Bank of England (Appointment of Governor) Bill
Kwasi Kwarteng Excerpts(13 years, 7 months ago)
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Stephen Hammond
The chairman of the 1922 committee is right on one thing and wrong on the other. It is very rare that I get to speak without a time limit, so I was not necessarily intending to conclude now—although I will, of course, do so very soon. As my hon. Friend will have noted from my argument, I was not trying to impugn the Treasury Committee or its candidate. I was merely pointing out that sometimes the outside observers of this House do not share the same faith in our institutions and decisions as we do. I was raising the possibility that a newspaper might impugn the reputation of a candidate by saying he is the only available candidate because he was the only one passed by the Treasury Committee. That would create a credibility gap in respect of that candidate, not only in the operation of financial regulation, but, more importantly, in the crucial international negotiations he will have to conduct on behalf of our country.
Kwasi Kwarteng (Spelthorne) (Con)
Is there not a danger that this whole process will create a media circus of the kind we see in the United States, and undermine the man or woman appointed as Governor before they even take up their position?
Stephen Hammond
My hon. Friend is absolutely right, and that is one of my concerns. I have tried to lay out some arguments suggesting that giving a veto to the Treasury Committee does not necessarily enhance the independence of the position of Governor.
Moving on now to my concluding remarks—my hon. Friend the Member for Altrincham and Sale West (Mr Brady), the chairman of the 1922 committee, will be pleased to hear that—I just want to bring the hon. Member for Hayes and Harlington back to his contention that this would not be a major change to our constitution. The Bill would put in place a legislative requirement for the Treasury Committee to have a veto over this appointment. The hon. Gentleman talked about the evolution of this role, but if he truly believed that, why does the Bill not seek to give Select Committees the power to veto all appointments—for there might be a number of Members of this House who would like to have parliamentary control of the appointment of the governor of the BBC, or the chief executive of Network Rail, or, closer to our hearts, the chief executive of the Independent Parliamentary Standards Authority? The hon. Gentleman said that private Members’ Bills give Members an opportunity to suggest changes to the Government. He might have had even wider support than he already has if he had introduced a Bill giving Select Committees the power of veto over appointments, so we could have had that more general discussion. To give that power of veto over this one appointment gives rise to considerable concerns, however, and it would create a major change in the constitutional position.
Chris Leslie
I am glad I was not there.
The Bank of England was established in about 1694, and we obviously must not rush these reforms. I commend my hon. Friend the Member for Hayes and Harlington (John McDonnell) for introducing this sensible proposition. If, as I hope, the Bill moves into Committee, we can refine some of the details of the accountability mechanisms. The Opposition are of the opinion that there is a need for stronger parliamentary accountability in respect of the appointment of the Governor. That ought to be done by the House of Commons as a whole, on the recommendation and advice of the Treasury Committee, rather than simply be delegated to the Treasury Committee to decide.
The arguments have already been enunciated. It is important that pre-confirmation hearings take place, that recommendations can be made by the Treasury Committee, and that then Parliament as a whole can decide. That would be the best way to proceed.
I do not want to speak for long because I want my hon. Friend to have the chance to secure his Bill’s Second Reading and to pass it on to Committee, where we can talk about these details. The Government’s proposals will vest the Bank of England with significant and radical new powers, particularly over what is known as macro-prudential policy making, through the new Financial Policy Committee and the Prudential Regulatory Authority. The Minister rather coyly suggests that the Financial Conduct Authority does not have a dotted line to the accountability process within the Bank. We all know that this is not just about a powerful bank, but about the immensely powerful Governor of the Bank of England. Some have described that person as a superhuman individual and the appointment will clearly be of major national significance to our economy and to the finances of our constituents and businesses up and down the country.
We debated the question of improving internal checks and balances for the Governor of the Bank of England when we considered the Financial Services Bill. The Opposition said at the time that the court of the Bank of England needed radical improvement and that its role should be more supervisory. That recommendation came from the Treasury Committee, yet there was resistance from the Government. It is now not unreasonable to want to improve and enhance the external checks and balances on the Bank of England and I do not think that would in any way compromise the independence of the operational monetary policy decisions over interest rates. I do not think that those things are at all incompatible.
It would have been nice if the Financial Services Bill could have been amended in the Lords in such a way, but the Government resisted that. We need to ask why they are so frightened of giving Parliament—in which, by the way, they have a majority—the opportunity to have that debate on pre-confirmation hearings and given to give the Treasury Committee the power to make a recommendation that the House of Commons could make on its own.
It is important to note that other central banks in other jurisdictions have similar arrangements. In the United States, for example, Congress has oversight over the appointments.
Kwasi Kwarteng
The contrast with the United States of America is very interesting, but surely the point is that Congress in America has jurisdictional right of veto over a whole range of appointments. That does not apply to this House, so to focus simply on the appointment of the Governor of the Bank of England without considering other appointments seems to be slightly bizarre, if that is the development the Opposition want to see.
Chris Leslie
It is strange to hear ambitious and thrusting Government Back-Benchers seeking to continue to be neutered, saying, “No, please don’t give us any more of a say or any more powers. We don’t need any and it would be wrong for us to have any involvement whatsoever, even if that simply meant rubber-stamping the recommendations made by the Treasury Committee.” I am baffled that hon. Members should want to continue to hobble their role in such a way.
Brandon Lewis
The hon. Gentleman makes a very strong point. I do not entirely agree because there is a clear difference between the type of appointments we are talking about and the role that those appointees take on and the powers that they have. However, a good argument can be made for the House to consider the role of Select Committees in public appointments, the associated power and at what level it sits. Perhaps he would like to come to business questions one week and make the case to the Leader of the House for time for such a debate, or make a case for it to the Backbench Business Committee.
The hon. Member for Hayes and Harlington argued that part of the aim of a private Member’s Bill such as this is to get the Government to listen, to hear a message, to take a view. The Minister will hear the points made in the debate. He will hear various arguments from various Members about the role of a Select Committee, its power or lack of power to appoint or veto an appointment, and will take that into account as part of the Government’s plans for the future. That is quite different from whether the Bill should have a Second Reading, when it is fundamentally flawed by giving priority and special treatment to one Select Committee over and above others. As much as I respect the Treasury Committee and all its members, I, as a member of the Work and Pensions Committee, do not think it fair that the Treasury Committee should be seen in a premier league, above the other Select Committees.
The Treasury Committee has argued for a role in appointing the Governor of the Bank of England by using as a precedent, as the hon. Gentleman did, the establishment of the OBR and the Budget Responsibility and National Audit Act 2011. The provisions of that Act give a statutory role, I agree, to the Committee in the appointment of the chairman of the Office for Budget Responsibility. Additionally, they give a statutory role to the Public Accounts Committee when a new Comptroller and Auditor General is appointed. However, that argument ignores a fundamental and crucial difference between the roles undertaken by those organisations and the role of the Governor of the Bank of England.
The Bank of England sets policy. Although the Office for Budget Responsibility is important, it primarily has an analytical or forecasting role, not an Executive ability to set monetary policy. It provides independent information to Government. That information is a powerful tool for Parliament to use in its scrutiny role and it is right, therefore, for Parliament to protect that role from political interference.
The Government’s position on the issue has been sensibly pragmatic. They have encouraged the involvement of the Treasury Committee in the appointment of the Governor. It has been interesting to hear from two speakers the private views of the Chairman of the Treasury Committee, my hon. Friend the Member for Chichester (Mr Tyrie), in his comment that what he thinks the Treasury Committee is looking for is the ability to have a clear and open influence on the role, which indicates that there is not necessarily a strong view from the Chair—it is a shame that he is not in his place, but he made a comment earlier—about having the power of veto or appointment. That is an important distinction from such an eminent Member of the House, who would be the Chairman who benefited from any change.
The Government made a commitment in the coalition agreement to
“strengthen the powers of Select Committees to scrutinise major public appointments”.
The key word is “scrutinise”. That emphasises a right to examine, challenge, query or inspect closely and thoroughly appointments to major public bodies. My Select Committee has done that as well. However, it rightly makes no mention of a right to appoint or veto. As my hon. Friend the Member for Wimbledon (Stephen Hammond) said, that would be a substantial constitutional change to the way in which Select Committees work.
It is worth exploring what would happen if there were a right of veto and the Government and the Treasury Committee reached a stalemate in the appointment of a new Governor. If the Government—the Treasury—were unwilling to back down, and the Treasury Committee were determined to uphold its right to veto, given to it by this Bill, that could lead to uncertainty, creating turmoil in the markets, and at the moment we do not need any more of that. We can certainly see what such turmoil means for international relationships as much as internal markets. It could lead to a loss in international confidence in the Bank of England and the United Kingdom, which we benefit from at the moment. The result would be untold economic chaos and damage.
Kwasi Kwarteng
What does my hon. Friend think about the lengthy process for Supreme Court appointments in America, where people very often wait for months before an appointment is made? What might be the repercussions for our financial position in such an instance?
Brandon Lewis
My hon. Friend makes a good point. The way in which the American system can create turmoil is the very point I am making. As my hon. Friend the Member for Wimbledon said, we in this House know that the Treasury Committee would deal with the issue properly. The problem is the perception outside of such turmoil. We have seen in the press how such matters have been dealt with in the United States, which shows that what matters is what the public and the markets would think of such an impasse, particularly if there is a lengthy process.
Brandon Lewis
I thank the hon. Gentleman for further enhancing my point about where Executive power actually sits, in contrast to the scrutiny and forecasting role, as important as it is, which is very different from the Executive power wielded by the Government and some of the Executive bodies we are talking about.
If we are to extend the right to veto the appointment of one public official to any given Select Committee, the natural extension is to do so for other public appointments. In doing so, we would turn our Select Committee system and this House into a new form of Executive recruitment agency. Our Select Committees were established to scrutinise, investigate, consider, report and recommend. Principally, our Select Committee system is there to hold the Executive and other public officials and bodies to account. It was not created to veto the Executive, and it was not envisaged that the Committees would be used as quasi-recruitment advisers.
We should be striving to make the Bank of England more accountable to Parliament—I have no disagreement with that—but we should be looking to do so without shackling its sovereignty with more direct control over certain aspects by Parliament. Current concerns from constituents about the Bank of England do not focus on how the Governor is appointed. I certainly have not had in my postbag any letters, let alone a deluge of letters, on that.
Kwasi Kwarteng
I want to hear my hon. Friend’s view on my suspicion that constituents simply want the Bank of England to do its job and do not want the process to be politicised any more than it needs to be. A move towards a Treasury Committee veto would make it more political and less appealing to the very constituents to whom he has referred.
Brandon Lewis
I agree wholeheartedly with my hon. Friend. I attended a business forum meeting only 10 days ago and talked with businesses about the financial situation in our country. They were very optimistic and upbeat, but they were talking about what more we can do to make it easier for them to grow their businesses and create more jobs. Residents want to know what the Government are doing to allow more jobs to be created and to match the skills with the jobs that are available. They are not talking to me about how we choose the Governor of the Bank of England. They see a very clear difference—this relates to the interventions I have been enjoying from the hon. Member for Edmonton—between the Executive powers and the scrutiny powers and see that it is the Government’s job to set policy that will allow our economy to grow and, therefore, do not necessarily see, understand or have an interest in how the Governor of the Bank of England is appointed. They want to see that job being done properly and the Government setting out the economic policy correctly.
Mark Durkan
The hon. Gentleman made a long contribution, and I am sure that that top-up will add value to it.
At the start of this debate and in a number of interventions, reference was made to yesterday’s motions and debate, and a challenge was laid down: “How could anybody support this Bill if they didn’t vote for the parliamentary inquiry yesterday?”. The argument was that the Bill seeks to give an enhanced role to the Treasury Committee and that we cannot support it if we did not support yesterday’s motion for a parliamentary inquiry.
I did not support the vote for the parliamentary inquiry yesterday; my name was on the other motion, precisely because I really value the role of the Treasury Committee and the service it provides to the House. People have talked about the dangers to the Committee if its gets the powers in the Bill, and that it will fall apart and start to divide along party political lines, but there is more danger to the Treasury Committee from the decision that the House took yesterday, because its Chairman will find himself committed to a significant inquiry, which we are told will be time-intensive and extensive.
The Chairman said yesterday that he wanted the membership of the inquiry Committee to be heavily drawn from the Treasury Committee, so a select number of the Select Committee will also be absorbed by the inquiry throughout the autumn when what the Treasury Committee needs to do is concentrate on many other things, not least following up what emerges from the Wheatley review, which the Chancellor has announced. That review will recommend amendments to the Financial Services Bill, so the Government have recognised that in the light of what has happened with Barclays and the whole LIBOR issue, significant amendments to that Bill will need to be considered.
In essence, the Bill that my hon. Friend the Member for Hayes and Harlington (John McDonnell) has tabled today is a prompt, which canvasses for a fairly modest amendment to the Financial Services Bill—a modest amendment that might have its case reinforced by whatever recommendations emerge from the Wheatley review and the amendments we make to that Bill. As hon. Members on both sides have said, it already creates significant added powers, responsibilities and potential difficulties for the Governor of the Bank of England, the Bank and the whole hinterland of authorities and agencies around it.
Parliament has devolved more responsibility to the Bank and the Governor, and the appointment of the Governor will remain an appointment of government, although, as the Minister in the Financial Services Bill Committee, when correcting me and others, insisted on saying, “It is not appointment by the Government or the Treasury, but by the Crown.” I understand the distinction; I do not believe the fiction; and it is quite clear from his hon. Friends’ contributions today that they do not, either. They are ruthlessly defending the appointment as an Executive—ministerial—appointment.
Kwasi Kwarteng
The hon. Gentleman talks about modest amendments, but what is his view of the Bill before us and the large constitutional change that it embodies?
Mark Durkan
The hon. Gentleman tries to take up a point that the hon. Member for Wimbledon (Stephen Hammond) made earlier, when he talked about the Bill representing “a major constitutional departure”, a phrase that he used, I think, three times. But he ended up criticising the Bill for not going far enough or ranging wide enough. He wanted a Bill to give all Select Committees responsibilities and powers of appointment in relation to all sorts of other things. Hon. Members can have it both ways in their own contributions, but they are not going to have it both ways in mine.
Mark Durkan
I do not think that it is a major constitutional departure; I think that it would be a significant step and gain for Parliament. I do not go as far as my hon. Friend the Member for Nottingham East (Chris Leslie) in saying that the appointment of the Governor of the Bank of England should be subject to a full debate and vote in this Chamber, however, because that would cause all sorts of difficulties. Many of the difficulties that people allege could occur if the Treasury Committee had the role given to it by the Bill would certainly become risks in a highly charged debate and Division in this Chamber on the appointment of the Governor of the Bank of England. The issue would become highly political and potentially partisan, and it would cause market shakes and do nothing for the reputation of this House.
This Bill, which would give a parliamentary stamp of approval to the appointment, is a modest measure, because it would involve the relatively contained, constrained and considered forum of the Treasury Committee. In yesterday’s debate many hon. Members told us how special the Treasury Committee is. They said that it was a partisan-free zone where people are wise and worthy and do not go into it with any ulterior agendas. Then suddenly we are told today that if it were given the extra role that it seeks for itself in the context of the Financial Services Bill, all that would change. I do not believe that it would. This is not the power of appointment that Conservative Members are describing; it is a power of consent and confirmation. The Treasury Committee would not be doing the interviews, drawing up the shortlists, and so on.
Mark Durkan
No. I have already been generous enough, and some Members were too greedy in terms of the length of their speeches.
The Treasury Committee would have a power of confirmation. Some hon. Members are saying that it would have a power of veto, but what appear to be powers on paper would not be exercised in that way.
Earlier we heard reference to appointments to the National Audit Office. Some appointments are notionally appointments by Parliament because they are subject to votes in this House—for example, appointments to bodies such as the National Audit Office and the Electoral Commission—and my hon. Friend the Member for Nottingham East would say that there could similarly be a vote on the appointment of the Governor of the Bank of England. However, I do not believe that that is a comparable situation. Given the significant extra powers and functions that the Governor will have, particularly after our experiences over the past few years and the allegations that we heard yesterday about the whole murky interface between the Government, the Bank of England and the City, it would be remiss of Parliament to say “We’re quite happy to leave this in that odd black box that exists somewhere between Whitehall and the City. We as Parliament do not want to step up to the plate and say, yes, when this appointment is made in future there will be a parliamentary stamp on it.” That is all that the Bill is asking for, and it would entrust and delegate that parliamentary stamp to the Treasury Committee.
Mark Durkan
I am not ignoring anything that the Treasury Committee does, but nor am I here to filibuster and rehearse everything that it does. The hon. Gentleman needs to recognise that the Committee itself has unanimously recommended this change.
We heard in yesterday’s debate, and we heard from the Chancellor on Monday, about the importance of a parliamentary Committee of inquiry being able to produce a unanimous report and about its being worth nothing if it is not unanimous. Here we have a unanimous recommendation from the Treasury Committee, and the very people who have been telling us about the power and significance of parliamentary Committees and the compelling power of unanimity are saying, “We don’t care about it, we don’t want to know.”
Mark Durkan
No. The hon. Gentleman will have plenty of time to come back to this or any other point.
It has been argued that the Bill could be dangerous because it might enable the Treasury Committee or other Committees to go on shopping sprees for all sorts of other powers or abilities. I do not believe that this is a vanity trip on the part of the Committee. Most people would think it odd if the parliamentary Committee that was considering a change of the scale and importance of the new architecture in the Financial Services Bill did not say that Parliament wanted to have at least a bit more of a role regarding the key appointment to this fixed eight-year term. I will not get into the arguments that we had in the Bill Committee about the Putin clause whereby a Governor might be reappointed as a deputy governor for certain reasons.
In yesterday’s debate we heard people who supported the call for a parliamentary inquiry say that it was about Parliament stepping up to the plate. In many ways, the Treasury Committee seeking this role is about Parliament stepping up to the plate. If there is another financial crisis or banking scandal in a few years’ time and the new regulatory regime is seen as confused and difficult to understand—as we heard earlier, even hon. Members who support the Financial Services Bill do not understand what it means and are confused about its architecture—people will turn round and ask, “Who’s to blame this time?” Of course, the current Government will simply blame the previous Government for the way in which legislation has come about. In my view, yes, legislation can be blamed on the Government who sponsored it, but when it is wrong and flawed, that is also the fault of Parliament. Parliament, as well as the Government, should take its fair share of the blame when we get legislation wrong. We will be to blame, as a Parliament, if there are mistakes in the current Government’s legislation such as those that I hope they will remedy when they make further changes to the Financial Services Bill after the Wheatley review in the autumn.
We cannot turn round in future and say “It was all the fault of the Government—it was their legislation. The Bank of England got it wrong and the regulatory regime did not work. It is the Governor’s fault and the Bank appointed him.” The public are fed up with politicians washing their hands of responsibility—with all of us being in the business, as we saw in yesterday’s debate, of trying to fix the blame rather than trying to fix the problem and taking responsibility. If hon. Members trust the new arrangements in their Financial Services Bill, they should be prepared to trust Parliament to take its stake in the key decisions that will be made. We are told that Governor of the Bank of England is a key appointment, but it is odd that it should not receive a parliamentary stamp of involvement and approval despite the fact that people want that parliamentary stamp on many other appointments.
That is why I support the Bill. It is not a starter for 10 whereby we then go on to say that we will appoint the deputy governors and others. It is modest even on its own terms. It does not even say that the Treasury Committee should have the power of consent over the appointment of the deputy governors. Those are also key appointments given the distinct roles that they will play. Conservative Members need to stop exaggerating in their arguments against the Bill. They need to listen to the compelling case for it and to remember that this would be a much more modest amendment than the significant changes that we will probably have to make to the Financial Services Bill in the autumn.
Mike Freer
That is one argument, but the contrary argument is that if the chosen candidate fails to carry the support of a substantial number of Members—there could be a majority of just one—there would be a credibility gap and the candidate would be damaged. What if the Chancellor were forced to withdraw a candidate or if the candidate chose to withdraw and we ended up with a second candidate or a third, eventually getting to the least worst candidate? That is not good governance; it is certainly not good for the credibility of the institution and cannot be good for the policy of the Bank of England.
People say, “Well, if there is a delay, it does not matter too much; it is more important to get the right person for the job.” Members will recall that when the former chairman—if that is the correct term—of the International Monetary Fund, Mr Strauss-Kahn, was forced to resign, the gap between his departure and the appointment of Mrs Lagarde caused a huge sense of drift in the international markets. That should cause the House to think twice about creating a scenario that could cause the same sense of drift here.
I have another objection to the Bill. We have already agreed to a fixed eight-year term for the Governor’s appointment. That is a difficulty in itself, because the eight-year period will not be coterminous with the fixed parliamentary terms, but if we continue to delay an appointment, a huge problem may be caused. Governors could be appointed mid-Parliament, which could lead to a politicisation of the appointment.
Kwasi Kwarteng
Does my hon. Friend not agree that the plan for an eight-year fixed term is a much better safeguard for independence, and for the ability of the Governor to do his or her will and act according to his or her abilities, than the Bill’s proposal to make the appointment contingent on the will of the Treasury Committee?
Mike Freer
I certainly agree that the fixed-term appointment is a huge step towards independent stability. As I was trying to explain, what concerns me is that if the vacancy arose after a change of Government, the new governing party could seek to ensure that the new Governor was much more in tune with its own political views. I fear that both the appointment and the removal are much more likely to be politicised if the Select Committee gets its way.
Joseph Johnson
Thank you, Madam Deputy Speaker. I will follow that guidance.
I am equally concerned that giving the Treasury Committee a veto over the dismissal of a Governor could, in certain circumstances, create an unacceptable situation in which the Governor has lost the confidence of the Government but hangs on as a lame duck. That would clearly be unacceptable given the Executive powers he would be discharging on behalf of the state. That is exactly why the Government have historically attempted to address those issues by limiting the Treasury Committee’s role to non-statutory pre-commencement hearings with members of the Bank’s policy committees, which of course already include the Governor and deputy governors.
Let us not forget that the Treasury Committee already has a huge impact through its oversight, as Lord Burns noted in another place,
“simply by the way it brings people in, talks to them, summarises its opinions and then leaves it in the hands of Ministers to decide how far they wish to take account of those views”.—[Official Report, House of Lords, 26 June 2012; Vol. 738, c. 163.]
Kwasi Kwarteng
Does my hon. Friend think that the Bill would give the Select Committee enormous powers that are totally incommensurate with its constitutional functions in this House?
Joseph Johnson
Yes, I could not agree more with my hon. Friend. Like other Members who I will not mention again, I think that it would be far preferable for the Treasury Committee, if it is to have a formal role in any appointment of the Governor of the Bank of England, to be a statutory consultee. I do not believe that it would be remotely appropriate, however, for it to be given powers of decision over any such appointments.
In my view, moving towards the system of making the Select Committee a consultee, perhaps through a tweak to the Financial Services Bill as it goes through the other place, would be a more sensible system that would not cloud lines of accountability and would, in my view, avoid putting the Treasury Committee in the position in effect of having to mark its own homework. That would inevitably be the case if it were given veto rights over a candidate that it had itself jointly chosen in a binding pre-appointment hearing. From Parliament’s perspective, I believe that it would be better and preferable to stick with the status quo, whereby the appointment of the Governor is a matter for the Crown on the advice of the Chancellor and the Prime Minister. That enables the Treasury Committee to do its job of holding the Bank to account regularly and effectively in hearings with policy committee members.
In support of calls for a parliamentary veto of the appointment of the next Governor of the Bank of England, much has been made of the supposed precedents set by the Treasury Committee’s veto in the appointment of the head of the Office for Budget Responsibility. Reference has also been made to the rather more long-standing role of the Chairman of the Public Accounts Committee in the appointment of the Comptroller and Auditor General. The CAG is an officer of Parliament but until 1983 was appointed by the Executive. Since the passage of the National Audit Act 1983, the CAG has been appointed following a vote in the Commons on a motion proposed by the Prime Minister with the agreement of the Chair of the PAC. The selection process preceding that is run by an unusual partnership between Parliament and the Government, with the Chair of the PAC sitting on the selection panel with representatives of the Executive.
I happen to think that the comparisons are rather misleading and unhelpful. The role and responsibilities of the Governor in economic and financial policy making are completely different from the role of the Chair and members of the OBR, who are responsible collectively for producing forecasts and other analyses twice a year. In the case of the OBR, a parliamentary veto of the appointment can make sense in terms of providing assurance about the independence of the role of the OBR. The role and responsibility of the Governor are completely different. Whereas the OBR performs an important function in providing an independent and unbiased forecast on which Government policy can be based, the Governor carries out Executive functions on behalf of the state and has responsibilities delegated to him for key areas of economic policy.
A further important difference already touched on by my hon. Friend the Member for Great Yarmouth is that the appointment of a prospective Governor is clearly market-sensitive in a way that appointments to the OBR or National Audit Office in the case of the Comptroller and Auditor General clearly are not. Once an appointment is announced, his or her perceived policy leanings—whether or not, for example, the next Governor is perceived to be a hawk or a dove—can be duly factored into asset prices in an orderly way. Pre-appointment hearings of a sort that give MPs on the Treasury Committee a potential veto could quite easily cause anxiety and costly volatility in financial markets, for little obvious benefit—a point also made by my hon. Friend the Member for Spelthorne (Kwasi Kwarteng).
To reiterate the central point, rather than giving the Treasury Committee a veto, a better option would be to upgrade and modernise consultation arrangements, potentially to include not just the Chair of the Treasury Committee—a point that I made earlier—but the chairman of the court of the Bank of England. It is important that we upgrade and modernise the court of the Bank of England so that it can perform its oversight function more effectively than it traditionally has done and so that it feels properly empowered to use the rights that it already has under the Bank of England Act 1998, which are to manage the Bank’s affairs, other than the formulation of monetary policy. That means much more than simply addressing what many have described as an excessively deferential culture at the “court of King Mervyn”, as the Financial Times cheekily described it some time ago. It means more than changing the court’s somewhat archaic name, or removing a little of the flummery—the men in pink coats deferentially bearing silver platters around the Bank, and so on.
Matthew Hancock
Indeed. The English-speaking world and countries more widely have been wise to mirror that structure because it leads to strong Executive Governments who can deliver for the people in good times and bad. The Bill would have us rend asunder the gossamer fabric of the British constitution. I note that the hon. Member for Foyle (Mark Durkan), who is no longer in his place, supported the Bill, but described it as a significant constitutional departure. However, he also said that it was not a major constitutional departure. I will not go into an analysis of the difference between a significant departure and a major one, but I think that the Bill would wrest a key instrument of Executive power—the power of appointment—away from Her Majesty’s Government and confer it instead on a single Committee of this House.
Kwasi Kwarteng
Other Members have made the point that if we are to go down this route, we should perhaps seek to extend the powers of this House and its Select Committees, whereas the Bill relates to only one appointment. We should really be looking either at the mass or not considering the Bill at all.
Matthew Hancock
Like my hon. Friend, I find it odd that some Members have concentrated on the implications of the Bill, rather than on the Bill itself, and others have made the point he raises clearly. Because that discussion has already been aired quite a lot and I want to keep my comments relatively concise, I will leave it where it is, other than to say that I agree with the broad thrust of his point.
Another implication was raised by my hon. Friend the Member for South Derbyshire (Heather Wheeler) in her short speech. She pointed out that the decisions of the Treasury Committee, and indeed those of all Select Committees, are technically referred to the Floor of the House for what is in almost all circumstances a rubber-stamping exercise. I am a member of the Standards and Privileges Committee, which does in fact have some executive powers, but they are over the running of this House, not the Executive functions of the UK Government under the Crown. That distinction is as vital as the distinction between oversight and scrutiny on the one hand and Executive power and veto on the other—voice not veto, as it has been eloquently put. The constitutional implications are not inconsiderable. Given that the Government have already proposed to spend 10 days in Committee of the whole House discussing a constitutional change of a broadly similar size, the idea that we should pass this Bill—
Matthew Hancock
The argument appears to be that we should give the Treasury Committee a power of veto, unless the whole House disagrees with that veto. However, the majority in the House support the Government and it is the Government who initially propose who should be Governor, so the Government could never be overruled in extremis. To support a Bill in which the ultimate safeguard is the abolition of the Select Committee system is a little extreme.
Kwasi Kwarteng
Does my hon. Friend not think that this knotted discussion about the relative powers of the Select Committee and the Government demonstrates the quagmire of indecision and delay that the route proposed by the Bill would lead us into?
Matthew Hancock
I do not think that the principles in the Bill have been well thought through. That is why I started by arguing that the constitutional implications of the Bill are profound and underestimated by its proponents. Many of the questions that are being raised in interventions on me are ones that I had not even thought of while I was wondering what view to take on the Bill.
Matthew Hancock
I have no doubt that the appointment of a Governor of the Bank of England should be above politics. We should appoint somebody for their economic, financial and policy-making experience. They should be somebody of weight from that world. The position has rarely been filled by somebody from the world of politics, and for good reason. As well as having to engage in the political world of the country, the Governor has great duties in putting the economic and financial interests of the nation to the fore. I would therefore be concerned if a potential Governor chose not to put their name forward because they did want to get involved in the quagmire of party politics during their appointment. The point that my hon. Friend the Member for Great Yarmouth (Brandon Lewis) makes is an important one, and it anticipates a point that I have on page 36 of my speech. Since I am only on page 4, perhaps I should make some progress.
I will not dwell on the argument that the constitutional precedent would be much wider than simply the implications for the Treasury Committee. My hon. Friend the Member for Great Yarmouth made the point that the Chief of the Defence Staff might have to be confirmed by the Defence Committee, so I shall cross that line out of my speech. A potential head of MI6 might have to be scrutinised by and avoid a potential veto from the Intelligence and Security Committee before being given the job. There are more extreme and absurd examples showing that we should not take this lightly and push a new principle through the House on a Friday afternoon.
My point about Parliament and our system of government is only one consideration, but it is the reason why the principle of the Bill deserves serious and profound reflection. Its ramifications could outlive the Government of the day and last many Sessions of Parliament, because once such changes are made they tend to take hold. The appointment of the judiciary is a long-standing and slowly evolving matter, and very few Members would support the idea that the Justice Committee should have a veto over the appointment of High Court judges, but that is analogous to the proposition in the Bill.
I will go through some of the lessons from history and some of the international lessons that are pertinent to the Bill. Central banks are unique financial institutions and have a delicate balancing act to perform. As has been pointed out, the Bank of England was set up in 1694 to finance the nine years war against France. We won that war largely because Britain had the ability to finance a standing Army effectively, through the Bank of England. Instead of borrowing directly from the market, Britain established the Bank of England to issue debt on behalf of the Government. From then on, the strength of the institution was watched and repeated in countries around the world. In 1844, the United Kingdom broke new ground by issuing to the Bank of England a monopoly on the supply of money, so that competing banks could no longer issue banknotes of their own.
Kwasi Kwarteng
Was not one of the principal features of the Bank until its nationalisation that it was entirely independent of the Government? Does my hon. Friend think that was important in any way?
Matthew Hancock
It was, but I would not wish to return to private subscription for the ownership and governance of the Bank of England, because of its role in our political economy. My hon. Friend the Member for North East Somerset might wish to push for that, but I believe that the settlement reached after nationalisation in 1946, whereby the Bank of England has its own capital base but is effectively part of the national political economy and one of the national institutions of economic governance, is the right one, rather than having private shareholders.
Since the Bank Charter Act 1844, other banks have been able to issue notes in sterling, and I believe that nine other banks do so in Scotland and Northern Ireland, but they have to be 100% backed by Bank of England banknotes held in the vaults of either the Bank of England or the issuing bank. That ensures that control of the money supply is within the grasp of the Bank of England rather than any other bank. I know that there are some Members who would prefer to return to the system from before 1844, not least my hon. Friend the Member for Wycombe (Steve Baker), with whom I regularly debate the point. I did so yesterday. However, the broad and settled view of the House is that we should retain the current situation.
Because the central bank is the monopoly provider of money and the lender of last resort, it must share a common strategy with the Government even though it is vital that its operational decisions on interest rates and financial stability are independent. The current appointment process fulfils well the twin objectives of operational independence and broad agreement on strategy. It also means that the Government can appoint a Governor who broadly shares their philosophy of economic management, even if the Governor is kept at arm’s length from party political machinations, the 24-hour news cycle, headline grabbing, tweeting and retweeting, and the Westminster bubble culture, which is the special discourse of the modern political set-up.
Economic history shows us the importance of the broad strategic agreement between the Governor and the Government of the day.
Kwasi Kwarteng (Spelthorne) (Con)
I was particularly interested to hear the contribution of my hon. Friend the Member for West Suffolk (Matthew Hancock), who added an international and historical dimension to the debate, which I think should be broadly appreciated. I congratulate the hon. Member for Hayes and Harlington (John McDonnell), my near neighbour, on bringing the debate to the House. I think that his measure would contribute in some way to scrutiny, but I am afraid that the Bill raises important constitutional considerations and, on those grounds, I am reluctant to support its Second Reading.
Another feature of the debate has been the frequent comments, often from a sedentary position, about the length of the speeches. I have been a Member for two years and know that the constant refrain is that proceedings are guillotined, debates are not fully developed, ideas are not fully expressed and that there is far too little consideration or earnest debate on important matters on the Floor of the House. Today, by contrast, we have had a very full debate, yet some Members are complaining about that. They cannot have it both ways. They cannot complain about the truncated nature of many of our debates and then complain about the full and thoughtful speeches that have been made today. Those are inconsistent principles.
Brandon Lewis
Does my hon. Friend agree that it seems particularly odd to hear those comments from some Members, as we have had to sit in the Chamber at 1 o’clock, 2 o’clock and even 3 o’clock in the morning listening to long speeches from Opposition Members?
Mr Deputy Speaker
Order. Let us not have a debate about the debate. Let us please just move on to the Bill.
Kwasi Kwarteng
I want to make a remark about the Bill, and not of a partisan nature. I am very grateful to be able to speak fully, and I will not be intimidated or bullied into truncating my remarks to make them shorter than I had anticipated—
Mr Deputy Speaker
Order. May I now gently bully the hon. Gentleman into moving on to the Bill?
Kwasi Kwarteng
Thank you, Mr Deputy Speaker. I am suitably bullied and shall proceed as I intended.
The Bill raises important constitutional issues. We have a Parliament, we have the honour of sitting in the House of Commons, and we all know the struggles the House had in order to assert its primary function and its principal character as the legislature and main law-making organ of government. I am afraid that the Bill represents a further encroachment of the powers of the House of Commons. I am a Conservative. I happen to think that there should be a balance and distinction between the Executive and the legislature. As someone who has read a little of the history of this place, I also recognise that the position of the House of Commons in the constitution should be guarded, but this new development—this assertion that the Treasury Committee should have a power of veto or even a power of appointment over the Governor of the Bank of England— represents an unprecedented extension of the powers of this House.
Jeremy Corbyn
The hon. Gentleman makes an interesting point, but will he not care to look at the matter slightly differently? Yes, the Bill extends greater powers to the House of Commons, but in reality these are currently powers of patronage over which the House has no control. The Bill represents a very small encroachment on those powers of patronage, which are the Achilles heel and bedevilment of the British parliamentary system.
Kwasi Kwarteng
The hon. Gentleman makes a very good point, and he talks about patronage, which is a feature of our system, but if we are to talk about patronage, we should do what other Members in the debate have suggested and talk generally about the powers of the Select Committee system. It seems rather bizarre that in the Bill we should debate the appointment of a single public official, because we should debate—if that is what we want to do—the powers of Select Committees over other appointments.
Jeremy Corbyn
I agree that we should debate and, indeed, extend the powers of Select Committees, because I do not see any reason why, if a Select Committee is so minded, it should not be allowed to introduce legislation as well as to supervise appropriate appointments within its purview. That after all is one reason why we are elected to Parliament—in order to have some democratic influence over what in our society are largely undemocratic institutions.
Kwasi Kwarteng
I appreciate the hon. Gentleman’s remarks, but Mr Deputy Speaker, with your forbearance, I suggest that this debate is about the appointment of the Governor of the Bank of England. We can have more extensive and general debates about the appointment of other officials, but I think that our current system works well. I would not want to see, for example, the Archbishop of Canterbury hauled up in front of a religious affairs Committee for “ratification”.
Jeremy Corbyn
We can leave that very difficult problem of the Archbishop of Canterbury to one side by simply disestablishing the Church of England.
Brandon Lewis
The points that Opposition Members have made go to the heart of the problem with this Bill, because it would be stage one of—to quote what an hon. Member said earlier—a drip-feed effect that changed the very way in which Select Committees worked by changing their power from one of scrutiny to one that is linked to the Executive.
Kwasi Kwarteng
Absolutely. If the hon. Member for Islington North (Jeremy Corbyn) wants to debate that point, he should include it in his own private Member’s Bill, if he is fortunate enough to introduce one. He should introduce a Bill, and then we might have a lengthy debate.
The specific proposal before us is not appropriate, however, and I shall say why. The historical examples, which have been too little regarded, are very important. We have to look at the development of Parliament, to understand its powers and to understand the evolution of the Bank of England and its unique role in the historical and current governance of political economy. We have to understand a range of things.
As my hon. Friend the Member for West Suffolk said, we have to look also at international examples from recent history and throughout the world, and it is quite wrong for Opposition Members to try to curtail or to truncate debate. As I said at the beginning of my speech, I do not think it wrong for the House of Commons to debate things fully, and, on that basis, I turn to what Parliament does and what we are trying to do.
We scrutinise the Executive. Our job is not to make Executive appointments, to opine upon or to veto people appointed by the Crown; it is simply to scrutinise the Executive. The appointment of a Bank of England Governor is a matter for the Executive, and has been ever since the Bank’s nationalisation in 1946. One of the more interesting speeches today related to the origins of the Bank, because we have to understand where it has come from, and I repudiate any attempt to curtail Members’ right of speech when they are describing the history of the Bank. Everything is contingent: one has to understand the history of institutions to understand better how we can develop them.
The Bank of England was for almost 270 years an independent institution. It was a private bank, and its governor would spend two years in the role on a rotating basis. That broke down after the first world war, in 1920, when Montagu Norman was appointed Governor of the Bank of England. The hon. Member for Hayes and Harlington suggested that the new Governor—this superman or superwoman—would have such enormous powers and influence that no Governor has ever equalled them. That is completely unhistorical and false. Montagu Norman was Governor of the Bank from 1920 to 1944. He was Governor in 1925 when we went back on the gold standard and in 1931 when we came off the gold standard. He was Governor in 1939, just before the second world war, when exchange controls were imposed. He only left, dragged kicking and screaming from his post, after 24 years. He was a man of enormous power and influence, and it is very unlikely that any subsequent Governor will exercise the same kind of power. The simple reason is that under the current proposals we suggest that a Governor should have a single term of eight years, so there is no question of a man or woman being Governor for the same length of time as Montagu Norman or, similarly, Kim Cobbold, who was Governor for 12 years.
Members who are trying to make the case for supervision are utterly exaggerating the nature of this man or woman’s power once he or she is appointed to this important role. That is obviously due to their desire to exaggerate the power of the Governor to try to justify the appropriation of power on the part of the Treasury Committee. Under the Bill, that Committee, which is made up of 13 Members of this House, would have inordinate powers unequalled by that of any other Select Committee. That would distort the relationship of the Treasury Committee to this House and give it a preponderant influence in relation not only to scrutiny but to the Executive branch through its power of veto.
The proposal imports an alien structure from the United States, and that frustrates and disappoints me. The American constitution is a very different beast with a very different history from ours. As my hon. Friend the Member for East Surrey (Mr Gyimah), who is no longer in his place, pointed out, it has a strict division of powers. In America, no members of the Executive sit in the legislature. It is therefore right and proper that the legislature, as embodied in Congress, should have the power of scrutiny over an Executive who have no role in the legislature.
Heather Wheeler
We are getting to the heart of the issue. Surely this debate is about the fact that Governments govern and Select Committees scrutinise—full stop.
Kwasi Kwarteng
Absolutely. In her very direct way, my hon. Friend hits the nail on the head.
Stephen Pound (Ealing North) (Lab)
As it is fairly obvious that we are running into the sands of procrastination and filibustering—
Stephen Pound
I profoundly apologise, Mr Deputy Speaker; I abase myself before you.
I put it to the hon. Gentleman that he might just as logically say that dictators dictate. Surely there can be no greater or more magnificent ornament of the constitution than the Chair of the Home Affairs Committee, to whom I listened last week as he interviewed a preferred nominee for the post of Her Majesty’s chief inspector of constabulary. A little bit of democracy is not that painful; it is rather a healthy thing.
Kwasi Kwarteng
The right of veto proposed in the Bill, which apes the structures in the United States of America, is totally inappropriate and would take the constitution down a road that we have not travelled down before. My hon. Friend the Member for West Suffolk talked at length—but to the point, I must say—about the structures in the United States. It is important that we understand what goes on in the United States in order to understand what might happen here if the Bill becomes law.
We well understand the recent financial history of the world. I was working in the City in 2000—[Interruption.] I am not ashamed that I had a job outside this House. I do not think that it is something I should apologise for. I worked on a dealing room floor in 2000 at the time of the election in the United States. The financial uncertainty that prevailed in the markets as a consequence of the indecisive nature of that election, with the fight between Bush and Gore being taken up to the Supreme Court, was debilitating. I have first-hand experience of that.
I would not want to see a situation in this country in which a candidate to be the Governor of the Bank of England was scrutinised by the Treasury Committee and an impasse reached, resulting in days or even weeks without an appointment being secured. I know from first-hand experience that that is the worst message that could be sent to the financial markets in what are perilous and uncertain times. It would be irresponsible of us to delay or complicate the process in that way.
Jeremy Corbyn
Does the hon. Gentleman not feel that in his opposition to the Bill, he is in danger of treading down the rather dodgy road of saying that he supports some kind of technocratic Government, with democratically elected politicians becoming observers, rather than the participants and the controllers? Surely the whole point of the US constitution was that democratically elected politicians were trying to assert their power over the structures of society. I realise that there is much corruption in the US financial system, but surely the principles of the US constitution are not entirely wrong.
Kwasi Kwarteng
I agree with the hon. Gentleman. All I am suggesting is that the balance of powers is about right. We know that the House of Commons had a long struggle against King Charles I and the Executive. However, I think that the current constitutional balance is about right.
I do not think, as I suggested earlier, that the Archbishop of Canterbury, the Chief of the Defence Staff or the chairman of the BBC should be scrutinised by Select Committees, but that is a debate for another time. I cannot support this Bill because it would add an element of uncertainty to the financial markets, which is the last thing that we need at this time. I thank Members of the House for indulging me in my brief remarks.
Oral Answers to Questions
Kwasi Kwarteng Excerpts(13 years, 9 months ago)
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Kwasi Kwarteng (Spelthorne) (Con)
To what extent does the Minister believe that having the top rate of tax in the G20 helps British competitiveness?
Finance (No. 4) Bill
Kwasi Kwarteng Excerpts(13 years, 9 months ago)
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Owen Smith
We do not know—[Laughter.] Conservative Members might laugh, but I would like to see them present some evidence on this, instead of the flannel and rhetoric that we are hearing—[Interruption.] The Minister is waving the HMRC report. Will he point to the part of it that gives definitive data on the impact on competitiveness of any rate of tax? There is nothing about that in the report, which is why he is not getting up to point it out. Come on! Let him show me the part of the report that substantiates the point made by the hon. Member for South West Norfolk (Elizabeth Truss).
Owen Smith
No, there is more from the Chancellor. Conservative Members ought to listen to this, because it is their very competent Chancellor speaking. A year later, in October 2010, he said:
“The public must know that the burden is being fairly shared. That’s why I said last year: we are all in this together. And I am clear…that those with the most”—
like those on the Treasury Bench—
“need to pay more. That is why… I have stuck with the 50p tax”.
Have I missed something over the past 18 months since this Chancellor has been in trouble? As far as I have seen, the economy has flatlined, growth is at absolutely zero, business investment is going nowhere and inflation is rising. The only thing that has fallen recently is unemployment. Thanks be to goodness that it has dipped today, but it is still at 2.6 million, and as I pointed out to the Minister on Monday night, 2,500 people were queuing for 200 jobs at a supermarket in my constituency last week. That is the reality of the economy under this Government, unfortunately.
Kwasi Kwarteng
Will my hon. Friend outline just how uncompetitive the 50p rate was compared with the rates of other G20 countries?
Elizabeth Truss
It was the highest income tax rate in the G20. We heard earlier from the Opposition spokesman that Labour did not understand the effect that that would have on our international competitiveness, which shows why it is not fit for office.
Amendment of the Law
Kwasi Kwarteng Excerpts(13 years, 10 months ago)
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Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
The Chancellor’s Budget speech painted a positive picture, in some ways, of what his policies are doing for the UK economy. However, although some businesses in my constituency are doing well, at the grass roots, among small businesses, I find a lot of people who are very worried about the future of their businesses, and that many of those who have been struggling to survive over the past year are now on the brink. I am sure that my constituency experience is typical of that of many Members in constituencies up and down the country.
That is why the Chancellor has made a dramatic mistake by rejecting Labour Members’ call for a temporary cut in VAT, which could have provided an immediate boost to businesses, created jobs and provided real relief for those on the lowest incomes. On the main street in my constituency, there are all sorts of shops, offices and other types of businesses, and I am genuinely worried that many of them are in great danger of going over the cliff edge if there is not an immediate boost to the economy such as a reduction in VAT. The temporary VAT reduction that Labour introduced at the end of its period in government certainly had that effect, and another temporary reduction would be an important boost for all types of businesses, but particularly small businesses, in my constituency and up and down the country.
Kwasi Kwarteng (Spelthorne) (Con)
The hon. Gentleman talks enthusiastically about businesses. Do not the measures in the Budget to cut corporation tax support business?
Mark Lazarowicz
The measures on corporation tax will have a beneficial effect on some businesses, but not so much for the smallest businesses. I am particularly concerned about the small businesses in a fragile situation in many parts of my constituency, which does not, relatively speaking, have very high unemployment overall, although some areas do have high unemployment.
First, we need a general 2.5% reduction in VAT that would benefit all types of businesses, as well as relieving people on low incomes, in particular, from the difficulties in which they find themselves as a result of the general economic situation and the policies of this Government. We also need targeted cuts in VAT. It is extremely disappointing that yet again the Government have rejected the call, not only from Labour Members but from organisations such as the Cut the VAT Coalition, which has called for VAT on home maintenance, repair and improvement work to be cut to 5%. That would not only be a boost for the depressed construction sector but would create work for joiners, plumbers, electricians and painters, and opportunities for young unemployed people looking for their first job.
Of course, one has ask how one would pay for a temporary cut in VAT. If the argument is that the top rate of tax is being cut because it will bring in more income by encouraging economic activity—a fairly dubious argument in my view—surely temporary cuts in VAT of the kind that I and my party have argued for are much more likely to lead to an immediate increase in economic activity than the cut to the top rate that is proposed in the Budget.
Kwasi Kwarteng (Spelthorne) (Con)
I am pleased to have the opportunity to speak in the Budget debate, because we had a significant Budget yesterday.
We have to consider what the Chancellor said in the Budget in the context of 10 years of Labour profligacy in public spending and in the context of the international economy. The Office for Budget Responsibility has been clear about the problems that face the British economy. There are structural problems caused by too much debt, which in turn was caused by too much spending. It is clear to everyone that spending more money or running a greater deficit would not help to get us out of this situation. The Government are doing what they set out to do and they are reducing the deficit. The Budget yesterday was a step in the right direction. We are trying to cut regulation and to encourage enterprise and aspiration. All that was clear in the Budget.
I would like to talk about tax cuts. The most significant tax cuts in yesterday’s Budget were not at the top end of the income scale, but at the lower end. It was an historic step to take hundreds of thousands of people out of taxation. It is striking that in this debate, the Labour party has made no comment about that. It has not given us the courtesy of saying that it agrees with the proposal, nor has it opposed it, yet it was the most significant move in the Budget.
There were other, perhaps more controversial moves, such as cutting taxes for wealthier citizens and subjects, which have created some debate. It is received wisdom, I think, that high taxes did not stimulate economic growth. Some Members will remember that there was a 98% super-tax in the 1970s, and we were a very highly taxed nation. Other Members were here when Nigel Lawson cut the top rate of tax from 60% to 40%. That was so successful that in 12 years, Labour did not touch it. It always accepted that 40% was a reasonable and good tax rate, not because it was friendly to the rich but because Labour’s leadership realised that there needed to be incentives to make the economy grow.
Mr Speaker
Order. I think the hon. Gentleman was referring to his noble Friend the Lord Lawson of Blaby. It would be good to preserve some of the courtesies of the House.
Kwasi Kwarteng
Indeed. I am very grateful to you, Mr Speaker, for putting me in my place. I will refer to him with proper courtesy with his title. The Budget in which he cut the top rate—the 1987 one, I believe—was the most significant in recent years, and only latterly have a series of political games been played and has the top rate been increased. Other Members have referred to that, and it is an elephant trap that the Government have mercifully dodged.
We have to consider the Budget in its national context, but also in an international context. It is no good our having worthy debates here without referring to what is going on in the rest of the world. I was very pleased to see that the Chancellor had finally realised that aviation capacity in the south-east is a massively important issue. The fastest-growing cities in the world need to have more connections. We will not be able to make money or trade with them without connections, and the Chancellor’s step of recognising the problem is mature and bold.
While we are focusing on spending and regulation, we have to realise that other parts of the world such as China, India, Brazil and places in the middle east such as Dubai have favourable regimes for business. If we are to compete seriously with those countries and their regimes, we will have to do an awful lot more even than we are doing to make ourselves competitive.
The Budget was excellent and a step in the right direction, although we need to do more to meet the targets that we have set ourselves. The Office for Budget Responsibility has said that it is looking for 3% growth in 2015 and, to meet that, we will have work an awful lot harder.
Jobs and Growth
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Mr Darling
As we have heard today, the shadow Chancellor and the Labour party are still adopting my policy on the deficit. It was a sensible policy when I first announced it in 2008, and it is still a sensible policy today. The heart of my present argument is that while no one doubts that the deficit has to come down, the judgment to be made is about how fast we bring it down and the risks involved in doing so too fast and ending up crashing the economy. That is the position we have reached today.
It is interesting that the International Monetary Fund has been much discussed this afternoon. It is worth reading what the IMF and Christine Lagarde, who talks a lot of sense on these issues, have been saying. Of course the IMF is always going to be wary of taking on one of its principal shareholders, but we do not have to read too far between the lines to see what the IMF is saying. It is saying quite clearly that there is now a serious risk of a slow-down in major economies, including our own, which will result in not less but more borrowing, and economies stagnating.
It is also interesting that when the Bank of England announced last week further measures of quantitative easing, which I support, it did so against a completely different background from its first announcement in 2009. The Bank is now worried about what is happening in Europe, which means that the economy is slowing down. The Bank is seriously worried about the lack of growth. The QE announcement last week is just the beginning of what might be called plan B or even plan 1A, because the Bank is worried. That is why it is changing direction.
I was pleased to hear the Chancellor talking about credit easing for businesses on top of the £75 billion. Surely that is at least some recognition of the fact that the plan he announced with so much confidence last summer, which was going to do so much to reduce our borrowing, is not working. He has to adapt it and my bet is that—whether it be in the autumn statement in a month’s time or in next year’s Budget—we will see more measures that acknowledge that the policy pursued by this Government is simply not working. If we do not change it, we will pay a very heavy price.
Mr Darling
I will gain another minute by giving way to the hon. Gentleman, so I will do so.
Kwasi Kwarteng
I am grateful. Will the right hon. Gentleman tell us how he voted in the IMF subscription vote?
Mr Darling
I have always made my position clear. One of the big achievements of April’s G20 meeting, led by the then Prime Minister my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), was to get countries to sign up to an increase in IMF funding. That has always been my position, and I am not going to depart from it because I believe that the IMF has a central role to play. With respect to the hon. Gentleman, his intervention does not get him off the central point of this debate, which is what is different now from the position when we left office. My deficit reduction plan was on the back of an economy that had started to grow, so my right hon. Friend the shadow Chancellor is quite right to ask himself what we need to do now, 16 months later, when economic growth has stalled, and what other measures are necessary to get the economy going.
My right hon. Friend is also quite right to say that, although a few months ago very few people were talking about the need to reduce taxes, bring forward capital spending or take measures to help businesses, that has now become common currency among many commentators. It is only the present Government who simply do not accept that the plan they announced 16 months ago is not working. As my right hon. Friend said, the Chancellor has had to downgrade his growth forecast four times. I remember his having great fun at my expense when saying that my growth forecasts were wrong. Actually, mine lasted a lot longer than his. He should reflect on that and on the fact that he is having to borrow more.
I raised another point about quantitative easing with the Chancellor on Monday and I hope we will hear more about it. If that money does not leave the vaults of the banks and get out on to the high streets, it will have failed. I know that the Chancellor has had exactly the same trouble with the Bank of England as I had. I could not persuade it to buy corporate assets; he has obviously failed as well, which is why he has had to think up his own scheme. We really need to get that money out on to the high streets; if it is not manifested in the form of loans to businesses, it will simply not work.
I note that the hon. Member for West Suffolk (Matthew Hancock) is no longer in his place. He said that quantitative easing works only when there is a credible policy. Given that the Bank of England has said that it worked, we must have had a credible policy at the time. I am sorry that the hon. Gentleman is not here to hear that; he might want to ponder it when he reads Hansard tomorrow morning, as I am sure he will. The Chancellor needs to ensure that the money gets out on to the high street; otherwise, it will fail. It is remarkable that the Bank of England is almost now doing what the Government should be doing. It recognises that the policy is not working, which is why it has embarked on another round of quantitative easing.
The Chancellor is fond of saying that all our problems are on account of the eurozone. That, too, is remarkable. When he came into office, the Tory story, backed by the Liberal Democrats, was that it was all the fault of the last Labour Government. All was fine with the rest of the world, so it was just Labour’s overspending that was responsible. Incidentally, the Chancellor supported it right up to the end of 2008 and the Liberal Democrats supported it until the day after the general election, so it could not have all have been wrong at that stage. Now they are saying that the problem is not domestic at all; that it is all to do with what is happening in the eurozone.
Of course the eurozone is a major problem and it is becoming a bigger one by the day. I hope the Chancellor was right when he said at the beginning of the week that wiser counsels are prevailing in Europe, but I am not so sure. We should remember this: although people talk about the fact that the German Parliament ratified the deal a couple of weeks ago—and Slovakia will probably put it through later this week—it was in fact agreed in July, and it is blindingly obvious that it is now out of date. At that time no one would talk about Greek default, whereas now everyone knows that Greece will default, and the only question is whether it will be done in a managed way or become a disorderly breakdown.
Another thing that is obvious—the Chancellor acknowledged this on Monday—is that the austerity measures being imposed on Greece simply are not working. Greece is reaching a point at which it is unlikely to be able to repay the interest on its borrowing, let alone reduce its borrowing and debt. The policy of austerity endorsed by far too many European countries over the last 16 months or so worked at first, but it is not working now, and Greece is living proof of that.
I hope that something compelling and convincing will be agreed at the G20 in a couple of weeks’ time, but I have my doubts. The trouble with the eurozone countries is that they are still fighting as though nothing has changed since the early summer, which has been their position since the early part of 2009. If we have any influence I hope that we will bring it to bear. If we do not, there is a risk, as the Chancellor himself recognises, that if things go wrong in the eurozone they will affect this country. While I agree with the Chancellor that we should certainly should not contribute to the bailing out of the eurozone, he is also right to say that a break-up of the euro at the present time is the last thing that the world economy needs, ourselves included.
That brings me to our policies back at home. I have always believed that reducing public expenditure at such a rate, in a climate in which the private sector is not taking its place, risks crashing the economy. I reached that view when my party was in office, and I still hold it today. The evidence seems to suggest that that is precisely what is happening now, and that is why it is so damaging.
David T. C. Davies
Has the hon. Lady finished now, and may I continue? I am always fascinated by the fact that comparisons are made between levels of debt as a percentage of GDP. I will certainly give way again if someone can explain why we compare national debt with GDP. Why do we not do what any company would do and compare it with revenue? If we look at a comparison with 2010, when this Government took over and when the national debt was £1 trillion, we will see that the revenue coming in was £520 billion. The country had a national debt that was almost twice the revenue it was taking. Anyone who has run a company—most Opposition Members have not, but I have—will know that any company that found itself in such a situation would be declared bankrupt immediately.
Kwasi Kwarteng
Will my hon. Friend remind the House why the previous Labour Government ran a deficit for nine consecutive years from 2001 to 2010, despite having a boom?
David T. C. Davies
My hon. Friend asks a very good question. They managed to come up with an excuse after 2008, following the collapse of the banks, but as I said earlier, I am yet to hear an answer on why they ran a deficit from 2001 to 2008. Perhaps we will get one later.
What I did hear from the shadow Chancellor was some rather mealy-mouthed insults directed towards my right hon. Friend the Chief Secretary to the Treasury, who had a proper job outside politics and Government, as I did, which the shadow Chancellor seems to think is worth mocking him for. My right hon. Friend was not the man who was responsible for the £1 trillion-worth of debt, for selling gold at a fraction of the price, or for running up deficits in boom years. [Interruption.] I will not say anything about the euro at the moment, but there are many Labour Members who were urging us to the join the euro during those times and are now trying to give us a lesson in economics. I notice that they have all now gone very quiet.
The reality is that Labour Members never, ever learn their lesson. For them, it is not a case of plan A or plan B; there is only one plan: “Let’s tax people as highly as we can, and when we’ve finished squeezing every penny out of them, we’ll borrow more money.” They do not remember the words of one Labour Chancellor of the Exchequer during a Labour conference: “Comrades, you may think that we can tax and spend our way out of a recession, but I tell you that is no longer an option.” They still have not learned the lesson.
Clement Attlee failed in the 1940s when he tried to build his welfare state on the back of American war loans. There was Harold Wilson in the 1960s telling the public that the pound in their pocket was worth the same when he was rapidly devaluing it. Then there was Jim “Crisis, what crisis?” Callaghan, who, just like his successors, brought the country to the brink of utter bankruptcy, and did not even seem to think that he had done anything wrong. It was 18 years before they got another chance, and they have done exactly the same thing again: tax and spend, borrow and spend, just keep on doing it and do not worry about it.
I am glad that we have a Government who are not going to go for the easy option, which would be to borrow a whole load more money now in the hope of winning an election, which is exactly what Labour Members were doing for a couple of years. We are going to take some tough decisions, and that means getting our books in order. Unlike the shadow Chancellor, I know, having run a small family haulage business, that one cannot carry on spending more money than one gets indefinitely. I welcome the fact that the Chancellor is going to encourage real growth by making it easier for businesses to take people on and not have to worry about employment tribunals, which anyone who has run a small business does worry about all the time because of the number of spurious claims.
Meg Hillier
I am afraid that I will not.
That woman told me that she uses the prepay meter key because of her fear of a large quarterly bill at the end of the autumn, even though she knows that it costs more. She is doing what the Government tell her to do. She is a single parent with four children who is working to support her family, but she lives in fear of the bills every day. There is the man who came to my surgery on Monday. He has a job offer, but he faces the choice between a job and a home because of the Government’s short-sighted approach to housing benefit.
Where are the private sector jobs? In my constituency and that of my hon. Friend the Member for Hackney North and Stoke Newington, most small businesses employ fewer than six people and they are struggling. I have been up and down my high street many times since the events of 8 August, but it is not just those events that have caused problems. Businesses are struggling with footfall and because people do not have disposable income to spend. They are worried about what will be down the road.
The Federation of Small Businesses has been very critical of the Government’s approach, as my right hon. Friend the Member for Morley and Outwood (Ed Balls) indicated. Businesses on the high street need quantitative easing, including those that are being incubated by entrepreneurs in my constituency. The Prime Minister is very fond of talking about creating a silicon valley when it suits him, but those high-street businesses are exactly the sort that could be creating jobs for young and older people in my constituency. However, they risk being throttled at birth, or if they do survive—I wish them well and hope they do—they risk not growing at the rate that they could with the right support from Government.
Kwasi Kwarteng (Spelthorne) (Con)
I am grateful for the opportunity to speak in the debate.
I am pleased and interested to learn that the shadow Chancellor recognises that the problem we face is an international problem. He spoke eloquently about the deepening eurozone crisis, and also about the prospects for Greece and Portugal, which frankly are not too good. I am also pleased to speak having heard the speech of the hon. Member for Hackney South and Shoreditch (Meg Hillier), who gave a graphic account of the difficulties that we face from the point of view of her constituents. What we have not heard from the Opposition is an admission that they were in any way responsible for the difficulties that we face today. What we have heard, from Members on both sides of the House, is the expression of a desire for a bipartisan approach and a civilised debate, and I am all for that. However, if we are to understand the challenges that we face today, we must understand how we got into this mess in the first place.
It is true that every country in the OECD and in the economically developed world faces similar challenges, but it is not true that those countries managed their public finances as badly as we did in the years between 1997 and 2010. Let us rehearse some of the facts. We entered this period of our national life with a higher deficit-to-GDP ratio than any other OECD country: 12%, when the German ratio was 3.3%. That was a direct consequence of decisions made by those on the Treasury Bench between 1997 and 2010. As my hon. Friend the Member for Sevenoaks (Michael Fallon) pointed out, the then Government ran a deficit in every year between 2001 and 2010—for nine straight years. Even when the economy was booming, we ran deficits of £30 billion a year in 2002, 2003 and 2004. The shadow Chancellor referred to Lord Keynes—
Emma Reynolds
I should prefer the hon. Gentleman to speak about debt-to-GDP ratios. Does he accept that on the eve of the world recession we had the second lowest ratio in the G7, second only to Canada’s?
Kwasi Kwarteng
What the markets were looking at was the deficit. The hon. Lady may remember what happened to the gilt market as her party’s Government were being shunted out. The price of British Government debt rose and yields fell in direct anticipation of Labour leaving power. The markets made their own decision. In the last 18 months, the price of British Government debt—that is, the interest rates that we pay—has fallen. It has managed to remain at the same level, precisely because markets realise that the Chancellor and his team are doing the right thing in tackling the deficit. We have been told repeatedly that if we were to show any relaxation of our deficit reduction programme, the markets would dump our bonds and interest rates would rise, which would cause immense damage to the hon. Lady’s constituents as well as mine.
Rachel Reeves
Does the hon. Gentleman accept that before the last general election—between January and May 2010—yields on Government bonds were falling and they have stayed at low rates since the general election? The markets did not know which party would win the election because the campaign was so close. Therefore, the hon. Gentleman cannot argue that those yields were falling in anticipation of an incoming Conservative Government, because nobody knew that.
Kwasi Kwarteng
The yields were not falling in anticipation of a Conservative Government, but they were certainly falling in anticipation of the then Labour Government going out. Markets anticipate events—that is how people make money—and the markets had, in their wisdom, decided that Labour would not be re-elected. I assure the House that if Labour had been re-elected, the markets would have dumped British debt and we would be facing a much tougher interest rate environment than we currently face.
I always enjoy listening to the shadow Chancellor’s speeches, as they are very entertaining, and I enjoyed his speech today—I think one Member even mentioned vaudeville, which I think does vaudeville discredit. However, I was staggered by the shadow Chancellor’s assertion that the fact that we have low interest rates is somehow a reflection of our having a weak economy. That was an extraordinary claim. People in my constituency are very grateful indeed that we have low interest rates, because that enables them to pay their mortgage liabilities. It seemed extremely arrogant for a supposedly responsible politician to say on the Floor of the House that low interest rates were a bad thing, which was essentially what the shadow Chancellor was arguing. [Interruption.] He was suggesting that they were a symptom of a weak economy, which is a bad thing.
On the contrary, however, our low interest rates are a signal that the markets have confidence in this Government. They have absolute belief that the current Government are going to deal with the deficit that was created, almost deliberately, by the Labour Government. We in the House of Commons have to understand why this deficit arose, so we can explain that to the country. It was not just handed down to us by some Moses figure—although the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) probably thinks of himself in that way. It was not handed down from on high; rather, it was created by Governments and by the Members who then sat on the Treasury Bench, and it was created for the simple reason that they, in their arrogance, honestly believed that they had abolished boom and bust. We all remember those statements, and it is an arrogant misrepresentation of the past to suggest that they did not think that. The last Prime Minister believed that he had solved the key economic question of our time, but he was wrong, and it is as a direct consequence of his mistake that our Government have had to introduce the policies we are pursuing.
Many people will ask why we do not have a different plan. They will ask: “Why don’t you suddenly borrow and spend more money in the time-honoured Labour fashion?” That would be a road to disaster, however. It would create a massive lack of confidence and lack of credibility in the British Government’s programme, leading to the markets dumping our Government debt and our interest rates rising. It would lead to people in our constituencies having to face higher payments every month. They would be squeezed even more if we were not as focused and committed as we are to reducing the deficit.
I have tried to inject some reality into this debate. We have heard consistent denials from Labour Members, and we have heard no admission of guilt or wrongdoing and no ideas as to how we might get out of the situation we are in. We have also heard no real arguments to attempt to explain why what the last Labour Government did was right. Interestingly, no Labour Member has said in this debate, “We did a marvellous job; we gave you a golden inheritance.” I would grant them more credit if any of them would be bold enough to stand up and say that, but they will not do so. That is because, as everyone in this country knows, Labour is bereft of ideas, and it would be a disaster if we were ever to leave our future in its hands again.
Sir Stuart Bell (Middlesbrough) (Lab)
I am grateful for the opportunity to follow the hon. Member for Bromsgrove (Sajid Javid), who has real knowledge and experience of the bond markets, as he has revealed today. He obviously knows a lot about the ratings agencies and he has a Bill before the House on debt ceilings. He is also an expert on credit default swaps. I share his great enthusiasm for that, but he will have to explain, on the basis of what he has said and what the Government’s policy is, why, if this is about deficit reduction and debt reduction, £46 billion more is going to have to be borrowed and spent in the next few years to cover their policies.
I want to mention Teesside because we have had the good news in the past few days that the insurance company, AXA, proposes to create 450 jobs in Middlesbrough, adding to the 300 staff it employs at Teesdale in Stockton. A great deal of comment—indeed, criticism, I would say—has come from my hon. Friends the Members for Leeds East (Mr Mudie) and for Gateshead (Ian Mearns) about the creation of enterprise zones and about the regional growth fund. In all my years in the House of Commons, I have had to deal with the Government of the day and although we might have liked to keep the regional development agencies, the reality is that we now have enterprise zones and the regional growth fund. We on Teesside have benefited from the regional growth fund and we also have an enterprise zone that we worked very hard to achieve—and now we will work very hard with the Government. There is also the good news that 1,000 staff are being taken on at the former Teesside Cast Products plant, with 100 already beginning the induction programme.
The Prime Minister, in Question Time today, ventured to say, in his feisty exchange with the Leader of the Opposition, that 300,000 new apprenticeships had been created in our country. I visited Carillion in my constituency last week to see the sterling work that it does in training apprentices in the real-life work of bricklaying, concrete mixing, pneumatic drilling, and other such skilled tasks. That is the kind of work that we see being done across the land on rainy and windy days—precisely the conditions under which those young men were working. Those young apprentices are a credit to themselves and to their future. I welcome the Prime Minister’s comments on the apprenticeship scheme.
If we take an overall look at what the Government are doing, we find the law of unforeseen consequences. There is a lack of compatibility in their objectives. Unemployment rises, so benefits have to rise. Benefits have gone up by £12 billion. We have heard a lot about the Welfare Reform Bill; the Prime Minister referred at Question Time to universal credit, and the Chancellor referred to the Bill today; he said that our amendments to it would add to the deficit. Of course, amendments can be reasoned, substantive or probing. Until we see them when they come before the House and know how we will vote, they have no great significance.
We see in our country, and we saw in Greece, that a too-rapid deficit reduction will lead to reduced growth. The classic example of Greece, to which my right hon. Friend the Member for Edinburgh South West (Mr Darling) referred, shows that if deficit reduction is too steep, there will be zero growth. That is the situation in our country: we have been reducing far too quickly. We talk as though my right hon. Friend never had a deficit reduction programme. We had one: we would have reduced the deficit by half over four years—a policy that even Mervyn King supported before the Government changed; then he changed to a different policy.
We were compared with Greece, which I always find very offensive to the Greeks, never mind to ourselves. The fifth largest economy in the world was being compared with a nation state of 12 million people in the Mediterranean—a state that cheated on its accounts with the European Union. Not only was that comparison offensive, but it distorted our country’s entire policy on deficit reduction.
Sir Stuart Bell
I am not giving way; it is too late in the day. The unforeseen consequence of a too-rapid reduction in the deficit and no growth is that confidence has gone from our system. The hon. Member for Sevenoaks (Michael Fallon) referred to that. We have lost confidence. We say that we have the confidence of the markets, and of course we do; why would we not? We do not have the confidence of the people—of those trying to find jobs, of the young who have lost their jobs, and of other unemployed people. We do not have the confidence of the ordinary person in the street, who looks at the Government and sees the failure of their policies, so I would be cautious if I were a Government Member.
I come back to a statement made by my right hon. Friend the Member for Edinburgh South West, and I invite the House to remember it. There will be a change in policy. It will not be plan B or plan C. It will come in the autumn statement or the next Budget. The policy needs to change if we are to get growth. There is no future in a steep deficit reduction that will never lead to growth—not now, and not in the future.
The Economy
Kwasi Kwarteng Excerpts(14 years, 7 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Ed Balls
No, no, no.
Three months before the general election, the polls said that the Conservatives would get a majority. As the polls narrowed, our long-term interest rates fell, entirely disproving the point that the hon. Member for South Northamptonshire (Andrea Leadsom) makes.
Kwasi Kwarteng (Spelthorne) (Con)
The right hon. Gentleman spoke about responsibility earlier, but does he take responsibility for the appalling fiscal position we were in when we had the largest debt in peacetime?
Ed Balls
It is fine for the hon. Gentleman to be thinking of his intervention rather than listening to the answers, but the fact is that we had a lower budget deficit and lower national debt than we inherited in 1997. The IFS, in its report, “The public finances: 1997 to 2010” said:
“By 2007–08, the public finances were in a stronger position than they had been when Labour came to power in 1997.”
That entirely disproves his point.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
One year on, it is now abundantly clear that last year’s emergency Budget hit women much harder than men. Some 72% of the cuts are being borne by women, whether they are cuts in the health in pregnancy grant, in tax credits, in Sure Start maternity grants or in child benefit. What is more shocking is that it did not even occur to the Chancellor at the time to consider the impact that his savage cuts would have on women and that he failed to carry out his legal duty of undertaking an equality impact assessment before his policy decisions were taken. Indeed, such was the blatant unfairness and scale of the impact on women of the Chancellor’s first Budget that the Fawcett society stated that it showed
“a whole new level of disregard for the importance of equality law and everyday women’s lives.”
The Chancellor’s first Budget also showed a whole new level of disregard for children and families, flying in the face of the Prime Minister's promise to be the “most family-friendly Government”. One year on, I am particularly concerned about the impact on child poverty—an issue that directly links to the impact of the cuts on women. Although good progress was made by the previous Government, the number of children living in poverty remains unacceptably high. Figures recently published by the End Child Poverty campaign suggest that almost one third of all children in Newcastle are living in poverty. The coalition’s policies of cutting funding to Sure Start centres, removing the health in pregnancy grant, cutting tax credits, increasing VAT, cutting housing benefit and dramatically reducing local government funding will have a serious impact on household incomes, which I fear will lead to more children growing up in poverty. My fears are backed up by the OECD, which recently reported:
“Progress in child poverty reduction in the UK has stalled, and is now predicted to increase, and so social protection spending on families...needs to be protected.”
Of course, the cuts imposed by the Chancellor’s first Budget are also hitting home at a time that is already particularly difficult for women.
Catherine McKinnell
I will give way just this once, as I know that many of my colleagues want to speak.
Kwasi Kwarteng
Can the hon. Lady tell the House what kind of savings the Labour party would have made in public spending?
Catherine McKinnell
This is not the opportunity for me to set out what the shadow Chancellor has already set out—the way in which we would tackle the deficit. I do not want to take up precious time that my colleagues want to spend giving speeches in this very important debate.
Women are particularly affected in the north-east, where about 46% of all working women are employed in the public sector. Those women face being one of the 30,000 public sector workers anticipated to lose their jobs in the region; most of those job losses will affect low-paid female workers. They also face pay freezes and the ever-increasing costs of balancing work with family life.
Kwasi Kwarteng (Spelthorne) (Con)
I was not expecting to be called so early in this debate, Mr Deputy Speaker, but I am very grateful.
It is easy in this environment and this highly partisan—[Interruption.] I know exactly what I am going to say, so please hear me out. It is easy to lose sight of the big picture in terms of where we were when we came into government in 2010, and it is easy for Labour Members to forget the huge deficit and the terrible mess they made of the country’s finances.
Kwasi Kwarteng
I will acknowledge that the budget in 1997 was balanced, in that we took in £315 billion of revenue and spent £315 billion. I also have to acknowledge—I have to be candid—that under the first Labour Administration, between 1997 and 2001, the budget remained in balance. That was the prudent Chancellor whom many in the House will remember. We did not get into fiscal trouble with an increasing deficit until the 2001 to 2005 Parliament, in which, as people will remember, we had sustained growth. However, just at the moment when we were growing sustainably, the naughty, imprudent Chancellor took over. Having been prudent in the first four years of the Labour Government, between 2001 and 2005 he turned on the taps, to speak metaphorically.
Kwasi Kwarteng
The principal point—if the hon. Gentleman will listen—is that Labour gambled with the country’s economy. It sincerely believed that it had abolished boom and bust, so it made spending commitments on the basis that the economy would grow indefinitely year after year. Unfortunately those spending commitments could not be rescinded when reality dawned—when the economy faltered and the revenues collapsed, leaving us with huge spending commitments and creating this unprecedented peacetime deficit.
It is unfair and wrong for Labour Members to say that it was a global phenomenon. Our deficit was not comparable to Germany’s. As far as I know, Germany operates in the same global space and is a competitor in many of the same markets as us, yet its deficit-to-GDP ratio was 3%. Ours, I believe, was 12.8%—the highest in the OECD and the G20. These facts are known to everybody, including all economists and many journalists—everyone knows them—yet consistently, ever since I have been a Member of Parliament, Labour Members have completely denied any responsibility and have given every reason under the sun for the appalling fiscal position we were left in. It is vital that every single Member bears in mind those big facts. Labour’s stewardship of the public finances was catastrophically negligent.
Kwasi Kwarteng
This is the third time that the hon. Gentleman has tried to intervene, and I am afraid that I must press on. I am willing to take interventions from other colleagues, but he has had his say and I would like to have mine.
We have had a difficult time over the last year, during which time my right hon. Friend the Member for Tatton (Mr Osborne) has been Chancellor of the Exchequer. No one will dispute that: the situation has been tough. However, it would have been far worse if we had followed the policies of the right hon. Member for Morley and Outwood (Ed Balls) and not tackled the deficit in the rather aggressive but timely way in which we decided to. Hon. Members referred earlier to Greece, which has indeed been a Greek tragedy. People are on the streets, the Government are practically insolvent and there is a real risk of some kind of political revolution—I am choosing my words carefully, but the situation is very unstable. The situation facing this country was, I confess, not as bad. However, if we had not been serious about tackling the deficit, there was every likelihood that the international markets would have forced our interest rates up, that our cost of borrowing would have increased and that markets would not have bought gilts in the way that, over the past year, they have. The consequent rise in interest rates would have affected every family in this country, who would have had to pay high interest rates simply because the Government did not have the courage or the conviction to deal with the deficit.
Toby Perkins
As for the comparison with Greece, does the hon. Gentleman recognise that if we had followed the advice of the Chancellor when the recession struck back in 2008, although events here might not have followed what happened in Greece, they would quite probably have followed what happened in Ireland, which saw huge public spending cuts? Ireland went into a cycle of more and more cuts, and more and more people being put out of work. The result of those cuts was not that Ireland’s deficit shrank, but that public services and poverty got worse.
Kwasi Kwarteng
I accept the hon. Gentleman’s point about Ireland, but let us look at what happened last year and the situation that we faced going into the general election in May. The shadow Chancellor quite rightly observed that the market price of gilts was rising and that interest rates on them were coming down in the period before the election. It is true that in the six weeks before the election, interest rates on gilts came down, but that was only because the market realised that there would be an end to the Labour Government. The market anticipated the result of the general election, after it became clear that, as a consequence of Labour’s total irresponsibility, the end of a Labour Government would mean a new Government who were serious about dealing with our financial position. It is true—I remember this—that the rates came down from mid-March, but that was only as a consequence of people in the markets literally rejoicing because Labour was going to leave. The shadow Chancellor was quite right to make that point; I just felt that we needed a bit more context.
Owen Smith
I cannot help but point out that if the markets had been so omniscient and all-seeing, surely they would have spotted that the Tory party was not going to win the election.
Kwasi Kwarteng
The only question that the markets were interested in at that point was whether Labour would be re-elected. When it became obvious that Labour would not secure a majority in the House, they started buying lots of British Government debt, and the interest rates in the six weeks before the general election came down quite rapidly. Those are the facts, and one could find them out from the Financial Times, Bloomberg or any other information provider in financial services.
Nigel Adams (Selby and Ainsty) (Con)
Since the last election, when we got a Conservative-led coalition, unemployment has fallen in my hon. Friend’s constituency of Spelthorne by almost 5%. Does he think that we would have achieved such a fall if we had followed the Opposition’s policies?
Kwasi Kwarteng
I can give my hon. Friend a very short answer: there is no way that any businessman in Spelthorne—[Interruption.] Well, the short answer is no, but the longer, slightly more involved answer is that there are lots of small businesses in my constituency, and a lot of them are related to Heathrow, and the international market and trade. As a consequence of Labour’s complete failure over the previous 13 years, no Labour councillors were returned to our borough council. In fact, Labour contested only one of the 13 wards in the borough, which is only 35 minutes on the train from Waterloo. That is indicative of Labour’s utter failure to make any headway.
Let me tell the House why Labour was completely wiped out. The people in Spelthorne realise that Labour does not understand anything about the economy. Time and again when I have knocked on doors in Ashford, Sunbury and Shepperton—and even in Stanwell, which was traditionally a Labour area—I have met people who realise what this Government have to do. They say to me, “You’ve been put into power to clear up the mess that the other lot created.” I shall not repeat the unparliamentary language, but they tell me to “something well get on with it.”
Stephen Twigg (Liverpool, West Derby) (Lab/Co-op)
I am delighted to follow the hon. Member for Spelthorne (Kwasi Kwarteng). Reflecting on the lack of Labour representation in Spelthorne, I am reminded of the similar lack of Conservative representation in Liverpool. I am prepared to bet the hon. Gentleman that Spelthorne will get a Labour councillor before Liverpool gets a Conservative one.
We have seen some extraordinary complacency on the other side of the House today, given the economic circumstances that people are facing in communities up and down the country. Sometimes we forget the human cost of the decisions that are made in this House.
Kwasi Kwarteng
The hon. Gentleman talks about the human cost of economic mismanagement. Could he tell us more about the human cost of Labour mismanagement over the past 10 years?
Stephen Twigg
I thank the hon. Gentleman for that intervention, but it is the only one that I will take. I want to give other colleagues on both sides a chance to speak. We have heard a lot about Labour’s legacy, and about where Labour stands, and we get severely misrepresented by the Government parties opposite. We are not denying the deficit. We adopted a plan to halve it over the four years of a Parliament. We have been very clear that we would have made cuts in public spending, that we support some of the cuts that are now being made, and that certain tax increases would have happened under a Labour Government.
The real challenge in this debate is to address the questions of growth and employment. There is no value in cutting public spending as the Government are doing if it damages the prospects for growth. The impact on the economy is that tax revenues go down, unemployment goes up, benefit costs therefore rise and the deficit position gets even worse. My right hon. Friend the shadow Chancellor reminded the House earlier about what both the parties that are now in government said when they were in opposition. My hon. Friend the Member for Dudley North (Ian Austin) has pointed out that the then Leader of the Opposition, now the Prime Minister, said in July 2008 that
“we are sticking to Labour’s spending totals.”
That was the view on the Conservative Front Bench in July 2008. In fact, my hon. Friend did not quote him in full; the right hon. Gentleman went on to describe those Labour spending totals as “tight”. The views that the current Prime Minister and Chancellor of the Exchequer are now expressing are not the ones that they held at that time.
A year ago, in the emergency Budget, the Chancellor of the Exchequer said:
“In this Budget, everyone will be asked to contribute…everyone will share in the rewards when we succeed. When we say that we are all in this together, we mean it.”—[Official Report, 22 June 2010; Vol. 512, c. 167.]
Our motion today welcomes the recent fall in unemployment, and I have heard hon. Members on the Government Benches talk about falls in unemployment in their constituencies, but are we really all in it together? Let us look at the figures.
Ben Gummer (Ipswich) (Con)
It is a pleasure to follow the right hon. Member for Oldham West and Royton (Mr Meacher). He spoke after my maiden speech, and he is a man whom I respect greatly for his integrity, honesty and the consistency with which he has held his views over the years. However, he has also been consistent in his economic views, and over 30 years he has been consistently wrong—in his judgment of Mrs Thatcher’s economy, John Major’s economy and Tony Blair’s economy. The fact that his views now come into the same alliance as that of the shadow Chancellor of the Exchequer tells us all that we need to know about where the Opposition’s economic policy has gone.
Kwasi Kwarteng
Will my hon. Friend remind the House about the consequences of the 1981 Budget and what happened at the subsequent general election?
Ben Gummer
I do not know what position my hon. Friend took against the 1981 Budget, but all that I can say is that that Budget, which was opposed by Labour Members, started the rebuilding of the British economy, much as we are doing now.
I was not planning to speak today, but I entered the Members’ Lobby and looked at the Opposition’s motion on the Order Paper, which is entitled, “The economy one year since the Government’s first Budget”. I thought, “That’s brave of them, to pick a fight on this, but I’ll give them a chance.” I read on and thought, “This will be amusing.” The motions says:
“That this House notes that on 22 June 2010”—
there is a preamble, and we agree with that bit, because there was an excellent Budget this time last year—and it continues:
“further notes that over the last six months”.
I thought, “Hang on a minute. I thought we were talking about after a year,” but they have chosen six months for the economic growth figures. Why six months? It is because over a year the economy has grown, has it not? Already, in the terms of their own motion, the Opposition are failing, because they have to pick a six-month figure. Do hon. Members know why they pick that period?
My hon. Friend the Member for Witham (Priti Patel) talked earlier about businesses. Her parents run a business in my constituency. She understands businesses. She understands that, with a difficult start-up, some weeks are not as good as others and that things are rocky and choppy. Not many Opposition Members have ever seen a balance sheet or a profit-and-loss account in their lives, and that is why they might not understand what she explained earlier. That is why, after a year, the economy is growing—but after six months, it was flat, because we are having a choppy recovery, as the Chancellor said.
Toby Perkins
It is interesting that the hon. Gentleman assumes what I am going to say already. I am only three seconds into my speech. I will come to that point.
The hon. Member for Elmet and Rothwell said that he was proud of the Government’s record so far. I would not like to be here when he is ashamed. Government Members would like this debate to be about whether we need to reduce the deficit, but that is not what it is about at all. Everyone recognises that we need to do that, and that in 2008, prior to the onset of the biggest global economic crisis in history, we had a lower deficit as a ratio of GDP than in 1997 when we came into power. It was only the scale of the economic crisis that forced the Labour Government to spend money to stop the awful situation that ordinary people were finding themselves in, with jobs being lost and the danger of houses being repossessed. We are proud of the decisions that we made at the time, which were supported by the IMF. It said strongly that this country, under the Labour Government, showed leadership when the rest of the world did not know what to do in the face of a terrible global economic crisis.
Toby Perkins
Because the hon. Gentleman was so generous to me, I will allow him to intervene.
Kwasi Kwarteng
I believe in debate—it is good that interventions are taken. If the problem was global, why was our deficit to GDP ratio four times higher than that of the Federal Republic of Germany?
Comprehensive Spending Review
Kwasi Kwarteng Excerpts(15 years, 3 months ago)
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Ms Eagle
Perhaps the hon. Gentleman will agree that in an advanced economy with a social security system, if there is a recession, deficits will rise. That is why the deficit rose. What he suggests, if taken to its logical extreme, means that he would not be in favour of paying unemployment benefit to those made unemployed. They tried that in the 1930s and it did not work.
Kwasi Kwarteng (Spelthorne) (Con)
What does the hon. Lady think was the reason behind our deficit being worse than that of every other country in the G20?
Ms Eagle
We entered the crisis with the second-lowest deficit in the G7. We were affected by the credit crunch because we have a very large financial services sector, which is why both sides in the House are talking about how we can rebalance our economy. We are too exposed to the kind of risks that crystallised when the credit crunch struck. [Interruption.] The Chancellor, from a sedentary position, asks whose fault that was. If we are going to be sensible and have a proper, nuanced, balanced and grown-up debate on this issue, all of us—as members of political parties that are, or have been, in government and in charge of running the country over the past few years—need to take our fair share of responsibility for how the banking sector came to dominate too much. Both sides of the House have to learn those lessons. I hope that we all will.
Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)
The headlines in the debate on the comprehensive spending review have concentrated mainly on justified concerns about cuts to family support, welfare and housing. However, in my contribution I wish to focus on some of the main questions about transport.
Transport is vital to most of what happens in this country. It is vital to economic development, to enabling people to get to work and to quality of life. It enables people to lead full lives and guards against social exclusion. I welcome the headlines in the settlement on transport, including the focus on some specific investments which is very welcome, but I wish to draw the House’s attention to some major issues that need much fuller investigation.
The first is that of fairness in investment and regeneration—with the accompanying jobs—across the country. At the moment, transport investment in London per head is three times higher than in other regions. It is unclear whether the proposals in the settlement will change that or simply exacerbate the difference. I welcome the announcement that Crossrail will go ahead. I know how important that is in London—and it has national implications—but there is an ominous silence about the go-ahead in a proper timescale for electrification of the Liverpool-Manchester-Preston-Blackpool line. I noted the strange answer from the Secretary of State for Transport this morning, which avoided the issue completely. We have had no clarity about electrification on the Great Western line or whether the northern hub will go ahead in the way envisaged. All those projects are important for economic regeneration and have implications for the release and provision of rolling stock across the north. We need much clearer and quicker answers to those questions.
Great concern has also been expressed about the dramatic fare increases in the settlement. The increase in train fares could see the fare from Manchester to London increase from just over £65 to £88—
Mrs Ellman
I am sorry, but I have very little time and other hon. Members wish to speak.
Bus fares often do not get sufficient attention, but many lower-income people depend on buses to get to work and local amenities. But there will be a severe cut in bus services’ operators grant, which could mean higher bus fares and fewer bus services. The cut in that grant combined with cuts in revenue support to local authorities could mean that less money is available to enable buses to be provided where services are needed for social reasons rather than to make increased profits for the bus operating companies. We have had very little clarity about what that means.
Another important matter that has not been mentioned by Government Transport Ministers concerns the implications of a settlement on the critical issue of road safety. One of the unrecognised success stories of recent years has been the big reduction in the number of fatalities and serious injuries on our roads. Every single death and serious injury is a tragedy for the individuals and their families, but it is significant that, in the past year alone, there has been a 12% reduction in the number of people killed on our roads. The reason for that reduction is that local and central Government have combined in a number of measures to make our roads safer.
It is extremely disturbing, therefore, that we now have a cut in—an elimination of, in some cases—the specific grants to local authorities that enable them to go ahead with road safety schemes, together with a change in national direction and the abolition, I understand, and the complete axing of the previous Government’s effective public education campaign on road safety. That combination of Government and local action was very important in reducing the number of road casualties. Has any thought been given to how the cuts in this spending will affect the number of deaths on our roads? That is critical.
I am also extremely concerned about the difficulties facing strategic road schemes under the new arrangements. Such schemes matter because they bring jobs and economic benefits to local areas, but the projects currently decided on through the regional allocations now have nowhere to go and, from the Transport Secretary’s written statement today, it seems clear that he too has no answers. Local economic partnerships are no substitute for proper regional thinking that cuts across local authorities and provides vital economic lifelines—by giving access to ports, for example.
Kwasi Kwarteng
I forget—how many general elections did Baroness Thatcher win? Will my hon. Friend remind the House?
Richard Harrington
Not enough.
The most important thing is that the cuts are made sensibly, and that the bloated management hierarchies of local government look at themselves and realise that this is a chance for much of the reduction in their field to come through management. Let me explain. In Hertfordshire county council—[Interruption.] Yes, Conservative, and proud to be Conservative.
In Hertfordshire county council the expected cuts, which have yet to be implemented, will be enhanced by the fact that £150 million of taxpayers’ money has been saved by sensible management changes that hardly affect the front line—£150 million—yet in my local council, Watford, a council with a turnover of £18 million, we have a chief executive who is paid roughly the same as the Prime Minister, a mayor who is paid exactly the same as Members of the House, and an entourage of management levels that defy belief compared to anything in private business life.
I was very pleased to hear what the Prime Minister said yesterday about growth being so important, but I remind Opposition Members that growth is achieved not by spending money that the Government do not have and never wonder how to repay, but by businesses, ranging from the smallest to the largest, having the confidence in the economy to decide to expand, to raise money through friends and family or the stock market, to borrow money from banks that are able to lend it to them and to use every resource that they have to employ extra people. I have every confidence in this Government, and it is most important that we reward people who create jobs. Those are the people who are at a premium, and those are the people who have been stifled in the past.
There has been lots of talk about the Government making banks lend more money, and I commend the new funds that have been discussed. The new equity scheme, which the banks are putting together to provide £1.5 billion of equity for business, is a very good idea, and some of the schemes that the previous Government started and this Government are reforming and expanding are of course commendable. However, the real point is that, unless the deficit is dealt with not just in this country but elsewhere, banks will have to keep on lending money to Governments. Government debt has stifled banks here and all over the world. In the US the argument used to be, “The deficit does not matter”, but it does, because banks start lending money to business in quantity when they have confidence in the future and do not have to lend to Governments. We should not forget that.
The greatest thing about the comprehensive spending review is that it deals with the problem on a one-off basis. It is not being shoved under the carpet, put off or held over until after a general election, and for that reason, above all others, the CSR is the most fundamental and best thing that the Government could have done. The problems need grasping. The world of delusion that we have lived in for the past few years—the world of expanding public expenditure, with managers appearing all over the place at a cost to the public purse that taxpayers cannot afford—is coming to an end, and I for one am delighted about that.
Mr Andy Slaughter (Hammersmith) (Lab)
At the beginning of this debate, my hon. Friend the Member for Wallasey (Ms Eagle) quoted an article in The Wall Street Journal today that reported
“panic stations in the Treasury”
at finding out that the reduction in child benefit for higher earners was “unenforceable”. It continued:
“At root is a problem that should have been apparent to those designing the policy, if detailed advice had been sought from civil servants before it was announced at Conservative party conference.”
My hon. Friend the Member for Streatham (Mr Umunna) referred to himself—in all humility, I am sure—asking Sir Andrew Turnbull from the Treasury Committee this morning:
“Do you think it’s accurate to describe the UK as being on the brink of bankruptcy?”
The response was: “No I don’t.” Both those bits of hot-off-the-press news—
Mr Slaughter
No, I have not got time—actually I will, because it gives me more time.
Kwasi Kwarteng
I thought I was attending one of those rallies in North Korea, so reluctant are Labour Members to engage in debate. However, I thank the hon. Gentleman for giving way. My question is very straightforward: does he acknowledge that the deficit was a problem that had to be dealt with?
Mr Slaughter
What a stupid question, although I thank the hon. Gentleman very much for the extra time that he has given me. Anybody else? No? Okay, let us move on.
What I have described shows that it is politics rather than economics that has driven the CSR. Far from fairness driving the CSR, it is a particular type of Tory ideology that has driven it. Nowhere is that more true than in housing, to which I shall confine my remarks and which some of my hon. Friends have also addressed.
The Under-Secretary of State for Communities and Local Government, the hon. Member for Hazel Grove (Andrew Stunell) apologised to the House earlier today—and rightly so—for inappropriate remarks that he made in the debate in Westminster Hall on the CSR and housing yesterday, when he said that Opposition Members had spread “lies and deceit”. I am glad that he apologised—it was good of him to do that—but the irony is that he made those comments in the context of the most selective quoting from the National Housing Federation’s brief. He managed to find two sentences in an excoriating brief that he thought supported the Government’s case. Let me read the bits either side of the bit that he quoted:
“This is a 60% cut in cash terms in comparison with the 2008-11 programme and in real terms a 63% cut. We are extremely disappointed that the Government has chosen to impose such significant cuts in capital funding…In an attempt to fill the gap caused by these significant capital cuts the Government is proposing to allow housing associations…to set rents on new lettings at levels between the current social rent up to a maximum of 80% of market rent.”
The briefing continued:
“However, we understand that any funds generated under this new ‘intermediate rent’…will only be allowed to be used to build more homes at this new intermediate rent and…across the four year spending period no homes will be built for social rent using these funds…there will be no further construction of social homes until at least 2015.”
That is the housing situation that we face, and for hon. Members who want to know what “intermediate rent” means, I looked at my Conservative council’s planning policies, which were announced last month. I found that the term excludes anybody on under £20,000 a year, which is 40% of my constituents and most of the people in housing need, but includes those on earnings of up to £79,400 a year—people in the top 2% of earnings. It is the Government’s policy that only intermediate housing will be built over the next 10 years.
Where does that leave my constituents? Where does it leave constituents such as the one whose case I was dealing with in my office this morning? That constituent is living with three teenage children in a highly damp one-bedroom flat, but has received the usual response from the local authority, which says:
“The average expected waiting time for a three bedroomed accommodation…is projected between 8-10 years. This is however only a projection but reflects the reality of…Social Housing waiting time as dictated by demand against availability.”
What tenants such as my constituent are being told is, “Give up your secured or assured tenancy, and take an insecure tenancy in the private sector. Then you may get some more space.” Up until now, people have not been told—they are being told now—that such accommodation is likely to be outside the borough, because of the restrictions on housing benefit. The situation now is that my constituents are being told that if they want decent accommodation, they should go into the private sector and be re-housed a significant distant outside the borough.
That is the reality of housing policy under the CSR. It is the reality for a constituent who came to see me this week, a teaching assistant taking £900 a week net and living in a shared room in a flat in Shepherd’s Bush, for which she pays £650 a month. She gets some housing benefit, but she can hardly make ends meet. Next year, she will not be able to, because of the cuts in housing benefit, and she will have to leave her job and move out of the area. That is the reality for people in my constituency.
While we are talking about apologies, perhaps someone else ought to apologise. The first interview that the Prime Minister gave after the election was to The Daily Telegraph. The article says:
“He was still angry over ‘appalling’ Labour lies that he blamed for preventing celebrated candidates such as Shaun Bailey winning in marginal seats”,
and quotes the Prime Minister as saying:
“‘They were telling people in Hammersmith they were going to have their council house taken away by the Tories.’”
Well, they are, and I will tell the House why. That candidate is at least honest, because he said at the Tory party conference:
“Inner city seats are so hard to win because Labour has filled them with poor people who are desperate and dependant on the state, so they vote for a party that they think is of the state.”
That is why those people are being punished. They vote Labour, and they want to live and work in the inner city, but that is not good enough for the Conservatives. That is what my constituents are facing, for ideological reasons of gerrymandering and social engineering.
Kwasi Kwarteng (Spelthorne) (Con)
Like my hon. Friend the Member for Central Devon (Mel Stride), I have sat through this debate all afternoon and have listened with increasing incredulity to what Opposition Members have been saying. There is an air of unreality in some parts of the Chamber. The question is not whether we should cut or carry on spending, as the second option is not on the table. Labour Members have accepted in their more lucid moments that they, too, would have had to cut, but as they now enjoy the luxury of opposition they do not have to say what they would have cut. It is the job of the Government to be responsible and take the decisions on which our future prosperity will depend.
There has been a lot of special pleading during the debate, and that is a part of our job as constituency MPs, but we also have a wider responsibility to the country as a whole, and it is one of the wider responsibilities of the Government to try to make sure that we are on track and that at the end of this Parliament Britain is much more prosperous than it was at the beginning of it.
The contents of the comprehensive spending review delivered by my right hon. Friend the Chancellor last week can be boiled down to just a few questions. First, how did we get here? We all know how we got here. A previous Chancellor—in accordance with the custom of the House, I will not mention him by name—believed he had abolished boom and bust, and his calculations on increasing spending were therefore based on the false premise that the economy would continue to expand. It did not, however. There was a recession, and because he had so many spending commitments, we ended up with a huge deficit.
No one is denying the scale of the deficit. It is the worst deficit of all the G20 countries; every international organisation has pointed out that the British deficit is far worse than those of our peers. The coalition Government had to deal with that, and I believe they have done so very well and effectively. The process has been a painful one, as many Members on both sides of the House have said, but it was the responsible course of action, to which the Conservative party was committed in the run-up to the general election and to which both coalition parties are signed up. We have been facing difficult choices, and as the Chancellor outlined last week, government is about choice. The cuts are necessary. After all, £1 in every £4 we spent was borrowed, which was unsustainable. No one in their right mind would lead their private life on that basis. We cannot keep on borrowing and spending. These are obvious truths which we have recognised and addressed.
The next question is an entirely legitimate one: are these cuts and restraints in spending fair? There is a big dispute about that between Members on the Opposition and Government Benches, but I want to remind the House of certain facts. The current benefits system simply is not working. It cannot be right that people are getting more than £20,000 a year on benefits and are therefore completely disincentivised from working. Many hard-working people in my constituency find it absurd and very frustrating that, as they feel, they are subsidising those who, as a lifestyle choice, have decided not to work. That cannot be right. Hon. Friends have alluded to a change in philosophy in this respect, and it is long overdue. In the long run, people will acknowledge that we did the right thing. It was a tough thing to do, but it was also a courageous thing to do, and it was the right thing for Britain as we look forward to the next few years.
The coalition Government have been utterly responsible and fearless in their determination to tackle our problems. That is what responsible government is about, and I am pleased to be supporting a Government who are responsible and determined enough to deal with our problems and to set our country on the right track.
Mr Hanson
I have five minutes or so to wind up the debate. I will not give way at present.
The spending review will hit jobs, children and families. It will gamble with jobs. It will gamble with the growth of the British economy and, as my hon. Friend the Member for South Down (Ms Ritchie) said, that of Northern Ireland as well. The spending review will hit the most vulnerable in our society the hardest.
Kwasi Kwarteng
I am obliged to the right hon. Gentleman. He acknowledges that there is a deficit and his party acknowledges that it would have made cuts, so will he please tell the House where those cuts would have fallen?
Mr Hanson
I know the hon. Gentleman was not a Member at the time, but I wish he had been here for the Budget proposals in March, when we set out clearly our deficit reduction plan.
The hon. Member for Colchester (Bob Russell) quoted the Bible at us. May I refer him to “Matthew”, chapter 7, verse 16, and the notion, “By their deeds shall ye know them”? The spending review cuts too fast and too deep, and it rejects the sensible, balanced approach put forward by my right hon. Friends the Members for Edinburgh South West (Mr Darling) and for Kingston upon Hull West and Hessle (Alan Johnson).
The Government plan to take out of our economy and our spending £40 billion more than Labour thought sensible, so I was surprised to hear the hon. Member for Thurrock (Jackie Doyle-Price) call for more expenditure. Even the Office for Budget Responsibility thinks that the Government’s measures will downgrade next year’s growth forecast from 2.6 to 2.3%.
The Budget and the comprehensive spending review will hit jobs, essential services and, crucially, take public investment out of the private sector at a time when the Government want the private sector to grow. My hon. Friends the Members for Liverpool, Riverside (Mrs Ellman) and for Ochil and South Perthshire (Gordon Banks) and, indeed, the hon. Member for Macclesfield (David Rutley) recognised the importance of the public sector in helping to support future private sector investment.
We know, because the Chancellor admitted it last week, that 490,000 jobs will be lost in the public sector. The hon. Member for Dundee East (Stewart Hosie) mentioned the impact on the defence sector, PricewaterhouseCoopers estimates that another 500,000 jobs will be lost in the private sector as a result, and my hon. Friend the Member for Nottingham South (Lilian Greenwood) described the impact of those losses. So let us not kid ourselves: the economy is still fragile. This week’s announcement on growth over the last quarter still demonstrates that point and, put simply, throwing 1 million people out of work—out of the economy—will cost us more jobs than that and impact on the private sector in the long run.
The Government’s measures will hit the private sector hardest. The hon. Member for Watford (Richard Harrington) talked about confidence, but confidence will fall if 1 million people are out of work. It will mean more people claiming benefits. As my hon. Friend the Member for Nottingham South said: fewer people in jobs, fewer people helping to grow the economy and higher welfare bills.
Government Members have been asking for it: there is an alternative to the Government’s proposals. We clearly said in the Budget presented by my right hon. Friend the Member for Edinburgh South West in March that we would take steps to halve the deficit over four years.
Draft EU Budget 2011
Kwasi Kwarteng Excerpts(15 years, 4 months ago)
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Mr Cash
That has to be a judgment for Members in deciding which way they will vote on these amendments. In my view, because of the complexity of this problem and the uncertainties about whether we will be able to achieve a blocking minority in the Council of Ministers—I shall explain the procedure in a minute—we must do nothing that would play into the hands of the Eurofanatics in some of the other member states who want to go down the same route as the European Parliament by endorsing this increase and increasing the budget resources, which is what they are intent on doing in the wake of the Lisbon treaty. That is the problem. It is a matter of judgment, but it is also one of analysis, which is why I take the position that I do.
I may say that I had no discussions whatever with the Government on this issue. I simply tabled my amendment last night because it struck me that in the light of the discussions in the European Parliament—and not in light of the amendment tabled by my hon. Friend the Member for Clacton, which I had not seen—the European Parliament was being thoroughly irresponsible, or at any rate the Budgets Committee was. We have yet to discover whether the European Parliament will persist in the same view.
On top of the proposal for the European budget, there is one to extend maternity rights. It is now clear that it is intended to have a £3 billion increase in the European budget for that reason. The 27 member states will be snubbed if the European Parliament votes in line with the European Commission’s proposal. Recent increases do not include the already agreed, and grossly extravagant, €1 billion increase in the European budget for 2010, which was caused largely by the Lisbon treaty.
On the subject of austerity and responsible measures, according to Government figures the collective budget deficit of the EU’s 27 member states will reach the staggering sum of €868 billion this year, which is more than 7% of the bloc’s gross domestic product. That, of course, is because the European financial crisis is real. One need only look at the countries otherwise known as PIGS—Portugal, Italy, Greece and Spain—not to mention France, which must be included in a lot of the analysis, to see the real implications of that for the individual lives of voters in this country. The governing economic and financial framework established by the EU must be not only revised but radically curtailed.
The budget increase also relates to the extensive bureaucracy that we are having to pay for, such as the European External Action Service, as my right hon. Friend the Member for Wokingham (Mr Redwood) rightly pointed out. Members, including me, raised the gravest objections to the proposals for that body that were made a few weeks ago.
While Westminster and Whitehall, and the country at large, are quite rightly being asked to make savings, what is happening in Brussels? The European Parliament adopted a resolution on 18 May proposing a budget of €1.707 billion, which is a 5.5% increase on the amended 2010 budget and represents 20.28% of the EU’s administration budget.
Kwasi Kwarteng (Spelthorne) (Con)
Many Conservative Members would broadly agree with my hon. Friend’s sentiments; I do not believe there is much division among us on the matter. What practical steps does he think Her Majesty’s Government can take to stop the grotesque expansion in the budget?
Mr Cash
The budget is part and parcel of the issue of parliamentary sovereignty, which I shall come on to in a moment. If we are to act properly and responsibly in our own Parliament, we shall have to deal with this Parliament’s relationship with the EU as a whole. If we get that right, we can proceed in an orderly manner to the questions that we must ask in the political environment that we now experience. That will ensure that we are not subject to further increases in European functions or to the assertions of the European Court and other European institutions on the sovereignty of this House.
Finance Bill
Kwasi Kwarteng Excerpts(15 years, 6 months ago)
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Matthew Hancock
Of course, the bond market could see a Conservative—or coalition—Government coming, and that is exactly what happened. I will say this to the right hon. Gentleman: when there is a flight to safety, I would rather it was to British bonds, not to bonds overseas, which is what could easily happen if we did not have a credible policy.
Kwasi Kwarteng (Spelthorne) (Con)
Those of us who have looked at bond yields will have noticed that the tightening—as it called—of British bonds actually happened in April. That happened as a consequence of the markets being sure that the Labour Government would be voted out, as everyone in the City has mentioned.
Matthew Hancock
I am always delighted to talk about when the previous Labour Government lost office, so I thank my hon. Friend for that intervention. Let me go through a few more elements of the economic evidence. I have here an extremely good literature review, by Policy Exchange, the think-tank, which lists—
Mary Creagh
I know that there is to be an increase of £150. I will come to that if the hon. Gentleman will show a little patience and allow me to make progress with my speech. He spoke for 13 minutes, and I hope to take less time than that.
As I was saying, the toddler tax credit would have provided an extra £208 a year for families with children aged one or two. Moreover, child benefit has been frozen for three years, which means a real-terms cut.
Mary Creagh
I have already said that I am not going to give way to Opposition Members. It is true that child tax credit will rise by £150 above inflation for one year—
Finance Bill
Kwasi Kwarteng Excerpts(15 years, 7 months ago)
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Clive Efford
I pay tribute to the hon. Member for Lincoln (Karl MᶜCartney), who made his maiden speech. Many of us remember his predecessor with great fondness, and we certainly notice the difference in appearance to which he referred. She was a popular Member here, as I suspect that she was in her constituency. I am sure that the hon. Gentleman will do an able job in his time as Member of Parliament for Lincoln.
The thrust of the argument of my hon. Friend the Member for Hayes and Harlington (John McDonnell) is that the House should be able to scrutinise the Government’s actions on enforcement of corporation tax to avert some of the severe and harsh cuts elsewhere in public expenditure. The Red Book refers to the need to reduce all sorts of evasion. Indeed, paragraph 1.96 mentions the Government’s measures on corporation tax, which a later group of amendments tackles, and states the need to alter the rate of corporation tax to reduce the avoidance of payment. A practice has been created of people avoiding other forms of tax and paying capital gains tax at a lower rate to minimise the amount that they pay in tax. I therefore agree with the thrust of the point that the right hon. Member for Wokingham (Mr Redwood) made that there are times when we need to tweak the tax system to close down loopholes. In that sense, the tax system has historically been like turning a thermostat up and down. We introduce one set of regulations, that area overheats, the thermostat is turned down, another section of the tax system responds and people move in that direction to avoid paying tax.
With amendment 11, my hon. Friend is trying to ensure that the House can hold the Government to account for what they do to fulfil what they say in the Red Book, and thereby ensure that the Government maximise the amount of corporation tax that is paid.
Kwasi Kwarteng (Spelthorne) (Con)
Will the hon. Gentleman clarify his basic position? Does he believe that in principle corporations ought to pay more tax than they are paying already?
Clive Efford
The point, on which I believe we are all in agreement, is that everyone should pay the tax that they are due to pay. Amendment 11 proposes not that corporation tax should be raised or reduced, but that it should be paid, that the Government ought to take action to ensure that companies that are liable to pay it do so, and that the House should have the role of providing a check and balance to ensure that the Government are carrying out that function.
Stephen Timms
The right hon. Gentleman is absolutely right about that. I entirely accept that that often happens, but I hope that he will accept that there are also people who commission very highly paid accountants to find ways of getting round the law. Everyone involved in that practice knows perfectly well that they are going against the spirit of what Parliament intended, and that is the kind of damaging avoidance that we need to bear down on.
Kwasi Kwarteng
Clearly, we have laws, but people are also going to try to pay the minimum amount of tax that they can. That is an entirely rational thing for them to do. It is our job to frame the laws as simply as possible, so that there are no loopholes. As my hon. Friend the Member for South Staffordshire (Gavin Williamson) pointed out, because there is so much more complication in our tax system, there are far more opportunities for loopholes. Surely the way to tackle the problem is to simplify the tax code, rather than pursuing people through the law courts or making the code even more complicated.
Stephen Timms
I am happy to subscribe to the view that the tax code should be as simple as possible, and I look forward to the new Government introducing measures along those lines. Simplicity is certainly a virtue, but, as I have said, those who are pressing for such measures might find that they have a rather longer wait than they would have liked. Let me also make it clear, in agreeing with my hon. Friend the Member for Hayes and Harlington, that there is absolutely nothing wrong with tax planning or with people ordering their affairs in a sensible way from a tax point of view.
John McDonnell
I think that the debate has been helpful to Members on both sides of the Committee. An attempt has been made to get out of the trenches, and to engage in a wide-ranging discussion of how we can proceed in a pragmatic way. I believe that this will become one of the key issues that people will expect us to address as the economic crisis continues. If they see public expenditure cut so that their local schools are not refurbished, and if they see a tax on welfare benefits, they will expect us at least to maximise the revenue from the tax that people and organisations should be paying. Justice and fairness in the taxation system will become critically important to more and more people.
Some of the arguments that we have heard today have been very helpful, and at times they have been entertaining. I am fascinated by the concept that reducing taxation reduces evasion and avoidance: that is almost an argument for no taxation at all, although it may not gain much purchase in the House. We all accept the arguments about simplicity, but the problem with simplicity is that it makes loopholes possible, and we then need complexity to tackle the loopholes. It is a circular problem. However, it is a joint venture for us to try to ensure that the legislation that we draft is appropriately simple.
Kwasi Kwarteng
What was said was that simplicity aided the avoidance of loopholes, and that complexity led to more loopholes. The hon. Gentleman has just contradicted that.