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Mr David Hanson (Delyn) (Lab) rose—

Mr Osborne: And the right hon. Member for Delyn (Mr Hanson) was a Minister in that Government.

Mr Hanson: Will the Chancellor give us some idea of how many bank employees’ salaries of over £1 million will not be disclosed because of his failure to implement legislation enacted by the Labour Government?

Mr Osborne: Anyone listening to Opposition Members would believe that under the mythical Labour Government that apparently existed, all that information was disclosed. But was it disclosed? There was no disclosure whatsoever. I suggest to the shadow Chancellor—the former City Minister—and others that they back the unilateral measures that we are taking, which will make the financial centre here in London the most transparent in the world.

The advice of the Financial Policy Committee is clear. Banks should consider limiting bonuses this year and using profits to strengthen their balance sheets in the face of the eurozone debt storm. Let me make this plain: stronger banks, not larger bonuses, should be the priority this winter, and money that is earned should be used to build balance sheets and not to enhance payouts. That is the advice from the Bank of England, and that is the advice that the Government now expect to be followed.

Helen Goodman (Bishop Auckland) (Lab): Will the Chancellor tell us what he, as a major shareholder in some of the largest banks in the country, will do about the bank bonuses on which he can have a direct impact?

Mr Osborne: We restricted cash payouts in the Royal Bank of Scotland in the last bonus round to less than £2,000. That is what we did when we had the opportunity. The hon. Lady was a Minister in the last Government. Perhaps in 30 years’ time we will discover that she was sending letters to the Treasury asking “What are we doing about transparency in pay in the City? Why do we not introduce a permanent bank levy?”, and saying “I am really worried about the regulation of Britain’s financial services.” We will just have to wait for 30 years to find out whether, when she held Executive office, she once raised the concerns that she now raises in opposition.

Both the slow repair of our banking system and the crisis in the eurozone were identified by the Office for Budget Responsibility as causes of weaker economic activity. They are also a reminder of why it is so essential for Britain to maintain its fiscal credibility as we deal with a budget deficit that is higher than almost any other in the world. A month ago I was told by the OBR, as part of the formal preparation for the autumn forecast, that weaker economic activity would give Britain a less than 50% chance of meeting the fiscal mandate and the debt target that I had set out unless we took further action.

I believe that at that moment the OBR proved not just its independence, but its worth. It forced the Government to confront the issues at hand, and to use the weeks available to us before the statement to come up with a credible response. We know that under the previous forecast regime, those weeks would have been used to fiddle the forecasts, to tweak assumptions about the output gap, and to pencil in over-optimistic numbers

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on tax receipts: in other words, to do all the things that my predecessor, in his memoirs, says were done during his dealings with No. 10 Downing street. It would have been a case of choosing economic figures to fit the Government’s policies, rather than choosing Government policies to respond to the economic figures.

I believe that the existence of the Office for Budget Responsibility, which was consistently opposed by the shadow Chancellor in every position that he held in the last Government, has given the whole of Parliament confidence in the integrity of the forecast.

Stephen Timms (East Ham) (Lab): Did the Chancellor use those weeks to rethink his plan, because the OBR was telling him that the assumptions on which his plan was based were mistaken? We were told that employment would rise every year, but that has not happened, and it is not going to happen. We were told that the budget would be balanced in this Parliament, and that is not going to happen either. Surely the whole plan should have been rethought?

Mr Osborne: The OBR was also very clear in its analysis of why there had been weaker growth. Over the past seven days the shadow Chancellor and others have paraded around the TV studios citing the OBR’s numbers while refusing to accept the OBR’s analysis of what lies behind those numbers. The OBR is very clear; it gives three reasons for the deterioration in the economic forecasts. First, it attributes the primary reason for the weakness since its last forecast to the external inflation shock of the high oil price. Secondly, it attributes the current weakness in the economic position to the lack of confidence caused by the eurozone crisis. Thirdly, it says its assessment both of the boom before 2007 and the subsequent bust and of the impact of the repair of the financial system is greater than it had previously estimated. That is its independent analysis. The Opposition cannot agree that we should now have an independent body and accept the figures it produces, only then to reject the analysis on which those figures were arrived at.

Sheila Gilmore (Edinburgh East) (Lab): The OBR does not say that the cause of reduced growth is that the recession was found to be deeper. It does say that the recession was found to be deeper but, crucially, it also says the recovery during 2009 was stronger than previously forecast and that the further decline in growth happened only in the latter part of 2010.

Mr Osborne: The OBR is very clear that the cause of its downgrade of the trend growth rate is the—[Interruption.] Is it any wonder that the economic credibility of the Labour party is falling week after week? The shadow Chancellor has backed it into the incredible position where only Communist parties in western Europe agree with it. The reason he has done that has nothing to do with the future political prospects of the Labour party. Rather, it has everything to do with his own personal record. He cannot be the Labour politician who admits that his party made mistakes in the run-up to the 2007 crisis, because he was the Labour Government’s chief economic adviser. That is the position the Opposition find themselves in, and Labour Members know it. They are all going around telling anyone who

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will listen that that is their problem. Until they face up to the reality of the economic situation confronting this country—a reality they helped to create—they will not be listened to by anyone in this country.

The choice we faced when we saw the OBR’s first-round forecast was not whether to fiddle the figures; instead, it was whether we should take action to respond to the changed economic circumstances. We could have done nothing, but given international events I thought that was not a risk worth taking. It may have seemed to be the easier option, but not when we considered the possible consequences for the credibility of our country in the credit markets and the risk of a rise in interest rates of the kind that so many of our neighbours have experienced. The other option was to take further action to ensure Britain was on course to meet the fiscal commitments we have made, and that was what we chose to do, with a package of measures designed to tighten policy in the medium term while using short-term savings in current spending to fund one-off capital investment in our country’s infrastructure.

As I explained last week, we have put the total managed expenditure totals for 2015-16 and 2016-17 on a declining path. We have made changes to the tax credit entitlements. We set pay increases in the public sector for the two years after the freeze at an average of 1%. We have recalibrated overseas aid spending so we hit 0.7% of national income in 2013. We have also increased the state pension age to 67, starting from 2026.

That money saved in the short term has been used to fund the youth contract, new nursery provision to two-year-olds, new free schools and school places, and a major programme of road and rail building, and to help with the costs of living by extending the small business rate relief, keeping rail fare increases low, and freezing petrol duty next month, but the permanent savings—

Helen Goodman: Will the Chancellor give way?

Angela Smith: Will the Chancellor give way?

Mr Osborne: I have given way to both hon. Members, and I know that many people want to speak in this debate.

The permanent savings we have made reaffirm Britain’s commitment to dealing with its debts. Who backs this commitment? The international organisations do. The OECD says that

“the ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields”.

The head of the IMF, whom the shadow Chancellor was talking about, said when she came to the UK that

“strong fiscal consolidation is essential to restore debt sustainability”,

and that the Government’s “policy stance remains appropriate”.

During Treasury questions, the shadow Chancellor was, I think, quoting The New York Times. What he did not quote was the Financial Times, where he actually worked. It said that

“the Government’s plans for fiscal consolidation have allowed Britain to regain the confidence of investors at a time when all too many countries have forfeited it”.

That is the kind of editorial he would have written when he was a leader writer there. The Economist says that the credibility the Government have achieved is “priceless”.

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The CBI has supported what we have done. The Institute of Directors said that we did the right thing. The Federation of Small Businesses, which the shadow Chancellor often quotes, and the British Chambers of Commerce have both welcomed the measures we announced for business.

Lisa Nandy (Wigan) (Lab): We have heard a lot about what the Chancellor thinks about the Labour party. How many of the 100,000 additional children now growing up in poverty under his watch also support his plans, and what is he planning to do about that?

Mr Osborne: On the same measure that the hon. Lady uses, child poverty rose by 200,000 in the last Parliament. [ Interruption. ] She says, “We took those children out.” Child poverty in the last Parliament rose by 200,000 on the exact same measure that she is using. What we are doing is investing in nursery education provision for the poorest children, which never existed before, in a pupil premium, in free schools and in new school places—that is exactly what we are doing to tackle the causes of poverty as well as the symptoms.

Nadhim Zahawi (Stratford-on-Avon) (Con): On the question of whom the nation blames, why does the Chancellor think that a recent ICM poll showed that people thought that the debt inherited from the Labour Government was the biggest single cause of the current slow-down?

Mr Osborne: The reason they think that is because it is true. This, again, is the absolutely hopeless position that Labour under the shadow Chancellor have put themselves in, but frankly, that is for them to work out. If I may declare an interest, we very much want him to stay in his post for the next three and a half years: he is the best recruiting sergeant we have.

The Governor of the Bank of England—appointed by the right hon. Gentleman, no doubt, when he was the chief economic adviser—said this last week:

“This is exactly the right macro-economic response to the position in which we find ourselves”.

And who is left opposing this credible action, this macro-economic response? The Labour party, which is now advancing this new theory that Britain’s low interest rates in this debt crisis are a sign of policy failure, not policy success. That was the argument we heard last week. The shadow Chancellor talked in his response to my statement of

“the illiterate fantasy that low long-term interest rates in Britain are a sign of enhanced credibility”—[Official Report, 29 November 2011; Vol. 536, c. 812.]

I pointed out that, on that basis, Italy’s rates of 7% were a policy triumph and Greece’s 30% rates were an economic miracle.

In the intervening week, I looked for evidence to support the argument that the shadow Chancellor has been advancing. I have not found it, but I did come across the very interesting “Ken Dixon lecture” to the department of economics at the university of York. It was given in 2004 by the chief economic adviser to the Treasury—Mr Edward Balls. He told a no doubt gripped audience of students about the importance of lower debt, of running surpluses in good times, of keeping deficits under control. He then cited the market interest rates that Britain was paying on its debt, versus

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neighbouring countries’, as the fruits of economic success. He boasted that the UK was borrowing money more cheaply than Germany and he hailed low interest rates as

“the simplest measure of monetary and fiscal policy credibility”.

Does he still believe that?

Ed Balls: Of course, but could the Chancellor explain why in a liquidity trap things would not operate in that way?

Mr Osborne: In the situation we face at the moment, where countries around the world, particularly those in the western world, face a challenge from the markets about their credibility, the countries with credibility have been able to keep their interest rates down and those without credibility have seen their interest rates rise. The right hon. Gentleman said that low “long-term interest rates” are

“the simplest measure of monetary and fiscal policy credibility”.

I want to know whether he still believes that to be the case—yes or no?

Ed Balls: This is the second time that the Chancellor has not understood the question today and has therefore not been able to answer it. Of course it is the case that in a normal operating economy that is how things are, but in a liquidity trap it is different, and that is where we are. That is why when American debt was downgraded in August, America’s long-term interest rates fell; they did not rise. Let me quote to him what the chief economist at Capital Economics said this August:

“Signs that the UK’s economic recovery has ground to a standstill have led markets to revise down their interest rate expectations”.

The National Institute of Economic and Social Research has said:

“The reason people are marking down gilt yields is because”—

they think that the UK—

“economy is weak”.

In a liquidity trap, long-term interest rates are a sign of the growth potential of the economy. It really worries me that the Chancellor does not understand the economics of this.

Mr Osborne: The right hon. Gentleman quoted the chief economist or head of the NIESR, but did not happen to declare to the House the interest that this person used to work for the shadow Chancellor. I do not agree with his analysis.

Ed Balls: Explain the economics.

Mr Osborne: I will explain the economics very simply: if people do not think you can pay your debts in the world, they charge you a lot more interest on those debts.

I have actually bothered to read the right hon. Gentleman’s article in The Timestoday, in which he says that Labour would take

“tough decisions on tax and public spending.”

Will he get up and give us, either now in an intervention or in his speech, just half a dozen examples of the tough decisions he is prepared to take?

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This is the shadow Chancellor who has opposed the increase in the VAT that the previous Government were planning, who opposed the increase in North sea oil taxation and who opposed the increase in capital gains tax—Labour Members do not know that, but he did actually oppose that. He opposes capping housing benefit, which was actually in the Labour manifesto; the reform of employment and support allowance; the changes to tax credits; and reforming legal aid. The Labour party has campaigned against every single change to the Ministry of Defence budget. There is not one single budget in the entirety of Whitehall that the Labour party has proposed cutting.

That is from the shadow Chancellor who says that he would take “tough decisions” on tax and spending. His position is, “We would not take them now. We would take them in the medium term.” That is his argument, if I understand it correctly. In the past seven days, he has opposed our measures to restrain public sector pay after the pay freeze comes to an end; opposed the path for public spending that we have set out for 2015-16 and 2016-17, which is in the medium term; opposed the raising of the state pension age, which is what is being done in Australia, Germany and America—the country he keeps citing. No wonder his economic policy has absolutely no credibility whatsoever. And, of course, he opposes the Government’s active enterprise policy—lower and simpler corporate tax rates; the new enterprise zones; the housing market changes that will revive the right to buy; planning reforms; and the changes to employment law.

Let me discuss just one measure that was announced seven days ago: the seed enterprise investment scheme. A group of entrepreneurs, including those who used to support the Labour party, wrote to the paper and said that the scheme will

“help the next generation of British innovations to become the next generation of great British businesses.”

This country faces some of the most serious challenges in its modern history. We are picking up the pieces of the biggest boom which became the biggest bust, and now we face a sovereign debt crisis in the eurozone. Unlike the shadow Chancellor, we are not the quack doctor promising a miracle cure. The action we have taken will help to take Britain through this storm and lay the foundations of a far more sustainable and balanced prosperity in the future, and I commend the autumn statement to the House.

4.54 pm

Ed Balls (Morley and Outwood) (Lab/Co-op): A year ago this week, the Chancellor of the Exchequer told the American news channel CNBC:

“We’ve already begun the reductions in public expenditure, and it has not had the impact on demand, not had the impact on economic growth that the critics said it would. So there are plenty of people who said what we were doing was wrong, but at the moment they’re being confounded by the figures.”

Twelve months later, on growth, on jobs and on borrowing, it is the Chancellor who is completely confounded by the figures. Let me remind him of what he boasted a year ago on 29 November in a Conservative party press release:

“Now the independent OBR have confirmed that the British recovery is on track, our public finances are on the mend, our debt is under control, employment is growing and our economy is rebalancing.”

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Twelve months to the day, what did the independent Office for Budget Responsibility report? A recovery on track? No. Growth is flatlining—downgraded this year, next year, the year after, the year after and the year after that. Is employment growing? No. Employment is falling, and unemployment is now expected to be 500,000 higher than the previous forecast. Are public finances on the mend? No. Borrowing is disastrously off track: £158 billion more than the Chancellor told the House exactly a year ago.

The boasts of the Prime Minister and the Chancellor that they would eliminate the current structural budget deficit within five years are in complete tatters—in complete disarray. In his March Budget, the Chancellor claimed:

“We have put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 965.]

It must have been the wrong kind of fuel.

It is not as though the Chancellor was not warned. In his Bloomberg speech in August 2010, he claimed:

“There are some political opponents who claim that in setting out our decisive plans to deal with the deficit we have taken a gamble with Britain’s economy. In fact, the reverse is true.”

The Chancellor has taken an enormous gamble with the economy, with jobs and with people’s lives. The reality is that his gamble has completely backfired. Let me quote from an editorial in The New York Times at the weekend:

“A year and a half ago, Prime Minister David Cameron of Britain came to office promising to slash deficits and energise economic growth through radical fiscal austerity. It failed dismally.”

Before the election, we said that, like every country, after the global financial crisis we had to get the deficit down and we needed a tough plan. We needed spending cuts and tax rises. The question was not if we did it but how we did it. That is why the Opposition warned the Chancellor that he was reckless, that he was ripping out the foundations of the house, leaving our economy not safe but deeply exposed, and that is exactly what has happened over the last year.

Even judging by the one objective the Chancellor set himself for getting the deficit down, he is failing. In that CNBC interview a year ago, the Chancellor said:

“We have taken a series of steps, increased some taxes, consumption taxes, had some cuts in public expenditure, which have put us on a path to eliminate the deficit in a period of four years.”

Not only is the Chancellor now emphatically not going to eliminate the deficit in four years, but according to the OBR, he is set to borrow £37 billion more than under the plan he inherited from Labour at the last general election—a plan he called “deeply irresponsible.”

The Business Secretary told The Guardian in May that it was realistic for the coalition to eradicate the structural deficit by the end of this Parliament:

“Our credibility hinges on it.”

He was right, which is why the Government’s credibility is now badly undermined. The Chancellor should have listened to the warning from the Business Secretary before the election. This is what the Business Secretary said when he was a Liberal Democrat MP outside the coalition—the old kind of Liberal Democrat:

“We must not cut Government spending too soon and risk plunging a fragile recovery back into recession. Cuts without economic growth will not deal with the deficit.”

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The Business Secretary was right before the election. It was only after the election, when he took his Cabinet seat, that he changed his mind.

Unemployment is up. Borrowing is up. Going further and faster has proved to be utterly counter-productive and self-defeating. All this pain for no gain. Eighteen months in, plan A has failed, and it has failed decisively.

Nadhim Zahawi: In The Times today the shadow Chancellor wrote:

“Credibility is based on trust and trust is based on honesty, so we must be clear with the British people that under Labour there will have to be cuts.”

In the spirit of honesty, will he tell the House what he would cut?

Ed Balls: Of course I will. When I was the Education Secretary we said that there would be over £1 billion of cuts in the schools budget at that time. We said, for example, that we would cut the police budget by 12%, but not by 20% with the loss of 16,000 police officers throughout the country. We would have raised national insurance. We raised the top rate of tax, but we would not have raised VAT to 20%, precisely because it would have choked off the recovery, as it has done this year.

I can tell the hon. Gentleman and his colleagues, the friends of the Chancellor, that I was reading a profile of the Chancellor a week ago, a few days before the autumn statement, in which one ally said:

“‘The autumn statement will correct the idea that we are off course’”.

Whatever were they on? One only needs to read the rest of the article to understand what is really going on. It goes on to say that the Chancellor

“has started taking discreet steps towards the Tory leadership. . . Members of the 2010 intake of MPs . . . are invited to discreet drinks at No. 11. The favourites”—

I do not know whether the hon. Member for Stratford-on-Avon (Nadhim Zahawi) is one of the favourites; perhaps he could tell us in another intervention—

“The favourites are invited to bibulous soirees at Dorneywood.”

If you ask me, it sounds as if they have been drinking rather too much.

Let me give the House another quote from one of those allies, because it was so revealing:

“Nobody in the Osborne circle is vulgar enough to talk openly enough about his leadership ambitions. . . ‘George has no agenda. I have never heard any talk of a timetable,’”

said an ally,

‘“But the unspoken assumption is that the party would be a lot safer in George’s hands than with bonking Boris.’”

Mrs Anne Main (St Albans) (Con) rose—

Ed Balls: Whatever drinks are served at these parties in Downing street? Maybe we can find out from the back row.

Mrs Main: May I say to the shadow Chancellor, with all due respect, that the public deserve better than this? Tittle-tattle may be a joke to him, but the public want to know what his policies are, because they have faith in our policies. Is it still the policy of the shadow Chancellor and his party to make sure that we join the euro, given the huge financial consequences, which he is no longer discussing?

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Ed Balls: Obviously the hon. Lady was not invited to the drinks parties. Perhaps she should apologise to the 5,400 families in her constituency who will lose from the cuts in child tax credits. If she wants to talk about deserving better, let me give another example from one of the Osborne allies:

“They were a bit sniffy about George. The Bullingdon is basically for Etonians. But they let him in even though he went to St Paul’s, though they did insist on him reverting to his original name of Gideon.”

The hon. Lady tells us that the country needs better than that. As for the euro, I will happily give way again if she can give the Labour Government credit for keeping the country out of the single currency in 2003.

Mrs Main: I am absolutely amazed that joining the euro is still in the right hon. Gentleman’s party manifesto, and that he can still plead that he kept us out of it. I am absolutely amazed that he has the brass neck to say that he is the saviour of this country from the euro—and I am sure that he will now stand up and tell us all that he no longer sees joining the euro at any point as worth while.

Ed Balls: I think that the bibulous parties might be starting in the morning, Mr Deputy Speaker. The euro is not succeeding as a single currency, which is why we were right not to join in 2003. There is no possibility of a British Government joining the euro at any time in my lifetime.

Charlie Elphicke (Dover) (Con): Given that the shadow Chancellor seems to be making up policy on the hoof in this debate, is it any surprise that one shadow Cabinet colleague has said that his policy is hurting but not working, and that he has no credibility?

Ed Balls: If we want to know about hurting, we should think about the 9,100 families in Dover hurting because of the cuts in tax credits. That is what hurting is all about. What do we hear from the Chancellor—an apology, or an admission that he got it wrong?

Charlie Elphicke rose—

Ed Balls: The more publicity I can give the hon. Gentleman, the better.

Charlie Elphicke: The shadow Chancellor talks about my constituency, but let me talk about his. How does he account for the rise in the claimant count in his constituency of 1,056, or 141%, in the last Parliament? Was that an economic success?

Ed Balls: If the hon. Gentleman is quoting the figures for this year, they might be the result of the Chancellor’s policies. Let me return to concerns about Dover and Deal. While campaigning for a new hospital in Dover, the hon. Gentleman said:

“I am very, very concerned that Dover has not had and does not get its fair share of health care. I have taken this up with ministers and hammered home just how angry people are”.

Perhaps he should also hammer home with his Front Bench the failure of cuts in tax credits.

In last week’s statement, in today’s debate and in every interview the Chancellor has given, we hear him give excuse after excuse and blame anyone except himself. Earlier in the year he blamed the snow, the earthquake,

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the royal wedding and higher oil prices. America was badly affected by the snow, and every country was affected by the Japanese earthquake and higher commodity and oil prices, so why did Britain have slower growth than any other country in the G7 except Japan? Why do we have higher inflation than any other country except Estonia? It was the Chancellor’s decision to raise VAT in January that pushed up fuel and petrol prices, hit confidence and reduced real living standards for families. He then blamed the euro crisis, but the fact is that our economic recovery was choked off a year ago, well before the recent crisis.

The Office for Budget Responsibility has downgraded its growth forecast for Britain in 2011, but it has upgraded its growth forecast for the euro area. Only Greece, Portugal, Denmark, Cyprus and Slovenia have grown more slowly than Britain over the past year. As the OBR figures show, the fact is that it is the lack of domestic demand that has slowed down our economy. It is only net trade, the contribution of exports, that has kept us out of recession over the past year. If the eurozone countries fail to sort out their problems, that will of course have an impact, which is why it is important that they are sorted out. Far from the eurozone dragging us down this year, it is actually the euro that has been buoying us up.

Mr Tobias Ellwood (Bournemouth East) (Con): The right hon. Gentleman speaks of asking for, or demanding, an apology, but an apology is required from Labour Members. To give credit where it is due, however, I remember that when he was Secretary of State for Education he looked for savings in that area. But he did not do so right across the board. Page 15 of the OBR report shows that in 2008 borrowing went up to £68 billion, that in 2009 £152 billion was required, and that in 2010 another £145 billion was required: spending, spending, spending. It was not until this Government came in that such spending was halted.

Ed Balls: The hon. Gentleman makes an important point: there was a major financial crisis that hit Britain and all countries throughout the world. The Chancellor always wants to blame Labour, as he does the snow, the earthquake and the euro area.

Richard Fuller (Bedford) (Con): Will the right hon. Gentleman give way?

Ed Balls: In a second. I will answer the previous intervention before I turn to the next one.

The financial crisis hit every major country in the world, and bank regulation was not tough enough here in Britain or in countries throughout the world—[Hon. Members: “Ah!”] There is no doubt about that. The Chancellor of the Exchequer, who was then the shadow Chancellor, spent his whole time urging us to deregulate, complaining about “burdensome, complex” regulations—but there we are.

By spring 2010 the economy was growing, inflation was low and unemployment was coming down. More people were in work and paying taxes then, so borrowing came in £20 billion lower than had been forecast in the pre-Budget report of 2009. How things have changed in 18 months! Then borrowing came in lower than was

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planned; now it is coming in at £158 billion more than was planned. The country is tired of the Chancellor’s excuses, and it is time he admitted that his failing plan is hurting but not working. His reckless gamble has not made things better; it has made things worse.

Richard Fuller: As the shadow Chancellor’s soon-to-be replacement, the hon. Member for Leeds West (Rachel Reeves), rustles through her papers to find a data point to throw back at me, may I ask him whether he has had the opportunity to look at McKinsey’s debt and deleveraging report, which identifies that on his watch and under his Government we became the most indebted major economy in the world? Does he not bear some responsibility for the enormous pain that families are going through in order to remedy some of his excesses?

Ed Balls: In the hon. Gentleman’s constituency 10,800 families are actually losing out as a result of the change in tax credits. We look forward to seeing that in his press release.

The fact is that we went into the global financial crisis with a lower level of national debt than France, Germany, America and Japan—

Richard Fuller rose

Ed Balls: If the hon. Gentleman calms down and lets me answer his point he will be able to intervene again. I shall be happy to take another intervention.

The fact is that when we went into the financial crisis our level of national debt was lower than that in America, France, Germany and Japan—and lower than that which we inherited from the Conservatives in 1997. I will give the House one good reason why: in 1999, when we raised £20 billion from the auction of the 3G mobile spectrum and they urged us to spend the money, we used the entire amount to repay the national debt.

Richard Fuller: The shadow Chancellor makes potentially a fair point about Government debt, but the Government are responsible not just for Government debt but for the total indebtedness of the nation, and he fails to understand that under the previous Government the total indebtedness of this country grew to become the largest of any major economy in the world. That is his legacy, and that is why 10,000 people in my constituency will be hearing why his policies led to the pain that they feel today.

Ed Balls: Over 1 million more homeowners than in 1997, and over 1 million more new businesses—with overdrafts and borrowing facilities—compared with 1997! The hon. Gentleman should be careful about giving the impression that borrowing in an economy is a bad thing for consumers, households and businesses. Many businesses want to borrow at the moment; it is just that the banks will not lend.

What did we get last week from the Chancellor? We got a cobbled-together package of growth measures which he knows, and the OBR forecast confirms, does not address the fundamental problem that his rapid and deflationary plan has choked off the recovery and pushed up borrowing. It is a so-called plan for growth that, according to the Treasury’s own figures, hits women harder than men, pushes up child poverty and delivers lower growth and higher unemployment.

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Matthew Hancock (West Suffolk) (Con): Youth unemployment in my constituency is falling because of a work experience programme that has now been rolled out across the country. I say that to preclude the shadow Chancellor’s rebuttal. He has just argued in response to my hon. Friend the Member for Bedford (Richard Fuller) that private sector debt is a good thing. Will he have the balls to say that explicitly?

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. I am not quite sure we are going to allow “balls”. I am sure you can think of a better word, Mr Hancock.

Matthew Hancock: I withdraw it. Will the shadow Chancellor have the weight to state explicitly what he has just argued, which is that private sector debt is a good thing?

Ed Balls: The numbers for the hon. Gentleman’s constituency show that 8,600 families in his constituency are losing out from the cut in tax credits. [ Interruption. ] He is normally quite excitable, but he is really getting rattled this afternoon.

What are the facts? “We are all in this together,” yet women are being hit twice as hard as men; there has been a 100,000 rise in child poverty, according to the Treasury’s own figures; there is a four times bigger hit for families and children than for the banks, which have seen their taxes cut this year compared with last year; not 400,000 but 710,000 public sector jobs are set to go; there is £158 billion more in borrowing than was planned a year ago—£6,500 more in borrowing for every household in this country—and there is the cost of rising unemployment. That is the cost of the failure of the Chancellor’s plan. As for the Deputy Prime Minister’s contribution, we have a cobbled-together replacement for the future jobs fund that is judged by the OBR to have no impact at all on employment and zero impact on jobs. I have to say to the Chancellor and to the Chief Secretary that protecting our economy, businesses, jobs and family finances is more important than trying to protect a failing plan and their failing reputations.

Christopher Pincher (Tamworth) (Con): For the benefit of the shadow Chief Secretary, my constituency is Tamworth. [ Laughter. ] I see that she has found it.

It takes some brass neck for the man who was so responsible for wrapping this country’s economy around a lamp post to stand there now and try to teach this Government how to drive. If he wants to be credible, and if he wants to be trusted about the cuts that he says need to take place, can he explain why he has abandoned the Darling plan and wants to spend £326 billion extra over the next five years?

Ed Balls: Abandon the Darling plan? It is the Chancellor who is borrowing £37 billion more than under the Darling plan. That is because of what is happening to jobs, growth and the living standards of families in our country, with 9,500 families in Tamworth hit by the cut in child tax credit announced last week. I will not read the next figure out; I will spare the hon. Gentleman’s blushes.

As we heard in Treasury questions earlier, the IMF was right: growth is necessary for fiscal credibility. The IMF urged the Chancellor to change course if growth

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undershot current expectations. The Chancellor did not even know the figures at Treasury questions this afternoon, but in October the IMF advised him to change course and to delay the planned consolidation if growth undershot. At that time the IMF was forecasting 1.1% growth this year; it has come in at 0.9%. For next year it was forecasting 1.6% growth; it is now forecast to be 0.7%. If that is not growth clearly undershooting expectations, I do not know what is.

In May the OECD called for the Government to slow the pace of consolidation if the economy undershot. The Chancellor likes to quote the OECD in support of his policies, so let me tell him what its chief economist said only last week. He told the Chancellor to

“contemplate easing up on spending cuts”

if events turned out to be

“a lot bleaker than even the bleak outlook that we have.”

That is not exactly a ringing endorsement of the Chancellor’s plans.

Mr George Osborne: The right hon. Gentleman has just quoted the OECD’s chief economist. The same person said on 28 November that “plan A is working”. The OECD also said:

“The ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields, leaving room for automatic stabilisers to work fully”.

The person the shadow Chancellor is quoting in the House of Commons in defence of his policy has said that “plan A is working”. Will he now correct the record?

Ed Balls: Only this Chancellor, out of his depth and out of touch, could come to this House and claim that the forecasts he set out last week showed that plan A was working. How can it be working when we have record levels of unemployment? How can it be working when growth has flatlined? How can it be working when he is borrowing £158 billion more than he planned a year ago?

I have seen the transcript of the Sky interview that the Chancellor is quoting, and I understand the diplomacy of the OECD. However, the chief economist said that the Chancellor should

“contemplate easing up on spending cuts”

if events turned out to be

“a lot bleaker than even the bleak outlook that we have.”

How much bleaker do they have to get? How much bleaker for families? How much bleaker for jobs and young people? How much bleaker for borrowing?

We were told a year ago that the Chancellor would not change course because his plan was working. Now, even though it is clearly not working, the Government still will not change course. The Prime Minister says that we cannot borrow our way out of a crisis, but that is exactly what the Chancellor has been forced to do. He is borrowing billions more to pay for the high unemployment, stagnant growth and rising benefits bill that his plan has delivered. The Chancellor made the wrong choice a year ago. He is now making a second catastrophic choice in sticking to a failing plan, when what Britain needs is a plan that will work.

Any British Government would be borrowing at the moment. There is no doubt about that.

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Mr David Anderson (Blaydon) (Lab): The shadow Chancellor makes the point that the Government are trying to borrow their way out of a crisis. I suggest that we are actually borrowing our way into a bigger crisis. [ Laughter. ]

Ed Balls: Government Members may laugh at an 80% rise in youth unemployment, but that is not a laughing matter for the young people concerned, or for our economy. [ Interruption. ] I am going to make this point because it is very important. It goes to the heart of the argument.

Nadhim Zahawi: Will the hon. Gentleman give way?

Ed Balls: In a second. Any Government would be borrowing at the moment. The question is whether it is better to borrow billions more to keep people out of work on benefits, or to act to get people back into work and paying tax, which would get the deficit down. If we let a year of stagnating growth and rising youth unemployment become a lost decade of stagnant growth and high youth unemployment, we will pay a long-term price. It makes much more sense to act now, as the International Monetary Fund has recommended, with temporary tax cuts and investment in jobs and growth. That is the best way to reduce the bills of failure for the long term. It is the only way to get our deficit down sustainably in the long term.

Several hon. Members rose

Ed Balls: I will give way in a second. There is a choice. We can either take action now and then have long-term fiscal discipline on the deficit, spending and our fiscal rules to make our economy stronger and to get borrowing down, or we can have what we have now and what is forecast for next year and the year after: stagnating growth, rising borrowing, including £158 billion more borrowing to pay for rising unemployment, and long-term youth unemployment, which will weaken our economy and make it harder to get the deficit down.

Several hon. Members rose

Ed Balls: Not for the first time, the Chancellor’s whipping operation is clearly in place. As I said last time, he knows all about a good whipping. I give way to the hon. Member for Stratford-on-Avon.

Nadhim Zahawi: The shadow Chancellor is obviously passionate about the subject of youth unemployment, so will he admit to the House that in the last Parliament, youth unemployment in his own constituency went up by 151%?

Ed Balls: Before the crisis, youth unemployment was lower than what we inherited in 1997. It then went up during the recession, but was falling a year and a half ago. It is now rising again. Unemployment was falling in our economy, but now there has been an 80% rise in long-term youth unemployment.

Several hon. Members rose

Ed Balls: I will take interventions from Members who have not already intervened twice.

Matthew Hancock rose—

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Ed Balls: Oh, I can’t resist.

Matthew Hancock: I am very grateful. The right hon. Gentleman keeps making his argument about borrowing, but is it not completely undone by the fact that according to the OBR forecasts, borrowing has fallen and is set to fall over the next five years, and then debt will fall once it is under control? Can he answer the question that neither the shadow Chief Secretary nor other shadow Treasury Ministers can answer? How can spending more money possibly lead to lower borrowing?

Ed Balls: The economics of this are clear and easy to understand, which is why both the IMF and the OECD have made exactly the point that I am making. The fact is that the Government are borrowing £158 billion more than they planned, and the deficit is coming down much more slowly than was planned, because unemployment is going to be so much higher.

The issue is the pace at which we try to get the deficit down. If we try to get it down too fast, as the Chancellor did a year ago, it blows up in our faces. Growth and taxes slow down, unemployment goes up, and we end up borrowing £158 billion more. The right thing to do is to have a staged and balanced approach, get the economy moving, get people into jobs and get the deficit down. That is the only plan that will work.

Let me make an offer to the Chancellor. It is not too late to change course, and the deepening euro crisis makes it more important for him to see sense. If he does, we will back him—a new start, a second attempt. We read in The Daily Telegraph today about the Chancellor’s recent efforts to land a plane at Manchester airport—on a flight simulator, I should add, to reassure Members. There was too rapid a descent and a crash landing on the runway, narrowly missing ploughing into the terminal building. Too far, too fast—no surprises there. However, the Chancellor had a second go. With a little help from the experts and a steadier hand on the controls, things worked better the second time round. Perhaps there is a lesson for him in that story.

Perhaps the Chancellor should take my prescription after all. He claimed last week that a balanced plan to get our economy moving and to get the deficit down was like

“the promises of a quack doctor selling a miracle cure.”—[Official Report, 29 November 2011; Vol. 536, c. 810.]

Was not the Nobel prize-winning economist Paul Krugman closer to the truth when he described Britain’s experiment in austerity as being

“like a medieval doctor bleeding his patient, observing that the patient is getting sicker, not better, and deciding that this calls for even more bleeding”?

The patient is crying out for a second opinion, and all we hear from the Chancellor is a call for more cuts and more leeches.

Bob Stewart (Beckenham) (Con): Will the right hon. Gentleman give way?

Ed Balls: I will not, because I have gone on too long and there are other important speeches to be made today.

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I was thinking about what other doctors the Chancellor resembled, and I concluded that he resembled Voltaire’s giant. I will take an intervention from anybody on the Government Front Bench who knows who Voltaire’s giant doctor was—Voltaire’s great doctor, Dr Pangloss. It does not matter what the evidence says, it simply strengthens Dr Pangloss’s opinion that his philosophy must be right. Britain’s rock-bottom gilts? A sign of success, not a damning verdict from the markets on the prospects for growth. Rising unemployment? Not a bad thing, just creating more space for the private sector-led recovery when it finally arrives. The worse things get in the rest of the world the better for Britain, because we are the only safe haven of prosperity.

In the Chancellor’s Panglossian world, everything is working out just fine, but in the real world, with the world economy darkening, and with the UK now forecast to endure stagnant growth and rising unemployment this year, next year and the year after, this Panglossian Chancellor is making a catastrophic error of judgment, refusing to learn the lessons of history, refusing even to understand the lessons of economics, and refusing to shift to a more balanced plan. He got it wrong 18 months ago; he is getting it so badly wrong today. He is out of his depth and out of touch. Is it not time he changed course before it is too late?

Several hon. Members rose

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. I just remind Members that there is a six-minute limit on speeches.

5.30 pm

Mr Andrew Tyrie (Chichester) (Con): I will not try so much of the party political stuff that we have just heard, but I will make a short point about the central fiscal judgment, a point about the forecasts and, if I have time, a point about the supply side.

First—we did not hear much of this in the previous speeches—I want to emphasise the backdrop against which the autumn statement was made. It was undoubtedly the most difficult backdrop since 1981, with a huge inherited budget deficit, a dysfunctional banking sector and an economy in which far too much is taken and spent by the public sector, as a result of which the private sector is having trouble leading the recovery. All parties were agreed on that before the election and all had plans to reduce public spending as a proportion of GDP. On top of that, we have a severe eurozone crisis, which is our most important market.

I will not be popular on either side of the House for saying this: despite the clash of cymbals we have just heard, fiscal policy would not be so different whoever was in power. There would be a little less deficit cutting and probably a bit more tax and spend under Labour, but the market discipline in the world at the moment is severe and biting, and the markets would demand roughly the same strategy, which it would get from any rational Government. That is an important basic point to have in mind.

My second point concerns the forecast. The Treasury Committee had the OBR before it earlier today. It has radically adjusted its estimate of the output gap—that was discussed a bit in earlier exchanges, although it was

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difficult to spot—and its estimate of productivity growth compared with its spring forecast. That radical adjustment in eight months has in turn obliged the Chancellor to adjust policy for the later years of the forecast period, as he pointed out, in order to meet the fiscal mandate.

A good number of my Committee colleagues—from both sides of the House—were a little sceptical of the OBR’s decision. Frankly, when we look at the OBR documentation, we do not find a great deal of evidence to support it. There is some evidence, and the Committee might well return to the issue when it reports on the autumn statement.

This morning’s Treasury Committee sitting brought home to me and to other colleagues a couple of important points, the first of which is that the OBR forecast is an independent one—nobody can claim that it has been cooked up by politicians—which in itself can add confidence to markets. Secondly, the difficulties that the OBR has had in supporting specific points on which the Committee challenged it this morning flags up the perils of all economic forecasting. The one thing we can say with some degree of certainty is that this forecast, like all others, will almost certainly turn out to be wrong.

I do not have very much time. I shall end with a few words about supply side reform. The financial crisis exposed the structural weaknesses in the public finances and the structural deficit now appears to be much bigger than was originally thought. But the financial crisis also exposed structural weaknesses in the real economy. As businesses struggle to recover, the full scale of the web of complicated taxation, excessive regulation and much else is being exposed to view, and that is getting in the way of businesses doing better.

The coalition Government assembled a fully worked up agenda for action to deal with the deficit, but until this autumn statement, we did not have a fully worked up strategy for improving long-run economic performance —the supply side of the economy. I was critical of the Government’s earlier proposals that were published a year ago. They reflected the fact that they were dealing with an inheritance from the previous Government and also with policies that had been thought up and planned at a time of economic abundance before the crash. The obvious truth is that supply side reform is extremely difficult to accomplish. Raising the long-run growth rate is a very big and long-term job. The Thatcher Administration did not even start to implement their major reforms in that area until their second term.

This autumn statement has taken a huge step forward in the right direction. It sets out a more consistent and coherent agenda to support enterprise. It recognises the crippling burden that is being imposed on energy-intensive industries by climate change regulation and by the need to improve transport and to do something about the planning system. There is a good deal else. The phrase “supply side” has also been rehabilitated.

However, we must bear in mind the fact that so far this is largely just an agenda; it now needs to be implemented. It also needs to be complemented by reforms to bring greater simplicity and certainty to the tax system, which is in a huge mess, thanks largely to the previous Government and that is what I hope the Budget, in only 17 weeks’ time, will be all about.

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5.36 pm

Stephen Timms (East Ham) (Lab): The number of young people out of work has topped 1 million for the first time. If nothing else, that must be a wake-up call for urgent action on the economy. Last June, the Prime Minister told the House that cutting the deficit faster would revive private sector confidence. That was the rationale for the strategy that was set out to us. There would be pain but it would be worth it. Private sector investment and jobs would surge. The increase in confidence would mean that growth in the number of private sector jobs would more than match public sector job cuts. We were told that employment would rise every year. In fact, in the past year, employment has fallen by more than 100,000. One thing we can say for sure, with no fear of contradiction, is that that key assumption about confidence underpinning the Government’s entire strategy was mistaken.

The Institute of Chartered Accountants’ latest business confidence monitor is headlined “UK business confidence has collapsed”. That is its assessment of confidence. The latest of its regular surveys states:

“Confidence has declined across all sectors and all regions.”

There will be different views across the Chamber about the reasons that the Prime Minister’s hope has proved ill-founded. The Chancellor took the view and his party seems to take the view that all the problems before the election were the fault of the UK Government and that all the problems since the election have been the fault of someone else. Whatever view we take of the reasons that the Prime Minister’s expectation was ill-founded, the fact that it was ill-founded is, after the autumn statement, not in dispute.

The Prime Minister told us that unemployment would not be too much of a problem because private sector job creation would exceed public sector job cuts. In fact, public sector job cuts are exceeding new private sector jobs on a ratio of about 2:1. The Office for Budget Responsibility has told us that more than 700,000 public sector jobs will be lost. The cuts are going too far and too fast. Young people and women are bearing the brunt. Moreover, the plan is not delivering, as far as we can see, the central goal of swiftly eliminating the deficit. That is now clear. Borrowing will be higher than it was under the previous Government’s plans.

When a plan goes so badly wrong and when the expectations underpinning it are shown to have been so mistaken, surely it is time to revisit the plan. Surely, when things have turned out so different from what the Government told us would happen, the case for a fundamental rethink is extremely strong.

Jessica Morden (Newport East) (Lab): Last week, Tata steel in my constituency mothballed a hot strip mill because of low demand for steel, which means that in the past month 185 job losses have been announced at Llanwern. Is that not further evidence that the Government’s economic plan is not working. We have heard nothing today that will do anything to save those much-needed steel jobs?

Stephen Timms: Unfortunately, nothing at all. This lack of confidence is one of the problems in the economy.

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Another problem is that the Chancellor cannot change course because he has boxed himself in and cannot budge for fear of admitting that his judgment was wrong. That problem was well expressed by Martin Wolf, the chief economics commentator for the Financial Times—the Chancellor quoted the Financial Times in his support—who warned after the autumn statement last week of the danger of a lost decade. He wrote that the Chancellor

“is wrong to ignore his errors. He is trapped by his own rigid fiscal framework. He might indeed shatter confidence if he were more flexible. But that is partly his own fault.”

It seems that we will all be trapped because the Chancellor cannot acknowledge that he got the fundamental judgment wrong at the start.

We need to build growth in the economy and to create jobs for young people. That is the rationale for the five-point plan for jobs and growth advanced by the Labour party. We should repeat the tax on bankers’ bonuses to bring in another £2 billion and we should use that to fund 100,000 jobs for young people, getting them off the dole and building on the future jobs fund introduced before the election. I welcome the announcement of the young people’s contract—a watered-down version of the future jobs fund—and I look forward to seeing the details but it simply underlines what a misjudgment it was to shut down the future jobs fund in the first place.

We should introduce another temporary cut in VAT to rebuild momentum in the economy—that is what the temporary cut did last time—and we should introduce further investment in infrastructure, including in schools and other areas. We should also cut the increase in university fees. At a time when youth unemployment is at such a catastrophic level, the last thing that we should be doing is forcing young people out of education—we should be encouraging them to stay in. Yet, I am hearing reports from colleges that significant numbers of young people have concluded that, with fees at the level announced by the coalition, they have no chance of ever making it to university and that therefore they should not even bother staying on to study, including for A-levels.

We should also listen to the Federation of Small Businesses and give small firms hiring new staff a break from national insurance to encourage them to do so. The Government should heed that call. We need a strategy for growth but as yet we have no sign of one. I am pleased that the Government have retained the previous Government’s proposals for a patent box to improve the research-and-development environment. That was the right decision and it allowed the Prime Minister yesterday to make his welcome announcement about support for life sciences.

In closing, I want to draw attention to one seemingly minor measure announced by the previous Government. Its significance is much greater than the initial view suggested. I am referring to the tax break from computer games announced in the last Budget by my right hon. Friend the Member for Edinburgh South West (Mr Darling). We have some of the most creative computer design businesses and talent in the world and we should make better use of it.

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5.44 pm

Julian Smith (Skipton and Ripon) (Con): I want to speak about small business—in particular micro-businesses, which are usually defined as those with fewer than 10 employees—and to thank the Government for their support for such businesses.

Since coming to power, the coalition has taken some significant steps on regulation. It has introduced the one-in, one-out policy—which Labour claimed to have introduced, but never implemented—and the red tape challenge, allowing the public and businesses to say which regulations they want scrapped. The Government have taken a number of specific steps for small and micro-businesses, and have begun to draw a clear distinction between the large multinational, the mid-size company, with a human resources department and a legal department, and the small owner-manager. The Government have created exemptions from all new UK regulations until 2013, delayed legislation on the right to request training for small businesses, extended the unfair dismissal period and introduced fees for employment tribunals. All are powerful measures, giving more confidence to small business to take on staff. The autumn statement also included an announcement on protected conversations, which, for the first time in decades, will allow a small business manager to have a chat with one of his employees without the fear of litigation. Further measures, on compromise agreements and other matters, are on their way.

I am delighted that business organisations have shown their support. I urge the Government to move swiftly with those proposals, because it is worth reflecting on who they are trying to help with those measures. Often we get a kick from the left whenever an attempt is made to reduce workers’ rights, but when we talk about very small businesses or micro-businesses, we are talking about just an owner-manager—a farmer in the dales in my constituency, for instance—setting up a business and trying to take on one or two people to help run it. We are talking about people such as Chris and Rebecca Blunstone from Pateley Bridge, who set up Helping Hands earlier this year while at the same time doing two jobs each. They also have two kids, so they were working flat out. It is people such as the Blunstones whom the Government are trying to support, because small firms and start-ups created two thirds of new jobs nationally between 1998 and 2010. They are the backbone of employment across the country, in all our constituencies, and we desperately need them to succeed and take on more people.

I understand that parts of the Government want to go further with reforms for micro-businesses, particularly in employment law. I believe that those forces are right. We need to make a strong case for rolling back the dead hand of the state on the smallest businesses in our country and make the argument that, despite the risk of having exceptions in the labour market, there are huge benefits for the economy. We cannot look at each measure through the prism of an individual impact assessment; rather, it is the cumulative impact of all the reforms that we need to move forward with. That will mean making some radical decisions on policies that our party is promoting in the areas of flexible working and the right to request training, because for very small businesses such rights legislation is a real burden and a hassle.

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Ultimately, the owner-manager will make the right decision—to train their staff or give them time off—and certainly does not need an edict from London.

Bob Stewart: In my constituency the complaint from small businesses is that they want to make a profit, not spend their time doing accounts or filling in regulation forms. We have to minimise that and, if possible, try to take it right out of the whole business—if it is small enough—because one in 10 still seems to be concerned with regulations.

Julian Smith: My hon. Friend makes a valid point. This is a controversial area, because although the Government are making great strides in shared parental leave, for example—reforms that I support—we need to look at how Whitehall is managing the relationship with micro-businesses on issues such as maternity and parental leave.

There are some exciting initiatives that did not make it into the autumn statement, but which I urge the Government to support and small businesses to show their interest in. They include, for instance, no-fault dismissal. Deciding when to finish an employment relationship as an owner-manager running a small business is really difficult. The idea of a compensated no-fault dismissal—the equivalent of a no-fault divorce in the business world—is worth looking at.

I urge the Government to have the courage of their convictions on policies like that. I would encourage micro-businesses everywhere to follow the Government on their call for evidence, as we need to make the case that expectations about workers’ rights in small firms must be different. We need the small business owner to be confident in taking on more staff. The doers and grafters need to know that this Government are getting fully off their backs.

5.50 pm

Mr Alistair Darling (Edinburgh South West) (Lab): I hope that the hon. Member for Skipton and Ripon (Julian Smith) will forgive me for not following him, given the short time I have available.

The real problem we face in this country, in Europe and, to a large extent, in America too, is the lack of growth. The Chancellor opened his remarks by saying that the previous Government had been too optimistic about some of their forecasts. He gave—how shall I put it?—a somewhat incomplete précis of my book. In that connection, I refer the House to my entry in the Register of Members’ Financial Interests. Surely the Chancellor would accept that forecasting is extremely difficult at a time like this. Perhaps when he goes back to No. 11 at night, he will reflect on the fact that he was wildly optimistic about both growth and borrowing. I do not imagine for one minute that he expected to be standing up a week ago to announce that he was borrowing £158 billion more than he thought he would be borrowing in the summer of last year. The reason for that, substantially, is that we have less growth, with fewer people paying tax, more people dependent on benefits and, as the Office for Budget Responsibility set out, incomes being squeezed.

All that was perfectly foreseeable. Many people—Labour Members and many others—said that this would happen. The problem was not just the rate at which public

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expenditure was being cut, but the fact that the mood music that the Government deliberately set out to orchestrate last year was that everything was full of gloom and doom, so it is not surprising that businesses did not invest and that individuals decided to hold back on their expenditure. That is precisely what is happening in this country and in Europe, to which I shall return shortly. All this was foreseeable.

Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab): Following on from my right hon. Friend’s point about cuts, is he particularly worried about the construction industry, not least because so many small businesses are dependent on it?

Mr Darling: I am, and I shall come on to that in a minute, but I want to make a further point. If the OBR comes out with another downward revision of its figures at the time of the Budget next March, does it mean that we are going to embark on yet another round of reducing expenditure? It this not the same sort of argument that we had in the 1930s? The prevailing orthodoxy did not work then, and it will not work now. My guess is that this argument is going to dominate politics and economics over the next few months—not just here, as I said, but in Europe.

My right hon. Friend mentioned the construction industry. I welcome some of the measures the Chancellor announced on infrastructure, but with this big caveat. First, if he looks at some of them, particularly the road announcements, he will see that they have been announced by successive Governments over many years. He will no doubt have been told by the Treasury that the problem with these big plans is the huge lag between the time they are announced and the time we see them. I remember opening the M6 expressway and a reporter said, “This must be a great triumph for the Labour Government.” I said, “Indeed, it was. Harold Wilson would have been absolutely delighted to see it built.” That illustrates the point.

Although this is not a transport debate, I am glad that the Government are looking at the issue of aviation, but they cannot escape from the consequences of the decision not to proceed with the expansion at Heathrow. I know this is no longer my party’s policy, but I believe that issue needs to be looked at again for the future prosperity of the country. The High Speed 2 line is no substitute for it.

The Chancellor has, of course, had to change course. He was very much against quantitative easing. When I introduced it, he said it was the last act of a desperate Government, but it now turns out that it is a jolly good thing and we can expect to get even more of it. I suspect we will need more as the economy slows down. As I said, he has also had to introduce the infrastructure projects to try to help—although not enough, in my view. I think he will have to do more, particularly about jobs for young people facing unemployment, which is going to be a real economic problem as well as a real social problem. Many of us here remember the lost generation in the 1980s. Many of those individuals never got over the experience of having no job when they left school, college or university. The Government are going to have to come back to this, no matter what

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the Chancellor says, because the outlook is such that the Government are going to have to at some stage accept that at a time like this only the Government can take the action necessary to stimulate the economy and restore confidence. That brings me to Europe.

Mr Pat McFadden (Wolverhampton South East) (Lab): My right hon. Friend talks about the effect of the Office for Budget Responsibility and the forward outlook. How does he view its projections for returning to the trend rate of growth in two or three years’ time, given the drastic revision that has taken place between the forecast in March and the forecast last week?

Mr Darling: As it happens, there is a passage in my book about the trend rate of growth. I believe that economists find it terribly difficult to work out what the right trend rate of growth is. On the point raised in the Select Committee this morning, I am surprised that the OBR has said that the productive capacity of the economy has been so reduced, partly because of lack of productivity. Part of the OBR’s problem is that it fails to recognise that businesses have retained labour through this recession in the hope that they will need it when recovery comes. One worry is that if businesses think there will not be a recovery, the people they have held on to will then lose their jobs. No doubt the Select Committee will look into that.

Let me touch on what is happening in Europe. I appreciate that it is a risky business because what is happening today might not be what is happening tomorrow or the day after that. The Chancellor touched on it and I hoped he would say rather more about what is being proposed—if, indeed, he knows.

As far as I can see, the agreement reached between President Sarkozy and Chancellor Merkel on Monday seems to be a re-creation of the stability and growth pact—and we know which were the first two countries that actually broke it. I have a feeling that they are trying to reach a sufficient political agreement to give Mario Draghi of the European Central Bank sufficient cover to do what we all know the ECB has to do in terms of intervening in the market. It does not go any further than that. Mario Draghi made a good speech last week, in which he said, “Look, we’re ready to intervene, but you lot have got to show willing.” Interestingly, that is exactly the same position that Jean-Claude Trichet took in the ECB at the last ECOFIN meeting I attended in May 2010, to which the Chancellor is fond of referring, when it was necessary for Ministers in the European Union and the eurozone to decide on sufficient action to allow the ECB to intervene.

I am glad that the ECB is going to intervene, but the agreement reached on Monday does not go far enough because it does not address the fundamental questions and fundamental problems of having a single currency without something approaching fiscal or economic union. That was not addressed and neither was the Greek problem, which will not go away because that fix will not work. The rescue fund is still a virtual one and, of course, there is the whole question of the recapitalisation of European banks, which remains for next summer.

Matthew Hancock: Will the right hon. Gentleman give way?

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Mr Darling: I would love to, but if think that if I do it counts against me, so I shall carry on speaking for a minute and 22 seconds, if I may.

I know we will be represented in the Council at the end of this week. This is a debate that we cannot afford to stay out of. No one is advocating that we should join the euro, and it is simply not going to happen in anything like the foreseeable future, but what happens to the eurozone, who is in it, the implications of a breakdown whether it be orderly or disorderly—all that matters very much. I hope that the British Government will make it clear to our European partners that we really are partners and in that spirit try to bring about a resolution. As far as I can see, the present arrangements struck between the French and the Germans seem to be yet another fix. They will buy time, but they will not sort out the fundamental problems. Until those fundamental problems are sorted out, we will still have that dark cloud of uncertainty in Europe, which would be bad for Europe, bad for this country and therefore bad for growth and for jobs. For that reason, we have a real interest in helping to bring about a resolution to that problem if we possibly can.

5.58 pm

Stephen Williams (Bristol West) (LD): It is a great pleasure to follow the former Chancellor. We can contrast his thoughtful and authoritative approach with what we heard earlier from the shadow Chancellor, who has just left the Chamber. We are asked to believe that he cries during the “Antiques Roadshow”, but anyone watching our debate would have cried with despair at the pantomime act we were treated to earlier. Before one of the shadow Chancellor’s assistants gets up to tell me how many people in Bristol West receive child tax credits, let me tell the Labour Front-Bench team that people in Bristol West are far too smart to fall for the illusion that an increase of 5.2% in tax credits somehow amounts to a cut.

The state of the public finances has been mentioned several times. Before the coalition Government came to office, the deficit as a proportion of gross domestic product was 11.2%. In our first year of government, it was cut to 9.3%. According to the independent forecast from the Office for Budget Responsibility, the deficit will be 4.5% at the end of this Parliament. We will have effectively halved it over the lifetime of the present Government. The Darling plan, if I may refer to it thus, has been mentioned several times during the debate. I seem to recall that its aim was to do just that—to halve the deficit over the lifetime of this Parliament—so let us not hear too much for the foreseeable future from Opposition Members about cutting too fast and too deep.

The coalition is bringing the deficit under control, which enables us to benefit from international confidence that we can borrow cheaply and service the accumulated debt that already exists in an affordable way. In 2010 our credit rating was similar to those of Italy and Spain, and the fact that it is now so much stronger is due to the decisive action taken by the coalition Government. That improved rating is important not just to the Government’s Debt Management Office—although the billions of pounds that no longer need to be spent on servicing debt interest are now available to fund our priorities, whether they be pensions, education or the

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health service—but to all our constituents and the businesses that employ them. Historic low interest rates are a monetary stimulus, underpinning domestic confidence and increasing spending and investment.

One of the coalition Government’s key objectives is to make work pay in order to expand employment, and one of the key objectives that the Liberal Democrats have brought to the coalition Government is a progressive increase in the income tax threshold to £10,000 by the end of the current Parliament. That will make work pay for the low-paid in particular, and especially for women with part-time jobs, and it is fundamental to our commitment to fairness during the lifetime of this Government.

Last week, during a debate similar to this, I referred to the recommendations of the High Pay Commission. I was pleased when the Deputy Prime Minister said at the weekend that he hoped that the coalition Government would be able to implement many of those recommendations. We should also tackle tax avoidance in order to make it clear that, as well as rewarding the work done by those with low incomes, the Government are tackling high pay at the top of the income streams in the companies for which they may work.

Economic growth needs to be stimulated. I note that several Members with constituencies in the south-west are present. I am sure that none of us misses the South West regional development agency, but I have no doubt that all of us, especially those representing constituencies in greater Bristol—including the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), who is in the Chamber—will welcome the establishment of a local enterprise partnership covering the greater Bristol area, as well as an enterprise zone in my constituency to create new jobs in new media businesses.

Bristol will benefit from the regional growth fund, from Going Places funds, from the housing market stimulus, and from a new technology innovation centre. A couple of weeks ago, my right hon. Friend the Secretary of State for Business, Innovation and Skills opened the National Composites Centre, near the constituency of my hon. Friend the Minister of State, and we are also to have a university technology college. Those are examples of real actions being taken by the coalition Government to stimulate growth, particularly in new areas of the economy.

Jonathan Edwards (Carmarthen East and Dinefwr) (PC): How will regional pay in the public sector help areas of Britain that are lagging behind, such as the south-west and Wales? Surely it will only entrench regional wealth inequalities.

Stephen Williams: That is an interesting point. The Chancellor said in the autumn statement that a study would be carried out so that we could assess the evidence and decide what to do in the future. I do not think that we should form any firm conclusions at this point, but I would point out that regional pay differentials are the norm in the private sector.

Europe has been mentioned a few times today. It is worth our reminding ourselves that the European Union is the world’s largest single market, that it is worth up to £12 trillion—the aggregate value of the EU member states—that it has 500 million consumers, and that

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50% of British trade exists with our fellow EU members. At this point it is all the more important for the United Kingdom to play a full and constructive role as a member of the EU, and I know that the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey)—who is present—plays an active role in financial services, energy, digital media and green technology. We want the single market to work in the interests of our country. Now is the time for our country to engage positively in Europe rather than hoping for some loosening of our relationship with the EU, let alone the catastrophic developments that would result from withdrawal.

The coalition Government have ambitious plans. We have restored confidence in our public finances and brought them under control, we have achieved international credibility, and we will stimulate economic growth and make work pay. These are difficult times indeed, but sustainable growth and recovery are on the way.

6.5 pm

Mr Roger Godsiff (Birmingham, Hall Green) (Lab): Ordinary people in my constituency who face massive pressures on their household budgets and look forward to a bleak Christmas are not too concerned about the blame game that is taking place between the parties, but there is a smouldering resentment of the financial sector, including the banks and financial institutions that have plunged the economy into recession, destroyed jobs and ripped people’s lives apart. That resentment is heightened by the fact that those self-same banks and financial institutions are once again acting as they did before they brought the crisis upon us. There are bonuses galore, and veiled threats that if regulations are introduced they will go elsewhere.

It is three years since the financial crisis struck, but it needs to be said again and again that that crisis was not caused by nurses and teachers. It was not caused by public sector workers, or by people working in the private sector. It was not caused by small business men, students or retired people, or indeed by the majority of people working in the financial sector. It was caused by the greed and irresponsibility of a small, self-serving group of people who made the decisions and played the casino, and now everyone else is paying the price.

Between 1992—when the United Kingdom was thankfully forced out of the exchange rate mechanism—and 2007, the British economy grew every year. It grew under the right hon. and learned Member for Rushcliffe (Mr Clarke) when he was Chancellor of the Exchequer, and it grew under subsequent Labour Chancellors. Public sector borrowing was consistently between 2% and 3% of GDP, which was perfectly sustainable. However, in 2008 it shot up to 11% because the financial crisis caused by those I referred to earlier had resulted in a full-blown recession and a collapse in tax revenues, and, furthermore, in the need for the Government to bail out the banking sector. I am sure that my right hon. Friend the Member for Edinburgh South West (Mr Darling), who spoke earlier, referred in his book to an interesting deputation that he received—when Treasury officials informed him that the only way of resolving the crisis was for him to nationalise the banks—and I understand why Mervyn King told the Treasury Committee that he was surprised that there was not more public anger.

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However, we must look forward. Britain and the rest of the western world are witnessing the death throes of an ideology that has dominated for 30 years. The Anglo-Saxon neo-liberal market model has failed, and we must consider adopting different models if we are to have a financial services sector that is fit for purpose. We need to be more innovative: we need to try out new ideas rather than adhering to traditional recipes which we have already tried, which have been found wanting, and which have now been totally discredited.

Why, for example, should we not use RBS as a national investment bank—or call it what you will? After all, we own 87% of it. Why should it not be modelled on America’s Small Business Administration, which has supplied 20 million small business men with financial help since its establishment after the second world war, or indeed on Germany’s state development bank, which lent €30 billion to businesses in 2010 alone? Instead of printing money through co-called quantitative easing and giving it to the banks—which do not lend it, but hoard it to rebuild their capital base—why should we not give consumers money vouchers that are time- limited and must be spent on household goods or on, for instance, car scrappage schemes? We should try out some new ideas. The fastest way to stimulate the economy is from the bottom upwards, and no job creation scheme could have a more immediate effect than bringing our high streets alive. All Members know of high streets in their constituencies with boarded-up shops, and where the only new shops are Poundland stores and charity shops.

This is not revolutionary thinking. It has been tried before in America, Japan and China. People are looking for new ideas for the future, and they are prepared to accept radical and innovative policies. They do not want to be lectured by the Government or the Governor of the Bank of England, who can hardly be thought to have had foresight in seeing the recession coming given that he was arguing for increased interest rates right up until the end of 2008 in order to head off inflation, which he said was the biggest threat to the recovery.

We have paid homage to the Bank and financial institutions for too long. We must construct a better financial system that is fit for purpose, and we need to do that sooner rather than later.

Several hon. Members rose

Mr Deputy Speaker (Mr Lindsay Hoyle): A few Members have risen, but I must remind colleagues that if any of them wish to catch my eye, it might help if they stand up. I call Mr Edward Leigh.

6.11 pm

Mr Edward Leigh (Gainsborough) (Con): The hon. Member for Birmingham, Hall Green (Mr Godsiff) suggests that RBS should be made into a national investment bank and that it would then be our saviour. I wonder whether he watched a programme on BBC2 yesterday, which relayed the entire history of how it cost the nation £20 billion. I am not sure it is an entirely good model, therefore.

First, I want to say a few words about what is happening in Europe this week. An express train is coming in our direction in the shape of the putative

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agreement between the Chancellor of Germany and the President of France. The shadow Chancellor said we should learn the lessons of history. Well, I have been reading about the congress of Vienna, and it is extraordinary how history repeats itself. Our whole national policy in those days—and for 300 years—was to prevent an agglomeration of power on the continent. Indeed, Napoleon created the continental system precisely to exclude us from the continent. That is why we fought so many wars over the centuries.

We are now faced with a worrying situation. If the eurozone creates fiscal and monetary union, we will, of course, voluntarily exclude ourselves from that. However, although we may exclude ourselves from the euro, because of qualified majority voting the eurozone countries will have not just influence but enormous power over our financial institutions. We should be extremely worried about that. Over the next few days the Prime Minister must ensure that we have real protection from what will be going on.

There has been much comment about the EU financial transaction tax. We may be able to refuse to implement it, or be given an opt-out. I certainly hope that that is the case, because the City of London is the global derivatives trading centre. Astonishingly, it accounts for 45% of all global trades in interest-rate derivatives, and this tax could cost us £26 billion. Vague reassurances are not enough.

The ex-head of the Financial Services Authority has recently said that between 80% and 90% of our prudential rule book originates from Europe. In 2010-11, the FSA has listed 29 financial regulations that come from Europe. All this is coming in our direction because the eurozone countries can muster 230 votes, and we will have no way of stopping it. We should be prepared to say no or to demand a treaty reassurance, and if necessary put any proposal to the British people in a referendum.

Turning away from Europe, I want now to talk about our woeful economic situation. It is in the interests of both parties to claim that the deficit reduction programme is tough and is hurting. It is in the interests of the Government because it shows that they are being prudent and implementing austerity measures, and it is in the interests of the Labour party because it is arguing that we are deepening the recession. In fact, however, we are not doing nearly enough to address the problems we face. Some 38% of all our output goes to Government. That is a higher proportion than in the USA, Canada or Australia. Contrary to what we have heard, many EU countries have a lower tax burden than ours.

Mr Andrew Turner (Isle of Wight) (Con): My hon. Friend has alluded to the situation in Greece. Does he agree that much is borrowed but not accounted for?

Mr Leigh: That is absolutely right. We do not know what is going on in a lot of areas. Many EU countries, including Greece and Spain, tax their economies less than might be thought.

I apologise to Opposition Members for having to say this, but much of the blame lies with the previous Government. They increased Government spending by

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more than 55% in real terms and, contrary to all the political argument here today, we are cutting that by just 3%. The Government must decide whether they want to be liked or to deliver long-term prosperity and growth. As we have also heard today, we are still borrowing £141 billion every year. The cost of servicing that debt is £43 billion every year, more than we spend on defence. This is a staggering burden. I want to hear more of an intellectual case for smaller government. Big government leads to big waste. Sir Philip Green calculated in his study that £700 million could be saved on the Government telephone bill alone.

People are hit with a double whammy by all this Government spending. Like a black hole, it sucks in enterprise, and it inflates prices and taxes people of all their spare income so they have less to spend on their families and themselves. As a result, the economy deflates.

Governments say in such circumstances that more must be done and propose a fiscal stimulus, usually through public works, but those works are often driven by politics not the marketplace. A better way to deliver stimulus is to cut taxes.

Glyn Davies (Montgomeryshire) (Con): I have a lot of sympathy with the case my hon. Friend is making, but can he point to any international examples of countries or organisations that recommend going further and more quickly in terms of austerity measures?

Mr Leigh: I can point to successful economies in the world that have the taken the view that the way to get out of the problem of a flatlining economy is to release more money back into the economy through the stimulus of lower taxation. I have referred to one tax that raises little money but acts as a tremendous disincentive to enterprise: the 50% tax rate. I would abolish that, as it achieves very little apart from bearing down on enterprise.

We still have the longest tax code in the world; indeed, it is longer than the tax code in India. The Centre for Policy Studies estimates that the marginal tax rate on poor people is as much as 96%, while the marginal tax rate on higher earners is 57%. There is a greater imperative than ever before for Government to be the facilitator, not the central planner. They can, by all means, deliver some public works, but they must not be fantasy or vanity projects such as high-speed railway lines. Instead, they must be works such as the third runway at Heathrow, which the market is prepared to build for us because the market wants it. By all means, let us have public works, but they must make sense in terms of the marketplace, and let us also have tax cuts. I support the Liberal proposal to take the lower paid out of tax, because that also delivers incentives and cuts the marginal tax rate on the lower paid. I want us to have a much flatter overall tax system, too.

Despite all that we have tried to do, Great Britain ranks as the 72nd country in the world for Government wastefulness, which is lower than Tajikistan and Ethiopia. The House may not accept all my arguments, but I hope Members will accept that an intellectual case must at least be made for a smaller and leaner Government who tax people less and deliver more vitality and entrepreneurship back into the economy. That is the only way we will fight our way out of this recession.

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6.19 pm

Gordon Banks (Ochil and South Perthshire) (Lab): I draw the House’s attention to my declared interests.

The Government’s economic plan is not working—if it were, we would not have heard much of what we were subject to in last week’s autumn statement. The Chancellor has choked off recovery and in turn raised unemployment. I acknowledge that the eurozone crisis is having an impact on the economy now, but growth in our economy was choked off well over a year ago.

I want to spend a little time looking at economic growth and the role the construction industry can play. Labour has set out measures designed to create jobs and growth, and many of these would help the construction industry: 25,000 affordable homes, 100,000 jobs for young people and cutting VAT to 5% for home improvements. Having started my own business in 1986, I believe that without a vibrant small business sector, economic recovery is impossible, and without a vibrant construction industry, such recovery is equally impossible. The construction industry is of the private sector, but it needs both a vibrant private and public sector to survive. It is also a cash-consuming industry and as such needs the support of the UK finance industry. It is an industry that can create jobs fairly quickly and can train people in skills that will last them a lifetime. However, in recent years more than 300,000 construction sector jobs have been lost, 63,000 of those in the first three months of this year. Private sector job creation is not keeping up with job losses from the public sector. If it were to do that, the Government would need the construction industry to be significantly more active than it is.

The major banks will not lend enough to the industry. They have seen the sector weakened by Government decisions, and by their actions the banks add further to that decline. The benefits of a strong construction industry are, however, great and should mean one thing: more jobs for Britain, and more jobs for Britain means more tax revenue.

An obvious indicator of a country’s economic well-being is its construction industry. Every business needs this sector in order to expand—whether it is through bigger offices, bigger factories, better high-tech communications, or better road and rail infrastructure. However, let me make this point about infrastructure to both Front-Bench teams: major projects are very important, but I would argue for lower-cost, more local investments throughout the country, as well, as they would have an impact throughout the UK in both their development and post-development stages. Only “shovel-ready” proposals will have an immediate impact on our flatlining economy.

Mr William Bain (Glasgow North East) (Lab): My hon. Friend will have noted that in Scotland recently, construction output has fallen by 2.3%. What contribution does he think the cut by John Swinney, the Scottish Government’s Finance Minister—a reduction in capital spending that is two and a half times faster than this Chancellor’s—has made to that slump?

Gordon Banks: The Scottish Minister’s decision is responsible for the cuts that could also impact on investment and delivery in the construction industry. The flipside is that if we are prepared to invest in the construction industry, it will deliver; if we cut public spending, it will destroy the industry and with it the economy.

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For businesses to grow, they need access to affordable funding. Historically, most small business funding has been generated from our banks, but the Institute for Family Business and the Federation of Small Businesses tell us that, due to the actions of the banks and small businesses’ distrust of them, many such businesses are seeking funding from family members or not seeking it at all. To do the latter damages the business and the economy; to do the former may place limitations on the business, with the same impacts.

However, what is clear is that small and medium-sized enterprises are not at ease with the banking sector. The much-hailed Project Merlin has been a resounding failure. The British Bankers Association has declared that lending targets have been met; however, the FSB and the Federation of Master Builders have other ideas. I have been told of banks meeting their Merlin targets by re-signing existing, unexpired deals. But the truth is, we will never know how much of Merlin is re-signed and regurgitated arrangements. Indeed, this is smoke and mirrors that the Merlin of folklore would be proud of, but I suppose we should not be surprised: the clue is in the name.

I know of financing arrangements that have long been in place being removed with immediate effect, leaving a business in turmoil. Then, the bank returns to the business a few days later with the offer of a term loan that is new business for the bank to write—no doubt adding to the Merlin figures—at increased rates and with arrangement fees, all paid for by the business and with less capital provision for the lender, but leaving the business without any long-term funding in place.

Small businesses in the construction sector have been victimised on two fronts: for being small, and for being in the construction sector, which is deemed toxic by many lenders.

When considering finance, however, we should not forget first-time buyers and the crisis in mortgage lending. In 2007, there were 357,000 first-time buyers in the UK, and as a result the British high street was boosted by some £2.1 billion when these people kitted out their homes. However, today, young people, who are the majority of would-be first-time buyers, are unable to purchase their own home. Now, the average age of a first-time buyer without parental support is 38. With 25 or 30-year mortgages, these first-time buyers could still be paying off their mortgages as they approach their 70s. Surely, pensioners paying mortgages is not something we want to see in Britain in years to come.

In my business, where investment in vehicles can cost up to £130,000 each, and where forklifts and loading shovels cost tens of thousands of pounds, the real driver for investment is the footfall of customers and the profit margin. Both have taken a tumble in recent years, and nothing that I have seen this Government do or promise to do will result in more customers or a rise in profit margins.

Angela Smith: My hon. Friend is making a very strong case against the Government’s economic policy. Does he agree with Will Hutton’s comments in The Observer on Sunday? He said that the Chancellor

“is operating within a framework that permits no vision for how the British economy can be re-energised and reimagined.”

Gordon Banks: I agree with that, and I would add to that the comments of my hon. Friend the Member for

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Glasgow North East (Mr Bain) in his intervention a moment ago: there is a lack of vision in both Scotland and No. 11.

Falling business opportunities equals reducing margins and cuts to investment and employee numbers, which add further to the decline in the economy. Businesses in my constituency and in the construction sector want to know whether this Government see themselves as a driver for growth, or not.

It is all about priorities. As far as the SMEs in the construction sector are concerned, the comments on the report card, sadly, are not “could do better” but more like “shows no interest in the subject”.

6.27 pm

Anne Marie Morris (Newton Abbot) (Con): The Office for Budget Responsibility has shown clearly that productivity is slowing, and our recovery therefore depends on getting productivity moving forward faster. I suggest that one of the key barriers is over-regulation, which I think is borne out by many of the surveys that the Federation of Small Businesses and the Forum of Private Business have carried out.

The sector of the economy that is perhaps most affected by over-regulation consists of the very smallest of our businesses: the micro-businesses. A micro-business, for the most part, suffers from the same level of regulation but has less resource, by virtue of its size, to deal with it.

So why should we worry about micro-businesses? Because research has indicated that 90% of new jobs after a recession come out of that sector, and because it is in our rural communities that many of those micro-businesses exist. They are critical to the economic viability of our rural communities. We should also be concerned about the existence of micro-businesses in deprived urban communities, where, again, they play a key role in terms of cohesion.

What is a micro-business? The EU defines it as an organisation with fewer than 10 employees, but in fact, 90% of our businesses have fewer than five employees. Therefore, they have very little managerial support and expertise.

The Government have done their level best to help small and medium-sized businesses, and specific provision has been made to help the micro-business. So why do micro-businesses feel unloved and, in the words of one, invisible? Perhaps I may make some suggestions to the Treasury on how we can rectify that and support the sector better. We have given a three-year moratorium on new regulation for our micro-businesses, but the challenge is that they are still subject to existing regulation, a lot of which comes from Europe, and if they have only two or three people in the business, that is a very heavy burden. We need a “keep it simple” system for micros.

On employment, the Government have helpfully provided a national insurance break for start-up businesses. We have also examined the tribunal system and considered a simplified system for smaller businesses, but we must remember that businesses with no employees comprise 70% of all our businesses—or about 3 million businesses altogether—and if we gave those very small businesses national insurance relief, we would go a long way towards solving our unemployment problem.

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On finance, I am delighted that we have the new seed enterprise investment scheme, as it will make a big difference. The point I would make to the Treasury is that we need to examine who is going to use that type of support. It will be the fast-growth entrepreneur who is looking for external investment, but what about social enterprises and what about the plumber who is setting up, having just been made redundant? Some of the money that they will be seeking could be offered by their families, but they are excluded from the scheme.

David Rutley (Macclesfield) (Con): My hon. Friend is a passionate advocate for micro-businesses and I commend her for her extraordinary efforts. Does she agree that it is vital that our micro-businesses are better at articulating the problems they are facing, so that the Government can more effectively strip back the regulation that she and I both want removed?

Anne Marie Morris: I agree with my hon. Friend absolutely, and that brings me nicely to the challenge that we face in getting some of the main schemes to assist with finance. Project Merlin, the enterprise finance guarantee scheme and the regional growth fund have all been aimed at the smaller business. The problem is that in practice, because there is no carve-out and no requirement that any percentage of those schemes goes to our very smallest businesses, these businesses by and large get left out. That is because they are perceived to be invisible, too difficult or too small, or it is perceived that they cannot write a business case or are not after a big enough loan. I hope that when we examine the new credit easing arrangements, we might consider a carve-out specifically for micros.

Even some of our institutions that are supposed to be looking at our small businesses exclude them. I have spoken to officials in UK Trade & Investment, and it appears that a small business of fewer than five employees is, unfortunately, beyond its notice. I have talked to those in the National Apprenticeship Service, which now has a small business unit, and they say that a micro-business with fewer than five employees is, again, outside its remit.

May I suggest to the Treasury that the solution, is, first, that we should properly recognise this group for what they are? Let us define them properly as organisations with four or fewer employees, as is happening around the world, and let us devise a scheme specifically for this group. That is perfectly possible, as the French have come up with such a scheme for their smallest micro-businesses. It provides limited liability, a very simple form of establishing a business, simple accounting procedures and a very simple tax system, and it also provides for very simple sets of regulation, particularly in respect of employment. So something simple for our smallest micro-businesses is just what we need.

In the last minute available to me, I suggest also that, because much of the regulatory burden comes from Europe, there is a case to be made for considering an exclusion for micro-businesses from European regulation. I commend that to the Treasury and the Chancellor, if and when we come to treaty negotiations, as something that might be usefully traded.

6.33 pm

Phil Wilson (Sedgefield) (Lab): I would like to discuss the part of the autumn statement dealing with local public sector pay and the relationship with local labour

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markets—in other words, regional pay. As a Member of Parliament for the north-east of England, I know that unemployment in the north-east is 11.6%—the highest in the country—the average wage is just over £19,000 a year, and the average house price is £144,000. A 25% deposit on a mortgage will cost £36,000, and to obtain a mortgage for the remaining 75% someone would need an income of £31,000 a year. A house in the rural north-east costs 8.1 times income, whereas in the urban areas of the north-east it averages 7.3 times income. Average incomes in the north-east are 12% below the national average and are the lowest in England. Given those facts, introducing a regional wage structure in the public sector is the wrong thing to do, because it is short-sighted and it belies the facts on regional pay disparities. If the Chancellor were really serious about pay, he would join me, and many of my colleagues in the north-east of England, in calling for a living wage, not a regional wage.

I do not believe that national pay bargaining in the public sector suppresses pay in the private sector. Although regional pay does exist in the way allowances are paid, for example, for people who work in London and the south-east, the main differential is not between regions, but between London and the south-east and the rest of the country. Pay disparity between the regions is about £2,000, according to Incomes Data Services, and there is very little difference in the cost of living between regions. The largest disparity is between the north-east and London, where the cost of living varies by 10%. The Office for National Statistics states that the cost of living in the remaining regions varies by between 1.5% and 2.8%, depending on the goods compared. However, the wages of commuters in the London commuter belt are higher than those of the people living and working in the commuter towns.

The ONS and IDS believe that the only distinct labour market in the UK is in London and the commuter belt area around the city. Is that not another reason for investing in transport infrastructure projects, which will shrink distances between London and the rest of the UK, rather than encouraging a rush to the bottom in pay rates between the public and private sectors, and between regions?

Mrs Jenny Chapman (Darlington) (Lab): My hon. Friend is making a superb point. I do not know whether he has served on the governing body of a school or on a board of a health trust, but I can tell him that recruiting good, able, ambitious and talented people in the public sector can be a real challenge in the north-east. As someone who lives there, I do not understand why that is, but it seems to be the case. We need to be able to attract those quality people, and enable them to move around the country and pursue their careers as they need to.

Phil Wilson: That is absolutely right. If a regional pay structure went ahead, in whatever variety it may take, it would just exacerbate that situation. The regions would become silos, and people would not be able to move around the country.

It is also a myth that there are major variations in the cost of living around the country. The reason why the variation is less explicit outside London is because major retailers have national pricing policies, and internet shopping is having a similar effect in ensuring that the

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cost of living is more convergent around the UK than it would otherwise seem to be. In addition, major private sector companies—BT, British Gas, Waterstone’s, First Great Western and Santander, to name but a few—have national pay structures, although they have, for example, allowances for workers in London. When the previous Government examined this issue they came out against regional pay bargaining for the following reasons, which were quoted in a Treasury guidance note in 2003. It said:

“At the extreme, local pay in theory could mean devolved pay…to local bodies. In practice, extremely devolved arrangements are not desirable. There are risks of workers being treated differently for no good reason. There could be dangers of leapfrogging and parts of the public sector competing against each other for the best staff.”

That illustrates the point that has just been made by my hon. Friend the Member for Darlington (Mrs Chapman).

The wage disparities do not arise from an overactive public sector displacing private sector jobs; that cannot be so, given that 700,000 public sector jobs are to be lost in the coming years. I want to see a vibrant private sector, with skilled jobs that are well paid and full time, but to achieve that we need growth.

Angela Smith: Does my hon. Friend believe for a minute that the Government have thought through the complexities of moving to local pay scales, given that it will inevitably involve consultants in establishing exactly where on the new pay scales the public sector employees will belong?

Phil Wilson: My hon. Friend raises an important point. I do not think the Government have thought all these things through; I know they will be looking at them in more detail, but the process seems ideologically led.

One North East was a dynamo for private sector job creation in the north-east. To abolish it was the wrong decision. We need the expertise of the public sector to generate private sector jobs in the area. That is how Hitachi Rail was attracted to Newton Aycliffe in my constituency, creating hundreds of direct private sector jobs and thousands in the supply chain. Hitachi did not come to the north-east because of the public sector, but it did have the help of the public sector. I want more Hitachis coming to the north-east, bringing highly skilled jobs that will deliver good wages. That is how we shall redress wage disparities in the north-east; not by suppressing the wages of a section of the community but by raising the wages of all employees, through investment, training and skills. With that will come good wages, and I call on the Government to promote a living wage, not a regional wage, for the north-east and the rest of the UK.

There is no evidence that regional pay will rebalance the economy. Driving down wages will only exacerbate economic disparities, not resolve them. Driving down relative wage costs and taking money out of the economy is as bad for the private sector in areas such as the north-east as it is for the public sector. That is why I make a special plea, not for the public sector but for all employees in the north-east of England, whatever they do and wherever they work.

Public sector employees face a two-year pay freeze and then two years with only a 1% increase. It has been estimated that between 2010 and 2015 public sector workers will see their incomes decrease by 14%. Average

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pay in the north-east is just over £19,000. How low do the Government want it to be? The policy is wrong, and I believe it is ideologically led. The answer is a living wage, not a regional wage.

6.41 pm

Glyn Davies (Montgomeryshire) (Con): I shall take a Welsh perspective, and to some extent a constituency perspective. Debt hangover, deficit reduction and the problems facing the eurozone have an impact in Wales, just as they do in the rest of Britain, but some issues are specific to Wales and I want to touch on them.

Much of the management of the Welsh economy is devolved, but not completely; for example, policies on tax rates and international investment are still determined at Westminster. That inevitably means that a close working relationship between the Governments in Cardiff Bay and at Westminster is crucial. Without one, there is the potential for damage. Enterprise zones are an important aspect of the Government’s policy for dealing with the economic problems of England. I do not want to blame anyone, but in Wales they are still incredibly ill defined and the process is slow, so we need a much closer relationship between Ministers in the Assembly Government and Ministers at Westminster.

Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP): The hon. Gentleman said that most economic control was devolved to Wales. Would he be as comfortable with a relationship between London and Europe as there is currently between Cardiff and London—with most powers held in Europe and London, despite the economy of Wales being devolved?

Glyn Davies: I thank the hon. Gentleman, although I am not absolutely certain that I picked up his point. Governments and institutions have to work as closely together as possible for the benefit of the people they all serve.

First, inward investment has historically been strong in Wales. Yesterday the Secretary of State for Business, Innovation and Skills told the Welsh Affairs Committee that Wales was doing relatively badly. I think Wales is doing very badly indeed; last year only 3% of inward investment in the UK went to Wales. In the two previous years the proportion was 6%, which is about what one would expect given the population of each country. In the days when Lord Walker was Secretary of State for Wales, it was 20% for two or three years in a row. There was a major focus on Welsh links to the most successful parts of Europe, such as Baden-Württemberg, Stuttgart, Barcelona and Lombardy. There was a strong relationship with Japan, which in those days was aggressively developing its economy throughout the world. A lot of investment was going to Wales, and we need that sort of advantage. When I became a Member of this House I had been a Member of the Welsh Assembly for eight years, and I want the relationship between the two institutions to work as well as possible. On inward investment the working relationship has not been as close as it should be, and we need to change that.

Secondly, I want to touch on cross-border issues, in particular their impact on my constituency of Montgomeryshire. Again, it is a question of making devolution work for the people. There is a real problem in terms of capital investment in Wales. A consequence

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of the autumn statement is that over the next three years another £216 million will go to Wales for capital projects, but projects on the border will not be considered, because the arrangements following devolution mean that they cannot be. For my constituency and for the whole of mid-Wales, industrial development depends on access to the west midlands market and the motorway network. One of the biggest impediments is the stretch of the border between Welshpool and Shrewsbury. A road project there has high priority for the Welsh Government and would almost certainly have gone ahead, but the total cost is around £30 million, with a significant proportion—about £5 million—over the border in England. Although it has huge priority in Wales it is given almost no priority at all on the English side. That project has been sitting around for ages and is not going ahead, yet it should really be a priority. I could give three or four similar examples.

Owen Smith (Pontypridd) (Lab): I entirely agree with the point that the hon. Gentleman is making, but would it not have been easier if the Government had chosen not to cut £900 million overall from the Welsh capital budget? Admittedly they gave back £200 million last week, but there is an overall reduction of £700 million in this Parliament.

Glyn Davies: I thank the hon. Gentleman, but he completely ignores my point and is going back to the partisan knockabout that produces absolutely nothing. There is an important point of principle relating to cross-border investment, and all Members of the House and of the National Assembly, not just the Government, should try to focus on the issue so that we have a resolution that benefits the people who actually depend on it.

Thirdly, I want to touch on the impact of proposals for wind farms in mid-Wales. Many of my constituents, and indeed people in neighbouring constituencies, fear that there is an intention, or a desire, to sacrifice mid-Wales on the altar of onshore wind, irrespective of the consequences for the economy. About two decades ago, when I was involved in developing the economy of mid-Wales, strategy was based on the growth of manufacturing industry—what today we might call rebalancing the economy—after the loss of jobs from agriculture and mining over a long period. Over the last 30 or 40 years the percentage of people employed in manufacturing rose from about 7% to about 24%; it was a terrific performance, but between the late-1980s and the mid-1990s there was less concentration on regional development and the figures probably slipped back.

Today the most important developing industry in Wales is probably tourism. People who work in the industry contact me regularly to tell me that onshore wind is the biggest threat to the potential of their business. We cannot ignore that. Planners in mid-Wales are aware of the threat. They are deeply concerned that wind farm applications are being submitted without the necessary information about ecological or environmental impacts. There is almost no transport planning for the 20 or so proposed wind farms, yet planners are under pressure to approve the applications. If they do, they will be sacrificing the economy of mid-Wales. Many of us in the House have concerns about the costs and their impact on the fuel bills of the most vulnerable in

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society, and we are worried about the impact on British jobs, which will be exported as a result of those costs. From the perspective of my constituency, the economy of mid-Wales will be destroyed at the same time.

6.50 pm

Helen Goodman (Bishop Auckland) (Lab): I am pleased to follow the hon. Member for Montgomeryshire (Glyn Davies). I do not agree with what he said about wind farms, but he made a thoughtful and interesting speech, and I hope that when he listens to what I say about the north-east, he may feel that things in Wales are not quite so bad.

At the weekend I received an e-mail from a constituent which said:

“I wanted to apply for a crisis loan for my heating oil but when I rang up I was told this was not possible … and I would have to apply for a budgeting loan which has a three-week wait … My problem is I am unable to pay by direct debit … I have been unable to save the money from my employment and support allowance as I have been trying to pay my other important bills . . . My dilemma is that my oil will not last much longer and as I suffer from diabetes and had a heart procedure in September my health will suffer as a result of no heating.

What can I do to sort this out?”

The e-mail is interesting not because of what it says about the benefits system, but because of what it reveals about the level of poverty being faced at present in some households, as well as the consequences of the failure to tackle the energy giants adequately.

There are two major themes that I want to pull out of what the Chancellor of the Exchequer announced in his autumn statement—the unfairness and the unintelligence of the proposals that he put to the House. In many cases they are unintelligent because they are unfair. Let us look first at who is bearing the burden of the measures that he announced. We can see from the analysis published by the Institute for Fiscal Studies that it is the poorest who are paying the most. The IFS analysis makes it clear that the measures that the Chancellor of the Exchequer announced will make the bottom 30% worse off and the top 60% better off.

Mr McFadden: My hon. Friend is right in what she says about the Institute for Fiscal Studies estimates. She will also know that the IFS says that by household types, it is families with children who are worst hit. What does she think the Government and the Chancellor have got against families with children?

Helen Goodman: I cannot imagine what the Chancellor has against families with children, but it is obviously a matter of extreme concern not just that the number of children who live in poverty will go up, but that to tackle the problem, the Government are going to redefine poverty. They will find that that is a massive mistake. If they go to an absolute measure, they will not look good against the Labour Government, who reduced the number of children in absolute poverty by 2 million.

Those on £14,500 will lose eight times the share of their income that those on £32,000 will lose. The poorest 10% will lose four times the share of their income that the richest 10% lose. In other words, it is a cynical way of focusing money on so-called marginal voters. The

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proposals are unfair. They are unintelligent to the point of stupidity, because the propensity to consume is highest among the poorest. Maintaining the incomes of people on low incomes will have the fastest and greatest impact on demand, so even with the same level of borrowing as they propose and the same fiscal stance, the Government could have a bigger bang for their buck. They could have a greater impact on demand and on the growth of the economy, simply by redistributing.

The second dimension on which the autumn statement is both unfair and unintelligent is the regional distribution. The Government are switching £4 billion from current to capital, of which only £4 million—that is, 0.1%—is earmarked for the north-east. That is 25 times less than the £100 million that was lost from my constituency alone when the Building Schools for the Future programme was cut. For example, improvements to the A1, the A19, the A66 and the Tyne tunnel are not going ahead.

The North East chamber of commerce has described this as “hugely disappointing”. The extension of 100% capital allowances till 2017, the new enterprise zone in the port of Blyth and the increase in the regional growth fund are all minuscule in comparison with the impact of the abolition of the regional development agency.

Furthermore, the infrastructure plan is old-fashioned. Only £100 million of the new money is in the communications strategy and that is all concentrated in the cities, whereas the lack of access is in rural areas. Today the Federation of Small Businesses and the National Farmers Union came together to point out that hundreds of thousands of people will be left behind, so where it is most useful and most needed, it will be least available.

In announcing his weakening of the habitats directive, the Chancellor seemed to be scornful of green considerations. After the excuses of snow and royal weddings, it seems to be the butterflies that are the problem, or perhaps it was the seaweed that he was complaining about.

My hon. Friend the Member for Sedgefield (Phil Wilson) pointed out the detrimental impact of regional pay on our regional economy. Lower pay in the north-east is a symptom of our problems. Reducing the pay further will take yet more money out of the demand in the regional economy. To set this in context, my hon. Friend the Member for Easington (Grahame M. Morris) made an excellent speech in Westminster Hall, pointing out that the cuts in incapacity benefit are already taking £170 million out of the regional economy. What may look like a sneeze in the south can cause pneumonia in the north-east.