Ed Balls
Main Page: Ed Balls (Labour (Co-op) - Morley and Outwood)Department Debates - View all Ed Balls's debates with the HM Treasury
(12 years, 10 months ago)
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Ed Balls (Morley and Outwood) (Lab/Co-op)
I beg to move,
That this House notes that on 22 June 2010 the Chancellor announced his first Budget with a target to eliminate the structural deficit by 2015-16 through an additional £40 billion of spending cuts and tax rises, including a VAT rise; further notes that over the last six months the economy has not grown, in the last month retail sales fell by 1.4 per cent. and manufacturing output fell by 1.5 per cent. and despite a welcome recent fall in unemployment, the Office for Budget Responsibility predicts that future unemployment will be up to 200,000 higher than expected; believes the Government’s policies to cut the deficit too far and too fast have led to slower growth, higher inflation and higher unemployment, which are creating a vicious circle, since the Government is now set to borrow £46 billion more than previously forecast; calls on the Government to adopt a more balanced deficit plan which, alongside tough decisions on tax and spending cuts, puts jobs first and will be a better way to get the deficit down over the longer term and avoid long-term damage to the economy; and, if the Government will not change course and halve the deficit over four years, demands that it should take a step in the right direction by temporarily cutting VAT to 17.5 per cent. until the economy returns to strong growth and by using funds raised from repeating the 2010 bank bonus tax to build 25,000 affordable homes and create 100,000 jobs for young people.
A year ago today, in his first Budget statement to the House, the Chancellor of the Exchequer made a clear choice. He said that rapid deficit reduction was the overriding priority, and that it would involve fiscal tightening of such scale and severity that it would have to begin immediately. He said that the faster we cut, the better it would be for confidence. He said that there was no choice, and that the markets demanded this action. He also said that no alternative was possible and that anyone who said otherwise was a deficit denier.
The Chancellor ignored the evidence that budget deficits had risen rapidly in every country after a global financial crisis caused by the irresponsible behaviour of banks around the world, claiming instead that the root cause of Britain’s deficit was too much spending on the NHS, schools and the police. He ignored the evidence that Labour’s balanced deficit reduction plan to support jobs and halve the deficit over four years was working, that the UK economy was already recovering, that tax rises and spending cuts had been pre-announced, and that we were over-achieving on our deficit reduction plan in line with the G20 commitment.
Ed Balls
I will take as many interventions as hon. Members want me to, but I am going to establish my argument first. I think that the House knows that I enjoy interventions, and I will absolutely take them all—Members should not worry!
The Chancellor also ignored the fact that we were not in the euro, that our debt maturity was long—
Mr Speaker
Order. I know that I have done this many times before, but I appeal to right hon. and hon. Members to have some regard to the way in which our proceedings are viewed by the people whose support we were seeking only 13 months ago. I do not care whether this sort of behaviour was traditionally thought to be a good thing; it is not, and if people behave like this and expect to be called, they will be disappointed.
Ed Balls
Thank you, Mr Speaker.
In the Budget debate, I took 16 interventions from Members on the Government side of the House. I will take interventions, but not from people who shout and are aggressive while I am still establishing my argument. Let me establish my argument; then I will take interventions. I will start with the hon. Member for Sevenoaks (Michael Fallon) in just a moment.
The Chancellor insisted, despite the fact that we were not in the euro, that our debt maturity was long and that our long-term gilt yields were historically low and had started to fall well before the election. He made the economically illiterate and preposterous claim that, like Greece, Britain was on the brink of bankruptcy. Having already abolished the child trust fund and the future jobs fund, he announced in the Budget immediate plans to take billions more out of the economy through a combination of deep spending cuts and tax rises. That included an increase in VAT to 20% and a cut in tax credits for thousands of families. It also included cuts to housing benefit, pensions and disability benefits. The Chancellor boasted in that speech that the Budget was progressive, not regressive, and that it would be an extra £40 billion fiscal hit in this Parliament. Labour Members warned him of the dangers, but the Chancellor said it would work. Let me cite what he said a year ago:
“These forecasts demonstrate that a credible plan to cut our budget deficit goes hand in hand with a steady and sustained economic recovery, with low inflation and falling unemployment.”—[Official Report, 22 June 2010; Vol. 512, c. 168.]
Things did not turn out that way last year.
Since the Prime Minister foolishly said in October that the economy was out of the danger zone, we have had the biggest fall in consumer confidence for 20 years; our economy has flatlined and not grown at all since the autumn; inflation is now higher than in every country except for Estonia and Turkey; the Institute for Fiscal Studies has declared the Chancellor’s Budget to be regressive, not progressive; and child poverty is expected to rise this year, next year and the year after, with women hit harder than men and families with children hit hardest of all. I have to say that this anniversary—unlike your anniversary, Mr Speaker—is not one worthy of celebration. It is certainly not an anniversary worthy of a 40th birthday party bash at Dorneywood. I do not know whether you were invited to the party at the weekend, Mr Speaker. I was not, which might be because I am not a Knight of the Garter.
Michael Fallon (Sevenoaks) (Con)
I am grateful to the shadow Chancellor for giving way so early in his speech. While we are on the issue of credibility, will he explain why his sudden, completely unfunded £13 billion tax cut did not appear to be either agreed or even discussed with the shadow Cabinet? When the former Labour Chancellor was asked nine times this morning whether he agreed with it, he failed to endorse it. Why is the shadow Chancellor so isolated?
Ed Balls
The former Labour Chancellor is not in the shadow Cabinet, as the hon. Gentleman will know—[Interruption.] He chose not to stand for the shadow Cabinet. We voted against the VAT rise earlier this year. The Leader of the Opposition said some months ago that it should be reversed. I repeated that claim last week and what I know, as it happened last week, is that when I go to speak to my leader, he understands the issues and backs me up, which is more than could be said for the Education Secretary, the Health Secretary, the Environment Secretary, the Lord Chancellor—and, I fear, quite possibly for the Chancellor of the Exchequer, too, if things carry on as they are.
Christopher Pincher
I am grateful to the right hon. Gentleman for giving way. He says he talks to his leader, so will he tell us when he released this information about the VAT cut to his leader—was it before he told the shadow Cabinet or did he treat his leader like just any other member of it?
Ed Balls
I have to say that that is a ridiculous question. At a time when the economy has flatlined, confidence is down and our borrowing is up, is it surprising that I am asked questions like that? Of course I discussed all aspects of my speech with the Leader of the Opposition some days before I gave it. We agreed on this strategy because we think this VAT rise is a mistake. Families in the hon. Gentleman’s constituency are being hit by having to pay £450 more in VAT, so one would have thought that he would be backing rather than opposing our plan to give them some help.
Ed Balls
I am not giving way to the hon. Gentleman again now; I might do later.
The reason why the VAT cut is needed now is that things are getting worse, not better. In recent weeks, we have seen manufacturing output and job vacancies falling and the biggest fall in retail sales for more than a year. The Chancellor likes to boast that a net 370,00 jobs have been created in the last 12 months; what he does not like saying is that 70% of those extra jobs were created in the six months before the spending review and only 29% in the six months after it. That is why his Budget forecasts of a year ago have gone so badly awry.
The Office for Budget Responsibility forecasts for growth have been downgraded three times. Unemployment is now forecast to be 200,000 higher, while inflation is forecasted to be well above target this year and next year. The result of this stalled recovery, higher unemployment and higher inflation is that the Government are now forecast to borrow a further £46 billion more than was forecast in last year’s spending review. Public borrowing in the first two months of this year is higher than it was in the first two months of last year.
Toby Perkins (Chesterfield) (Lab)
The Chancellor said yesterday that he does not want to comment regularly on the OBR’s updates. Given that it is downgrading its forecasts every time he opens his mouth, it is hardly surprising.
Ed Balls
Whether or not the Chancellor comments, the fact remains that since the last OBR forecast, Britain’s growth forecasts have been downgraded by the International Monetary Fund, the OECD, the CBI, the British Chambers of Commerce and the National Institute of Economic and Social Research. Everybody else is downgrading growth forecasts; we will have to wait for the OBR finally to catch up.
Nadhim Zahawi
I thank the shadow Chancellor for finally giving way. I must push him a little bit harder. When did he discuss his VAT cut with the shadow Cabinet? Will he tell us that?
Ed Balls
That tells you, Mr Speaker, how on the defensive Conservative Members are about the economy. The shadow Cabinet decided—[Interruption.] Look, just shouting does not get people to listen; the hon. Member for Stratford-on-Avon (Nadhim Zahawi) has got to learn that. The shadow Cabinet decided that the Opposition would oppose the VAT rise. In January, the Leader of the Opposition said it should be reversed. Last week, two days before I made my speech, I discussed the matter in detail with the Leader of the Opposition—[Hon. Members: “Aah!”] What do they mean, “Aah”? I discussed it 48 hours previously with the Leader of the Opposition, who backed me 100%—in marked contrast to the Prime Minister’s inability to grasp the detail, to stick with a policy or, most importantly, to support his own Cabinet members.
Charlie Elphicke (Dover) (Con)
I am grateful to the right hon. Gentleman for giving way. On that particular point, why is the right hon. Member for Dulwich and West Norwood (Tessa Jowell) reported as being unhappy and feeling that she had not been consulted? Why did he not consult the shadow Cabinet?
Ed Balls
I do my politics on the record. I am not going to comment on that kind of trash. [Interruption.] In view of all the Cabinet Ministers who have been briefed against in recent weeks by the Treasury—the Defence Secretary, the Health Secretary, the Lord Chancellor—perhaps the Chancellor should take a leaf out of my book on how to do things.
It is the contention of Labour Members that the Chancellor is wreaking long-term, as well as short-term, damage on British investment, incomes and employment. We know from the downgraded OBR forecast that our economy is already £5.6 billion worse off than it would have been if the Chancellor had got it right. The danger is that these policies will have a long-term impact, leading to a return of the long-term unemployment of the 1980s, a new lost generation of jobless young people and a permanent dent in our nation’s prosperity.
Ed Balls
I will give way in a few seconds.
The test for the Treasury is not whether it can eventually get back to growth, but where it will make up the lost ground in jobs and living standards.
In this debate, I challenge the Chancellor to agree with me on three propositions: first, his plan is not working; secondly, he has the opportunity to change course; and, thirdly, there is a better and fairer alternative economic policy for our country—better for jobs, better for living standards, and a better, fairer way to get the deficit down.
Ian Austin (Dudley North) (Lab)
Why does the shadow Chancellor think the Government are so surprised that he has announced a policy of cutting VAT when we cut VAT during the downturn and we voted against the increase in VAT that they imposed? Does he think that it is a sensible political strategy for the Government to highlight the fact that we want to cut VAT and they want to put it up?
Ed Balls
I find that baffling as well. The fact is that cutting VAT was an effective stimulus, as the IFS said, which led to strengthening growth and falling unemployment a year ago. Now that cut has been reversed, and our position on the policy has been consistent. We propose not a move all the way from the Government’s deficit reduction plan to halving the deficit in four years, but a step along the road. That would be the right thing to do, and it would deliver for the constituents of Government Members a boost of £450 a year for a family with children, and of £275 a year for a pensioner couple. Why do they oppose action that would put money in people’s pockets and help to get the deficit down in a fairer way?
Harriett Baldwin (West Worcestershire) (Con)
The right hon. Gentleman says that he likes to do his politics on the record. On the “Daily Politics” show on 14 March, he said:
“We’ve made no commitments at all, it would be totally irresponsible for an opposition to behave”
in that way. What is responsible about an unfunded £51 billion tax cut?
Ed Balls
If that was written by the Whips, they will have to do better. What I said was that it would be completely irresponsible for me as shadow Chancellor to make a commitment now to a reverse in the VAT rise for our next election manifesto. Of course I cannot make an unfunded commitment for the next manifesto. The rise in VAT this January was a mistake. It was the wrong tax to raise, it was unfair, and it has depressed confidence and stopped people spending at the wrong time for the recovery. The Chancellor does not have to agree with us that he should not have raised VAT, but he should agree that he did it at the wrong time, and he should temporarily reverse it until the recovery is secure. We now hear from Conservative Central Office that the proposal to cut VAT only temporarily until the recovery is secure would have to be in place for four years of this Parliament. That tells us that the Conservatives think that the recovery will not be secure for the whole of this Parliament, which is precisely the argument that I am making.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
Is it not the fact that the deniers here today are the Government who deny the collapse in consumer confidence? No one on the Government Benches is doing anything about it, and the economy will not kick-start again unless we tackle it.
Ed Balls
I will give way in a second.
The fact is that the scale of the fiscal hit to demand and growth in Britain this year and next is unprecedented. It is happening when interest rates are already low, so they cannot be cut, and when other countries are trying to reduce their deficits at the same time. Confidence is also hit by the public debate about when mortgage rates will have to go up because of the Chancellor’s own-goal on inflation through the rise in VAT. That is why there is a problem. Instead, all we get from the Chancellor and the Conservative party is excuse after excuse.
Ben Gummer (Ipswich) (Con)
The right hon. Gentleman has already mentioned the OBR, the IMF, the EU, the OECD and the CBI, each of which supports the Government’s policy and says that any deviation would be a mistake. What is his answer to them?
Ed Balls
It is good to see the IMF supporting the Government of the day. The IMF not supporting the Government of the day would be a catastrophe, and exactly the same has always been true, historically, for the OECD. There is no doubt that business has a growing worry about what is going on. There is also a growing worry in Ipswich, not least shown by a Labour local election victory there just a few weeks ago. I am disappointed that the hon. Gentleman’s colleague the hon. Member for West Suffolk (Matthew Hancock) is not in the Chamber, but obviously this local campaign is catching on. I congratulate the hon. Member for Ipswich (Ben Gummer) on his campaign to save school crossings, to get more funding for them from schools or parent-teacher associations, and his lobbying of the Secretary of State for Education to ensure that education in Ipswich gets the extra money it needs. “Save Sure Start from Cuts”—it is obviously all catching on.
Ed Balls
I have plenty more; we will come to them in a second. Just think, “Good publicity, good publicity, it’s all good publicity.” It did not do the hon. Member for West Suffolk any harm; it did not do him any good either.
We do not hear much from the Chancellor these days about snow being the explanation for the contraction of the economy at the end of the year, because as he knew at the time, it also snowed in America, Germany and France, and they all posted stronger growth. In fact, Denmark, Ireland, Greece and Portugal were the only other countries with falling output in the last quarter of 2010. The Chancellor of all people, a regular skier on Europe’s slopes, should have known that even in winter it does not snow in Greece and Portugal. Instead we hear a new weather-related line. He blames the global headwinds, factors outside his control—rising oil prices, food prices, the eurozone, the Japanese earthquake, all reasons why prudent Chancellors should always be vigilant and choose caution over complacency. It is ironic to hear the Chancellor and the Prime Minister blame the rest of the world for Britain’s economic difficulties, as they did the opposite for their last four years in opposition.
Compared with other countries facing the same global headwinds, we are doing worse. We have gone from being in the top half of the EU economic league, to fourth from bottom in the past few months. It is no wonder that the OECD Deputy Secretary-General said a few weeks ago that
“we see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front”.
Even the IMF has said that
“there are significant risks to inflation, growth and unemployment”.
The excuses are not working, and the Chancellor is starting to be rumbled.
Andrea Leadsom
Does the right hon. Gentleman recognise that when the Government took office, our country was on credit watch for a downgrade? Does he welcome the fact that this country’s borrowing rates are similar to those of Germany and nowhere near those of Portugal and Greece? Does he further recognise the impact that his proposal effectively to reduce VAT rates right now, unfunded, would have on our current national deficit?
Ed Balls
The irony of a Conservative MP opposing tax cuts in VAT for families while allowing a tax cut, compared with last year, for the banks, is almost overwhelming. As everyone who studies the figures and not the political spin knows, we went into the crisis with lower national debt than France, Germany, America and Japan. Every country had a rise in its deficit, so of course we did. The fact is, however, that our gilt yields were very low and falling month by month before the general election, even as the opinion polls narrowed—
Kwasi Kwarteng (Spelthorne) (Con)
The right hon. Gentleman spoke about responsibility earlier, but does he take responsibility for the appalling fiscal position we were in when we had the largest debt in peacetime?
Ed Balls
It is fine for the hon. Gentleman to be thinking of his intervention rather than listening to the answers, but the fact is that we had a lower budget deficit and lower national debt than we inherited in 1997. The IFS, in its report, “The public finances: 1997 to 2010” said:
“By 2007–08, the public finances were in a stronger position than they had been when Labour came to power in 1997.”
That entirely disproves his point.
Geraint Davies (Swansea West) (Lab/Co-op)
Does my right hon. Friend accept that one reason for the remarkable fact that the world economy is growing steadily while Britain is flatlining, is the report from UK Trade & Investment that says that although UK inward investors are coming forward to build factories and growth in Britain, they are not being drawn down as the RDAs have been abolished? The Government are destroying the engines of growth.
Ed Balls
I am sure that was one of the proposals in the so-called strategy in the Chancellor’s Budget.
As I have said, there is growing concern in the business community. There is even concern in the Conservative fraternity. As my friends on The Daily Telegraph said in a recent editorial:
“These figures should be giving George Osborne some sleepless nights.”
They should indeed be giving the Chancellor sleepless nights at No. 11.
Ed Balls
Give me five minutes.
The Chancellor has clearly been paying some attention. There is no plan B yet, but there has been a change in the rhetoric. Now the Chancellor says that the economy is “choppy”, but that
“Changing course would be a disaster for our credibility”
and would lead to a Greek crisis here in Britain—a Greek crisis that the Chancellor now absurdly claims he has narrowly avoided in the past.
Ed Balls
Well, at least that was not an animal noise.
Something has been puzzling me in recent months. Why does this Chancellor have such a love of the nautical metaphor? Navigating through choppy waters, steering a steady course, sailing into strong global head winds—where does he find all those boating metaphors? But this, of course, is the Chancellor who likes to spend his summers gossiping on the yachts of his friends.
I have said many times in the past year that the Chancellor must learn the lessons of history if he is to avoid repeating the mistakes of history. I am sorry to have to raise that rather unfortunate episode in his history again. I know that it is a bit irritating for Members, even a bit annoying, but the Prime Minister said that I was the most annoying person in politics, and I must live up to my reputation.
As a matter of fact, my reign at the top table did not last very long. A few days later, The Sunday Times conducted a poll asking the public who was the most annoying person in British politics. It turned out that the Prime Minister is just as annoying as me, it turned out that the Chancellor of the Exchequer is more annoying than me, and it turned out that the Deputy Prime Minister is more annoying than all of us. But who is the most annoying person in British politics today? It is still Lord Mandelson, the Chancellor’s yachting partner.
I know Lord Mandelson well. He is a good friend of mine. [Laughter.] He is, actually, and I know that he will agree with me on this. If the Chancellor and his friend the Prime Minister have found us annoying so far, they should bear in mind that this is only the beginning; and when the Chancellor boasts that he narrowly avoided a summer Greek crisis, we know what he is really remembering.
Christopher Pincher
A man is known by his friends, and I think the shadow Chancellor has just proved that.
The right hon. Gentleman has talked a fair amount about the newspapers that he reads, such as The Daily Telegraph, The Times and the Eastern Daily Press. It must be very interesting for the shadow Home Secretary in the evenings. Perhaps he has also read the Tamworth Herald, which has revealed that unemployment in Tamworth has fallen to the lowest level since 2008 and that investment has been made in Tamworth by Ocado and BMW. If the right hon. Gentleman thinks that we are doing so badly, how does he explain those developments?
Mr Speaker
Order. I am glad that the exchanges so far have been good-natured, but may I remind colleagues of the merits of brief interventions? A lot of Members want to make speeches, and I want to help them to do so.
Ed Balls
I think the question that people will be asking in the hon. Gentleman’s local newspaper is this: why does he oppose a tax cut that would provide £450 for every family this year, and would boost failing confidence?
The hon. Member for West Suffolk does not seem to have turned up. It is so disappointing that he is not here, as he was last time, because I had a very good contribution for him.
Let me now set aside the Chancellor’s wild and nonsensical political attempts to draw parallels between Britain and Greece, and make a serious point about what is happening in Greece and how it affects the United Kingdom. The issue now is not whether Britain does or does not contribute to a further EU financial package for Greece. Like the Chancellor—I think—I believe that that would be the wrong thing for our country to do. It seems to me that we have reached a point at which talk of more temporary liquidity austerity packages, and further tough talking, is no longer working.
EU Finance Ministers must face the fact that Greece needs economic growth to succeed. Otherwise, it will be stuck in a debt trap. It is now very hard to see how Greece can stay in the single currency without a change of strategy on fiscal austerity and a substantial restructuring. The fact is, however, that it is precisely because the UK is outside the eurozone—and thank goodness we are; I will take an intervention on that if any Member wishes to intervene—and because our banks are less exposed to Greek debts than those in Germany and France that Britain should be an honest broker in these discussions. We are in a position to present an objective argument for immediate and co-ordinated action to restore jobs and growth and start reducing the debt, along with a sustainable, long-term plan for its reduction. However, we can do that without being accused by the people of Greece that we are merely looking after our own interests.
Ed Balls
In one second.
For the first time in 14 years we have a Chancellor and a Prime Minister who are on the sidelines, silent, irrelevant and ignored. I believe that whatever the outcome of the present crisis—whatever happens in the eurozone and to Greece—people will say that we had a Chancellor of the Exchequer who was not there, who did not deliver, who was out of his depth, and who could not contribute to the long-term reforms that were needed.
Mr Redwood
The right hon. Gentleman is making a very important point. The United Kingdom can make an important contribution to the debate, but it obviously should not lend money directly to Greece. Is he saying that he thinks the only way out for Greece now is a rescheduling of its debt and agreement on the fact that there must be a change of pattern to secure the necessary growth and enable the economy to accelerate?
Ed Balls
In a moment I will deal with the parallel with the United Kingdom. Let me say first, however, that the lesson of history shows that it is not possible to deal with a solvency crisis by providing liquidity package after liquidity package, because that does not reach the heart of the issue. On the contrary, it makes the position worse and worse. At some point people will have to face up to that. Package after package has been agreed, but that has not worked. The debt has not gone down; it has gone up.
History teaches us that three things are necessary to the credibility of a plan, whether it involves monetary policy or fiscal policy. First, the plan must be for the medium term; secondly, there must be political support for it; and thirdly, it must work. If it does not work, that will eventually rebound on political support, as we have seen in Greece in recent weeks.
Kelvin Hopkins (Luton North) (Lab)
I entirely agree with what my right hon. Friend has said about both Greece and the need for a plan, but if a plan is to be implemented the country concerned must have control of its exchange rates, interest rates and fiscal policy, and that is not possible inside the eurozone.
Ed Balls
Let me deal with precisely that point by returning to the subject of the United Kingdom. Notwithstanding what I consider to be a rather tawdry attempt to use what seems to be a political claim that a sovereign debt crisis exists here in the UK to give the Liberal Democrats an excuse to ditch everything in their manifesto and support a Conservative party policy, the fact is that the plan is not working here either.
The Chancellor likes to play this game. A few weeks ago, he told the “Politics Show” that if he “abandoned” his plan,
“Within minutes Britain would be in financial turmoil.”
As I have just said, the Greek Prime Minister’s experience shows that simply talking tough does not make someone credible and does not boost market confidence if the plan is not working.
The reason why there is now a question mark over the Chancellor’s credibility is that in recent weeks and months we have had an economy that has not been growing; fewer people in work and paying tax than there should be; and more people on benefits than there should be. That makes it harder to get the deficit down. We have had stagnant output for six months and we have forecasts being downgraded left, right and centre. This is not about bad news now and short-term pain. All that makes it harder to get the deficit down and undermines our long-term credibility, investment and confidence. As the former chief economist at the Cabinet Office, who is now head of the National Institute of Economic and Social Research, said:
“You do not gain credibility by sticking to a strategy that isn’t working.”
That is the situation we are now in.
Stephen Metcalfe (South Basildon and East Thurrock) (Con)
Whichever number we use—the £12 billion or the £51 billion unfunded tax cut—can the right hon. Gentleman tell us where that money might come from, or is he happy to bundle up further debt that we can then pass on to our children and grandchildren?
Ed Balls
No, no, no.
A year ago, we had a balanced plan: people paid their fair share, there were spending cuts and there were tax rises, but it was cautious and was not a pre-ordained political timetable or a headlong lunge. That is what the Chancellor should be doing now. He should be adopting a more sensible approach to deficit reduction, which would allow him temporarily to reverse the VAT change right now. He should also reopen the spending review and have a steady approach to spending cuts. A 20% cut in police budgets, front-loaded, is complete criminal justice madness. He should take up our plan to repeat the bank bonus tax, build houses and get young people back to work. As I have said, a temporary VAT cut now would put money into people’s pockets, boost confidence, push inflation down and give our flatlining economy the jump-start it urgently needs. That would be a better way of getting the deficit down.
Barry Gardiner (Brent North) (Lab)
My right hon. Friend will know that the UK taxpayer will still be contributing to any bail-out of Greece through the International Monetary Fund, but will he comment on the fact that if Greece does fail and subsequently other countries follow that failure into default, that could precipitate the end of the IMF? The loans that the UK taxpayer is making to the IMF would then never be repatriated.
Ed Balls
The IMF is there to help countries through situations like this. We are a shareholder and a contributor to the IMF and that is quite right. It is a different matter our putting liquidity money into a eurozone strategy that patently is not working because it is flawed. My argument to the Chancellor is that it is ironic to see a British Conservative Chancellor backing the German Finance Ministry’s view over sanity and common sense. We have not seen that in our country for a very long time.
Charlie Elphicke
I put it to the shadow Chancellor that this is not just about the business of the unfunded VAT cut that he proposes; it is also about some £10 billion-plus of spending commitments on the Welfare Reform Bill. Billions here, billions there—that does not add up to a credible economic policy from the Opposition.
Ed Balls
“I’ll protect border services, blasts Elphicke”, reads the headline.
“The UK Border Agency will not suffer due to Government spending cuts,”
claims the Dover MP. If the hon. Gentleman wants to have a debate with me about credibility and support for spending cuts, I will have it every day of the week.
It is the Chancellor’s credibility that is in trouble.
Ed Balls
I have taken lots of interventions and I am coming to my conclusion.
That is why we have consistently said that the Chancellor should have a plan B. At the end of August 1992, three weeks before Black Wednesday, the then Prime Minister and his then special adviser stood in front of the Treasury at 8 am and said:
“There are going to be no devaluations, no leaving the ERM. We are absolutely committed to the ERM. It is at the centre of our policy. We are going to maintain sterling’s parity and we will do whatever is necessary, and I hope there is no doubt about that at all.”
That was almost certainly written by the current Prime Minister. Hon. Members have to learn these lessons. It is true, as my hon. Friend the Member for Luton North (Kelvin Hopkins) said a moment ago, that back then the pound was constrained by a fixed exchange rate. It was very hard for the Prime Minister and the Chancellor of the day to change course, even though they could see that their policy was not working. Had we joined the euro—and as we have all said, thank goodness we did not—that would have been an even greater constraint on UK economic policy, but neither constraint exists now. The objectives for monetary and fiscal policy have lain squarely in the Chancellor’s gift and this is the fundamental problem: he has made a political decision to set a political timetable for a political goal that defies economic logic, and the evidence is growing week by week that he has got this wrong. The lesson of monetary and fiscal policy too, over the past 20 years, is that changing course when things are not working is not a knee-jerk reaction and does not damage credibility. It is the only way of being in control of our destiny and averting the crisis being forced on us.
Let me quote some wise words:
“The weak thing to do is just to keep ploughing on and say, ‘I can’t possibly change, because I might have a difficult time at a press conference.’ The tough, strong thing to do is say, ‘Yes, we can make these plans better’.”
That is what the Prime Minister said yesterday, explaining the U-turns on sentencing and the NHS. He has obviously learned some lessons from his time as special adviser to Norman Lamont. My only plea today is that the Chancellor starts learning the lessons of history too. The cautious thing to do is not to plough on and hope for the best, but to act now before we lose more ground. Unlike Norman Lamont, who was tied to the exchange rate mechanism, the Chancellor can choose. He does not have to box himself in this way, so stubbornly. He does not need to make the Major-Lamont ERM mistake all over again.
Margot James (Stourbridge) (Con)
The right hon. Gentleman referred to the previous Government’s policies when they embarked on a very timid programme of tax increases and public expenditure cuts a year and a half ago. Does he not accept that that was completely inadequate then and that the only reason it was accepted was because the international markets knew that there was a general election coming and that his party was way down in the polls? They lived for a better day.
Ed Balls
I have been, in a friendly way, critical of the Chancellor’s engagement and participation in international affairs and matters of global economic management, but he does go to the meetings and sign up to the communiqués. As the Chancellor in June 2010, after the general election, he went to the G20 and signed up to the communiqué that said that Governments should halve the deficit in the next four years, which was precisely the plan we had, which they tore up. We are not going to take lectures from the Conservatives on credibility. As I have said, the credible approach is not to plough on regardless when things are not working but to change course before it is too late.
This is my conclusion.
Ed Balls
I have taken loads of interventions and I am not going to do doubles.
The fact is that the path that our economy is being taken down is, I think, the wrong one, and the evidence is supporting that. It could prove very dangerous for growth, for jobs, for public services, for our living standards, for the deficit and for our mortgage rates too.
Ed Balls
No, I am going to conclude.
At the very least, it looks set to be a path of slower growth and higher unemployment than needed to be the case. There is an alternative, it is more credible than the current plan, not less, and it is not too late to change course. The Chancellor has a choice; he is not stuck, this time, in the ERM or the euro. He cannot fall back on the idea, as back then, that Labour supports his policies, because we have set out a very clear and different alternative, including on VAT, this year. Most of all, he cannot say he has not been warned. We are on a path of slower growth, higher unemployment and more child poverty than was forecast a year ago. The Chancellor has a choice. On the anniversary of his first Budget, he should agree with our motion and admit he got it wrong. If he is prepared to start putting economics before politics, it is not too late to change course.
Mr Osborne
I will take interventions, but let me make this point.
Since this is an Opposition day, let us examine the latest idea of a £51 billion—£13 billion a year—unfunded commitment on tax. This means that the shadow Chancellor has presumably abandoned the Darling plan for this year, because the commitment was not funded in that plan, and that members of the Opposition Front-Bench team were not only too embarrassed to mention it at Treasury questions yesterday but, as we now know, they were not consulted. The shadow Cabinet was not consulted.
I will give way on this point. On television at lunchtime, the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), was asked eight times whether he supported the policy of the shadow Chancellor and he did not give an answer. Perhaps the shadow Chancellor will tell us whether the last Labour Chancellor of the Exchequer supports his plan—yes or no.
Ed Balls
The previous Chancellor was the last man to cut VAT temporarily to get the economy moving. What is the right hon. Gentleman talking about? Let me ask him a very precise question. He says the cost of this temporary VAT cut, which I said should be in place until the recovery is secured, would be more than £50 billion. Exactly how does he get that figure, and how many years does that mean we will have to wait before the recovery is secured, following his reckless deficit reduction plan?
Mr Osborne
The figure is calculated like this: if we implemented it, we would be in a fiscal crisis. That would delay the recovery by at least four years. That is how I come to £51 billion.
Mr Osborne
The interesting thing is that in the United States the debate in the Congress has turned to discussions about the US budget deficit. The proposal from President Obama in his speech at George Washington university bears some striking similarities to the British Government’s plan, and is similar in pace, scale and composition between tax and spending measures. It shows that this is the discussion that the world is having, but it is not a discussion of which the shadow Chancellor is a part.
Ed Balls
To follow up the question from my hon. Friend the Member for Cardiff West (Kevin Brennan), and because this is a serious matter, I would like to give the Chancellor a second opportunity to answer. I answered his questions and questions from the Government Back Benches on my conversations with the Leader of the Opposition. Did the Chancellor have any advance knowledge or sight of papers taken from me which went to The Daily Telegraph without my knowledge? I would like him to answer the question.
Mr Osborne
We all read those papers in The Daily Telegraph. They revealed that the shadow Chancellor knew before the then Chancellor of the Exchequer came to the House of Commons that the 10p tax rate that Labour Members all voted for would hit the poorest in our country.
Ed Balls
I set out our position on these matters very clearly on Sunday. We agree that we need pensions reform and are studying the detail of the Hutton report, as everyone is. We thought that the increase in contributions before it was published was a complete abuse of the report and that the way the Government are rushing to increase the age of retirement is deeply unfair, especially to women in their 50s. The whole handling of this by the Chancellor and the Chief Secretary to the Treasury has been totally and deeply shambolic.
Mr Osborne
Let me take that answer and dissect it. First, the shadow Chancellor deliberately confuses the state pension age with public sector pension because he does not want to answer the question. Secondly, he says that he is studying the Hutton report, but how long does it take him to read it, because it has been out for three months and an interim report was produced last year. Unbelievable.
I will end my speech shortly, because Mr Speaker requested that we ensure that many Members get into the debate. The third thing that is required, which was totally unmentioned by the shadow Chancellor, is a plan to reform the banking system and financial services. That is a central part of any British Government’s economic policy, but we heard not a word on it from him. We know why, of course. It is the same reason that we discussed on the deficit: he was the man who designed the regulatory system that failed. He was the man in the Treasury who designed the tripartite system of regulation; it was his idea, and it failed.
This is what the former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), said—and he does not say this kind of thing very often:
“We set up the FSA believing the problem would come from the failure of an individual institution. That was the big mistake. We didn’t understand just how entangled things were. I have to accept my responsibility.”
When the former Labour Prime Minister accepts responsibility, is it not time that the man who was advising him accepted his responsibility, too, and admitted that the tripartite system failed and needs to be replaced?
Ed Balls
The tripartite system was put in place following the repeated failure of self-regulation and of the regulation of the Bank of England in the period before 1997. I have said on the record loud and clear that we did not regulate the banks in a tough enough way, but throughout that period the current Chancellor personally attacked me for being too tough with regulation and for going too far. The idea is to replace a tripartite system with a quartet system that is even more complicated and byzantine, and we will look at that in detail in the coming months, but the Chancellor is playing a very dangerous game.
Mr Osborne
The right hon. Gentleman did not apologise for the tripartite system; he defended it. That is what he just did.
Now, the shadow Chancellor has just—I think for the first time—set himself against the regulatory changes that we propose. He says that he wants to study them, but I set them out at the Mansion House not this year, but last year, so he has had more than one year to study them.
Mr Osborne
And he says that he is really worried about them.
So, there we have it: the shadow Chancellor is against putting the Bank of England back in charge of prudential regulation; against the financial policy committee; and against the financial conduct authority, which is going to be tougher on behalf of consumers. The independent banking commission, which includes experts from throughout the banking field, has been working on the issue and come forward with an interim report. We have backed the principles of that report, but what does the shadow Chancellor have to say? Absolutely nothing—absolutely nothing about the plan that he would put in place. That is the truth.
Mr Osborne
Of course, I welcome the hon. Lady to her—[Interruption.] I will answer the question that she puts. I have merely observed in the past that being the Parliamentary Private Secretary to someone who never comes to Parliament is not a very onerous job, but that is good, because she can think up important questions to ask me.
Our judgment, with which the hon. Lady is entitled to disagree, is this: what was missing from the tripartite system was an ability to assess systemic risks throughout the economy. No one was looking at overall debt or leverage levels—[Interruption.] The shadow Chancellor says, “Rubbish”. When the Royal Bank of Scotland wanted to buy ABN AMRO after the credit markets had closed and after the run on Northern Rock, the regulatory system allowed RBS to do so. That is what went wrong, and if the right hon. Gentleman wants to go on defending the system that led to the biggest banking crisis in our entire history he can be my guest.
Ed Balls
When we reformed the Bank of England in 1997, we introduced a second deputy governor for financial stability. It was the job of the deputy governor in the Bank of England to monitor those things, and what has the Chancellor now done? He has added a third deputy governor, so there are now going to be three, and that is a more complex system. He is making a political case, but I do not know whether he even understands the financial and economic case.
Mr Osborne
What I understand is that the system the right hon. Gentleman put in place to ensure financial stability completely failed, and the scales have fallen—
Justine Greening
Most importantly of all, the private sector has created half a million jobs, and I would have hoped that the whole House could have agreed that that is good news for the country, as my hon. Friends the Members for Witham (Priti Patel) and for Thurrock (Jackie Doyle-Price) said. We must not talk down the economy, but the Opposition have persistently done so.
As the International Monetary Fund has said,
“repair of the UK economy is underway.”
Of course that is a difficult task, and of course recovery will be choppy, but that is because our predecessors left us with an unprecedented and unenviable challenge, as was eloquently pointed out by my hon. Friends the Members for Dover (Charlie Elphicke), for Gloucester (Richard Graham) and for Elmet and Rothwell (Alec Shelbrooke). They understand the problem the country faces, and their constituents knew that, which is why they chose a different and a better Government.
Many people in our country will be incredulous that the Opposition have had the gall to come here today and lecture MPs about economic credibility, because the shadow Chancellor and the Labour party have absolutely none. Their legacy to the British people was higher unemployment, a broken economy and enormous debt. The shadow Chancellor said a lot, but there was one word missing from his speech that people would have liked to have heard: sorry. There was no apology for the disastrous mess his party left on leaving office, and no acceptance of responsibility for its actions. The shadow Chancellor is still in denial about there even being a structural deficit—if he wants to confirm that he does think there is a structural deficit, he can intervene on me now.
If the shadow Chancellor had spent less time when he was a Minister plotting with his political master, he might have done a more effective job. He was the architect of the tripartite banking regulatory scheme that failed so badly. He was the City Minister when the City went off the rails. He was the economic adviser to the former Chancellor and Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), when he ran up a structural deficit that the OECD described as a snowballing of debt.
Many people in our country would not put the shadow Chancellor in charge of their household finances, let alone the nation’s finances, yet he called for a debate on the economy today. We might have expected him to have something meaningful to say, therefore, but he did not. There were no plans to tackle the deficit at all; not a word on how to rebalance the economy and replace some of the 1 million manufacturing jobs that were lost between 1997 and 2007; nothing on financial services reform; and hardly any mention of his party’s VAT proposal. That seems to have fallen apart within days. Members on the Government Benches talked more about that than Labour Back Benchers. When the VAT rise went through last year, what did the Opposition do? They abstained. They did not stand up and say that it was wrong. A few months later, however, they decided that there should be a VAT reduction on fuel, and now, even before the Finance Bill has completed its passage, they want a VAT reduction on everything. This is policy made on the hoof.
Today’s motion refers to halving the deficit, but we have heard not a word from the shadow Chancellor on how he would do that or on their spending plans. The bottom line is that those plans do not exist. He is trapped by misguided, discredited and irrelevant policy, and yet he still runs with it. He used to be a bruiser, but now he is a kitten. He is Macavity’s kitten trapped in his own ball of policy wool which he has woven around himself, churning out the same old lines that will take neither his party nor the country forward.
We heard many contributions from Labour Members, but I must say that they were let down by their Front Benchers, who clearly have no economic alternative. All they have is pointless opposition. We heard a lot of amnesia from them on employment. Let us remember that they left unemployment higher, just as every Labour Government before them did. Presumably they will say that that was the result of the recession. Presumably they think it is a coincidence that every Labour Government leave Britain’s economy in crisis. The amnesia goes deeper. We heard amnesia on social housing. Somehow they think that they created lots of social housing.
Ed Balls
Will the hon. Lady clarify something for the House? During Prime Minister’s questions today the hon. Member for Clacton (Mr Carswell) said that the hon. Lady had signed a memo on the European financial stabilisation mechanism after the election stating that cross-party consensus had been agreed on the matter. Will she clarify whether she signed the letter and whether such a consensus had been reached? If so, was the Prime Minister wrong when he said today that there was no consensus?
Justine Greening
Well, there is a cross-party consensus, because his party agrees with it. We are now in government, so I do not think that that is particularly complicated. He is trying to waste my time, so I will make a little more progress.
The bottom line is that the Labour party has only one economic policy: spend, spend, spend. When times are good, their policy is to spend, spend, spend, because they can afford to. When times are bad, their policy is to spend, spend, spend, because they cannot afford not to. It is no wonder that this Government ended up mired in debt when Labour left office. The hon. Member for Airdrie and Shotts (Pamela Nash) talked about the previous Government’s record but was unaware that she had abstained on the VAT rise. As we have seen with the overall VAT policy, there is clearly a huge disconnect between their Front and Back Benches. After all that spending and the creation of the structural deficit, even Labour Members asked themselves, “We’ve spent all this money, but what have we got for it?” The answer is, “Not enough”.
When the Opposition called this debate, people might have been entitled to think that they had something relevant to say on the economy, but they do not, and we have seen that demonstrated again. We do have a plan. As my hon. Friends the Members for Bromsgrove (Sajid Javid), for Spelthorne (Kwasi Kwarteng) and for Ipswich (Ben Gummer) all pointed out, it is a plan backed by the IMF, which described it as essential. It is a plan backed by the OECD, which described it as vital. It is a plan backed by the CBI, the rating agencies and pretty much everyone who understands why it is important that we get our economy back on track and our public finances back in order.
We have a plan to rebalance the economy, generate growth and ensure that those communities that can most benefit from the new jobs do. We have a plan to create the most competitive business tax regime in the G20. We have plans for more apprenticeships and work placements—