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It is important to be clear that policy has already been altered a great deal, something that seems to be lost in the brouhaha in this place. Both the Government and the Bank of England have implemented massive policy changes to stimulate the economy. Fiscal policy has been loosened a great deal. The so-called automatic stabilisers—the falls in tax receipts and rises in public expenditure that come with lower growth—have been allowed to kick in. No one knows their full value, but I note that the Institute for Fiscal Studies used to think that they were worth about £100 billion and said yesterday that they were worth £140 billion. No one knows the full effects of QE—quantitative easing—either, but we know that since 2010 £175 billion of QE has been pumped in, bringing the total to £375 billion in all.

Both QE and automatic stabilisers are delivering colossal extra sums to the economy—they are massive policy changes—and the Chancellor has exercised great flexibility in response to the downturn. He does not always seem happy to acknowledge the fact that there has been that huge adjustment, so I thought I would put the points myself after his speech.

I want to say a few words about growth and the supply side, but before I do I want to refer to the greatest single blight on the prospects for the economy, which is the eurozone. Eurozone demand has remained very weak, as the Chancellor pointed out. There could not be a more vivid illustration of the eurozone’s capacity for self-harm than its chronic mishandling of the Cypriot financial crisis over the past few days. What on earth possessed policy makers to play with fire by doing the very things most likely to trigger a run on the banks? I just do not know, but it beggars belief. We cannot influence policy in the eurozone directly, but we can—and should—speak truth to incompetence. That is in Britain’s interest, as well as that of the eurozone, and I urge the Government to do that and ignore what will undoubtedly be bleatings from the Foreign Office asking them to desist.

On the supply side we cannot, of course, do much about the eurozone, but we can do something to improve the micro-economy. For nearly three years, the Treasury Committee has been calling for more coherent and tougher supply-side reforms. The Chancellor has had such an agenda for at least 18 months, but implementing it in a consistent way is proving difficult. The Chancellor has done what he can on tax reform and simplification—a big ask given the lack of fiscal room—and I pay tribute to him today because he has managed a substantial cut in corporation tax and its simplification in one go. That is both simplification and reduction, despite the lack of fiscal room.

Andrea Leadsom (South Northamptonshire) (Con) rose

Mr Tyrie: I will give way one last time.

Andrea Leadsom: Does my hon. Friend agree that that simplification makes it much easier for the Chancellor to generate tax and ensure that people pay it so that we do not get the fiddling about at the margins that we saw in the past under the previous Government’s policies?

Mr Tyrie: I will not add any comments because I do not get any more injury time after a couple of interventions, but I agree with my hon. Friend.

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Reforms are going ahead in the labour market, and quite big reforms are being pushed through on the planning side. That is controversial but, I think, necessary. However, I have been arguing for some time that we must concentrate on those areas where policy is pulling in conflicting directions. The agenda might be right, but the execution is not always right:

“There has to be a drive to make the UK competitive in motorcars and engineering...we are saddled by a high cost of energy”

compared with our counterparts in Europe, and certainly in Asia. UK environmental policies are causing “dangerous distortions” to energy prices. Those are not my words but those of Tata Steel’s head of European business operations.

According to Government figures, energy prices for the average business consumer have more than doubled since 2004. Those figures also show that in 2011, almost one fifth of a medium-sized business user’s bills were due to climate change policies. Britain is going it alone with many of those policies, for example by introducing a carbon floor. That unilateralism is rendering parts of our manufacturing industry increasingly uncompetitive, and we are exporting jobs in manufacturing right now.

The Chancellor is well aware of that and has announced an important tax allowance to support the development of indigenous shale deposits. That will certainly help to level the playing field. We really need, however—this is difficult for the Government, not least a coalition Government—to address the contradiction caused by the current high subsidies to renewables. Those subsidies are so high that today the Chancellor has been forced to introduce subsidies for shale gas, just to get it going. As the American experience has shown, shale gas can be highly competitive given a balanced renewables policy. American natural gas prices have dropped by more than two thirds since 2008, which must be a reason—perhaps a major reason—why US manufacturing is doing much better than in recent years.

I also have reservations about aspects of the infrastructure policy. I strongly welcome the extra money being put in, but I wonder whether we are right to put what will amount to at least £34 billion into HS2—which, at best, is carrying a doubtful economic return—but not building much-needed extra capacity for a London airport. We must get to the point where airport capacity in London can be allowed to grow.

I will conclude by discussing briefly the other big obstacle to growth: the dysfunctionality of the banking sector. Again, that is something we can control—unlike the eurozone—although it is difficult for the Government to get to grips with. Britain’s economic recovery will depend to a large extent on a return to growth in the small business sector, and I strongly welcome the crucial measures announced today by the Chancellor to help the small business sector, but the plain fact remains that small and medium-sized businesses in our constituencies cannot get the funding they need from the banks. Banks lack the confidence to lend to them, and businesses lack the confidence to borrow from banks on the terms offered. The SME sector cannot fully recover until the partly state-owned banks return to more normal lending behaviour, and until we introduce greater competition into an over-concentrated market.

The Banking Commission, which I chair, has heard a good deal of evidence in recent months to suggest that until more of the impairments on bank balance sheets are cleaned up—in other words, until those balance

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sheets are in much better order—banks simply will not return to normal lending. Without that normal lending, SMEs will not recover. How to address that issue during this crisis has been one of the abiding concerns for policy makers, and a matter that the Banking Commission has considered carefully over the past few months. We have given a great deal of thought to the issue, and will be making some proposals in May.

I began by talking about SMEs, and I will end my contribution with that thought. When small businesses have the confidence to borrow and invest, and when banks have the financial strength and competitive need to do so, that is when our economy will recover and that recovery will take root.

1.56 pm

Mr John Denham (Southampton, Itchen) (Lab): It is a great pleasure to follow the Chair of the Treasury Committee.

There must have been at least some Government Members who, however much they wanted to cheer publicly, were wondering privately why no progress has been made in the past three years, and why so much of the promise, as set out by the coalition Government, has failed to achieve what they thought it was going to achieve. I have no doubt that three years ago the Chancellor, the Prime Minister and other members of the Cabinet believed that the measures they were planning were going to work. If we are to understand why we have made no progress, despite the fall in the living standards of an average family of £1,200 a year and the loss of public services, we must look not only at the statistics, but understand why things have gone so badly wrong.

Steve Rotheram (Liverpool, Walton) (Lab): Does my right hon. Friend agree that the Chancellor is becoming the Baldrick of British politics? He thinks he has got a cunning plan, but everybody else can see that it is doomed to failure.

Mr Denham: There were certainly points in the Chancellor’s speech when he seemed to be living in a completely different world from the one in which I am living. For example, he made a throwaway remark that reforms to the planning system mean that houses are being built, yet there were fewer housing starts last year than at any time over the past few years. It is nonsense to claim something that is patently untrue, which brings me to my central point about the danger in politics and government of believing one’s own rhetoric.

Paul Farrelly (Newcastle-under-Lyme) (Lab): Will my right hon. Friend give way?

Mr Denham: No, because I need to make some progress. In 2010 when the Conservative and Liberal Democrats got together, they agreed on a political strategy that was to blame everything on the previous Labour Government—it was to be their profligacy, their debt and their fault. Never mind that all parties had agreed on Labour’s spending plans right up to the banking crisis; never mind that the banking crisis was global and not national; and never mind that, although the failure of the banks owed a lot to failures in regulation,

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the Conservative party had consistently called for less regulation. Those facts were not going to get in the way of a clear political strategy of blaming it all on Labour. The political strategy has had some effect—the polls, which people such as Lord Ashcroft tell us are the only glimmer of hope the Conservatives have, tell us that—but the disastrous mistake for Britain is that the Government believe their own rhetoric. They believe that, because the strategy seems to be effective politically, it means it is true and that they should act as though it is true. That is what lies behind the disaster facing the British people.

Sheila Gilmore (Edinburgh East) (Lab): Will my right hon. Friend give way?

Mr Denham: No—I would like to make progress.

If the rhetoric were true, the policies pursued by the Government would have worked. If it had been true that all that needed to be done was to get the deficit down as quickly as possible because the problems were simply a matter of overspending, the strategy would have worked. The strategy did not work, because the analysis of what was wrong was fundamentally flawed.

In the first year of the Government, the rhetoric of doom and gloom shattered business and consumer confidence before the first tax increase or the first cut began to bite. It was so important to the Government politically to tell everybody how bad things were going to be that people behaved accordingly. The VAT increase and the cuts then began to bite in the real world. The pessimism deliberately spread by the Government for political reasons began to bite and have an effect—a real reduction in demand.

Simon Hughes (Bermondsey and Old Southwark) (LD): The House has great respect for the right hon. Gentleman, but he must remember the situation Europe was in on the date the coalition was formed, the crisis in Greece, and the fears that we would not be in a good position. Some of us have always made it clear that a combination of the outgoing Government, the banks and the international financial situation was the cause of the crisis and warned against it for many years.

Mr Denham: I am tempted merely to say, “I rest my case.” Throughout the 2010 election campaign, the right hon. Gentleman and all members of the Liberal Democrats said how disastrous it would be to adopt the policies that they later supported. He makes precisely my point. He adopted a position that was absolutely factually wrong and damaging to the country for the political convenience and advantage of the Liberal Democrats—he sanctioned with his own words what happened later.

The Government’s strategy on cutting too far and too fast was bad enough—it shattered confidence and took demand out of the economy—but it was compounded by catastrophic failures in policy. Because the Government convinced themselves that the only thing that needed to be done was cutting the deficit fast, they abandoned many of the tools available to them to stimulate growth. It was interesting today to hear of a single pot for cities to bid for from the Government who, within two months of coming to office, abolished the regional development agencies and the whole development infrastructure. They recognise, three years later, that that was a disastrous

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mistake, as Lord Heseltine has told them, but at the time, they did not believe that getting rid of those strategies mattered.

The Government also created massive uncertainty in the wider economy. The truth is that there is no absolute shortage of money that could be used to rebuild the British economy. The cash balances of giant companies are huge, but they will not invest, because there is so little business confidence in Britain as a place for investment.

The responsibility for that goes much wider than the Government, because Conservative and Liberal Democrat Back Benchers have spent three years creating uncertainty about wind power, nuclear power, HS2 and the future of airports policy. For everywhere that business might look to invest in this country, Conservative and Liberal Democrat MPs have, for the narrowest of marginal constituency political interests, conspired to create the maximum business uncertainty. It is therefore unfair to blame all the uncertainty on the Chancellor’s misguided policies. Much of it comes from a misunderstanding by Conservatives and Liberal Democrats of what needs to be done—long-term investment and long-term certainty in Government policy to create investment.

For example, such uncertainty is why investment in renewable energy—the Chancellor mentioned green investment—halved between 2009 and 2011. That is a conscious, clear effect of chaos in Government policy and the narrow interests of Conservatives and Liberal Democrat Back Benchers. For all those reasons, unnecessary damage has been done to investment in our economy.

Caroline Lucas (Brighton, Pavilion) (Green): Will the right hon. Gentleman give way?

Mr Denham: I will not give way because my speech is time limited—I would give way if I had more time.

The Chancellor did not mention a number of things in his speech. For example, he did not mention the march of the makers. Whatever happened to that and our desire to build up an advanced manufacturing industry to lead the way in exports? Perhaps the march of the makers was in an early draft of the Budget speech, but last month’s worst industrial output figures for 20 years probably put paid to the idea of mentioning it today.

There are areas of success—the Government have wisely continued the Labour Government’s policies for the motor industry and reaped the rewards for the country as a whole—but, in too many areas, there has been no coherent policy. In my part of the country, the leisure boat industry, including well known global companies such as Sunseeker and Oyster Yachts and many smaller manufacturers, is a small but world-leading industry. To foster such an industry, we need coherence in Government policy, but what do we find? We find that the banks are not lending coherently as they once did to businesses in the luxury yacht and leisure boat industry; that it is hard for dealers to get finance to trade up and down in the second-hand vessels that need to be sold; and that the Home Office makes it impossible for wealthy buyers from Russia, China or elsewhere to get into the country to see the boats on sale at our boat shows. There is a complete lack of interest in vast parts of the Government in successful strategies to promote successful parts of the economy.

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My final point is to agree broadly with the Chancellor on one point. He said that

“unless we fire up the aspirations of the British people…we are going to be out-smarted, out-competed and out-performed by others in the world who are prepared to work harder for success than we are.”

I agree with him in this sense: a country in a disastrous economic position such as ours will recover only if there is a shared patriotic commitment to rebuilding our country, and a shared case in which everybody in the country feels that they have a stake and a role, and that they will benefit from success. That is why the millionaires’ tax cut and other divisive policies that have been pursued against the poorest in our country are so damaging. Those policies are not only socially unfair and morally reprehensible, but because they divide our country and make it clear that there is no common cause and nothing to be gained from pulling together, they undermine the effort needed to build a one nation economy that genuinely works for all people in this country.

That is the problem once again. The political rhetoric cannot be faulted, but the policies needed are entirely missing.

2.9 pm

Mr Andrew Mitchell (Sutton Coldfield) (Con): It is perhaps not surprising that as a former Chief Whip, albeit one of relatively short duration, I rise to support the Budget set out by the Chancellor of the Exchequer, but that is what I do.

It is a considerable tribute to the strength of the Government’s purpose that the measures the Chancellor has announced today will be enacted. The Budget takes place against an extraordinarily difficult background. I cannot remember, in 26 years on and off in this House, a more difficult set of circumstances in which a Chancellor has had to craft the Budget, nor such a heavy volume of advice across all media, much of which has been contradictory. The article in last Saturday’s Financial Times by Terry Leahy, which set out the case for the morality of low taxation, is well worth reading and sets out an argument that we do not hear often enough in this House. The article was blessed with a cartoon that showed the Chancellor in a trench surrounded by mud, blood and barbed wire, and wearing a tin hit. He may well feel, after the past few days, that that is not a bad summation of where he stands.

Sheila Gilmore: Does the right hon. Gentleman really think that that is a good image with which to portray his Chancellor, since the squaddies were in the trenches and the first world war generals kept sending them out to be killed? Surely that is not an image that the right hon. Gentleman wants to portray.

Mr Mitchell: That was not my image, but the image in the Financial Times. Nor was it of a general, but of a soldier serving in the trenches.

Hemmed in as the Chancellor is, he steers between the Scylla of debt that must be paid down and the Charybdis of growth that must be fought for and secured. I believe that today he has made the right decision in the long-term interests of the country, and I want to focus on those two key issues in my brief remarks.

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In terms of the Charybdis of growth, I think he has picked up on the excellent work done by Lord Heseltine, particularly in its reference to Birmingham, and on what we can do in local economies to ensure that growth is boosted.

Paul Farrelly: Today, the Chancellor announced an extra £3 billion of annual public sector investment, but in the 2010 spending review public sector investment was cut by £9 billion a year. Does the right hon. Gentleman agree that in hindsight the Business Secretary was right and that those drastic, immediate cuts were a mistake?

Mr Mitchell: I do not agree at all, and I will come on to address the substantial part of what the Business Secretary said in a moment.

I was talking about the importance of engendering growth in the economy through local activity, and mentioned specifically the work that Lord Heseltine has done in respect of Birmingham. He underlined the importance of the local enterprise partnership and the importance of stimulating growth in an area that remains at the heart of this country’s industrial base. I am reminded that it was only three years ago that I visited the Jaguar factory just outside my constituency in Castle Bromwich. At that stage, two of the three production lines were lying idle and employees were unable to continue to secure work. Now, just three years later, all three production lines are in operation. We see a company that is storming ahead and cannot produce enough cars to satisfy market demand. Last year, it exported more than £10 billion-worth of cars made in Britain and paid in to the Exchequer more than £1 billion of taxation. That real transformation offers hope at a very difficult time in the area of the country I represent. The announcement that we will have a single pot of central money to support local initiatives is enormously important, as is the emphasis that Lord Heseltine places on more effective governance to address the fragmentation and lack of coherence of the business voice, which he has been loud in commenting on.

On the stimulation of growth nationally, today we have heard the Chancellor announce the excellent news about cutting taxes on jobs. I can think of few measures that could be more effective. Prioritising the changes that make growth easier, cutting business taxes—not easy, and not the popular thing to do—and facing down the vested interests that the Chancellor has to wrestle with every day, are all important measures if we are to ensure that growth is supported nationally. Making life easier for entrepreneurs and businessmen is not the route to easy popularity, but it is the route to long-term economic success and growth.

The way the Government have sought, with single-minded emphasis, to boost trade with the BRICs—Brazil, Russia, India and China—and the other countries with growing economies has had a significant effect. I wonder whether my right hon. and hon. Friends on the Treasury Bench think that all the lessons from around the world on how to boost growth and entrepreneurialism have been learned. Encouraging entrepreneurship, improving links between schools and business, and making sure that all the lessons from these emerging markets are learned are all very important. For example, I wonder

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whether there is more to learn from Singapore, Sweden, Finland and the Netherlands, which consistently top the global competitiveness report issued by the World Economic Forum. I wonder whether the lessons from New Zealand, Denmark and Canada, which are consistently identified as the best countries in which to do business, have been learned, or whether there is more that we can learn from the Nordic and Asian economies that have been so successful in harnessing information and communications technology for economic growth. The Chancellor deserves great credit for the brave steps he has taken today to secure growth.

The Scylla of debt has hung around our neck, and hangs around the economy’s neck, for the reasons that are well known across the House. Anyone who doubts its scale and the anxiety it causes, as my hon. Friend the Member for Chichester (Mr Tyrie) set out, needs only to look at the absurd proposition, coming out of the crisis in Cyprus, that one can confiscate arbitrarily people’s deposits. That underlines the extraordinary difficulties that overweening levels of debt, which we and other countries face, cause.

It is irksome to repeat so regularly the irresponsibility of the previous Government in the levels of debt they left and the measures they took during the good times, but that needs to be repeated so that people understand the sheer scale of what happened. I remember studying the papers on the National Security Council when we were conducting the defence review, and noting that there was, allegedly, from the previous Government a £38 billion black hole in their accounts. I was unable to believe that that was possible and sent back the papers on the assumption that there was a decimal point in the wrong place. But no, it was confirmed on the Monday morning that there was indeed, under the previous Labour Government, a £38 billion black hole in the defence budget. We should never allow them to forget the appalling difficulties that their stewardship of the economy and their legacy have left for the coalition to clean up.

Penny Mordaunt (Portsmouth North) (Con): Will my right hon. Friend give way?

Mr Mitchell: I am afraid that I will be out of time, if my hon. Friend will forgive me.

It is difficult to confront the welfare budget, as the Government have done. We still spend £23 billion on housing benefit. In looking at the welfare budget, which I urge my right hon. and hon. Friends to continue to do, they should of course be guided always by the principles of fairness and decency. It is enormously difficult to cut the welfare budget. People blithely say that we can cut £1 billion off the welfare budget, as that is just 0.5% of that budget. However, cutting £1 billion would take £1,000 off 1 million people, or £100 off 10 million people. That underlines the scale and the difficulty, and the essential need to tackle welfare budget commitments, curtail expectations, and determine the sort of welfare system we will have as a society in the next 30 or 50 years and that we can afford. It is essential that our reforms do that.

In conclusion, I wish to praise the Government and the Chancellor’s courage and wisdom in continuing the international development budget and ensuring that next year we meet our historic pledge of spending 0.7% of GDP on development. Of course, the special

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protection for this budget is justified only by the results it achieves and the effect it has, and we should never forget that this hard-earned taxpayers’ money has to be justified. Every pound we take off the taxpayer must deliver 100p of value on the ground. This is a huge investment in our country’s future prosperity and security and in the prosperity and security of our children and grandchildren, which is why the Government are absolutely right to stand by the commitment, ensuring that the coalition delivers on that historic pledge.

I have spent much of the past eight years of my life trying to work out the most effective use of public money and the most effective way of doing something about the colossal discrepancies in opportunity and wealth that scar our world and that our generations, for the first time ever, have a real chance to address. That is why I am pleased that the Government are standing by our commitment, that every day they continue to underline the effectiveness of development and that they are maintaining the implicit bargain with the public to spend the money well. I hope to hear far more from Ministers about why the development budget matters to our country. I want to hear all of them making that case, so that the sceptics outside can hear why it is important for our country’s economic and political future.

2.21 pm

Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op): In a spirit of agreement, I endorse the final comments from the right hon. Member for Sutton Coldfield (Mr Mitchell) about the preservation of our aid budget, which has support across the House, and about how every pound of taxpayers’ money should be spent efficiently and effectively to deliver for our constituents. I fear, however, that that might be where the agreement ends.

The Budget was not only disappointing but unsurprising, given that, as my right hon. Friend the Member for Doncaster North (Edward Miliband) said, it was leaked to the newspapers in unprecedented detail. I want to concentrate, however, on three issues key to my constituency and, I believe, the future of our country and families and households throughout the land: child care, lending for business, and housing.

First, the Government—the same Government who removed child benefits from those earning more than £50,000 a year, reduced tax credits and watered down child care by increasing children-to-carers ratios—are offering a giveaway: £1,200 per child, per year off child care costs, but that is two and a half years away. It is jam tomorrow for parents up and down the country who have been feeling the pain for months and years.

Jessica Morden (Newport East) (Lab): My hon. Friend is making the valid point that the Prime Minister has just taken child benefit from parents who are already struggling to pay massive child care costs and who now learn that the Government will not be softening the blow until their children are in school. Does she not think we ought to be doing much more now?

Meg Hillier: I completely agree with my hon. Friend. It is tough being a parent, especially in the early years up to age five, so although any support is welcome—all parties have to welcome any support, however inadequate,

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for children—this is not the sort of thing Labour should be promising at the next election. It is vital that we get cross-party agreement about the importance of families and of parents getting into work.

There is still no promise on the supply of quality child care, however. Supply is a key issue. The Under-Secretary of State for Education, the hon. Member for Crewe and Nantwich (Mr Timpson), who has responsibility for children, has been tinkering, finger in the wind, hoping for more child minders but not more child care in child care settings. There are important and detailed questions that I hope Ministers will consider and that I will follow up for a proper response. Will the child care tax break only apply to Ofsted-regulated child care? If so, how does that chime with the children’s Minister’s desire for lighter-touch, or no-touch, regulation by that very important body? Does the £2,000 national insurance break for small businesses also apply to anyone employing child care directly, as well as the promised tax break? We could see a double subsidy for the higher income earner, who can afford to employ a child carer in their home, and much less help for those at the lower end of the scale.

When only one parent is working, much more difficult issues arise. Low-income parents have higher marginal costs. I think of two women I met at a recent roundtable I organised in one of my child care centres: one was a chef who, because of her working hours, found it much harder to access the sort of child care that would get the subsidy the Government have waved in front of us today; and the other was herself a child carer working for a private nursery on £15,000 a year who could not afford to pay for child care herself and whose employer, shockingly, would not allow her to work part-time. How will those women be helped by what the Government have offered today? We need more detail and to ensure that we make this work for working parents. In a spirit of co-operation, I want it to work—I am not just carping—but I do not see how the proposals will work as planned.

I turn now to lending for businesses. I am proud to represent Shoreditch. It is a borough of thriving small businesses, but there are issues with lending. Merlin’s magic wand has not delivered loans from local banks. The reduction in loan interest has not helped businesses, which tell me that one of their big worries is banks removing overdrafts at a moment’s notice. I want to see—I am disappointed that the Budget did not touch on this—better support for peer-to-peer lending to help interesting nascent businesses.

Mr Adrian Bailey (West Bromwich West) (Lab/Co-op): Does my hon. Friend agree that, given the failure of the funding for lending scheme to get money into small businesses via the main clearing banks, which appear to be using it to reinforce their capital position, the Government should consider using the scheme to help other sources of financing for small businesses?

Meg Hillier: My hon. Friend, who does good work on the Business, Innovation and Skills Committee, speaks clearly on this issue. It is vital that we do what he suggests. The funding for lending scheme has effectively been supporting more buy-to-let landlords, which was not really what it was intended for, while businesses in Shoreditch—businesses visited regularly by the occupants of No. 10 and No. 11 Downing street—are losing out.

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It is interesting that the Labour Front-Bench team, even in opposition, are encouraging local government to consider investing in one of the peer-to-peer lending vehicles, Funding Circle, representing an important part of the difference in ethos between the Government and the Opposition. We want local money invested in local business and creating local jobs—a break from the distant lenders that have no connection to the business models and economies to which they lend. We cannot say that the banks have stood up well to the test. They have let the side down. They overextended themselves with risky lending and brought the world financial system to the brink of collapse, and the rest of us, including local businesses in my area, have been paying the price.

One way to cut the banks out is to have better approaches to peer-to-peer lending. The Government have said that they will channel £100 million to small businesses through alternative mainstream, but we do not have the detail. The key issue about peer-to-peer lending is that, although it is for profit, there is no necessary prior relationship between borrower and lender. The lender, who buys into the model and will believe in the business, can choose the loan recipients, but there is no protection from the Financial Services Compensation Scheme and no full regulation.

The first peer-to-peer lending company, Zopa, was founded in February 2005, but we now have others: RateSetter, the Funding Circle, ThinCats and MarketInvoice. Between them, they expect to provide about £200 million this year alone in funding to businesses with innovative models that are struggling to get money from the banks, which, if they are not familiar with a business model, think it a risk and do not lend, resulting in a vicious circle of not being able to fund a business.

Despite the low level of regulation, there is a good case for peer-to-peer lending organisations receiving more support even as they are. Zopa says that bad debts account for just 0.84% of the £200 million it has loaned over the last seven years, compared with 3% to 5% for traditional banks, so I think the banks are missing a trick and the Government most certainly are. The average increase in employment after a Funding Circle loan was 25%. If we give businesses the tools to get on and build their businesses, we see jobs created. The Chancellor talks the talk on this issue, but he could have done more to help the industry. The problem is that the industry is barely regulated and lenders have to absorb the losses. Where was the discussion today—or even a hint—that the Government might be looking at better regulation? Where were the changes to taxation, for example, to offset losses through bad debtors against tax, which would encourage more people to lend through such models?

My party is strongly supportive of peer-to-peer lending, as it can help small businesses such as those in Shoreditch and Hackney to obtain access to funding that would otherwise not be available—something on which the Government have failed to date. In the current climate there is a lack of access to funding—often to very small pots of funding. Indeed, the owner of Lock 7 cycle shop in Hackney—the first cycle café to open in the country—took out a personal loan to get her business started. She did that because it was quicker and easier

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than trying to put her innovative business model—a café that sells coffee and fixes bikes—to the banks. Actually, it is not that innovative—I give her credit for being the first, but it is hardly a risky business, given that both sides of the business are likely to do well—but the banks would have been slow, had they even coughed up. To take the chance, she took another route. The Government need to be fleeter of foot if they really mean what they say about supporting businesses.

Finally, I must touch on housing. There is much of promise in what the Chancellor said, but I suspect there will be a lot in the detail, which we have yet to see. The interest-free loan is for all buyers, not just first-time buyers, so it could be a licence to print rent for potential buy-to-let landlords and others looking to invest in second homes. From what the Chancellor said, it is not clear whether this will apply only to first homes.

Paul Farrelly: Does my hon. Friend share my concern that the measures announced by the Government today tilt the financial incentives more towards new build than improving the existing housing stock? Home improvements attract the full rate of VAT; new build does not. One of the imperatives in her area, like mine, is to incentivise the improvement of existing housing.

Meg Hillier: My hon. Friend makes a good point.

We do not have full details about the exact implications of the measure for overseas owners—albeit perhaps those with a tax footprint in the UK—or whether they can benefit from an interest-free loan. There are many questions about the measure, which I simply pose at this point, because it does not seem to do anything in particular to target those in greatest need. We see nothing for the growing number of private renters who struggle to pay high rents in areas such as mine, who will effectively be paying the mortgages that many borrowers may take out under this proposal.

We have a promise of more housing supply, but in my area we have seen many properties sold over a weekend to investors from Hong Kong or Dubai. They might be good landlords in that they are not cowboys, but they are after the rental yield, so we see a high turnover of population. These are not local homes for local people. We have also had the announcement of an increase in the right to buy discount, to £100,000. My area has been ravaged because people have, obviously understandably, taken the opportunity to buy their homes, yet within a few years they are inherited by people paying high rents or purchased by those who could have purchased other properties, thereby reducing our valuable—and so far not replaced—affordable housing stock.

This is the same Government who want all new affordable housing to be let at 80% of local private rents, which in my area and many others will put it out of the reach of ordinary working people. We see a Government wanting to cleanse areas such as Shoreditch and Hackney, along with other high-price areas, of people on lower incomes and also provide more housing, but for those at the higher end of the scale. Overall, we see muddle. This is also the same Government who have a Department—the Department for Communities and Local Government—that wanted offices in Shoreditch converted into fancy loft apartments, not homes for local people, instead of the kind of business space that is so often visited by the occupants of No. 10 and

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No. 11. We will lose business but not get the homes we need. The Chancellor has woefully failed to tackle the housing crisis in this country.

2.34 pm

Mr John Redwood (Wokingham) (Con): It is important first to understand what the Government strategy is, because there have been a number of misleading interpretations of it. Some have said that the reason the economy did not grow last year and is still growing very slowly is that there have been massive public spending cuts that have reduced national output. There is a helpful table on page 53 of the Office for Budget Responsibility report which shows that growth was indeed only 0.2% in real terms last year. However, it shows that the Government sector made a positive contribution of 0.6%, which is far more than overall growth, and that growth was reduced by disappointment in private sector housing investment, changes in stocks in private sector companies, reflecting an absence of confidence, and a poor performance on trade. A similar position is reported in forecasts for the current year, in which it is assumed that the Government sector will still make a positive real contribution to a rather low rate of growth, while it is hoped that the private sector will not have as disappointing a performance this year as it did last year.

The strategy was never about massive cuts in public spending overall; it was about modest growth in public spending. The idea was to get the deficit down through some very large tax rises. Unfortunately, as the latest documents reveal, the 50p and the other income tax changes were especially damaging to revenue. A loss of more than £7 billion has been recorded by those on the Front Bench. The overall figures imply that it was probably even more than that. In the most recent year, tax revenues from income tax overall are down on the previous year, not up. The strategy has not miscarried because it cut too much or because the Government overspent compared with what was planned—they have done a rather better job this year of controlling spending. Rather, the strategy miscarried because the big increase in tax revenue that had been forecast did not come through. That was partly because tax rates were set that did not work, such as the high rate of income tax. Also, the capital gains tax rate is too high, so we will get less in capital gains tax receipts this year than in the previous year. The reason is also partly that growth in the economy was very disappointing.

Charlie Elphicke (Dover) (Con): Does my right hon. Friend agree that it is important to have capital gains tax rates that are lower and more competitive, particularly for business assets?

Mr Redwood: I entirely agree. There would be much more activity if people could free some of those assets by taking profits and moving them on to people who could use them better and build on land, for example. I hope my right hon. Friend the Chancellor will think about that in due course, because it would make him revenue and help to grow the economy.

Nor has there been any lacking in flexibility by my right hon. Friend the Chancellor in applying his strategy. He has been flexible over the deficit; indeed, we see in the latest figures that he plans to borrow £48 billion

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more in 2013-14, £60 billion more in 2014-15 and £67 billion more in the following year than in the original plans. He has reflected the fact that the economy has not performed well in the way that the independent forecasters assumed and the fact that tax revenues had a big wobble because of wrong rates and low growth, and he is allowing the state to borrow more to try to pick up the slack. I therefore welcome the fact that in this Budget he is concentrating on things that he can do to promote growth in the areas that subtracted from our growth in the most recent year.

The Chancellor is right to look at ways of trying to promote more housing activity. Many of us represent constituents who would love the opportunity to buy their first flat or house. They have been priced out of the market by the boom and now they are kept out of the market by an inadequate supply of mortgage finance and tough conditions. We need to be careful, because we do not want to fuel another housing bubble, but we also need to recognise that the banking system is not delivering finance for many of our constituents at the moment, and there are people who could borrow prudently and sensibly to buy their first home. I do not want to live in a society where people have to be in their late 30s before they can own their first home. I think we need to do better than that.

Mark Reckless (Rochester and Strood) (Con): My right hon. Friend says that we do not want to fuel another housing boom, but is it not the case that in this country, unlike the US, the boom was largely in prices and, to a degree, transactions? There was never a boom in supply. What we may see today are measures aimed at boosting the supply of new housing.

Mr Redwood: My hon. Friend is absolutely right. These measures are targeted with that in mind. We need to study their details, but they are clearly well intentioned and I wish them every success. I am sure that we shall look carefully at them in Committee and on the Floor of the House when they come before us in physical form.

The next area in which we need to help is promoting more industry and commerce to deal with the net trade deficit. I am glad that that Chancellor has recognised in his speech that one of the big drawbacks to doing business in Britain now is expensive energy pricing. This is something that we share with the European continent, compared with the American continent. The United States of America is playing a blinder with its very cheap gas and much cheaper energy generally. I welcome the idea that certain businesses and industries will be taken out of the climate change levy altogether.

Caroline Lucas: I do not expect the right hon. Gentleman to agree with me, but I must point out that experts ranging from Ofgem and BP to the International Energy Agency and the CBI have all pointed out that investment in shale gas in the UK will not result in lower energy prices. Why cannot he therefore agree that it makes no sense to go all out for shale gas through tax breaks in the Budget, and that the money would be much better spent on renewables, which would get emissions and fuel bills down?

Mr Redwood: I am delighted that the hon. Lady has made her own case. She is the cause of the problem. She

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is pricing people out of the market. She is destroying jobs. She is the reason that people cannot heat their homes at a sensible price. She is the deliberate architect of dear and scarce energy, and now she presumes to lecture us and to say that if we generate more energy, it will be dearer and not cheaper. I suggest that she consult her constituents to find out how angry they are about the cost of heating their homes and their inability to get jobs in industry. She might also like to consult a reputable economist to find out what happens to prices when we produce more of something. I think she will discover that the price normally falls.

Dr Huppert: Will the right hon. Gentleman give way?

Mr Redwood: I am sorry; I have no more injury time left, and I have more to say. I am sure the Government will be delighted about that.

The Government need to look at the problem of electricity generation. I would like them to go to our partners in the European Union and say that there is no way in which we can close down all our coal-powered stations and still produce enough sensibly priced power in the near future, and that we need a stay of execution and longer transitional arrangements. I believe that the Germans are going to generate a lot more electricity from coal, and they seem to have found a way around the European regulations. I would urge my right hon. and hon. Friends on the Front Bench to do the same, because we need to keep our homes warm, keep the machinery of industry turning and keep the lights on in the offices and shops of this country. We are pricing ourselves out of our ability to do that. We are also running the risk of not having enough electricity, full stop, because of the delays and the problems that the previous Government had in coming up with an energy policy, and because of the present Government’s problems in trying to get an energy policy through, given all the European Union restrictions and complications that are placed in their way.

The most important thing that the Chancellor will need to do in the weeks ahead, in addition to the Budget, is ensure that the banks can now create sensible amounts of credit to power the recovery. This is not just about mortgages for homes, important though they are; it is also about loans for bigger items such as cars and domestic appliances. People need to be able to renew their stock of capital, or get their first capital items when setting up a new home, using finance that is available and affordable.

Above all, this is about ensuring that much better finance is available for stock, work in progress and capital equipment in our small and medium-sized enterprises. The banks say that there is no demand for loans from the SMEs—or, at least, no demand that they are not meeting. We all know that our constituents do not think that that is the case, and we have seen many cases that imply the opposite. Let us be charitable to the banks, however. I know that most of my colleagues here are not, but I wish to be, because I think that banking is an important source of export earnings and income. Many good people work in banks, and we need to support them as well. We need to understand that the banks are now charging so much and imposing such tough terms on loans—they are doing so because they

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are under a regulatory cosh to lend less and hold more capital, relative to the amount of their lending—that people are simply not bothering to ask their bank manager for a loan because they assume that none will be available. Also, businesses sometimes do not foresee increases in demand ahead and, wrongly, lack the confidence to go out and borrow money.

Of course it is not easy for the United Kingdom Government to rebuild confidence when we are part of the European Union and live close to the continent of Europe, and when we can see the spectacular crash that the EU is designing, thanks to the way in which it is mishandling its single currency and common banking arrangements. I can scarcely believe that we are meeting today against a background of part of the European Union having its banks closed for days on end and unable to carry out transactions to give the business life in Cyprus an air of normality or allow the people in Cyprus to withdraw their hard-earned money.

This is happening within the European Union because it has got its system of bank management wrong and it cannot decide who should pick up the bill when there is a crisis in one part of the eurozone. The Germans say that it is not their problem and they are not going to lend more money. They think that Cyprus ought to be taught a lesson. Cyprus says that it is under EU and eurozone control and that it built a big banking sector that now needs recapitalising. It requires money on a scale well beyond the ability of the Cyprus people to pay, so we have an impasse.

I shall give the House a flavour of the numbers involved. We have heard from a Minister in a recent statement that the proposed bank deposit tax represents 33% of Cypriot national output and income. In UK terms, that would be like saying that we had to impose a one-off levy of £500 billion on people’s bank accounts to put the position right. [Laughter.] Everyone here is laughing nervously. I do not think that many of us would be up for voting that kind of thing through, and I am not surprised that the Cypriot MPs did not vote their measure through.

We are now seeing a desperate idiocy in part of the European Union. Germany thinks that it can ring-fence the situation, and I hope it can, but if we are not careful, it will spread. That would undermine confidence in banking deposits in other parts of the eurozone and drive them deeper into recession. It would do more damage to our export market and, yes, there could even be a little collateral damage to our much better funded banks because of their relationships with EU banks. We need to be in there saying, “For goodness’ sake, sort it out and come up with a fair way of recapitalising those banks, so that the Cypriot people can to return to a normal economic life.” Meanwhile, our Government are right to say that we need to export more and more outside the European Union. With all this going on, and with a forecast of a deep and long recession on the continent, there will be no relief from the European markets through our exports.

Our banking resolution, which is making progress, needs to be speeded up. I urge the Chancellor of the Exchequer to revisit the issue of RBS. I do not believe that RBS is a natural unified bank. It is far too big, and it has far too many businesses in it. We should split it up, sell it on and make it more competitive. We need more competitive banks on the British high street that

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are capable of financing our recovery. We are trying to build the private sector-led recovery with weak, broken banks in the state sector and not enough banks outside in the private sector. We are also trying to do it under European regulation, which does enormous damage to banking and energy costs, and therefore to industry. Britain is partly free of that regulation, but please, Government, make it freer and get on with the task of creating the jobs and the growth that the British people rightly expect.

2.48 pm

John Healey (Wentworth and Dearne) (Lab): It is a pleasure to follow the right hon. Member for Wokingham (Mr Redwood). He has become something of a regular fixture on the first day of the Budget debates during the years I have been in the House. I shall start by agreeing with him about the importance of certain exemptions from the climate change levy. I have the honour of representing a steel area in Rotherham. Steel is one of this country’s strategic industries, and the Chancellor’s announcement today will be very welcome in my constituency. It will help to secure the industry for the future, and I hope that it will also help to secure extra investment from Tata Steel.

Angela Smith (Penistone and Stocksbridge) (Lab): Will the announcement not also help important ceramics industries such as Naylor Industries in Barnsley, and Hepworth’s?

John Healey: It will indeed. This is a result of strong cross-party campaigning by Members including my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) and me.

I also welcome the Chancellor’s decision to axe the beer duty escalator. I pay particular tribute to the Economic Secretary to the Treasury for his hand in that. In fact, the escalator was introduced in 2008 for a four-year term. It should have ended last year, but instead of ending it, the Chancellor extended it. I am glad that he has seen sense and realised that we have hit the revenue maximisation point at which the tax rate had gone up, but the tax take had started to go down. I welcome that: it will be a boost for the brewing industry, which is a great British industry, and it will be a boost for the pubs, too.

Greg Mulholland (Leeds North West) (LD): I would like to thank the right hon. Gentleman and all the other members of the parliamentary save the pub group for their support in this campaign. I would also like to echo what was said about the Economic Secretary being a Minister who listened—I warmly thank him for that. Does the right hon. Gentleman agree that this shows that the Government are listening and realised that the beer duty escalator was damaging investment and growth opportunities? Hopefully, we will see growth coming back to the brewing sector, which will have a knock-on effect for pubs.

John Healey: That was exactly the case that I, the hon. Gentleman and others were making—that the escalator was damaging investment, damaging jobs, damaging pubs, damaging the British brewing industry and that it had even started to damage tax revenues. This afternoon’s decision is therefore sensible and welcome.

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The right hon. Member for Wokingham made an important point in the middle of his speech, when he said that the problem of tax revenues was at the heart of the Chancellor’s fiscal problem. The right hon. Gentleman acknowledged that it was partly about growth. It certainly is, and I would argue that he underestimates the extent to which it is about growth. The big gap in the Chancellor’s record to date—and, to an extent, the Budget announcements today—remains that we have a growth crisis without having a growth plan.

When the Chancellor first took office nearly three years ago, unemployment was falling, the economy was recovering and we had had growth of 1.9% in the final year of the last Labour Government. That is the baseline from which the Chancellor has now given us four Budgets, four fiscal reports, four economic forecasts—with each one worse than the last. Since his first Budget plan in June 2010, debt is up, borrowing is up, we have lost our triple A credit rating, the economy has flatlined and we have had the first double-dip recession for 40 years.

Five years after the recklessness of bankers brought the global financial system close to collapse and drove a worldwide downturn and three years after this Chancellor took control, our UK gross domestic product is still 3% lower than it was at the start of that global crisis. So, our economy is smaller, weaker, making less, earning less and contributing less in revenues to the public finances. Other major countries such as Germany or the US have made up the ground they lost during that global financial crisis—we have failed.

Meg Hillier: Does my right hon. Friend agree with me that it is entirely perverse for the Department for Communities and Local Government to suggest that offices should become homes and thereby not provide space for businesses to grow, which would help to boost the economy in the way we agree is needed?

John Healey: I have to say to my hon. Friend that there is sometimes a case for changing the historical land use, but that is a decision that very much needs to be taken locally. It will certainly not work if it is dictated by the Department for Communities and Local Government.

To deal with a deficit, which is what we face—whether it be for a country or a family—we must control spending, as the Chancellor said, but if we cut income at the same time, that makes it much harder to close that gap. That is why growth is so vital to a proper balanced plan for the country’s finances. That is why the Chancellor is now further from his fiscal targets than he was before the Budget.

The Prime Minister has tried to claim that the depressed growth has nothing to do with the Government. The independent Office for Budget Responsibility, he told us, is

“absolutely clear that the deficit reduction plan is not responsible; in fact, quite the opposite.”

Next day, a letter from the chairman of the OBR indeed confirmed the opposite, saying

“for the avoidance of doubt”

that the OBR operates

“the widely held assumption that tax increases and spending cuts reduce economic growth.”

In other words, the Chancellor has cut too far, too fast, killed the recovery and choked off growth.

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There is good reason to believe that the OBR has underestimated and is underestimating the impact of fiscal policy on growth—the fiscal multipliers. Its estimates to date have been based on the International Monetary Fund figures, which estimate a 0.5% fiscal multiplier, 0.3% for changes in personal taxation and 1% for infrastructure and capital spending. The IMF has recently changed its estimates—up from 0.5% to a range between 0.9% and 1.7%. In other words, the impact of fiscal policy, the potential of the fiscal multiplier and of Government action and Government investment might be much greater than we have been led to believe.

At a time when consumer and business confidence is rock bottom and companies and households are cutting back and not spending, the Government must be ready to do more. They must be ready to invest alongside the private sector and they must, yes, be ready to borrow to help the country through tough times. Borrowing is bad when the repayments are not affordable or if it is done to cover day-to-day spending or indeed a shortfall between income and expenditure. That is why the Government’s planned borrowing bill has been ballooning, but borrowing can be good. It is good if it is for investment to improve infrastructure or the productive capacity of the economy or if it is to create jobs, revive growth and generate the tax revenue that is so sorely lacking.

Companies would borrow to take advantage of an opportunity to increase their earnings and profitability. Companies would never say, “We can borrow to invest only if we can cover the cost entirely by cutting the cost of our operations.” Households would do the same thing if, for example, borrowing to buy a car meant that it was possible to take up better-paid work, or if taking out a mortgage was cheaper than paying a private rent. In those circumstances, households would be daft not to borrow.

Mr Redwood: Given that this Government are planning to borrow £120 billion a year for each of three years, or £10 billion a month, how much extra does the right hon. Gentleman think it would be a good idea to add to that amount?

John Healey: There is an interesting example of a proposal, which I have backed, to allow local government to borrow more by removing the cap from the newly localised housing revenue account. We have heard about families borrowing prudently, but local government does borrow prudently, as its average level of debt is less than 5%. The Chancellor told us that the national Government’s net debt is 75%. We are talking about £7 billion, loosening the cap, and 15,000 new council homes—not just for this year, as the Chancellor has announced, but every year for the next five years. That is the sort of borrowing we could do to invest, to promote jobs, to promote growth and to bring in tax revenues, helping to deal with the deficit in a proper and balanced way.

If we want to move the dial on GDP growth when the economy is weak, it is Government investment—not simply private sector investment—that is needed. When the economy is weak, we need more public investment; yes, it will increase debt, but it will also increase output and growth. Even the Chancellor recognised, when he delivered his first Budget, that the last Tory Government

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had cut capital investment too far, yet the Office for Budget Responsibility has shown that for the first three years of this Parliament, capital spending fell year on year—it is now £12.8 billion lower than Labour planned. Even the £3.5 billion of extra investment that the Chancellor has announced today will not be for this year or next year, but in three years’ time—too little, too late.

I would argue that, after three years of economic policy failure, the balance of economic advantage lies decisively in Government borrowing to invest and build. Borrowing for those purposes can be good borrowing. There is a difference: not all borrowing is bad borrowing. Interest rates on public debt are at an historic low, so now is exactly the right time for government, both national and local, to borrow for that investment. An open advocacy of the means, not just the ends, is overdue.

The Chancellor has confirmed in his Budget that his economic plan is failing, but he has also confirmed that he is sticking to that plan. We need a change. We need a change of policy, we need a change of Chancellor, and yes, we need a change of Government.

3 pm

Stephen Williams (Bristol West) (LD): Liberal Democrats will look back on our record in government and on every Budget that the coalition Government have delivered, and will judge them according to our values and our principles. We will judge them according to whether we have, together, built a stronger economy and a fairer society that enables everyone to get on in life.

The Chancellor has recognised that building a stronger economy in today’s turbulent world conditions is an extraordinarily difficult thing to do. The Office for Budget Responsibility has said that our export markets have been suppressed, and that that alone accounts for suppressed rates of growth. It is right for us to recognise the extraordinary achievements of businesses in our economy in producing 1.25 million extra private sector jobs since the first quarter of 2010. However, it is also right for the Government to give businesses a helping hand to enable them to go that one step further.

The Liberal Democrats are delighted by the announcement in the Budget of a £2,000 employers’ national insurance credit which will enable every business to take on new employees. A business could take on four adults on the national minimum wage and see absolutely no increase in its employment costs. As a result of this measure, 450,000 small businesses will make no national insurance contributions whatsoever. That will provide a further boost for the recruitment of apprentices, in respect of which the Government already have an extraordinarily good record.

The Government need to do more to get growth in our economy going. Liberal Democrats both inside and outside Government have called for that growth to come from extra capital spending, which is why I am pleased that the Budget contains a further switch to finance more of it. It is worth noting that over the decade since the Government came to office, our capital expenditure will be higher than it was throughout the 13 years of the last Labour Government. However, most capital expenditure does not come from Government; it comes from the private sector and, in particular, from housing. For some time, many of us

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have been calling for a boost to be given to house building, especially the building of affordable homes, so that young people can get their foot on the housing ladder for the first time.

The Government announced two housing initiatives today. Under the Help to Buy scheme, which will start in just two weeks’ time, they will put a fifth of the equity in a new home on the table for those who can put down 5% themselves. There is also our mortgage guarantee to free up the mortgage market. There are planning permissions for various sites in all our constituencies, but, as we know, they have been frozen for some time. House builders have received the message that they have been waiting for, which will enable them to make a start on those sites, to give people new homes, and to provide new jobs throughout the land. However, growth needs to come from other sectors as well.

Dr Huppert: Has my hon. Friend seen a report about green growth which was published last year by the Confederation of British Industry? It said:

“The business response is definitive and emphatic: green is not just complementary to growth, but is a vital driver of it.”

The CBI said that green business could

“roughly halve the UK’s trade deficit”

by 2014-15. It also said:

“With a smarter approach, green business could add £20 billion to the UK economy by 2014-15. This is an opportunity we cannot afford to miss.”

I know that Liberal Democrat Ministers are pressing for such action. Will my hon. Friend encourage them to go further, and try to persuade the Chancellor of the business benefits of green growth?

Stephen Williams: I entirely agree with my hon. Friend. There is, perhaps, a tension in the coalition Government between the Chancellor and the Department for Energy and Climate Change, and, if we are honest, within the Department itself, when it comes to whether sustainable growth from green technologies is desirable. I emphatically believe that it is desirable, and I want investment in wind farms in particular to go ahead. We said at the time of the 2010 general election that we wanted to rebalance the economy, and green growth is certainly one of the things that we had in mind.

What I have in mind particularly at the moment, however, is a major industry in which Britain is a world leader, especially in the south-west of England, and its centre is in Bristol. I refer to the aerospace industry. The Government are working on industrial strategies for 11 critical sectors of the economy, so I was delighted when the Deputy Prime Minister came to Bristol on Monday and announced a £2.1 billion investment in an aerospace technology institute. I would say that the best place for that is, indeed, in Bristol.

We also need to introduce reforms to help local economic growth in all our city regions. I am pleased that the Government have accepted 81 of Lord Heseltine’s recommendations, and especially pleased that they have accepted the recommendation of a single growth fund bringing together investment in skills, housing and transport. The Liberal Democrats have long believed that our economy needs to be rebalanced, away from London and the south-east, and centred on city regions such as Leeds and Bristol.

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John Healey: The hon. Gentleman has said that he welcomes a single pot. Is that not exactly what the regional development agencies had, including the south-west RDA? They had a single pot with no strings attached from the centre, and decisions on the spending of that pot were made in the regions, for the regions. Was it not a mistake to abolish the RDAs and then to wait three years before reintroducing that important flexible funding arrangement?

Stephen Williams: The right hon. Gentleman is one of the most thoughtful Members of the Opposition, but on this occasion I must respectfully disagree with him. My experience in Bristol suggests that no one misses the south-west regional development agency, but everyone in the greater Bristol area recognises the extraordinarily good work done by the West of England local enterprise partnership. [Interruption.] I hear a chorus of agreement from my west midlands colleagues, including my hon. Friend the Member for Solihull (Lorely Burt). It seems that the experience is the same in that area.

We want to rebalance the economy, away from the south-east and to our city regions, and also—as was pointed out by my hon. Friend the Member for Cambridge (Dr Huppert)—to decarbonise the economy. I want to raise an issue that has not been the subject of much comment, but which I know is tucked away among the Budget details. I think that we should consider how we can provide further incentives for the setting up of social enterprises around the country in order to produce sustainable micro-growth in all our communities, and devise innovative ways of bringing people into business on a not-for-profit basis. That would contribute to a fairer society as well, but the biggest contribution to a fairer society that any Government can make is putting more money into people’s own pockets and purses, so that they can decide for themselves how to spend the money for which they have worked so hard.

At the last general election, all my Liberal Democrat colleagues stood on the basis of their No. 1 priority: the delivery of £10,000 of tax-free pay by whatever Government we were to become a part. That promise will have been delivered in full by April 2014. During his speech today, the Leader of the Opposition urged people to put their hands up in favour of a different tax measure, but 24 million people around the country will be able to put their hands up and say, “I am receiving a tax cut because of this coalition Government, and, in particular, because of the Liberal Democrat participation in that coalition Government.”

Since we came to office, the personal allowance has risen by £3,525. That is an increase of more than 50% in the amount of money that people can take home without income tax being deducted from it. A total of 2.7 million people will have been taken out of tax altogether, and £700 of extra income will land in the pockets and purses of 24.5 million workers up and down the country. That is an extraordinary achievement on the part of the coalition Government, and I am very proud of the role that my own party has played in developing a tax change that is a landmark in the history of our country.

A young person working on the minimum wage has already been lifted out of the income tax net altogether. Members should contrast that with the lamentable record of the Labour party, which introduced the 10p tax rate

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and then abolished it in order to fund a tax cut for people who were earning much more. Despite what Labour Members say now, Labour’s record in office was one of cutting taxes for the wealthy and raising them for the poorest. The coalition is doing the reverse of that.

We are also delivering further help for families up and down the country who are trying to balance their budgets. Many of my colleagues, particularly those representing rural seats—the Chancellor referred to my hon. Friend the Member for Argyll and Bute (Mr Reid) earlier—will welcome the fact that a fuel duty increase planned by the previous Government has been cancelled, yet again. I say, speaking for myself, that we cannot go on doing this indefinitely; I would prefer us to be much more radical and to scrap fuel duty altogether. It is an extremely blunt instrument of taxation that is long past its sell-by date, and a more economically sensible system of road-user pricing in the long term should replace it.

In pubs and clubs up and down the country, including the Prince of Wales in Gloucester road in my constituency, people will be raising a glass to the Chancellor tonight for the cancellation of another duty escalator—that on beer. I pay tribute to my hon. Friend the Member for Leeds North West (Greg Mulholland), who has badgered me and everyone else involved in this area for the past two and a half years to try to do something to get rid of it.

Greg Mulholland: People will indeed be raising a glass to this Government for this. Does my hon. Friend agree that we now need to hear from the large pub-owning companies? They need to say clearly today that they will pass on the 1p reduction to their licensees, who can then pass it on to their customers.

Stephen Williams: My hon. Friend makes a vital point. We all know that when the global oil price fluctuates all over the place we do not necessarily see a cut in the price at the pump. I would expect every major beer company to pass on this reduction in full to its customers.

The other significant help that the coalition Government have announced this week for families up and down the country is the increase in our assistance with child care costs—£1,200 per child, to be delivered by 2015. However, our entire structure of taxes works only if people actually pay what we in this place decide should be assessed, so I am delighted that this Government have announced another huge package of anti-avoidance measures. Let us not forget that in 2013 we will see the country’s first general anti-abuse rule. So this is the second largest set of anti-avoidance measures that any Government have introduced—the largest was also introduced by this Government, back in 2011. This Government have done more to tackle egregious tax avoidance and evasion than any of our predecessors, but it is also worth mentioning that tax avoidance is a problem abroad.

Some of us will have been startled yesterday to see 500 masked Osbornes outside Parliament promoting the Enough Food for Everyone IF campaign. We should be proud that this coalition Government are delivering the 40-year-old promise of having 0.7% of our income go to the less-developed parts of the world. I am pleased

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that some of that increased aid budget is going on a tax capability-building unit, thus making developing countries able to stand on their two feet by collecting their own tax revenues and royalties.

This Budget, over time, will be remembered for that promise of delivering £10,000 of tax-free pay. We have cut the taxes on people in work. We have cut the tax that is a barrier for people entering work. We have given a boost for housing. We have given help with the costs of raising a family. We are indeed building a stronger economy and a fairer society, where everyone is able to get on in life.

3.13 pm

Sammy Wilson (East Antrim) (DUP): I am grateful to be called so early in the debate.

I start by welcoming some of the measures in the Budget. Although there has been a 1% reduction in departmental spending, as a result of the top-slicing, the way in which the Barnett formula works means that Northern Ireland will actually benefit over the two years by about £59 million of additional spending. I do not think the Chancellor meant that to happen; I do not think it was deliberate. Of course it helps to replace some of the 40% reduction in capital spending announced at the very beginning of the Budget period when the Government took over.

Also, I welcome Northern Ireland’s exemption from the carbon price floor and put on the record how much work the Chief Secretary to the Treasury did on that. We took the point to him, saying that this measure was going to devastate all the electricity producers in Northern Ireland and leave them uncompetitive. We said that it was going to add to the costs of generating electricity in Northern Ireland—£20 million this year, rising to £45 million—which would have affected household bills by about 15% and made us dependent on producers in the Irish Republic. The one thing I want to say is that when a case is made to the Government, they do respond. It would have been churlish of me not to acknowledge that in the House today.

Some other measures will have a positive impact on Northern Ireland: the change in the threshold for income tax will benefit 7,000 families; the employment tax exemption will benefit 25,000 small businesses in Northern Ireland; and fuel duty not going up in September will benefit motorists.

Mr Nigel Dodds (Belfast North) (DUP): What effect will that have on motorists in Northern Ireland? This is particularly relevant, given that Northern Ireland’s petrol and diesel prices are the highest in the UK and higher than most in the European Union.

Sammy Wilson: For an average haulier, this will mean an annual saving of about £750 per vehicle and for the average motorist it will mean a £25 saving per year. Again, that is a good thing for the hard-pressed motorist.

The Chancellor made much of the monetary measures that he has introduced, especially the funding for lending scheme. Unfortunately, given the state of the banking industry in Northern Ireland and the fact that most of the banks there are not even part of the scheme, this is likely to have very little impact. However, positive impacts are being felt, and it would be right to start by acknowledging that. It is easy in opposition to criticise

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when we do not have to make the decisions. We can be the armchair economists who see everything that is wrong, what should be done and what one would do if one were sitting on the other side. However, there are some issues that the Chancellor has got wrong.

First, we have a Budget that he has said is fiscally neutral. That comes at a time when the economy needs some form of stimulus. He has admitted in his speech that it is not coming from consumer spending, because consumers do not have the money to spend or the necessary confidence. It is not coming from business spending, because businesses are trying to contract their loans and deleverage during the recession. It is not coming from exports, because our deficit is actually increasing. The only source of that stimulus therefore has to be what the Government can do in a practical and sustainable way.

Ms Margaret Ritchie (South Down) (SDLP): Does the hon. Gentleman agree that there is an ever-increasing need to stimulate our economy, particularly in Northern Ireland? Our unemployment figures came out today and they are the highest in the past 15 years, with the level at about 23%. Wearing his other hat, as well as his hat in here, does he have any thoughts as to how the local economy should be stimulated?

Sammy Wilson: I thank the hon. Lady for her intervention, which leads me to a point that I wanted to make. We have a Budget that, as the Chancellor has admitted—in fact, boasted—is fiscally neutral. Although it contains good things—I have highlighted some of the impacts of the decisions—it moves the existing money around and does not mean an increase in the total level of demand. If that is not coming from exports, from consumers or from industry, because of a lack of confidence, it has to come as a result of properly targeted Government initiatives.

Although I sit on the Opposition Benches, I do not have a vested interest in Government failure and a failure of economic policy, and nor does my party. I want the Government’s policy to succeed, as it means more jobs for people in Northern Ireland and a better standard of living for them. It means that we can balance our economy. However, it is not a policy that is designed for success; it simply tries to continue the fiscal position that the Government are in at the moment. Indeed, if we look at all the targets that the Chancellor has set himself, we see that he wanted to increase confidence in the economy, yet we have seen low demand from consumers, and firms have not taken up loans—the right hon. Member for Wokingham (Mr Redwood) mentioned that—either because they cannot get money from the banks or do not believe that there is any point in investing at the moment. Firms are running down their stock levels, because they see no prospect of additional sales in future.

The Chancellor also set himself the objective of keeping Britain’s credit rating, but that is slipping because the people who make the assessments are looking at the state of the British economy and asking when we are going to get out of the downward spiral of debt. If there is no growth, we cannot pay off the debt.

Andrea Leadsom rose

Sammy Wilson: I do not have any additional time, but as I have not yet accepted an intervention from a Government Member, I give way to the hon. Lady.

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Andrea Leadsom: I am grateful to the hon. Gentleman. Does he accept that the ratings agency said that if we did not stick to our fiscal deficit plans, it would downgrade us still further, so the reduction in the triple A rating is an incentive to do more to cut our deficit, not less?

Sammy Wilson: Indeed. I am glad that the hon. Lady has raised the matter, because I want to come on to that.

The Chancellor set himself the objective of reducing debt, yet the Red Book shows—this is since the autumn forecast in 2012, so a period of six months—that by 2015, or the end of this Parliament, Government debt will increase from 80% to 85% of gross domestic product. The hon. Member for Chichester (Mr Tyrie) gave us the reason for that: the automatic stabilisers are kicking in. We are spending the money on benefits, or paying people to be on the dole, instead of spending it—this is the point I want to come on to—on the things that would stimulate growth, increase the capacity of the economy and enable us to pay our way out of our debt, while at the same time giving people the dignity of having a job and making a positive contribution to the economy.

That is why I think the Chancellor has got this wrong. There has never been a better time for him to borrow. The 10-year price of bonds is down 2%, and it is now cheaper to borrow than it has ever been. Borrowing for those things that will stimulate growth and increase infrastructure in the economy can be very useful.

Geraint Davies (Swansea West) (Lab/Co-op): Does the hon. Gentleman accept that the issue, as he has said, is the ratio of debt to GDP? There are two ways of confronting it: reducing debt or increasing GDP. If we had growth, that ratio would go down, but growth has been completely ignored.

Sammy Wilson: The hon. Gentleman is quite right. One reason why debt has increased as a percentage of GDP is that GDP has fallen while spending has had to go up to pay for a policy that has failed anyway.

If the Government wish to borrow, what kinds of things should they do? I shall give just two examples of infrastructure projects in Northern Ireland on which tens of millions of pounds have been spent, but which have already begun to have an impact on the economy. First, there has been investment in the broadband infrastructure as a result of the Chancellor’s initiatives in previous Budgets. Project Kelvin and broadband infrastructure around Belfast and Londonderry have helped us to grow the financial services industry in Northern Ireland, which employs nearly 30,000 people, and it has helped us to grow the film industry there too. Both industries need connectivity to north America, and there is faster connectivity to north America from Northern Ireland than there is from the west coast of north America to the east coast. That has stimulated a range of other investments, and it makes sense when it comes to infrastructure investment.

In our tourism industry, we spent nearly £100 million on two signature projects— the Titanic signature project and the Causeway project—which were supposed to generate over half a million visitors in one year. In the first six months, they nearly doubled that estimate, in business for hotels in Northern Ireland and business for

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restaurants, taxi drivers and so on. The hon. Member for Swansea West (Geraint Davies) made the point that there is good borrowing and bad borrowing. Bad borrowing is paying to keep people at home on the dole; good borrowing is paying to have infrastructure development, which helps to increase the capacity of the economy. I think the Chancellor has missed a trick. Instead of having a financially neutral Budget, he ought to look to the future and ask what we can do and how we can raise money to spend on projects that, in the long run, will generate more tax and jobs, give us growth, and bring down the deficit.

While I welcome the things that I mentioned at the outset, and I acknowledge the way in which the Chancellor and the Treasury have responded to some of the points that we have made from Northern Ireland, for the country as a whole there are things that could have been done that have not been done, which we will live to regret and which will probably result in the Chancellor standing at the Dispatch Box next year saying, “I forecast this, and unfortunately I’m downgrading those forecasts again.”

3.27 pm

Mr David Davis (Haltemprice and Howden) (Con): May I give the Government two sets of thanks? First, may I give them unreserved of thanks for the fact that I do not have to discuss VAT on caravans this year? More seriously, may I give them unreserved thanks for the action on Equitable Life pensioners which, while a little overdue, is morally right and exactly the proper thing to do?

With respect to the Government’s economic strategy, a number of Members have pointed out the difficult circumstances surrounding the Budget from various points of view. The Government clearly have a difficult deal to handle regarding the inheritance from the previous Government. Obviously, there is the borrowing, but it is not just that. The structural deficit passed on by the previous Government was much bigger than anyone understood at the time, and that is just economists’ technospeak for a society that has too much welfare dependency throughout, including even the middle classes, and too much inefficient—costly and expensive—delivery of public services, which are properly needed but badly delivered.

The second part, which is extremely important and has been alluded to slightly by a few Members who have spoken so far, is the international backdrop with which the Government have to deal. We are in a circumstance where world growth is probably about 6%, but that divides sharply into two sectors. The far east, the BRICs—Brazil, Russia, India, China—Vietnam, Indonesia, and so on, have growth rates approaching 10% or thereabouts. In the developed world, of which we are obviously a part, the growth rate on average is nearer to 1%. So we are in a 1% world, and the reason for that is pretty straightforward: it is the dramatic change in competitiveness between ourselves and the far east and other developing countries. That does not mean that it is inescapable, but it means that competitiveness has to be at the centre of the strategy that we undertake—competitiveness, pure and simple. Everything else, all the other macro-economic tricks, frankly do not work.

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In that respect I am addressing the comments of the hon. Member for East Antrim (Sammy Wilson). If I may say so—and I do not mean to be rude—he talked very much like a classical Labour Member. He talked about stimulus, and about this being a balanced Budget. It is about £100-odd billion off being a balanced Budget. There is a vast amount of deficit finance in there. But my point is that, if we look at the historic examples of countries that have been knocked off the historic growth rates—3% or 4%—down to something lower and at what has been done with them, there are clear examples of success and failure. Let me tell him, just for a second, about the biggest failure in modern times, which was Japan some 20 years or so ago, which went from a 4% growth rate, pretty much for all the post-war years, to a 1% growth rate after a financial crisis not unlike our own. What did it try? It tried Keynesian expansion. It now has pretty much the biggest public debts in the world, with an annual deficit of 10% of GDP in recent years. Did it work? No, it did not. It also tried monetary activism. I hope that those on the Treasury Bench listen to this, because it had effectively zero interest rates for a decade. Did it work? No, it did not. It also went in for infrastructure spending—the fashionable item this week—on a grand scale. It spent 40% of its Government budget on infrastructure investment, more than was spent to build the entire Panama canal—in one year. Did it work? No, it did not. I am afraid that those macro-economic polices that people love because the arithmetic seems to work are a dangerous allure. We must focus first and last on competitiveness, because without that we will not be able to earn our way in the world.

Mr Bernard Jenkin (Harwich and North Essex) (Con): My right hon. Friend is saying something that should be blindingly obvious. When a Government borrow some money and spend it, once it is spent it is gone. It does not create economic growth. Once they have spent that money, it might have a little bit of effect in the economy, but then it is over. What we need to generate is what the right hon. Member for Morley and Outwood (Ed Balls) used to call endogenous growth, because that is what comes from within the economy itself instead of being stimulated by Government spending.

Mr Davis: My hon. Friend is right. I shall not give him the response to the endogenous growth of the right hon. Member for Morley and Outwood (Ed Balls) that Michael Heseltine gave at one party conference, which my hon. Friend might remember, but—

Stephen Pound (Ealing North) (Lab): “It’s not Brown.”

Mr Davis: Exactly.

The simple truth is that this is a blinding glimpse of the obvious in many respects. But this is not impossible to put right. Other countries managed to get back to a 3% growth rate, or thereabouts, so it can be done.

Sammy Wilson: The right hon. Gentleman seems to be saying that anyone who talks about putting money into the infrastructure and the economy is a Keynesian. Would he not accept that the monetarist argument is that the supply side of the economy is very important, and to stimulate the supply side of the economy often the Government need to spend money on capital injections

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to increase the capacity of the economy to produce more goods? It is not a Keynesian view, it is a monetarist view, with which I would have thought he identified.

Mr Davis: I will come back to the detail in a minute, but the point I am making—it is a serious point—is that we can do what Keynes said and pay someone to dig a hole and then pay someone else to fill it in, and that creates employment. So long as we avoid that and talk about the real value, we are on the same side. I will come back to the real value issue in a moment.

The problem with actions to promote competitiveness is that they are not always politically popular. Very often, they are politically unpopular, and I will elaborate on that in a second. The other element about growth—everyone in the Chamber today agrees that growth is necessary—is that it is also important to the deficit reduction policy. In effect, if 1% is taken off the growth rate, the OBR’s rule of thumb says that within a year or so that adds £10 billion to the deficit every year thereafter—not once, but every year thereafter. So growth is fundamental to the central fiscal policy as well. While we are talking about growth, we have had much talk about double and triple-dip recessions, but judging by the employment numbers, we have not had real recessions; we have had bouncing around zero to 1% growth, and that will show up when the numbers are corrected, as will be done in a few years.

There are six key elements to ensuring the economy’s competitiveness, and they are all pretty straightforward. I agree with what the Government are doing on some of them, but on others I think that they should go further. The first is straightforward: the Chancellor is absolutely right not to hesitate or flinch in the deficit reduction programme. That is absolutely essential. Canada, Germany and Sweden, which are all successful examples—Japan is not—managed their deficit reduction unflinchingly, and in all of them it delivered 3% plus rates of growth within a few years. Indeed, Canada had the fastest growing economy in the G8 when it carried through. The simple fact is that, even with the deficit reduction programme, we will be £600 billion more indebted at the end of this Parliament than we were at the beginning, and that is a devil of a burden for any country to carry. Clearly we cannot hesitate on deficit reduction.

The second key element is the one on which I and my right hon. Friends on the Treasury Bench might have a difference of view. One of the critical drivers of competitiveness is tax policy. I wholeheartedly welcome the actions announced today on corporation tax and national insurance, although I would like them to go further. The simple truth is that expensive, complex and high levels of tax returns are very damaging to a country’s economic competitiveness. We should be looking hard at the tax categories that are most responsive to lower rates. We have heard today, even from the Labour Benches, about a couple of measures—on beer, I think—that will deliver more money for the Exchequer, not less, so even Labour Members recognise dynamic tax strategy. We certainly want to see lower national insurance contributions for employers. I would like to see the employment allowance scheme that we put together extended considerably. Capital gains tax must come down. At 28%, we are collecting much less money than we would if it was somewhere between 15% and 20%. There is a series of other taxes,

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including corporation tax, on which action could be taken. Again, the examples to look to are Canada, Sweden and Germany.

The third key element, which we did not hear much about from the Chancellor today—perhaps we have not heard much because we are yet to go through the detail of the Budget—is deregulation. The most successful recovery in Europe in the past decade was Germany’s. The Germans took it upon themselves to dramatically deregulate their employment market for small companies. That is key, because small companies are the biggest employment creator in the economy, bar none. The Germans effectively removed employment law for companies with fewer than 10 employees and created mini-jobs and other mechanisms to reduce the bureaucracy and legislation surrounding employment. That is massively important. It is one very effective way of creating new employment, and it is something we should undertake as dramatically as we can.

Another item that was raised earlier—the hon. Member for East Antrim raised it with respect to Northern Ireland alone—was the question of carbon tax and carbon floors. In the next month or so, the changes that are being introduced will give us a disadvantage of £10 a tonne, and not against China or India, but against Germany, Holland and France. We will see a transfer of heavy industry from this country to Europe. There will now be an exemption for ceramics, but frankly there are many other businesses—they employ about 600,000 people—in the energy-intensive industries. We need to address that. The previous Government were very happy to deliver golden rules of one sort or another. I would like to suggest a rule for us on environmental and energy policy: we should not introduce any environmental policy that is not matched by our European colleagues. That would ensure that we do not do ourselves huge harm.

Let me move on to infrastructure. The hon. Member for East Antrim made a perfectly sensible point about broadband, and I agree with him. What I do not want to see is massive expenditure for its own sake in the expectation or hope that that will simply generate employment by itself. The Japanese experiment demonstrates that that does not work. What we want to see is de-bottlenecking of our railways and road systems and underpinning of things such as broadband. The Government can make some good claims in that area, but we need to do more. That is what will fundamentally allow growth to take off in Britain and get us back to the 3% level of growth.

The last item I want to speak about is bank reform. A number of colleagues, including my right hon. Friend the Member for Wokingham (Mr Redwood) and my hon. Friend the Member for Chichester (Mr Tyrie), who chairs the Treasury Committee, have talked about bank reform. Bluntly, we have been too slow—[Interruption.] I am out of time—

Mr Deputy Speaker (Mr Nigel Evans): Order.

3.40 pm

Mr David Lammy (Tottenham) (Lab): I am very grateful to follow the right hon. Member for Haltemprice and Howden (Mr Davis). I agree with part of what he said about competitiveness, and I will come back to that.

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On today’s announcements, I think that most Labour Members would want to welcome the changes made to national insurance contributions, in particular, and the help for employers. Changes to personal allowances are valuable for the poorest in our society. Clearly, the scrapping of the fuel duty escalator and lower beer prices will help considerably.

Beyond that, I want to concentrate my remarks on rebalancing the economy, which the hon. Member for Bristol West (Stephen Williams) talked about. I felt that the Chancellor should have emphasised that, but we heard very little about it. As we saw in the figures published last week by the Office for National Statistics, a fifth of our economic output is attributable to London. One could draw from that the conclusion that Londoners are twice as productive as people in other regions of the country. The hon. Gentleman, in talking about his region, wanted to emphasise that London and the south-east are getting a bigger share of the pie than they should be. I want to challenge that basic assumption.

Underlying much of the Chancellor’s analysis—certainly my constituents would want to communicate this—is the question of whose London we are talking about. Should we be entirely preoccupied with those in the City of London, with an elite arriving from Russia, China or the middle east, or with the very many Londoners who did not see sufficient for them in the Budget that he described? The north-east and east of London, as a sub-region, is ranked 113th in terms of economic activity, and there are only 139 sub-regions across Britain. Of the 20 constituencies with the highest number of unemployed people, seven are in London. Of the 20 constituencies with the worst child poverty, nine are in London. This is not a London that feels as though it is benefiting considerably from economic growth; it is a London that is really struggling. We needed to hear from the Chancellor a whole series of announcements that could meet the challenges of unemployment and child poverty, and a London that does not feel as though it is working for Londoners.

The Chancellor could, then, have had more to say about infrastructure here in this city. He could have announced that the Government would bring forward a hybrid Bill on Crossrail 2, which will benefit hugely the transport infrastructure of London—and it will be in need of such benefit after High Speed 2 is complete and we have extra people in London’s transport system, which is creaking from the point of view of someone who is on the tube in the peak hours early in the morning or going home late at night. All we have heard about so far from the Mayor and the Chancellor is a small extension to the Northern line, when in fact we needed to hear something big and major. We hear hon. Members pooh-pooh the need for greater investment in infrastructure; HS2 was that, but we heard nothing more from the Chancellor today.

We heard a huge boast about how planning changes are generating growth in house building, but house building has fallen to a level unseen in this country since the 1920s, and that was during the depression. The situation is absolutely dire. Some 59% of Londoners are renting—the highest proportion since before the second world war. There was a settlement in London whereby

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people could rent, get a council property and be part of the social housing fabric of this country, or own, but that has gone backwards—59% of people are renting.

Although I will look at the detail of the housing policy announced by the Chancellor, I am concerned that the proportion of people renting will increase as a result of buy-to-lets. Like my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), I want to see the detail to see whether the measures will extend to those who want to buy homes in order to rent them out. I do not think that that will ease the situation.

What we needed to hear was a Government commitment to house building, which would be a far more responsive approach to local government in particular. Local governments in London have between them committed £1.6 billion to house building in London. It is not sufficient, but that is their commitment. Islington hopes to complete its target of about 1,600 homes by 2014, and Southwark wants to complete, I think, 1,000 homes by 2020. As my hon. Friend has said, a small change to how the Treasury allows local authorities to borrow against their assets, with changes to the Treasury’s prudential rules, would allow for a huge expansion in local government house building. London local governments estimate that 54,000 new homes could be built over this next period, which is a significant amount that would go some way to meeting the needs of those currently in temporary housing.

A statement on infrastructure and Crossrail 2 and a big announcement on house building, not just house-purchasing—particularly for those who want to buy to let—would have been acceptable.

I am also hugely disappointed that the Chancellor did not once mention youth unemployment, which is having a devastating effect on every single region, town, village and major city throughout the country. He said nothing about it. The Work programme is not working and the Youth Contract is shaping up to look like the old youth training scheme. We need real growth for our young people, but we have heard nothing about it from the Chancellor. He boasted about 55,000 extra apprenticeships in London, but 40,000 of those apprentices are over-35, which is an indication of how much trouble we are in.

We needed to hear more about what a balanced economy looks like. Margaret Thatcher made a deal in the 1980s. [Hon. Members: “Hear, hear!”] Government Members are applauding, but what was that deal? It was to base our economy on two sectors, namely the financial sector—look where that has led us—and the service economy, which is largely retail. Retail alone is not sufficient for our young people and we should have learned more about what a balanced economy looks like.

Alison McGovern (Wirral South) (Lab): Does my right hon. Friend agree that he is describing precisely the inequality that must be tackled before young people in this country really get a chance?

Mr Lammy: Absolutely. To have a Budget that places no value on our young people is extraordinary at this time. It is a Budget that is content that the growth in apprenticeships has come largely from retail and administration. The growth in apprenticeships has seen

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just 210 of the higher-level apprenticeships that we need, but 30,000 level 2 apprenticeships. A Budget that does not acknowledge that is deeply problematic.

It is only by having something to say on infrastructure, house building and construction that we can begin to get back to the balanced economy that this country has so dearly lost and that is necessary if we are to get back to growth.

Let me end on the importance of local government. We did not hear enough in the Budget about local government. We know from the pre-Budget report that there are further cuts to come in local government. We know that adult social services will be under immense strain over the coming months, as council leaders have to make difficult decisions. We know that things such as child protection will be under immense strain as councils make those decisions. It is wrong for the Government to cut 8% of their own spending, but to expect some London authorities to cut 33% from their budgets.

We needed to hear a Budget with investment in local government, something on infrastructure, something on housing and something for young people, but we did not.

3.51 pm

Adam Afriyie (Windsor) (Con): The economic strategy adopted by the Chancellor is the right one. On the one hand, we must deal with the massive deficit left by the Labour Government. On the other, we must kick-start the economy. With a budget deficit of £120 billion that is mounting by the day, it would be utterly reckless to borrow more. That is the road to ruin and we must avoid it at all costs.

I am optimistic about the future. I am optimistic that with sound economic policies, we can get our country back on its feet. Only British businesses have the power to lift our country out of the economic legacy left by the previous Government. I chose to come into politics from the world of business. Anyone with experience in business will say that it is tough and that it is really hard work. That work is made tougher by unnecessary regulations and the bizarre tax on jobs that is called employers’ national insurance. I therefore welcome the measures in the Budget that will tackle regulation and reduce the burden of tax.

I want our nation to be back on top. I want it to be on top of the world competitiveness tables, on top of the productivity tables and on top of the world trade tables, but at the bottom of the world taxation tables.

Geraint Davies: The hon. Gentleman mentioned being at the top of the productivity tables. Does he accept that as an extra 1 million people are in jobs and we are producing no more, productivity has gone down? That is a complete disaster.

Adam Afriyie: Opposition Members have a real cheek in raising cheap points like that. This Government are doing everything they can to dig this country out of a hole of Labour’s creating. Labour Members should remember that and should be ashamed of such comments.

My hope for our nation is that we will feel proud and self-confident; that it will be a nation where enterprise, employment and economic growth are highly valued. Why? Because that is the only way to afford the well-funded

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public services and caring society that we all want. It is the only way to have a decent health service that takes care of us. It is the only way to fund a world-class education system that is open to everyone. It is the only way to pay for strong defence through our armed services. It is the only way to generate wealth to help others. Above all, it is the only way to secure social mobility.

I come from a pretty tough background, as do many people. It was not easy growing up in a single-parent household in social housing as a mixed-race kid in the 1960s and 1970s. But I was one of the fortunate few. I was born in Britain at a time when it was possible to make it in a lifetime. I want the opportunities that I enjoyed to be available to every single British citizen. It seems to me that it has become even more difficult for people to forge their way in life. My heart is with the least well-off in our society and with all those people, especially our young people, who want to make something of their lives. That is why we must back British enterprise. We must give British businesses the support they desperately need. We must help them to regain their confidence and competitiveness, because this country needs a thriving, dynamic and competitive business environment. In a competitive business environment, there will be failures, there will be successes, but, above all, there will be opportunities for everyone to work hard and to achieve the type of life that they would wish to achieve.

I made my way by working hard at school and eventually starting a business. I remember being exhausted in the early hours of the morning, filling in Government forms and tax returns, and the stress of trying to meet the payroll—yes, and sometimes failing—and the agonising over whether to take on new employees. I can remember the fear of never being quite sure whether the businesses would make it. It is the same today for millions of small business owners around the country.

I was one of the fortunate ones; the risks and the hard work paid off. For many, they do not. It seems to me that our political elite are nervous about talking about success. There is a tendency to view wealth creation as somehow distasteful or a bit dirty. We love it when young people set up businesses, but we become suspicious if our businesses become too successful.

My message today is this: get over it. Backing British businesses is not only the way to escape our dire economic situation but the way of securing social mobility. We must trade our way to a balanced budget and we must trade our way to a trade surplus. Business is the engine of our economy; it generates the jobs, the livelihoods and, yes, the taxes that make for a good society. Only by embracing enterprise with every ounce of our being can we secure economic growth.

Economic growth can come from nowhere else. Governments cannot do it, but our tradesman, entrepreneurs, business owners and hard-working employees can. They are the lifeblood of our economy and it should be obvious to us all that enterprise is the only route to success. In business, people must get results. If they do not, they are out of business. That is the harsh reality that businesses face every single day and it is about time that our political class adopted those real-world principles. We must learn to like business—to love business—and to take a more business-like approach in government. We must learn to love the process of wealth creation. Government must make life easier for businesses to invest and hire new staff.

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Meg Hillier: I agree with the hon. Gentleman that investment in business is a good thing and that growth in business is a good thing. Would he like to comment on the efficacies of the Government’s efforts so far to increase lending to, and other forms of financing for, business?

Adam Afriyie: I think the Government have been doing an incredibly tough job in incredibly difficult economic circumstances. The funding for lending scheme should work in time, but the deficit and the troubles we have today have all been caused by the Opposition. I will give way to anybody on the Labour Benches who will stand up and apologise to Britain for putting us in this huge hole. I am happy to give way to anybody—will they apologise?

I believe that it is the primary responsibility and duty of Government to create the environment in which enterprise can flourish, and that means unashamedly celebrating business success. Next time we hear of a British company making huge profits, I want to hear the House cheer. Even now I can feel a little shudder from Opposition Members. The reality is that, under Labour, the little guy stays little and the little guy cannot grow. In Labour’s time in office, it bred in this country a culture of state dependency, a trap not just for the least well-off but for the middle classes.

Labour politicians should be ashamed of themselves and the Labour leadership should be ashamed of itself for digging this hole. This is why I am a Conservative. This is why I believe the Conservative way is the best way forward for this country. We want, and I want, enterprise to bloom and succeed so that opportunities are available for everyone in our society.

Turning to the Budget, I welcome the reduction in corporation tax; it makes Britain a more impressive and attractive place in which to invest. I welcome the increase in the tax-free threshold that will allow lower earners to keep more of their money and encourage people off the benefits that Labour created and into meaningful work. I also welcome the capital gains tax relief that will encourage further investment in business and create more jobs. Above all, I welcome the reduction in employers’ national insurance for smaller businesses that are taking on new employees. The direction of travel is good, and we will look forward to digesting the details and examining the implementation in months to come.

In conclusion, I want to see our nation self-confident and at ease with itself, and my vision is of a Britain where people can succeed through hard work. Whether someone is first, third or 300th generation British, I want them to know that the Government are on their side. Business is the engine of the economy and social mobility, and a path to a better life. It gives people the chance to better themselves and forge a better future for their families.

Jim Shannon (Strangford) (DUP): The Conservative party agreed to putting a married tax allowance in its manifesto and in the Budget, and the Democratic Unionist party wrote to request that as well? Does the hon. Gentleman feel some concern and disappointment that the Conservative party, and the Chancellor, have failed to deliver on the married tax allowance that they said they would introduce?

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Adam Afriyie: The coalition Government and the Conservative Chancellor are doing the best they can to make life better for families in Britain, and the deficit reduction and other measures we have heard about today work towards that goal. I wholeheartedly support the Conservative part of the coalition in delivering those good things for Britain.

Business gives people the chance to better themselves and forge a better future for their families. A competitive job market cannot discriminate on the basis of gender or skin colour. I believe we have a moral, social and economic duty to embrace wealth creation. If we can learn to love wealth creation, I believe that Britain, once again, has a bright future as a world-leading nation.

4.2 pm

Stewart Hosie (Dundee East) (SNP): I apologise to the House for having to leave the Chamber for a short time earlier.

I welcome one or two of the things in the Budget statement—the changes to national insurance are very sensible, and the reiteration of the general anti-avoidance rule will be important in time. The announcement of flexible inflation targeting for the Bank of England could be significant in how the economy is managed in the future.

First, however, I would like to talk about tax. The Government are right to try to take as many people on low and modest wages out of tax as possible, and the savings so far of £326 a year for basic rate taxpayers, whose personal allowance rose last year from £6,475 to £8,105, makes sense. However, if we are “all in it together”, a saving of £326 makes rather less sense when we are persevering with a tax cut for millionaires who might consider a £326 saving no more than a decent lunch.

It is welcome that the Government are taking people at the bottom out of tax, but we should look at what they are doing to those in the middle, who have seen tax relief before the 40% band kicks in fall from £37,400 in 2010 to £34,370 last year. Therefore, for every £326 saved at the bottom on the 20p rate, people have had to shell out an extra £560 at the 40p rate. I welcomed the announcement that the basic rate tax threshold will increase to £9,440 and then £10,000, but the Chancellor has pulled the same trick with that as he did previously because relief for the 40p band will shrink again to £32,010, as announced last year. Importantly, that means that in the three years before today’s announcement, the Government have increased the number of taxpayers paying 40% tax from 10% to 13% of all taxpayers—a whopping 670,000 extra people. In the past 25 years—this is instructive—the number has doubled. Some 2.1 million extra people pay tax at 40%. The rate used to be for the rich, but the people paying it are not rich or wealthier.

It is not as if the economy has come out of the austerity period—the UK teeters on the brink of a triple-dip recession. People feel poorer because they are poorer. Last year, the Office for Budget Responsibility changed its forecast by reducing household disposable income every year from 2013 onwards. It has done the same for this year’s Budget. People are poorer for many reasons. In the 2010 Budget, child benefit was frozen, and later removed entirely for many people, costing families £2.5 billion a year. Households are and feel poorer because their wages have been frozen or capped

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while inflation has been higher than forecast. For pensioner households, notwithstanding the much vaunted triple lock, the pensions calculation has gone from the retail prices index to the consumer prices index.

What do the Chancellor’s previous decisions mean? The 1% benefit cap hits 1 million households in Scotland to the tune of, on average, around £165 a year; the tax credit changes hit 110,000 families in Scotland to the tune of around £700 a year; and the child benefit changes hit 91,000 families to the tune of, on average, around £1,400 a year.

I should explain that lesson in recent history. Last year’s Red Book told us that the Government’s discretionary fiscal consolidation—tax rises and cuts—would rise to £155 billion a year every year from 2016-17 onwards. I checked the Red Book today to find out the scale of the increase in the discretionary consolidation—tax rises and cuts—only to find that there is no 2017-18. Indeed, the Government have taken out 2016-17. They are hiding the future. The one thing we know from this year’s Red Book is that the Government continue to be determined to change the ratio of cuts to tax rises to 4:1.

We therefore know precisely where the Government’s priorities lie, and it is not with people, jobs or growth, as we have seen with the announcement of another £11.5 billion of cuts, the detail of which we will get in June. That tells us—the Chancellor is the only one who does not see this—that plan A has failed. He has failed according to his own metrics. The net borrowing requirement, which was meant to be £126 billion last year, falling to £92 billion for 2012-13, has been increased to £121 billion. The national debt—this should worry everybody—was due to peak at 92.7% of gross domestic product, or £1.36 trillion, in 2014-15 on the treaty calculation. It is now expected to peak at more than 100% of GDP—100.8% of GDP—on the treaty calculation by 2016-17. That means a national debt of £1.58 trillion. The Chancellor has therefore failed by his own measures.

On the fiscal rules that the structural current deficit should be in balance in the final year of a five-year rolling programme, and that debt should fall as a share of GDP, the objectives were highly dependent on GDP growth, which, as we have noticed in previous Budgets, is massively dependent, according to the OBR, on incredible, unbelievable, unmet and unmeetable rates of business investment. In 2010, the Government suggested that business investment had to grow by between 8.1% and 10.9%. By the time we got to the OBR’s fiscal outlook the next year, growth in business investment had turned negative. So it went on year after year. The Chancellor is at it again today, forecasting future business investment rates of 6.4% to 10.2% from 2013 onwards. These will not be met either, and the Chancellor will be back at the Dispatch Box making more excuses for why the failure is not his fault.

The biggest disappointment is that although the Government announced a modest stimulus of £3 billion a year in capital investment, it will not be immediate. The crisis is with us here and now. This is a delayed reaction Budget—it does not kick in until 2015-16—and implies a fiscal stimulus in capital expenditure terms of less than 0.25% of GDP. The benefits of that, if there are any, will almost certainly be offset by the other cuts, the details of which we will get in June.

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We have an immediate crisis of huge proportions: the national debt is forecast to reach 100% of GDP; all the other metrics have failed; and the much-vaunted triple A rating has gone—that was not mentioned today. The Government’s response is a 0.25% of GDP capital expenditure stimulus, most of which will be gobbled up by cuts made elsewhere. That is a timid, weak and inadequate response. What should have been a bold demand to go for growth instead locks us into austerity. To be frank, it risks a decade of austerity and a decade of stagnant growth to go along with the Government’s failure to invest when it was necessary, and when they could, to get the growth in the economy that we all want.

Several hon. Members rose—

Mr Deputy Speaker (Mr Nigel Evans): Order. To accommodate as many Members as we can up until 7 pm—just to remind you, there are no wind-ups, so we will go right up to the wire—the time limit is now eight minutes.

4.11 pm

Mr James Clappison (Hertsmere) (Con): It is a pleasure to follow the hon. Member for Dundee East (Stewart Hosie). I do not agree with his overall analysis, but he deployed statistics in a careful, if selective, way. I disagree with the fundamental direction of travel that he indicated for the Government; he falls into the trap of allowing immediate difficulties to deflect the Government from the long-term commitment to maintaining financial control and dealing with fiscal consolidation.

It is against that background that I want to commend the Budget statement by my right hon. Friend the Chancellor, in particular for the commitment he expressed to fiscal consolidation and to maintaining control of public expenditure. The Chancellor set out the position clearly and frankly. It is refreshing to have such frank Budgets, particularly in comparison with the first 10 years of the previous Government, when we found out about undesirable developments later on by consulting the Red Book. I urge the Government to maintain a tight control of public expenditure.

Of all the statistics presented today, the most important is the trajectory of debt consolidation and dealing with the financial deficit—one to which I do not think the hon. Member for Dundee East alluded. Although he chose to refer to the national debt, he did not refer to the fiscal deficit, which is an important determinant of the national debt. As the Chancellor rightly said, the deficit has been falling. It has fallen by a quarter, and has now fallen by a third. The trajectory set out by the Chancellor was encouraging: falling by 6.8% next year, 5.9% in 2014-15, and down to 2.2% by 2017. Cyclically adjusted, as I understand from the Red Book, that would amount to 0.6% in 2017, and that is very important.

The Leader of the Opposition gave a disappointing performance and missed an opportunity to set out his plans for the future. He was very keen to draw attention to the downgrade by Moody’s. The hon. Member for Dundee East said that that had not been mentioned—I am mentioning it now. The downgrade took place, and people can make of the ratings agency what they want, but it would be instructive to refer to what was actually

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said by Moody’s at the time and the reasons it gave for the downgrade, particularly the weakness in the eurozone. On the long-term trajectory, Moody’s stated:

“The stable outlook on the UK’s Aa1 sovereign rating reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK’s debt trajectory. Moreover, although the UK’s economy has considerable risk exposure through trade and financial linkages to a potential escalation in the euro area sovereign debt crisis, its contagion risk is mitigated by the flexibility afforded by the UK’s independent monetary policy framework and sterling’s global reserve currency status.”

On the last point about our ability to set an independent monetary framework, therein lies another tale, as far as the Leader of the Opposition is concerned. The Opposition say that they are not committed to joining the euro at the moment, but I have not heard them rule out joining it at any stage. I believe that the benefit of an independent monetary framework is a permanent, not just a temporary one, as has been proved over the last decade.

James Wharton (Stockton South) (Con): Does my hon. Friend think that there will long be a euro to join?

Mr Clappison: I was one of those who joined the crusade led by my right hon. Friend the Member for Richmond (Yorks) (Mr Hague), now Foreign Secretary, against the euro. Some of the comments made at the time about that crusade, which has been of lasting benefit to this country, have come back to haunt those who made them.

The Leader of the Opposition missed the chance today to set out his plans in detail. He said that the Government had been downgraded and he referred to borrowing, but he did not say how much more borrowing he would undertake, how it would be spent, how it would affect the economy, what effect it would have on our international credit rating or how those who take business and monetary decisions would view this country. We need to hear much more detail from the Opposition. We heard a lot about the millionaires’ tax cut. I do not think that Opposition Members are going to get much more mileage out of that. We all remember that the 50p tax rate was put in place in the last five minutes of the previous Labour Government.

The Opposition’s rhetoric runs the risk of creating an anti-business and anti-success environment and of deterring investors from investing here and earning rewards. That contrasts with the policies we heard from the Government today. I commend their priority in giving help to business, particularly in reducing the rate of corporation tax, which I think is an achievement and will give us a good rate compared to our competitors. I also applaud the employment allowance, which is an imaginative proposal that will help many people and small businesses. Of course, I also applaud the help being given to hard-working families through the tax-free child care, the fuel duty freeze and the beer duty cuts, which will be of particular interest to many of my constituents who have lobbied me from the real ale society. I also welcome the Government’s plans to help more people to buy their own homes. I agree with the priorities the Government have set, with the funds available, within this tight fiscal framework and given the desire not to make unfunded

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tax cuts. They have struck the right balance in first helping business and hard-pressed families with the pressures they face.

For future reference—this is not intended as a criticism now—I would urge the Government to consider the position of, and to give some assistance to, savers, as the Conservative party committed to doing in a previous manifesto. The savings environment is not the best for small savers, particularly older people looking to supplement their pensions with interest on their savings. They have been hard hit by a combination of the interest rates offered by the financial institutions and the effect of inflation. We need to look carefully at its effect and what more can be done to help savers.

Over the past week or so, we have heard a lot about the effects of the savings levy on Cyprus, but I understand from a calculation that the House of Commons Library made for me that a basic rate taxpayer saver, having obtained the best possible current easy access account, with the forecast rate inflation in the country, at the end of four years will have seen their savings lose in value the equivalent of the 6.75% levy on Cyprus savers. That is the hidden effect of inflation on savings. We know that inflation has been rising and that savers cannot obtain high rates of interest from any of our financial institutions. Very few if any will beat the rate of inflation, and certainly not if one is a basic rate taxpayer.

I urge my right hon. Friends to look carefully at that issue and, in particular, at helping savers with individual savings accounts by giving more flexibility to ISAs. That could be done by increasing the limit for cash ISAs—this point has been made in many circles—up to the same as that for stocks and shares ISAs, to give people the opportunity to save £10,000 tax-free in cash, and also by giving people the opportunity to convert stocks and shares ISAs into cash ISAs. People cannot currently do that—although they can do it the other way around—yet it is something that some in retirement or approaching it may wish to do. ISAs are the most democratic form of saving, if I can put it that way. If future help is to be made available, I would urge the Government to ensure that it goes to our savers.

I applaud the choices we are making for today’s purposes in the Budget. It is right to help hard-pressed families and businesses for the future. This is a business-friendly Government who are taking the decisions to lay the foundations for successful businesses in this country in difficult economic circumstances.

4.20 pm

Luciana Berger (Liverpool, Wavertree) (Lab/Co-op): It was in June 2010 that the Chancellor presented his emergency Budget. He said then that the measures he was announcing had

“set the course for a balanced budget and falling national debt by the end of this Parliament.”—[Official Report, 22 June 2010; Vol. 512, c. 180.]

However, today our economy is flatlining. We have a cost-of-living crisis, borrowing is increasing and we have lost our triple A credit rating. Since the last spending review the economy has grown by just 0.7%, rather than the 5.3% that was forecast, and last year the country went through a double-dip recession. Instead of the books being balanced by 2015, as the Chancellor promised, national debt as a percentage of GDP is not predicted

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to fall again until 2017-18. The whole country can see that, when judged by actions not words, this Government have failed every test they have set themselves. It is people up and down the country who are paying the price for their failure—families hit by the mummy tax; part-time workers who have lost tax credits; the 250,000 people in this country who have had to access emergency food aid or visit a food bank last year so that they did not go hungry; and the 200,000 more children who will be pushed into poverty as a result of this Government’s assault on support for families.

Today was a chance to change course—a chance to put right the mistakes of the past 33 months and correct a failing economic strategy. Instead, all we got was more of the same from a Chancellor and a Prime Minister who, despite all the evidence, refuse to accept that their plan simply is not working. In 17 days, millionaires will get a tax cut, so why do my constituents have to wait more than 900 days for help with child care?

Angela Smith: It has emerged today that £38.5 million of shares have been given to nine top executives by Barclays bank. Does not that underline the point my hon. Friend is making about how millionaires seem to be faring much better under this Government than people on low pay or middle incomes?

Luciana Berger: It is incredibly insensitive that that announcement was made today. People up and down this country will rightly be shocked by it. In a moment I will reference the fact that we are seeing the gap between the richest and the poorest in our society widen. The Government should be doing everything to ensure it is closed.

I acknowledge and welcome the extra money we have heard about today for infrastructure projects, but I note that the majority of it will not be delivered until 2015-16, while work on many of the projects is not expected to begin for years. We must not forget that the Chancellor has spent £12 billion less on infrastructure over the past three years than under the plans he inherited. What is needed is a plan to get our economy growing and to create more jobs across the country right now. The fact that we have a chronic shortage of jobs was reinforced to me last week when I held a jobs fair in my constituency, which was attended by 66 companies. They ranged from local businesses such as the Liverpool Dental Spa and Davey’s Chemists to big global companies such as Nutricia Danone. On the day, more than 500 different job and apprenticeship opportunities were on offer.

My jobs fair last Friday was a great event, with more than 2,000 people coming through the door. That far exceeded my expectations; we had printed only 1,000 welcome packs. Despite what the Chancellor would have us believe, I did not meet anyone whom he would describe as a shirker. That point was also made in a letter to the Liverpool Echo this week from Bernie Hunt of Kensington Fields, a section of which I want to share with the House. Bernie said: