Amendment of the Law

Tom Blenkinsop Excerpts

Thursday 20th March 2014 Commons Chamber

[The Secretary of State for Business, Innovation and Skills (Vince Cable)]

I have calculated that this is the 18th Budget to which I have responded in some capacity, and the fourth directly to the shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls). However, since he wrote many of the others, I was probably responding to him indirectly. Having heard the right hon. Gentleman over the years, I have picked up on some traits. First, he obviously has a capacity for a crunchy, memorable soundbite that often turns out to be wrong. I think he was the author of the phrase “No more boom and bust”, the consequences of which we are still living with. I also think he was the author of “triple-dip recession”, which of course we never had.

When we first had these exchanges a couple of years ago, the right hon. Gentleman had a very good football chant going on the Back Benches behind him: “Growth down, inflation up. Unemployment up.” Now of course we have growth up, unemployment down and inflation down. His current favourite is the “millionaires’ tax cut”, which I would find a little more persuasive had I not sat on on the Opposition Benches for 10 years being lectured by him and his boss that any increase in the top rate of tax above 40% would be counterproductive and damaging to the economy.

One feature of the right hon. Gentleman’s speeches that we all look forward to is the annual conjuring trick, and the 10 different ways we could use a bankers’ bonus tax. The rabbit out of the hat trick gets progressively more difficult because the rabbit gets bigger and the hat gets smaller as time passes, so I shall remind him of some of the figures.

When the right hon. Gentleman was City Minister and presiding over all of this, the total bankers’ bonus pool was something in the order of £11.3 billion, and it was £11.5 billion the following year when the Labour Government brought in a bankers’ bonus tax. According to the Centre for Economics and Business Research, which monitors these things, the bankers’ bonus pool was £1.6 billion last year. In the current year, it is estimated to be £1.3 billion. That is one-tenth of the size of the bonus pool on which the original tax was placed. We are then left with the question that is at the core of his fiscal policy: how is he going to get £3 billion in tax out of a £1.5 billion bonus pool? The charitable way to describe that is as a mathematical puzzle. We ought to refer it to the new Turing institute to investigate.

I should perhaps declare one self-interest. I do not have an interest in the millionaires’ tax, but compared with both the shadow Chancellor and the Chancellor I am more likely to take advantage of the relaxation in the annuity rules. It is worth recalling that over many years I came to this House on many Friday mornings, with Back Benchers from my own party and Conservative Opposition MPs, to try to achieve this reform. We were confronted with relentless stonewalling by the Labour Government of the day, of which the right hon. Gentleman was a part and in which he participated directly, with the very simple message that pensioners were far too stupid and irresponsible to be trusted with their own pension savings. This is one of the really big, major positive changes to come out of the Budget.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

I hope the Secretary of State can explain to me and my constituents, who have seen their average gross weekly earnings decline by £160 since the general election, when adjusted for the consumer prices index, how they will be able to afford to exploit the new annuities rules on pension savings?

[Vince Cable]

The hon. Gentleman poses an issue that I am coming on to immediately, which is why we are a poorer country. There are people who have saved and have annuities, and there are many middle-income occupational pensioners who will take advantage of that. The central economic question raised is this: why are we a poorer country and how has that affected our living standards?

The question goes back to the financial crisis, which occurred when the right hon. Gentleman and his colleagues were in government. The Chancellor reminded us yesterday of the brutal fact that the British banking collapse and rescue was the biggest in the world. It was the biggest collapse in our history, going back not just decades but centuries, and it has done enormous harm. It has made the country poorer. The immediate after-effects of the collapse were to reduce output in this country by 7.5%, which is more than in the great depression. Not surprisingly, that has affected living standards in a radical way. It has impaired our capacity to recover from the damage inflicted on the banking system. It has required our country and the United States, but particularly here, under the right hon. Gentleman’s Government and the coalition Government, to resort to very unorthodox monetary policy. That has had a major impact on savings—which the Chancellor is now trying to remedy—asset prices and other factors. Opposition Members are surprised and indignant when they tell us that people are poorer than they were before the financial crisis. What are they comparing it with?

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[Vince Cable]

I have taken an intervention.

Let me start with employment. What could well have happened, as a result of the financial crisis and its aftermath, was mass unemployment of the kind we had in the 1930s. We could very easily have got up to 20% unemployment, but we did not. We now have the lowest unemployment of any major country except Germany—lower than France and Sweden. This is partly a reflection of Government policy, but it is mainly a reflection of the common sense and flexibility of British workers, who accepted that in this crisis it was most important to be in work. We are now seeing the success of employment policy in the fact that we have had an enormous growth in employment, with 1.25 million net of public sector job losses and a gross increase of 1.75 million. Roughly five private sector jobs have been created for every one lost in the public sector. These are predominantly, in fact overwhelmingly, full-time jobs. The Opposition’s argument has been, “Well, okay, there are lots of jobs but they are part time,” but last year, in 2013, there were 460,000 new jobs, of which 430,000—95%—were full-time jobs.

[Tom Blenkinsop]

Since this Government came to power, the number of zero-hours contract jobs has trebled to more than 500,000. In 2012-13, some 3.48 million people had an average national insurance liability of £172 and were earning less than the lowest income tax threshold. That is an indicator of the type of work that people are having to take now, and they are still having to pay national insurance contributions on income below the income tax rate.

[Vince Cable]

We are well aware of some of the problems that arise with zero-hours contracts. That is why, as the hon. Gentleman knows, some months ago I commissioned a full consultation on dealing with abuses. What has come out of that consultation suggests that it is actually a very complex story. A lot of workers benefit from being on zero-hours contracts and want them to continue. Many do not and do encounter abuse. I am sure that before the end of this Parliament, Members will have an opportunity to vote on measures designed to deal with those abuses.

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[Vince Cable]

The hon. Gentleman is right: compared with other institutions, RBS is particularly remiss in its lending policies, and that relates to the seriousness of its balance-sheet position and its failed attempt to become a big global bank. I meet the chief executive from time to time and I think he is trying to change the culture of the bank in a positive way, and move it in the direction of some of the other banks, such as Lloyds, which have already achieved that transformation.

The first priority has been to develop business investment and the Chancellor’s initiatives help with that. The second, and extremely important, priority, which has already been hinted at in interventions by Government Members, is in relation to manufacturing industry. It is important to take stock of the context here. We have had a catastrophic decline in manufacturing industry over a long period of time. Some of that is driven by technology and some of it is driven by international trade over which we have relatively little control, but certainly in the period after 1997 we saw the share of the British economy accounted for by manufacturing shrink from 20% to 10%, a decline that was even more rapid than in the mid-1980s, when policies were considered to be unfriendly to manufacturing. We lost 1.6 million jobs in that period.

[Tom Blenkinsop]

The Secretary of State will be aware that the work force at the Redcar steel plant in Teesside fell from 25,000 to 5,000 between 1987 and 1992, with several on-site plants being closed, but what is different now is the carbon price floor. Would the Secretary of State like to take credit for the Chancellor’s policy on that, which this Government brought in and which has led to the closure of Alcan in Northumberland and has put severe pressure on the steel industry in particular? In this context, will he bring the programme forward by two years so we do not have to wait another two years?

[Vince Cable]

The hon. Gentleman has anticipated the point I was about to make. One of the really positive announcements the Chancellor made yesterday recognises the difficulties facing the energy-intensive industries. I am aware that the Alcan smelter closed. I was there; I talked to the management about it and they acknowledged that although energy prices in the UK were one factor in their decision, it was by no means the only one. However, our energy-intensive industries are crucially important and it is not clever for them to close and migrate overseas, as we then simply get carbon leakage and do not do anything to improve the environment. It is therefore very important that they are protected from the increased costs that result from green taxation. The interventions the Chancellor made yesterday, which are very radical and meet the concerns of the industry, primarily centre on the renewables obligations and the feed-in tariffs and giving the industry effective compensation for those costs. I shall now be pursuing that with the European Commission, trying to ensure we get state aid clearance. The feedback we have had this morning from the engineering employers and other manufacturers suggests they are satisfied that the Government have taken a radical step that overwhelmingly meets their concerns.

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[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

First, I want to discuss the effects of the Budget on the steel industry. I welcome the news that the Government have announced their intention to introduce relief against the rapidly rising costs of carbon levies, and the mitigation of the renewables obligation is a particularly good step forward. As chair of the all-party group on steel and metal related industry, I, along with colleagues from the group, trade unions and the steel industry, have been campaigning hard on that for a long time. Having said that, however, I do have some concerns. The compensation is still two financial years away and the steel industry will continue to face considerable challenges in the interim given that the international demand for steel is still at mid-financial crisis levels and is probably worsening. Will the Minister clarify whether state aid clearance will take those two years and is there any way that the Treasury can bring the compensation forward so that the steel sector and other foundation industries do not have to wait?

I remind the House that the carbon price floor, which hits UK manufacturing four times as hard as our EU competitors, was introduced by this Chancellor and this Government. That has led to a number of jobs being lost, particularly at the Tata Steel site in Newport where 200 jobs were highlighted for potential redundancy last week. We have also seen the loss of Alcan in Northumberland as well as other manufacturing sites in the foundation sector.

I am similarly cautious about the Government’s proposals to increase the personal allowance. Although on the face of it that is an attractive policy, I am wary as increasing the personal allowance for income tax will do nothing for the millions of low earners who earn less than the current personal allowance.

It has recently been reported in the press that the Chancellor is considering renaming national insurance in the run-up to a potential merger with income tax, so I am surprised that the Budget does nothing to address the anomaly faced by millions of people who earn less than the annualised primary threshold and still face a class 1 national insurance contribution liability. For example, despite earning less than the annualised primary threshold in 2012-13 some 3.48 million people had an average national insurance liability of £172 simply because of the distribution of their earnings across the year. The anomaly is caused by the fact that national insurance liability is calculated per pay period rather than annually. That is particularly problematic for the 583,000 people working on zero-hours contracts—a figure that has trebled since the general election—whose pay varies significantly week to week. I urge Ministers to revisit this subject in addition to considering raising the personal allowance, as it would be a positive step to take those very low earners out of an unpopular and regressive tax. I also want to see an update from the Chancellor on his 2011 proposal to merge national insurance and income tax.

I also have some concerns about the Government’s proposed changes to ISAs and the proposed introduction of a pensioners savings bond. I have tabled a number of written questions on these issues, but I hope that Ministers will be able to address them today. As many hon. Members have stated, increasing the ISA limit does little to help those who could not dream of saving £15,000 a year. I think that is a legitimate concern, but I am also somewhat concerned by the removal of the distinction between a cash ISA and a stocks and shares ISA. My fear is that it might nudge savers to move investments from stocks and shares ISAs, the contents of which often include the more speculative investments necessary to allow for innovation and growth, to low-yield cash ISAs. Although savers have differing personal risk appetites, it would be interesting to see what assessment the Treasury has made of the effects of ISA simplification on capital markets.

I am also concerned about the pensioners savings bond. Although of course we all want pensioners to get the best possible deal, I am curious about how, at a time of austerity and cuts, the Treasury can fiscally justify paying 4% annual interest on a three-year bond for pensioners when a three-year gilt yield is less than 1.2%. I am also curious about how the Chancellor feels that it is justifiable to offer the product only to those who are over 65 and not to younger hard-working families who might want access to such a market-beating preferential interest rate or who, for reasons such as early-retirement caused by workplace injury or other anomalies, might financially depend on income from savings. I have tabled questions to ask how the Government will account for that and whether they will consider the 4% annual interest they will pay on the debt under the debt interest headings they use in their analyses. Furthermore, has the Treasury considered whether it will crowd investment out of the private sector by offering such an interest rate when banks and building societies are offering, at best, a 2.7% fixed annual interest rate on three-year bonds? In previous Budgets from this Government, we have heard arguments about the public sector crowding out the private sector. I would like to see a Treasury assessment of how the policy might crowd out the private sector.