Finance (No. 3) Bill
Debate between Kelvin Hopkins and Angela Eagle(13 years ago)
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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.
Finance (No. 2) Bill
Debate between Kelvin Hopkins and Angela Eagle(13 years, 6 months ago)
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Ms Eagle
The hon. Gentleman is even more melodramatic in his rewriting of history—his historical revisionism of what was going on in the UK economy—than the Chancellor. I had thought, having watched that performance, that that was impossible, but perhaps the hon. Gentleman should try out pantomime this year as Christmas approaches.
I was about to say before I was so rudely interrupted that, rather than encumber himself with the tedious technical detail in this Budget, the Chancellor decided to start behaving like the Liberal Democrat student activists we all come across at university and to take it in parts. This is part two. As a result, we have in today’s Bill what can best be described as the technical innards of a Budget; I think that the Exchequer Secretary used other words. In fact, most of the clauses, as he pointed out, are the technical innards of the last Labour Budget, which was presented in March 2010. However, it is the duty of the Opposition to scrutinise the detail of all Budgets, and we certainly intend to fulfil that obligation tonight.
Measures included in the Bill are important to the workings of the taxation system—the Minister did the House a service by going through them in great detail—but they have failed to inspire much interest or controversy in the outside world, perhaps because they have been signalled for a long time. The measures were subject to consultation under the previous Government as well as the current one when they were in development. Some might even say that they were prototype proposals, because that is the way that things tend to be done in the Treasury. That is attested to by the lack of much comment on or reaction to the proposals even among the taxation professionals who usually pore over the technical details of Finance Bills with fine-toothed combs. In respect of this Finance Bill, those professionals have been strangely unmoved—I might even say indifferent.
Kelvin Hopkins
I, too, congratulate my hon. Friend on her appointment to the Front-Bench team and I am pleased to see her there. Is not the fact that this is a mouse of a Bill, given that we face a £120 billion tax gap that the Government are doing nothing to reduce, and that 1% of that sum would save more money than their cut in benefits?
Ms Eagle
My hon. Friend is right to point out that there are two sides to the deficit reduction equation. Clearly, one side of that is collecting the taxes that are due in an appropriate fashion, and I shall say more about that later in my speech. He is right that we need constantly to keep that side of things in mind.
I was about to pay tribute to the Institute of Chartered Accountants, which was one of the few organisations to submit comments on the Bill when many had fallen by the wayside. Perhaps it is up to the Opposition to be vigilant when others have taken their eyes off the ball.
As my hon. Friend said, it is odd that we are debating a seemingly uncontroversial and overwhelmingly technical Finance Bill in the midst of one of the most difficult and dangerous periods for the UK and world economies in many generations. We have lived through the largest banking and financial crisis in the global economy since the Wall street crash of 1929. It has caused a deep and painful global recession, and we are struggling with the aftermath of the rescue of the world financial system from the colossal market failure that was dramatised by the collapse of Lehman Brothers in 2008. That inevitably caused budget deficits to soar everywhere, but especially in the more advanced western economies.
The UK was particularly affected, in part because of the size of our banking and financial services sector. The concerted action co-ordinated at the London G20 conference averted a catastrophe, and we are now witnessing a tentative economic recovery. However, that recovery remains distinctly fragile.
Ms Eagle
That is true. Clearly, the Chancellor and Prime Minister are on record, up to and including in 2008, as doing precisely what my hon. Friend says and supporting our spending commitments as they were at the time.
Although the recovery remains distinctly fragile, the June Budget took a huge and risky gamble with it. Since then, confidence in the UK’s economic prospects has fallen off a cliff and business surveys, such as that by Deloitte which I asked the Exchequer Secretary about, demonstrate that economic sentiment is darkening. There are increasing signs that the tentative recovery is stalling and that the economic storm clouds are gathering once more.
Kelvin Hopkins
I agree entirely with what my hon. Friend is saying. Is it not true that those who invest and those who are lacking confidence now are simply aware that cutting spending, cutting jobs and cutting benefits will drive the economy into recession, and that nobody will invest when we are diving into a recession? Does she agree that in the early part of this decade Britain had a relatively low level of public spending as a proportion of gross domestic product compared with, for example, Scandinavia?
Ms Eagle
My hon. Friend is right on both points, but he also raises an important issue about what Keynes called “animal spirits”. It is fair to say that all the signals are that the animal spirits are somewhat more depressed now than they were a few months ago and that the things that have depressed them are the decisions that were announced in the June Budget.
Ominous noises are coming out of the recent International Monetary Fund meeting about currency wars and competitive devaluations, and they offer worrying echoes of conditions that led to the great depression in the 1930s. Dominique Strauss-Kahn was not joking or exaggerating when he warned the IMF meeting about the dangers that the huge increases in unemployment will pose for our democratic institutions. Yet none of this is referenced in the measures before us today.
Ms Eagle
I remember the detailed discussions that we had on that issue in previous Finance Bill debates. The hon. Gentleman has probably been in more of them than I have. The issue is not the abolition of allowances that are 40-odd years old and increasingly do not recognise the changed shape of UK industry. It is about abolishing allowances completely to fund a cut in mainstream corporation tax, with the result that the incentives for investment are taken away at the point of investment.
One of the measures that the Bill ought to have contained but does not is the creation of a tax relief for the video games industry. We all know in the House that in the UK we have a particular expertise in creating video games, which was beginning to create high-value jobs in the UK in what has become a multi-billion-pound industry. We also know that our brightest software engineers are being tempted abroad by generous and possibly illegal tax breaks, and that we risk the decimation of our UK base if we do not respond. That is why, while we were in government, we developed the video games tax credit, which was to operate along the same lines as the film tax relief. In opposition, just before the election, the Conservative party supported that. On 13 April 2010 the hon. Member for Wantage (Mr Vaizey), now the Under-Secretary of State for Culture, Olympics, Media and Sport, said:
“We are committed to a tax break along the lines of the video games tax credit. We have been calling for tax breaks for the video game industry for the last three years.”
Like so many other things said during the general election campaign, that pledge was abandoned immediately after it. We will want to explore the issue further in Committee.
Before the Minister uses the standard Treasury line about how the video industry can always make use of the research and development tax credits that are available more generally, he might care to put all our minds at rest and deal with the nasty rumours swirling around that the entire R and D tax credit may be at risk in the cuts to come. Perhaps the Economic Secretary will reassure us on that point.
Another notable omission from today’s Bill is any reference to increasing the resources which will allow HMRC to build on its already excellent work to tackle the tax gap. Obviously, as was said earlier, the more that tax due is collected, the more effectively the deficit can be tackled and the less pain our society will be forced to endure during the adjustment ahead. During the conference season the Deputy Prime Minister made much of the need to close the gap between the taxes that are due and those that are actually collected. He made grand and welcome pronouncements that it is “ethically wrong” to avoid paying our taxes. He was followed by the present Chief Secretary to the Treasury who announced, interestingly, that he regarded both tax avoidance and tax evasion as “morally indefensible” in times like these.
Kelvin Hopkins
I agree entirely with what my hon. Friend is saying. PCS, Richard Murphy and others have made the simple point that appointing more tax officers would solve the problem. They collect many times their own salary, and it would be highly beneficial to the Exchequer if that were done.
Ms Eagle
My hon. Friend is well known for his views on the subject.
Neither of the Ministers whom I just quoted revealed just how successful HMRC has been in pursuing this work in the past three years. HMRC increased the yield from compliance interventions by 60% in the three years to 2008-09. However, we all know there is more to be done and we would all support sensible measures to make such work even more effective.
Following all the fuss about that and the headlines generated, I would have expected to see some extra action in the Bill. However, despite the dramatic headline- grabbing moral assertions, nothing has been added to the Bill to signal the Government’s determination to launch a further crackdown. The worry is that the 25% to 40% cuts in departmental staffing due to be announced in the forthcoming spending review will seriously damage HMRC’s ability to maintain its work on improving tax collection, let alone to launch a further successful crackdown on the tax cheats. Again, this is a topic to which we will return in Committee, but I would be grateful for any reassurances the Minister may be able to offer us tonight that the operational capacity of the HMRC in this crucial area will be enhanced rather than decimated in the cuts to come.
Perhaps the hon. Lady can also explain to the House precisely what signal on tax collection the Government intend to send by appointing Sir Philip Green to advise the Prime Minister on Government efficiency. His own tax arrangements include paying a £1.2 billion dividend to his wife, who just happens to be domiciled in Monaco for tax purposes. Although this is not illegal, the Business Secretary has gone on record as saying that he is unhappy about it, and the Energy Secretary has said that it sends the wrong message. Can the Minister explain how this example squares with the Chief Secretary’s grand pronouncement that both tax evasion and tax avoidance are immoral in times like these? Once more, we must look at this Government’s actions rather than their words. Their decisions will be far more eloquent than thousands of well-crafted press releases or any synthetic outrage.
As we await the spending review, it is abundantly clear that the centre of economic and political attention lies not with the Bill but elsewhere. We would have wanted this legislation to contain at least the beginnings of a plan for growth, but it does not. It should have contained some extra and concrete plans to back up with credible action the Deputy Prime Minister’s fine words on the immorality of avoiding taxes, but it does not. In choosing to cut the deficit further and faster than we proposed, the Government have taken a huge gamble with our economic prosperity. A synchronised deficit reduction throughout the developed economies risks plunging the world back into either recession or a Japanese-style jobless recovery. The Irish example should be a salutary lesson to the Government of the risks that they run with their economic approach.
In the meantime, we will look closely at the Bill and take a keen interest in it as it goes through Committee. We will see whether some of the issues that I have raised can appear as amendments during its passage through the House.
Finance Bill
Debate between Kelvin Hopkins and Angela Eagle(13 years, 9 months ago)
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Ms Eagle
I will not give way because the hon. Gentleman has not been here for the entire debate; if he had been, I would have done.
We see in this Finance Bill that the Tory-led Government have made precisely that error with their deliberate, ideologically driven choice to go for a much more aggressive and reckless slash-and-burn strategy for public spending than the objective economic conditions, or even the bond markets themselves, required. The decision to opt for a balanced budget in four years is driven not by the objective economic conditions but by an ideologically driven political belief in a small state, a belief which is now apparently shared by the Liberal Democrats. Similarly, the decision to cut the deficit by imposing a 77% to 23% ratio of public spending cuts to tax rises is a choice driven not by the objective economic conditions but by the same belief in a small state apparently shared by the Liberal Democrats. It is a ratio of pain never before achieved in the UK, and it was not shared with the voters before the election. No mandate for this was established in the general election. Ministers have admitted that the cuts will be painful, but they have failed to acknowledge the scale of the pain that they have chosen to inflict. The apparent relish with which they choose to announce huge and ongoing cuts does them no credit whatsoever, and it will be seared into the memories of the millions of victims of their sadistic fiscal policy for years to come.
The propaganda techniques are chilling. Carefully chosen, extreme examples of excess in public expenditure are leaked by the Government to sympathetic tabloids to be highlighted in screaming headlines and make the case for more cuts. Government websites coarsen the debate still further by parading a stream of ignorant vitriol whipped up by sensationalist reporting, so it is suggested that workhouses are to be reopened, benefit claimants sterilised, and immigrants deported. If this is the nice face of the Tory party, then God help us, and shame on the Liberal Democrats for going along with it. The apocalyptic and absurd scares that they have issued about the UK economy resembling that of Greece—we heard it again today—have been not only fundamentally wrong but deeply irresponsible, and they have risked precipitating the very loss of confidence they purport to avoid.
This Finance Bill signals the biggest and most sustained public spending cuts in UK peacetime history, coupled with increases in taxes such as VAT that will directly take demand out of the economy just when recovery is fragile and still needs nurturing. That is why it is such a gamble. Labour Members are not the only ones who are deeply worried about the choices that have been made in the Bill. Following the Chancellor’s “austerity Budget”, the International Monetary Fund has just cut its growth forecast for the UK for both this year and the next. The OECD has criticised the decision to abolish the future fobs fund and other employment support packages as short-sighted and warned that the scale of job cuts in the public sector will slow down the recovery.
As a direct result of the June Budget and this Finance Bill, the now notoriously named Office for Budget Responsibility has had to revise upwards its estimates of job losses in the public sector. At the same time, it has revised downwards its growth forecasts and hoped that no one would notice that it excluded 550,000 people who work in state-owned enterprises from being in public sector employment, even though the Office for National Statistics classifies them as such: thus public sector job losses are likely to be even higher. The OBR’s prediction that the anticipated “recovery” will generate 2 million extra jobs in the private sector in just five years has caused widespread incredulity, because that target has never been achieved in the modern era. It has certainly never been achieved at a time when huge public spending cuts are likely to dampen employment prospects in the private sector and austerity measures are being imposed simultaneously in almost every developed economy in the world.
Kelvin Hopkins
Exactly the same predictions were made about unemployment falling because of the 1979 Budget—in fact, it went up to 3 million.
Ms Eagle
People should learn from their economic history; I only wish that this Government would.
The OBR’s heroic assumptions about export growth and business investment also strain credibility, but Sir Alan Budd will not be around for much longer to defend his forecasts, whatever happens in the real world. One thing is clear: we cannot all export ourselves out of trouble at the same time. Because world trade has been so badly impacted by the global credit crunch, the UK has experienced a 25% devaluation of its currency without any noticeable upturn in export performance. Prime ministerial trips to China accompanied by huge cuts in Government support for new industrial activity in the UK do not seem to be the right response to this challenge.
The Finance Bill contains no strategy for growth, yet growth is the best way of dealing with any deficit. In place of a growth strategy, we see a pious, dogmatic belief—often restated today—that the private sector will miraculously spring to life and fill every space vacated by the Government. This is in the teeth of massive private sector deleveraging, damaged confidence and an ongoing lack of affordable bank lending. The huge hike in VAT will damage demand at a crucial moment. This is an example of blind economic faith—it is not a serious growth strategy. The Bill contains no hint of an alternative if this blind economic faith turns out to be misplaced. There is no fallback position if the economic gamble that the Chancellor has outlined starts to go wrong. How high will unemployment have to rise before the Chancellor looks again? Why, once more, is unemployment a price worth paying?
Finally, I want to look at who is paying for the measures contained in the Finance Bill. The Chancellor has repeatedly asserted, “We’re all in this together”, but we have to judge him by his actions rather than fine words, and his assertion of social solidarity turns out to be a cruel joke. The Finance Bill and Budget measures are regressive, not progressive. They hit the poorest hardest. The VAT hike is the regressive centrepiece of a regressive budget. The stealth move from retail prices indexation to consumer prices indexation for all benefits and all pensions takes £6 billion in savings from the poorest and most vulnerable and gives at least £50 billion, and possibly £100 billion, to employer pension schemes, at the risk of employee representatives. The losses mount year on year, for ever into the future.
Analysis has shown that the Budget takes a massive 21.7% of income from the bottom 10% of the income distribution and a mere 3.6% from the top 10%. My right hon. Friend the shadow Secretary of State for Work and Pensions has shown that of the £8 billion net revenue raised by the measures before us, £6 billion will be raised from women and children, with only £2 billion being raised from men. Like Flashman in a tight spot, the Chancellor has chosen to put women and children first. He has put them first in the firing line, bearing the brunt of his tax rises and spending cuts.
This Finance Bill takes a huge gamble with our still fragile economic recovery. It gambles that a vicious bout of self-inflicted austerity will not tip us back into a recession or a long period of low growth, and that we will be able to export our way into growth at a time when a globally synchronised austerity signals otherwise. It is regressive, threatens social cohesion and hits the poorest hardest, and we cannot support it.
Finance Bill
Debate between Kelvin Hopkins and Angela Eagle(13 years, 10 months ago)
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Ms Eagle
Thank you, Mr Deputy Speaker. I was just mentioning the speech by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East—I cannot pronounce the name of his constituency very well, but it is definitely in Scotland. He made a superb speech about the political nature of economics and the attempts that have been made to hide what are basically political choices by describing them as economic imperatives that are somehow objective. He exposed what he called superstitions and myths around that whole area and demolished a lot of the arguments that the Government have been making to justify the Budget judgment in the Finance Bill. In particular, he talked with great wisdom about the paradox of Government thrift, which he pointed out is completely unlike budgeting for households. I look forward to many more such contributions from him as the Bill goes through its stages on the Floor of the House.
My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) also made a good contribution, which I particularly welcome because I enjoyed canvassing with her during her election campaign. She is already well-loved, liked and respected in her constituency. She asked an important question that the House would do well to bear in mind as we consider the policies and legislation before us: where is the justice in the Budget measures, which will hit the poorest hardest? My hon. Friend the Member for Wansbeck (Ian Lavery) pointed out the perverse glee he perceived among Liberal Democrat and Conservative Members over the pain that will be inflicted through the Budget and this Bill. His speech demonstrated the human face of public sector workers, many of whom have found their reputations decried in the newspapers, and the jobs and the contribution that public sector workers make to our society belittled.
My hon. Friend the Member for Bishop Auckland (Helen Goodman) observed that the Budget judgments are very optimistic on jobs and, in particular, growth prospects, and she highlighted the impact on work incentives of some of the policies and Budget changes in the Red Book.
Kelvin Hopkins
My hon. Friend talks about the judgments and forecasts. I remember, some 20 years ago, the Tories’ favourite forecasting organisation was the London Business School, which The Sunday Times gave 0 out of 10 for its forecasts because they were always completely wrong. Does she think they are wrong on this occasion as well?
Ms Eagle
Time will tell, although there is not widespread acknowledgment in the economic profession that some of the Budget forecasts are right—there is controversy about them. This will play out, however, so we will be able to see who is right in due course.
My hon. Friend the Member for Luton South (Gavin Shuker) talked about the balance of risk in the Budget and the worries about problems with infrastructure investment, the fact that it is being cut in his constituency and the implications for employment incentives. My hon. Friend the Member for Brent North (Barry Gardiner), with his characteristic ingenuity, managed to bring Harry Potter into our Budget deliberations, pointing out that our choices define who we are. I thought there was going to be a fight between him and the right hon. Member for Uxbridge and South Ruislip (Mr Randall), who has, I suspect, enjoyed rather a liquid evening. He was dragged off before anything more untoward happened.
My hon. Friend the Member for Pontypridd (Owen Smith) pointed out the wrong-headedness of the crowding out of private sector investment theory that underlies some of the judgments encompassed in the Bill.
My hon. Friend the Member for Derby North (Chris Williamson) made an extremely good speech about the seriousness of the Budget choices and made a good argument that they are wrong in this case.
Today has been quite an interesting day because of what has been happening in the Office for Budget Responsibility as we have been debating the Finance Bill. As we were coming into this debate, it was suddenly announced that Sir Alan Budd, who has become the oracle in the past six weeks, had decided to retire and leave the OBR after a mere three months in charge. That startling piece of information was played down by the Treasury, as one would expect, but it did prevent the Chief Secretary to the Treasury from praying in aid at every verse-end the forecasts that the OBR has produced to justify some of the policy decisions in the Budget.
The official line is that it was all planned in advance—that Sir Alan was always going to be away after he had set up the OBR—and that, somehow, nothing untoward has happened. However, I would be interested to know whether the Minister responding to the debate tonight can cast any further light—in the interests of transparency, of course—on what on earth has been happening with the OBR and, in particular, with Sir Alan Budd.
Ms Eagle
These are issues to which I am sure we will return when the Bill establishing the OBR on a statutory basis comes before the House. However, following the farrago that we have seen, it is important that this House should establish the principle pretty quickly that the head of the OBR should be appointed by this House and be answerable to it. When the Bill establishing the OBR is published, I certainly hope that it contains that provision.
Kelvin Hopkins
I have a suggestion: might it not be a good idea to appoint Professor David Blanchflower as the head of the OBR?
Ms Eagle
I am sure that the newly elected Chair of the Treasury Select Committee will make up his own mind about that, but it would be interesting to see whether Sir Alan would actually appear before any such inquiry, whether or not he were still in his job.
We have seen a steady unravelling of the central claims contained in the Budget since it was first unveiled to the House just 15 days ago, on 22 June. It was billed as the unavoidable Budget, and this is the legislation that has come from it. The Budget strategy and judgments were presented by the Chancellor and his spin merchants as infallible. The choice that he made was to cut the deficit further and faster, and that was offered as the only possible option. That is why these measures are before us today in the Bill, particularly the VAT increase. The neo-liberal economic ideologues who have seized control of our economic policy are in the grip of their narrow-minded dogma, and they will contemplate no alternative.
In truth, a highly risky political gamble is encompassed in this Bill—and it is a gamble with our social and economic well-being. The Government have made a political choice to eliminate the entire structural deficit by 2014-15—hence the revenue-raising measures in this Bill. This goes further and faster than even the Tory party promised in its election manifesto, and it is certainly against the explicit judgment on the dangers of cutting spending too soon, which was a prominent part of the Labour and Liberal Democrat manifestos. This worry about the macro-economic risks of targeting the deficit above every other consideration by speeding up its elimination is well represented in the mainstream economic debate, even if it has not featured at all in the Government’s calculations.
The Budget judgment before us tonight is not just pre-Keynesian; it is actually Hooverite. It is not an economic, but a political and ideological, imperative being pursued in this Finance Bill. This is not an unavoidable Budget, but a huge and risky gamble with the recovery. According to the Chancellor, the overriding problem for our economy now is how the bond markets might react to insufficient austerity.
The fact that the deficit hawks have taken over in the European Union and in the G20 does not make their addiction to synchronised fiscal pain any more desirable than it was in the 1930s. It does make it fashionable, but it still may not work. The fact that these huge cuts in demand will be synchronised also increases the dangers of this policy from a macro-economic point of view. There is increasing evidence that the markets are now beginning to worry about the prospects for growth and the likelihood of a return to low or no growth, Japanese-style.
This was also billed as the emergency Budget. It had to take place immediately after the general election, according to our increasingly melodramatic Chancellor, to avoid catastrophic disruption in the bond markets, threatening the very future of our nation. Nothing matters, it seems, except the deficit. Jobs do not matter and unemployment is a price worth paying. The risk to our social fabric does not matter; it can be dismissed as long as the deficit is eliminated.
We all agree that the deficit has to be tackled, and we had set out a path to cut it by 68% by the end of this Parliament. This was prudent and was far less risky to the recovery than the hazardous path that Government parties have now chosen. How odd it is, then, that the result of all the hype about the economic emergency is a very tiny Bill. We have before us an 11-clause Finance Bill; it is just 26 pages long, and nine of them are superfluous because they are reprinted virtually word for word from the VAT section of the Finance Bill 2009.
Kelvin Hopkins
My hon. Friend is absolutely right to warn against the dangers of deflation, which are much more worrying than anything to do with inflation. Is it not even more worrying that the EU nations have collectively decided to cut their deficits, which will just make the problem even worse? Should we not follow the advice of President Obama, who suggested that we still need the fiscal stimulus?
Ms Eagle
There is certainly a respectable mainstream economic argument that synchronised austerity is worse for growth and could achieve the opposite of its intended effects on the deficit by increasing rather than decreasing it. My hon. Friend is exactly right.
Here we have this tiny Bill of 11 clauses. After all the hysteria surrounding its creation, why is it that size? I think there is only one plausible explanation. The Bill before us contains just those measures that the Chancellor must be worrying that the Liberal Democrats will wobble on over the summer recess. I would be the first to admit that size is not everything, but we might reasonably have expected that a more complete set of measures would have been forthcoming if we really were in the emergency economic crisis about which the Chancellor has spent the last few weeks irresponsibly stoking up hysteria. Instead, we have a first instalment of the Finance Bill that has been especially designed to padlock the Liberal Democrats into the coalition so that they cannot get out and cause a mess over the summer. Looking at those on the Government Benches, I have to say that some of them seem to be more willing hostages than the others. The twitching has definitely begun somewhere over there, and we intend to encourage that as the Bill continues its passage through the House.
Other differences between the Government’s rhetoric and the grim reality have become clearer in recent days. We were promised a fair Budget: the Chancellor insisted that we would all be in this together. The Budget, we were told, would be progressive, not regressive, with tax rises evenly distributed among income groups. There would be progressive cuts. The pain of spending cuts would somehow be fairly spread, with the rich bearing their fair share as we all marched together towards the establishment of a zero deficit. One by one, those loud assertions have proved to be utterly false.
In an interview in the News of the World on 13 March, before the election, the Chancellor said:
“We are all in this together. I am not going to balance the budget on the backs of the poor”.
Then, on Budget day, he made great play of calculations about the effects of his measures which purported to show that he had delivered on that promise. On closer inspection, however, those assurances dissolved into empty Budget spin. [Interruption.]