Finance Bill

Debate between Clive Efford and David Wright

Tuesday 6th July 2010 Commons Chamber

[Clive Efford]

The hon. Gentleman is new to the House—and he might well be new to politics—but I am sure that, if he looks in his history books and reads all the quotes, he will find that most parties going into an election do not rule out such an increase, unlike in the foolish statements made on “Newsnight” by the now Prime Minister and during the general election by the Liberal Democrats.

Now there is trouble at’ mill—we have some problems here—because Sir Alan Budd has resigned. Can anyone tell me how a man who only a short while ago described his job as

“the most exciting challenge of my professional life”

can have given up so quickly? This man must have the most exciting job coming up to give up such a prospect already. How have we lost the head of the Office for Budget Responsibility so quickly? Perhaps my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne) can tell me whether there is a revolving door at the Treasury. We lost the first Chief Secretary to the Treasury and now we have lost the head of the OBR. They are going in and out so quickly that, if they have not got a revolving door, they should put one in pretty quick. It would make it much more efficient for people when leaving their posts so quickly.

What has changed Sir Alan Budd’s mind? Has he changed his mind? The Treasury is assuming that growth in the private sector will create 2.5 million jobs in the next five years to compensate for the spending squeeze. Can the Minister tell me when since the second world war the private sector has ever grown that quickly? When has it ever created that many jobs? We have had unprecedented growth over the past 13 years, and it only just created that many jobs in that period. How can these projections point towards the creation of 2.5 million jobs? Perhaps the Liberal Democrats are going to tell us, because they had a cup of tea with the Governor of the Bank of England, after which we saw a miraculous turnaround—perhaps there was something in the tea. Perhaps they can now explain to us what was said that convinced them that miraculous growth in the private sector was going to solve this country’s economic problems, as we undergo the most unprecedented assault on the state ever attempted in peacetime.

We have also seen figures leaked from the Treasury. The Government expect between 500,000 and 600,000 jobs to go in the public sector and between 600,000 and 700,000 to disappear in the private sector up to 2015, but how is it that the figures leaked from the Treasury contradicted the figures from the OBR? I am wondering about that, so perhaps someone can give me an answer, because the figures are compiled by the very same people. Treasury officials compile the figures for the OBR, and the leaked figures are from the Treasury. I am therefore a little bit confused, but perhaps somebody can explain that one for me—perhaps the Liberal Democrats have an answer for us, as they are so enthusiastic about the Budget.

The Chancellor has said that some have suggested that there is a choice between dealing with our debts and going for growth, but that this is a false choice, and I agree with him. There is indeed a choice, as Sir Alan Budd also agrees. However, the OBR actually agreed with the figures for growth based on our March Budget and the figures for unemployment; in fact, it considered our figures to be conservative. The March Budget statement was also able to announce that debt had been reduced by £11 billion, which is an important point. The debt had been reduced because there was more income tax, more national insurance, more VAT income and more tax from businesses. A further announcement was made subsequent to the general election, with a further reduction of £5 billion, to which my right hon. Friend the Member for Birmingham, Hodge Hill referred in his opening speech for the Opposition.

[David Wright]

Does my hon. Friend agree that, on the basis of the growth figures and cutbacks in public spending that he has outlined, the real danger in the Budget is not that we will see a double-dip recession—none of us wants that to happen—but that we will end up repeating the Japanese model, bumping along the bottom in terms of growth and inflation, without seeing a significant improvement in the position of the economy? That is particularly dangerous at a time when we are making savage cuts in public spending.

[Clive Efford]

I agree with my hon. Friend. There are plenty of eminent economists saying that this is not the time to draw back the fiscal stimulus.

However, the point that I want to make is that the reduction in the debt that the then Chancellor was able to announce in the March Budget was due to the intervention of the Government. There was less unemployment, we were paying out less in unemployment benefit, and there were more people in work and more businesses; therefore, the tax income was higher than had been predicted, indicating that the way through the recession is not this austere Budget, but continuing with the stimulus until growth is stronger.

However, the worrying thing now is that, following the emergency Budget, businesses are starting to question whether growth is on its way. As the Financial Times has said:

“Britain’s…services sector expanded in June…at the slowest rate in 10 months…The Markit/CIPS UK services Purchasing Managers Index…for June was weaker than consensus forecasts among economists, showing a 54.4 headline reading, down from 55.4 in May. Economists had expected a more modest decline…of 55…It was the weakest reading since August 2009…Business expectations went from a reading of 72.1…to 64…The Services PMI is particularly closely watched because it accounts for the greatest share of private sector business output…‘Worrying signs for the UK service sector appeared in June as growth slowed in response to another below par increase in new business…Confidence declined to the greatest extent in 14 years of data collection in reaction to the government’s austere emergency budget, with concern expressed that the fiscal tightening could push the country back into recession.’”

According to the Financial Times:

“The Purchasing Managers’ Index figures came in amid signs that global manufacturing took a hit in June, with China, the US and the eurozone all seeing weaker growth in the sector. The report on exports came as a survey of credit conditions by the UK Bank of England underlined the concern at the prospects for demand in the UK. Credit conditions were expected to deteriorate by the most since the first quarter of 2009, when the recession was at its deepest.”

What we are seeing there is the extreme concern in the business sector since the Budget was announced—[Interruption.] I hope the Liberal Democrats are listening to this. The construction sector in particular accounts for 10% of our GDP, and public sector expenditure accounts for 40% of the construction industry. The announcement yesterday—such as it was—from the Secretary of State for Education that he was drastically cutting back on schemes such as Building Schools for the Future will make it even more difficult for the Government to deliver growth in employment and growth in the private sector, because they are rowing in completely the opposite direction.