Banking Reform

Pat McFadden Excerpts

Monday 4th February 2013 Commons Chamber

[Greg Clark]

Of course. I pay tribute to my hon. Friend and the other members of the commission. It might not be known just how many hours of the day they are working on it, but they are doing a service to the country in doing so. We accept his recommendation. This is a high-level Bill and we have said that we will introduce amendments to reflect the recommendations. When we do that, we will invite him to consider whether they appropriately address his recommendations.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I welcome the change of heart announced by the Chancellor today. It is in contrast to the dismissive noises that came from the Government when our report was published just before Christmas. I am sure that that change of heart had nothing to do with the vision of amendments in the other place being supported by one of the Chancellor’s predecessors, Lord Lawson, a former Cabinet permanent secretary and the new Archbishop of Canterbury.

I would like to ask the Minister why today’s response was silent on the commission’s recommendation for a general reserve power for the sector as a whole. I must correct him: if adopted, such a decision should not be left to the Bank of England, but be taken by the Chancellor.

[Greg Clark]

I am grateful for the right hon. Gentleman’s question, to whom I extend my thanks for serving with distinction on the commission.

I said that the Bank of England did not want a general reserve power, but the right hon. Gentleman made the perfectly valid point that it might not necessarily be a choice for the Bank. It seems to me, however, that the power to break up any individual bank is a very strong one, and quite rightly, as the commission recommended, it would make the ring fence more impenetrable. Nevertheless, to provide for a reserve power in this Bill that would change the whole system would, in effect, be a different policy. I understand the reasons for wanting to do that, as many distinguished members of the commission do, but changing the whole policy would deserve the scrutiny of a Bill of its own—any future Government would be free to introduce such a Bill. To have it as a rider to a Bill designed to implement the Vickers report would be the wrong step forward.

Finally, as for accepting amendments, there are several Members of this House who have served on Bill Committees with me in the past. My demeanour, now and throughout the passage of the Bill, will be to listen to good and sensible suggestions from wherever they come—not to treat this as an exercise in partisanship, but to try to find consensus on the best system for financial regulation in this country.

Oral Answers to Questions

Pat McFadden Excerpts

Tuesday 11th December 2012 Commons Chamber

[Mr Speaker]

I call Richard Graham. Not here.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

May I congratulate the Chancellor on his U-turn on capital allowances for manufacturing industry? When did he realise that his previous stance of dismissing them as complex reliefs was wrong and at total variance with the Government’s stated aim of supporting manufacturing? When did his conversion to supporting these allowances take place, as long called for by Labour Members and the Engineering Employers Federation?

[Mr Osborne]

The first thing I would say is that we reduced the small companies rate—which would have gone up to 22% under the plans put in place by the last Labour Budget—to 20%. We have now introduced a £250,000 annual investment allowance for small and medium-sized businesses for the next two years. The right hon. Gentleman says that the Labour party had been calling for this. It had 13 years to introduce a £250,000 annual investment allowance. There were all those Budgets that the shadow Chancellor wrote and he did not put it in place.

Bank of England

Pat McFadden Excerpts

Monday 26th November 2012 Commons Chamber

[Mr Osborne]

There were some excellent female candidates but—I will be absolutely candid with my hon. Friend—it was rather disappointing that there were not more female candidates of the highest quality. Both I and my predecessor faced that issue with appointments to the Monetary Policy Committee, and I would like to work constructively with people who have ideas on how we can encourage women in the economics profession to aim for a career in public service, the MPC, or central banking. We must do more to encourage that because, as I said, both I and my predecessor found that we did not have as wide a range of female candidates for the MPC as we would have liked.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

There are good reasons for the Chancellor to appoint the Governor of the Bank of Canada. As he said, Canada weathered the crisis well and was the first G7 country to restore employment and GDP to pre-crisis levels—a stark contrast with our own position. Will the Chancellor discuss the Canadian experience with the new Governor in order to get lending moving? He will know that initiatives such as Merlin have not worked, and unless we get lending flowing to the real economy we will not get the recovery that we all want.

[Mr Osborne]

Canada had the advantage of going into the crisis with properly managed public finances, and it avoided the large bank bail-outs that we had in this country—RBS was the biggest bank bail-out in the world—because its banks were better regulated. Hopefully, Mr Carney will bring some of that experience.

The right hon. Gentleman makes a serious point about lending in the economy. The Bank of England has created the funding for lending scheme, and we see the impact of that in new products that banks such as Santander and Lloyds have launched. He is right to say that that is one of the things we have to be on in terms of economic management. The de-leveraging in our economy is still one of the real headwinds to recovery.

Professional Standards in the Banking Industry

Pat McFadden Excerpts

Thursday 5th July 2012 Commons Chamber

[Ed Balls]

I hear the right hon. and learned Gentleman’s points and I only wish the Prime Minister would talk to his own legal adviser. As far as I can see, the Attorney-General has entirely torpedoed the inquiry, which we were told yesterday would conclude by Christmas. If he is saying that the inquiry can take longer in order to deal with the issue of criminal charges, what does that make of the Prime Minister’s argument that the only reason for doing it this way was to do it faster? It is utterly incoherent. I am not saying in any way that the Attorney-General is being incoherent—it is just the Chancellor and the Prime Minister who have completely lost their grip on this whole process.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Does my right hon. Friend agree that the legal advice that we seem to have heard on the hoof just now casts a whole new light on the debate? The Government’s argument all week for a Joint Committee of both Houses has been that it could proceed with its work quickly, whereas we have just heard an argument suggesting that precisely the same objections as the Attorney-General made to our proposals could be made to the Government’s proposals.

[Ed Balls]

It is no surprise that the Chancellor has gone completely white as he sits on the Front Bench. Let us be honest: he did not consult the Culture Secretary on a tax on churches; he did not consult the Transport Secretary on a U-turn on fuel; and he did not consult the Law Officers on the inquiry—

LIBOR (FSA Investigation)

Pat McFadden Excerpts

Monday 2nd July 2012 Commons Chamber

[Mr Osborne]

It would be entirely up to the Committee to call whomever it would want to call, and it might well want to speak to John Vickers, who has enormous expertise in this area.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I think that the Chancellor has done his announcement a disservice by setting it up as a continuation of his obsession with placing every act of wrongdoing by every banker at the door of the previous Government. Does he not accept that what the public want is something that gets to the heart of the rotten culture exposed by the FSA report last week, rather than the partisan way in which he set out today’s announcement?

[Mr Osborne]

I agree with the right hon. Gentleman that we want to get to the heart of the cultural problems, but when the shadow Chancellor responds to a statement and blames it all on the party that was in opposition at the time, it is perfectly reasonable for me to point out who was in government. That is a perfectly reasonable response in the cut and thrust of this House, but I completely agree with the sentiment he expresses, which is that we should try to proceed on a cross-party basis. I hope that his Front Benchers will think about supporting the joint inquiry—they will of course be able to choose its Labour members—because I think that that it is the correct way forward to give us answers for next year.

LIBOR (FSA Investigation)

Pat McFadden Excerpts

Thursday 28th June 2012 Commons Chamber

[Mr Osborne]

I think the answer to my hon. Friends question is: when he left the industry.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The Chancellor concentrated heavily on regulation in his statement. He was less keen to tell the House that throughout the period in question, he and his colleagues were calling for less regulation, not more. Does not the responsibility for wrongdoing really lie with those who did wrong—in this case, the traders in Barclays, and very possibly other banks, who participated in a rotten culture, far removed from the job that we want banks to do, which is supporting savers, home owners and businesses? If it really does come down to regulation, why will the Chancellor not accede to the request made by Opposition Front Benchers and now the Chair of the Treasury Committee to include LIBOR in the Bill that is going through Parliament?

[Mr Osborne]

First of all, when in opposition, we actually objected to the creation of the FSA, the tripartite system of regulation, and taking the Bank of England out of supervision. We voted against that. By the way, I remember—I was the shadow Chancellor at the time—the previous Prime Minister endlessly berating us for voting against that particular piece of legislation.

When it comes to responsibility, of course those involved should be held responsible. I have made that absolutely clear, and that is what the FSA is doing. However, I point out that the Government at the time should be held responsible for the culture that they presided over. As I say, we will take the steps necessary to prevent this happening again, and we are looking at the regulation of the LIBOR market to get it right.

Amendment of the Law

Pat McFadden Excerpts

Monday 26th March 2012 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The most significant thing about last week’s Budget is that it did not move the dial on economic growth. The Office for Budget Responsibility has confirmed that and said that it has not revised its expectations for growth or employment. On the basic problem facing the country—the need for jobs and growth—the Budget changes precisely nothing. If there was an argument within the Government about a plan for growth, it has been lost. Indeed, the pre-Budget discussion was not about jobs and growth but about which party in the coalition could claim credit for which tax rate they felt related to their own manifesto.

The Treasury Committee recently took evidence from the permanent secretary to the Treasury. He confirmed that regional policy work in the Treasury has been wound up. In fact, the only regional policy the Government have left is to cut public sector pay in the regions. The permanent secretary spoke of “intrinsic scepticism” about policies to drive growth beyond the fiscal measures that we know about. The Budget is the evidence that that scepticism has won through. The Government have hung their flag firmly on deficit reduction alone, abandoning the effort for a convincing plan for growth and jobs alongside it. The Government are persisting with a hit on manufacturing companies, through cuts in investment allowances, to pay for their corporation tax cut. It is not so much the “march of makers” as the levy on the makers to pay for the non-makers. Rhetoric and policy are pulling in two entirely different directions. It is not enough to say that we want to be open for business; the Government have to play their role in helping business to grow and succeed.

If the Budget changed nothing economically, it certainly sent strong political signals. At its heart is a tax cut for those earning over £150,000 a year, paid for by two groups: pensioners, through the freeze in the personal allowance, and also—this has been under-commented on—middle-income earners who are being dragged into the 40% tax bracket, and there are 300,000 of them. Reference has been made to the allowances being frozen before, but Budgets have to be taken in the round. The central message of this Budget is that pensioners and middle-income earners will now pay for a tax cut for people earning far more than them—four or five times more. That is what the Government have signalled politically in the Budget.

Let us think a little about the low-paid. The Liberal Democrats have claimed great credit for the increase in the personal allowance. It is true that it will be of help to some of the low-paid, but there is something else, which we should not forget. There are 300 families in my constituency, and hundreds more in constituencies represented in this House, who will be plunged into poverty by cuts to tax credits, of up to £3,800 a year, unless they can find more hours of work. The money that could have ameliorated that change has gone to a tax cut for people earning more than £150,000.

It is claimed that the Budget is fiscally neutral overall. However, although we know what the measures in it cost, we do not know what they will raise. In the end, the real picture might not be a fiscally neutral Budget, but a gross tax give-away to the richest in the country. That shows the political colours of the Government more than anything else.

Youth Unemployment and Bank Bonuses

Pat McFadden Excerpts

Monday 23rd January 2012 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

At first glance it might seem as though youth unemployment and bank bonuses are separate issues, or that if they are linked it is only at the level of an argument about fairness or equity. But that is not the case. The level of reward at the very top of the financial services industry is not just an argument about fairness or equity, although it is certainly that; it is something that has a material effect on the functions carried out by our financial institutions, including the level of lending available to the economy and, thus, the capacity for job creation in it.

I should make it clear that I am talking about bonuses at the very top. We should not forget that the vast majority of people who work in the financial services industry receive ordinary salaries, and that if they do get a bonus it is of a modest amount to which no one would object.

Indeed, we all value the employment created by our financial services industry, but there is a broader problem, which we all know. In recent years we will have all met businesses that cannot find the funding that they need to keep going or, in some cases, to expand, grow and employ people. Sometimes that is because the price of credit rises so much that the business in question cannot afford it, but sometimes it is because the credit is not available on any terms.

No Government can second-guess every individual lending decision, but there is no doubt that access to finance has become a barrier to the creation of employment. This Government’s answer was to get together with the banks in the Merlin agreement, which was based on gross lending, not net. Let me give the House one politician’s verdict on such agreements. He said:

“This would be completely letting the banks off the hook. It’s perfectly possible for banks to achieve a gross lending target while withdrawing capital from small to medium-sized businesses.”

He went on to say that, in agreeing to gross lending targets, the previous Government allowed the banks to run rings around them. I am of course quoting the current Business Secretary, who had that opinion on gross lending agreements before he came into office—and then supported exactly the same thing.

The right hon. Gentleman subsequently pirouetted and said that the Merlin project had not worked, telling the House last month:

“The Merlin project certainly did not succeed in its central objective, which was to achieve growth in gross lending by banks.”—[Official Report, 8 December 2011; Vol. 537, c. 397.]

The banks’ argument is that they are under conflicting pressure both to increase the amount of capital that they hold and to lend more to business. They tell the public and they tell us politicians that we can have either safe and secure banks or more lending, but not both; and that brings us back to bonuses.

The hon. Member for Bury St Edmunds (Mr Ruffley), who is no longer in his place, referred to the evidence, given last week to the Treasury Committee by the new regulatory body responsible for financial stability, which suggested that that was not the case at all.

[Meg Hillier]

Does my right hon. Friend wish to comment on the sudden enthusiasm of Conservative Members for regulation, given that, when regulation was proposed by the previous Government, they were not keen on it at all?

[Mr McFadden]

There are many quotations from Conservative Members calling for less regulation during the previous Government’s period in office, but I refer to the Treasury Committee evidence from Mr Robert Jenkins, a former Credit Suisse trader who is now a member of the Bank of England’s Financial Policy Committee. He recently made a speech in which he said:

“The truth is that banks can strengthen their balance sheets without harming the economy. They can do so by cutting bonuses, by curtailing intra-financial risk-taking and by raising term debt and equity.”

As the hon. Member for Bury St Edmunds said, last week Mr Jenkins told the Select Committee that if the banks reduced the bonus pot by £1 billion, that would make available £20 billion more for small businesses.

This weekend, the banks hit back at that estimate. The Sunday Times was briefed, by an industry insider who clearly has a thing or two to learn about rapid rebuttal, that the real figure if bonuses were cut would not be £20 billion but only £13.5 billion. That argument is based on whether we apply the capital and regulatory rules that exist at the moment or those that may come in future. But whether the figure is £13.5 billion in future or £20 billion at the moment, the argument is clear: reward is an issue not only about fairness, but about the function that we want the banks to have in the economy.

Of course it is galling for a nurse on a pay freeze to be paying for a crisis that they did not cause and then to see a seven-figure bonus, but it is more than galling—the truth is that we have been presented with a false choice between restoring the capital position of banks and supporting lending in the economy. There is not an automatic trade-off between levels of safety and levels of funding once we take into account issues of reward at the top. Put simply, less money in excessive pay at the top would make more available for the lending we need to create jobs. That is why youth unemployment and bank bonuses are linked.

I have one final thing to say. In the coming days, we are going to hear a lot about what top bankers are entitled to contractually; no doubt that argument will be wielded by Ministers. However, contracts are not the only thing that matters. Context matters too, and the context is the greatest squeeze on family living standards since the war. That should be taken into account by the bankers themselves as we decide on restraint on bonuses.

The banking industry is hugely important to this country, but its relationship with the public has been broken. It is time to repair that relationship, and there is no better place to start doing that than in striking a better balance between reward at the top and the job that we want the banks to do—to lend in the real economy.

[Stephen Williams (Bristol West) (LD)]

The motion links the issue of bankers’ bonuses and youth unemployment. With my constituents in Bristol West, I agree that the levels of both are currently excessive.

I shall deal with bonuses first. Executive pay is meant to be the reward for company growth and shareholder return. Over the past decade, executive pay has gone up by an average of 13.6% each year, but the growth in the index of the top 100 companies on the London stock exchange has gone up by only 1.7% each year. Executive pay has vastly outstripped the underlying growth in the companies over which the directors have presided.

Bonuses, of course, are usually the worst manifestation of spectacular reward—sometimes for just modest return for the company’s shareholders, or even a paltry return. Even worse, they can be a pay-off for corporate failure. Today my right hon. Friend the Secretary of State for Business, Innovation and Skills announced the Government’s action to deal with that excess in the boardroom. The boardroom is the place where that excessive behaviour should be tackled and reined in, and shareholders need to take action in shareholder meetings.

The coalition Government will implement or consult on 10 of the recommendations of the High Pay Commission. Taxes, of course, have a role to play, but it is a subsidiary one. The behaviour itself needs to change. Under the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), the bonus tax was a failure according to the terms that he used to describe it when he announced it in the Budget. It was meant to curtail behaviour in the boardrooms of banks, but it failed completely.

At that time, the underlying rate of income tax and national insurance on the recipients of bonuses was 41%; under the coalition Government, the figure is 52%. When we factor in employers’ national insurance, we see that roughly two thirds of the value of a bonus comes back to the Treasury. In addition, the permanent bank levy will raise £2.6 billion for each subsequent year of this Parliament, which is more in net terms than the bonus tax raised under the Labour Government.

The previous Government were, of course, in office for 13 years. They had ample opportunity to do something. I sat through five Queen’s Speeches, in each of which a raft of legislation was announced by Her Majesty, but not once did I hear of an attempt to tackle corporate greed. Indeed, I would say that the Labour Government, certainly for their first eight years, positively encouraged corporate greed. We just heard from the right hon. Member for Wolverhampton South East (Mr McFadden). The Cabinet Minister to whom he reported in the latter years of the Labour Government, Lord Mandelson, said famously that he and new Labour were

“intensely relaxed about people getting filthy rich”.

It was the Labour Government who gave a knighthood to Mr Goodwin.

[Mr McFadden]

I have heard that quotation twice today and I think that it is time to complete it. Lord Mandelson went on to say,

“as long as people pay their taxes”.

Royal Bank of Scotland (FSA Report)

Pat McFadden Excerpts

Monday 12th December 2011 Commons Chamber

[Mr Hoban]

My hon. Friend makes an important point. Responsibility clearly rests with the leadership of RBS, not with those working in the bank’s branches, those working at its insurance company and others, who did their job properly and to the highest standards. It is important to recognise that, having identified regulatory issues to address, his party and my party came together in a coalition Government committed to regulatory reform. The Labour party was wedded to the status quo and to the regulatory regime that allowed this to happen unchecked. That party should take its full responsibility, just as we should recognise the excellent work that people at RBS did.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The report makes it clear that the primary responsibility for the collapse of RBS lies with the firm. The shadow Minister was big enough to say what he did about past regulation, and the Minister’s anger would be more credible if he and his party had not continually called for lighter regulation. The Minister had said:

“Effective light-touch, risk-based…regulation is in the interests of the sector globally, and the Government need to send that message more strongly to the US Administration and Congress”.—[Official Report, 28 November 2006; Vol. 453, c. 995.]

The Chancellor had said:

“I fear that much of this regulation has been burdensome, complex and makes cross-border market penetration more difficult.”

If people are going to admit culpability on regulation, the truth is that those on both sides of the House need to look in the mirror. Is that not the case?

The Economy

Pat McFadden Excerpts

Tuesday 6th December 2011 Commons Chamber

[Mr Darling]

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

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

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

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

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

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

[Mr Darling]

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

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

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

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

--- Later in debate ---

[Helen Goodman (Bishop Auckland) (Lab)]

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

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

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

What can I do to sort this out?”

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

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

[Mr McFadden]

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

[Helen Goodman]

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

Those on £14,500 will lose eight times the share of their income that those on £32,000 will lose. The poorest 10% will lose four times the share of their income that the richest 10% lose. In other words, it is a cynical way of focusing money on so-called marginal voters. The proposals are unfair. They are unintelligent to the point of stupidity, because the propensity to consume is highest among the poorest. Maintaining the incomes of people on low incomes will have the fastest and greatest impact on demand, so even with the same level of borrowing as they propose and the same fiscal stance, the Government could have a bigger bang for their buck. They could have a greater impact on demand and on the growth of the economy, simply by redistributing.

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

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

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

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

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

--- Later in debate ---

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I shall use the time available to make a couple of points about the economic challenge facing the country, and in particular about the era of the politics of less. All of us must look to achieve our political and economic aims in an era of lower growth than we have been used to in recent years.

The central feature of the autumn statement last week was the further downgrading of economic forecasts for the short term. The Office for Budget Responsibility downgraded its growth forecast for this year from 2.6% to 0.9% and for next year from 2.8% to 0.7%, and said that by 2015 the economy will be 3.5% or £65 billion smaller than previously forecast. The Financial Times has estimated that the gap between the economic growth trajectory had the recession not happened and where we will be in a few years’ time is 14% of GDP. We are therefore entering an era in which our economy is smaller—and by some projections significantly so—than it would otherwise be. Recovery will be weaker than expected, unemployment will be higher and the economy will be smaller for some years to come.

[Mr Denis MacShane (Rotherham) (Lab)]

Is my right hon. Friend aware that between 1997 and 2010 the British economy grew by 75%—in other words, that it almost doubled? It has now come to a shuddering stop and is going into reverse. Can he think of any previous historical period in the past 200 years, and not only in the 1970s, when a Conservative Government presided over such an astonishing, shrinking, no-growth economy?

[Mr McFadden]

I agree with my right hon. Friend that the economic times that we are in should make us reassess what we think of as normal.

The human implications have been laid out by the Institute for Fiscal Studies in its analysis of the impact on households. As was mentioned earlier in the debate, the IFS has shown that the distributional impact of the measures is geared so that the greatest losses come in the lowest-income deciles, and that there are particularly harsh effects on families with children. The shadow Chancellor in his opening speech referred to the impact of the tax credit measures on individual constituencies. The most striking figure for me is that the IFS forecasts that between 2009-10 and 2012-13 there will be a 7.4% fall in real median net household income, which is about the same as the largest fall since records began.

[Angela Smith]

In the context of what my right hon. Friend says, can it be fair that while £1.2 billion in tax credits for low-income families is taken away, only £300 million extra will be required from the bankers?

[Mr McFadden]

Anyone who looks at the IFS distributional charts would certainly not judge the impact of the Government’s measures as fair.

The background, therefore, is less disposable income, weaker growth, more unemployment and more borrowing. Against that, it is little wonder that there is such low confidence among families and businesses alike.

The question, therefore, is what to do to promote the economic growth that we so urgently need to create jobs. The Chancellor set out a number of measures in the autumn statement—more lending to small businesses, more spending on infrastructure and so on—to try to boost growth. Some of those individual measures are perfectly sensible and should be welcomed. Of course small businesses want more lending, and more capital spending will create jobs, but the real question is whether those measures will contribute to economic growth.

The OBR has already given its verdict. Paragraph 1.14 of its report states:

“We have not made any material adjustments to our economy forecast on the basis of these policy announcements”,

meaning the ones in the autumn statement. Its verdict is that however worthy the individual measures are, they will not make a material difference to the overall picture. Therefore, if growth will not come from consumer spending because the consumer is being squeezed in the way that the IFS has set out, and if it cannot come from Government expenditure because that is contracting, it must come from trade and investment.

The Government should ask what more they can do to encourage business to invest. My contention is that that is not a matter of putting one or two measures suggested by business lobby groups into such statements. Rather, it is a matter of making a sea change in our thinking of how we get growth in these economic times.

I shall focus on one particular issue on which I have spoken before in the House. Although industry welcomes the change announced on R and D tax credits, there is real concern about why the Chancellor is pressing ahead with his plan for a £3 billion-a-year hit on manufacturing industry through his cuts to capital allowances. It is not enough to argue for enhanced capital allowances in enterprise zones when manufacturing in the economy as a whole is putting up with that £3 billion tax hit. How does it help us to generate a low-carbon economy if the Government make investment in the equipment and machinery that will get us there more expensive through their tax policy? Even the excuse that that is a necessary deficit-reduction measure is not available, because the money is not being used to reduce the deficit; it is being recycled in a give-away to businesses in those sectors of the economy that do not invest, including the very banks that will not lend to manufacturing businesses in the first place.

If we really want to rebalance the economy, our manufacturing tax stance should recognise the shortened lifespan of machinery, help businesses to invest, and ensure that British companies have an incentive to invest and that they are not hindered in their efforts to keep ahead of the game. That is made more urgent by the sharp downgrading last week of the forecast for growth over the next couple of years. That shows that the Government need to be more, not less, ambitious in their plans to promote trade and investment.

We have twice heard Government plans that have been billed as plans for growth, yet at each economic statement, growth has fallen, and it is projected to fall further. If we should have learned one thing in the past three or four years, it is that assumptions of snapping back to so-called normal trend rates of growth have been consistently over-optimistic. These are not normal economic times. The downturn has been longer lasting than we feared and hopeful projections of future growth have a habit of retreating into the middle distance.

My contention, therefore, is that the era of the politics of less poses challenges for us all—Government and Opposition. How do we secure economic efficiency and social justice in an era of lower growth and squeezed household incomes? If the Government’s spending is to continue on a downward path for some years, and if households face the kind of squeeze in their incomes set out by the IFS, the circumstances demand an industry policy on a scale and ambition way beyond what we saw in the autumn statement last week. They demand a resolve from the Government, industry and all levels of education to make the rebalancing that we talk about happen, and to put weight behind those areas where Britain can succeed. The situation demands more than a regional growth fund at half the level of spending of the regional development agencies; more than a tiny fraction of the €5 billion-a-year relief for energy-intensive industries that is available in Germany; and tax policies that support the rebalancing effort rather than pull in the opposite direction.

--- Later in debate ---

[Angela Smith]

It absolutely does explain the scale of it. Let us make real-life sense out of some of these figures. They mean that 700,000 public servants had to be cast aside, 300,000 more than the Chancellor said would lose their jobs just a few months ago. Some £1.2 billion has been taken off tax credits while bankers suffer a mere £300 million increase in the take from their pay packets by the Treasury.

Any pretence of fairness and of our all being in this together went out the window last Tuesday. Ordinary families are taking a massive hit: already more people are unemployed than at any time since 1994—the current figure is 2.6 million—and to make matters worse the number of people out of work for more than a year is 868,000, with the long-term rate for 16 to 24-year-olds standing at a staggering 30%.

[Mr McFadden]

My hon. Friend refers to the cuts in tax credits in the autumn statement. Since they entered office, the Government have made great play of increasing the incentive to work. How does she think that the incentive to work will be affected by cutting tax credits for low-income families?

[Angela Smith]

It can only have a regressive impact because it will mean that families are less able to provide for their children and to develop the aspirations that are so important in later life.

One in three young people have been unemployed for more than one year and youth unemployment stands at a staggering 1 million, with the figure for those not in education, employment or training standing at a terrifying 1.2 million. The Government are creating another lost generation similar to the one that they created in the 1980s. Clearly, the Chancellor’s policies are hurting the British people, but they are certainly not working. The young in particular are paying a high price for his failures.

There is worse to come as the OBR now states that, at best, the British economy is set to stagnate next year and the year after, with growth broadly remaining flat. Even worse, if the well-respected OECD is correct, the economy will dip again into recession early next year. The British economy has been stagnating for the past 15 years, and the growth and jobs crisis has its roots firmly planted at No. 10 and No. 11 Downing street. Real incomes are being squeezed like never before, with high inflation and rocketing fuel bills not helped by the Government’s decision to increase VAT in January.

Last week’s statement gave hard-pressed families two more years of austerity, with real median incomes set to fall by 7.8% according to the Institute for Fiscal Studies. That means that real median household incomes will be no higher in 2015-16 than they were in 2002-03 and that we will have suffered the longest period of austerity since the second world war.

The Government inherited an economy that was fragile but nevertheless in growth, yet they gambled that recovery on the basis of tired ideas that have been tried before and found wanting. The right-wing prescription failed in the ’30s and is failing again now, with the consequence that the economy could dive into a double-dip recession. The level of unemployment in Yorkshire is almost twice what it is in the south-east and is growing at twice the rate. It is entirely possible that Yorkshire is already in recession.

The autumn statement did not announce any new resources to be injected into the economy—all it announced was a moving around of the money. It will be families with children who will pay for the back to the future jobs fund—the youth contract—through the £1 billion cut to the child element of family tax credits. If this country is not to face a lost decade, or even worse, we need a strategy for growth, and we need it now. The stakes are high and we urgently need to get people back to work before another generation has to pay the same price as mine for an ideologically driven Government who refuse to learn the lessons of history.

In particular, we need as a starting point Labour’s five-point plan, which would reverse the damaging rise in VAT temporarily and give a one-year national insurance tax break for every small firm that takes on extra workers. And crucially, it would bring forward long-term investment projects for schools, roads and transport to get people back to work. What we do not need is what has been recently proposed: a shopping list of projects here and there paid for by redistributed money. Instead, we need a rigorous, strategically driven investment regime designed to drive long-term economic growth.

In the medium and long term, we need a better economic way forward. On that point, I echo the points made by my hon. Friends. The Thatcher-Reagan consensus is crumbling before our eyes. Will Hutton put it even more starkly in a recent article when he said that

“we are about to experience economic, social and political tectonic plates on the move”.

We desperately need to develop an alternative economic paradigm, which means changing the way our capitalist structures work. We need to go back to making things and to give manufacturing a much bigger role in our economy. We need a capitalism that looks to the long term, not just to short-term profits, and we need a society where reward and risk are shared and where it is understood that the state has a role to play in pioneering and driving strategic investment. And we need to invest in innovation

The Government’s strategy of cutting and hoping that growth will magically reappear is not working now and did not work in the past. The Government are bankrupt of ideas for our future and lack the imagination and the bravery needed to take our country forward to its next phase. These extraordinary days require extraordinary solutions, but the fear is that it could soon be too late for many millions of British families who are paying the price for this out-of-touch, ideologically driven Government who seem determined to follow their chosen course no matter what damage it does to the British economy and to families in this country.