Jobs and the Unemployed

Gordon Banks Excerpts

Wednesday 7th July 2010 Commons Chamber

[Yvette Cooper]

We were clear that the best way to cut welfare spending was to get more people into work. The very fact of getting people into jobs was cutting £15 billion from welfare bills over the next few years. That is substantially more of an impact than the right hon. Gentleman could possibly have by cheese-paring bits from employment programmes that end up putting more people on the dole and pushing up the bills for unemployment. That, in the end, is the right hon. Gentleman’s problem.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

Does my right hon. Friend agree that the pressures placed on the private and public sectors in recent weeks will deliver a potential skills shortage in the UK? Without investment in our young people today, we will have a skills shortage tomorrow, which will be detrimental to our growth in future years.

[Yvette Cooper]

My hon. Friend is right. This is about investing in our future, because this is about the young people who will support us all for very many years to come. If we do not give them the start in life that they need, if we do not give them the work experience that they need to get into jobs, if we leave too many of them stuck on the dole for years, we will pay the bills that result from their being unemployed for years and we will lose their potential skills and talents that could contribute to our economy for many years to come.

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[Gordon Banks (Ochil and South Perthshire) (Lab)]

It is a pleasure to follow the contribution of the hon. Member for North East Hertfordshire (Mr Heald), but I want to talk about the construction industry and my constituency, and I am sure we will come across other related matters. I refer the House to my declaration in the Register of Members’ Financial Interests.

I was involved in the construction industry for more than 30 years before I was elected to the House in 2005. Frankly, I am shocked at what has happened in the industry in the past few years, and I greatly fear what will hit us in the near future. I started my own business in 1986, so I have weathered a few storms, but I fear that the future has something terrible in store for the industry. If it is bad for the industry, it is bad for jobs.

In the past few years, the construction and housing sectors have contracted massively. With that contraction in activity has come a contraction in the number of jobs. When the banks went into meltdown, the previous Government reacted appropriately. There was action to protect investments and to support failing banks, and genuine attempts to get money back into the marketplace. Although that proved a little more difficult than I would have hoped, that positive action saved jobs. However, now we risk all that effort.

It was necessary for the public sector to step in when the private sector failed—let us not forget that that is what happened. My background is in the private sector, and I am proud of the UK’s private sector—or at least part of it. It should be a driver of growth and the major contributor to addressing our budget deficit, but how will that happen when the private sector remains very fragile and the public sector is faced with ill-thought-out, ideological cuts?

The construction sector is a good example of that. The industry has some 250,000 businesses and employs more than 2 million people in the UK, with turnover of about £6 billion. We had the second largest output in the European Union—I do not know whether we still do—and we all know the role that the industry has played in the UK’s progress in recent years. It is a private sector enterprise, but its clients are both public and private sector. Businesses generally need the construction sector to expand, as does the state, when they are intent on improving the quality of life of citizens.

There are vital sub-sets in the construction sector. Construction product companies have annual turnover of more than £40 billion and employ more than 650,000 people in 30,000 companies. In Scotland, almost 12% of the work force are employed in construction or in some form of building-related activity, whether as a joiner on site, a planner in a local authority office or a lorry driver delivering materials to a building site. Sadly, that is changing for the worse. All those jobs are under threat.

[Mr Graham Stuart]

One great mystery of the past 13 years is that there were record levels of immigration under the Labour Government and record lows in the number of houses built, particularly affordable housing units. I do not know the explanation for that, but I would be interested hear whether the hon. Gentleman, with his background in construction, has any thoughts on how we can increase the number of housing units in this country, so that we can tackle homelessness and boost the construction industry, jobs and employment.

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[Gordon Banks]

I will address that in greater depth and detail in a few minutes, but the right solution is a joint public and private sector solution. The solution cannot be driven by one of those alone—it is not an either/or question.

The housing sector enjoyed some useful periods in recent years, prior to the recession. When it delivered large profits for many developers, it also delivered jobs in our economy. The sector was a driver for the economy, but the current situation in the private house building sector is absolutely desperate. There were 40,000 home loans in April 2010, which, if projected over a year, would be fewer than half a million. If that is the annual figure, it will be the lowest since 1974, yet the need for housing is ever growing, as the hon. Member for Beverley and Holderness (Mr Stuart) pointed out. Our desire to own our properties continues to grow, and we should encourage such aspirations.

To generate jobs in the housing construction sector, we need to increase the number of higher loan-to-value products, and reduce the 25%, 30% and 35% deposit demands from the mortgage industry. The mortgage products that were on offer before the recession were unsustainable, and we had the ridiculous situation of lenders lending 125% of the value of properties. Everybody has responsibility for that—the Government, lenders and borrowers—but I am concerned that the cuts in interest rates in the past few years have not been passed on to mortgage deals. That is stifling the market, and therefore costing jobs. Although interest rates are an issue, the loan-to-value ratio is the main problem.

[Catherine McKinnell]

Does my hon. Friend share the concern that a constituent of mine raised with me this weekend? He and other young people he knows who work in the public sector in Newcastle are all in fear of losing their jobs. They had planned to move house, but they have put that on hold because of that fear, and they know that many of their contemporaries are in the same situation. There is a real worry about great damage being caused to the housing market, particularly in my region.

[Gordon Banks]

That is very well put. It is a real problem and so, too, more broadly, is the effect of public sector cuts on the private sector. That will stop the private sector growing and providing the jobs and profits that the Conservatives expect it to create to get us out of the mess we are in.

We need to get to a sustainable level of 90% loan-to-value mortgages to generate jobs in the sector, but it does not stop there. If someone buys a new car they put fuel in it, and because of efficiencies it is probably a lot less than they had to put in their old car. However, people who buy a home spend additional money. Ask any retailer and they will say that they need a buoyant housing market, both new and second-hand, for the high street to be a busy place. Home buyers purchase carpets, furniture, white goods, televisions, curtains and more. This is therefore the one industry that directly feeds the spending of considerable sums of money into other sectors.

In 2007 there were 357,800 first-time buyer mortgages, and the Halifax produced data that suggested that the cost of furnishing and equipping a new property is about £6,000, so that equates to about £2.14 billion of high street spend from first-time buyers alone. If we multiply the original figure by the number of people in each property purchase chain, we see that the true amount of high street spend might be double or three times more. In short, support for jobs in the housing sector is delivered by the availability of appropriately priced mortgages, but that is lacking today.

Turning from housing to construction, I supported the last Government’s commitment to bring forward capital spending projects, and I should pay tribute to the councils in my constituency and the last Labour Scottish Executive, who delivered six new secondary schools in recent years, and the health board, which has delivered a new community hospital. I am also grateful for the introduction of rail services to Alloa and the new Clackmannanshire bridge.

All those projects were started under Labour. They are now finished, and because of the failure of the Scottish National party’s Scottish Futures Trust there is nothing coming along behind them to match the brick-for-brick commitment we have been given. We heard in the House just this week about the Government’s plans for the Building Schools for the Future programme, damaging our infrastructure, not giving children the best possible start and throwing people on to the scrap heap in what might be called the triple whammy. We need to invest in our infrastructure. Doing so improves the infrastructure, improves lives and creates jobs.

We also need an active home improvement market, but I fear that the recent announcement of the 20% VAT rate will decapitate what was beginning to look like a possible lifeline to the industry. The loss of 1.3 million jobs will not help either, but let me first deal with the VAT effect. Many Conservative Members derided the effectiveness of the last Government’s reduction of the VAT rate to 15%. They said it would be ineffective, but we all know that that was not the case.

There are real worries in the building industry about the new VAT rise. It will harm in many ways. First, it will chase people away from embarking on improvements, and in doing so it will cost revenue and jobs—and if it costs jobs, it will cost even more revenue. It will encourage a black market as people turn to cash-in-hand jobs to save that 20%, and what will that do? It will lead to a loss of revenue. Cash-strapped home owners will become increasingly vulnerable, and the £170 million that was estimated to be taken on the housing sector black market this year looks set to grow.

[Ian Lucas (Wrexham) (Lab)]

I am listening very closely to what my hon. Friend is saying. As a former Minister with responsibility for construction, I think the VAT increase on environmental improvements to homes is a major error, because it disincentivises people from making homes more energy-efficient. I cannot see a more short-sighted measure in the Budget.

[Gordon Banks]

My hon. Friend is right, and it is not just about the environmental or green side; it is also about quality of life. The quality of a property has a knock-on effect on children’s ability to grow up and learn, so there will be a negative effect all round. I am not sure that he, as a former Minister with responsibility for construction, will enjoy what I am about to say, but I think there is a strong argument for reducing VAT to stimulate the economy, just as the last Government did, but in a more targeted way. Reducing VAT to 5% on the labour element of home maintenance repair and improvement work could, as argued by Experian, create an extra 55,000 jobs this year alone. What the Government are doing will cost jobs. The views we have heard today about job growth are not shared by the Federation of Master Builders, which argues that 7,500 jobs will be lost in small and medium-sized enterprises in the construction sector this year alone as a result of the VAT increase. When the multiplier effect is taken into account, the effect on small and medium-sized construction companies in this year alone could be the loss of between 23,000 and 25,000 jobs.

There is another cause for concern. If firms go bust, close down and lay off workers, they will be in no position to train apprentices for the future.

[Jim Shannon (Strangford) (DUP)]

The hon. Gentleman mentions the construction industry, which I think is relevant to all hon. Members in the Chamber; it is certainly relevant to the area I represent. Does he agree that the Government should try in particular to help those aged 50 and over who have worked in the construction industry all their lives? They cannot get jobs anywhere else and find it hard to retrain.

[Gordon Banks]

I do agree, but I would much rather see them retained in the construction sector. There is a strong argument that the construction sector can drive economic growth in this country, and I would like the Government to take that forward.

As I said earlier when I intervened on my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), if we do not deliver skills learning for apprentices today, we will have a skills shortage in future and that will have an economic impact. That should not be tolerated, but we have to understand that struggling businesses do not take on apprentices; they survive day to day and fight day to day. The last thing they are thinking about is having an apprentice, because they are thinking about getting through the day without the bank phoning them.

When the construction industry loses jobs, there is a lack of focus on the resulting suffering because it does not affect 2,000 or 3,000 people all under one roof. They are in different places around the United Kingdom, and when jobs are lost, it is 20 jobs here and 40, 50 or 100 there. That makes it very difficult for the construction sector to show the impact of policies and to get through to the Government and people in general the impact of decisions. It is very easy to see what is happening when a car plant or a big manufacturing location is threatened with closure, but it is very difficult to take on board everything that is happening in the construction sector because it is so disparate and is spread throughout the UK.

Before I discuss my constituency, I make one last plea for the construction sector. It is vital for training, revenue and business growth, and it is vital for improving public services, which I want to improve. It is also vital for improving the quality of life of UK citizens. I strongly urge the Government to recognise that and to invest in it accordingly.

My constituency is quite large and varied, with a rural aspect to much of it. We have industry, of which we are very proud. Some of it is excellent. There are businesses such as Highland Spring, Vector Aerospace, Owens-Illinois and Diageo, and I want to focus on two of those, their interdependence and the impact of the VAT increase. Diageo has long had an interest and a presence in Clackmannanshire. The county is very proud of that business, as it is of Owens-Illinois—or the Glassworks as it is called locally. The interdependence is that one of the companies produces the packaging for the product that the other produces.

My concern is that the VAT increase will impact negatively on product sales, which will impact negatively on the requirement for packaging. If that occurs, the safety valve will be jobs. It is not rocket science—it is simple and straightforward. In my opinion, and as we heard yesterday, the recent reduction in the budget deficit is a result of increased tax take arising from businesses getting back on their feet, from people being in work and from a return to growth. The VAT increase puts all that at risk. It is regressive, hits the poorest hardest and will result in job losses. It will not deliver the revenue necessary for the Treasury, and it could have a negative effect that might deliver a downward spiral. The VAT increase coupled with the axing of the future jobs fund makes the outlook anything but secure.

We have discussed today why the future jobs fund has been cut, and I am afraid that I and my Opposition colleagues do not understand why it has been cut. We also do not understand why the Prime Minister, who thinks it is a good idea, has decided to cut it. It is interesting to see some Liberal Democrats in the House this afternoon, because they think that the future jobs fund is a good thing, too, but have played their part in cutting it. In fact, the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb), said:

“We have no plans to change or reduce existing government commitments to the Future Jobs Fund. We believe that more help is needed for young people, not less”.

In Scotland, some 11,000 young people will be discarded as a result of the Prime Minister and the Lib Dems going back on their word. Much more can be said about the Government’s support for jobs—or lack of it—but I will end by saying this. The VAT increase will cost jobs, axing the future jobs fund will cost jobs, and failing to recognise the importance of the construction and housing sectors will cost jobs. They will all cost revenue, ruin lives and put the recovery at risk. None of them are a chance worth taking.

[Several hon. Members]

rose—

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[Elizabeth Truss]

I am in the process of making representations on the A11, which is a crucial project that would open up businesses in Norfolk. We should assess such projects—I shall come to this later in my speech—on the basis of economic return. We have a very small pot now, owing to what has happened and the money that has been spent in the past few years, and we need to use that pot wisely. I should like to see the evidence on those various roads and consider the highest rates of return. That is my answer to the hon. Gentleman’s point.

Given that businesses would like growth to be created in that way, so that they can create jobs, where have the last Government spent the money? Have they spent it on infrastructure? The World Economic Forum report suggests that Britain is sixth in terms of gross domestic product. Where do hon. Members think that we are on the infrastructure table after 13 years of Labour Government? We are thirty-fourth. That record has created the problems that we see: new jobs are not being created in the private sector because the money was not spent. Not only did the last Government fail to fix the roof while the sun was shining, they failed to fix the roads while the sun was shining, and we are left with that legacy. We are left with a difficult position. Not only are there potholes in our roads, but there is a huge hole in our budget. We must ensure that we spend on things that provide value for money.

[Gordon Banks]

Is the hon. Lady carrying on from where I left off and advocating significant investment in the construction industry? A simple yes or no would be good.

[Elizabeth Truss]

Such decisions should be based on the economic return, as I have said. That is how we should consider spending our money. The problem with the previous Government is that the money has gone on politically motivated white elephants, to gain good results in Government elections or to placate interest groups. We have not seen value for money.

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[Catherine McKinnell]

I thank the hon. Gentleman for highlighting the fact that the Labour Government stood on a manifesto accepting that cuts were necessary to reduce the deficit. That seems to be forgotten on many occasions when I and my hon. Friends are accused of not having announced any cuts.

[Gordon Banks]

Does my hon. Friend agree that we have seen a significant driver coming through—the 11% increase in the tax take this April-May compared with April-May last year—because of the growth in the economy? Does she also agree that growth is the best way to get the country out of recession and into growth, and to cut the deficit?

[Catherine McKinnell]

Absolutely, and I thank my hon. Friend for his intervention. It is notable that, since the emergency Budget that we debated yesterday was announced, the growth forecasts have reduced as a result of that Budget.

I return to the subject that I want to address today: the impact of the Budget on the north-east. Approximately 266,000 people in the north-east are employed as public servants—almost one in three workers—and many of those individuals, and the families they support, live in Newcastle and the surrounding areas. Large-scale redundancies in the public sector, which are now certain, will be disastrous for the city’s economy, which is, in turn, an engine for regional growth. The likely result will be lasting unemployment and an enforced exodus of talented professionals from what, during the past decade, has been a rapidly emerging region.

That is not the full picture, however. The public sector is so economically vital that it is not hard to imagine the impact of large-scale redundancies on private firms in the region. Simply throwing public sector workers out of their jobs will mean not only a loss of direct employment, but the devastation of private firms. More than in other areas of the country, such firms in my region depend upon revenue from public sector organisations.

That is directly linked to my next point, which is my deeply held opposition to the abolition of my region’s very popular and highly respected development agency, One NorthEast, which is located in my constituency on Newburn Riverside park. Owing to massive cuts in Government spending on regional development, combined with the Liberal-Conservative pledge to transfer RDAs’ functions to local authorities, the Government have announced, after damaging indecision and backtracking, that One NorthEast is to be abolished. Its closure will remove a vital local driver for recovery and eliminate a key means of building a stronger local private economy.

In March, the National Audit Office published its report on RDAs and concluded that £3.30 had been generated for every pound of Government funding given to them. A year ago, another investigation into RDA effectiveness, this time carried out by PricewaterhouseCoopers, showed that for every public pound invested there had been a return of £4.50 to the private sector. The ill-thought-out shunting and transfer of some of the RDAs’ roles—I presume not all of them—to under-resourced local authorities will be totally unworkable.