Amendment of the Law

Martin Horwood Excerpts

Thursday 24th March 2011 Commons Chamber

[Chris Williamson]

That is a point that I will come to later in my speech.

The Chancellor is presiding over the highest and longest squeeze on public spending since world war two. My fear is that the Budget and the unprecedented cuts being pursued by the Government will impede economic recovery. As my hon. Friend said, the Chancellor refuses to accept that there is an umbilical link between the public and private sectors. Taking an axe to one causes catastrophic bleeding in the other. Last year’s PricewaterhouseCoopers report highlighted that connection admirably in pointing out that the half a million job losses in the public sector will be replicated in the private sector.

[Martin Horwood (Cheltenham) (LD)]

Will the hon. Gentleman give way?

[Chris Williamson]

No, I will not give way any more.

This Budget does little or nothing to ameliorate the public service cuts. The cuts to local council budgets in particular are vindictive, gratuitous and counter-productive. The Department for Communities and Local Government budget is set to experience a whopping real-terms reduction of 67.8% over the next four years.

The Chancellor needs to create demand in the economy. My hon. Friend the Member for Coventry North West (Mr Robinson) referred to the importance of the construction industry. Every pound invested in construction generates £2.84 in total economic activity, and 92p of every pound spent on construction is retained in the UK. Every pound invested by the public sector yields a return of 56p to the Exchequer, making it a net investment of just 44p. In spite of those facts, house building is at an all-time low, Building Schools for the Future was scrapped and housing targets have been abolished. The £250 million announced in yesterday’s Budget to support first-time buyers is not enough.

The proposed changes to the planning system, which as the Chancellor said will introduce a presumption in favour of sustainable development, contradict the proposals in the Government’s Localism Bill. What is going on? On the DCLG website, the Minister of State, the right hon. Member for Tunbridge Wells (Greg Clark), who has responsibility for decentralisation, is quoted as saying that the Localism Bill

“will enact new rights allowing local people to shape and influence the places where they live, revolutionising the planning process by passing power down to those who know best about their neighbourhoods.”

A Budget briefing from the UK Contractors Group states that

“it has been much harder to obtain definite information on investment intentions from a number of key public sector clients. Indeed, there appears to be some deliberate attempts to delay decisions and to obfuscate on forward plans. A prime example of this is the future of the school building programme. The Sebastian James review was originally scheduled to report to ministers before Christmas. In March, we are still waiting for the Department for Education to signal its intentions. Equally on energy supply, the industry stands ready to support the enormous amount of investment needed but to deliver this support effectively and efficiently we need a clear understanding of the future programme.”

It goes on to say how the health reforms have caused further confusion.

I turn to the Chancellor’s modest reduction in fuel duty. As other Members have said, it is more than offset by the imposition of the VAT rise. I have been lobbied heavily by small businesses and residents in my constituency, who say that the VAT rise on petrol is hurting and needs to be reversed. It is not acceptable for the Government to argue that they are prevented from doing so by the European Union—that simply will not wash.

--- Later in debate ---

[Mr Bailey]

I thank the hon. Gentleman for that intervention. For personal reasons, I could not join the Committee’s visit to China. However, he put those proposals to me forcefully, and I have spent the morning with the appropriate Ministers pressing that very point, because a lot of damage has been done. We need to rectify it if we are to realise any of the potential in the document.

On the localism agenda, noises were made in the Budget about improving planning for local businesses. Despite the fact, however, that the Localism Bill places planning priorities in the hands of local communities and neighbour planners, the local organisations set up by the Government—the local enterprise partnerships—have no defined role in that. I do not understand how we can have a legal process for devising planning programmes locally without incorporating the representatives of the local business community. There is enormous concern among the business community about the potential damage that that could cause.

[Martin Horwood]

Will the hon. Gentleman give way?

[Mr Bailey]

I am sorry but I am not taking any more interventions, because a lot of Members want to speak.

There are a number of measures that in themselves might be good, but which I do not think address the scale of the problem created by the Government’s macro- economic policy. First, research and development tax credits are very welcome. Business has been pushing for them, particularly in high-quality manufacturing, but at the end of the day they will affect only a few thousand businesses. They are very welcome but will not in themselves transform the economic landscape. Entrepreneur reliefs are also welcome, but they affect only a few hundred people. National insurance holidays for start-ups were announced some time ago, but so far only some 1,500 of the 400,000 that it was thought would apply have done so. The Government need to look at that again.

I have mixed feelings about enterprise zones. There will be one in my area, which I very much hope will work—I will certainly be working with the black country business community to ensure that it does. However, the reality is that enterprise zones are a recycled policy from the 1980s, which was not even very successful then. Indeed, those fears were expressed yesterday by the hon. Member for Chichester (Mr Tyrie), the Conservative Chair of the Treasury Committee. If the policy is to succeed, we have to prevent existing businesses from relocating just to pay less tax, while not necessarily employing more people. I am concerned that we may end up trying to prevent that by incorporating a lot of regulations that will defeat the purpose of having enterprise zones in the first place.

Although there are some measures in the plan that are good, they are not sufficient to address the core problem of the macro-economic policy that undermines them. They are hot on rhetoric, but they will not deliver very much, I am afraid—although my Committee will be probing and supporting those that can.

--- Later in debate ---

[Jesse Norman (Hereford and South Herefordshire) (Con)]

I speak not merely as a member of the Treasury Committee but on behalf of tens of thousands of working people in my county of Herefordshire. It is a county where the average income is £21,000, where residents face the very high costs of living in a rural area—especially for fuel and transport—and where there is a very high relative number of small businesses. These are real people putting in the hours to support themselves and their families at a difficult economic time.

I welcome the Budget and especially several measures that will have a direct impact on the well-being of my constituents. The first is the cut in fuel duty, which we have pushed for very hard with the Treasury. The second is the rise in the income tax threshold, which will take many Herefordians out of income tax all together. The third is the support for small businesses and entrepreneurship; for apprenticeships; for local housing; for the university technical colleges; for the green investment bank; and, finally—a measure that is perhaps as important as any of those—for filling in potholes, an area in which Herefordshire rather specialises.

The Budget marks a further decisive step in dealing with the disastrous legacy of the previous Government. We know the brute economic facts, but it is important to remind ourselves of the wider picture: that this country now faces paying nearly five times more in debt interest every day than it does on care for the elderly; and that we have, in addition to the disclosed public debt numbers, £200 billion-plus of off-balance sheet debt for the private finance initiative. The wider story, however, concerns the atmosphere of unreality on the Labour Benches, and particularly on the Front Bench, which one might describe as a fog enshrouding planet Balls.

The intention seems to be to rewrite history and to deny, as the shadow Chancellor did today, the fact that in 2007-08 the previous Government created a 3% budget deficit at a time of 3% economic growth—a structural deficit that had existed at that point for seven years. It is unrealistic to pretend that America and Germany are parallel cases to ours in terms of economic recovery. America has the global reserve currency in the dollar and therefore has a far greater intrinsic ability to inflate its way out of trouble, and Germany has benefited massively over the past year or two from the expansion in the American purchasing of industrial goods. Their situations are not parallel to ours. The truth is that our economy is grossly unbalanced and that that is what exposed us to the situation we find ourselves in.

Also unrealistic is the Opposition’s refusal to acknowledge the weight of expert opinion supporting the present policy, including from the G20, the IMF, the OECD, the US Treasury Secretary and even Tony Blair. The Bank of England testified only a couple of weeks ago that without the current austerity measures, our borrowing costs would be 3% higher. Given the amount of refinancing we have to do over the next two or three years, that implies additional borrowing of some £10 billion. If one has any doubts about this issue, one need only look at Portugal, which is close to economic meltdown.

Finally, we have the shadow Chancellor’s denial, which we heard again today, that any deficit ever existed. As they say, “De Nile is not just a river in Egypt.” [Interruption.] I am in town all week! Labour’s strategy has been pretty clear: ignore economic reality, disavow the previous Chancellor’s own plans to make cuts and increase taxes, attack the coalition wherever possible and hope the voters do not notice. The result has been a refusal to articulate any constructive, concrete proposals at all. I note the contrast with the Republicans in the US, who have opposed the Democrats with great vigour. Whatever their personal merits, the fact is that the Republicans in Congress have created positive alternative plans that have to be debated. That is in sharp contrast to the actions of the Opposition in this House.

The truth is simple: this country has suffered the biggest economic shock since the great depression. It will take years to recover fully from that shock and the world’s economic system remains very fragile. The USA took slightly longer than a decade to rebuild after the great crash of 1929. Japan started to recover from the asset-based deflation of the early 1990s only a few years ago and it will be a doubly cruel blow if the earthquake sets back its recovery any further. The idea being pushed by the Opposition that this Government are in any way responsible for the current economic mess is laughable.

[Martin Horwood]

The hon. Gentleman makes a powerful case about the Opposition’s economic strategy, or lack of one. Does he agree that what they might also have done is risk an increase in interest rates that would have hit everyone with a mortgage, everyone with an overdraft and every new business seeking to borrow?

[Jesse Norman]

I thank the hon. Gentleman for that intervention. It is certainly true that if we had higher borrowing costs and a tighter monetary policy, interest rates would be higher, mortgage rates would be higher and the average mortgage holder and household would be suffering considerably.

I welcome the fact that the Budget is a reforming Budget that has not shied away from taking difficult long-term decisions, such as the proposals to merge income tax and national insurance. A properly functioning system of social insurance could have been a very fine thing—indeed, that was what Beveridge originally anticipated—but the system has been allowed to slip away from the contributory principle into a disguised income stealth tax. The new reform will bring home to people just how heavily they are taxed and will encourage them to demand better public services for their money.

In short, the country is emerging from a time of fake capitalism that was matched by fake government—a time when Fred Goodwin could destroy an august 200-year old financial institution, squander billions in shareholder value and then walk away with a fortune and have a Minister sign off on his pension. The economy became grossly unbalanced in that time and executive compensation soared both inside and outside the financial sector with little or no relation to performance. It was a time of increased complexity, short-termism, bureaucracy and regulation. As every Herefordian knows, what we need now is real capitalism, with real people taking real risks, investing real time in real work and reaping real rewards for their efforts, and this Budget is a very important step in that direction.

[Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)]

The Budget was billed as a Budget for growth, which my constituents wanted and the Sunderland economy needed, but it is not a Budget for growth. In fact, it is a Budget in which the Chancellor has had to admit that he is failing to create growth. What is growing after this Budget and the tax and spending announcements of the past 10 months? I will tell you, Madam Deputy Speaker, what is growing: the Chancellor’s nose. It is the dole queues that will be growing, with all the projected job losses. The cost of living will be growing, with the Government’s regressive VAT hike, which hits the poorest families hardest. The number of young people not in education, employment or training will be growing, due to the scrapping of the future jobs fund and the education maintenance allowance.

[Martin Horwood]

Will the hon. Lady give way?

[Mrs Hodgson]

Not at the moment.

John Campbell from Washington e-mailed me yesterday. He currently receives £30 a week in EMA to support his studies. He asked me what support he would now get. I cannot answer, because Ministers have not told us yet, despite repeated hints from the right hon. Member for Bermondsey and Old Southwark (Simon Hughes). I share the disappointment that he will no doubt have felt yesterday. Students are making choices about their future now. How can they do so while this silence persists?

We heard that the Chancellor will lift the tax-free allowance by £630 in 2012. I am sure that those of my constituents who will be lucky enough still to have a job this time next year will be very grateful for the extra 92p a week they will get. Perhaps they could use it towards the increased prices of their weekly shopping and energy bills, or to offset their loss in tax credits or frozen child benefit. What this Chancellor gives with one hand, he takes away many more times over with the other.

I remember, as I am sure do my hon. Friends, the furore in 1999 when the Government of the day announced an increase in the state pension of 75p a week, which was widely decried as an insult, despite being part of a wider package of measures that included the introduction of the winter fuel allowance and free TV licences. I checked with the Library this morning and found that 75p in 1999 is equivalent to around £1.05 today, which is 14% higher than 92p. Using that reasoning, the Budget’s increase is an even bigger insult. The right hon. Member for Havant (Mr Willetts), who was shadow Minister for social security, asked my right hon. Friend the Member for Edinburgh South West (Mr Darling) at the time whether he felt guilty about cutting taxes for business at the same time as making such a derisory offer. I wonder whether the right hon. Member for Havant feels guilty today.

--- Later in debate ---

[Ian Murray (Edinburgh South) (Lab)]

There was so much and yet so little in yesterday’s Budget that could be talked about this afternoon, but I will concentrate on the growth section.

The first line of the foreword to the Government’s document, “The Plan for Growth”, states:

“This Plan for Growth is an urgent call for action.”

At last, after almost a year of the coalition Government, they have finally realised that hard-pressed businesses and families up and down this country need an urgent call to action for growth. However, I do not see a call to action for growth in cutting public spending too deep and too fast; the highest unemployment since 1994; the highest youth unemployment since records began, with no plan to get it down; inflation on the march, with the retail prices index at its highest level in 20 years; the largest squeeze on living standards in modern times; increasing VAT to 20%, which puts more pressure on consumer confidence and further compounds business insecurity; a continued lack of liquidity in lending markets through our banks; fuel prices that are out of control; consumer confidence at its lowest level in more than 20 years; and an overwhelming, ideologically driven attack on public services. That is certainly hurting people in my constituency, but it definitely is not working. We have all that, and the real effects of the VAT increase and the public sector job losses are still to feed through to the real economy. This does not seem to me to be a call to action for growth; it is no plan for growth, or perhaps a panic plan for growth.

That point is made clearly by the Office for Budget Responsibility, the independent body set up by the Chancellor, which we debated a few days ago in this Chamber. Even after the Chancellor’s “Budget for growth”, which, to use his words, should add fuel to the economy, the OBR has reduced its growth forecast for this year and next year, as it did last year. It is surely a huge embarrassment for the Chancellor that his Budget for growth actually downgrades growth. It is extraordinary that it does, given the urgent call for growth in the Government’s own document and the Chancellor’s own words that it would be a Budget for growth. This must be a historical first.

The Chancellor has failed to realise that cutting too deep and too fast is damaging our economy. The public and private sectors are inextricably linked. Slow growth and rising unemployment will make it harder to get the deficit down. The move from 2.1% to 1.7% is a reduction. Unemployment has been revised up to 8.2%. As someone said to me at my surgery a few weeks ago, “How can you possibly pay back debt from the dole queue?” They were absolutely right.

[Martin Horwood]

In its submission to the comprehensive spending review, the hon. Gentleman’s party suggested that the cuts in unprotected Departments should be no more than 20%. What the Government actually delivered was only 19%. Does he think Labour’s proposed cuts were going too far and too fast?

[Ian Murray]

I find it surprising that the Liberal Democrats always jump to their feet during these debates and throw out statistical analysis of stuff that is, quite frankly, not true. The Liberal Democrats’ leaflets from the general election, which I still leaf through, tell me time and time again that they supported what we were doing on the economy, that the banks were all to blame, that VAT would not have to go up and that employment was the key to growth. The Secretary of State for Business, Innovation and Skills said that to Jeremy Paxman after the general election.