Office of Tax Simplification

Matt Hancock Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Gauke]

We have not taken a view on that yet. We have to understand what the role of the OTS will be—to publish recommendations that will be, by necessity, in the public domain. People can debate those matters, which we think is a valuable purpose in itself. Whether the Treasury Committee needs to endorse every appointment made by the Government is a debate that we should have.

[Matthew Hancock (West Suffolk) (Con)]

Is the Minister aware that one tax expert has described the “Gauke doctrine” as one of the most important changes in improving the competitiveness of our tax system—so long as it is delivered properly? Will he assure me that the Government will work to ensure that what has been put down on paper in the Budget will be delivered properly over this Parliament?

Finance Bill

Matt Hancock Excerpts

Thursday 15th July 2010 Commons Chamber

[Justine Greening]

I would have thought that the hon. Gentleman was so intelligent that he could do the maths himself. The calculation is pretty straightforward. It is a bit like doing a tax calculation where someone has an allowance and then a rate, and they apply it to the excess of the allowance that they are paying in extra.

[Matthew Hancock (West Suffolk) (Con)]

Does my hon. Friend remember a distributional table ever being placed in a Budget under the Labour Government?

[Justine Greening]

I have no recollection of that, but I will not take up more of the time of the Committee. The last figures that I set out probably spoke louder—

Oral Answers to Questions

Matt Hancock Excerpts

Tuesday 13th July 2010 Commons Chamber

[Mr Hoban]

The hon. Gentleman forgets the measures in the Budget that will increase employment opportunities —the cut in national insurance contributions, the tax break for new businesses, which will benefit businesses in his constituency, and the reduction in red tape. All those measures are geared towards improving the prospects of private sector growth in our economy. We need the economy to be led by the private sector.

[Matthew Hancock (West Suffolk) (Con)]

Given that sustainable employment can be supported only by dealing with the deficit, was the Minister grateful for the support of the shadow Chancellor, who said at lunchtime on the subject of raising VAT:

“I don’t have a philosophical problem with that”?

[Mr Hoban]

It is interesting to hear about views expressed after the election, which were kept silent before the election. We took the difficult decision in this Budget to lay the foundations for growth in the future and make sure that we pay the bills of the past. Sadly, that included the increase in VAT.

Finance Bill

Matt Hancock Excerpts

Monday 12th July 2010 Commons Chamber

[Stephen Timms]

No, we were successful in maintaining a competitive business tax system in the UK. It is true, of course, that if a company goes to Ireland, it will pay a much lower rate of corporation than it would in the UK, but that rate of corporation tax in Ireland is lower than in any G7 country. Our commitment was to keep the UK’s corporation tax rate the lowest in the G7, and that is what we successfully did. It was important that we did so.

There is debate about whether the £40 billion figure is correct. I believe that HMRC did a serious and careful analysis. I also think there should be more discussion with people such as Richard Murphy. I believe his figure for the tax gap on corporation tax was about £12 billion—not vastly more than the £9 billion or so in the HMRC figure. Richard Murphy also makes the point that there is uncertainty—perhaps more uncertainty—about that figure than some of the others that he estimates. Continuing discussion between people such as the tax justice campaign and HMRC is important so that we make these figures as accurate as possible. I very much hope that the Minister will confirm that it is his intention regularly to update the analysis that has been published, to be frank and robust in publication and to discuss the issues with the tax justice campaign, which takes a different view, and the TUC, which has also taken a close interest. Ultimately, it is in everyone’s interest to have the best possible information available. I hope that the Minister will reassure us on that.

[Matthew Hancock (West Suffolk) (Con)]

The right hon. Gentleman has just admitted that since 1997, in respect of avoidance or evasion of corporation tax, the tax gap was reduced by only £3 billion. Does he not agree, then, that it is wrong to go around the country telling people that the entire deficit could be dealt with if we just got to grips with this one issue? It is, of course, important to get to grips with it, but it will not on its own resolve the deficit. Is it not wrong to tell people that it could?

[Stephen Timms]

I am sorry if I misled the hon. Gentleman into thinking that the figure was reduced by only £3 billion as result of the previous Government’s efforts. I did not say that at all. I would be happy to go through in more detail the efforts of the previous Government on this issue, but the crucial initiative was the disclosure regime, which we introduced in 2004 to great howls of protest, yet it has undoubtedly saved many billions in tax that would otherwise not have been collected. The total figure is certainly a great deal more than £3 billion. As to whether addressing this problem could be the sole solution to the problem of the deficit, however, I agree that it could not.

--- Later in debate ---

[Chris Leslie]

Indeed, I think there is a set of unfairness issues that affect not only public services and our constituents, but business to business. Many small businesses will be incredulous at this giveaway to the banks, which are having their corporation tax cut. HSBC’s own banking analysts agreed that they would be better off. One of them was quoted in the media as saying:

“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-Budget.”

Analysts at Redburn Partners said that Lloyds in particular would see a 3% rise in its earnings per share by 2012, especially as corporation tax is planned to be reduced to 24% over time. The measures in this Bill make only a 1% change in that tax from 28% to 27%, but as the years pass the banks’ gains clearly will accrue and become even greater.

It was no coincidence that the share prices of some of our leading banks leapt after the Budget statement, even though, paradoxically, it included a banking levy that they supposedly feared. Lloyds shares gained 2.7% the morning after the Budget, and others were similarly jumping for joy. The Daily Mail—a journal of great repute—reported that a city insider was privately very happy, saying that

“some banks will have a feeling of glee at the way this has worked out. But none would be stupid enough to say anything openly.”

It will be for the Minister to defend this measure of course, and I look forward to hearing him explain why, of all institutions, the banks deserve this windfall at this time.

The interplay between the banking levy and the impact of the corporation tax cuts must be at the heart of our considerations this afternoon, and I am glad that my Front-Bench colleague my right hon. Friend the Member for East Ham (Stephen Timms) and the hon. Member for St Ives (Andrew George) have tabled amendments that also seek to probe that issue. My amendment would have the effect of not passing on the corporation tax cut, and theirs’ would insist that at the very least the Treasury conduct a review of these matters.

My concern remains that the banking levy was set at far too low a rate—starting at 0.04% and rising to the heady heights of 0.07%. I gather that might even be about half the level at which the Americans set their banking levy. The notion that this was all done internationally at the same level is absolutely not the case. For some bizarre reason, the Chancellor really held back. He made great play of this levy in the Budget statement because he knows the general public are angry about the situation the banks have left in this country. They are furious that the banks were the source and cause of many of our national debt problems and the deficit we face today. I am glad that the Government say at page 26 of the Red Book that they will consult on the final details of the banking levy, and I urge the Minister to think carefully about how that levy will play in relation to the corporation tax reduction, because if the banks are gaining from that, it must be possible to ensure that they pay their fair share at some point .

[Matthew Hancock]

Does the hon. Gentleman regret his party’s position before the last election, which was that we should not have a banking levy unless everywhere else in the world signed up to it? Does he therefore applaud the current Government’s leadership in unilaterally putting forward a bank levy?

[Chris Leslie]

I may be wrong, but it is my recollection that a number of countries simultaneously came out with their banking levy arrangements, on the continent as well as America, and it was, of course, the natural point at which to introduce a banking levy. It is a matter of nuance whether we get a collection of large industrial countries to act simultaneously or we act on our own as a country, but I think it is necessary to have a banking levy that recoups all the payments that the banks took from our taxpayers.

--- Later in debate ---

[Chris Leslie]

I am delighted that that hon. Gentleman is thinking about supporting the amendment. That is incredibly important and a good step forward. I genuinely welcome his support this evening, because this could be a close-run thing. I have made an assessment, as far as I can as a humble Back Bencher. My assessment is that there are hundreds of millions of pounds at stake here that the banks could be gaining. However, I also support the amendments grouped together under this clause. We need the Treasury to undertake an urgent assessment. If the Minister says that he accepts the principle of my amendment but that he wants to do more work on it to get the details right, I would, like him, be happy to consider my position on pressing this amendment.

[Matthew Hancock]

Does the hon. Gentleman have any evidence to suggest that the reduction in corporation tax on banks would offset the £2.5 billion to be raised by the bank levy?

[Chris Leslie]

Yes I do, and at the outset of my comments, I quoted a series of highly professional and well-respected analysts from across the City of London. They were saying that this was a “good outcome”, that there would be “a feeling of glee” about the Budget measures, and that they expected

“most domestically-orientated banks…to be better off after four years”.

It is important to remember that the £2.5 billion supposedly gained from the banking levy is obtained only as it progresses to years four or five. At the outset, it generates an exceptionally small amount of revenue—I believe the figure is less than £1 billion.

[Matthew Hancock]

Can the hon. Gentleman supply any evidence that the corporation tax cut is larger than the £2.5 billion to be raised by the bank levy, because none of the things that he read out was evidence of that?

[Chris Leslie]

If some analysts, who on the secondary evidence before me are saying publicly that they believe that the corporation tax—

--- Later in debate ---

When people who are going to face higher rates of VAT and other taxation realise that this money is going to be given to the banking sector, they will find it very difficult to understand. Earlier, it was said that the banks will not get back all the money taken off them by the levy—no, but they will get a large portion of it back. [Interruption.] I will give way to the hon. Member for West Suffolk (Matthew Hancock) if he wants to intervene. Is he suggesting that they should get the money back pound for pound? If we are talking about rebalancing, it is not much of a rebalancing act to take money away from them at one point and give the majority of it back through the back door.

[Matthew Hancock]

I thank the hon. Gentleman for inviting me to intervene. He has just admitted something that the hon. Member for Nottingham East (Chris Leslie) could not deny, but did not admit. After this Budget, because of the banking levy, the banks will be paying more tax relative to other sectors of the economy, and that is stated on page 26 of the Red Book. I am very grateful for that important admission.

[Mr Jones]

No, I am sorry, we do not admit that. I am not sure what point the hon. Gentleman is trying to make or whether when he went into the general election in May, he had on his election leaflets, “Yes, we will be tough on banks for the rhetoric in the lead-up to the election, but if we get into power we will do a con trick where we take the money with one hand and gave it back with the other.” If, as the hon. Member for St Ives said, we do not know what the figures are, that makes it worse. We are asking the public to take severe cuts in public services and higher taxation, while at the same time the people who are still being paid high bonuses will get money back. That was reflected in a comment made earlier about the increase in bank share prices that took place once the Budget had been announced.

--- Later in debate ---

[Matthew Hancock]

The right hon. Gentleman may have misheard my earlier comment. Can he be surprised about the Chancellor’s comments when page 101 of the Red Book states that the bank levy raises £2.5 billion and the corporation tax cut in 2013-14 will cost £700 million? It is therefore no surprise that the bank levy raises more than the cut in corporation tax to the banks. That is precisely the point that I made earlier.

[Stephen Timms]

I am not sure about the figure of £700 million. I hope that the hon. Gentleman is not telling us that the reduction in corporation tax will decrease that tax take by £700 million. That is incorrect—perhaps he was citing a partial figure. However, that is why we need a report. I would genuinely like to know the impact specifically on the banking sector of a four percentage point reduction—it was not long ago that the banks accounted for a quarter of all the corporation tax receipts that the Exchequer collected—compared with the £2 billion cost of the levy.

--- Later in debate ---

[Matthew Hancock]

I shall keep this contribution extremely brief, given the hour. I was surprised by some of the arguments made by Opposition Members. I am not all that surprised that the right hon. Member for East Ham (Stephen Timms), the shadow Minister, does not support amendment 21, which was moved by the hon. Member for Nottingham East (Chris Leslie), not least because before the election he said we would need any bank levy to be globally agreed. Indeed, the current shadow Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), said:

“Countries can’t go it alone. It is very important that we do this internationally”.

Conservatives and Liberal Democrats campaigned during the election for a unilateral bank levy, no matter what happened in the rest of the world, so it is not surprising that we do not listen to Opposition Members who argue that they are now in favour of one. They have performed a U-turn in an extremely short time.

Another point I want to make is that the shadow Minister said that his party’s policy is that corporation tax should be the lowest in the G7, but Italy’s corporation tax is now 27.5% and Canada’s is set to be reduced to 27.2%, which means that Labour’s policy is to reduce corporation tax, including on the banks, as he just confirmed, without the bank levy. A bank levy would more than offset the corporation tax reductions, so Labour Members are in all sorts of a tumble on this.

Everybody will note the difference between the Government, who argued before the election that we needed a unilateral bank levy and who are delivering it within seven weeks, and Labour Members, who argued that we should not have a bank levy, before performing a U-turn within 10 weeks.

[Mr Gauke]

Amendments 21, 34 and 50 relate to the impact of the corporation tax cuts on the banking sector. Amendment 21 would leave the

“main rate of corporation tax for financial year 2011…at 28%”

for

“banking institutions”, disapplying the 1% decrease, and amendments 34 and 50 ask for an assessment of the impact of the rate reduction on banks.

The proposals are helpful. Understandably, there is a frustration with the banking sector and a desire that it pay a fair share. The Government share that belief. We think that banks should make a fair contribution in respect of the risk that they pose for the UK financial system, which we have seen in the past few years. That is exactly why we announced in the Budget the introduction of a bank levy from 1 January 2011. Tomorrow, my hon. Friend the Financial Secretary to the Treasury will announce a public consultation with a view to implementing the levy on that date, and the measure will be included in next year’s Finance Bill.

The levy is a surgical approach, intended to encourage banks to move to less risky funding profiles, and a contribution reflective of economic risk. A tax based simply on profits, such as corporation tax, is not related to risk and will not create the behavioural effect that we believe the banking levy will achieve.

The overall impact on banks of the proposed reduction in corporation tax depends on a number of factors, and I will provide some details in a moment. None the less, I should like to put it on record that it is entirely right that hon. Members ask such questions. My hon. Friend the Member for St Ives (Andrew George) made a thoughtful and probing speech, and I was also interested to hear the comments of the right hon. Member for East Ham (Stephen Timms). However, I wondered, given his concern about the impact on the banking sector, precisely which angle he was coming from. Those who remember the debate prior to the general election will recall, for example, the remarks of the then Chancellor, the right hon. Member for Edinburgh South West (Mr Darling) who, in an interview on “The Andrew Marr Show” on 21 March, argued against proposals for a unilateral bank levy, saying that he thought it could work only if there were international agreement, as my hon. Friend the Member for West Suffolk (Matthew Hancock) said.

Of the Conservatives’ policy of introducing a unilateral bank levy, which was also a policy of the Liberal Democrats, the then Chancellor said that we were taking a hell of a risk, given that the banking industry employs more than 1 million people in this country. He seemed to be somewhat concerned that we were going to far and too hard. I do not know whether the shadow Minister is worried because the proposals are too tough on the banks, or because they are not tough enough.

Finance Bill

Matt Hancock Excerpts

Tuesday 6th July 2010 Commons Chamber

[Danny Alexander]

There were a lot of questions there but not a single apology for the record of the previous Government. The single measure announced by the previous Government that is included in the charts in the Budget Book is the national insurance change. We have chosen to introduce that measure, so it is legitimate that we have included it in the charts. Other measures that affect people on higher incomes such as the increase in capital gains tax for higher rate taxpayers, which the previous Government never chose to introduce, cannot be included in the tables, so the impact on the wealthiest may even be greater than is illustrated in the charts.

[Matthew Hancock (West Suffolk) (Con)]

Does not the Minister, like me, find it a bit rich that Opposition Members look only at part of the Budget, not the whole, after 13 years in which they did not once introduce a distributional table?

[Danny Alexander]

I agree with the hon. Gentleman. It is a bit rich coming from the Opposition, given that we have set out for the first time in any Budget its distributional impact.

Budget Resolutions and Economic Situation

Matt Hancock Excerpts

Thursday 24th June 2010 Commons Chamber

[Chris Huhne]

The hon. Gentleman makes a point about the circumstances, but markets travel on expectations. The expectations of what was going on in this country were very clear during the general election campaign: the hon. Gentleman and his friends were about to lose the election. It is precisely the case with the contagion in southern Europe that it spread quickly from Greece to Spain and to Italy. Italy, of course, has a very high public debt to GDP ratio and is clearly in a different category from ourselves. But that is not the case for Spain—one of the most substantial economies in Europe—where the central Government to GDP ratio is actually much smaller than ours. The debt to GDP ratio in Spain was 33% as against 60% in the UK at the beginning of this process. That is the problem that the right hon. Member for Doncaster North and his friends have to answer. It was absolutely clear from the rise in bond yields across southern Europe that we were in the firing line and it would have been completely irresponsible for us not to remove ourselves from it.

[Matthew Hancock (West Suffolk) (Con)]

Is the right hon. Gentleman aware that yesterday in the Chamber the shadow Chancellor argued that the problem with Greece, and one of the reasons for what happened there, was that the authorities did not act quickly enough? Does he share my surprise that the shadow Chancellor can combine that with an argument for not acting now here?

[Chris Huhne]

My hon. Friend is absolutely right. There is no doubt that the lessons of history are completely clear. Those countries that grip their problems and deal with them do so in their own time and their own way and in a proactive manner. Those countries that fail to do so end up like Greece and Spain—with socialist Governments—grappling with measures that will be far more severe than anything that we have introduced in this House. I simply remind the right hon. Member for Doncaster North that Lord Keynes, the great Liberal economist who continues to be an economic hero to me, was once famously accused of changing his mind. He splendidly replied, “When the facts change, sir, I change my mind. What do you do?” The right hon. Gentleman’s principal problem today is that the facts have changed and he has not changed his mind. That is precisely the argument.

I would merely remind the right hon. Gentleman of another dictum from a rather great economist—also something of a hero of mine; I should probably be looking towards the Liberal Democrats here—J. K. Galbraith. He served a number of American Presidents, including J. F. Kennedy, and I should point out to the right hon. Gentleman that it was J. K. Galbraith who said that the essence of leadership was for a leader to confront the greatest dangers of the people they aspire to lead. The right hon. Gentleman is not doing that.

--- Later in debate ---

[Edward Miliband]

My hon. Friend is completely right. He has experience of booting out Liberal Democrats locally—something that will happen in many constituencies at the next general election. It is blinkered short termism: that is the only way to describe what they have done.

What is the assessment of the Budget from a green point of view? Friends of the Earth says that the

“June Budget does little to suggest”

that the coalition will keep the

“promise to be the greenest Government ever.”

That is not a very good start, but I want to reassure the Secretary of State by telling him that there is praise for the Budget from an unlikely quarter. Roger Helmer, a Conservative MEP and a well known climate change denier, quite likes the Budget and says:

“Green lobbyists are whingeing that ‘this is the least green Budget for years’. Brilliant! Well done George. Maybe we’ve come to our senses”.

I have to tell the Secretary of State that for the first Budget in which he was involved to have congratulations from Roger Helmer and condemnation from Friends of the Earth is not a very good start.

The second test we should apply to the Budget is that of fairness. Is it a fair Budget or not? Let us be clear: as well as going beyond the decisions that the Liberal Democrats advocated for the first year, the Budget goes well beyond the pace of deficit reduction that they recommended. To sustain the Secretary of State’s argument, we are talking about not only cuts now, but a much faster timetable. He shakes his head, but the Institute for Fiscal Studies analysis published at the time of the election shows that the Liberal Democrats had set out exactly the same pace of deficit reduction in 2014-15 as we had, but this Budget goes beyond that, with £30 billion of extra cuts in spending and the rise in value added tax.

The question at the heart of the Budget debate over the past 48 hours is where do the cuts fall? Who bears the burden? That is the question that Lloyd George asked in this House years ago. The truth is becoming clearer: this is a regressive Budget, not a fair one. The Chancellor claimed in his speech that the Budget was fair, and I think it important to quote him exactly. These are not my words, but those of the Chancellor of the Exchequer. He said:

“Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top. It is a progressive Budget.”—[Official Report, 22 June 2010; Vol. 512, c. 180.]

That is simply not the case. That was exposed yesterday by the IFS. When one looks at the Budget measures, one sees that it is regressive, not progressive. According to the IFS, as my hon. Friend the Member for Leeds West (Rachel Reeves) said, as a result of the measures in the Budget the poorest 10% will pay four times more as a proportion of their income than the richest. I repeat: four times more.

[Matthew Hancock]

Will the right hon. Gentleman give way?

[Edward Miliband]

I will give way to the hon. Gentleman in a minute, because as a former adviser to the Chancellor, he might be able to explain what is going on—but let me offer an explanation first.

What the Chancellor did was an extraordinary sleight of hand. He published in the Red Book figures that take credit for Labour’s last Budget, which was progressive, and he combined the impact with that of his regressive Budget. Remember, this is a guy who claimed in his Budget speech that there was a renewed transparency and honesty in the Budget process. What he had done was exposed within hours by the IFS. I give way to his former adviser.

[Matthew Hancock]

I can certainly be more proud of having been an adviser to the current Chancellor than if I had been an adviser to the one who said that he had abolished boom and bust.

Following on from the right hon. Gentleman’s misleading use of statistics, which are described by the OBR on page 93 of the Red Book as “misleading”, does he agree with me that the IFS said that when all the Budget measures are taken into account, the impact is greatest on the richest 10%, not the poorest 10%, and that he is quoting partially?

[Edward Miliband]

I want to be generous to the hon. Gentleman, as a new Member of Parliament, but I fear that he has walked into the most enormous elephant trap. Let me read from the last page of the IFS handout:

“Treasury said that reforms to be implemented between now and 2012-13 progressive, but

—This is mainly because of reforms announced by the previous government

—They only look at reforms to 2012-13—benefit cuts announced yesterday for subsequent years hit the poorest hardest”.

The IFS concludes:

“So likely that overall impact of yesterday’s measures was regressive”.

If the Chancellor wants to bring a new transparency and honesty to the debate, he cannot take credit for measures announced by my right hon. Friend the former Chancellor and say that they are somehow part of his Budget.

--- Later in debate ---

[Mr Clarke]

Absolutely—that is an excellent point. Indeed, I wish now to compare the Budget’s response to local government, and to people applying for disability living allowance, with the way in which the Government have treated the banks. They have certainly not done so in a way of which my constituents, or the disability and local government organisations that I know of, would approve.

What the Government have done to local government is to cut, cut and cut again. They have offered the public a freeze in council tax but failed to explain that the services that they and the House have imposed upon local authorities cannot possibly be carried out without other services being slashed, including social services and social work for the most needy. That is clearly missing from the thoughts of coalition Members. I invite them to compare that with their approach to the banks, which I was heckled for mentioning.

What about those who seek to live on DLA? We are told that one by one, they are going to be recalled and re-examined. I was a Member of the House in the early 1980s when we had that version of Thatcherism, and I want never again to see men who have worked in the mining industry, and who have to be helped into my surgeries because they can hardly breathe, being cut off from benefit because they are told that they can walk 50 yards. If that is the type of policy that the so-called coalition Government are planning, which I believe it is, they can expect the utmost opposition.

At a time when there is a clear demand for housing, what the Government have done to housing support is simply disgraceful. I say that as somebody who was in local government before coming to the House. Even the Evening Standard had to point out last night that because of the Government’s approach to housing benefit, more poor people would be made homeless. I predict that local councils faced with the financial challenges that that represents will build fewer and fewer social houses, which the Liberal Democrats told us before the election were one of the important issues for them.

[Matthew Hancock]

Will the right hon. Gentleman give way?

[Mr Clarke]

I will not, because I know others want to speak. I wish to conclude now for that very reason—many hon. Members wish to speak about the situation in their constituencies and the Budget’s impact on ordinary people and communities. They want to do so partly because we have seen this situation before—not in this generation, but certainly in the 1930s and the ’80s, and we do not want to see it again.

This is a regressive and dangerous Budget that will hit the poor hardest. Yesterday, my hon. Friend the Member for Derby North (Chris Williamson) referred to Orwell’s “Animal Farm”, and I wish to conclude by quoting some words from that work:

“Twelve voices”

—I look at the mixture of Liberal Democrats and Conservatives on the Government Benches—

“were shouting in anger, and they were all alike…The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”

But the British people can see through that.

--- Later in debate ---

[Angie Bray]

I have to say to the hon. Lady that needs must, to an extent, and we find ourselves in these problems thanks to the appalling governance of the Labour party. I also suggest that part of the problem, and the reason why I agree with her that many will feel the pain, is that the previous Government had a record of allowing a dependency culture to grow. Far too many people in this country depend on benefits, and we need to turn that around if we possibly can.

[Matthew Hancock]

Does my hon. Friend share my surprise that Opposition Members can possibly comment on the fairness of the Budget, given that under the Budget as a whole the richest will pay the most and the poorest will not, and that when they were in office, they doubled the tax of the lowest-paid in this country?

[Angie Bray]

My hon. Friend makes an extremely good point, and let us not forget that the gap between the rich and the poor actually grew wider under the previous Government.

I believe that the measures I have outlined will help ease the unavoidable impact of the rise in VAT. I am well aware that that proposal is especially hard and will affect every single person in the country. Thankfully, food, children’s clothing, books and newspapers are still exempted, but we will all undoubtedly be hit to some degree. My question, however, is this: if not a rise in VAT, which will bring in an estimated £13 billion, then what instead? If the Chancellor had not gone for VAT, he would inevitably have had to look elsewhere, including possibly at further curtailment of public spending.

Those on higher incomes will face the biggest share of the Budget burden. Tax credits will be limited to households earning less than £40,000, and the figure will go down. The 50% tax bracket introduced by the previous Government is being kept in place for those earning more than £150,000, and capital gains tax will rise from 18 to 28%. Fiscal drag will also mean more people paying higher-rate tax. I am not exactly thrilled by the prospect of any of those measures, but I accept that they play an important part in providing a fair Budget.

Prosperity for all is the long-term positive message to take from this week’s Budget. To move forward and replenish the enormous hole in our finances, we must support the people who can make that happen. Britain needs positive entrepreneurs, so a reduction in the tax on the profits that they make is welcome news. Allied with reductions in business taxes, it should kick-start our economy and be the decisive action that we need to lift us out of the mess that we are in—the mess created by 13 years of a Labour Government.

In my constituency, there are many fine examples of the type of people who will drive this country forward again through their own enterprise. They will certainly welcome the rise in the national insurance contribution threshold to ease costs for employers, and the cuts in taxes on businesses small and large. The regional growth fund is a great step forward in helping small businesses get off the ground. At the moment its remit excludes London constituencies such as mine. I know that it is only too easy to present an image of London as having streets paved with gold, but as we Londoners are well aware, our capital has many areas of serious deprivation that need supporting. I hope that, in due course, the Chancellor and his team will consider extending the scheme or taking other measures to help grow small businesses across Ealing Central and Acton.

I would also like to put in a plug for Crossrail. I am delighted that the Budget allows capital projects to proceed and I greatly hope that Crossrail will be one of them. It is essential to London and particularly important in my constituency of Ealing Central and Acton.

It is fitting that the Chancellor was allowed to bring out Gladstone’s original Red Box to carry his Budget to the House. There can be no doubt that Gladstone, a Conservative before becoming a Liberal, would fully support the coalition and the Budget. He was passionate about free trade and lower taxes when possible, and was clear that borrowing was no way to cover over deficits.

The coalition’s task is to turn around the biggest financial deficit that this country has faced since the second world war. The Chancellor and his team have taken courageous and difficult decisions, and provided us with a Budget that gives us every chance to turn the corner, get our country back on track and, most important, open Britain for business again.

--- Later in debate ---

[Mr Umunna]

Silence.

There has been a lot of talk about IFS and Institute of Directors reports, various statistics, the extent to which we need to reduce the structural deficit and the extent to which it is cyclical—but we are talking about people’s lives, and I am deeply worried about what the approach adopted by the Government means for my constituents and those who live in similar areas. There was talk of contrived anger. My worry is not contrived; it is very real. As has been said, the Office for Budget Responsibility has revised up the unemployment forecast by 100,000 people. The Chartered Institute of Personnel and Development is saying that it is absolutely certain that unemployment will go beyond the 3 million barrier again.

I took the trouble to look into some of the cuts that Geoffrey Howe imposed on the country, and what worries me most is that they pale into insignificance compared with the cuts envisaged by the Government now. Howe cut spending by 4% between 1981 and 1984. The Chancellor is planning 25% cuts over four years.

[Matthew Hancock]

I thank the hon. Gentleman for giving way in his an extremely thoughtful speech. Does he not agree that we have to deal with these huge problems because of the structural deficit that we had going into the recession? Does he agree with this quotation:

“Public finances must be sustainable over the long term…If they are not, the poor, the elderly, and those on fixed incomes who depend most on public services will suffer most.”?—[Official Report, 2 July 1997; Vol. 315, c. 303.]

They are not my words but those of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown).

[Mr Umunna]

First, the deficit pre-November 2008 was primarily in some respects caused by increased spending to which those who are now in the Conservative Government were then committed. Conservative Members are continuing to promote the view that somehow there was no global credit crunch, and that the bankers, many of whom they are very friendly with, had nothing to do with it—but the general public do not buy that.

Conservative Members will have to accept that, but the real question that I want answered—I note that a Minister is still here—is: what comfort can he give to the people who live in places such as the Tulse Hill estate in my constituency that they will not have to pay the price? What measures will he take to help them to get back into work? What will he do to give them extra training and experience? Why on earth is he cutting programmes such as the future jobs fund, which I have seen working in my constituency, helping to get people back into work? The Government say that the future jobs fund is ineffective and a waste of money, but they do not have figures on which to base that assertion. The Red Book makes no provision for funding any programme to get young people back into work or into training that will replace what the Government are abolishing.

--- Later in debate ---

[Toby Perkins]

My hon. Friend effectively anticipates my speech, for which I thank him. He makes a very wise contribution. The reality between 1999 and 2008 was not that the Conservatives were calling on the Labour Government to reduce spending; quite the opposite, they were complaining about all sorts of things that we were not spending enough money on—from police to flood defences and all sorts of other things. Now they sit there and say that we should have known all along what was going to happen. No one can take what they say seriously.

[Matthew Hancock]

rose—

[Toby Perkins]

Talking of no one taking the Conservatives seriously, I give way to the hon. Gentleman.

[Matthew Hancock]

The hon. Gentleman referred to the Labour Government’s plans for significant cuts in public spending. Can he give us one single example that they have set out?

[Toby Perkins]

Yes, as the shadow Chancellor made clear, we would have maintained spending over the course of this year and put in place a different Budget from that of the Conservatives, along with headline measures about what future spending would be. Of course it was too early for us to have a comprehensive spending review; when the Conservatives were in opposition, did they ever do a comprehensive spending review and tell us every line of the Budget they would have carried out? Of course not. That is the reality of the situation.

My hon. Friends have pointed out that under the former Prime Minister the Labour Government led the rest of the world to the solution when the global economic crisis was at its worst. Labour made the choice to protect jobs, as I said. Just as Labour made a choice—an ethical and a political choice as well as an economic one—so the Chancellor has made his choice with the Budget. He did not choose fairness; he chose to gamble. His gamble is based on an ideology that says that the growth of the public sector somehow constricts the private sector, but it is utterly fallacious to suggest that the success of the one has to be to the detriment of the other and that the role of Government is to keep taxes low for businesses and keep out of the way. That is the wrong choice. That is taking a gamble with the recovery that Labour was delivering in a stable and managed way. It threatens our recovery at a time when the economy is still fragile.

The choice to increase VAT is, of course, regressive. When even the TaxPayers Alliance denigrates the policy as hitting the poor, we really have to listen. This will take approximately twice the amount from the incomes of the bottom 20% as it does from the top 20%, and it will stunt growth. That is acknowledged on page 97 of the Red Book, so the Chancellor is introducing a policy that he knows will stunt growth. As a business owner myself, I know that this tax will directly remove 2.5% from the bottom line of my firm if it were not passed on to my customers.

I also know that cuts in corporation tax are not as important as having a market in which one can make a profit. While the VAT cut introduced by Labour in 2008-09 stimulated growth, this VAT increase will take about £300 out of the average family’s pocket at a time when families are crying out for more help from Government, not less. That will have a knock-on effect on business. The Government seem to think that reducing the corporation tax burden, already historically low on businesses, will stimulate growth, without recognising that the environment in which businesses trade is the most important part of making a profit.

Taking money out of the pockets of consumers also takes money out of the pockets of businesses. It increases redundancies and business failures, and it stunts our ability to grow our way out of recession. For the hundreds of extra businesses that will now struggle to stay afloat, the thought of a cut in corporation tax will merit little more than a mirthless laugh. At every level, the Budget stunts growth. Cutting the allowances on which manufacturing firms were relying, and replacing them with a corporation tax cut over the next few years, will result in businesses being less likely to invest and more likely to focus on bottom-line profits.

The starkest aspect of the Budget, however, was a complete lack of a sense that the Liberal Democrats have been a moderating influence on the Tory plans. Where were the Lib Dem influences in this Budget? Seriously, does anyone in the House believe that if the Budget had been delivered by a Tory majority Administration, the Liberal Democrats would have marched through the Lobby and supported it? I will take that as a no. Where was the £2 billion capital gains tax increase? It was less than halved. Where was the commitment to restrict tax relief on pensioners to the basic rate? It disappeared. Where was the mansion tax? It does not exist. Where were the green taxes? How can one justify a £2 billion bank levy that will be compensated by corporation tax cuts for the banks that caused so much damage? Where was the Robin Hood tax on bank transactions, which would have brought in more than treble the amount?

--- Later in debate ---

[Matthew Hancock (West Suffolk) (Con)]

It is an honour to be able to speak in this debate on what is, by common recognition, a Budget of historic proportions. After the Budget, I bumped into a group of former civil servants who were reminiscing about huge Budgets of the past and where this one came. They talked about the 1981 Budget that has been much discussed in this debate, and the 1970 Budget by Iain Macleod that was never actually delivered because he died before he had the chance to give it. Of course they talked about the big 1950s Budgets of Rab Butler. All those Budgets had something in common: they were Conservative, or mostly Conservative, Budgets that were clearing up the mess left by a previous Labour Administration. This one of course is no different.

The mess created by the Labour Government has not been left at their end. We know from the letter by the former Chief Secretary, of which we will no doubt hear more, that there is no money left. That only repeats a letter sent in 1964 by Reggie Maudling to Jim Callaghan, which said, “Good luck, old cock. Sorry to leave it in such a mess.” Here we are at the end of a Labour Government, once again clearing up the mess.

Before we hear too much from Labour Members, we must remember the economic as well as the budgetary consequences of former Labour Administrations. Under the Attlee Administration, unemployment went up by 280,000; under Wilson from 1964-70, unemployment went up by 226,000; under Callaghan, it rose by 479,000; under Blair-Brown, it went up by 460,000. In fact the only Labour Government under which unemployment fell was Ramsay MacDonald’s 1924 Administration. I am not sure that that is one that we should follow or one with which Labour Members would want to agree.

Those lessons from history teach us several things. One is that memories of the failure of an Administration run deep. We all remembered for a long time the winter of discontent. We now know that the public recognise that many of the measures proposed in the Budget are Labour cuts because they are the response to the legacy that Labour has left. As my hon. Friend the Member for Enfield North (Nick de Bois) has said, it is a responsible Government who pick up the pieces following the irresponsibility of a Labour Administration who sent us into a recession with the largest budget deficit in the developed world.

Opportunism and oppositionism make life harder in opposition, rather than easier. We have seen so many times from Labour Members today and in the debate on the Queen’s Speech the pointed finger and heard their lists of cuts, with almost no recognition of the need to deal with the size of the deficit that existed before the election.

There was one exception to this; the hon. Member for Streatham (Mr Umunna) made what I thought was an extremely thought-provoking speech. But at the end, he accused the Government of having nothing to say about reskilling and helping the unemployed. He was quite literally stumped and sat down after he was intervened on by the Minister who explained some of the proposals that the Government have put forward to help to lower unemployment and improve skills. At that point, the speech quite literally disintegrated. We have seen that repeatedly over the past few days.

Many Labour interventions have been based on accusations that are groundless. One is that the OBR shows a reduction in growth thanks to the Budget, but the OBR itself describes the contrast between two of its forecasts as misleading. It ignores the effect of the reduction in interest rates in the international bond markets that has happened since the election because of the anticipated action to deal with the deficit. Those interest rates have fallen further today. They are now half a point lower than at the election, and the total fall has been more than 10%. That is having a positive impact on companies throughout the country.

As Labour marches to the left, with its lengthy leadership contest meaning that the competition for taking up ever more left-wing positions intensifies, we increasingly find that there is a lack of credibility. The coalition parties are facing up to the seriousness of the situation and supporting measures that may not all be easily palatable. We support them because we see the long-term benefit of turning our country around and getting it back on its feet. There is no way that a position that lacks credibility, and simply attacks every cut and puts forward absolutely no alternatives, will be seen by the public as anything other than sniping from the sidelines.

The centre of the debate is how we get through this difficult period. Lessons from history also teach us that clearing up this mess is crucial to the success of the Government, and that the bigger argument about turning our economy around and dealing with the problems we face will trump every complaint about an individual problem and each cut. After all, the public are yearning for a stable and secure economy—we have seen the opposite of that in recent years—and this Budget attempts to deliver it.

I strongly believe that the coalition must govern in the national interest. It must eliminate the structural deficit. I was surprised by something the shadow Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), said yesterday. He said that Greece

“took far too long to do what was necessary”,

and

“Had they done it in February, when the problems first became apparent, some, although not all, of those problems might have been avoided.”—[Official Report, 23 June 2010; Vol. 512, c. 312.]

How he can hold that view and also hold the view that we should not deal with the deficit in this country is baffling.

We must eliminate the structural deficit and ensure that growth returns by supporting the enterprise package and the corporation tax cuts and, of course, by stopping the jobs tax, which was an important part of the Budget. We must solve some of the long-term problems we face such as on public sector pensions—I am delighted that John Hutton will be producing a report on reform of public sector pensions.

Many Members have spoken of the impact of the Budget on their constituencies. I know that in my constituency there will be more support for enterprise, lower corporate taxes on successful businesses, more business confidence, which will allow people to create jobs, and lower interest rates for businesses that want to expand.

It is a bold Budget. It is undoubtedly a difficult Budget, but it is the right step for the country, and I commend it to the House.

[Vernon Coaker (Gedling) (Lab)]

On a point of order, Mr Deputy Speaker. Last Thursday, I tabled a written question for named day answer on Monday of this week, to which the Department for Education’s response was that it would reply to me as soon as possible. I had asked it to name the schools that had applied for academy status, and I read in today’s edition of The Guardian that that list is to be published tomorrow, but I have as yet received no communication from any Minister. I wonder whether at this late stage you have received any request from a Minister to come to the House to explain what is going on in respect of naming the schools that applied for academy status.

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[Ms Eagle]

The hon. Gentleman has not been here all day, so I will not give way to him.

In the pre-Budget report, Sir Alan Budd was obliged to point out that my right hon. Friend the shadow Chancellor was being too pessimistic—those who know him are not always surprised by that—and that on almost every measure, the public finances are in better, not worse, shape than we expected at the time of the March Budget. Unemployment, Sir Alan revealed, would be 200,000 lower than expected, and tax revenues would be much stronger than forecast. Thus the borrowing forecast was £8.4 billion lower this year than predicted in March, and £22 billion lower by 2014-15.

[Matthew Hancock]

Will the hon. Lady give way?

[Ms Eagle]

No.

No amount—[Interruption.] Conservative Members have had all day to peddle their view of what is happening to the economy. I am now responding to that, and they have to sit and listen whether they like it or not.

No amount of Orwellian double-speak emanating from No. 10 or No. 11 can cover up the basic fact that things are not worse as far as the deficit is concerned, but better. Shorn of the prearranged excuse for ratcheting up the pain levels in his austerity Budget, the Chancellor has been exposed as a small-state ideologue and a true child of the 1980s. He has imposed the most brutal cuts in public spending that the country has ever experienced in peacetime for reasons of dogmatic delusion, not economic necessity. The Tories are doing this not because they have to, but because they want to. They have made a political choice, not an economic choice, and we will see the results of their return to their Thatcherite roots.

There is no electoral mandate for the economically dubious dance with dogma that is at the Budget’s intellectual core. The majority of the electorate voted for parties that did not want to make immediate cuts at a time when the recovery was not locked in and our major EU trading partners were seeing their upturns falter. Those who voted Lib Dem did not expect their chosen party to experience a wholesale conversion to Tory fiscal hawkery after a quick cup of tea with the Governor of the Bank of England. They feel betrayed—and they have been.

Make no mistake: this is a very Tory Budget. It contains the largest spending cuts in our peacetime history, focused on the neediest areas of the country. It brings about a huge rise in the most regressive tax available, which will hit the poorest hardest. The decision to attempt to eliminate an 8% structural deficit in five years, and the choice of a ratio of 77% spending cuts to 23% tax rises, are more brutal than Mrs Thatcher ever dreamed of. The Chancellor has paraded Canada and Sweden as examples to follow, but as Will Hutton recently pointed out, the plans for fiscal consolidation in the Budget are three times tougher than those achieved in Sweden and twice as tough as the Canadian example. Sweden took 15 years to achieve 20% cuts in some departmental spending, but this Tory-led Government want to cut 25% in five years.

The lesson from Japan is that it is positively dangerous to attempt radical fiscal consolidation when the private sector is deleveraging, so why are the Government prepared to risk making the same mistake? Because of its error, Japan experienced a lost decade of growth and achieved the opposite of its intentions: not a shrinking deficit, but an increasing one. The Budget contains no strategy for growth beyond the usual tired old Tory refrain that the private sector will fill the gap. That is not a growth strategy, but a statement of blind economic faith that might or might not be fulfilled.

It has taken a mere two days for the pitifully thin Lib Dem veneer attached to the Budget to flake off completely. The Lib Dem leader promised us “progressive cuts”, but the devastating analysis of the IFS has put paid to that absurd and oxymoronic phrase. When we take out Labour’s remaining Budget changes, this Budget is deeply regressive, and it gets more regressive as the years go on and the huge cuts in welfare support and tax credits bite. It is now clear what the Deputy Prime Minister means by progressive cuts: he will cut this year, cut more next year, and cut even more the year after that. His phrase is true, when it is taken literally.

A Budget that targets £6 billion of cuts on the most vulnerable, including pensioners, by delinking benefit uprating from the retail prices index, yet hits banks with only a £2 billion levy that is being given back through corporation tax, is not sharing the pain. A huge hike in VAT that hits the poorest hardest is not sharing the pain. A deliberate decision to destroy large swathes of social support, and cutting support for the jobless and home owners when they are most under pressure, is not sharing the pain. The choices in the Budget make it abundantly clear that we are not all in this together.

Today’s Financial Times carries an article that states:

“Ministers warn that they may have to tear up some untargeted welfare promises—such as the £4bn spent on subsidising bus travel, winter fuel and television licences for older people…One minister said that such a move was ‘almost certain’”.

The hon. Member for Bermondsey and Old Southwark said today that he would not allow that to happen. Well, if he wants to stop that betrayal, he has to table those amendments and carry his Lib Dem colleagues through the Lobby with us to stop this Conservative-led Budget doing even more damage. We look forward to seeing him in there with us.

--- Later in debate ---

[Justine Greening]

The hon. Gentleman continues in the vein that the Opposition have adopted today, which is to try to score cheap political points. The message from the British public at the last election was that they want a constructive debate about how to solve the deep financial crisis that our country faces. We have had nothing from the Opposition. No alternative is being presented to all of the measures that were raised as concerns by Opposition Members. I presume that we can now start ticking them off as measures that the Opposition would say a Labour Government would take. We will rapidly reach the conclusion that there are no measures that the Opposition would take to solve this deficit. After all, they were happy to cancel their spending review, and now they are happy to play no role in having a constructive debate with the public and the Government about how we dig ourselves out of this mess. It is simply not true to say that the Opposition had no role in it. We were running a deficit long before the global crisis hit. That is why we went into the recession first, that is why we came out of it later, and that is why our recession was deeper. We have now had the longest and deepest recession since the second world war under the Labour Government. We need take no lectures from them.

[Matthew Hancock]

Does my hon. Friend agree that the Labour party’s views tend to be based on misrepresentations? For instance, I think that the shadow Minister said that according to the Office for Budget Responsibility on almost every measure things were better, but on the crucial measure of the size of the structural deficit, which is the measure that will not come back with economic growth, things are worse, and that justifies the position that the Government have taken.

[Justine Greening]

My hon. Friend is absolutely right. Let us just talk about the Office for Budget Responsibility. I still cannot quite work out whether the Opposition support it. I am happy to take an intervention from the shadow Secretary of State to clarify that. We are none the wiser.

On the point about changing forecasts, and the OBR forecast pre-Budget and its forecast on the Budget, let me be clear about what it said about comparing those two forecasts. If the Opposition have any shred of credibility, I hope that they will pay attention to this. At the bottom of page 94 of the Red Book it says it is

“misleading to interpret the difference between the pre-Budget and Budget forecasts as the economic impact of the Budget measures.”

The Opposition want it all ways. They want to quote some figures and, as my hon. Friend says, conveniently forget the key figure, which showed that the structural deficit was worse. They want partially to welcome it warmly, but to ignore what it says about the impact of comparing false statistics. They do the debate, which is important for people throughout the country as we go through an incredibly difficult process, a real disservice, because the British public need them to play a role, which should be for them as the Opposition to come up with some constructive comments. It would have been better if they could have come up with some kind of an alternative, but we have had none today.

We need take no lectures from the Opposition about fairness. This is the party that did a pensions raid. This is the party that came up with the 10p tax fiasco. This is the party that widened the gap between rich and poor. This is the party that told us we had an end to boom and bust. It is no wonder the savings ratio in Britain went down. If people had listened to the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown)—who knows where he is now?—they would never have thought that they needed to save for a rainy day. The British people get it, because they have started paying down their debts, but the Opposition parties have totally missed the point. They seem to be living in a post-election bubble, and they have not taken a moment even to reflect on what has happened or on the verdict of the British voters, let alone to reach the stage at which they might apologise for the mess that they handed over to the coalition Government. The two parties in government have taken the decision that they need to work together for the British public’s interest in order to find a resolution to our crisis, and to get ourselves out of this financial mess.

Budget Resolutions and Economic Situation

Matt Hancock Excerpts

Tuesday 22nd June 2010 Commons Chamber

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

I congratulate those who made their maiden speeches today.

I welcome the Budget. It was extraordinarily wide-ranging, fair and far-sighted, and I particularly welcome its measures to support small and medium-sized enterprises and to raise the tax threshold for the very poorest in our society. I cannot discuss this without mentioning the glorious success of the repeal of the cider tax, which will be of enormous value and very welcome to my constituents in Hereford. If I were to add a small codicil to that, it would be a call for us to look, in the next Budget or the comprehensive spending review, at rebalancing duty in the beer and cider industries from the off-trade to the on-trade, so as to create more supervised and responsible drinking by young people.

I share the view that it is astonishing that just four Labour Back Benchers should be present for a Budget debate, but the person whom we really miss is the former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). He should be held to account in this House, and he should apologise. Instead, I think that he is sitting in his cave like Ben Gunn in “Treasure Island”, composing his memoirs and dreaming of a triumphant return while the world moves on. All over the country, the owners of bargain bookshops are looking forward hungrily to his next volume filling up the remainder bins.

We can guess the theme already—that the right hon. Gentleman and his party were right all along, but I draw the House’s attention to an interesting asymmetry. When the British economy was supposedly riding high, the reason was said to be the far-sighted economic management of the Government. Now it is struggling, it is supposed to be entirely due to forces outside the previous Government’s control.

However, the facts tell a different story. We can see that by looking at how the UK was before the crash in 2007-08. Let us not forget that 1997 to 2007 was what the Governor of the Bank of England called the NICE decade—a non-inflationary time of consistent expansion. It was the period when worldwide monetary conditions were extremely favourable, with low interest rates and headline inflation in the major industrial countries generally at post-war lows. That was how the UK economy looked in 1997, as a result of the extraordinary economic inheritance that the last Government received.

Even then, however, economic growth was never as good as the previous Government claimed. Our GDP growth per capita in the period until 2007 was barely better than that of the eurozone countries, which were themselves held back by German unification. It was far worse than in similarly open and mature OECD countries. Australia, Canada, the US and New Zealand—every one of them grew faster over the period 1992 to 2007 than did the UK, and their growth was not concentrated in the period 1992 to 1997, but in the latter decade.

We have all made much of the fact that the former Prime Minister claimed to have abolished boom and bust, but the fact is that he presided over four booms—in Government spending, immigration, house price inflation, and personal debt.

The first of those booms was the massive ramp-up in public spending after 2001, which was financed by a huge counter-cyclical increase in Government debt. In other words, the previous Government were able to run a budget deficit of 3% at a time when the economy was supposedly growing at 3%. If that was how that Government handled the boom time, is it any wonder that we are in such a hole today?

The second boom was in immigration, with as many as 1 million immigrants from Poland coming over in the period 1997 to 2007. They added to GDP, pushed up demand and kept a lid on wage inflation.

The third boom was in house price inflation, with a massive ramping up of house prices and the diversion of personal savings into housing, pushing the savings rate down from 8% in the 1990s to 1.1% in 2007 and clobbering savings as a result.

The final boom was in personal debt, which totalled nearly £1.5 trillion before the crash. In 2007, personal debt for the first time in our history was higher than the country’s entire annual economic output, and 80% of that debt was secured on private property. Is it any wonder that the crash, when it came, was so disastrous?

We have noticed that the Opposition have made great claims that this Government do not have a growth strategy—language that is code for an unwillingness on our part to waste public money as the previous Government did. The Opposition’s claims are untrue, however. Exercising control over debt and public spending will have a positive effect on growth, in and of itself, as will the proposed reforms to education, local government and transport policy. Of course, there is more to do to flesh out those policies over the next few months.

[Matthew Hancock (West Suffolk) (Con)]

Is my hon. Friend aware that since the announcements in the Budget today, the interest rates charged on medium-term Government debt have already fallen, which adds to a fall that we have seen since the election of a coalition Government who are prepared to deal with our debts?

[Jesse Norman]

I have been in the Chamber since then, but I thank my hon. Friend very much for that intervention, which brings home the credibility and respect that the Government are already earning in the international capital markets.

The deepest truth is that for all their talk, the previous Government never properly addressed the fundamental drivers of economic growth. Far from it being the case that this Government lack a growth strategy, the previous Government’s strategy over the past 13 years was not sufficient to ensure decent economic growth. The four booms that I have described washed through the economy, leaving us without a world-class infrastructure or adequate broadband coverage, but with a legacy of educational underachievement, low productivity and low innovation—nothing like the energy, competitiveness and entrepreneurship that we need.

Financial Services Regulation

Matt Hancock Excerpts

Wednesday 16th June 2010 Commons Chamber

[Mr Osborne]

I think everyone would acknowledge the work the right hon. Gentleman has done on the issue, over many years, on behalf of his constituents and other people who were so badly affected by that scandal. I was of course present at the exchange between him and the shadow Chancellor about the publication of the secret Bingham report—if I can put it like that—and I have asked for urgent advice about that and for a copy of the report so that I, too, can read it.

[Matthew Hancock (West Suffolk) (Con)]

In a similar exchange in a debate last week, did my right hon. Friend hear the shadow Chancellor say that the former Government did not understand the systemic risks in the banking system? Does he share my surprise that Members on the Labour Front Bench are no longer willing to engage in an argument about putting right the system of banking regulation that so spectacularly failed?

[Mr Osborne]

I am surprised, and I am not sure whether the shadow Chancellor is committing his party for the rest of this Parliament to be against reform of the structure of banking. I see quite a lot of heads shaking, so perhaps he is not. We shall wait and see. It is worth noting that on 8 June Lord Young of Norwood Green, a Minister at the Department for Business, Innovation and Skills in the last Government, referred to

“the tripartite relationship that was supposed to identify and regulate the systemic risk in British banking—a relationship that we all know failed somewhat spectacularly.”—[Official Report, House of Lords, 8 June 2010; Vol. 719, c. 630.]

Oral Answers to Questions

Matt Hancock Excerpts

Tuesday 8th June 2010 Commons Chamber

[Mr Osborne]

The ambition, of course, is to try to get unemployment falling, but it is rising at the moment. That is the situation that we inherited—as is inequality, which we inherited too.

[Matthew Hancock (West Suffolk) (Con)]

Is the Chancellor aware of the recent Institute for Fiscal Studies report which showed that, going into the recession, the budget deficit in the UK was already one of the highest in the developed world?

[Mr Osborne]

I am absolutely aware of that report, because my hon. Friend drew it to my attention about three months ago, for which I thank him.

Economic Affairs and Work and Pensions

Matt Hancock Excerpts

Tuesday 8th June 2010 Commons Chamber

[Mr Darling]

Forgive me if I have misunderstood the hon. Gentleman, but throughout the three years when I was Chancellor, I do not think that I ever, on any occasion, concealed from anyone the difficulties that we and other economies would face as a result of the deepest global downturn in the past century. There can be no doubt about that.

However, I should tell the hon. Gentleman and his colleagues that by 2008, it was clear that this country, and every other major developed country in the world, faced the catastrophic consequences of the failure of the banking system. Had we not taken action to stabilise the banking system—many of those decisions were opposed by the Conservatives—and to ensure that we supported our economy when private sector investment dried up and died away, we would have had a situation in which recession tipped into depression. That is why we took the action that we did. We were right to do so, and the Conservatives were wrong to oppose us. Our economy is now growing, and as I said earlier, unemployment is half that in the downturn of the 1990s, and borrowing is coming down, because of the action we took in 2008 and 2009. We took that action along with most developed countries.

[Matthew Hancock (West Suffolk) (Con)]

rose—

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

rose—

--- Later in debate ---

[Mr Richard Bacon (South Norfolk) (Con)]

rose—

[Matthew Hancock]

rose—

[Mr Darling]

I shall give way to the hon. Gentleman who I think used to advise the Chancellor at one point.

[Matthew Hancock]

The shadow Chancellor has mentioned the banking crisis several times. With hindsight, does he regret the system of banking regulation that was introduced in 1997, and recognise that it failed?

[Mr Darling]

No, I do not think that was the main problem. The system of regulation that we introduced in 1998 brought together about eight or nine different regulators—self-regulators, as the Conservative party used to be very keen on self-regulation. The problem in relation to the Financial Services Authority, the American regulators and most other regulators was that they simply did not understand the systemic risks that arose in the previous decade or the consequences of the failure of one bank for another. The system in this country was not the problem, but there was undoubtedly a failure on the part of regulators right across the world, including in our country. The FSA’s inquiry into what went wrong in Northern Rock demonstrated that the FSA had spotted problems in Northern Rock in February 2007 but had not taken action. I shall say this in the nicest possible way to the hon. Gentleman: he might want to have a word with one or two of the people who were running Northern Rock—members of his party—who might have had a better look at what they were supposed to have been doing when they were running that bank.