Finance Bill
Alison McGovern Excerpts(14 years, 7 months ago)
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Nia Griffith
The whole point is that our new clause calls for a proper assessment to be made to see what the actual effect of the current VAT rate is on the economy, given the lack of growth and the lack of a plan for growth. The important thing is to carry out that impact assessment and work out the best growth strategy, because nothing is coming from this Government in order to put things right.
What has been happening in the news recently? Everybody must be aware of the crisis we are facing on our high streets and in store after store. This is happening to TJ Hughes and its 57 stores, to Jane Norman’s 90 stores and 100-plus concessions, to Habitat, and to HomeForm, which covers Möben Kitchens and Dolphin Bathrooms. Some 5,300 jobs are in the balance, and now we hear about what is happening to Thorntons and Comet. Judith McKenna, chair of the CBI’s distributive trades panel, has commented:
“After a year of growth, high street sales volumes fizzled out in June….Shoppers are budgeting hard and cutting back on their discretionary spending, such as on clothes and big ticket household goods.”
She is the CBI’s chief financial officer.
Alison McGovern (Wirral South) (Lab)
I thank my hon. Friend for mentioning TJ Hughes in her speech, because all this will have a great impact on its home in Merseyside. Does she agree that it demonstrates a problem with the Government’s approach to VAT, which is that the inflationary expectations they have built into the economy are damaging not only the people who will lose their jobs at TJ Hughes, but high streets throughout Merseyside and up and down our country?
Nia Griffith
I wish to correct what I said, because Judith McKenna is chair of the CBI distributive trades panel and ASDA’s chief financial officer.
The point is that the message is being given clearly from all our retail people. The CBI’s retail sales index fell to its weakest level in a year. Why was that? It was because anxious shoppers are cutting back on purchases of clothing, groceries and big-ticket items, as everybody is being squeezed.
The Economy
Alison McGovern Excerpts(14 years, 7 months ago)
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Mr Osborne
And he says that he is really worried about them.
So, there we have it: the shadow Chancellor is against putting the Bank of England back in charge of prudential regulation; against the financial policy committee; and against the financial conduct authority, which is going to be tougher on behalf of consumers. The independent banking commission, which includes experts from throughout the banking field, has been working on the issue and come forward with an interim report. We have backed the principles of that report, but what does the shadow Chancellor have to say? Absolutely nothing—absolutely nothing about the plan that he would put in place. That is the truth.
Mr Osborne
My hon. Friend is absolutely right, and I am glad that I gave way to him so that he could make that important point.
Mr Osborne
I think that the hon. Lady is the Parliamentary Private Secretary to the former Prime Minister, and given that he will never be here to speak for himself, she must speak for him.
Alison McGovern
I thank the Chancellor for giving way, and I am proud to be the PPS to my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown).
The Chancellor was so busy yesterday calling me “new” that he did not answer my question, and he did not listen to the shadow Chancellor just then or answer his question, either. Will he explain how his increased complication of the regulatory system will prevent further bank failure?
Mr Osborne
Of course, I welcome the hon. Lady to her—[Interruption.] I will answer the question that she puts. I have merely observed in the past that being the Parliamentary Private Secretary to someone who never comes to Parliament is not a very onerous job, but that is good, because she can think up important questions to ask me.
Our judgment, with which the hon. Lady is entitled to disagree, is this: what was missing from the tripartite system was an ability to assess systemic risks throughout the economy. No one was looking at overall debt or leverage levels—[Interruption.] The shadow Chancellor says, “Rubbish”. When the Royal Bank of Scotland wanted to buy ABN AMRO after the credit markets had closed and after the run on Northern Rock, the regulatory system allowed RBS to do so. That is what went wrong, and if the right hon. Gentleman wants to go on defending the system that led to the biggest banking crisis in our entire history he can be my guest.
Margot James
I will take an intervention from the hon. Gentleman, who was a member of the Health and Social Care Public Bill Committee.
Ben Gummer
I have taken one intervention; I will not take any more.
I am afraid that the Opposition are falling down already with their motion, but let us go on to the next phrase:
“in the last month retail sales fell by 1.4 per cent.”
[Interruption.] If hon. Members listen carefully, they might find that their interventions are prefigured. Not content with six months’ worth, the Opposition have to go to the last month, but let us go back to the motion and what has happened over the past year. In the past year, retail sales have grown by 4.5%. I congratulate the Opposition on their motion, as we are seeing growth in the two key figures—GDP and retail sales—that we have considered so far.
The next thing in the Opposition’s motion is manufacturing output, which, it says, “fell by 1.5%” over the last month; but actually, over the year, it has risen by 1.3%.
Alison McGovern
I am going to skate briefly over the hon. Gentleman’s comments about Labour Members never having seen a balance sheet. I hope that he will discuss economic variables and lag times and say whether, in fact, what happened in the previous six months might have been attributable to the last Government and that we need to allow time to feel the impact of this Government’s policies. Will he cover that?
Ben Gummer
The hon. Lady makes a perfectly reasonable point, but it is not one that she has conveyed to Opposition Front Benchers, because they chose as the subject of the motion, “The economy one year since the Government’s first Budget”. I am merely commenting on that, not on the rather crass detail in the motion. So far, we have growth in manufacturing, growth in retail sales and growth in the economy. Let us go on to the next thing that they are talking about.
The motion refers to
“a welcome recent fall in unemployment”.
The Opposition concede that. It was not just welcome; it was the largest fall in unemployment for 10 years—88,000—and larger than that achieved at any point when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), whose Parliamentary Private Secretary questioned me a moment ago, was Prime Minister.
Dr Coffey
Well, perhaps he did not, but he seems to have changed his mind and is stepping up the pace of deficit reduction.
Plan C is the VAT cut that the shadow Chancellor announced, unknown to some of his shadow Cabinet colleagues, it seems. Yet again, it is another unfunded tax cut. I was not a Member the last time that happened, in 2008, but many people will remember that earlier that year the 10p tax rate was abolished, and what was the impact of that? The economy continued to contract, leading CEOs said that £12.5 billion had been wasted on that tax cut, and hon. Members may recall the Federation of Small Businesses survey, in which 97% of its members said that their earnings had not increased.
In spite of all that, the right hon. Gentleman has wheeled out the plan again, and eight times today the right hon. Member for Edinburgh South West (Mr Darling) refused to endorse it. We have been told that we need a credible plan with public and political support, but perhaps the shadow Chancellor needs to start with his Back Benchers, rather than by trying to persuade the British public.
I know brotherly love is a big feature of the Labour party, so perhaps the right hon. Gentleman will start with his brother, who I understand works for PIMCO, the world’s biggest bond fund, which has publicly stated that the UK has the best combination of fiscal and monetary policies in the G20—and so say all of us. No wonder in a Populus poll last week, only 23% of the population supported the Labour leadership in its desire to control the economy, a reduction of 10% in the past three months.
Instead, the British public have responded to the two parties on the Government side of the House, which just over a year ago came together in the national interest to form a coalition, and which with wide political support have put together a credible plan to restore fiscal sanity. Government Members have demonstrated a proactive attitude in starting to untangle red tape; in incentivising the creation of small businesses and entrepreneurs; in the significant policy of welfare reform, whereby we have been very clear that people will be better off if they work, unless they cannot; in the extra money going into apprenticeships, building on the good work—I recognise—of the former Government; and in funding infrastructure.
I was a little surprised at the contribution of the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), who seemed to have forgotten the amount of money that the Government are spending on infrastructure. Indeed, we recognise that we need to do so.
Reference has been made to RDAs, but a PricewaterhouseCoopers report last year suggested that generally they have been poor value for money, and despite spending those billions, the prosperity gap has widened.
The hon. Member for Liverpool, West Derby (Stephen Twigg) referred to life in the ’80s in Liverpool, but I grew up in Liverpool and was there in the ’80s. I am going to do a lame Welsh accent, because it was a Labour council—a Labour council—that fired 30,000 employees to stave off bankruptcy—[Hon. Members: “By taxi”]—by taxi. Those people were understandably fed up with the Labour council leader, and they did not just take the ferry across the Mersey to Birkenhead; they left Liverpool. We have seen that with the reduction in the number of people living there, and in the money that is left, too. Ironically, the port of Felixstowe in my constituency benefited from the situation, but it has been a great shame, because I am very proud of where I grew up.
The Conservatives went in and put in investment.
Alison McGovern
The hon. Lady cannot mention our home city of Liverpool without acknowledging the previous Government’s role in rebuilding it and in restoring the pride that we take in it. Will she acknowledge their role, because her comments do not paint a true picture?
Dr Coffey
The hon. Lady is absolutely right. I am very proud of my home city, but I hope that she will also credit Lord Heseltine. We started back in the ’80s, we saw the Albert dock and other aspects of the city transformed, and some of that continued under the previous Government, but investor confidence in the city was knocked by that legacy of the ’80s which was referred to earlier.
The right hon. Member for Morley and Outwood also seemed to use marine terms, trying to suggest something about fancy yachts and the similar. The previous Government, in marine terms, were possibly the equivalent of the Titanic. People took their eye off the ball—holed by an unseen disaster, perhaps—with unintended, tragic consequences. That is the state of the economy which has been left behind, however, with tens of thousands of pounds of debt being loaded on to every child born and on to children not yet born.
The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) referred to the impact of the Budget last year on mothers and families, but every mother and family I know has to cope with a household budget which means that they have to try to balance the books every month. That is absolutely key.
Richard Graham (Gloucester) (Con)
It is a pleasure to follow the hon. Member for Chesterfield (Toby Perkins). He, I and all of us in the House agree that the goal now is to increase growth in the country. The challenges are, first, the revisionist history we have heard today, and secondly the road through which we achieve that growth.
Today’s debate started with the shadow Chancellor talking about the lessons of history and highlighting the need for an economic plan that works. Let me begin with a quick analysis of recent history, because we know that those who do not learn from their errors and from history are destined only to repeat them. The shadow Chancellor was the man who, with his then boss, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), had the clear economic goal of abolishing boom and bust. Thirteen years later and after the worst bust of all time, the right hon. Member for South Shields (David Miliband), as the Chancellor mentioned today, rightly came to the conclusion that it was wrong ever to pretend in a capitalist country that anyone could abolish the economic cycle.
It was a pity that the right hon. Gentleman did not arrive at that conclusion many years earlier, but he has learned an important lesson from recent history. Have the shadow Chancellor and other Labour Members done the same? Have they accepted that the heart of the shadow Chancellor’s last great plan was rotten to the core, was mission impossible, and so ended inevitably in tears? I do not think that Labour Members understand that they and their economic spokesmen will simply not be credible until they accept that key fact.
Alison McGovern
If the hon. Gentleman thinks that the previous Government’s economic policy over a decade lacked credibility, why have the current Government accepted, though amended, the golden rule on investment over the economic cycle?
Richard Graham
First, the hon. Lady is inaccurate, and secondly no Government Member believes that we can abolish boom and bust.
The details of the shadow Chancellor’s plan were no more successful than his goal. The golden rule on Government spending to which the hon. Lady referred was continually fudged under the previous Government, most spectacularly through the £300 billion of off-balance sheet financing—private finance initiatives—which was almost as bad as anything done by the investment banks. Does the shadow Chancellor accept the accusation by the right hon. Member for South Shields that this was a fundamentally dishonest way of measuring the golden rule? Even the right hon. Member for Kirkcaldy and Cowdenbeath has recognised that the tripartite system of regulating finance did not work. Does the shadow Chancellor accept that too?
These dry details, on things such as PFI and the tripartite system of regulation, do not resonate with our constituents, but their consequences will—the hospitals that have to cut services to patients because of the interest being paid on their PFI financing, and banks not lending enough to individuals and businesses in our constituencies because of bad decision making by themselves, inept regulation and inadequate Government oversight. The consequences of living beyond our means are the essential link between the shadow Chancellor’s policies, and our inheritance and this Government’s efforts to forge a better economic future.
We come to the crucial part of today’s motion: how are we doing, one year on? Opposition Members have piled in like a choir singing the hymn “Abide With Me”—“Gloom and despair in all around I see”. They all seem to have enormous confidence that the economy is failing, that the coalition will not plan, and that the coalition plan would not and could not work anyway, leaving them to talk down our country and their own constituencies. I wonder whether any of them are doing anything to help. Where were they, for example, when I led a debate on apprenticeships and small businesses two weeks ago? Not a single Opposition Member was there. We all need to do our bit to support business growth in our constituencies. We know today that not everything is perfect, but the evidence suggests the following facts. Unemployment is down slightly on a year ago. The savings ratio has improved and business growth—
Alison McGovern (Wirral South) (Lab)
In the very short time available, I want to focus on three brief points. First, we have a lot of discussion about who is rewriting what history, and we can all accuse each other, but what we need are the facts about what happened in the crash that caused the deficit. We also need the Government to answer some questions about what comes next. The liquidity crisis of 2008-09 was built on a sub-prime bubble in America and Europe and we must never allow that situation to happen again. That is why I asked the Chancellor earlier to explain a bit more about his banking reforms. He declined to do so, but I am sure that he will in due course. It is highly important that we get financial regulation correct; that is why we built the tripartite system, with an independent Bank of England and an independent regulator separate from Government.
The question is: how do we make sure that we have the right powers of oversight? How do we ensure that we have Government regulators who understand as much and more about the very complicated financial services sector that we have in a modern economy and who are able to have proper oversight? The responsibility for developing that system now rests with the Chancellor of the Exchequer and his team, and I trust that he will say some more about how we are going to do that, so that we can offer proper scrutiny. The Government have a political agenda in blaming the deficit on overspending, but the Chancellor has again failed to answer why he supported that spending in 2007. However, we must not let that political agenda cloud the important decisions that we now have to make about financial regulation.
Secondly, on growth, let me say briefly that although we can ask questions about whether the current growth, stumbling and choppy though it is, is good enough, and whether there is a decent enough comparison with the post-1992 growth, I am also interested in inclusive growth. That is why I have asked Ministers to focus on the UK Trade & Investment strategy and whether there is really enough emphasis on regional balances, manufacturing and other sectors rather than just on getting UKTI to stand up for exports in existing successful sectors. It has to focus on the sectors that will help us to rebalance the economy and on making sure that jobs are brought to places where there are not enough. We need true, inclusive growth in this country.
Finally, on employment, in 2010 in my constituency there was a ratio of five people seeking a job to every vacancy at the jobcentre, but now there are eight jobseekers for every vacancy. That is a very worrying statistic that we must watch. There simply are not enough job vacancies to enable the Work programme to do its job in getting people back to work, and we have really to focus on that. I am incredibly worried about youth unemployment, especially as the Government have already told me that they expect young people’s unemployment to fall by less than one percentage point by 2015. I say to them that surely to goodness we can do better than that.
Oral Answers to Questions
Alison McGovern Excerpts(14 years, 7 months ago)
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Justine Greening
As my hon. Friend knows, one of the key aspects of the Budget this year was to launch “The Plan for Growth”. A key part of that was to provide for more apprenticeships and more work experience so that we can make sure that people have the right skills that companies in this country need.
Alison McGovern (Wirral South) (Lab)
18. What assessment he has made of the most recent growth forecast by the Office for Budget Responsibility.
The Chief Secretary to the Treasury (Danny Alexander)
Growth forecasts are for the independent Office for Budget Responsibility. In March it forecast the economy to grow by 1.7% in 2011, 2.5% in 2012 and 2.9% in 2013.
Alison McGovern
If the OBR embarrasses the Treasury again by downgrading growth forecasts yet again, how will the Government respond?
Danny Alexander
As I say, growth forecasts are a matter for the independent Office for Budget Responsibility. I am clear that the deficit reduction programme is essential to ensure that we have confidence in the UK economy. Given that the Opposition caused the mess we are trying to clear up, I hoped the hon. Lady would support that.
Mr George Osborne
My hon. Friend is right. Manufacturing halved as a share of our economy under the Labour Government and financial services grew dramatically over that period. Since the last election, manufacturing output is up 4.2% and the private sector has created more than 500,000 new jobs net, which is all good news. The example he brings to the Chamber is just one of many companies that are investing and employing people, and despite a choppy recovery we should celebrate that.
Alison McGovern (Wirral South) (Lab)
T7. On 14 February the Governor of the Bank of England told the Chancellor that his VAT rise had caused inflation. On 16 May the Governor again told him that his VAT rise had caused inflation. Will he tell me how he is measuring the impact of his VAT rise on the rest of our economy and whether it was a rise too far, too fast?
Oral Answers to Questions
Alison McGovern Excerpts(14 years, 9 months ago)
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Mr Osborne
Of course it is welcome to have the support of the US Treasury Secretary. It is interesting that we have been urged for some months by Labour to follow the US example. The Obama Administration, in the speech the President gave at George Washington university, set out a deficit reduction plan—it is not yet legislated for in Congress—that goes faster and deeper than the one we are promoting here in the UK. I suspect that we will not now hear the argument that we have heard for the past few months from the Labour party.
Alison McGovern (Wirral South) (Lab)
May I associate myself with the remarks about our much-missed colleague David Cairns that you, Mr Speaker, and others have made?
Recent commentators have suggested that it is possible that the Government will not meet their target to balance the cyclically adjusted current budget by 2015-16, by the end of this Parliament. If it becomes clear that Tory cuts are not working to reduce the deficit, at what stage will the Chancellor change course?
Mr Osborne
I have just been told by my hon. Friend the Member for Chelsea and Fulham (Greg Hands) something about the hon. Lady that I did not know: she is the Parliamentary Private Secretary to the previous leader of the Labour party. It is presumably not a job with onerous responsibilities, but it sounds as though he may have written that question for her. The Office for Budget Responsibility is the independent body that assesses our ability to hit the fiscal mandate. The reason we set it up was because under the stewardship of the person to whom she is PPS all credibility for Treasury figures was lost.
Finance (No. 3) Bill
Alison McGovern Excerpts(14 years, 9 months ago)
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Chris Leslie
If the reason the hon. Gentleman refuses to advocate a repeat of the bonus tax is that the bankers might have sophisticated accountants who can avoid it, that is a pretty poor state of affairs for this Parliament. We ought to be introducing fair and just taxation on the obscenely high bonuses that are still being paid. Even though it is supposedly claimed in Project Merlin that the bonus pot has come down by 8%, we can see that the bonuses are absolutely enormous. Today’s debate is clearly about priorities. The Government are not on the side of families, teachers, nurses, working people or pensioners. Clause 72 shows that they are on the side of the highest-earning bankers who receive each year in bonuses sums that ordinary people dream of winning on the lottery once in a lifetime.
Alison McGovern (Wirral South) (Lab)
Would my hon. Friend be interested, as I am, to find out exactly what the financial value is to the financial services sector of the now implicit Government guarantee that it enjoys? If anything, that should point us towards greater recompense to the taxpayer for that implicit Government guarantee.
Chris Leslie
The ongoing implicit taxpayer guarantee for the banks is very significant. Indeed, I understand that the Bank of England has suggested in its financial stability reports that an implied subsidy of about £100 billion each year offers a safety net for the profitability of the banks. Without that taxpayer guarantee, banks’ borrowing costs would be higher, they would not be able to make such great profits and, therefore, their remuneration and bonuses could not be so high. Many bonuses and excessive profits are being made on the back of the taxpayer, but does that encourage the Treasury to take action? It certainly does not.
Chris Leslie
That is one of the issues to which we shall have to return, perhaps in the Public Bill Committee. The banks are a social necessity—a utility, as it were—in our society, and whatever we think of their behaviour, it is necessary for them to exist to provide the credit that is required to keep the engine of the economy moving. We do not need a dysfunctional banking system; we need a functioning banking system that faces much more towards its customers. We need to stand up for the taxpayer interest, but also for the consumer interest, which must include businesses.
The bonus and remuneration projections are not diminishing, as the Government like to suggest. The Centre for Economics and Business Research recently released an estimate that, whereas bonus payouts in the City for 2010-11 were 8% lower than those for 2009-10—down from “only” £7.3 billion to £6.7 billion—they are forecast to rise from that level to £7.2 billion in 2011-12. The apparent fall in bonuses is largely offset by a 7% increase in the salaries of senior bank executives. So bonuses fall by 8%, and salaries rise by 7%. Obviously that pay rise outstrips pay rises in virtually every other sector of the economy.
Alison McGovern
Does my hon. Friend agree that for the financial services sector it is apparently business as usual, whereas for my constituents, who have seen pay held down and prices high, it is far from business as usual and incredibly tough?
Chris Leslie
Indeed, and I think it important for us to convince the Government of the need to act. I look forward to hearing the Minister demonstrate that he will stand up to the Chancellor of the Exchequer. We know that he is not a patsy in the Treasury. He is a senior figure there, and he is able to show the Chancellor that the House of Commons was determined to send the Treasury the message that we do not accept its policies on bonuses and bank taxation.
Kerry McCarthy
The hon. Lady invents a mythical obstacle to achieving a derogation, without even having tried. Many of her Back Benchers who are constantly urging Ministers to stand up to the European Commission will be very disappointed that they are using the Commission as an excuse. They could have avoided this situation by not introducing the rise in VAT on fuel earlier this year. They should have considered the consequences before entering into such a policy.
The UK has not applied for as many derogations as other member states. We have only one reduced rate, which is used largely for energy and energy-saving materials and a number of health products, as well as the zero rate. France, Italy and Poland have each secured three different reduced rates of VAT, in addition to a zero rate, so there is clearly scope for the UK to ask for a little more.
While Labour was in government, we never applied for a special rate of VAT on fuel, but the reason for that is simple: we never raised VAT on fuel in the first place. This is a problem that the Government have created, so rather than simply telling the Committee that a derogation would be illegal, perhaps the Economic Secretary can once and for all tell us whether the Government have made any serious attempt to start negotiations with the European Commission on the matter, or whether they are simply capitulating to the Commission without putting up a fight.
We have tabled the amendment so that the Government’s fuel duty cut will be shown for what it really is—a 1p cut that is wiped out by the 3p a litre increase resulting from their VAT rise on fuel. It comes at a time when petrol prices are already rising rapidly and reaching record highs, when families are already squeezed and when the economy is struggling to grow. It comes after the Government refused to take the alternative approach that we put forward, which would have been a genuine help to families. The amendment means that the Government will have to face up to the fact that they have made the wrong choice at the wrong time and are harming, not helping, working people.
Alison McGovern
I rise to speak in favour of the amendment, which states clearly that the Chancellor should publish
“an assessment of the impact of taxation on fuel prices.”
It is a short but, I think, highly important amendment, not least because fuel prices are a key part of our economy and have an impact on inflation. I want to say a few words about why taxation on fuel has a bearing on inflation and why that is at the heart of some of the economic problems that we face today, not just from a dry, technical point of view but from the perspective of families in Wirral, Merseyside and elsewhere who are struggling at the moment.
This country has previously dealt with severely high inflation, but for many years we have had relatively low and stable inflation. That is also true across the globe. The nature of the fuel industry means that fuel prices have a specific impact on inflation, but I would point out that inflation in the UK is slightly higher than in the rest of the EU. That should be a warning signal to us. I am not particularly hawkish on inflation and on saying that fuel prices could drive problems in our economy. We need to recognise not the danger of returning to the days of terribly high inflation, but the danger of inflation of nearly 5% when wages are being held down, which limits people’s quality of life. People see food and fuel price increases when they go to the shops or fill up their cars—as my hon. Friend the Member for Bristol East (Kerry McCarthy) correctly said, food prices are partly driven by fuel prices—yet their wages are held down, so at the same time, they face higher prices in the shops and less in their pay packets every month.
Justine Greening
The hon. Lady mentioned VAT. Given her concerns regarding the increase that she says the Government introduced, did she vote against it?
Alison McGovern
The VAT increase that the Government have introduced is clearly highly regrettable. I might just take the opportunity of the Minister’s intervention to correct a common way of phrasing what happened under the previous Government when my right hon. Friend the Member for Edinburgh South West (Mr Darling), the former Chancellor of the Exchequer, temporarily lowered VAT. Government Members often say that Labour increased VAT, as though the decrease was not intended to be a temporary measure to help the economy. There is a difference: the Labour Government helped people through with a cut in prices, but this Conservative-led Government think that the future of taxation in this country should be higher prices in the shops.
Mr Kevan Jones
A more relevant question to ask Conservative Members is why during the election they made a promise not to put up VAT, given that the first thing they did when they came into power was increase VAT.
Alison McGovern
My hon. Friend is absolutely right. I thank him for that intervention.
We voted against the measure to put up VAT because it was not right to increase pressure on prices in the shops that everybody pays no matter what their income.
Stewart Hosie
On a point of order, Mr Hoyle. It is entirely up to the hon. Lady to give way as she sees fit, but when the Scottish National party moved to strike out the VAT rise, Labour most certainly did not vote for it. Could she correct herself—
Alison McGovern
Thank you, Mr Hoyle. It would be testing your patience not to stick to the amendment, as I shall endeavour to do for the rest of my remarks.
All Members will realise that the average family, the average couple and the average pensioner are facing a more and more difficult situation as the money coming in has to be stretched even further, and with prices going up in the shops. That is people’s experience. The impact of taxation on fuel prices and its role in driving up inflation and driving down living standards requires investigation and careful thought. This is not just my view or that of just some economist: when I looked into the possible causes of rising inflation in the UK, the first person I thought might have the answer was the Governor of the Bank of England, who, in his letter to the Chancellor about why the Bank had not met the inflation target, cited the VAT rise as one of the inflationary pressures facing the country.
As I said, I am not some inflation hawk who holds to a 1980s antediluvian economic philosophy that inflation is necessarily bad. Some countries have had relatively high inflation as well as growth. However, the important thing about taxation and fuel prices, and their role in inflation, is that it is possible to build in inflationary expectations in the long term through some of these measures. I wonder whether the Government have really thought about what they are doing in not combating some of the issues related to rising prices that we have seen.
There is also an obvious link with people’s worry about the lack of investment at this time. There is no doubt that investment means jobs today and productivity tomorrow, and therefore a more effective economy that enables people to have a better standard of living at less cost. That has to be the aim. At the moment, the Government are balancing the books using VAT and extremely flat taxes that do not pay regard to people’s income. They are asking people in my constituency on relatively modest incomes to pay the same higher prices at the fuel pumps as people in the Chancellor’s constituency down the road in Tatton, who by and large—not universally—are a bit wealthier. That is not fair.
We have to consider carefully whether the increased taxation on fuel resulting from the VAT rise is having a negative impact on the economy in a wide-ranging sense. It is not only about whether fuel prices are up—obviously that could be the result of several things—but, most especially, about what that is doing to inflationary expectations. We need to consider whether it is having a damaging impact on the broader economy, and whether it is a disincentive to growth and productivity improvements in the UK. We also need to consider what it is doing to the living standards of people such as those whom I represent in Wirral and Merseyside who have seen living standards fall severely in the past two years.
Steve Rotheram (Liverpool, Walton) (Lab)
I am sure that my hon. Friend would agree with the old adage, “You can’t fool all the people all the time”, but that is exactly what the Chancellor tried to do with his 1p tax cut to fuel duty. However, is it not the case that since the Budget, petrol prices have gone up several times more than that 1p tax bribe, and that the VAT increase in fuel duty is causing damage to motorists and businesses—
The Chairman
Order. I am ruling that interventions must be short and letting the Committee know that we will be taking only short interventions.
Alison McGovern
My hon. Friend makes an important, if a little lengthy point. People will not be fooled, because they will see fuel prices going up and ask themselves what the Government have done to help. People are connecting the impact on prices across the board with what happens when they fill up the tank. When they go to the shop, they see higher prices all around them and they wonder where they are coming from. There is one clear answer: No. 11 Downing street. The Chancellor has decided that people will have to pay more in the shops. Let us not imagine that he has said, “Well, I’m sorry everyone. These are tough times—we’re going to ask you to put your hands in your pockets until we can lower VAT again.” Rather, this is a permanent rise that will build in higher prices for the long term. Given the downward pressure on wages, the really worrying thing is that the rise is building in not only a reduction in quality of life, but inequality, which is very worrying and will hurt for many years to come.
Ian Mearns
I know that we are in Committee, but let me take this opportunity to send my best wishes to parliamentary colleagues from the north-east region who are unwell at the moment—the hon. Member for Hexham (Guy Opperman) and my hon. Friend the Member for North West Durham (Pat Glass), who are both incapacitated. I am sure that the House joins me in sending our best wishes to them both.
The amendment calls for the Chancellor to publish an assessment of the impact of taxation on fuel prices within three months of the Bill being passed. I will concentrate on the differential impact of fuel duty policy in the English regions. I say “regions” with some trepidation, because I know that the very concept, or even uttering the word, causes phobic shudders in some quarters on the Government Benches, but an analysis of road freight statistics by the North East chamber of commerce has demonstrated the extra burden that fuel taxation places on businesses in regions such as the north-east. Each tonne of freight brought in or out of the north-east of England delivers approximately £4.16 in fuel taxes to the Exchequer; although that figure probably changes daily, it is 18% higher than the average for English regions, which is only £3.52, and 74% higher than the figure for London. That analysis shows that more careful consideration should be given to fuel duty rates’ economic impact in regions and to differential rates.
Road freight statistics show the extra distance travelled by goods transported into or out of the north-east compared with other parts of England. Every tonne of freight transported by road into or out of the north-east travels an average of 119 miles, compared with an average of 111 miles for businesses across the whole of England. Only businesses in the south-west of England transport freight further by road, with each tonne of goods going into or out of the south-west travelling an average of 192 km, which is ever so slightly more than the average of 119 miles for the north-east. Duty on diesel is currently at about 58p a litre.
Amendment of the Law
Alison McGovern Excerpts(14 years, 10 months ago)
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Joseph Johnson
The hon. Gentleman may be a great economic expert, but he might find that the world’s foremost economists and international financial organisations, from the International Monetary Fund to the OECD—the entire gamut of respected economic thought—see this fiscal consolidation as necessary. There is no backsliding, which I applaud.
Before those interventions, I was saying that Portugal is moving ever closer to becoming the third eurozone periphery country to need a bail-out. Borrowing costs are again rising to a new euro-era high in Ireland, which desperately needs eurozone members at tomorrow’s summit to reach a political compromise on revised lending terms.
By contrast, Britain is a different story, thanks to the credible policies in the emergency Budget last June and the policies announced in October’s spending review. There is no sign whatever of any funding problems in the gilts market—quite the opposite—and we must prize that achievement. We have saved our triple A credit rating, which was under threat of downgrade in the last months of the previous Government, and kept our borrowing costs close to historic lows.
The coalition Government have earned the respect of the international capital markets and have their confidence, because the combination of a tight fiscal and a loose monetary policy remains the best chance of avoiding a sovereign debt crisis while ensuring acceptable increases in GDP. Britain simply could not for long run a budget deficit of 11% of GDP—the second highest in the OECD—without taking the unacceptable risk of losing the confidence of the bond markets. Almost a year on, the wisdom of taking decisive action to reduce the risk of sovereign debt crisis is obvious to all except perhaps Labour Members. Even Gavyn Davies, the Labour-supporting economist, conceded in yesterday’s Financial Times that getting the deficit down was a “defensible decision”.
A debt crisis would have been disastrous for growth and unemployment, as many European nations are now discovering. Furthermore, unlike those countries, Britain can, and is, using monetary and exchange rate policy to offset the fiscal tightening, as my right hon. Friend the Member for Wokingham said. I hope that that will keep the economy recovering.
As I have said, all manner of international bodies, from the IMF to the OECD, are unanimous in urging the Chancellor to stay the fiscal course that he has so consistently outlined for this country. Yes, real GDP growth may have dipped temporarily as consumers’ expenditure has been weakened, and today’s growth forecasts for 2011 from the Office for Budget Responsibility may be a little lower than we would have liked. However—
Joseph Johnson
I will continue, if I may.
However, business surveys have been much stronger than the official data, and the Institute for Fiscal Studies says that the chances of a double-dip recession are no more than 20%. Even Gavyn Davies, the great Labour-supporting economist, admits that this figure is
“not high enough to jettison the government’s main strategy, with the loss of credibility which that would imply.”
Mr Davies is, of course, completely right. Maintaining the current policy remains the best bet for Britain in the medium to long term, and that is what matters most.
Diana Johnson
No, I want to carry on making the point about why there is a real need in Yorkshire and, in particular, the Humber to grow the economy. The measures that have been taken are not helping. The result of all that money being taken out of my city is that construction jobs are going and we shall not have the training or the apprenticeships that the Chancellor has talked about. For the first time, we have seen compulsory redundancies at BAE Systems, a major private sector employer just outside Hull on which many of my constituents rely for skilled jobs. It is a place where people want to work, but private sector jobs are being lost there.
The abolition of the regional development agency, Yorkshire Forward, is a huge loss to the region and to the building up of the regional economy. The coalition has introduced local enterprise partnerships to assist regeneration. We all agree that we need to regenerate areas such as East Yorkshire and the Humber, and Yorkshire Forward was doing a very good job of building up the economy. The Government’s answer was to remove the RDA and create a regional growth fund. Now, whenever a question is raised about where funding can be accessed, we are told to go to the regional growth fund. The housing pathfinder has been scrapped, and the Prime Minister told my hon. Friend the Member for Kingston upon Hull East (Karl Turner) to go to the regional growth fund for money. It seems to me that the fund must already have been spent about 100 times over. It is just ridiculous.
Alison McGovern
Does my hon. Friend acknowledge, as I do, that the impact of these policies is borne out by the numbers, as the growth forecasts are downgraded?
Diana Johnson
That is absolutely clear.
The proposal for a business-led solution to deal with economic growth in the regions appears sensible. In my area, however, local authority politicians on Conservative-led East Yorkshire council and Liberal Democrat-led Hull council have been squabbling among themselves. The business leaders have made it clear that they want a pan-Humber LEP that will bring the economy together on the north and south banks of the Humber. As I said, we have had the wonderful announcement from Siemens on the future of renewable energy in our area, but because of the way in which the local councils in East Riding and Hull are behaving, the business community has been left without an LEP; the Business Secretary would not agree to one because it did not have the support of the business community.
This just shows that the Government’s approach is flawed. My area desperately needs economic growth, yet it has been left with no LEP and with the council in Hull squabbling with the councils on the south bank of the Humber. We have great potential for growth in the renewable energy sector, but there is no co-ordinating force. The idea is that LEPs will lead us into the growth strategy that we all want to see, but that is not going to happen in my area.
Richard Harrington
My hon. Friend makes a good point, but we heard about Siemens so long ago that it had slipped my mind.
I shall restrict my comments to my experiences in business of dealing with the economy, and the experiences of my constituents and their businesses in Watford. Watford is not dissimilar to Kingston upon Hull. It has significant unemployment and shares all the same problems as many other parts of the country. Notwithstanding the Chancellor’s commendable statement today, the most significant factor in encouraging businesses to invest is the general macro-economic situation. Therefore, the most important aspects of this Budget and the last Budget are the measures for reducing the deficit.
Alison McGovern
The hon. Gentleman is making his speech in his usual eloquent style. Will he comment on why the growth forecasts have been revised downwards?
Richard Harrington
The comments that the hon. Lady somewhat generously applied to my erudition can also be applied to hers. To respond to her question on growth forecasts, we cannot select one figure and say that it makes a fundamental difference, because assessments of growth must be made over a period of time. In my experience, the most important factor for growth is the confidence people have in the economy, and that will definitely come about because of the Government’s sensible approach, as opposed to the reckless irresponsibility of their predecessor.
Alison McGovern (Wirral South) (Lab)
It is an honour to participate in the debate in which my hon. Friend the Member for Barnsley Central (Dan Jarvis) made his maiden speech. He made a really excellent contribution.
I want to comment on two aspects of the Chancellor’s statement: first, on inflation and the cost of living that people in Wirral and elsewhere are facing; secondly, on young people and employment. On inflation and the cost of living, we all need to acknowledge the global pressures that are causing price increases in the shops. Those pressures, including what is happening in the middle east and the price of food and other basic materials, make it more important that we get our policy right domestically. We have recently seen CPI inflation rise to 4.4% and RPI inflation rise to 5.5% in the UK, yet inflation for the EU as a whole is 2.8%. This picture of increased prices must also be taken into consideration in the context of our constituents whose wages are being held down. People have not seen an increase in their pay packets, but they are seeing price increases in the shops.
What is causing this inflation? I am well aware of the structure for setting interest rates and controlling price increases, and I look to the Governor of the Bank of England for an explanation as to why inflation has moved away from the targets. He says that
“three factors can account for the current high level of inflation: the rise in VAT relative to a year ago, the continuing consequences of the fall in sterling in late 2007 and 2008, and recent increases in commodity prices”.
He cites the Tory tax hike as having played a part in building inflation. My worry is not just about inflation this year, however; it is about people’s expectations of building inflation and the permanent hit that they will have on families.
John Thurso (Caithness, Sutherland and Easter Ross) (LD)
Will the hon. Lady give way?
Alison McGovern
I will not, if the hon. Gentleman does not mind; I am conscious that other Members want to speak.
Labour rightly instigated a temporary reduction in the rate of VAT to help us through the downturn, but I am now worried because the Tory-led Government have implemented a permanent hike in the prices that ordinary people in my constituency face in the shops. That is clearly having a huge impact on our economy and threatening future growth, as has been illustrated by the reduction in the growth forecast.
On the increase in commodity prices which has also caused inflation, the Chancellor said in his statement that the UK would seek to have an impact on those prices through the G20. It is therefore incumbent on Ministers to explain how they are going to engage with our international partners to achieve that. There is no doubt that those worldwide events are having an impact on the streets of Bromborough, Bebbington, Heswall and New Ferry in my constituency, and I would like to know what action the Government are going to take in that regard.
I shall deal briefly with young people and employment. I know that Members across the House care about the issue, but we need to bring some words of caution to the debate. The Chancellor rightly reserved extra funds for the future training of apprentices, but money reserved does not equal apprentices hired. Other factors are necessary for getting young people into employment. The first, business confidence, is vital: businesses must have the confidence to invest. I refer hon. Members to what I said about the in-built inflationary expectations in the economy and what they might do to investment. It is a matter of great concern. A second necessary factor is growth, and it is worrying to see growth forecasts revised downwards. The Chancellor might have said that this was a Budget for growth, but I feel that it was all words and very little action. A final necessary factor is a change in culture, whereby businesses feel that it is their role to bring on the next generation. The current generation at work should be allowed to share their skills in the informal setting of the workplace to bring on the next generation.
I highlight, as always, the role of my own local authority. Wirral has shown great leadership in the sphere of encouraging small and medium-sized businesses to take on apprentices. However, the local authority cuts, which have been much greater in our area than in others, have put Wirral’s ability to play this role in jeopardy. The Government need to think about how they will bring about this change of culture in practice rather than simply reserve the funds and say they are there if business wants to take them.
Finally, I fear that Britain is seeing the end of any interventionist role for the Government. I feel strongly that the future jobs fund was an excellent answer to youth unemployment, but the Government have withdrawn from it. They say they are reserving funds for apprentices, but they are doing little more than that to encourage businesses to invest. We are also seeing inflationary pressures on the cost of living, which the Governor of the Bank of England relates to the rise in VAT. This is a price hike that hard-pressed families in Wirral and elsewhere can little afford. On those two issues that I have prioritised, I would like to see Ministers taking much more action.
Mr Deputy Speaker (Mr Nigel Evans)
I thank the hon. Lady for her time restraint.
Budget Responsibility and National Audit Bill [Lords]
Alison McGovern Excerpts(15 years ago)
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Ms Eagle
This is how we can get into difficulty with forecasts, which are static when they are made but apply to a dynamic situation. The hon. Gentleman knows, for example, that our debates in the House are, in part, about the effects on growth of a drastic fiscal consolidation. Our contention has always been that cutting too far too fast will suppress growth to such an extent that the deficit reductions that were hoped for will not come about. That is an essential part of the economic debate that, as far as I can see, we have been having since the Budget in June last year.
Forecasts can be affected by subsequent events and by Government policies. That demonstrates that what matters most is not forecasting for its own sake, but the judgment of the Chancellor of the Exchequer and the Government, and the extreme fiscal choices that they have made.
Alison McGovern (Wirral South) (Lab)
Does my hon. Friend agree that we have another independent forecaster, the Bank of England, which was made independent in 1997? What lessons from the interaction between the Treasury and that independent forecaster ought to be applied to the relationship between the Treasury and the OBR?
Ms Eagle
In order to fulfil its duties, the Bank of England produces its own forecasts, which do not always agree with what were previously Treasury forecasts and will now be OBR forecasts. There are also a number of independent forecasters out there with their own view of the situation. Forecasts range from optimistic to pessimistic, and those of us who watch these things learn to take account of that. Regarding OBR forecasts or forecasts of the Bank of England as statements of the unvarnished truth will quickly get us into difficulty.
Alec Shelbrooke
My point is proved by that sedentary intervention. Labour Members think that the whole financial crisis is down to the banks.
There is no doubt that the banks contributed to the global recession, but there is equally no doubt that this country was one of the worst placed countries in being able to deal with the downturn. Let us not forget what a structural deficit is. Again, I see Opposition Members shaking their heads, completely in denial of the fact that this country was living way beyond its means. One does not rack up a £1 trillion debt in the good times if one is acting sensibly. While £120 million a day in interest is going to foreign nations, we see councils around the country, especially Labour-run councils, cutting front-line services that impact on the public and trying to blame the Government, yet never mentioning what we could have done with that £120 million a day. We have to get a grip on the economy.
I want to return to the OBR, because I am conscious, Mr Deputy Speaker, that you have been trying to keep the debate on track. Let us consider the name of this body —the Office for Budget Responsibility. “Responsibility” is a word that has been lacking in the governance of this country and its fiscal policy, not only in the Treasury but, as we recently learned from senior civil servants, in other Departments that lost control of spending. We in this House have to be responsible and move things forward.
Alison McGovern
The hon. Gentleman rightly says that we should be cautious. How successful does he feel that previous attempts to add caution to Budgets were? The National Audit Office has previously examined the assumptions made by the Treasury. For example, it was assumed in the March 2010 Budget that GDP growth was 0.25% lower than it really was. Would he like to comment on how those previous attempts at caution might feed into the OBR’s future work?
Alec Shelbrooke
As the hon. Lady suggests, previous forecasts and attempts at caution came from many different angles. The public will recognise that the OBR is giving us a proper set of figures that can be relied on. If the Chancellor of the Exchequer then ignores those figures and ploughs ahead, not only would the calls from the Opposition be deafening but the public would know that the Chancellor was acting against their interests.
Alison McGovern (Wirral South) (Lab)
It is a pleasure to follow the hon. Member for Elmet and Rothwell (Alec Shelbrooke), whose robust arguments I always enjoy, if not agree with.
The purpose of this Bill is to separate politics and economics, which is not always an easy job but is one that it is important to do. There is a body of academic understanding about the importance of the independence of judgments, forecasting and transparency, and that importance is recognised and understood on both sides of the House. In many ways, the Bill makes clear Labour’s economic legacy of the past decade—rules-based economic policy. The reasons for the sustainable investment rule and the golden rule were clear: after decades of boom and bust, it was felt that the way forward was to establish clear lines of accountability and rules by which economic policy might be set.
Alec Shelbrooke
I agree that the golden rule was important, but how does the hon. Lady respond to the fact that the dates of the cycles were moved to fit in with what the then Chancellor was claiming instead of sticking to the timeline that he originally outlined for the fiscal cycle?
Alison McGovern
Understanding the business cycle has been the job of economists since the dismal science began. The fact that it is difficult does not make it the wrong thing to try to do. I applaud some of the work that has been done by the Treasury and others in trying to find a better way forward. The hon. Gentleman asks an important question that cannot be dismissed by saying, “Oh, this is just people politicking.” Understanding the business cycle is extremely difficult.
When we consider the importance of rules-based economic policy, it is important to reflect on the fact that the Office for Budget Responsibility is to fiscal policy what the independence of the Bank of England was, and remains, to monetary policy: that is, it is an external-to-the-Treasury body that is charged with an important economic function that will drive the policy prescriptions that the Government make, in liaison and discussion with, and working alongside, independent chairs and officials from the organisations concerned. I have no doubt that that is an extremely difficult job. I wonder how real that independence can be. That is an important question for us to consider as the Bill moves through the House. The OBR’s work will be inextricably linked with Departments.
That point was brought home to me by the answer to a parliamentary question in which I asked the Department for Work and Pensions for forecasts of the number of young people who would be unemployed through the life of this Parliament. The Minister of State, Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling) wrote:
“The Department produces projections for business planning purposes which are aligned to the overall independent claimant count forecasts published by the Office for Budget Responsibility”.—[Official Report, 31 January 2011; Vol. 522, c. 587W.]
I wondered what the nature of that alignment would be. I understand that it will be an iterative process as business planning projections are made and discussed in challenged conversations with the OBR. It will not be easy to maintain the independence of this body, but we must all strive to do so.
If you will allow me, Mr Deputy Speaker, I will take this opportunity to say that I mentioned that parliamentary question in Treasury questions last Tuesday, and said that
“the Government’s own business planning projections show that the proportion of young people on the dole by the end of this Parliament will be reduced by less than 1%.”—[Official Report, 8 February 2011; Vol. 523, c. 153.]
I misspoke, and should have said less than one percentage point.
It will be a difficult job behind the scenes to maintain the independence of the OBR. Lars Calmfors, who has been mentioned, has argued that it will be difficult to stop or prevent behind-the-scenes negotiations with the Treasury. However, I believe that the Government have set such store by the independence of the OBR that they want it to succeed and its independence to be maintained. As hon. Members have suggested, it could have increased accountability to Parliament via the Treasury Committee. I am sure that the members of that Committee will be perspicuous in demanding that accountability and independence.
To conclude, I will make a few remarks about rules-based economic policy. I take it from this debate that it is agreed across the House that the right way to make economic policy is to set out ahead of events the rules and principles that the Government wish to stick to, and that the Government should allow themselves to be held up and judged on the basis of those rules. What could possibly be the problem with that approach to making economic policy? In some ways, we are already seeing the problem. Young people in this country who are unemployed because of the global shock face significant difficulties. We have to ask ourselves how the rules that we have set as the basis of our economic policy allow us to act to ensure that our economy runs well. Surely, economic measures are the tools to aid a well-functioning society, not the other way round. If so, our economic policy must be able to respond to shocks.
Not only must the Government say what the rules for their economic policy are and allow themselves to be judged by independent bodies on those rules, as they are doing; they must also say how they will respond to crises. Should this country find itself in a further economic downturn, facing an even worse situation for residents of this country, especially those on the lowest incomes and at the start of their careers, who face severe unemployment, how will the Government use the flexibility in their economic policy to return the country to growth, and how will their economic rules take account of the possibility of shocks? This is a significant challenge for the Government and I hope that all hon. Members will add to the scrutiny of the Bill as it progresses.
Kate Green (Stretford and Urmston) (Lab)
Like colleagues throughout the House, I welcome putting the Office for Budget Responsibility on a statutory footing and the opportunity that it offers for independent forward financial forecasting. That will enable us to see clearly the impact of policy decisions on the public finances, and it will set the context for, and inform, future policy choice. However, as has been pointed out, the OBR and its forecasting mechanism do not of themselves correct or reshape policy mistakes. It is the Government who set the fiscal mandate, and the OBR is there to say whether that mandate has been met. There is no requirement on the OBR to offer any critique of that mandate, or to judge whether it is fair.
We cannot examine only whether the Government have achieved their forecasts. I support the remarks of my hon. Friend the Member for Wirral South (Alison McGovern), who suggested that there was a larger context to address—whether the Government’s policies reflect the right policy ambitions and produce the right social outcomes, and whether the spending on them is effective. To that extent, I am particularly interested in Ministers’ comments on the relationship between the OBR and the other organisation highlighted in the Bill, the National Audit Office.
Like my hon. Friends, I am concerned about the Government’s current mandate to eliminate the deficit within four years. We are concerned to critique not just the mandate but the policies that will bring about the achievement of it. We are extremely concerned that those policies will have a harsh impact on the lives of the people across the country whom we represent, and we are concerned about their impact on growth, employment and intergenerational fairness. That last point is specifically highlighted in the draft charter, and I would be interested to hear the Exchequer Secretary explain how the OBR will judge and assess long-term intergenerational fairness. It is not sufficient simply to say that we cannot pass on to tomorrow’s children the deficit of today, because today’s children are bearing the burden of the policies that the Government are adopting to address that deficit. I would welcome an explanation of exactly what Ministers mean by intergenerational fairness and how the OBR will assess it.
Alison McGovern
Does my hon. Friend think that in addition to that, the Government ought to consider the effect of unemployment on a person’s long-term career, and therefore on their family, as part of intergenerational fairness?
Kate Green
My hon. Friend makes an excellent point. Some superficially appealing terminology has been bandied about in relation to the Bill, but we need to know the substance of what Ministers understand to be fair.
Members in all parts of the House welcome the opportunity for transparency that lies within the Bill, but as others have pointed out, that transparency is potentially undermined if the OBR does not secure the resources necessary to ensure that its independence is not compromised. The OBR needs to be adequately resourced to carry out a full and proper analysis. In that context, looking at the full impact of policy includes modelling imputed behavioural change, about which the Government have so far shown themselves to be casual, including in their analysis on the introduction of the universal credit, which is one of their major policy proposals. Great claims have been made for the universal credit’s impact on increased benefits take-up and labour market participation, but the Department for Work and Pensions’ analysis of such behavioural changes to drive such outcomes is remarkably thin. How deep can the OBR dig when departmental analysis apparently does not do so?
There is two-way traffic in policy making and in analysing the impact of policy initiatives. The OBR has been set up specifically to reflect in its forecasts what we might call policy “knowns”, but as was pointed out, there are opportunities to allow for dynamic forecasting so that we can judge the impact of new policies on the public finances in future. I believe strongly that the creation of the OBR offers an opportunity to tie those two aspects of policy forecasting together, so that it is possible to verify departmental impact assessments at the time when policy is being considered—prior to its implementation—and as part of the process of legislative scrutiny and approval by the House.
As my hon. Friend the Member for Wirral South pointed out, there are tensions involved in ensuring that the OBR has a role in scrutinising policy making as it develops and emerges, but there is an important opportunity to enable Parliament effectively to critique, to challenge and to improve. How do Ministers see the OBR’s role in the context of iterative policy making, and how do they think that tension will be resolved?
I look forward to the ongoing process of the passage of the Bill to implement the OBR, and to its independent reports and analysis. However, it is important to understand that the Bill is a step on the way to better policy making and scrutiny rather than a job fully done. Of course, the OBR offers great potential to aid our understanding, but I am clear that it is just one element of how we judge policy cost and impact, and most importantly, policy success.
Stephen Williams (Bristol West) (LD)
I guess that you, Mr Deputy Speaker, and many hon. Members have a collection of fridge magnets. I have one back home in Bristol that I acquired on a visit last summer to Hughenden manor. Of course, Disraeli, who lived there, is a rich vein of quotes, and perhaps one of his most famous is that there are “lies, damned lies and statistics”, which is what this debate is all about. Statistics are never more controversial than in economics. There was quite a controversy surrounding the last quarterly growth figures—I will make no jokes about snow—but in forecasts and retrospective reporting, there are random factors, and such reports are often revised.
Forecasting, of course, is even more contentious than retrospective reporting on economic events. I am sure that all Chancellors have at least been tempted to inject political factors into what the hon. Member for Wirral South (Alison McGovern) called the “dismal science” of economics. Whether economics is a science at all is debatable, but it is certainly inexact as a social science, and very heavily influenced by politics. In fact, it was traditionally known as “political economy”.
In all Budgets and autumn statements, Chancellors forecast tax yields and outlined the effect of their policies on employment and unemployment. They said who would benefit and described the impact of their policies on the fiscal balance and debt. As a chartered tax consultant and in the last six years as an MP, I watched a decade of Budgets by the former Prime Minister and Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), whose first act as Chancellor was to set up the independence of the Bank of England, to which many hon. Members have referred. The implementation of a Liberal Democrat manifesto commitment 13 years before we got around to joining the Government was welcome, but after 1997, the former Chancellor made up his own rules as he went along on everything other than monetary policy. The golden rule has been mentioned several times, but his best friend, Prudence, has understandably not been mentioned by Opposition Members, because as we all remember, in all his Budgets and forecasts, everything was rosy. The Chancellor always confounded his critics and said, “Everyone else is wrong. Lo and behold—what a surprise! —I have a marvellous thing to announce.” What happened? The 2008 crash happened.
Alison McGovern
On that very note, which was the more prudent: putting the country into a situation in which people could not withdraw cash from the banks or recapitalising the banks, as happened?
Stephen Williams
I was talking about events prior to the crash, rather than the policy response to the crash itself, which was in any case initially rather timid and slow. My right hon. Friend the Member for Twickenham (Vince Cable) repeatedly urged the Chancellor to nationalise Northern Rock, which was the first symptom of the crisis, but those urges were resisted for quite some time.
Oral Answers to Questions
Alison McGovern Excerpts(15 years ago)
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Mr Gauke
The National Audit Office has investigated and examined that as a matter of course. There is no question of sweetheart deals. The reality is that HMRC is seeking to recover as much tax as is due. That is what it has done in a number of cases. I am not going to comment on individual cases. That is a matter of confidentiality; I do not get to see the details. None the less, I think wild allegations have been made against HMRC, for which there is little or no evidence.
Alison McGovern (Wirral South) (Lab)
I was just checking and realised that the Government’s own business planning projections show that the proportion of young people on the dole by the end of this Parliament will be reduced by less than 1%. Will the Chancellor explain what his plan is to increase the number of jobs made available to those young people?
Mr Osborne
This country has a problem with youth unemployment that has been apparent for a decade. Even in the boom years during the middle part of the last decade, youth unemployment was increasing and a whole generation was being left behind. I hope that we can achieve some kind of cross-party consensus on trying to reform our welfare system so that people do not get trapped in poverty and work always pays. We are reforming the new deal and replacing it with the Work programme so that we are more effective at giving young people the training they need and the opportunities that have been lacking for the last decade.
Oral Answers to Questions
Alison McGovern Excerpts(15 years, 1 month ago)
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Mr Hoban
My hon. Friend is absolutely right. We are very fortunate in this country. Because the Government took difficult decisions to tackle the deficit when we came into office, we are in a much stronger place now—consider the turbulence in the eurozone. The difficult decisions that we took ensured that we stepped back from the brink of bankruptcy.
Alison McGovern (Wirral South) (Lab)
Global action on regulating the financial services sector through groups such as the G20 is vital. The House of Lords Economic Affairs Committee recommended a pre-funded deposit insurance scheme. It said:
“The Government should move towards pre-funding of the Financial Services Compensation Scheme as soon as”
possible. Why has the Treasury turned its back on that important measure?
Mr Hoban
If the hon. Lady speaks to building societies, which are finding it difficult to lend at the moment, she will hear their concern about the amount that they pay towards the financial services compensation scheme. Contributing to a pre-funded scheme would add to that burden and reduce the ability of banks and building societies to lend to support the recovery.
Banking Reform
Alison McGovern Excerpts(15 years, 2 months ago)
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Alison McGovern (Wirral South) (Lab)
I begin by congratulating the Backbench Business Committee and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on securing this debate, which has been illuminating and measured. I join the hon. Member for North East Cambridgeshire (Stephen Barclay) on the important point that he made at the beginning of his speech: in the City, there has been a lack of recognition of the depth of anger among many of our constituents. The hon. Gentleman is right about that, and I hope that this debate can start to set that issue right in some way.
I want to make three swift remarks. My first is about the tripartite arrangements. I want to take the House back in time. I well remember when interest rates were set by politicians. In many ways, our tripartite arrangements have been a success. As economists predicted before the change, Bank of England independence aligned to inflation targets has allowed an independence, a clarity, a robustness and a rule-based approach. It is important to recognise that. We have been discussing a lot, and people have rightly raised, some issues to do with the failures of regulation, but we need to recognise why we changed to the tripartite arrangements and consider the importance of that change in 1997.
However, today I want to suggest that we cannot just question and consider regulation, important though that is; we need to look for a change of culture in the financial services sector as well. Many people have already recognised the imbalance in respect of the major role that financial services play in our economy, but I do not think that that imbalance is mainly regional—it is not a case of London and the south-east versus the rest of the UK at all. We know of the importance of banking in Scotland, and in my own area of Merseyside, many people work in the financial services sector or in organisations that contract to it. In 2007, such activity amounted to 14% of PAYE and 27% of corporation tax.
I want to make the point that the impact of the sector is not just that regulation might help or hinder small business; as we have all seen, it also has a massive impact on public services. Getting right the structure, regulation and culture of the sector is one of the most important jobs that we have to do.
I turn to the importance of the changes that we all want. First, on regulation, the issue is about not just capital requirements but the work that Basel III might—and must—do on liquidity requirements. In many ways, the credit crunch is misdescribed; it should be described as a “liquidity crunch”. The question that we need to ask of all banks relates to their access to liquidity as much as to capital.
Whoever has the supervisory powers, whether the Bank of England or the Financial Services Authority, it is important to determine what those macro-prudential powers actually are. Furthermore, we must have a credible means, transparent and understood by all, of dealing with failed banks. A process needs to be in place. People have mentioned living wills. We need to make sure that what happens with failed banks is understood by all, so that the risks lie with shareholders and people within the system rather than with an implicit taxpayer guarantee. We will see that as the place that we are trying to get to.
Finally, I leave the House with this thought. If we are to understand the crisis that we went through in 2008-09, we must realise that it was not merely a crisis of regulation. The commission on banking reform that the Government rightly set up should listen to the Chartered Institute of Bankers in Scotland. It has warned Sir John Vickers that new regulation will fail if it is not combined with
“a firm commitment to embedding a culture of high ethical, professional and technical standards amongst bankers throughout the industry”.
That point is really important. Those of us who see the importance of the financial services sector want a change in its culture as much as a change of regulation. That has to be about high ethical standards.
In conclusion, I hope that the measured nature and thoughtfulness of this debate will send a message to all about the seriousness in which we hold these reforms.
Andrew Bridgen
The hon. Gentleman makes that point, but the previous Government encouraged and took part in an orgy of credit: in fact, they led it, and invited individuals and corporations to join in, safe in the knowledge that the former Prime Minister said that he had ended boom and bust, which now sounds as ridiculous as King Canute claiming he could turn back the tide. The taxpayer now has the hangover from that 10-year orgy of credit.
Under the former Prime Minister’s watch, the Bank of England deliberately stoked a consumer boom that led to spiralling house price inflation and massive levels of personal debt. This is not just my opinion, but that of the previous Governor of the Bank of England, the late Lord George, who said of that period:
“We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term.”
That approach led to 20% house price inflation when the consumer prices index was running at 2%, led to financial institutions such as Northern Rock offering 120% mortgages, and ultimately led to a run on a British bank and the financial crisis of 2007. Opposition Members might blame America, global markets, or even the fact that we are not in the euro, as ridiculous as that sounds, but this misguided belief, and the hubris of the previous Prime Minister in believing that he had ended boom and bust, helped to contribute to the banking collapse. It is fascinating that the shadow Home Secretary—or perhaps I should say the shadow shadow Chancellor—stated that the cause of the deficit was not the previous Government’s borrowing, but rather the collapse of tax revenues. He failed to recognise that tax revenues based on rapid house inflation and excessive consumer credit are totally unsustainable.
The failure of the previous Prime Minister’s regulatory regime also contributed to the problem. It was clear in the early part of the decade that the UK had an unsustainable consumer credit funding gap: the IMF said so, as did the previous Governor of the Bank of England. The power to regulate had been transferred from the Bank of England to the Financial Services Authority and the Treasury, with an inadequate definition of roles and responsibilities. It was an absolute disaster, as was shown at the height of the Northern Rock crash, when Mervyn King was asked, “Who is in control?” and his answer was, “That depends on how you define ‘in control’.” The answer was that nobody was in control, and no one could see who was in control. One cannot have a third of a problem—one wants all of the problem or none of it. That was part of the difficulty.
So where do we go from here? I am a firm believer in sound money. A sustainable banking system is one where lending policies are closely in sync with the projected economic activity of the people it serves, not driving them.
Alison McGovern
Does the hon. Gentleman recall, as I do, that the previous Conservative Government left the country with a deficit of 3.4% which was going towards ongoing spending, unlike the debt in 2008, which accorded with the “borrow to invest” rule? In relation to sound money, what does he think about that?
Andrew Bridgen
I thank the hon. Lady for her point. She, like me, was not in this place at that time. I was in business running a corporation. I fixed the roof while the sun was shining, and I put my company into net credit three months before the banking crash happened.
We need a Government—and a regulator—who do not deliberately go to sleep at the wheel for political advantage, as the previous Government did. We must never let a bubble like the one that built up under the previous Government build up again. Our plan for growth depends on a sensible and sustainable banking system alongside more powerful incentives from Government. We must never return to the bubble that ended in the financial crisis and allowed banks to lend unsustainably under a tick-box regulatory system and a short-termist, feckless Government concerned more with political advantage than with the long-term interests of the country. In short, we need to look at creating a body that is solely in charge of financial stability and has responsibility for macro-economic supervision.