Oral Answers to Questions
Angela Eagle Excerpts(12 years, 8 months ago)
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Mr Osborne
I think that we can take important steps towards greater co-ordination of fiscal policy by implementing, as I say, the agreements that the eurozone came up with before the summer. That is the task at hand now. Speculating now about major treaty change is unrealistic. It is not going to happen in the next few years. It would take several years to bring about such a major treaty change and get it ratified by all the national Parliaments, even if those Parliaments agreed to it. The challenge this autumn is to bring greater stability to the euro’s governance arrangement, which is what our colleagues in the EU want to do.
Ms Angela Eagle (Wallasey) (Lab)
The Chancellor recently boasted that Britain is a safe haven from the problems in the eurozone, so will he tell us which EU countries have grown more slowly than the UK in the past 12 months, not in the last quarter?
Mr Osborne
As I said, this year, unfortunately, the German economy, the French economy and other major eurozone economies—[Hon. Members: “Ah!”] If Opposition Members do not want to look at the most recent numbers, it is no wonder they have not got a credible economic policy. Until they get one, and take a view on the eurozone and what is happening in Germany, France and the United States, they are not going to be taken seriously, as the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), has reminded them.
Ms Eagle
I do not think that the Chancellor knew the answer to that question, but today’s euro figures have revealed that only two countries—Romania and Portugal—have done worse on growth than the UK in the past year. Only yesterday, the Minister of State, Department for Communities and Local Government, the right hon. Member for Tunbridge Wells (Greg Clark), said from the Dispatch Box that there is a crisis of growth in this country. Was not the Chancellor’s friend, the new head of the IMF, Christine Lagarde, right at the weekend when she said that
“growth is necessary for fiscal credibility… We know that slamming on the brakes too quickly will hurt the”
economy “and worsen job prospects”?
We know that he will not listen to us, but why does the Chancellor not listen to sound advice from his friends, including, we hear, on this weekend’s draft G7 statement, which aims to slow the pace of deficit reduction—
Mr Speaker
Order. I am extremely grateful to the hon. Lady. I think that we have got the gist of it.
The Economy
Angela Eagle Excerpts(12 years, 10 months ago)
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Charlie Elphicke (Dover) (Con)
It is a real privilege and an honour to follow the hon. Member for Islwyn (Chris Evans), who has spoken quite brilliantly. I cannot understand why he has not caught the eye of the Leader of the Opposition before now. He richly deserves to do so, particularly after delivering such a fine speech as we have heard a few moments ago.
I shall now deal with the motion. This is a case of fantasy economics. It advocates the idea of building 25,000 affordable houses and creating 100,000 jobs for young people from a bank bonus tax, which raises less money than the Government’s own banking levy. There is a double-counting issue there, which causes me substantial concern, added to which the Opposition voted against £800 million being raised from tax avoiders. Yet again, Labour Members talk about all these wonderful things that people want, because they want to seem populist, while in reality supporting the very rich. The people on whose side we need to be are the grafters and hard-working people; we should ensure that they get better jobs.
Ms Angela Eagle (Wallasey) (Lab)
I thank the hon. Gentleman for giving way. To clarify the issue, the vote on the Finance Bill happened as a result of hundreds of amendments being tabled with almost no notice. The shadow Minister responsible said that we supported the intent behind the measure, but we wanted the Government to bring it back and review it. That is all on the record. The hon. Gentleman should not mislead the House in that manner.
Mr Deputy Speaker (Mr Nigel Evans)
Order. An hon. Member has been accused of misleading the House. I assume that the hon. Lady meant unintentionally misleading it. She should withdraw that comment.
Charlie Elphicke
I am grateful to the hon. Lady for the U-turn she has announced.
When I intervened on the shadow Chancellor, he attacked me for opposing the weakening of our border controls. The previous Government were not well known for being strong on border security or on immigration controls, yet he criticised me for standing up and defending my constituency. Just as the motion before the House is fantasy economics, it was the shadow Chancellor’s fantasy that this Government cut our border controls. It was the previous Government who cut our border controls, such was the commitment of the previous Prime Minister to keeping our borders safe. He had the grand plan of selling off our English borders at Dover in a privatisation, so much did he care about England. In many ways, I wish that he were in the Chamber more often, rather than hidden away in Portcullis House, so that we could set forth to him our concerns about the policies he pursued. The recession and misery that have been brought upon people up and down the land by his serial mismanagement of the nation’s finances are nothing short of a disgrace.
The Labour party has gone from government to opposition, but has learned nothing and forgotten nothing. It has proposed a £13 billion unfunded VAT cut—populist but unrealistic. It has made £10 billion of welfare reform spending commitments—nice for the base of people in dependency culture, but unrealistic and unaffordable. We need to ensure that work pays.
Ms Angela Eagle (Wallasey) (Lab)
We have had an interesting debate. On this very day a year ago, the Chancellor came to the House to announce what he and his spin doctors from Tory central office characterised for reasons of base propaganda as his unavoidable Budget. In reality, they and he knew that it was nothing of the kind. He used such misleading language because he wanted to disguise the central feature of his purpose that day. His aim was to create the image of a Chancellor with little option, as he fought to defend the country from the attentions of the bond vigilantes, stalking the world’s treasuries, looking for countries to kill.
In fact, the reality was very different. The Chancellor deliberately talked up the dangers in the bond markets by irresponsibly claiming that Britain had been on the brink of bankruptcy. He knew then, and he knows now, that it was all overblown rhetoric designed to disguise the fact that his Budget was actually a political choice made by the Conservative-led Government and their Liberal Democrat human shield, and it was an extreme choice. At a time when the economic recovery had not been locked in, he made a political choice to embark on a programme of tax increases and spending cuts greater than any which had ever been tried in Britain’s peacetime history.
Ms Eagle
No, I will not give way.
The Chancellor’s choice to cut further and faster than was economically necessary ensured that the UK plan to deal with the deficit went from one that was in line with the plans of other G20 countries to one that was far more extreme than anything undertaken in any other advanced economy. In other words, it was a reckless and risky experiment with our economic future.
Ms Eagle
No.
The Chancellor’s choice meant breaking promises that he made before the general election by scrapping the future jobs fund, cutting tax credits for people on incomes under £50,000 and increasing VAT to 20%. For the hapless Liberal Democrats, his choice meant that they had to do the exact opposite of what they had promised in their election manifesto. Before the election, they promised a £3.1 billion stimulus package; just after it, they went along with a £6.2 billion cut. They campaigned for an end to tuition fees and then trebled them. They warned about a VAT bombshell and then voted for it.
Mr Speaker
Order. Government Back Benchers must not engage in rhetorical stalking. The hon. Lady has made it clear that she is not giving way, so the position is clear.
Ms Eagle
The Chancellor’s choice meant that only Ireland and Iceland have been expected to deliver more austerity measures. The result has been that only Greece, Ireland and Denmark have grown less fast than the UK has managed in the past year. Back then, in what he so theatrically described as his emergency Budget, the Chancellor stood at the Dispatch Box and told us that
“we are all in this together”.—[Official Report, 22 June 2010; Vol. 512, c. 167.]
Well, we do not hear that phrase cross his lips quite so often these days. True, that ludicrous claim was blown apart the day after the Budget by the Institute for Fiscal Studies, but a year on, even the Chancellor seems to have given up on it. Perhaps it has been consigned to the dustbin of history, along with his pre-election pledge to ensure that no one working for a nationalised bank would take home a bonus of more than £2,000. Perhaps it has joined the Government’s promise that there would be no top-down reorganisation of the NHS.
The Chancellor also promised fairness, but a year ago today, he delivered a budget that hits women and children first and hardest, and he was cheered to the rafters by both Government parties in scenes of sadistic jubilation at the cuts that I, for one, and many of our constituents will remember for many years to come.
One year on, the Chancellor’s Budget of extreme austerity is inflicting nothing but pain and hardship on the British people. One year on, people are suffering the biggest squeeze in their living standards for more than 80 years. Food prices are up, petrol prices are up, energy prices are up, transport prices are up—
Ms Eagle
VAT is up, wages are frozen, hours are falling and real standards of living are sinking fast. It is certainly hurting, but it does not seem to be working.
The Government’s choice to put deficit reduction above every other consideration means that, one year on, they have developed no credible strategy for growth and jobs. All the important economic indicators are warning that the British economy is moving in the wrong direction. The Chancellor’s irresponsible scaremongering about bankruptcy and his reckless decision to compare us to Greece talked consumer confidence down to a 20-year low in January. Inflation, which was falling last year, is now more than twice the Bank of England target and the third highest in the OECD. Unemployment is set to be 200,000 higher than predicted in every year of this Parliament, with youth unemployment blighting one in five of all our young people. Despite all of the talk of being a pro-growth Government, the truth is that growth forecasts have been downgraded, thanks to his choices, again and again and again.
Things were getting better when we left office, but after a year of the present Chancellor and his political choices, they are getting worse. He has created a vicious circle in the British economy. He has put this country into the economic slow lane. By choosing to cut too far, too fast many more people are out of work, claiming benefits and not paying taxes. As a result, the Government have to borrow £46 billion more in the coming years than they expected only last autumn.
We on the Opposition Benches warned the Chancellor last year that huge and rapid cuts in public expenditure risked stifling the economic recovery. We said that his plan to cut billions from public spending last June, when the economy was still fragile, was reckless and irresponsible. Now more people are expressing their doubts about his plan. We have consistently called for a steadier and more balanced approach to reducing the deficit, but instead this ideologically blinkered and arrogant Government continue to claim that there is no alternative. This is irresponsible, it is complacent and it risks putting a permanent dent in our future prosperity.
Ms Eagle
A temporary VAT cut could help kick-start our stalling economy and the Government should certainly consider it until growth returns. Instead of giving the banks a tax cut this year, the Government should repeat the bank bonus tax and use the revenue to create 90,000 youth jobs, build 25,000 much-needed houses and support more regional growth. The Chancellor badly needs to change course.
It is not as though the Government are not used to retreating, backsliding, U-turning and executing 180° handbrake turns. They have had enough practice recently. The list is long and growing: decimating school sport in the run-up to the Olympics—abandoned; flogging off our forests—abandoned; ensuring anonymity for rape victims—[Hon. Members: “Abandoned.”]; reinstating weekly bin collections—[Hon. Members: “Abandoned.”]
Only yesterday in the House after Treasury questions the Government executed two huge policy retreats on their proposals to offer 50% discounts on prison sentences and the massive car crash that is their wasteful top-down reorganisation of the NHS. Their Back Benchers might not like it, but they have learned to live with it. They are even learning to adapt their behaviour to accommodate it. Just look at what some of them are saying on the ConservativeHome website. One said:
“When I get a torrent of emails about a controversial issue now, I leave them for seven days before replying, because there is an increasing chance that the line is going to change.”
Another is being even more sensible. He wrote:
“I let the letters and emails on anything where there is a hint of a U-turn pile up for thirty days. Frankly I don’t want to make myself look stupid by defending a policy only for it to change a few days later.”
Another complained that the Whips asked them to write letters defending the Government’s reform plans then the next day abandoned them, stating:
“Ten times bitten, eleventh time shy.”
The reason for all these U-turns and policy retreats is that this is a reckless Government who act first and think later. This is a Government who rush to ideological judgments, act recklessly, and cause chaos and then have to retreat, causing uncertainty and waste. That pattern perfectly describes the Chancellor’s irresponsible first Budget. His decision to cut too far and too fast set the context of rapid cuts against which so many of the recent U-turns have had to be performed.
As the Prime Minister said yesterday:
“Being strong is about being prepared to admit you didn’t get everything right the first time”.
I could not agree more. It is time for this Chancellor to follow his Prime Minister’s example and be strong on the economy. It is time for a plan B.
Oral Answers to Questions
Angela Eagle Excerpts(12 years, 10 months ago)
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Ms Angela Eagle (Wallasey) (Lab)
How many of the 34 countries in the OECD have comparable inflation rates higher than the present rate in the United Kingdom?
Mr Gauke
The fact that global commodity prices are rising and that the UK experienced a significant devaluation under the last Government mean that we face an issue with inflation, but it is the Monetary Policy Committee of the Bank of England that has responsibility for that. It is one of the few policies of the last Government that still has any credibility. Is the Labour party distancing itself from that policy as well?
Ms Eagle
Obviously, the Minister did not know that the answer is only two: Estonia and Turkey. He can huff and puff and blame world commodity prices all he wants, but is it not obvious that the Chancellor’s decision to put up VAT in January because he chose to cut too far too fast is causing real hardship to families throughout the country as they struggle to cope with the most vicious squeeze on living standards in generations? When is he going to realise that his economic policy is hurting and it is not working, and that the whole Treasury Front-Bench team is out of its depth?
Mr Gauke
For a moment, the hon. Lady got quite close to supporting the policy the shadow Chancellor announced last week, but she did not quite do so. The fact is that the Bank of England says the main causes of inflation are to do with the devaluation and rising global commodity prices. That is the truth; that is the reality—[Interruption.] Well, that is what the Bank of England says, and I suspect it has a bit more expertise than the hon. Lady.
Oral Answers to Questions
Angela Eagle Excerpts(13 years ago)
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Mr Osborne
Obviously, monetary policy is independent—the MPC sets it in the way we all know—so there is no co-ordination in that sense. I do not have a direct influence on monetary policy, but it is clear that by setting a credible fiscal policy, we give the MPC maximum room for manoeuvre and the freedom to keep interest rates lower for longer. The Governor of the Bank of England made that clear when he gave his Mansion House speech last year, and it is an observation also made by many independent observers of the British economy. Interest rates would be higher if we had a less credible fiscal policy.
Ms Angela Eagle (Wallasey) (Lab)
I would like to thank you, Mr Speaker, and the Chancellor for your tributes to David Cairns, our colleague, and to add our tributes from the Opposition side of the House. David was one of those very rare people who caused a change in the law in order for him to be able to take his seat in this place, and when he arrived his presence was not a disappointment to anyone. He was a great colleague and friend, and our hearts go out to his family and friends. We would like to add our deepest condolences at the shocking news of his untimely and very early death today.
Before the last election, both parties now in government pledged no rise in VAT, but with inflation running at double the Bank of England target, people are facing the biggest and longest squeeze in their living standards for 80 years. How does the Chancellor think that increasing VAT by 2.5% has helped them to cope with this issue?
Mr Speaker
Order. Whatever may be said about the question, I am sure that the Chancellor will focus on the monetary policy framework. That is what he can be relied upon to do.
Finance (No. 3) Bill
Angela Eagle Excerpts(13 years ago)
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Danny Alexander
I believe that the reduction in corporation tax will benefit businesses in all sectors. As for the question of capital allowances, the changes in relation to short-life assets have been welcomed throughout the business community, and particularly by the Engineering Employers Federation.
In 2007 the last Government reduced the writing down allowances from 25% to 20%, and we are reducing them from 20% to 18%. That is a balanced move which will ensure that firms in all sectors, including manufacturing, benefit from the new corporation tax environment that we are introducing.
Ms Angela Eagle (Wallasey) (Lab)
The Chief Secretary has mentioned small business. It is clearly agreed throughout the House that the SME sector will make a vital contribution to future growth in the economy. Does it worry him that, once again, it has been demonstrated that lending to small business fell in the first quarter of this year, despite the attempts to boost it in Project Merlin? What is he going to do about that?
Danny Alexander
Of course I am worried if lending to small businesses is falling. The Merlin agreement, which we announced at the end of February, was an agreement with the major United Kingdom banks to secure an additional £10 billion of lending to small businesses this year. We will monitor the position, the figures will be made available, and we will watch the banks like a hawk to ensure that they deliver on the agreement. That is critically important: this Government have acted as the last Government did not manage to.
Danny Alexander
I am going to press on now. I want to deal with the issue of fairness.
Although growth is key to improving everyone’s prospects in the medium term, we know that many families face real financial pressure now. The Bill therefore includes measures to help hard-working people with low and middle incomes, and to support families who are struggling to make ends meet. The Government are committed to real increases in the personal allowance every year, until no one earning less than £10,000 is caught in the income tax net. Clause 3 takes the first step towards meeting this objective by increasing the personal allowance by £1,000 for this tax year. That is the largest single rise in history. It means that 23 million taxpayers in Britain will be £200 better off this year in cash terms, and that more than 800,000 people will be taken out of income tax altogether.
The Budget also revealed the next step in the process. An increase of £630 next year will keep us on track to deliver the £10,000 allowance by 2015, as promised. That is progressive action by a coalition Government who recognise that those with the broadest shoulders should continue to bear the largest burden, and that those on the highest incomes should pay their fair share.
The Bill includes 11 new measures to close tax loopholes that have remained open for too long. For example, clause 26 will help to end the unfair practice of disguised remuneration. No longer will highly paid employees be offered virtually tax-free lifetime loans which, in truth, will never be repaid. Such arrangements are completely unacceptable. We will ensure that they cannot continue, and that all income is properly taxed. We have consulted to ensure that the impact of the legislation on commercial arrangements is limited, and we intend to make further changes when the Bill is considered in the Public Bill Committee.
Those measures will give us more resources to help families who pay their taxes, but who are struggling with the daily cost of living. The same motivation lies behind clause 7, which increases the supplementary charge on the large profits being made from oil and gas extraction in the North sea.
I understand that the increases in the supplementary charge are controversial, at least in the oil and gas sector. Given that the sector is benefiting hugely from the rapid rise in the world oil price, which currently stands at $124 a barrel, it was right to ask it to share some of its profits with motorists, but we are listening carefully to its concerns about specific investments. As we said in the Budget, we are discussing with several firms the possibility of using the field allowance regime to continue to support investment. The industry is understandably concerned about the stability of the tax regime, given the long-term nature of investments in the North sea. That is why we committed ourselves in the Budget to working with the sector to provide certainty about the long-term future of decommissioning relief, and why we announced a fair fuel stabiliser to reduce the supplementary charge if oil prices fall below an agreed trigger level.
However, we should not lose sight of the fact that this money is financing a much-needed package of support for motorists. First, it is funding the 1p reduction in fuel duty to which clause 19 refers. Secondly, it has helped to cancel Labour’s inflation uprating until January next year. As a result of these two changes, fuel is 6p a litre cheaper now that it would have been under the plans we inherited.
I should also remind the House that this Government inherited plans for above-inflation increases in fuel duty for 2011, 2012, 2013 and 2014. The increase in the supplementary charge has allowed us to abolish this fuel duty escalator, so that duty will not rise above inflation for the rest of this Parliament. As with fairness, so in understanding the issues facing hard-pressed motorists it is this coalition Government who are looking to share the burden of higher oil prices.
Let me now turn to the issue of taxing Britain’s banks. The previous Government announced and implemented a temporary tax on bonuses for one year only. Indeed, it was the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), who advised against repeating that. Clause 72 introduces a permanent levy on bank balance sheets, which will raise £2.5 billion in each and every year of this Parliament. That amounts to £10 billion of additional tax from the banks over the next four years, and, thanks to the decision announced by the Chancellor in February, an extra £800 million for this year too. There will be extra money to help us support jobs and growth this year, such as by providing the finance for an additional £100 million of investment in new science facilities at Cambridge, Norwich, Harwell and Daresbury, and £250 million of investment in the FirstBuy scheme for new-build homes, giving a helping hand to 10,000 people as they climb the first rung of the property ladder.
The Bill will also deliver fairness over the longer term. The changes to the requirements on annuitisation set out in clause 65 have long been called for, and will give people more control over their finances. They will allow those approaching retirement to make their own choices about how they use their pension savings, and they will offer greater flexibility in planning for old age. The introduction of automatic enrolment that is supported by the taxation changes in clauses 68 to 71 will help ensure that a low-cost pension scheme is available for the 5 million employees expected to save in the National Employment Savings Trust. The simpler, fairer rules on pensions tax relief in clauses 66 and 67 will limit the amount of tax relief received by those who make the highest pension contribution. From this year, the annual allowance will be set at £50,000 and the lifetime allowance will be reduced to £1.5 million. That will generate about £12.5 billion by the end of this Parliament, and it will ensure that the pension system remains generous for savers, is fair to taxpayers, and is affordable for the Exchequer. At the other end of the age range, clause 40 introduces individual savings accounts for children, offering a simple and tax-free way to save for a child’s future
Turning to the environment, the introduction of a carbon price floor in clause 77 is a revolutionary move. It demonstrates this Government’s commitment to being the greenest Government ever, and it makes us the first country in the world to introduce such a measure for the power industry.
Ms Angela Eagle (Wallasey) (Lab)
I beg to move an amendment, to leave out from “That” to the end of the Question and add:
“this House declines to give the Finance (No. 3) Bill a Second Reading because whilst the Minister of State for the Cabinet Office acknowledged that the country faces an ‘immediate national crisis in the form of less growth and jobs than we need’ this Bill does not address it; because the economic approach set out by the Government in this Bill puts jobs and growth at risk; because the Bill cuts capital allowances to businesses who invest in growth; because the Office of Budget Responsibility estimates that after all the measures in the Bill are taken into account the number of unemployed will be higher by up to 200,000 than forecast in November 2010; because the Bill fails to reverse the higher petrol prices faced by families as a result of the Government’s VAT increase in January 2011; because it does not address the damage done to family living standards caused by the wider tax and benefit changes this month; and because without a repeat of the bank bonus tax, the bank levy alone will mean lower taxes for the banks at a time when families and children are bearing the brunt of the Government’s cuts to household incomes.”
At the beginning of the Second Reading debate on a Finance Bill, it is appropriate to take stock of the situation that we face in the UK and of the Government’s handling of our economy almost a year into their time in office. This was the self-styled “Budget for Growth” that downgraded the growth figures. When one in five young people were out of work, it was a Budget that forecast higher levels of unemployment. This was a Budget from the deficit cutters which forecast £46 billion of higher Government borrowing.
After listening for months to his analysis of the economic challenges facing this country, I must confess that I am very worried about the credibility of the Chancellor. His explanation of the origins of the banking crisis and the recession that it caused is partisan fiction—it has very little connection to economic reality. It seems that I am not alone in worrying about his grasp of the facts, because over the weekend he has been attacked by the enemy within. He has been accused of “fiddling the figures” and telling “untruths”, threatened with a lawsuit and told to withdraw “completely unfounded” claims or risk losing “his credibility as Chancellor”—that is just what the Energy Secretary is saying about him.
The Chancellor is clearly also a founder member of the enemy faction identified by the Deputy Prime Minister in his interview with The Independent over the weekend as
“a right-wing elite, a right-wing clique who want to keep things the way they are”.
Perhaps the Chancellor could tell us, if he bothered to turn up—[Interruption.] Perhaps the “Orange Book” Liberals are part of that right-wing clique. Perhaps the Chancellor will tell us whether this right-wing clique all have a uniform as fetching as the Bullingdon club tux?
What about the Chancellor’s deputy, the Chief Secretary? In response to the Chancellor’s wild accusations last week about the funding of the “Yes to AV” campaign, the Chief Secretary said:
“I think it is a real shame that this sort of pretty desperate scaremongering is going on.”
Well let me tell the Chief Secretary that I know just how he feels, because the Chancellor has been indulging in pretty desperate scaremongering about the threat of a UK sovereign debt crisis since his theatrically named “Emergency Budget” last June, and he has been aided and abetted by none other than the Chief Secretary. As the Energy Secretary said in his letter to the Chancellor over the weekend:
“Robust debate is normal in British politics. Persistent resort to falsehoods is not.”
So the Energy Secretary is off to consult his lawyers, and the Chancellor, the Prime Minister, the Foreign Secretary and the chair of the Conservative Party all appear to be in his sights.
In the meantime, will the Chief Secretary now admit, in the interests of not persistently resorting to falsehoods, that the banking crisis and global recession were not caused by the previous Prime Minister? The truth is that he helped to avoid a global depression and that the current Chancellor got every important call in those days of world crisis wrong. Will the Chief Secretary also have the decency to admit that the deficit was not caused by too much spending on schools and hospitals or by the profligacy of nurses and teachers? The truth is that the crisis was caused by unforgivable excess in the banking sector. Will he also take this opportunity to disown and stop repeating the Chancellor’s irresponsible and pretty desperate scaremongering about Britain being on the brink of a sovereign debt crisis like Greece or Portugal, when it is obvious that it is not?
Like the Energy Secretary, I believe that robust debate is normal in British politics, but persistent resort to falsehoods is not. Will the Chief Secretary therefore now disown the “pretty desperate scaremongering”—I use his own words—about the supposed threat of a UK sovereign debt crisis? The truth is that it was the banking crisis that had a disastrous impact on the public finances. Between 2008 and 2009, nominal GDP fell by 1.8%—that cost £20.6 billion—and tax receipts dropped by 3.7%, costing £19.9 billion. Will he acknowledge that this sudden collapse in economic activity is responsible for the bulk of the deficit? This is not a deficit caused by too much public spending before the crisis, but a deficit caused by the crisis. The truth is that the deficit is the price that we are paying for the failure of the banking system and the recession that was caused by that failure. It is also the price that we paid to prevent a global recession from turning into a worldwide depression, and it was essential to our future well-being as a nation that a depression was averted. We could all have a more mature and relevant debate in this House about the formidable economic challenges facing us, if we began with an acknowledgement of the truth of these facts.
Last June, in their first Budget, this Government embarked on a risky and dangerous experiment with the future of our economy. Last year, they abandoned Labour’s plans to halve the deficit in four years and decided to plough full steam ahead with a deficit reduction plan that went further and faster than that of any other major economy in the G20. So preoccupied were they with their desire to make the biggest public spending cuts since the second world war that they also failed to ensure that growth formed a key part of deficit reduction. They opted for a high-risk approach, and this Finance Bill continues that dubious experiment.
It appears that the Government are in thrall to the economic dogma of a long-dead 19th-century economist, David Ricardo, and their ideological preference for a small state. They imagine that the smaller the government, the less taxation and spending there will be. They think that the private sector will somehow automatically fill the gap left by cuts and that the economy will just grow. That is why they have embarked on a drastic programme of deep and immediate cuts that, if their theory is correct, should already be turning the economy around by now and why they are so uncomfortable with publishing their wholly inadequate self-styled, “Plan for Growth”, which was meant to be the public relations centrepiece of the Budget. Their laissez-faire economic approach assumes that growth will happen automatically without the need for any Government support, much less a plan. That is why the plan was so delayed and of such dubious merit when it finally arrived. Keynesians, however, believe that the economy works very differently and that the Ricardian equivalence dogma is wrong. We ignore the insights of Keynes at our peril, which is why the Government’s economic policy, as set out in the Bill, is taking us in the wrong direction.
The great banking crisis of 2007, which began in the American sub-prime mortgage market, administered a huge and near-fatal shock to the world’s financial system.
Kelvin Hopkins
I agree entirely with everything my hon. Friend has said. The Government have completely failed to understand the importance of demand in the economy if we are to get growth, and demand looks as though it is weakening. Even the Treasury now estimates that by the end of this Parliament, borrowing will overshoot by £11 billion. The Government are driving the economy in precisely the wrong direction.
Ms Eagle
That is essentially the insight that Keynes developed from his experience as a practising economist. We ignore his insights at our peril—[Laughter.] Hon. Gentlemen on the Government Benches can laugh, but if we get this wrong and the economy does not grow or develop, the price will be paid through a smaller economy, fewer opportunities and lower standards of living for men and women up and down the country. That is not something that the Government or the Government parties should be making a joke of.
The great banking crisis transmitted itself to the real economy in the form of a synchronised global recession. Nothing so serious has been experienced in the advanced economies since the Wall street crash. That great crash destroyed the economic and social fabric of many societies in the interwar years, causing untold hardship and misery. Governments in the 1930s were in thrall to the same Ricardian dogmas as now hold sway in both the Government parties. They did not see a role for the state in protecting the economic and social well-being of their citizens. Their lack of vision and hands-off approach to economic policy led to the great depression and ultimately, the collapse into dictatorships and a cataclysmic world war.
Fortunately, in 2007 the previous Labour Government and economic policy makers the world over did not make the same mistake. They had absorbed the lessons of the interwar years, and they took actions to prevent the recession from turning into a global depression, but before the recovery had become securely established, the deficit hawks reasserted themselves, demanding austerity despite warnings from leading experts around the world that that would be the wrong approach.
Ms Eagle
That is true—the Liberal Democrats gave us such warnings before the election.
Undeterred by the lessons of history and without an electoral mandate for such drastic cuts, the new Administration in the UK have proved to be the most extreme of the deficit hawks. They decided that dealing at breakneck speed with the deficit created by the banking crisis was more important than any other consideration, including protecting people against long-term unemployment or against cuts in vital public services. So, before the patient was long out of the emergency room, the Government decided to start administering a deficit reduction shock therapy that could end up being worse than the original illness. There is nothing in economic theory that dictates that Governments should plan to eliminate deficits in four years rather than eight.
The sheer scale and speed at which the Government have proceeded came as a surprise, not least to the 6.5 million people who voted Liberal Democrat at the last election. The Business Secretary warned about the dangers of cutting too far and too fast before the election, only to go along with the most savage cuts that we have had in the UK in peacetime straight after it. Meanwhile, in his speech to the Liberal Democrat Scottish conference last year, the Chief Secretary promised to
“create…jobs and boost the recovery”.
Instead, he has followed the example of the leader of his party when it comes to election promises—he has done the exact opposite of what he said he would do.
Just today, Mr Gary Millar, a councillor in Liverpool, has quit the Liberal Democrats in disgust over their broken promises. He said that he was once
“happy to call myself a Lib Dem, today they make me question my integrity and reputation.”
Like so many others, he feels personally betrayed by the Liberal Democrats, which is why they will face the wrath of an angry electorate next week.
At the time of the election last year, the economy had begun to improve from the depths of the banking-induced recession. Growth was up, inflation and unemployment were falling and borrowing had come in £20 billion better than forecast in the 2009 pre-Budget report. Formidable problems lay ahead, of course, but we were moving in the right direction and growth was seen as part of the solution.
Since the fiscal hawks rolled up at the Treasury, our economy, which was improving, has ground to a halt. Unemployment is higher, inflation is double the Bank of England target and the Chancellor has presided over a collapse in consumer confidence to lower levels than it reached in the depths of the 2009 recession, because he made the political choice to inflict on ordinary families the largest and longest squeeze in living standards since the 1920s. As the cost of living rises and wages fall, he has chosen to impose the increase in VAT, huge cuts in local services and a reduction in the support for child care that threatens to drive many women out of their jobs. His VAT increase alone will cost the average family with children £450 this year, far more than they will gain through increases to tax thresholds. Little wonder, then, that the Office for Budget Responsibility has downgraded the growth forecast again and again.
In his Budget speech, the Chancellor boasted:
“Our country’s fiscal plans have been strongly endorsed by the International Monetary Fund, by the European Commission, by the OECD, and by every reputable business body in Britain.”—[Official Report, 23 March 2011; Vol. 525, c. 951.]
The IMF has lowered its growth forecasts for the UK, however, and its head, Dominique Strauss-Kahn, has warned against cutting budgets too far, creating long-term unemployment and abandoning entire generations to a workless future with no hope. The recent interim OECD assessment of G7 economies predicted that the UK was expected to grow more slowly than any other G7 country except Japan, which has just been hit by powerful earthquakes, devastating floods and the ongoing battle against a nuclear disaster.
Kelvin Hopkins
Again, I agree entirely with my hon. Friend, who is making an absolutely excellent speech. There is another factor, however, driving deflation, and that is the fear of unemployment. When people are frightened of losing their jobs, they stop spending their money and try to pay off their mortgages. That is what is happening now and that is why demand will be savagely cut by this Government’s policies.
Ms Eagle
My hon. Friend makes an extremely good point about confidence and sentiment in the economy transmitting their way into the real figures through their effect on demand.
Even those who gave their personal stamp of approval to the Chancellor’s aggressive cuts agenda last year in a letter to The Daily Telegraph are now voicing their doubts about weak growth. Ex-Tory MP Archie Norman is worried that the Government’s growth predictions are too optimistic and former Asda boss Luke Bond is predicting a two-year retail recession, which picks up on the point that my hon. Friend the Member for Luton North (Kelvin Hopkins) has just made.
The Government are going too far too fast, and we are paying the price in lost jobs and slower growth. Their phobia about the deficit means they are cutting public expenditure much further and faster than any other major economy. They have made deficit reduction the only thing that matters, regardless of how terrible its social or economic effects will be; they appear to be blind to the lessons of history; they refuse to listen to public concern; and they fail to recognise the absolute necessity of re-establishing growth to get the deficit down. Without growth, austerity measures simply make the deficit worse and impoverish the society they are inflicted on. The Chancellor should, as he so notoriously lectured us in February 2006, “Look and learn from across the Irish sea”. Ireland is on its fourth austerity budget with no end in sight. The evidence shows that all the countries that implemented drastic austerity measures saw their economies go into reverse in the fourth quarter of 2010. Those economies shrank in Greece by 1.4%, in Iceland by 1.5%, in Ireland by 1.6%, in Portugal by 1.5% and in the UK by 0.5%. In contrast, both the German and the American economies grew.
The Chancellor is not solving the problem; he is in danger of making it worse. The day after the Budget, the ratings agency Moody’s embarrassed the Government by suggesting that the UK’s triple A rating might be at risk not because of the deficit but because of slower growth. I would take any pronouncement from the rating agencies with a very large pinch of salt, as they are hugely compromised by the part they played in making the banking crisis worse and they need to be reformed, but, unlike the Chancellor, we have neither made their flawed and partial judgments the central justification for our economic policies nor installed them as the most important judges of our success by giving a dangerous credence to the fiction that the UK’s ability to finance its debts is at risk for reasons of petty party politicking. Their influence makes the inconvenient point for the Government’s political cuts narrative that growth is equally important to successful deficit reduction. Without growth, the deficit will not be sustainably reduced.
Ms Eagle
With a 25% devaluation in the value of our currency, we certainly ought to be seeing strong increases in economic performance, but my hon. Friend makes an important point about demand in other areas of the economy, especially in the European Union, which is our largest export partner—60% of our exports go there.
The Chief Secretary will already have seen the growth figures for the first quarter of 2011, and I am looking at his face for any scrutable or inscrutable reaction. The figures are due to be released tomorrow, so he has an advantage over the rest of us. I do not know whether he is going to give us any facial hints as to what is in them, but if the OBR’s three-times downgraded forecast of 0.8% is right, the economy will have grown a tiny 0.3% over the past six months against the 1.8% it achieved in the previous six months under the influence of the previous Government’s policies for recovery. As the Financial Times says today,
“it will be difficult to claim that the recovery is self-sustaining unless Wednesday’s number is at least 1.2 per cent and possibly as high as 1.7 per cent.”
The Government’s growth strategy is a hotch-potch of reheated Thatcherite fiddling on the supply side. At its centre is the dubious belief that the most important driver of economic growth is creating a low corporate tax jurisdiction for multinationals, but the economic literature shows that growth tends to be higher in countries that have a higher investment in social and intellectual assets, as well as good capital infrastructures. The Government have a simplistic view that cutting corporate taxes will automatically lead to more investment, but we believe that an investment strategy is needed and that it sends the wrong signal to cut investment allowances. The £200 million one-off extra investment in science and apprenticeships, although welcome, is dwarfed by the £5 billion-a-year cost of reducing corporate taxes, which will help growth only if that money is reinvested in business activities in the UK. The Government’s decision to abolish the regional development agencies and cut regional growth funding by two thirds has set back many viable plans for development that could even now have been building an economic recovery in every region of the UK.
Despite the biggest squeeze in living standards since the 1920s, the OBR is forecasting that one quarter of economic growth this year and a third next year will come from UK households and will be financed by a sharp increase in household debt. Close study has revealed something that the Chancellor chose not to mention in his Budget speech: the OBR expects families to go deeper into debt each year between now and 2015 and expects household debt to rise to a record high of 175% of disposable income, or £77,000 per family, by the end of this Parliament. The Chancellor claims that the only thing that matters is getting Government borrowing down, but he does not say that his plan is to pass that debt directly on to already hard-pressed families. Although they did not cause this crisis, ordinary hard-working people and families are being made to pay for it. People are suffering under the pressure of the Chancellor’s hike in VAT, sky-high petrol prices and inflation, and we know that his real economic strategy is to force people to take on even more debt just to make ends meet.
What then of the sector that caused the crisis? Instead of making the banks pay more this year, the Government are giving them a tax cut. Project Merlin, the Government’s so-called final settlement with the banking sector, is a damp squib. As the majority shareholder, the Government have just approved, for the chief executive of the nationalised Royal Bank of Scotland, £7.7 million in pay and bonuses for last year despite the bank’s having lost £1 billion. It has also emerged that bank lending to small businesses fell again in the first quarter of the year. Lending to small businesses is vital to recovery and despite all the promises from the banks it is going down, not up. The Government should not be giving the banks a tax cut, but should follow Labour’s suggestion and repeat the bank bonus tax this year. That extra money could be used to build 25,000 extra affordable homes, to create more than 100,000 jobs to help tackle youth unemployment and to boost enterprise in the regions.
The Government are hellbent on taking us back in time to the divided Britain of the 1980s. The Tory leaders in the coalition are trying to re-enact the failed Thatcherite policies of the past, which resulted in one part of our society being divided against another. Not only are they making life tougher for people, but they are kicking away the ladders to a better future. They are teaching people to blame the weak and despise the poor. It is happening all over again, just like in the 1980s, but this time the Liberal Democrats are helping them to do it. At the weekend, the Deputy Prime Minister accused the Prime Minister of “defending the indefensible”, but I think that the Deputy Prime Minister and his Government colleagues are doing a pretty good job of that themselves. In public they complain, but in private they roll over and agree to every damaging Tory plan.
The Government fail to recognise the pain that their economic strategy is inflicting on people up and down the country. They want Britain to have a smaller state; they want to create a nastier, meaner, shabbier society that leaves people to fend for themselves; and they are trying to fool the country into believing the myth that the economic storm was all Labour’s fault and that this extreme and dangerous fiscal consolidation programme is the only option to deal with it. The Government need not have cut this far or this fast, because there is a better, fairer and safer way. They need to wake up and accept that their economic polices are not working and are just hurting, and they need to change course before it is too late.
Oral Answers to Questions
Angela Eagle Excerpts(13 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Justine Greening
Obviously, my hon. Friend has his ideas about how he would like to see motorists being taxed in relation to the environment. He will be aware that the way in which vehicle excise duty is structured encourages motorists to purchase and use cars with lower emissions.
Ms Angela Eagle (Wallasey) (Lab)
On the day that diesel prices have hit a new high and inflation has jumped higher still, making the squeeze on living standards even worse, why do not the Government admit that they got it wrong on VAT and give struggling working people some much-needed support by reversing the Tory VAT rise on petrol, which would take 3p off the price of a litre? Just do it!
Justine Greening
The hon. Lady says, “Just do it!”, but she should know that that is simply not legally possible. She fully understands that. The reason that the Opposition are talking about that is that the fuel duty rises that are coming through were legislated for by Labour, so they are desperately looking for something to say about an issue that they themselves created. She knows that her policy on the VAT rise is illegal, totally unworkable and completely unfunded. Labour wants to take seven years to support motorists; we want to see what we can do to support them now.
Fuel Prices and the Cost of Living
Angela Eagle Excerpts(13 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Ms Angela Eagle (Wallasey) (Lab)
I beg to move,
That this House recognises that rising world oil, food and commodity prices are increasing the cost of living and adding to the squeeze on families on low and middle incomes across Britain; believes this has been compounded by the Government’s decision to increase VAT to 20 per cent., which will cost a family with children an annual average of £450, has helped to push up the consumer prices index annual inflation to 4 per cent. and, according to the House of Commons Library, is adding £1.35 to the cost of filling up a vehicle with a 50 litre tank; notes that the AA announced last week that the cost of unleaded petrol has now reached an average of £6 a gallon and that the fuel duty stabiliser promised in the 2010 Conservative Party manifesto has not yet been announced or implemented; further notes that the previous administration regularly postponed planned fuel duty rises when world oil prices were increasing sharply, as they are now; and demands that the Government takes immediate steps to reverse January’s VAT rise on road fuels, using the extra £800 million from the bank levy and securing the appropriate EU derogation, in order to provide relief to hard-pressed motorists and, at the time of the Budget, looks again at the annual duty rise due in April.
It is a great pleasure to follow my hon. Friend the Member for Liverpool, Walton (Steve Rotheram), whose ten-minute rule Bill seeks to address an issue that is close to the hearts of all of us from Merseyside.
Times are increasingly tough for millions of ordinary hard-working people and families in our country. Since May last year, we have seen this Government embark on a reckless gamble with our future prosperity. Public expenditure is being cut too deep and too fast, and up and down the country millions of people are really beginning to feel the pinch. Families are facing the biggest squeeze in their living standards for 80 years, and some economists are warning that it could get still worse. Real wages are static, even falling. With recruitment freezes, job losses and rising unemployment, people are right to be worried about the future.
Mr Greg Knight (East Yorkshire) (Con)
Will the hon. Lady help the House? Over the past 13 years, in every aspect of Government policy, the Labour Government were deliberately and decisively anti-motorist. Does the motion before the House today represent a seismic shift in policy, or is it, as we suspect, a transient spat of opportunism?
Ms Eagle
I am rather sorry that I gave way so early in my remarks to that kind of comment. I do not recognise the right hon. Gentleman’s caricature of our policies for motorists. Perhaps he has been reading too much of the Daily Express. [Interruption.] Well, I am a motorist as well. He should realise that motorists are not confined to the Conservative Benches.
Robert Halfon
I find the Labour motion astonishing, because over the past few years the hon. Lady’s party crucified Harlow’s motorists by putting up fuel duty by 6% a year and increasing it more than 12 times—and it was going to introduce another tax.
Ms Eagle
I will come to the details of the motion later. Perhaps the hon. Gentleman will do us the honour of staying in the Chamber and listening to that.
Taxes such as VAT are rising, and the Chancellor’s huge cuts in benefits and services are only just starting to bite. The Government are doing all this while the world economy is still very fragile after the international banking crisis. Global commodity prices are soaring, and these price increases are hitting people and businesses in Britain hard.
Mark Tami (Alyn and Deeside) (Lab)
Does my hon. Friend agree that this problem tends to have a worse effect in rural areas than in some towns? A lot of people in rural areas rely on oil as a fuel, so they are being hit by a double whammy.
Ms Eagle
I am pleased that the competition authorities have launched an investigation into what has been going on with heating oil. My hon. Friend is right to point out that transport in rural areas is a particular issue.
People who are already financially stretched by this Government’s slash-and-burn approach now find themselves trying to cope with sudden sharp increases in the price of essentials such as food, energy and fuel. Recent OECD figures put UK food inflation at 6.3%. That is higher than the consumer prices index, higher than the retail prices index, and higher than in most of the rest of Europe. In my constituency, parents are now worried about the rising cost of providing balanced meals for their children.
Caroline Lucas (Brighton, Pavilion) (Green)
Does the hon. Lady agree that the fuel duty escalator is an important tool to send a clear message that oil prices are going to have to continue to rise, not only for geopolitical reasons but because of peak oil and climate change, and that a way of ensuring that the poorest are not hardest hit would be to scrap the recent VAT increase in totality and replace it with a crackdown on things such as tax evasion and tax avoidance?
Ms Eagle
The hon. Lady is right that there has to be a balance between the environmental aspects of taxes on fuel and living standards. However, I find, all too often, that on the green side of the argument the social justice aspects of imposing environmental tax rises are not thought about enough, and such measures tend to hit hardest people whom we are least able to help. She needs to help all of us, when we are thinking about this, by bearing in mind the effects on poverty of environmental taxes.
Mr Dennis Skinner (Bolsover) (Lab)
The fuel duty escalator was introduced by the former Tory Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr Clarke). One of the first things that the Labour Government did on assuming office was to make sure that we did not pursue that policy. [Interruption.] Oh, yes. That is why, on several occasions in our 13 years, the Labour Chancellor of the Exchequer got rid of the fuel duty increase. That is the truth.
Charlie Elphicke
I thank the hon. Lady for her kindness and generosity in allowing me to intervene. To clear up the addling of some minds in the House regarding the history of this matter, will she confirm that in 1997 duty was 36.86p and today it is 57.19p?
Brandon Lewis
I thank the hon. Lady for being so generous in giving way. Will she confirm that, despite what has been said, my hon. Friend the Member for Dover (Charlie Elphicke) is right: there were 12 fuel duty rises under the Labour Government, and six more were set to come into force before they left office and would have done in the next few years?
Ms Eagle
As I said, we had six years when we did not even increase the price of fuel by inflation, so there were real-terms price falls. The number of increases in all sorts of duties tends to expand the more one is in government. We will see what this Government do in the Budget next week.
Michael Connarty (Linlithgow and East Falkirk) (Lab)
The difference in our approach is that we are looking to help people across all parts of the economy. Surely the people at the Freight Transport Association who have been campaigning solely for a fuel duty rise not to be imposed, which would benefit them, should realise that they must build an alliance with other people by campaigning for the striking down of the increase in VAT to 20%, which is hurting everyone, including not only themselves as the people who deliver goods, but the people who have to purchase those goods.
Ms Eagle
No. I have given way a few times, and I am going to get on with my remarks.
It is absolutely clear that increased fuel duty costs are eating further and further into already stretched household budgets, making the squeeze on living standards even worse. Businesses are suffering from problems caused by inflating commodity costs, tighter margins and restricted access to credit from the banks. Many are anxious about how they will get by in the next few years, and the continuing rise in the price of fuel is adding to that worry.
Ms Eagle
I will get on with my remarks and give way to the hon. Lady shortly.
The cost of oil has been rising on world markets as a result of underlying increases in demand from Asia and uncertainty because of the unrest in the middle east. Just a week ago, petrol prices hit a new high at the pumps. The average price for unleaded fuel is, a week later, still £1.32 a litre. That means that the cost of fuel has risen 7p a litre since the beginning of the year. The AA pointed out that the £6 gallon has arrived for the first time, and that prices for diesel have soared even higher, currently averaging £1.38 a litre.
Gordon Birtwistle (Burnley) (LD)
I am grateful to the hon. Lady for giving way—[Interruption.] May I refer to an e-mail that I received—[Interruption.]
Ms Eagle
I am not willing to give way to the hon. Gentleman. [Interruption.] He can show me the e-mail afterwards.
The Conservative-led Government’s decisions to raise VAT to 20% may have been expertly disguised before the election so that the voters were kept in the dark about it, but we all know about it now. Increased VAT has added an average of £450 a year in extra cost to a family with children and has pushed the headline CPI figure to 4%, which is double the Bank of England’s target.
The Economic Secretary to the Treasury (Justine Greening)
Perhaps the hon. Lady will confirm and clarify her party’s position on—I think—fuel duty. I am not sure because on ITV’s “Daybreak” the shadow Chancellor said: “We’re saying today, as well as the duty thing, which I’ll think you’ll freeze”—I presume that he was not saying that explicitly to Christine Bleakley—“I think you should reverse the VAT rise.” Specifically on the “duty thing”, is the shadow Chancellor talking about freezing the 1p rise, the RIP rise—[Hon. Members: “RIP?”] Sorry, I mean the RPI plus one rise. Which is it? [Interruption.] I might have made a slip, but I was thinking about the Opposition and their policy.
Mr Speaker
Order. Before we continue, may I appeal to Members, including Ministers and other Front Benchers who are intervening, to do that economically? I remind the House that the Chair’s responsibility is to seek to protect the rights of Back-Bench Members who wish to speak. I put it to Front Benchers that Back Benchers will be not inconsiderably irritated if long speeches from the Front Bench stop them getting in.
Ms Eagle
I was trying to help hon. Members by giving way. Obviously, that extends the time that one’s remarks take, but I think that some exchange helps the debate.
I hoped that the Chief Secretary would be here today, but we have the Economic Secretary instead. Why will the Chief Secretary not turn up to one of his own debates? Where is he? Why has he not come to tell us about what he has been doing on all those issues?
Mr Alan Reid (Argyll and Bute) (LD)
The hon. Lady will recall that when she was a Treasury Minister, she received a delegation of highlands and islands Members of Parliament, including the Chief Secretary, and that we asked for a fuel duty derogation for remote rural areas. We had tea and sympathy, but no action. The Chief Secretary is now implementing that policy. Does the Labour party now support reduced fuel duty for the islands?
Ms Eagle
We want to do something that helps everyone in the country, not one third of 1%.
As we all know, VAT applies to petrol. As I said , the Library has calculated that the 2.5% increase in VAT has added nearly 3p to the cost of a litre of petrol when people are least able to absorb that extra cost. We all know that an extra fuel duty increase of 1p above inflation is factored into the Chancellor’s Budget arithmetic and due to be implemented next month. Taken with rising inflation, those changes could put 5p a litre on to fuel duty rates. The combination of sharp rises in world oil prices, ongoing uncertainty in the middle east and the self-inflicted rise in VAT is creating real hardship for many people. It causes higher inflation, lowers consumer spending power, which is already weak, and reduces both consumer and business confidence, thereby putting any prospect of growth at risk. The economy shrank by a shock 0.6% in the last quarter of 2010. People are getting increasingly desperate for some relief from the Conservative Government, but there is precious little sign of it.
Ms Eagle
I am trying to get on with my remarks, as the Speaker wishes me to do.
What help has been put in place to tackle rising fuel prices since the Government took power last May? The Business Secretary was reported as telling the Press Gallery over lunch recently:
“It’s quite likely that we are going to get a nasty period of high fuel prices”.
Top marks for observation, but most people would think that, at an average of £1.32 a litre, we already have a nasty period of high fuel prices. However, the Minister of State for International Development does not seem to think that they are high. As a former oil trader, he was unable to resist the urge to speculate. His irresponsible guesswork succeeded in generating front-page headlines in The Sunday Times on 6 March, when he announced that he thought that the record price of $147 a barrel for oil reached at the height of the oil price spike in 2008 would be smashed. He said:
“I’ve been saying in Government for two months that if this does go wrong, £1.30 at the pump could look like a luxury, $200 a barrel is on the cards”.
His words of wisdom, which were hardly calculated to bring calm to the international oil markets, were reported around the globe. His headline-grabbing antics succeeded only in making a bad situation worse, and, I would imagine, swift removal from No. 11 Downing street’s Christmas card list.
Meanwhile, total incoherence was breaking out in the oddly named “quad”, which, for those who do not know, consists of the Prime Minister, the Deputy Prime Minister, the Chancellor of the Exchequer and the Chief Secretary. Apparently, they are meant to be the ones who actually run the Government, and it seems that they are falling out over the Conservative manifesto promise to introduce a so-called fuel duty stabiliser, which would cut duty when prices were high but raise the tax when prices fall.
Ms Eagle
I will not give way. I am trying to get on. [Interruption.] I hope that the hon. Member for Devizes (Claire Perry) will stay in order. I have said that I want to get on with my remarks because the Speaker is trying to protect Back-Bench business, and I have given way a lot. She should now be patient if she wishes to contribute to the debate.
The fuel duty stabiliser relies on the view that increasing oil prices provide the Treasury with a windfall from North sea oil revenues that can be distributed to hard-hit fuel users. Where is the fuel duty stabiliser? In April last year—conveniently before the general election—the Prime Minister, after a huge song and dance on the issue, which we saw on the front pages, suggested that a Conservative Government would cut the cost of petrol by 10p a litre if oil prices remained high. At that time, petrol cost 12p a litre less than it does now. The Daily Telegraph reported that the Tory fuel duty stabiliser
“is expected to be launched within months if Mr Cameron is successful.”
As oil prices soar, voters who remember that promise are still waiting.
Since then, the Prime Minister has dropped lots of little hints about his pet policy, without actually doing anything about it. Every time he mentions it, he is quickly slapped down by the Chief Secretary. That happened in January just after a prime ministerial fuel price hint. Speaking on the BBC’s “Politics Show”, the Chief Secretary said of the stabiliser mechanism:
“It’s a complicated idea and it’s difficult to see precisely how we achieve it”.
Of course, that did not stop the Conservatives dangling the idea cynically before the electorate last April. In the same BBC interview, the Chief Secretary rejected calls to scrap the 1p rise in fuel duty that is due to be introduced this April, saying—
Ms Eagle
No, let me finish. The Chief Secretary rejected calls to scrap the 1p increase, saying that he was not prepared to “sacrifice income willy-nilly” to help motorists. That is the Chief Secretary who is not at this debate. Perhaps Conservative Members should be asking him their questions. He proceeded to champion the fuel derogation for remote islands, which will help just a third of 1% of Great Britain’s almost 34 million registered vehicles and 60 million people. To be fair to him, he has battled for 10 months to get that policy up and running and, showing the energy and drive for which he is famous, he has managed to get around to asking the EU for permission to think about doing it. That is a perfect example of a policy from this Government: it generates a satisfyingly large amount of headlines, helps virtually nobody and costs almost nothing.
Meanwhile, the Chancellor asked the Office for Budget Responsibility to undertake an assessment of the effect of oil price fluctuations on the public finances, in order to design a stabiliser mechanism. It produced that assessment last September.
Ms Eagle
I have given way to the hon. Member for Great Yarmouth (Brandon Lewis) already.
The Office for Budget Responsibility produced the assessment last September, and it failed to make the numbers stack up for the policy. It calculated that the overall effect on the public finances of a temporary oil price rise would be close to zero, and that a permanent rise would create a loss to the public finances. In other words, there is no windfall for the Treasury to redistribute using a so-called fuel duty stabiliser mechanism.
No one appears to have told the Prime Minister about that and he clearly has not bothered to read the OBR report, because at Prime Minister’s questions a couple of weeks ago, he promised a fuel duty stabiliser in the Budget:
“we will look at the fact that extra revenue comes to the Treasury when there is a higher oil price, and see if we can share some of the benefit of that with the motorist.”—[Official Report, 2 March 2011; Vol. 524, c. 300.]
The Daily Telegraph called that statement “misleading and economically illiterate”. I could not have put it better myself.
Ms Eagle
I have given way to the hon. Member for Great Yarmouth.
That statement shows that this Government are run by a Prime Minister who does not do detail and who appears to be at odds with his own Chief Secretary. The OBR has shown that a temporary rise in oil prices generates a £100 million surplus in the first year for the Treasury, but that that turns rapidly to a net revenue loss of £700 million the year after. What the Government gain from higher oil tax revenues, they lose from the effects of higher prices on consumption and the requirement to spend more on indexing pensions and benefits. A permanent rise causes permanent losses to the public finances. The Prime Minister has to stop pretending that there is a windfall in rising oil prices that he can share out, because it simply does not exist. [Interruption.]
Mr Speaker
Order. I apologise for interrupting the hon. Lady. I say to the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) that loud conversations in the middle of a speech are discourteous and must not happen. That is not a proper way to conduct debate. I am not having it, and that is the end of it.
Ms Eagle
I was saying that the Office for Budget Responsibility has given the lie to the view that a fuel duty stabiliser mechanism can be financed by the windfall that rising oil prices give the Government by revealing that that surplus does not exist.
The Secretary of State for Business, Innovation and Skills was caught recently saying that the Liberal Democrats are in a “constant battle” inside the Government, especially over tax proposals. They are obviously in a battle over the fuel duty stabiliser. In debates on the 2008 Finance Bill, he said that fuel duty stabilisers were “unbelievably complicated and unpredictable”. He also said:
“May I suggest that there might not be any net windfall at all?”—[Official Report, 16 July 2008; Vol. 479, c. 339.]
The OBR has since confirmed that there is not. The Liberal Democrat bit of the Government is saying one thing and its Tory masters another. Together, there is total inaction on fuel prices.
The Institute for Fiscal Studies has concluded that introducing a fuel duty stabiliser would inject more uncertainty into the public finances rather than less. Analysis by the Policy Studies Institute found that if a stabiliser had existed for the 12 months to last December, when the price of petrol rose by 13p a litre, it would have cost the Exchequer a staggering £6 billion. The Government’s flagship policy on fuel, which they used cynically before the election to generate so many favourable headlines and to gather votes, is not only late in arriving, but looks shambolic and incoherent.
Andrew Bridgen
The Labour party’s apparent damascene conversion on fuel taxes will amaze and intrigue the bulk of the electorate. Will the hon. Lady confirm whether she supported the crafty action of the previous Chancellor of the Exchequer, who effectively excluded fuel from a VAT reduction in 2008 by raising duty, and then put the VAT on fuel back up to 17.5% in January 2010?
Ms Eagle
One minute Government Members say that we have no plan to deal with the deficit, and the next minute they complain that we had a plan that would have raised money. They really do try to have it both ways and are not remotely coherent.
The time for action is now. The Chancellor should take immediate action on fuel prices to ease the cost of living crisis in Britain. He does not even have to wait until the Budget. We are calling on him to reverse immediately the 2.5 percentage point increase in VAT on petrol that he imposed in January.
Jacob Rees-Mogg
The hon. Lady is always enormously gracious and generous in giving way. The Labour party is now proposing tax cuts, and has not proposed any serious spending cuts. Does it just want the country to go bankrupt?
Ms Eagle
The hon. Gentleman should not believe the propaganda from Tory central office. Of course we do not want the country to go bankrupt. We had a plan that would have halved the deficit, rather than dealing with it in four years. If I were in the Conservative party, I would not be quite so proud of producing the third largest fiscal consolidation—public spending cuts in ordinary language—of the top 29 industrialised countries, beaten only by Iceland and Ireland. As the hardship and the squeeze on living standards in this country become clearer in the coming year, the Government will come to rue their decision to cut too far and too fast. People will suffer day in and day out as a result of that decision.
Mr MacNeil
I am not sure what the hon. Lady thought about living standards in the Outer Hebrides when, time after time, she stood at the Dispatch Box as a Minister and said what she could not do and why she could not do it. Does she, in her quieter moments, regret not approaching the European Commission for a rural fuel derogation for the Hebrides and other islands in Scotland?
Ms Eagle
I must continue.
The Chancellor should use the Budget to look again at the annual fuel duty rise due in April, because of the price of fuel in world markets. At this time of instability and change in the middle east and north Africa, the Chancellor has to work with other Finance Ministers to try to keep oil supplies flowing and get world oil prices down.
At the weekend, the Deputy Prime Minister claimed that the Liberal Democrats were
“in the middle, for the middle”.
I say to them this afternoon: prove it. If they really cared about the struggles facing hard-pressed families in Britain, they would join us in the Lobby and vote for our motion. I for one look forward to seeing them.
Mr Russell Brown (Dumfries and Galloway) (Lab)
My hon. Friend has laid out clearly why a fuel duty stabiliser or regulator would not work in fiscal terms. The tragedy is that the wider UK public, on the back of the Fair Fuel UK campaign, have been sold the idea of a stabiliser while at the same time talking about a reasonable price. Does she have any idea what would be a reasonable price with which people would be satisfied? It would be quite unsustainable, I think.
Ms Eagle
I thank my hon. Friend for his observations, and he is quite right. The stabiliser mechanism relies on our having some idea of the price at which petrol ought to be stabilised, which means guessing right. A wrong guess could lose the Exchequer a lot of money. The question is, when is a rise in fuel prices a blip and when is it a trend? A stabiliser would require a judgment call on that point, too, and if the Government got it wrong it could cost a lot of money.
We have had nothing but delay and dithering on the issue from the coalition parties, despite their electoral promises, which were lavish in the extreme. The Government should be taking action now. Instead, just 10 months in, what do we have? A Foreign Secretary who is looking for his mojo, a Deputy Prime Minister publicly denying being taken hostage by the Prime Minister from inside his £2 million ring of Sheffield steel, and a Business Secretary who is so full of self-importance that he claimed he could bring the Government down single-handed if he was pushed too far. Millions of Britons struggling in the middle of the largest squeeze in living standards for 80 years are hoping and praying that somebody will push him, and push him fast.
Families are crying out for help now, but the Government are cutting too far, too fast and pursuing a dangerous and extreme experiment on the UK economy. Since they came to power, growth has stalled. Today’s unemployment figures are the worst since 1994, and inflation is double the Bank of England’s target. They need to recognise that families need help now, and they need to forget the dogma and join us in the Lobby to vote for this cut.
Justine Greening
I shall not pre-empt next week’s Budget, but the hon. Gentleman knows that both parties in the coalition Government spoke in opposition about the effect of fuel duty on motorists. Conservatives spoke in opposition about how the oil price fed through into fuel prices at the pump, and Liberal Democrats talked about the impact of fuel prices on people living in remote rural areas. The coalition Government are now looking at how to tackle both those problems, but I cannot pre-empt the Budget.
Ms Angela Eagle
Will the Minister now admit that although before the election the Conservatives said they would reduce fuel by 10p a litre if petrol prices were high, they have actually increased fuel duty twice—once in October and once in January—since getting into power?
Justine Greening
Listening to the Opposition is stunning. The outgoing Chief Secretary’s message to the incoming Government was that there was no money left. Worse than that, the previous Government had pre-planned increases, which were due to come in now, as the hon. Lady just pointed out. The bottom line is that it is outrageous for the Labour party to cry crocodile tears about tax increases that it had planned—it is disingenuous in the extreme, and shows that it has no credibility and no leadership on the issues that matter to people, such as motoring, which we are debating today. The audacity of the motion is stunning.
Let me turn—as I was about to—to the Opposition’s proposal to cut VAT on fuel. [Interruption.] The shadow Chancellor is hectoring from a sedentary position, and I think the reason is that he is worried that we are about to talk about his policy—a policy that unravelled within hours of his announcing it. He has come late to the debate on motoring. Obviously he spent many years being driven around in a Government car that the taxpayer paid for. I understand that it was reported in the papers that he used to use it for journeys of just 100 yards. Perhaps he was not aware at that point of how much it cost people to fill up their cars, but perhaps he knows now, and perhaps that is why he has suddenly realised that this is an issue, as we did in opposition. He has come to this debate late, but his policy-making suggestions are, to put it bluntly, illegal under EU law.
It is quite an achievement to make a proposal along those lines. As I said to my hon. Friend the Member for Gillingham and Rainham (Rehman Chishti) , the shadow Chancellor is quite wrong to say that we can reverse the VAT rise on fuel, because doing so would be illegal under the EU VAT directive. However, if the right hon. Gentleman thinks that the UK operates under a different VAT directive, perhaps he would like to intervene on me right now. [Interruption.] I think we have established that there is only one EU VAT directive, and his proposal is illegal under that directive. The other big flaw in his argument—[Interruption.] Does he want to intervene?
Budget Responsibility and National Audit Bill [Lords]
Angela Eagle Excerpts(13 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Ms Angela Eagle (Wallasey) (Lab)
The Bill makes changes to the responsibilities exercised by the Treasury in fiscal policy making, establishes the interim Office for Budget Responsibility on a permanent statutory footing and modernises the governance arrangements of the National Audit Office. I wish to make it clear at the outset that we support the sensible changes to the governance of the NAO which, as the Minister pointed out, are proposed in parts 2 and 3 of the Bill. We do so not least because they were our reforms. As she was good enough to observe, we set them out in the Constitutional Reform and Governance Bill towards the end of the previous Parliament. As someone who has served three times as a member of the Public Accounts Committee—once in opposition, once in government and once as a Treasury Minister—I am glad to see the reforms getting on to the statute book, despite the extra obstacle presented by the intervention of a general election. I also wish to thank the Minister and the Government for the open mind that they showed to Labour amendments during the passage of the Bill in the Lords. I hope that she will show a similar approach to the amendments that we will table in Committee.
The creation of the OBR seeks to apply to one narrow part of the UK’s fiscal institutions some of the autonomy that Labour brought to monetary policy when we made the Bank of England independent—of course, we took steps to make the Office for National Statistics independent too. As the House of Commons Library has pointed out, there are examples of similar bodies in other countries. Austria, Belgium, Canada, Denmark, Hungary, Holland, Slovenia, Sweden and the USA all have some arrangements for independence in forecasting and analysis of the national fiscal situation.
The reform was initially sold by the Chancellor, with much fanfare, as one that would take the politics out of economic forecasting. In doing that, he gave the entirely false implication that previous Ministers had somehow been instructing hapless officials in the Treasury to produce incorrect but politically convenient forecasts. The reality is that the previous Government published a range for gross domestic product growth, and in all the years before the crash on only two occasions did growth fall below the range that the Treasury published. In the other years, the figure fell either within the range or above it, thus showing that we were exercising caution. We were not fiddling the figures. That level of accuracy is about all that any of us can expect from economic forecasting, which is a notoriously unreliable art rather than an objective science. Let me share a quote with the House:
“Economic forecasting, by its very nature, is subject to uncertainty. Our judgement is that, at this stage of the economic cycle, the outlook is even more uncertain than usual.”
That was the OBR’s comment on its forecasts in June 2010.
However, I have found evidence of one occasion when a Chancellor overruled the Government’s forecasters, and the House may be interested to hear about it. In 1996, the then Chancellor, who is now the Secretary of State for Justice, was reported to have increased the growth forecast from 2.5% to 3% in order to make way for pre-election tax cuts. The chief forecaster he overruled was, by some odd coincidence, Sir Alan Budd, the curiously short-lived first head of the interim OBR.
Matthew Hancock (West Suffolk) (Con)
I am sure that the hon. Lady was not about to move on from talking about forecasts having spoken only about growth forecasts, not about the previous Government’s dreadful record on fiscal and deficit forecasts.
Ms Eagle
The important thing to note about forecasts, particularly those on the tax take, is that it is difficult to be accurate with them. When I served on the Treasury Committee prior to becoming a Treasury Minister, there was comment on how accurately the Treasury was able to forecast the tax take. Clearly, it is more art than science, so the House would be mistaken to believe that because something has been forecast, it is automatically an objective certainty. Those of us who deal with these issues, on both sides of the House, know that forecasting the economy can be as uncertain as forecasting the weather—Michael Fish found out how uncertain that can be one night. Forecasts are what they are; they can sometimes be wrong and sometimes they can be accurate. I honestly think that, in general—I am not making a party political point—the Treasury has a reasonably good record on forecasting.
Jacob Rees-Mogg (North East Somerset) (Con)
I entirely agree with the hon. Lady on the difficulty of forecasting, as even the best economic forecasters get it wrong, but I wonder whether she was as shocked as I was to read in the Financial Times about the bullying of the International Monetary Fund by the Treasury and the Financial Services Authority. Was that not a pretty disgraceful way to behave?
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. We are in danger of going off into past subjects. The hon. Lady may be tempted to answer, but we have to deal with the Bill before us and not with speculation in a newspaper about bullying. I think that we will stick to the Bill.
Ms Eagle
Thank you, Mr Deputy Speaker.
Let me be the first to say that the Opposition support an independent OBR, so long as it is indeed independent. In that respect, the OBR has some ground to make up and some points to prove after its very difficult start in life. Initially it was located a few doors down from the Chancellor in the Treasury and consisted entirely of Treasury civil servants. Its much vaunted “independence” was utterly compromised in June last year when it was unwisely bounced into the politically convenient early publication of employment forecasts, suspiciously just ahead of Prime Minister’s Question Time—the Minister did not refer to that incident. The forecasts themselves turned out to be controversial and the OBR ended up looking more like an offshoot of the propaganda machine inside Conservative central office than an independent and trusted forecasting organisation. Sir Alan Budd, the interim head of the OBR, announced his shock departure shortly afterwards. We may well have to wait until he writes his memoirs to find out exactly what really happened.
Andrea Leadsom
The hon. Lady may be aware from reading the Treasury Committee’s report on the original independence of the interim OBR that colleagues on her own side quizzed Sir Alan Budd and others very closely on that point. The Committee’s report makes it very clear that there was nothing to answer, that the OBR had indeed acted independently and that it had not been in hock to the Government.
Ms Eagle
Nevertheless, independence has to be perceived to be there too. No matter what individuals behind the scenes know, part of consistency and the whole point of such independence is that it is accepted across the political spectrum and in the country as a whole. If that is not the case, the organisation does not have the credibility that the reform creating it sought to establish. That is why I look to Robert Chote, who has moved out lock, stock and barrel from the Treasury, to begin to establish that reputation.
Justine Greening
It is only right that I should put on record the comments of Sir Alan Budd, in his report on the progress of the interim OBR, on the issues that the hon. Lady has raised—budget forecasts and interference. On the fact that some Treasury officials perform both roles of giving advice to the Chancellor and helping the OBR to produce the forecasts, he clearly said in paragraph 31:
“We do not believe that this involved any conflict of interest.”
In relation to how the OBR should operate and the issuing of forecasts, he said in paragraph 44:
“We are also able to state, without reservation, that there was no ministerial involvement in the forecasts at any stage.”
The hon. Lady uses Alan Budd as an example of someone who was somehow manipulated, but does she accept that his comments do not bear that out? Perhaps she would like to withdraw her comments.
Ms Eagle
This concerns those who allowed the bringing forward of estimates of job losses caused by the Government’s decisions on fiscal consolidation, which happened to be published just ahead of a Prime Minister’s Question Time at which that was to be a point at issue. Clearly, the relevant people should have realised the effect that that coincidence would have on the OBR’s reputation for independence when it had only just been set up.
On the Minister’s point about whether the OBR should use Treasury forecasters, Lars Calmfors, the chair of the Swedish fiscal policy council, has contrasted the arrangements in the Bill with those in Sweden. He said that it is very difficult when the OBR is working very closely with Treasury civil servants and other forecasters:
“one cannot have it both ways—the OBR cannot be both an independent watchdog and an in-house provider of input into the Treasury’s work.”
We shall certainly want to explore in greater depth in Committee that aspect of the arrangements for our OBR, which differs from the Swedish arrangements.
In addition to concerns about independence, we want to raise in Committee issues of the OBR’s accountability to Parliament. We wish to explore how independent the OBR will really be, given that close co-operation with the Treasury will be needed to access the information to generate the forecast in the first place. There is also the issue of its budget—I accept the comments that the Minister made about the transparent five-year budgeting process, but there are examples of similar bodies in other countries having had their budget cut as a result of displeasing the Government with whom they were working. The governance arrangements will need further scrutiny, as will issues of accountability, not just in relation to the Treasury Committee veto on appointments, but regarding the OBR’s accountability to Parliament.
Although the Bill is about who makes forecasts, the reality is that independent forecasting is no substitute for sound Budget judgements. The Government will not be judged on the accuracy of their forecasts, but they will be held to account for the consequences of the choices they have made in the circumstances they were confronted with and the forecast that the OBR had given them. Our dispute is with the Government’s plans and choices, not with the independence of their forecasting machinery.
When we left office, unemployment was falling, growth was forecast to be 2.3% this year, inflation was lower than it is now and was falling and, according to the OBR, borrowing had come in at £20 billion lower than had been forecast in 2009. When the previous Government delivered their last Budget in March 2010, UK growth was faster than in Germany, Italy and the eurozone as a whole, but the current Chancellor has chosen to prioritise rapid deficit reduction over any other policy goal and he has slammed the brakes on growth. Without an electoral mandate, the Government have chosen to launch a risky experiment with our economy and our prosperity.
Justine Greening
I completely disagree with much of what the hon. Lady says, not least given that her Government left unemployment 400,000 higher. She mentions electoral mandate, but surely she does not think that the previous Prime Minister had one, because he was never voted in as Prime Minister.
Ms Eagle
We do not have a presidential system: we have a prime ministerial system and the leader of the governing party tends to be asked by Her Majesty the Queen to form the Government. That is what has always happened, and if the Minister wishes to change that, perhaps we need to take an even wider look at our constitutional arrangements than that planned by the Deputy Prime Minister.
Mr Mark Field
Although the hon. Lady makes a fair point about explicit mandates, it is surely also the case that there was absolutely no explicit mandate for any of the actions taken by the erstwhile Government after 2008, given the situation that we found ourselves in.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. We are getting tempted once again. If Members stick to the Bill, that will be helpful.
Ms Eagle
There is a difference between having an economic policy that is put into place directly after a general election, when manifestos said one thing and the Government did another, and responding to a crisis that very few people saw coming and that threatened the entire infrastructure of the global banking system. There are obviously differences between those situations, but I respect the hon. Gentleman’s expertise in financial matters, particularly regarding the City.
The Government have chosen to cut public expenditure faster and deeper than any other country in the industrialised world except Iceland and Ireland. They have chosen to announce the deepest cuts in public spending in the UK since the second world war. Nine months into the life of this Government there is still no sign of any plan for jobs and growth, but sensible people know that without a plan for jobs and growth it will not be possible to get the deficit down as the OBR predicts it should come down. Meanwhile, the cuts are beginning to bite and the OBR has forecast that more than 330,000 public sector jobs will be lost. Some 10,000 police jobs have been announced as going so far, and there are reports that 250 Sure Start centres will close. Unemployment, which had begun to fall, is now rising again and inflation, which was low and falling when we left office, is now rising. All that is before the effects of the Government’s ill-advised decision to increase VAT. Growth has stalled.
Mr Deputy Speaker
Order. Hon. Members have been tempting us away from the Bill, but I am sure that the hon. Lady wants to stick to it. We do not want to be tempted through further interventions, so if she will keep to the Bill, that will be helpful.
Matthew Hancock
I enjoy debating with the hon. Lady, so I am extremely grateful to her for giving way. She has just prayed in aid the OBR, saying that it had forecast that the deficit would fall, but she has also said that under the Government’s plan the deficit will not fall. The OBR’s forecast is based on the Government’s plan, so does she agree with herself or not?
Ms Eagle
This is how we can get into difficulty with forecasts, which are static when they are made but apply to a dynamic situation. The hon. Gentleman knows, for example, that our debates in the House are, in part, about the effects on growth of a drastic fiscal consolidation. Our contention has always been that cutting too far too fast will suppress growth to such an extent that the deficit reductions that were hoped for will not come about. That is an essential part of the economic debate that, as far as I can see, we have been having since the Budget in June last year.
Forecasts can be affected by subsequent events and by Government policies. That demonstrates that what matters most is not forecasting for its own sake, but the judgment of the Chancellor of the Exchequer and the Government, and the extreme fiscal choices that they have made.
Alison McGovern (Wirral South) (Lab)
Does my hon. Friend agree that we have another independent forecaster, the Bank of England, which was made independent in 1997? What lessons from the interaction between the Treasury and that independent forecaster ought to be applied to the relationship between the Treasury and the OBR?
Ms Eagle
In order to fulfil its duties, the Bank of England produces its own forecasts, which do not always agree with what were previously Treasury forecasts and will now be OBR forecasts. There are also a number of independent forecasters out there with their own view of the situation. Forecasts range from optimistic to pessimistic, and those of us who watch these things learn to take account of that. Regarding OBR forecasts or forecasts of the Bank of England as statements of the unvarnished truth will quickly get us into difficulty.
Andrea Leadsom
I am grateful to the hon. Lady for giving way again. On a point of clarification, the issue of multiple forecasts came up in the Treasury Committee review, and it was made clear that the OBR takes the Bank of England’s monetary forecasts on interest rates and uses them as its own for its fiscal forecast, so there is no duplication or overlap. One is forecasting the state of interest rates and the other is stating the fiscal forecast.
Ms Eagle
Yes, but the Bank of England will also forecast for its own use growth and other aspects which it needs to assess in formulating monetary policy.
OBR forecasts predict that by the end of this Parliament, 110,000 more people will be on the dole under the Government’s plans, compared with our previous plans. Under Labour, the economy was forecast to grow by 2.6%, compared with only 2.1% under the current Government’s plans. The consumer prices index would have been at 1.6%, rather than 2.8%. So the OBR has decided that there would have been higher growth, more jobs and lower inflation under Labour.
Justine Greening
May I ask the hon. Lady a straightforward question? The Office for Budget Responsibility assesses that we have a greater than 50% likelihood of hitting our fiscal mandate, which is to eliminate the structural deficit by 2014-15 and achieve our broader fiscal mandate on debt ratio. Does she welcome that or not?
Ms Eagle
It is important to see what the forecasts are and what they mean at this stage of economic recovery. Of course I want to see the economy recover and grow, unemployment coming down and inflation being controlled. Unfortunately, that is not what the signs that we have been picking up since the Government’s decision to cut so deep and so fast tell us about the real economy. We will see as time goes on how the OBR adjusts its forecasts to take account of the monthly and quarterly statistics from the Office for National Statistics.
The shock GDP figures before Christmas strongly imply that the Chancellor will suffer the embarrassment of his growth forecasts being downgraded by the OBR in his self-proclaimed Budget for growth, which is due to be unveiled next month. We will wait and see.
We on the Labour Benches support a genuinely independent OBR but, as I said, we will explore in Committee the practical extent of that independence and suggest amendments to the Bill to shore it up a little more. We will need to explore the viability of the arrangements to produce, rather than comment on, the fiscal forecasts, as many other fiscal councils do. We will need to explore the extent of the OBR’s remit and whether the close co-operation with civil servants required to produce the forecast will lead to behind-the-scenes negotiations that will compromise at least the perception of independence.
Let us be under no illusion that the existence of the OBR, which we support in principle, can in any way protect us from the misjudgments of the present Chancellor or any other. The OBR must assume, as the Minister said, that the Government’s plans are a given. It cannot comment on the fiscal mandate or on wider fiscal policy in general. It is prevented from doing so. All it can do is calculate the probability of the Government being able to achieve their stated plans. The OBR therefore cannot protect the country from the mistakes that the Chancellor makes, or from the mistakes that he has made already. It is no panacea and it should not be regarded as one. Our dispute—
Mr Field
My hon. Friend makes an extremely good point. In the one case in which the hon. Member for Wallasey (Ms Eagle) tried to argue that there had somehow been untoward behaviour by the last Conservative Government, events have proven, if anything, that they surpassed what had been expected.
Mr Field
As I recall it, the point was conceded by Opposition Members, not by those on this side.
The relevance of all this to our current economic woes should not be underestimated. With global investors buying into the fiscal assurances made by the erstwhile Government, the rosy forecasts played their part in making it easy for Britain to borrow money during the past decade, and borrow we did, even in the good times. We all now know the disastrous consequences that came to pass.
This salutary experience provided the genesis of the idea for an office for budget responsibility. I must confess that when the Chancellor first mooted the idea in late 2008, when shadow Chancellor, I was sceptical and thought that it sounded like the ideal proposition to be made in opposition and then quietly forgotten. I believe that it is to his great credit that the notion saw the light of day so soon after my party reached government.
My other fear was that it might be an overly inflexible straitjacket to constrain freedom of manoeuvre. Again, the Chancellor has addressed this point up front, as has the Economic Secretary. The Chancellor desires and even relishes such a restriction on himself—and, I suspect, on his successors. Although it might not prove to be quite as revolutionary as the Treasury would have us believe, I accept that it is still an important step towards transparency and accountability in forecasting budgetary numbers.
My only reservations are relatively small and relate to issues of practice, rather than of principle. I fear that the real strains and potential limitations of any office for budget responsibility will unfortunately come at the point in the economic cycle when we most need prescient and instinctive judgment. At such times of crisis or near crisis in any economic phase, we require a robust willingness to stand up against the conventional wisdom of the day.
In the run-up to the 2008 financial crisis, for example, no forecasting organisation saw the crash coming. No one in this House, not even the Secretary of State for Business, Innovation and Skills, despite all that is now said on his behalf, really foresaw precisely what would happen. That includes all the independent bodies, such as the Institute for Fiscal Studies. Let us wonder how the OBR, had it been established, might have acted only three or four years ago. Had it not shared the outlook of other forecasters, would it have had the mettle or the strength in 2007 to tell the previous Government that they were living far beyond their means? How would it have been viewed if it alone had advised the Government at that stage to hold back on their spending plans or, indeed, increase the tax burden? I believe that the true test of its effectiveness will come only when it is required to deliver such unpalatable news in future.
Similarly, what if the OBR had concurred with the forecasts of other organisations at the time but a more responsible Chancellor had been in place who instinctively viewed the economically clement weather as only a mirage? Might the perceived infallibility of an OBR forecast have restricted his or her ability to take measures that went against the common wisdom? To that extent, I have some sympathy with what has been said by those on both Front Benches, because we do not know how forecasts will pan out. Even as recently as the emergency Budget on 20 June 2010, many predictions for growth; and certainly for unemployment were made at the time that even I thought were slightly too optimistic. The OBR’s notion was that unemployment would reach a peak during the current tax year. We hope that that will be the case, but that will not be down just to Government policy, by any stretch of the imagination. I think that the way the economic cycle has worked out globally means that unemployment is likely to be somewhat higher during 2011-12 and perhaps even higher still the following year.
I believe that there are some unavoidable conflicts in the OBR’s operation. Organisational independence is absolutely vital to its working and credibility, as the Economic Secretary noted in her contribution. However, it must necessarily rely on a close relationship with the Treasury in order to understand its methods and have access to its data. Members have already mentioned the blurring of those boundaries between the Treasury and its new independent conscience that led to the first hiccup last summer—the argument that spilled over from the release of the OBR’s unemployment forecast, which happened to bolster the Prime Minister’s argument when he was under fire later that day at Prime Minister’s questions.
One must accept that there will almost inevitably be an ongoing tension and an inherent potential for a conflict of interest, but I hope that that has been eased now that the OBR has been able to move out of its Treasury offices and acquire an important physical independence. Without the trust that stems from such autonomy, the OBR is absolutely nothing. Nevertheless, there is also a danger that it will be seen as perhaps too credible and as a panacea in its own right.
Kerry McCarthy (Bristol East) (Lab)
This has been an interesting, if somewhat truncated debate. My hon. Friend the Member for Edinburgh East (Sheila Gilmore) is probably right that the relatively few number of people in the Chamber and the fact that the debate will finish a couple of hours early is not evidence of a lack of interest in the subject under discussion, but proof that romantic hearts beat beneath our tough and cynical exteriors. [Interruption.] I mean some of our tough and cynical exteriors.
We support much that is in the Bill, but I will turn first to the contributions of hon. Members. My hon. Friend the Member for Wirral South (Alison McGovern) said that the establishment of the Office for Budget Responsibility was an attempt to separate politics from economics. I suspect that that will be difficult to achieve, but as she said, it is important that we at least try. She also talked about rules-based economic policies, how they were introduced under the previous Government, and how the establishment of the OBR entrenches that approach. She also spoke at the end of her speech about something that I know is a great passion of hers: the problem of youth unemployment and what we can do to tackle it. I am sure that she will return to it on many other occasions in the Chamber.
As ever, my hon. Friend the Member for Stretford and Urmston (Kate Green) made an excellent speech and talked about how it is important that, when discussing such issues that are technical and very much about structures, we focus not just on the numbers, but on the outcomes that we want to achieve. This is not just a dry discussion about the fiscal mandate and the mechanisms that we put in place to monitor it or to forecast the future trajectory of Government economic policy; it is about the underlying policies brought in to achieve that mandate. She spoke passionately about intergenerational fairness and the importance of considering how we can better model imputed behaviour, and she suggested that departmental evidence was very thin on behavioural change and that the OBR might have a role in fleshing that out. That was a valid point.
My hon. Friend the Member for Edinburgh East talked about how the OBR, if it does not totally instil caution in the actions of Ministers, will at least act as a brake on Governments’ over-optimism and the wishful thinking that leads them to think that things are rosy, or will be rosier than the evidence suggests. She made the point that we cannot divorce the question of reducing the deficit from the question of how we go about doing it and the policies we implement to achieve that end. My hon. Friend the Member for Glasgow North East (Mr Bain) warned of the dangers of complacency, and of thinking that the recovery is secure, that we are out of recession and that the country is out of the danger zone. He also talked about the fiscal mandate for eliminating the deficit and warned of the dangers of pursuing that in too rapid a fashion.
The hon. Member for Cities of London and Westminster (Mr Field) has had to leave to go to a black-tie event. I suspect that he has rather more black-tie events than most of us in the House. The sorts of events I attend usually involve the St George Labour club and beer at 99p a pint. However, he obviously leads a more exalted existence than many of us. Both he and the hon. Member for Elmet and Rothwell (Alec Shelbrooke) were fairly political—dare I say it—in their comments. They made references to the previous Government living beyond their means. The hon. Member for Elmet and Rothwell denied that the banks were responsible for the recession and again mentioned the country living beyond its means. At this time of night, and perhaps with better things to do, we do not want to rehearse those arguments. However, it is important that rather than trying to score political points, we look at the details of the Bill and the seriousness of what it is trying to achieve in introducing a more evidence-based approach to economic forecasting.
The hon. Member for Macclesfield (David Rutley) made a very good and thoughtful speech. He quoted J. K. Galbraith, which I suspect my hon. Friend the Member for—
Kerry McCarthy
I knew it began with a W. Anyway, she is probably very familiar with this quote:
“The only function of economic forecasting is to make astrology look respectable.”
The hon. Member for Macclesfield said that he was not a great fan of J. K. Galbraith. I happen to be a great fan, although I had not heard that quote before. His “A Short History of Financial Euphoria” ought to be required reading for anyone who takes up a job in the City these days. The hon. Gentleman resisted the temptation to resort to political point scoring. His point that the OBR can in time become a respected and trusted reference point is valid—I certainly hope it will be achieved.
What the hon. Member for Macclesfield said about greater powers being given to the Treasury Committee was interesting. I was a member of the Committee for a couple of years when first elected to Parliament in 2005, and I remember spending many sittings seeking assurances from the Financial Services Authority and the Bank of England about regulation, the risks that derivatives trading imposed, and so on. I remember receiving blithe assurances that it was difficult for Committee members— with their limited resources—to challenge on an ongoing basis. If increased powers are given to the Treasury Committee to vet appointments, to scrutinise the work of the OBR, particularly its funding, and to ensure that it has the necessary resources to do its job, thought needs to be given to whether the Committee has the resources necessary to do that job.
The hon. Member for Bristol West (Stephen Williams) slightly lost me at the beginning with his talk about Disraeli and fridge magnets, but then moved on to talk about Bank of England independence, which he claimed was a Liberal Democrat manifesto—
Oral Answers to Questions
Angela Eagle Excerpts(13 years, 3 months ago)
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Mr Osborne
The hon. Gentleman can rest assured that I will certainly do that. I do not think that he has given a fair representation of the role that we expect the prudential regulator to fulfil. What I will say about the prudential regulator and the fact that it will come under the aegis of the Bank of England is this: I hope that it will exercise discretion and judgment as well as simply making sure that boxes are ticked. The decision to allow Royal Bank of Scotland to buy ABN AMRO in 2007 might have ticked the various boxes in the regulations at the time, but it was clearly the wrong judgment. I expect and hope that in future our new regulator would be able to step in at that point.
Ms Angela Eagle (Wallasey) (Lab)
Instead of making politically convenient and economically ludicrous pronouncements that it was the UK’s tripartite system of banking regulation that somehow caused the global credit crunch, can the Chancellor explain to the House why his own flagship banking reforms are now running late and why his cosy private talks with the banks on bonuses have failed to materialise? Was not today’s panic announcement just further proof that with this Chancellor, as CBI chief Richard Lambert has said, it is all politics and no economics?
Mr Osborne
The hon. Lady asks why the legislation is “running late”. The previous shadow Chancellor wrote to me and asked for pre-legislative scrutiny, and I agreed to the request. Obviously, that has not been communicated to those on the Opposition Front Bench.
Fuel Costs
Angela Eagle Excerpts(13 years, 3 months ago)
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Mr Speaker
I am extremely grateful to the Secretary of State and thank him, on behalf of the House, for the apology he has given. As far as I am concerned, that is the end of the matter.
Ms Angela Eagle (Wallasey) (Lab)
On a point of order, Mr Speaker. Rumours are rife in the Press Gallery, and more widely, that the Government are planning to announce the result of their talks with the banks on bonuses and lending, otherwise known as Project Merlin, to TV stations and via a press release this evening. Do you agree with me that if the Government are doing private deals with the banks, they should have the courage to come to the House, that the House should be the first to hear about it and that announcing the outcome behind the backs of Members of this House would be totally unacceptable?
Mr Speaker
I am grateful to the hon. Lady for both her point of order and her advance notice of it. The Procedure Committee published its report on ministerial statements only last week, reaffirming the principle that important statements should be made first to this House. As a former Minister, and indeed an experienced parliamentarian, she will be aware of her options for taking up the matter. The Table Office will be open until the rising of the House, and it will not have escaped her notice that the Leader of the House is in his place and has heard what she has said.