently been suggested. The bottom line is that we have to deregulate, but we cannot deregulate European legislation without overriding it, and negotiation is not working.

Mr Osborne: My hon. Friend is absolutely right that a crucial element of our strategy must be to undertake structural reform of the British economy in order to reduce regulation and the burdens on business and make our economy more competitive. We would have to do that in any case, even without the recovery from recession we are having to undertake, but the truth is that it has been made more difficult by the accumulation of all the red tape over the past few years. It is remarkable that when we propose important changes—although not changes that go as far as we would like—to employment tribunal law, Labour opposes them. Those are basic changes that would enable more people to be hired and to be in work, but they are opposed by the Opposition. [Interruption.] We can tell by Opposition Members’ reactions that they simply do not understand what it takes to create jobs in the private sector.

Charlie Elphicke: The Opposition not only want to hold back the growth agenda; they also have a series of unfunded spending commitments and go in for gimmicks and bandwagon chasing. They will not be a responsible Opposition, or electable at the next general election, if they carry on in this way.

Mr Osborne: My hon. Friend is absolutely right. In the last week alone, not only has the shadow Chancellor made a huge unfunded tax promise, but Labour voted against the welfare Bill, with its billions of pounds of savings. It is perfectly right for an Opposition to say, “I don’t agree with that, and I’ve got an argument with you on this,” but Labour’s voting against the entire welfare Bill was a catastrophic error of judgment, and we will remind it of its failure to reform the welfare system from now until the end of this Parliament. The Labour leader recently said that his party had become known as the friend of the welfare scroungers and the bankers. He was absolutely right about that.

The shadow Chancellor’s central argument was that the reason why we are undertaking this deficit reduction plan is because it is all part of some great partisan ideological plot. I therefore have a question for the shadow Treasury team: presumably therefore, the Bank of England is part of this plot? Is that the case?

Mr David Hanson (Delyn) (Lab): It is a Tory plot.

Mr Osborne: So it is a Tory plot, is it, and the Bank of England is part of it? What about the IMF; is it part of this Tory plot? The right hon. Gentleman probably thinks the CBI is part of it.

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What about PIMCO, the world’s largest bond fund: is it part of the Tory plot? It is based in Los Angeles, so it must represent the international branch of the Tory plot. It said this:

“We think the UK is implementing what is probably the best combination of fiscal and monetary policies”

in the western world. These groups—the serious commentators—have all come to the same conclusion as the coalition Government: that we need a credible deficit reduction plan to get our market interest rates right—to make sure that, even though we inherited a budget deficit higher than Portugal’s, our market interest rates are similar to those of Germany.

Kate Green (Stretford and Urmston) (Lab): Who is paying the price for this approach to reducing the deficit? The Institute for Fiscal Studies recently pointed out that the inflation rate being experienced by the poorest families is 60% higher than that being experienced by the highest-earning families.

Mr Osborne: The truth is that the whole country has paid the price for the disastrous economic policies of the previous Government. There is no easy way to reduce the largest deficit in our history, but the Opposition oppose every single measure we introduce. That is incredible and it is precisely why they have been rumbled—rumbled by the serious economic press and by everyone else.

Mr Aidan Burley (Cannock Chase) (Con): Is the truth not that the Opposition’s two policies—cutting VAT and halving the structural deficit over this Parliament, rather than eliminating it—mean just one thing: more borrowing? Does more borrowing not just mean one thing: us paying more interest? Is it not morally disgusting that when we came into government a year ago we were spending £120 million a day just to service the interest on their debt, which they now want to increase?

Mr Osborne: My hon. Friend is right. The debt interest payments would have increased to £180 million a day if we had not pursued our current policies. That became one of the largest Budget items under the Labour Government. Deficit reduction has avoided the interest payments that we would have had under Labour.

Mark Durkan (Foyle) (SDLP): The Chancellor will be aware that Ireland is locked into a serious deficit reduction plan. He may also be aware that next week, as part of its budget for jobs, a targeted VAT cut to 9% will kick in for the tourism sector and last for 18 months. It follows similar cuts made by France and Germany to 7% and 5.5% respectively. Does he rule out targeted VAT cuts to support jobs and growth in particular sectors at the same time as deficit reduction, because that is what other countries are doing?

Mr Osborne: We put forward in the Budget targeted cuts for business. We are cutting corporation tax by 2% this year and a further 3% in coming years. We have put in place more generous research and development tax credits to help businesses. We have cut the small companies tax rate—

Mr Hanson: We supported that.

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Mr Osborne: The right hon. Gentleman says that they supported it, but the plans I inherited from Labour’s March 2010 Budget, which presumably he voted for, were to increase the small companies tax rate. We reversed that and cut taxes. We are also taking more than 1 million low-paid people out of tax and trying to get the unemployed back into work.

I was in Northern Ireland on Friday, meeting the political leaders and visiting a very successful manufacturing business in Ballymena, and the point I make to the hon. Member for Foyle (Mark Durkan) is that we are consulting on the future of corporation tax rates there, reflecting the fact that it shares a land border with the Republic of Ireland, which has a much lower rate of corporation tax.

Several hon. Members rose

Mr Osborne: Let me make some progress before taking any more interventions.

Chris Ruane: From this side.

Mr Osborne: I have just taken an intervention from that side.

The first requirement to fix the mess is a plan to deal with the deficit. The second requirement is the plan for growth. While the shadow Chancellor was letting the debt build up, the underlying competitiveness of our economy declined and the UK fell from fourth place to 12th in the international rankings. More than 1 million jobs were lost in manufacturing. Regional inequality, which we heard about during Prime Minister’s questions, worsened during Labour’s 13 years in government as the gap between the regions increased. As I pointed out earlier, private sector employment in the west midlands fell. Those imbalances have become deeply entrenched and cannot be fixed overnight, but we are undertaking the long-term structural reforms necessary to make that happen.

Angela Smith (Penistone and Stocksbridge) (Lab): It is emerging that there has been a 17% increase in home repossessions. How can the Chancellor justify his plan to the families affected and say that it is working?

Mr Osborne: We have extended the mortgage interest relief scheme—I inherited a plan for it, too, to end—and of course are trying to avoid repossessions, but there was a large number of repossessions under the Labour Government, and that is because—[ Interruption. ] I certainly inherited a huge economic mess from the Labour party. The truth is that one of the problems we are having to deal is the enormous housing boom, which was bigger than that experienced in any other major western economy, including the United States of America. We are putting in place those structural reforms, cutting corporation tax, creating more apprenticeships than the country has ever seen, lifting the low paid out of tax, reforming our planning system, reducing the burden of regulation, accelerating education reform, introducing the green investment bank and passing the landmark welfare legislation.

Fiona O’Donnell (East Lothian) (Lab): Will the Chancellor give way?

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Mr Osborne: I will make some progress.

All those policies involved difficult decisions, but they have been opposed by the Labour party. There is one live example that I want to raise: public sector pension reform. The Government want to reform our public sector pensions system to ensure fairness for public sector workers and taxpayers. We asked Lord Hutton, Labour’s former Work and Pensions Secretary, to propose a solution. He produced an interim report and a final report. It is comprehensive, excellent and fair and the coalition Government back it. As everyone knows, we are in negotiations with the public sector trade unions on how it should be implemented. Sadly, a minority of union leaders seem more interested in strike action than in trying to reach a fair deal. At least their position is clear. What is the view of the Labour party? Complete silence. Will someone intervene and answer that?

Kevin Brennan: Will the Chancellor give way?

Mr Osborne: Right, what is the hon. Gentleman’s view of John Hutton’s report?

Kevin Brennan: The Chancellor is not asking the questions; I am intervening. Where is the Chief Secretary to the Treasury? Why is he going out in the middle of negotiations and breaching the good faith of those he is negotiating with? That is the question we need an answer to.

Mr Osborne: We are engaged in those negotiations, which the Chief Secretary and the Minister for the Cabinet Office are leading for our side. I have asked a very simple question: does the Labour party back public sector pension reform as set out by John Hutton? [ Interruption. ] That says it all.

Chris Bryant (Rhondda) (Lab): Will the Chancellor give way?

Mr Osborne: Will he answer my question? No? I am not taking an intervention. [ Interruption. ] The question we have here was put by John Hutton himself—

Nadhim Zahawi: On a point of order, Madam Deputy Speaker. Should not the hon. Member for Rhondda retract the disparaging remark he has just made about the Chancellor?

Madam Deputy Speaker (Dawn Primarolo): Nothing has been said that is unparliamentary, but some of the behaviour in the Chamber could be a little better than it is currently. That is not a point of order for me, but a matter for each Member of the House.

Mr Osborne: John Hutton said that he would like the leader of the Labour party

“to endorse the report I produced, yes, because I think it does strike the only fair balance”.

Chris Ruane: He would do—it is his report.

Mr Osborne: It is his report, Labour’s former Work and Pensions Secretary, and I want to know whether the Labour party backs it. [ Interruption. ] Unbelievable. Will the shadow Chancellor shake his head or nod?

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Ed Balls: I set out our position on these matters very clearly on Sunday. We agree that we need pensions reform and are studying the detail of the Hutton report, as everyone is. We thought that the increase in contributions before it was published was a complete abuse of the report and that the way the Government are rushing to increase the age of retirement is deeply unfair, especially to women in their 50s. The whole handling of this by the Chancellor and the Chief Secretary to the Treasury has been totally and deeply shambolic.

Mr Osborne: Let me take that answer and dissect it. First, the shadow Chancellor deliberately confuses the state pension age with public sector pension because he does not want to answer the question. Secondly, he says that he is studying the Hutton report, but how long does it take him to read it, because it has been out for three months and an interim report was produced last year. Unbelievable.

I will end my speech shortly, because Mr Speaker requested that we ensure that many Members get into the debate. The third thing that is required, which was totally unmentioned by the shadow Chancellor, is a plan to reform the banking system and financial services. That is a central part of any British Government’s economic policy, but we heard not a word on it from him. We know why, of course. It is the same reason that we discussed on the deficit: he was the man who designed the regulatory system that failed. He was the man in the Treasury who designed the tripartite system of regulation; it was his idea, and it failed.

This is what the former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), said—and he does not say this kind of thing very often:

“We set up the FSA believing the problem would come from the failure of an individual institution. That was the big mistake. We didn’t understand just how entangled things were. I have to accept my responsibility.”

When the former Labour Prime Minister accepts responsibility, is it not time that the man who was advising him accepted his responsibility, too, and admitted that the tripartite system failed and needs to be replaced?

Ed Balls: The tripartite system was put in place following the repeated failure of self-regulation and of the regulation of the Bank of England in the period before 1997. I have said on the record loud and clear that we did not regulate the banks in a tough enough way, but throughout that period the current Chancellor personally attacked me for being too tough with regulation and for going too far. The idea is to replace a tripartite system with a quartet system that is even more complicated and byzantine, and we will look at that in detail in the coming months, but the Chancellor is playing a very dangerous game.

Mr Osborne: The right hon. Gentleman did not apologise for the tripartite system; he defended it. That is what he just did.

Now, the shadow Chancellor has just—I think for the first time—set himself against the regulatory changes that we propose. He says that he wants to study them, but I set them out at the Mansion House not this year, but last year, so he has had more than one year to study them.

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Ed Balls: I am really worried about them.

Mr Osborne: And he says that he is really worried about them.

So, there we have it: the shadow Chancellor is against putting the Bank of England back in charge of prudential regulation; against the financial policy committee; and against the financial conduct authority, which is going to be tougher on behalf of consumers. The independent banking commission, which includes experts from throughout the banking field, has been working on the issue and come forward with an interim report. We have backed the principles of that report, but what does the shadow Chancellor have to say? Absolutely nothing—absolutely nothing about the plan that he would put in place. That is the truth.

Alison McGovern (Wirral South) (Lab) rose

Chris Bryant rose

Mr Osborne: Let me conclude—

Nadhim Zahawi: Will my right hon. Friend give way?

Mr Osborne: I will certainly give way.

Nadhim Zahawi: That goes to the heart of this debate—the credibility that the shadow Chancellor talks about. The public are deaf to the Opposition’s arguments because of their political opportunism and the cynical way in which they are dealing with the most important issue facing our nation.

Mr Osborne: My hon. Friend is absolutely right, and I am glad that I gave way to him so that he could make that important point.

Alison McGovern: Will the Chancellor give way?

Mr Osborne: Let me conclude—

Chris Bryant: Come on!

Mr Osborne: I think that the hon. Lady is the Parliamentary Private Secretary to the former Prime Minister, and given that he will never be here to speak for himself, she must speak for him.

Alison McGovern: I thank the Chancellor for giving way, and I am proud to be the PPS to my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown).

The Chancellor was so busy yesterday calling me “new” that he did not answer my question, and he did not listen to the shadow Chancellor just then or answer his question, either. Will he explain how his increased complication of the regulatory system will prevent further bank failure?

Mr Osborne: Of course, I welcome the hon. Lady to her—[ Interruption. ] I will answer the question that she puts. I have merely observed in the past that being the Parliamentary Private Secretary to someone who never comes to Parliament is not a very onerous job, but that is good, because she can think up important questions to ask me.

Our judgment, with which the hon. Lady is entitled to disagree, is this: what was missing from the tripartite system was an ability to assess systemic risks throughout

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the economy. No one was looking at overall debt or leverage levels—




The shadow Chancellor says, “Rubbish”. When the Royal Bank of Scotland wanted to buy ABN AMRO after the credit markets had closed and after the run on Northern Rock, the regulatory system allowed RBS to do so. That is what went wrong, and if the right hon. Gentleman wants to go on defending the system that led to the biggest banking crisis in our entire history he can be my guest.

Ed Balls: When we reformed the Bank of England in 1997, we introduced a second deputy governor for financial stability. It was the job of the deputy governor in the Bank of England to monitor those things, and what has the Chancellor now done? He has added a third deputy governor, so there are now going to be three, and that is a more complex system. He is making a political case, but I do not know whether he even understands the financial and economic case.

Mr Osborne: What I understand is that the system the right hon. Gentleman put in place to ensure financial stability completely failed, and the scales have fallen—

Margot James rose

Andrea Leadsom rose

Mr Osborne: Let me conclude now.

The scales have fallen from the eyes of Labour MPs. They realise that they have a shadow Chancellor who has to spend the next four years defending his record, and they are completely silent as they realise that they are going to be talking about the past, not the future.

Chris Bryant: Will the Chancellor give way?

Mr Osborne: I am not giving way. Let me conclude my speech.

That is because the shadow Chancellor is a man—

Chris Bryant: Give way!

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. Can we be a little calmer? Mr Bryant, I know you are very excited, but I am sure that people will give way.

Mr Osborne: The shadow Chancellor is a man with a past, but no ideas for the future. The Leader of the Opposition may be uncomfortable having him in the shadow Cabinet, but we are not, because he is going to be a living reminder that people can never trust Labour with the economy again. Meanwhile, the rest of us have got to get on and clear up the mess he left behind.

2.36 pm

Mr Nick Raynsford (Greenwich and Woolwich) (Lab): May I draw attention to my interests as registered in the Register of Members’ Financial Interests?

My remarks will concentrate on the housing market, their theme being that that sector, which is fundamental to the healthy operation of the overall British economy, and after showing good signs of a recovery a year ago, is currently stagnant. It is in an extremely parlous position, and there is no evidence of the growth that is

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fundamental to delivering the jobs and the future prosperity that we need, but while the Government continue with their current policies, we will continue to see a seriously underperforming housing market which, in turn, will contribute to a seriously underperforming British economy.

The interrelationship between the housing market and the wider economy is widely understood. The recession of 2008 had its origins very much in housing. We saw the beginnings in the American subprime housing crisis; the contagion spread rapidly; and it was no coincidence that Northern Rock constituted the first evidence in the UK of the problems that were to engulf us. The crisis was the product of unsustainable lending that had fuelled an unsustainable bubble in this country and a number of others, and the consequences were dire.

That was not the first time we have seen such a process of adjustment after unsustainable growth in the housing market. It has been a pattern over the past 40 years, because there were growth bubbles in the 1970s, the 1980s and the mid-2000s. However, unlike the adjustment after the bubble of the Lawson boom in the late 1980s, the consequences for the public of the recent adjustment—which was painful in many ways and had a dramatic impact, as house prices fell by some 20% and the output of new homes fell by slightly more than a half—were far less damaging and severe than those of the previous recession of 1990-91.

Repossessions have been mentioned, and the following is very telling. Although in 1990-91 repossessions reached some 75,000 annually, with the disaster and tragedy for all people affected matched of course by a huge incidence of negative equity, this time, although the fall in the value of houses was more extreme, the level of repossessions was very much lower—peaking at about 40,000 and falling away, although, sadly, the evidence is that it is rising again—and the problem of negative equity did not blight the lives of millions of people as it did during the 1990s. The difference was that the Government and the Monetary Policy Committee had recognised the importance of swift and clear action to respond to the unprecedented challenges of the recession—through low interest rates plus a series of measures designed to restore confidence in the market, and through public sector investment to help to mitigate the impacts of the declines of private investment and people to retain their homes rather than suffering repossession. All those actions helped to mitigate the impacts of recession.

Dr Thérèse Coffey (Suffolk Coastal) (Con): I recognise that the low interest rate is one of the reasons that the number of repossessions was so low. On the other hand, the Monetary Policy Committee’s remit was to tackle inflation, and yet we are now seeing the challenges that an ongoing low interest rate present to people on fixed incomes, whom he seeks to defend because they are suffering as a result.

Mr Raynsford: I will not go into a detailed diversion on the whole issue of inflation. The Governor of the Bank of England has made very clear his view that the inflationary factors are not such as to create a fear of long-term damaging consequences and that it is right and appropriate to maintain the low-interest regime to ensure that we do not damage further the prospects for growth—the main theme of my remarks.

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Kelvin Hopkins: I am listening to my right hon. Friend with interest, and I agree with what he is saying. While the interest rate reduction has helped on this occasion, on the previous occasion under the exchange rate mechanism strategy the deflationary effects of high interest rates created 1 million extra unemployed, and that unemployment, certainly in my constituency, caused many people to hand over their keys and walk away from their mortgages.

Mr Raynsford: My hon. Friend makes an important point. These factors are all interrelated. The lower impact of unemployment in this latest recession, compared with those of the 1980s and the 1990s, is undoubtedly one of the factors that has contributed to its having less severe consequences.

A year ago, before the Chancellor presented his first Budget, we were seeing recovery in the housing market. New housing starts were beginning to rise and confidence was returning, and it was reasonable to expect that real growth would be sustained through 2010 and 2011. Instead, the market has stalled. Prices are static or slightly falling. There has been a continuing very low level of starts, and consumer confidence is at catastrophic levels. For only the third time in its 37-year history, the GfK NOP consumer confidence barometer has been below the -30% level. That is an indication of just how devastating is the lack of confidence in current market circumstances.

Why are we in this situation? In part, it is the consequence of the Chancellor’s overall economic strategy and the way in which he is managing the British economy and damaging confidence. The confidence issue is not unique to the housing market. It is a much wider issue, as everyone will recognise, although it has a devastating consequence for the housing market. The situation is also the consequence of maladroit policies being pursued by the Government. I would be interested to know how the Chancellor approaches the Localism Bill, which his colleagues from the Department for Communities and Local Government are taking through Parliament with the confident claim that it will devolve more and more control to local neighbourhoods to be able to say no to developments that they do not like. As we heard in his latest Budget, he wants the default position on housing and other planning applications to be yes, but I am afraid that the truth is that most of the communities who have been given the prospect of far greater control over planning decisions want the default position to be no. There is a fundamental tension between the growth aspirations that he talks about and the actions of this Government, which are in many ways damaging growth.

Henry Smith (Crawley) (Con): Does the right hon. Gentleman concede that during the last decade of the Labour Government housing starts were at their lowest since the 1920s because of top-down planning control that did not work?

Mr Raynsford: The hon. Gentleman should be aware that during the period leading up to the recession we saw a continual increase in housing output. Net additions to the housing stock—the measure favoured by the DCLG as the best and most accurate measure—showed growth of 10,000 to 15,000 a year from 2001 to 2007. In 2007, net additions to the housing stock, at over 200,000,

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were the highest for 20 years. That was the position: there was a growth trend. We were seeing increased housing output and getting near to the target of 230,000 homes that the Barker report had indicated was necessary. All that has been put at risk. The number of new starts is now only just over 100,000; consumer confidence is absolutely shattered, as I have described; and the confidence of developers is severely damaged by the fear of such maladroit changes to the planning regime.

We have also seen inept cuts in public expenditure. The Homes and Communities Agency played an absolutely vital role in helping the housing sector through the crisis of the recession and giving confidence back to developers through schemes such as Kickstart and HomeBuy Direct and investment in housing associations. All those programmes have been cut back, except one. Six months after HomeBuy Direct was cut, the Government realised that they had made a terrible mistake, so they rebadged it as Firststart, or something like that. However, I am afraid that the others have gone, and the investment levels of the Homes and Communities Agency, at 65% below what they were under the previous Government, mean that the outlook for affordable and social housing is extremely grim.

We have a Government who talk about growth, but their actions are damaging to growth. The housing market, as a microcosm of the overall economy, shows that while current policies continue we have no prospect of getting the growth we need, the homes we need, and the jobs that will come from that, because the housing market has huge multiplier consequences for the economy as a whole. I hope that the Chancellor will not continue to base his case merely on the arithmetic of deficit and will look at what is happening in the real economy and the damage that his policies are doing.

2.47 pm

Sajid Javid (Bromsgrove) (Con): I found many of the comments in the shadow Chancellor’s speech absolutely astounding. He began by talking about economic illiteracy despite the facts that he was in the Treasury when the previous Government announced that they had abolished boom and bust, and just a few days ago he proposed an unfunded cut in VAT costing £13 billion a year and £50 billion over the course of the next four years—a £50 billion increase in our national debt. Clearly, when he was talking about economic illiteracy, he was talking about himself.

The truth is that in 1997 Labour inherited a golden legacy. National debt was low, growth was robust, and the budget deficit was a third of what it is today and falling rapidly. Now we find ourselves in a situation that could not be worse. The national debt has grown from £350 billion in 1997 to £920 billion today. Servicing that debt costs £43 billion in interest this year—more than we spend on the defence of our country or on the education of our children—and, despite the effect of the fiscal actions that this Government are taking, it will rise to almost £70 billion in four years’ time.

James Wharton (Stockton South) (Con): My hon. Friend is making an excellent point about the levels of debt that the Government inherited. It is also important to put on the record that many economists and observers of the national finances say that the debt may be significantly higher, depending on how we measure it

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and which liabilities we take into account. The situation we inherited, as bad as it sounds in his description, could be even worse if we factor in all the liabilities that the previous Government left behind.

Sajid Javid: My hon. Friend is absolutely right. There are some very reliable estimates of unfunded liabilities of central Government standing at over £1 trillion, which would more than double the national debt—not to mention private finance initiative liabilities potentially worth £300 billion.

How can we prevent this from happening again once this Government have brought down our debt? There is a possibility that some time in the future, the public may, against their better wisdom, elect another Labour Government. Perhaps we should consider capping the national debt at a percentage of GDP, so that future Governments who think that they can spend like there is no tomorrow are held back. I am pleased to announce that on 12 July, I will present a ten-minute rule Bill, provisionally titled the national debt cap Bill, to suggest just such a measure.

We have heard a lot from the Labour party about the cuts being savage and reckless. It is easy to make those accusations without looking at the facts. The fact is that the cuts have not even started yet. The first fiscal year of cuts will be this year. It is important to go into the specific numbers. There will be cuts of 0.6% in real terms this year, 1.1% next year, 1.3% the year after and 0.8% in 2014-15. That averages out as a cut of about 0.9% in real terms each year. That is a total cut of 3.7% in real terms. Although such a cut cannot be dismissed, that is the absolute minimum that is necessary to bring sanity back to our public finances.

Mr David Anderson (Blaydon) (Lab): The hon. Gentleman has gone through the figures. Will he say what they will mean in reality for public sector workers in Bromsgrove? How many will lose their jobs?

Sajid Javid: What it will mean for all workers in Bromsgrove, including public sector and private sector workers, is that there will be more jobs. They are essential to restore economic credibility. As a result of the announcement of the Government’s credible plan, interest rates are lower in Britain than they were before. Importantly, despite the deficit still being at 10% of GDP, which is higher than in Spain and many other European countries that are facing problems, our interest rates are almost on a par with Germany’s.

If hon. Members want to talk about savage cuts, why do we not consider the great example of Denis Healey? The country was brought to its knees and a bankrupt Britain was ordered by the International Monetary Fund to make cuts that amounted to 3.9%, not over three or four years, but in one year. If that is not a good enough example, let us consider what is happening in the United States, which failed to put its house in order when it had the opportunity and did not introduce a credible plan to tackle its deficit. As a proportion of GDP, its deficit and its national debt are not too different from ours. It is now being forced to introduce cuts in one year of 3.8% in real terms. It is no wonder that the IMF, the CBI, the Federation of Small Businesses and the OECD are all behind us.

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Henry Smith: My hon. Friend makes a powerful point about the United States, where unemployment is rising because it failed to tackle its deficit early enough. In contrast, in my constituency, Siemens has just announced 600 new jobs. That is proof that our Government’s policies are starting to work.

Sajid Javid: I absolutely agree with my hon. Friend.

If we want to make the cuts less painful, that is possible. This does not all have to be about losing jobs. I noticed yesterday that local councils are still advertising for walking co-ordinators, obesity strategy officers, cycling officers and energy island administrators. If the public sector wants to make the cuts less painful, it has the power to do so.

Hon. Members talk about the unfairness of the cuts, but let us look at some of the changes that the Government have boldly introduced. We have put a cap on the amount of benefit that people can claim at the equivalent of about a £35,000 gross salary. What is unfair about that? Why should a family on benefits receive more than the average working family receives in salary? We have put a cap on housing benefit to ensure that claimants cannot live in better accommodation than ordinary, hard-working families. We recently suggested a cap on how much someone living in social housing can earn. There are Opposition Members who are earning a household income of more than £100,000 a year and who continue to live in social housing for about £175 a week. That is unacceptable and the public will find it unacceptable too.

The Chancellor asked why the Opposition do not have a policy on public sector pensions. I suggest that one reason is that the leader of the Labour party was elected and put in place by the trade unions and that many Labour Members get the majority of their funding from trade unions. I would therefore expect nothing else from them.

What alternatives do we have? That question brings me back to economic illiteracy. The shadow Chancellor seems to think that we can force the bond markets to buy our bonds. He seems to think that despite this country being forced to issue £4 billion in bonds a week—that is the amount we borrow plus the amount we have to refinance—and despite the competitive nature of the bond market, bond investors will just purchase our bonds willy-nilly. That is unacceptable economic illiteracy. The truth is that bond investors have a choice. Because of that, we are stranded and have no choice but to deal with the deficit.

In my last two minutes, let us look at the countries that have failed to take action. I have already mentioned the United States, which had huge quantitative easing programmes of $600 billion and $1.7 trillion. It has reached the ceiling on its debt cap and is in serious trouble. It will shortly have to follow similar plans to ours. The shadow Chancellor mentioned the eurozone. He was right to point out the problems in Greece, but wrong to suggest that he has never supported membership of the euro. It is the policy of the Labour party to join the euro, and its last manifesto offered a referendum on the euro. The problem with the euro was created by political dishonesty. Politicians in Europe were not willing to tell the truth about the euro and say that there could not be a single currency without fiscal union.

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I suggest that there is similar political dishonesty from the Labour party. It is a party that, like Alice, lives in Wonderland. It believes that one can keep spending without any consequences and that one can abolish boom and bust.

2.57 pm

Pamela Nash (Airdrie and Shotts) (Lab): It is said that there are three stages of a Government’s life. First, they blame their predecessors for all the wrongs of the world, including the decisions that they are making themselves. They then get into their stride and take responsibility for their own policies. Eventually, they make decisions that make the public unhappy, and things go downhill from there. I suspect that this Government may get through all three stages rather quickly.

As we have heard, today marks a year since the Government gave their first Budget. I hope that this anniversary marks the beginning of the Government entering the second stage and taking responsibility for the pain that they have inflicted on families in my constituency and throughout the country over the past 12 months.

We have heard repeatedly from Government Members that the previous Labour Government were wasteful with taxpayers’ money. That is simply not true. The Government should stop patronising the electorate and stop using the unhelpful credit card analogy. The national debt is in no way analogous to a credit card. The balance sheet contains both assets and liabilities. The Labour Government paid for additional infrastructure, roads, schools and hospitals. Even so, until the collapse of Northern Rock, we had a lower national debt than we had inherited from the previous Tory Government in 1997. We should ask how much our assets are worth compared with our liabilities, as one would if one inherited a home worth £200,000 with a £20,000 mortgage on it. The next generation will receive not only the debt, but the assets. One example is Building Schools for the Future.

Government borrowing was invested in production, such as the planned loan to Sheffield Forgemasters, which would have aided an export-led recovery. The country would have seen a return on that investment. Instead, this Government took yet another decision that led to the stagnation of growth and the rotting of assets, which will be passed on to the next generation. That is typical of Government policy over the past year. They have made quick, deep cuts that have saved a little money in the short term, but they have had no adequate plan for the future and blame the Labour party for the consequences.

Labour’s bail-out of the banks was universally seen as essential to combat the effect of the global financial crisis on Britain. I will concede that mistakes were made on our part in banking regulation, but the Tories in no way opposed our measures at the time. In fact, until recently deregulation has been central to Tory policy. For months after the collapse of Northern Rock, the Prime Minister continued to promote bank deregulation. He stated that plainly in a speech to the Institute of Directors in April 2008.

It is, of course, more comfortable for the Government to blame everyone else, but it is time they took stock of the effect that they are having on the people of this

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country. For example, since last year’s Budget consumer confidence has clearly collapsed, with the figures consistently showing consumer spending dropping. That drop in personal spending power is the first since the 1980s.

Margot James: Does the hon. Lady not accept that there is bound to be restraint on the part of consumers considering the enormous level of household debt? Should not the Government learn from the public? The public are holding back, and the Government need to hold back.

Pamela Nash: I would argue that the Government’s policies in the past year have done nothing to increase the confidence of this country’s consumers. The British Retail Consortium and KPMG’s retail sales monitor shows that the total value of retail sales last month represented

“the worst drop in total sales since we first collected these figures in 1995…high inflation and low wage growth have produced the first year-on-year fall in disposable incomes for thirty years.”

Worse still, according to the BRC the main cause of inflation is not just wages or consumer-driven increases but external shocks such as the VAT increase.

Jonathan Edwards (Carmarthen East and Dinefwr) (PC): I agree with many of the points that the hon. Lady is making in her thoughtful speech. However, my recollection of last year’s Finance Bill debate is that the House divided on a Plaid Cymru and Scottish National party motion to overturn the decision to increase VAT, and the Labour party abstained. Can she explain why?

Pamela Nash: I cannot explain why, but I hope that our shadow team will answer the hon. Gentleman’s query at the end of the debate.

The VAT increase has already had a considerable effect on stretched budgets in homes throughout the country. It has hit the poorest in our society hardest, as have this Government’s two Budgets as a whole. It has meant that people are living in fear for their personal domestic budgets, as they do not know what the future will hold. The decision to increase VAT, a regressive tax, illustrates the priorities of the Tory-led Government.

The Chancellor’s claim in the Chamber a year ago today that the emergency Budget was “progressive” was frankly laughable. The Institute for Fiscal Studies has confirmed that it was regressive, and that half a million more children in the UK will end up in relative poverty by 2013. That is disgraceful. The Government are feeding the cycle of poverty and repeating the mistake of Thatcher’s Government in the ’80s. The Prime Minister stood at the Dispatch Box today and claimed that his Government were helping people out of poverty, but the experts beg to differ.

Young people are particularly affected, and they have a right to feel victimised by the Government. There have been a series of failures, leading to their generation being hard done by. Thousands of young people will now be saddled with up to £40,000 of debt after completing a degree. I am glad that my constituents still benefit from Government-funded higher education in Scotland, but even they leave university with considerable debt from the living and material costs of what is usually a longer term of four years at university.

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When a young person graduates from uni, they then have to find a home. Unfortunately, the average age at which a person in the UK can afford their first home has risen to 37 under this Government. The national drop in house prices has had a smaller effect in Scotland, as the prices were much less inflated originally than in the south of England. Despite that, Scots are still just as affected by the difficulties in obtaining a mortgage without the considerable deposit of about 10% that is often now required.

After leaving university with so much debt, people have to cope with low and frozen salaries, if indeed they are lucky enough to get a job. Many remain without a job, as unemployment is hitting young people and Scotland in particular. We had the lowest unemployment rate in the UK in 2007, but we are now closer to the highest after four years of the SNP’s budget mismanagement.

The scrapping of the future jobs fund was yet another massive blunder by the Government. To label it a waste of money and say that the jobs created were not real is frankly offensive. I have met numerous future jobs fund workers in Airdrie, Newarthill and Shotts who enjoyed their six months in the programme, learned essential skills, improved their self-confidence and, in many cases, ended up creating a role for themselves and being kept on. At the very least, they were helped to find a similar job once they left their placement.

Unfortunately, the new Work programme is more likely to make the poor poorer than it is to get Britain back to work. There are two major problems with it. First, the promise that it will give 2.4 million unemployed people jobs over the next five years depends entirely on economic growth, evidence of which remains to be seen. There are currently 2.43 million people unemployed and 2.4 million out of the labour force, but in the last quarter there were only 469,000 vacancies. Secondly, the Work programme operates on a payment-by-results basis. Although I welcome the fact that good results are required for taxpayers’ money to be spent, in today’s limited job market are not private companies much more likely to pick individuals who are not long-term unemployed?

The majority of unemployed people are looking for a job. Many have the wrong skills, or are in the wrong place, and unfortunately they have little hope of gaining funding for retraining at the moment. The housing market also makes it almost impossible for them to relocate. With limited means, people are supposed to pay for increased food bills and sky-high energy bills. Despite the fact that I now spend almost half my time in Westminster, away from home, I still received a letter last week, like many people in Airdrie and Shotts, telling me that my electricity and gas bill is going up by £20 a month.

Fuel bills are also rocketing, and people are rapidly finding themselves struggling to cope. At a recent meeting with my local citizens advice bureau, we discussed the fact that the people who are now coming to us for advice are not just those on benefits or very low salaries but people in a variety of salary brackets, who are seeing their wallets empty much earlier in the month. If those on half-decent salaries are struggling, how are those on benefits and the minimum wage even beginning to cope?

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The Government have spent their first year in power causing successive growth forecast reductions and prolonging the effects of the recession on both families and businesses, and a generation of young people has been put on the scrap heap. When are the Government going to stop blaming everyone else and find a plan B that will get the UK working again?

3.7 pm

Jackie Doyle-Price (Thurrock) (Con): It is a pleasure to follow the hon. Member for Airdrie and Shotts (Pamela Nash), who spoke with considerable passion about the plight of some of her constituents. However, I am sure she will recognise that the best way of tackling the poverty that she described is by getting our economy working more effectively, incentivising people who want to create wealth and spreading more jobs. That is the way to tackle the problems that she articulated.

On that note, I congratulate the Chancellor of the Exchequer and the Treasury team on sticking with the tough decisions that will rebuild our economy and prevent it from spiralling further into debt, and in so doing lay the foundations for future growth. We must stick with our plan. There is no need for a plan B.

Let us get this correct: we inherited an economy built on credit and public spending. That is not a climate that will encourage wealth creation. We cannot keep taxing private enterprise in order to fund an expanding public sector. We need to incentivise our wealth creators and set the economy free. It is clear from recent economic figures that the economic fundamentals are strengthening. Indeed, John Cridland, the director general of the CBI, said this weekend that we are well into recovery, even though it does not quite feel that way.

Lilian Greenwood: I understand what the hon. Lady is saying, but does she not share our concern that although we are supposed to be in recovery, the growth figures keep being downgraded?

Jackie Doyle-Price: I was just getting to the explanation for that, which is the one that my right hon. Friend the Chancellor of the Exchequer gave at the Mansion House last week. He dissected the growth figures, which showed that although financial services were contracting, in the rest of the economy we were in a period of growth. We need to rebalance our economy, and to take it away from a large financial services sector and more towards manufacturing and other sectors.

I shall continue, because time is brief and many colleagues want to contribute, by bringing the debate to life with some real-life examples, and by drawing the attention of the House to some areas where we are making considerable progress. First, there is a genuine improvement in manufacturing—the Government amendment mentions an increase in activity of 4.2%. I have the privilege to represent a considerable amount of manufacturing industry, which is situated particularly in the west Thurrock area and in Purfleet. Among the large operations in my constituency is a Unilever plant that manufactures, among other things, Hellmann’s mayonnaise, Flora margarine and other spreads. The company very recently relocated its manufacturing operation for jars of Hellmann’s mayonnaise from the

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Czech Republic to Purfleet. Why? Because it was more cost effective. Do not let it be said that the UK cannot compete internationally for manufacturing presence.

Owen Smith (Pontypridd) (Lab): The latest manufacturing output numbers show a clear decline, not an increase. There was an increase over the last year, but that was largely because people restocked after running their inventories down during the crisis. Does the hon. Lady concede that manufacturing now is going in the wrong direction?

Jackie Doyle-Price: The hon. Gentleman wilfully ignores what I just said. I gave one illustration of inward investment and an improvement in manufacturing in this country. That decision was taken by a thriving company because it is cheaper to produce here than in eastern Europe. He should look at the evidence instead of constantly talking the economy down.

Jobs are increasing. My father has lived all his working life in Sheffield, and many hon. Members are familiar with the economic problems in South Yorkshire. He has spent his entire working life as a builder and labourer. For much of the past decade, he struggled to find work, and has been in and out of work on short-term contracts. When he was laid off last year, he did not hold out much hope of finding more work, given the prevalence of eastern European gangs in that area of work, but last week, the day before his 63rd birthday, he re-entered the world of work, in Sheffield, so it is clear that the economy is indeed moving in the right direction.

Paul Blomfield (Sheffield Central) (Lab): Will the hon. Lady give way?

Jackie Doyle-Price: I shall press on, if that is okay.

The Government’s measures will encourage more people to fill newly emerging jobs. I am delighted that in the last Budget, we began to move towards increasing the income level at which income tax is paid, which will make the most difference at the margin. With our welfare reforms, that will incentivise people to get back into work.

There has also been an improvement in investment. The biggest inward investment in the UK is for the London Gateway port, which is being constructed in the borough of Thurrock. That will add to the area’s existing port facilities at Tilbury, which this year celebrates its 125th anniversary—we all wish it many more years of success—and Purfleet, where the roll-on/roll-off container business is again booming. Even before DP World opens, the tonnage landed in Thurrock exceeds that of Dover and Felixstowe. That is a good sign that in my constituency at least, the economy is definitely moving in the right direction.

Having spoken of all that is going well, I would like to tell my colleagues on the Treasury Bench about matters on which the Government need to raise their game, so that we make the most of the economic opportunities that are available to us. First, we need to do more to encourage investment. We need to make investment easy and to ensure that there are no barriers in its way, particularly in the planning system. Some firms have had to pay absolute fortunes to protect species on brownfield sites, and section 106 agreements seem to be used by local authorities, and indeed on

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occasion by Government Departments, as cash cows to fund projects that go beyond the benefit needed. Our overall objective is to encourage economic growth and job creation, so we need to ensure that those measures do not act as barriers to investment, but encourage it.

On the banking sector, I thoroughly support the objectives behind Project Merlin and agree that there is a need to ensure that our banks lend to people who want to buy their own homes and to businesses. However, we need to bear in mind that businesses are much less risk averse, and that they are looking at other ways of financing investment where possible. We must avoid putting the taxpayer in the position of lender of last resort for projects that are riskier than projects that we should support.

Mr Andrew Love (Edmonton) (Lab/Co-op): I thank the hon. Lady for giving way before she leaves the subject of Project Merlin. She will have seen the lending figures for the first quarter. To put it mildly, the figures for lending to small and medium-sized business are disappointing. Does she believe, as I do, that the Government need to take firmer action to ensure that the banking sector lives up to its Project Merlin commitments?

Jackie Doyle-Price: We should absolutely encourage more lending to sustainable businesses and business propositions, but we should not encourage banks to lend just to meet that target. Lending must be based on real demand, which, as I said, is falling, because firms are finding other ways to fund investment. It must also be based on an appropriate degree of risk, because it is inappropriate for the taxpayer to stand as guarantor of such loans.

In conclusion, there is more realism in the economy. We are building an economy on real wealth creation, not credit or an inflated public sector. There is much to celebrate, despite the best efforts of Opposition Members to talk our economy down. They must consider the impact of their words. Confidence is central to economic growth—confidence is all, and every negative message undermines it. When confidence is undermined, the recovery will slow. This is not about partisan games; it is too important. We all need to recognise the real progress that we are making.

3.17 pm

Mr Iain Wright (Hartlepool) (Lab): The hon. Member for Thurrock (Jackie Doyle-Price) mentioned last week’s speech by the Chancellor at the Mansion house, which came at the end of his first year at the Treasury. He concluded his speech by saying:

“I believe that sentiment of cautious optimism has been borne out by events in the twelve months…The British economy is recovering.”

If current economic performance is cause for cautious optimism, I dread to think what deteriorating performance and cause for pessimism would look like.

The fact of the matter is that the Chancellor has failed even on his narrow policy on growth and investment. In his Budget a year ago today, the Chancellor stated:

“The Government has set out a credible deficit reduction plan that should provide businesses with the confidence they need to plan and invest, supporting the necessary recovery in business investment.”

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That simply has not happened. Business confidence is almost 12 percentage points lower than it was a year ago, according to the confidence monitor report by the Institute of Chartered Accountants in England and Wales, of which I am a member, and Grant Thornton. Business investment in the first quarter of this year, according to the Office for National Statistics, was 7.1% lower than the previous quarter and 3.2% lower than a year ago. As the hon. Member for Thurrock said, bank lending to small and medium-sized enterprises—a necessary precondition for growth—is behind schedule, as set out in Project Merlin by the Business, Innovation and Skills Secretary.

Retail sales––an important barometer of the health and confidence of the economy, because the retail sector constitutes one tenth of the economy and employs 11% of our work force—fell sharply by 1.6% last month, which was much worse than commentators’ estimates. That reflects consumers’ lack of confidence for the future.

Ministers often cite growth in manufacturing, but the purchasing managers index for manufacturing fell to a 20-month low of 52.1 last month. Since a welcome boost in January, the purchasing managers index figure has fallen every month this year, indicating a worrying and slowing pace of growth in the manufacturing sector. After a relatively robust growth spurt immediately after the recession—largely the result of the Labour Government’s actions—growth has effectively stalled and stagnated for the past six months. I am pleased that my hon. Friend—my good friend—the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) is here because I have to conclude that growth predictions are being revised down faster than Middlesbrough’s chances in the championship next season.

In the Budget a year ago today, the Chancellor forecast that growth would be 2.3% this year, 2.8% in 2012 and 2.9% in 2013. No credible economic forecast predicts that, and nor does the Chancellor. In November, he predicted that growth this year would be 2.1%, and then, in his March Budget, he forecast that growth in 2011 would be 1.7%. The OECD has recently forecast that growth will be 1.4% this year, not 2.3% as forecast one year ago, and 1.8% in 2012, not 2.8%. Every time the Chancellor stands at the Dispatch Box, confidence in the economy falls. He should stay out of the House more often.

This comes at a time when public service cuts and public sector redundancies have not necessarily started to gain pace, so the problem of no growth is only likely to get worse. The economic growth forecasts are below those for France, Germany, the US and even Japan after its natural disasters and the eurozone after its economic difficulties. Why on earth is this the case? Why is the British economy not bouncing back in the way that our competitors seem to be doing? In his opening remarks in announcing last month’s inflation report, the Governor of the Bank of England stated:

“the recent pattern of revisions to the projections over the next year—downward to growth and upward to inflation—has continued”.

The Governor went on to state that risks and negative factors within our economy—high levels of inflation, squeezes on wages and household incomes, weak levels of activity in the economy and uncertainty about the speed at which net exports will pick up—are persisting.

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These factors are persisting for far longer than the Treasury and the Bank of England foresaw. Inflation has been much, much higher for a longer period than was anticipated, exports are not as buoyant as they were forecast to be at this stage, especially given the weakness in sterling, and economic activity is weaker than was expected. The Governor concluded:

“the outlook for growth and inflation is likely to remain unusually uncertain. No one knows how the economy will evolve over the next few years; nor how policy will need to respond.”

Given those comments and the huge and persistent uncertainties that exist, is it not ridiculous for the Chancellor not to concede that an alternative economic approach might be necessary?

Let us contrast what is happening in the UK with what is happening elsewhere in comparable economies. In Germany, the export-led recovery is leaping ahead, despite a slow-down in global economic growth. Domestic demand and private consumption are increasing, contributing to growth, wage increases are taking place as well as rises in employment levels, and Government finances have benefited from strong economic growth, to help offset the fact that Government debt in Germany rose significantly in 2010 to stabilise the banking sector. Despite all the deep-seated problems that it is facing, even Europe is expected to grow significantly faster than us, at 2.5% this year and 2.5% again the following year.

These economies will grow faster than ours and put themselves in a better position to take advantage of a growing global economy in the years to come, because they realise that a single-minded focus on deficit reduction, to the exclusion of everything else, particularly a disregard for the long-term social and economic consequences of such a move, is detrimental to the long-term interests of their economies. In his remarks today, the Chancellor mentioned PIMCO. Only yesterday, Bill Gross, the manager of PIMCO, which is the world’s largest bond fund company, said that to remain on the road to economic recovery, the US needed to focus on job creation instead of fiscal tightening and budget reforms. The conclusion he came to is pertinent to the British experience.

Claire Perry (Devizes) (Con): I am grateful to the hon. Gentleman for giving way because I have just joined the debate—

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. I know that the hon. Lady is an enthusiastic Member, but she should not just walk into the Chamber, give it about five seconds and then intervene. It is not fair. It is up to the hon. Gentleman whether he gives way, but it is discourteous to everyone else who wishes to speak.

Claire Perry: I apologise, Mr Deputy Speaker, but I have been tied up with constituency business. I just wanted to say that I welcomed the reference to Bill Gross, who, as the hon. Gentleman will be aware, also described the UK’s economy as sitting on a bed of nitroglycerine ahead of the election.

Mr Wright: I hope that the hon. Lady, who has not listened to the rest of the debate, will take into account the conclusion drawn by the manager of the largest bond fund company in the world. He stated that the budget reforms

“are long-term requirements for a stable and healthy economy, but the move towards it, in fact, if implemented too quickly, could stultify economic growth.”

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That seems an eminently sensible conclusion.

Alun Cairns (Vale of Glamorgan) (Con): Why should we accept the hon. Gentleman’s version of events when the OECD, the CBI, the Institute of Directors and the Federation of Small Businesses are calling for fiscal tightening in order to ensure the stability in the economy necessary to provide growth, as is happening?

Mr Wright: The growth projections are falling rapidly, and have been downcast three times. When I speak to my constituents and businesses in Hartlepool, they are concerned about a lack of confidence and a lack of investment in the future of this country that will undermine our long-term ability to fight the global downturn.

Mr Anderson: Is it not the case that, like me, my hon. Friend has been here before, when the Conservative party did exactly the same thing not just in our lifetime, but our fathers’ lifetimes? We know that the actions that the Conservative party takes will result in ordinary people paying the price for its failures.

Mr Wright: My hon. Friend represents a seat in the north-east, as I do, and he knows full well that our region has borne the brunt of this recession, like we bore the brunt of the 1980s recession. It does not have to be like this. We have got enormous economic potential in our region that can really contribute to wealth creation in our country, but that is simply not happening.

Richard Graham (Gloucester) (Con): Will the hon. Gentleman give way?

Mr Wright: No, I am not going to give way, because I do not have long left.

There is an acute need for a more balanced economic policy, focusing not merely on deficit reduction, but on incorporating job and wealth creation measures, on weeding out inefficiencies—that is true—on raising our productivity, on improving our infrastructure and on rewarding enterprise and ambition. In fact, a more balanced view would help to reduce the deficit faster. An emphasis on growth and jobs would increase output, raise tax receipts and reduce benefit bills, thereby helping to cut the debt. Given the lack of growth in the economy and persistent uncertainties about inflation, economic activity and net exports, for the good of our country and economy, will the Chancellor concede that he might—just might—be wrong?

3.27 pm

Stephen Williams (Bristol West) (LD): The hon. Member for Hartlepool (Mr Wright) rightly set much of his speech in the international context. I want to start by doing much the same, by comparing the UK’s record with that of our fellow EU member states, particularly the unfortunately named PIGS—Portugal, Italy, Greece and Spain—around the Mediterranean periphery. We have all seen or read about the extraordinary scenes in Greece in recent weeks and hours. The Greek Government debt currently has a triple C rating from Standard and Poor’s, which is as low as it can go without it effectively being a recommendation that no one should buy, whereas the UK has a triple A rating. That might surprise hon. Members given the underlying economic data on our budget deficit. Even after the difficult decisions that the coalition Government took in their first year in office,

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our budget deficit is currently 9% of GDP for 2011, as compared with the eurozone, where the figure is 4.3%, and Greece, whose budget deficit is lower than the United Kingdom’s, at 8.4% this year. That surprising difference in bond ratings is accounted for by the fact that people who want to lend to countries are just the same as those who want to lend to companies and individuals. They are looking for the confidence and certainty that comes when an institution that is in trouble realises that it is in trouble and takes the necessary measures to get to grips with it. That is what this coalition Government are doing.

Sheila Gilmore (Edinburgh East) (Lab): Is the hon. Gentleman concerned that Ireland and Greece, the two countries with the greatest difficulties, have both gone through austerity programmes that were not enough, both had to have further bail-outs and implement more austerity programmes, and both still have difficulties? Does that not give him pause for thought about whether austerity programmes will lead to recovery?

Stephen Williams: I specifically mentioned Greece, and those who have been following events in Greece from afar will know that the reason why the international community is so concerned about Greece is that it has felt until recently that the Greek Government have simply not got to grips with the plan, or have announced a plan but not adhered to it. That is the key difference. This Government have announced plans—difficult plans—to deal with deficit reduction and we are sticking with them, no matter how painful they might be.

Margot James: My hon. Friend mentions the views of the bond market, and the previous speaker talked about what PIMCO thinks. Is he aware that PIMCO said just days ago,

“we think the U.K. is implementing what is probably the best combination of fiscal and monetary policies”?

Stephen Williams: I thank my hon. coalition colleague for her intervention, which reinforces my points.

The Government response to the stark situation that we inherited in May 2010 has been to tackle the deficit—the yawning gap—in our public finances, but also to build a business climate that is conducive to growth, because as several hon. Members have said, it is through growth that the economy will provide the resources to get our finances back on track.

Clive Efford (Eltham) (Lab): Will the hon. Gentleman give way?

Stephen Williams: I have taken two interventions, so I will take no more until near the end, perhaps.

This Government do have a growth strategy: we want to rebalance growth, including rebalancing it geographically. We have just heard about the plight of the north-east. Perhaps it was a failure of the last Labour Government not to rebalance the economy sufficiently, away from the south-east of England and towards other regions and nations of the United Kingdom. Perhaps the hon. Member for Hartlepool (Mr Wright) ought to have a stiff word with some of his colleagues. After 13 years, the economies of some of our regions were still very fragile and unable to withstand external shocks. We also wish to rebalance the different sectors of the economy, away from over-dependence on the City of London,

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important as it is, and the resources that it generates towards more sustainable parts of the economy, in particular growth from digital media. The Government have announced the establishment of a network of enterprise zones around the country. My local enterprise partnership—the West of England Local Enterprise Partnership—has just announced that it will be based around Temple Meads station in my constituency, where we want to build the country’s leading media hub and business growth area, with a particular focus on digital media.

We also want future growth to be sustainable in a green way. This country has a huge economic opportunity to grow a low-carbon economy. In the Energy Bill, which is just completing its passage through the House, we have something quite revolutionary: the green deal, which gives every household in the country a fantastic opportunity to retrofit their houses to reduce energy bills and help us cope with meeting the demanding climate change targets that we have set, on which there is cross-party consensus and agreement. There is also a fantastic opportunity for British business, and for people to be trained in the skills needed to retrofit our housing stock. On a rather larger scale, the Government have also announced—the Chancellor confirmed this in the Budget—the creation of the green investment bank, in order to provide finance for schemes that might otherwise find it difficult to secure funds in the market. As the country’s green capital, the city of Bristol has a good case for being made the future home of the green investment bank.

A further way in which the coalition Government are going to make a fundamental difference in turning the economy around and reducing unemployment is by making work pay. My hon. Friend the Member for Thurrock (Jackie Doyle-Price) mentioned that the coalition agreement would deliver the Liberal Democrat policy of reducing income tax and taking out of income tax completely those people who are earning up to £10,000 a year. That will be achieved before the end of this Parliament. Our programme of welfare reform and the introduction of universal credit was mentioned earlier by the Chancellor in his confrontation with the shadow Chancellor. The Opposition rather recklessly voted against the entire Welfare Reform Bill.

Reform is also needed in the banks. The Opposition motion calls for a reintroduction of the tax on bankers’ bonuses. It is worth pointing out, however, that the people receiving large bonuses will now pay 50% income tax, rather than 40%, that national insurance has doubled for those on the higher rate of tax, and that employers will pay more national insurance on those bonuses as well. The taxation on those bonuses will certainly increase.

Alec Shelbrooke: If a banker pays 50% income tax on his bonus, does not that represent a greater tax take than if the money were left in the bank, where it would be liable to only 28% corporation tax?

Stephen Williams: My hon. Friend makes a good point.

What should we do with RBS and the Lloyd’s banking group, which were bailed out in 2008 adding £67 billion to our national debt? Earlier this year, I wrote a pamphlet on what the Government should do with their holdings in the banks. It was called “Getting your share of the

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banks: giving the banks back to the people” and it was published by the think-tank CentreForum in March. My proposal was to give those shares to every citizen in our country and, when they sold them in the future, the Government would get back the cost of their investment in 2008 while the citizens would keep the result of any growth. That would mean that we would reduce our national debt by £67 billion over time, and that every citizen in the country—each of us who has felt the pain of bailing out the banks—would see some benefit from this upside to the situation. I am pleased that my right hon. Friend the Deputy Prime Minister has been endorsing that proposal today on his trade mission in Latin America.

What have we heard from the official Opposition today? What is their grand idea for turning round the country’s finances and getting our economy back on track? They have opposed all the cuts that we have debated in the Chamber. I have never heard a Labour Member of Parliament stand up and say that they are in favour of any of the measures in our Bills, whether in this Chamber or in the Bill Committees on which we serve. Today, the Opposition have come up with a completely reckless proposal for an unfunded cut in VAT. It has no economic justification and there is no evidence that it would make any difference to the economy. Let us contrast that with the record of the coalition Government. We are determined to have a fair tax burden, and we have plans for sustainable growth and deficit reduction. Both plans have international credibility. That is what this country needs right now: credibility at home and abroad, rather than the reckless opportunism that we have seen from the Opposition today.

3.38 pm

Mr Geoffrey Robinson (Coventry North West) (Lab): This is a timely economic debate, and I am pleased that the Opposition have tabled this motion for a whole-day debate at this crucial time. We are one year in, and we can now begin to form a view of whether the Government’s policies are working. It is always difficult for the Opposition, particularly on issues such as employment and the impact of economic policies on the well-being of our country and our constituents, when they have to come out and be negative about what is being achieved. Inevitably, and much to the resentment of Opposition Members, that leads to a chorus of unjustified remarks from across the Chamber that we want to talk the economy down or that we do not want good news. In the name of our constituents, we are desperate for good news. We want good news on employment, for example.

Richard Graham: The hon. Gentleman said that his constituents were desperate for good news. May I refer him to the very useful economic indicators update provided by the Library? It shows that consumer confidence rose by 10% in May, that manufacturers’ output expectations have risen by 13%, and that the EU economic sentiment indicators for Britain are up by 2.6 points. Does he not agree that those are all positive indicators? I would welcome him sharing them with his constituents and all his colleagues on the Opposition Benches.

Mr Robinson: All we know at the moment is what has happened and many forward-looking forecasts are no better than those of the OBR, which was set up by the

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Government to provide a so-called independent forecast. Let us be clear that we welcomed and accepted that. All we can look at is what has been achieved; we will come on to the forecasts in a few moments. If we show a moment’s hesitation or doubt about them, I hope that Government Members will understand why. I followed the first 10 years of the Labour Government very closely, and I do not think that we ever had to revise any forecast three times in a matter of six months. If we do not listen to the forecasts and do not treat them as if they had already been achieved, I hope that the hon. Gentleman will understand why.

There are some things we can welcome. We can welcome the good effort in job creation in the private sector. According to the Chancellor this afternoon, that means 520,000 jobs, so let us welcome that. The trouble is, however, that the OBR says—this is the bible we have to go by—that before the end of this Parliament, 200,000 more people are going to be unemployed than it originally thought. We have 520,000 on the one hand and 200,000 more on the other. There is always a negative balancing out the positive in all these areas. If we take inflation, for example, it has gone through the roof at 4.5%. Manufacturing output has been a good effort up until the last quarter, but it is now down again. It is not surprising that an intake of jobs in the private manufacturing sector has supported that output, built on the back of the previous Government’s policies. [Interruption.] No, they do not like to hear it, but it is a fact. Why did more than two thirds of the private sector increase in employment take place before the spending round announcement? It happened on the back of the reflationary policies of the previous Labour Government.

Alun Cairns rose—

Mr Robinson: I will give way in a few moments.

Those are the facts and that is the situation. If we look at the balance sheet of the Government’s economic policy in its first year, we see that even in the two areas where the Government had until recently done relatively well, the signs are now bad, so I find it hard to believe that there are any factual or objective grounds for thinking that they have done well overall or that their policies are going to work. The Chancellor continues to say that the plan is working, but all he is really saying is that he is retaining the support of those he set out to gain support from in the first place by adopting an essentially old-fashioned, deflationary bankers’ policy of cutting demand in the economy. That is what he set out to do and that is what he is doing. The prospects of it succeeding are poor.

Alun Cairns rose—

Mr Robinson: I will take the intervention later, if I may.

We are now at the stage where we have to make up our minds whether the Government’s economic policies are going to work or not. In a very good article published in today’s edition of The Guardian, Robert Skidelsky argues that the choice between the two economic policies has to be made by anyone wanting to make a serious stand on these issues. He says that the theories or sets of policies have been set out by all the famous, much-lauded figures in the Bank of England, the International Monetary

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Fund and all the rest of them. If we are dealing with what economists think—it is not the only thing that matters—we should also mention people like Stiglitz and Krugman who say that the policy is wrong.

If we look at the history, we find that it tends to be the people who are not part of the conventional wisdom or not part of the establishment, so to speak, who get it right and that the establishment nearly always gets it wrong. There is no attempt to get out of the box into which the Government have so constrained their policies—they like it and feel it is their comfort zone. I am talking about bankers and international organisations that are intent on deflation, which they are inflicting in the present crucifixion of the Greek economy—where they effectively continue to throw good money into failed policies.

Let me briefly read from the article:

“The Keynesians…among whom I number myself”—

and I am happy to be there, too—

“will have to eat their words if growth picks up and unemployment falls in the next 12 months”.

That is to say, if the Government’s policy comes right, the debt falls and deficit crisis is met, we could then celebrate the success of the policy. On the other hand, it might not work—and it is time for Members to decide where they stand on this. I happen to believe that there is no evidence to suppose that it will, much as I would like it to work: it will not work; it never has worked in history. It is not working in Greece or in Ireland. Greece has had two further doses of deflation and two goes at decreasing VAT, and it is still not working. It is getting worse, because they are not dealing with the root of the problem, as the shadow Chancellor made clear in his speech.

What could be done? Given that the Government will not want to change their policy, they have only one way out: another heavy incidence of quantitative easing. This time, the Government will have to stand up to the Bank of England for once in their life, and say, “We want this money to be put to productive ends.” We create the money, but nobody knows where it goes, except to make bankers’ profits in overseas investment markets. The Government should say, “We want the money to be made available through a bank”—such as the green investment bank, which could be much expanded—“to the British economy for, above all, investment in small and medium-sized enterprises.” The argument from the Governor of the Bank of England will be, “We can’t distort capital markets, you know. This is interfering in the market.” Of course it is; it is an attempt to avert the wastefulness that we have seen from so many of the policies so far.

Where should that money be channelled? In a very good contribution earlier, my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford) said that the housing market is dead on its feet at the moment. The new housing market is, I think, at an all-time low. The money, therefore, should go into housing, and into transport, which is desperate not for HS2 but for sensible things such as the four-tracking of the line between Coventry and Birmingham, about which I know something, and at other points such as in Wales. The other good thing would be that the railway policy could be executed much more quickly and fully.

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Will the Government change course? No. Will their policy work? No. Are there alternatives? Yes. I understand why they do not want to touch VAT, but they could at least get the Governor of the Bank of England to do quantitative easing of a large scale, £200 billion, and ensure that, instead of being dissipated into overseas markets, a good part of that money is used for the productive sectors of the British economy. That would make a big difference and be a start to the change of policy that we need from the Government.