Public Sector Pay Cap
Vince Cable Excerpts(6 years, 10 months ago)
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Elizabeth Truss
My hon. Friend is right to point out that, by having this balanced policy, we have protected jobs in the public sector and we have protected important services. The Office for Budget Responsibility outlined in its report that our policy protects the jobs of 200,000 public sector workers. That is important for those people, but it is also important for our constituents who receive those public services and who are seeing improvements in our schools and hospitals, and a reduction in crime. It is important that we take that balanced approach.
Sir Vince Cable (Twickenham) (LD)
Does the Chief Secretary not accept that there was a fundamental difference between the economic conditions when the 1% cap was introduced, when there was a fear of large-scale unemployment and deflation, and the economic conditions of the present day, when there are chronic labour shortages throughout the public sector and salaries have been eroded by rising inflation? Will she not lift the cap to reflect basic economic reality?
Elizabeth Truss
First of all, public sector pay is comparable with private sector pay. In addition, public sector pensions are set at a higher level, on average, than private sector pensions. The pay review bodies have a remit to look at retention and recruitment when they make their independent decisions. Of course, I will look at all their recommendations when they come out. The right hon. Gentleman has made an omission that was also made earlier; a lot of those roles have pay increments independent of the 1% cap. Teachers’ pay increased by 3.3% in the last year for which we have records, so it is not right to talk solely about the 1% cap. In fact, public sector workers are rewarded in a number of different ways.
Economy and Jobs
Vince Cable Excerpts(6 years, 10 months ago)
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Sir Vince Cable (Twickenham) (LD)
One of the more depressing features of the election just passed was the complete neglect of any serious discussion of economic policy, and I mean not just taxing and spending, but the basic issue of how we raise productivity, living standards and investment. Indeed, The Economist acknowledged that it was only we on these Benches who addressed the issue at all.
There is an underlying malaise, not just in this country, but in other western economies. The long-term legacy of the 2008 financial crisis destroyed Government budgets and killed business investment, and it has depressed living standards. In this country, we were only just beginning, two years ago, to emerge from that tunnel, but now we have, superimposed on that problem, the self-inflicted pain of Brexit. There will be different views in the House as to where Brexit is going to lead economically, but it is already clear, a year after the vote, that there are some tangible economic consequences.
The first is that we have already seen the biggest devaluation since the second world war in trade-weighted terms, and that has fed through into a cut in real earnings for workers over the last year. We have seen a drying-up of business investment such that what is sustaining the economy now is personal credit. I remember speaking in the House 10 years ago about the rise in personal debt and the instability that it created. It then got up to 150% of GDP; it is now 140%, and it is rising again. It is different now—it is not mortgage debt, but short-term credit—but that illustrates the extent to which whatever growth we have is now sustained not by investment but by unsustainable forms of consumption. The other impact we are already beginning to see—I see it as somebody who represents a university and big national research institutions such as the National Physical Laboratory—is that all the research collaborations we had with Europe are now falling apart because of lack of confidence.
Rather than just dwell on the negatives, however, I want to speak a little about a bit of the Queen’s Speech I do agree with. Following on from the hon. Member for Milton Keynes South (Iain Stewart), I want to ask where we are going on industrial strategy. I applaud the fact that the Prime Minister endorsed industrial strategy—I do not know whether that was her personally or her now-disgraced special advisers, but it was good news that she adopted the issue—but what puzzles me is what is actually happening beyond the endless consultation.
Two years ago, there was a functioning industrial strategy—things happened. That was not just because of the Liberal Democrats’ role in the coalition; before that, Peter Mandelson and Michael Heseltine had created some of the building blocks of industrial strategy. Two years ago, we had a whole series of sector operations building up supply chain mapping, doing joint long-term investment planning and thinking about long-term manpower requirements. We had 11 sectors, and then the creative industries and the railway supply chains. It was a very active and positive process.
I would like to know from Ministers what is actually happening now. Do these things still function? Do Ministers still go to them? Will they report to the House on what they are actually doing? There are some genuinely good things going on. The hon. Member for Milton Keynes South talked about the catapult network. I am delighted it survived the last round of cuts, unlike things such as the accelerator, which business wanted but was cut. It is good that things such as that have survived, but I hope the Government will set out exactly where this is going.
May I pose some specific questions about industrial strategy? One of our success stories was around aerospace. The leakage of the supply chain to France was stopped. We had a big £2 billion co-investment programme with the private sector to keep the Airbus wing sector in Britain. However, Airbus has indicated that, because of the loss of the single market and customs union processes, it may well decamp to France. Have the Government had any assurances at all from that company that it will stay here and build its supply chains in the UK?
Linked to that, in relation to the automobile industry, what agreements have the Government reached with companies other than Nissan? It is encouraging, obviously, that the biggest producer has indicated an intention to stay and that it will be given full offsets for any loss of customs union and single market privileges, but what has been said to Jaguar Land Rover, BMW, Volkswagen and Toyota? How many of those companies have been given concrete assurances about their ability to trade? When I was in government, I negotiated with General Motors, keeping its production in Ellesmere Port and Luton. Quite explicitly there was an assurance that Britain was part of European supply chains. Are those going to continue?
Another area in which the Prime Minister made a very helpful intervention was in suggesting that we need to look again at the takeover rules for companies, because we had a near miss with the Pfizer takeover which fell through, and which we discouraged. We need to strengthen the rules to protect our science base, but nothing in the Queen’s Speech indicates that the Government want to proceed with that. If we are going to succeed as a country, we need long-term collaboration with business, and a proper framework of long-term stability and security, but that is badly missing from Government policy at present.
Amendment of the Law
Vince Cable Excerpts(9 years, 2 months ago)
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The Secretary of State for Business, Innovation and Skills (Vince Cable)
It is a privilege to respond to the Budget. I have calculated that, if we include emergency Budgets, this is the 20th successive Budget to which I have responded. I have begun to recognise some common traits, one of which is that the shadow Chancellor, whoever it is, has to adopt a tone of outrage. The current shadow Chancellor does outrage very well—I will concede that—but what he does not do so well is memory. He has the same problem as his party leader of forgetting important things.
The shadow Chancellor seems, for example, to have had problems remembering his own version of the millionaires’ tax cut, when throughout almost all the period of Labour Government the top rate of tax for millionaires was 40% rather than the 45% it is today. I think he has forgotten his authorship of that famous phrase, “No more boom and bust,” and his own role in boosting the banking sector such that it became overweight, toppled over and caused much of the damage and hurt we are still living with today. I think he has forgotten his record as a forecaster: we all remember his triple-dip recession—there was no triple and there was not even a recession.
There is help at hand, however, because one of the genuinely good legacies of the previous Labour Government is the Crick Institute, which will open shortly and will do medical research. I understand it will be taking forward some of the excellent work of University college London on neural pathways. That will open the door to a cure for amnesia, which seems to be the shadow Chancellor’s main problem.
Kelvin Hopkins (Luton North) (Lab)
Does the Secretary of State not accept that the real change took place when Mrs Thatcher and Geoffrey Howe abolished exchange controls, raised interest rates, raised the value of the pound, destroyed manufacturing and shifted power to the City?
Vince Cable
From what I remember of the facts, the biggest decline in manufacturing took place when the hon. Gentleman and his colleagues were in government. I will come back to that later.
Chris Bryant (Rhondda) (Lab)
I am genuinely flabbergasted that the Secretary of State is accusing others of suffering from amnesia. He seems to have forgotten all the speeches I remember him making from the Opposition Benches in support of our spending plans. In fact, the Chancellor, who is sitting beside him, made exactly the same sorts of speeches in support of our spending plans all the way up to the eve of the recession. If some of us are a little sceptical it is because the Secretary of State is forgetting his own amnesia.
Vince Cable
We will come in a moment to my own and my party’s distinctive approach to spending and taxation, which offers a very sensible middle way between the two extremes on offer.
Let me deal with the shadow Chancellor’s various critiques of Government policy, including whether we have made the numbers add up, inequality and living standards, and the balanced recovery. I will start with his accusation that we have failed to balance the books. The shadow Chancellor is a very clever man, but there is a great deal of intellectual confusion about what Labour is accusing us of. The Government started with the objective of trying to deal with the structural deficit—in jargon, the cyclically adjusted current deficit—within four to five years. We are now spanning that over seven years.
What is the problem? If the Government had pressed ahead dogmatically with the timetable, we would have been accused of being inflexible and causing undue economic harm, and there would have been righteous indignation from Labour. In the event, however, the Chancellor was flexible and responded to changing circumstances, not least the effect on the UK economy of rising world commodity prices and the slowdown in Europe.
The Chancellor is a learned man. He is familiar with Keynes’s “General Theory”—I am sure he had read it several times from cover to cover—and he understands that, in periods of economic slowdown, counter-cyclical stabilisers should be used, which is what we did, alongside the use of monetary policy, to stabilise the economy. It is greatly to his credit that he did that, and that accounts for the fact that we are taking longer than was planned to deal with the deficit. None the less, having done that, the deficit is clearly now being reduced. We have got to the single point that debt as a share of the economy is starting to decline. There is a strong recovery—the strongest in the G7—and we have extraordinary employment figures, with the largest number of people in employment in history.
On the shadow Chancellor’s reference to the balanced recovery, I want to focus on one important development, namely what is happening with business investment, which is what drives sustainable recovery. Let me cite for the shadow Chancellor an interesting contrast. Between 2000 and 2007, 3% of the contribution to British growth came from business investment. That was a period when the British economy was being driven by consumption, household borrowing and a boom in house prices. There was very little business investment. Since the crisis—since this Government have been in office—30% of growth has been driven by business investment.
It is possible to break that figure down even further as to where that investment came from. In the period of Labour Government running up to the financial crisis, the contribution made to investment by property—overwhelmingly commercial property speculation—was 80%, and 4% of that investment was in the form of plant and equipment, which is why we had rapid de-industrialisation of the kind referred to by the hon. Member for Luton North (Kelvin Hopkins). Under this Government, the share of property investment has fallen to 30%, and 50% of all business investment is now plant and equipment—real factories making things and a revival of manufacturing industry.
Steve McCabe (Birmingham, Selly Oak) (Lab)
Is it not the truth that the deficit today is where it would have been under the plans of my right hon. Friend the Member for Edinburgh South West (Mr Darling), and that until this moment not a single Government Member has admitted that the Chancellor was talking nonsense in 2010 when he claimed that he would wipe it out by the end of this Parliament?
Vince Cable
The Chancellor was not talking nonsense. It was perfectly sensible to aim to remove the structural deficit as quickly as possible. The fact that we have taken longer over it is a reflection of common sense.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
The Business Secretary will know that manufacturing has hardly shifted as a percentage of GDP in a period when Tata Steel is potentially selling off half its UK operations to a gentleman with a spurious background in that industry. Is he really saying that the march of the makers and manufacturing is doing so well when 20,000 to 30,000 jobs might be at risk because of de-investment in British and European markets, particularly in the steel industry?
Vince Cable
We do not know what will happen in relation to Tata Steel, but I and my Department are talking to the parties involved, including the trade unions, and we are very concerned about the situation. The hon. Gentleman may, however, have overlooked one thing in the Budget. We had a very emotional debate in the House about the future of the steel industry a couple of months ago, and there is a lot of genuine concern, which I share, about the future of steel. Many of its problems derive from relatively high energy costs, but one element of the Budget was to bring forward the compensation to help steel producers—whether in south Wales, the midlands or the north—to deal with the pressures on their costs. I would have hoped that, at the very least, there would be a little acknowledgment of that.
Tom Blenkinsop
Yes, the Chancellor announced that, but he had said that the compensation scheme would come in much earlier than next year. The Tata long products division is still operating under the existing conditions and, may I add, with a carbon floor price brought in unilaterally by this Government—without any discussion with the industry—which is jeopardising all those jobs. Will the Secretary of State at least talk to the Chancellor about speeding up the compensation package, which is much needed for energy-intensive industries?
Vince Cable
The industry has already received a certain amount of compensation. The constraint on bringing it forward is not the reluctance of the Chancellor, but the problem of getting state aid approval. Once that approval has been given, the compensation can and will be brought forward.
Adam Afriyie (Windsor) (Con)
Does the right hon. Gentleman share my bemusement at the fact that Labour Members are complaining about our rate of economic growth and the low levels of unemployment? This country is respected around the entire world for its position on all such matters, which affect the livelihoods of our constituents across the country. I am surprised that Labour Members will not acknowledge even one point when it comes to this Government’s great, solid, sensible economic management.
Vince Cable
The hon. Gentleman is right. I do not think that the shadow Chancellor mentioned the word “employment”, which is interesting because when we first entered office we heard nothing other than the threat of mass unemployment.
Let me pursue the argument about how we will deal with the deficit in the future. It is perfectly right to say that the parties could debate our actual priorities. To be fair to my Conservative colleagues, they are quite explicit about how they wish to deal with the deficit by relying on reductions in public spending. They recognise, as we do, that there is still a significant problem left. This morning, my right hon. Friend the Chief Secretary set out a different way of achieving the same objective. We all have a responsibility to deal with the problem, and we suggest going about it through a different mixture of taxation and spending. The Conservative approach is to deal with it through spending cuts, and given where they come from politically, that is perfectly understandable. Our approach is different: it is a mixed approach, with a ratio of 55% spending increases to 45% tax increases.
With that different balance, we could do more for the NHS. We have talked to Simon Stevens about the finances required to sustain services, including the extra £8 billion and the commitment on mental health. As far as my Department and its work in supporting growth is concerned, I can say—I do not know what my shadow can say, because he is not in the Chamber—that, on such a trajectory, we could sustain spending on the Budget headings that support growth. Those headings cover the industrial strategy and business support; financial interventions, such as the business bank, the green investment bank and the regional growth fund; innovation, which we need to double by the end of this decade if we are to be competitive internationally; science and research, which we plan to grow in real terms, and which the Chancellor has shown a particular interest in and whose budget he supports; adult skills, further education colleges and apprenticeships; and higher education teaching, research and student support. Those are my priorities, and I am very interested to hear what the Opposition’s are. I think their priority is tuition fees, and I will make a little analysis of how that will be done in a moment.
Sir William Cash (Stone) (Con)
My right hon. Friend made a very important speech relating to banks, particularly in rural areas. Will he be kind enough to give us a few extra thoughts on that question? For example, the last bank in Eccleshall in my constituency has been closed. Does he not regard that as a very retrograde step? It is very important to maintain facilities for banking in rural areas.
Vince Cable
The hon. Gentleman is absolutely right to say that that is a very retrograde step. The Economic Secretary and I have had discussions with the banks about how to deal with that problem, and about how to mobilise the post office network—under this Government, it has been saved and stabilised—to provide an alternative. I am not absolutely certain, but I hope that an announcement will be made within the next few days to protect the position of the last bank in the village.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
There was a £30 billion unanswered question in yesterday’s Budget. We know that there will be £12 billion of cuts in welfare, but will the Secretary of State outline to the House where the axe will fall for the remainder?
Vince Cable
If the hon. Lady read the document that the Chief Secretary introduced this morning, she would get a very clear picture. I have explained the 55% to 45% split, which is quite explicit, and I am very happy to defend it.
Daniel Kawczynski (Shrewsbury and Atcham) (Con)
I am very pleased by the announcement in the Budget of additional support for British businesses exporting to China, but will my right hon. Friend continue to press the case for ever-greater investment in UK Trade & Investment, and for its reform, so that we can start to help small and medium-sized enterprises to export to important emerging countries, such as Brazil, Argentina and India?
Vince Cable
The hon. Gentleman is absolutely right. Indeed, UKTI’s work these days concentrates on supporting SMEs. As a country, we underperform on the contribution of the SME sector to exports, compared with countries such as Germany, and that is the focus of UKTI’s work. I would also emphasise his other point on the need to build up our relationship with China. We have worked very hard on that, and the Prime Minister and the Chancellor have led from the front on our relations with China, which are good. The establishment of the new financial institution, in which Britain is a co-investor, is a signal of the importance we attach to our relations with China, and that will continue.
Sir Edward Leigh
My right hon. Friend is making a very thoughtful speech, in marked contrast to that of the shadow Chancellor, who was more Henry VI than Henry V. Will he comment on the staggering paucity of the cuts the shadow Chancellor will make? They appear to have been dreamed up on the back of a plain-packaged fag packet. How will the shadow Chancellor get rid of the deficit just by abolishing police and crime commissioners and by not opening a few more free schools? I still do not understand how he is going to solve the problem of the deficit.
Vince Cable
The hon. Gentleman is absolutely right. I thought it might be useful to take one element of the Opposition’s policies to see how utterly incoherent it is. I want to home in on the particular issue of how they would fund a reduction in tuition fees. To be frank, this is a tricky subject for all parties. All parties, including the Labour party, have gone back on their commitments. My party has done so, and I know that the Conservatives had some embarrassment in 2005. I would have thought that common sense suggested we ought to draw a line under this episode. I know from the feedback I get from the shadow Cabinet that the shadow Chancellor has been a voice of sanity in this debate, but his leader has not listened to him. Clearly, I am parti pris on this matter, but let me read a comment made yesterday by a man who describes himself as having been
“responsible for delivery in Downing Street under Tony Blair”.
I am not sure that I would want that on my CV, but he is very happy about it. Referring specifically to this proposal, he said:
“The result would be to spend almost £3bn to subsidise high earners of the future. The present system is attracting more students than ever, especially from low-income families. In 2004, before fees were introduced”—
by the previous Government—
“14 per cent of the lowest socio-economic fifth…went to university; last year 21 per cent did. Labour’s proposal therefore offers not ‘more for less’ but ‘less for more’.”
The position is actually worse than that, because we do not understand how it will all be paid for. A £2.6 billion gap needs to be filled to pay for the cap. The original idea was that there would be some kind of granny tax, with grannies paying extra into their pensions. That comes down to the proposal about the pension pot. The proposals that the Chancellor made yesterday diminished considerably the resource available from that source, so where will the money come from? Even if the Labour party can identify where the money will come from, how can it guarantee to universities that the money will get from the grannies to the Treasury to the universities? How exactly will that be sustained in the years ahead?
This is not just a debating point; these issues really matter. The feedback that we are getting from universities is that they have stopped investing because there is a political risk—although it may not be high—of a Labour Government. Universities have stopped investing and are having to fall back on their reserves. Some universities, such as Cambridge, have said that if this policy were to happen, they would drastically reduce the number of students they admitted and cut back on their supervision. The quality of education would suffer.
It requires a particular kind of genius to dream up a proposal of such transcendental stupidity. I was going to ask the person responsible to stand up and tell us what it is all about, but the shadow universities Minister is not here. He is the same guy who left the note saying that there was no money left. What he is now proposing is that universities should experience precisely the same treatment.
Vince Cable
We did not promise to abolish the VAT bombshell. We did make the promise on tuition fees and that was a mistake. We have regretted it and apologised for it.
I just wish that the Labour party would have the same wisdom, because if it ever gets into office, it will go down this road and it will do severe damage to the budget and to universities. The worst thing about this policy is that the primary beneficiaries will be the investment bankers of the future. The shadow Chancellor has been going around complaining about millionaires’ tax cuts. What he is now advocating is a millionaires’ debt-relief scheme.
Mr George Howarth (Knowsley) (Lab)
To use the right hon. Gentleman’s own words, would he describe the promise to abolish tuition fees at the last election as transcendentally stupid?
Vince Cable
The promise was not to abolish tuition fees, but to not increase them. We did increase them and that was a matter of regret.
Mr Mike Weir (Angus) (SNP)
I speak as a representative of the one party in this House that has not gone back on its promise on tuition fees. There are no tuition fees in Scotland. The Secretary of State talks about the costs of the policy, but was not one of the difficulties in the recession the huge amount of personal borrowing? Students are now leaving university owing a fortune because of tuition fees and the other costs of their studies. How will that work through the economy in the future?
Vince Cable
I was hoping that we would have an intervention from the Scottish nationalists, because they illustrate better than anybody else the stupidity of this policy. There have not been tuition fees in Scotland and the quality of university education is declining because there is less resource. The worst thing of all in Scotland is that in order to maintain this policy, they have raided the budgets of further education colleges, taking money from working-class children in Scotland to finance middle-class undergraduates. That is a very retrograde policy. If anybody wants to see where Labour’s policy will lead, they should indeed go to Scotland.
Let me turn to the bigger question of inequality, because many of the accusations that are made by the Opposition relate to the question of whether we have become a more unequal society. It is certainly true that if we talk about the top 1%, there is extreme wealth. Some of it—that created by entrepreneurs and risk takers—is totally understandable in a free-enterprise society, but much of it is not. That problem is shared across the world. It is true of the top 1% in social democratic Scandinavia and in communist China. These people can move, and they can move in and out of our country. It is to the credit of the Chancellor that he was able to say yesterday that the share of income tax that is paid by the top 1% has risen under this Government from 25% to 27%.
Of course, there is one way in which the ultra-rich in society can be made to pay that they cannot run away from, and that is by targeting high-value property. That is one area where my party has common ground with the Labour party.
If we take the wider issue of income distribution and the effects of austerity, the evidence is clear. People in the top 10% or 20% have contributed more than average in cash or percentage terms to the austerity programme and deficit reduction. For an objective measure of inequality, we should look to bodies such as the Institute for Fiscal Studies, which is totally independent and has been a thorn in the side of successive Governments. It has done an analysis of income inequality before and after this Government, looking at the basic Gini coefficient, and found that inequality in income is lower today than in 2007-08. If one digs into the figures a little further, one finds that the numbers depend on which consumer index is applied. However, even if one applies different consumer indices, the IFS analysis shows that, at the very worst, income inequality is no worse under this Government than it was under the Labour Government. I hope that when we hear the righteous indignation in future, the basic facts about this matter will be properly understood.
Ed Balls
Will the Business Secretary confirm that because of measures such as the bedroom tax and what has happened to tax credits—things that have happened only because of Liberal Democrat votes—the quintile that has made the second biggest contribution is the poorest 20% of families in our country? Does he feel proud of that?
Vince Cable
It depends entirely on how we look at the combination of tax and tax credit. The simple point is that the top quintile—the top 20%—has paid four times as much in deficit reduction as the group to which the right hon. Gentleman referred.
Alex Cunningham (Stockton North) (Lab)
Of course, the poorest in our society are the people who are on benefits. The Chief Secretary to the Treasury has ruled out support for the £12 billion of cuts to the welfare budget, which would make income inequality even greater for the poorest people in our society. If the Secretary of State does not support those cuts, what cuts does he support to fill the gap?
Vince Cable
Let me deal with one of the points of righteous indignation that is made about welfare cuts—the point about the so-called bedroom tax. The problem with it is that the idea of relating housing benefit to the size of accommodation did not start under this Government; it was a long-standing policy in relation to people in private rented accommodation. Where we have disagreed with our Conservative colleagues—we have made this explicit—is in saying that the so-called bedroom tax should not apply retrospectively. If people are given an offer of accommodation in the council house sector and they turn it down, they should pay it, but if they do not receive a satisfactory offer, they should not. That is a point of difference. The sheer righteous indignation bears absolutely no relation to the history of this problem.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Will the Secretary of State give way?
Vince Cable
I will take the hon. Lady’s intervention later.
Let me turn to the broader issue of living standards. It is blindingly obvious that in all the western countries that were hit by the financial crisis, there has been a fall in real wages. That has happened everywhere. Countries—including ours—were made poorer, production fell, productivity fell and, although we got more people back into work, real wages fell with it. I am putting this in terms of basic economics. Unless real wages had been kept “sticky”, as Keynes termed it, they were bound to fall, and they have fallen. The alternative was what has happened in France, Spain and Italy, where real wages were maintained, but where there has been mass unemployment as a result, particularly among younger workers. That has not happened here, which is a blessing.
The figure that the Chancellor produced yesterday is highly relevant, because what matters to households is not just wages but people’s take-home pay and disposable income. Disposable income involves not just wages but tax credits and taxation, and families are now better off then when we came to office. That is a result of several interventions, the most crucial of which was lifting the tax threshold. We made the radical, massive change of lifting the income tax threshold from £6,700 to £10,800, and that has brought a great deal of relief at a time of economic crisis to 27 million people. Three million people have been lifted out of tax altogether—mainly women on part-time earnings—and that has benefited workers by the equivalent of £800 a year. That has cushioned working people from the effects of the crisis, and there should be some acknowledgement of that from the Opposition Benches.
Debbie Abrahams
I must challenge the Business Secretary on what he has said about the impact of this Government, which includes the Liberal Democrats and their policies. The Institute for Fiscal Studies clearly states that as a result of tax and spending changes, low-income families, particularly those with children, are proportionately worse off, and incomes have reduced by £1,100. We cannot avoid those facts.
Vince Cable
As I said, the whole of society was hit by the economic crisis, but it is clear that the poorest in society have not been proportionately badly hit, and the people at the top have paid proportionately more. I remind the hon. Lady of what the IFS data said, which was that if we take into account inequality in all its aspects—that includes tax, tax credits and earnings—in income terms Britain is more equal, or as equal now as it was under a Labour Government. Labour Members may need to explain why the economy got into that position when they were in office, but that is what the independent sources tell us.
In addition to the tax allowance, the other key step has been protection of the minimum wage and the Low Pay Commission. I was alarmed by comments made yesterday by the Leader of the Opposition about the minimum wage. I am not one of the people who wants to trash everything that the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) did when in office. There were some mistakes but also some good things, not least making the setting of interest rates independent through the central Bank—a very positive step. Supporting science was another positive step, as was the establishment of the Low Pay Commission as a mechanism for deciding what is in the national interest as far as the minimum wage is concerned, and how we balance the perfectly natural wish of working people to see their wages rise with the overall interests of the economy and employment.
What was alarming about the comments of the Leader of the Opposition yesterday was that he now wishes to turn that valuable inheritance into a political football. I think he originally said that he would determine politically that there should be an £8 minimum wage, regardless of the conditions of the economy. Yesterday it was “at least £8”, but why not £8.50, £9 or £10? We could all bid in a Dutch auction on the minimum wage, but it would be ruinous for the economy.
Vince Cable
The Chancellor did not announce that as a goal; he made a projection about what, under certain assumptions, the minimum wage would be. He has agreed with me and we have a combined view that we should accept the advice of the Low Pay Commission, which is what we have done. We have maintained a valuable institution, and I am seriously worried about the irresponsibility that has crept in as a result of that simple populist gesture by the Leader of the Opposition. That is not just damaging to the economy in the future, but it undermines a valuable institution that his predecessor brought in.
Tom Blenkinsop
At least the Secretary of State is being consistent on this issue. Will he confirm that in 2012 the Government froze the national minimum wage for those under 21?
Vince Cable
We have always made a clear distinction between the basic recommendation on the minimum wage, which every Minister in my position has accepted, and some of the second-order questions. We have changed the recommendation on apprenticeships, and indeed others, but the recommendation on the basic minimum wage is fundamental and something that Ministers of both Governments have honoured. The Leader of the Opposition—for reasons that are unclear beyond anything other than political populism—now proposes to destroy that tradition, and that is very retrograde.
Mr Kenneth Clarke (Rushcliffe) (Con)
I share the right hon. Gentleman’s experience of having opposed the minimum wage when it was proposed by the previous Government, although I now realise that was a mistake and have been converted to the value of it, given how it has worked. Does he agree that if the political debate follows what the shadow Chancellor wants, and each of the parties—all seven of them, no doubt—says what it would tell employers to pay as a minimum wage, we go back to the danger that I initially feared of unemployment being caused by bidding up, for vote-catching reasons, the basic pay of people trying to get into work?
Madam Deputy Speaker (Dame Dawn Primarolo)
Order. Before the Secretary of State replies, may I gently say that 23 Members wish to take part in this debate, and he has been speaking for nearly 35 minutes. I understand that he has generously taken lots of interventions, but will he perhaps think about all his colleagues who still wish to speak?
Vince Cable
I will certainly respond as you wish, Madam Deputy Speaker. I think I have taken at least 23 interventions, but I am happy to cruise to a conclusion on that note.
If we are going to lift real wages and living standards, that must be done through the growth of productivity. That is the only way it can happen. A whole set of measures in the Budget suggest how that can happen in the long term. It must come through skills and innovation, and there was a series of constructive initiatives—catapults, science capital investment, driverless cars, the internet of things, the energy research institution, and other things—in the Budget. Cumulatively, those will drive up productivity in British industry.
One announcement that perhaps did not receive as much attention as it should have done was about trying to improve the way funding flows through apprenticeships and a voucher system that enables employers—particularly small companies—to acquire the skills they need. The key, however, will be business investment, and I have already pointed to improving trends in that respect. One lesson of our period in office is that under the difficult conditions we have had, by investing judiciously through bodies such as the regional growth fund, the Green Investment Bank, and the British Business Bank, the Government can stimulate significant amounts of additional private investment.
I will finish with an announcement in response to a question that the Leader of the Opposition threw out yesterday about the Green Investment Bank. We have agreed that that is a successful initiative that stimulates private investment, and for £2 billion from Government there has been £3 billion extra from the private sector. We want to build on that success and are looking at a range of options for bringing private capital into the Green Investment Bank, and to give it greater operational freedom and enable it to borrow in capital markets. That will provide it with an alternative channel of funding, and ensure its future as a lasting and enduring institution.
There was a great deal of excitement earlier this morning about the alternative route to fiscal policy that my party was advocating, and it is right that in the run-up to the general election we should have a different approach to how we balance the budget. However, there was a lot of common ground, and this was a joint coalition Budget that we are proud to have been associated with. It was about economic growth—we are now the most successful in the industrial world having been in the worst crisis—and about rising business investment, exceptional levels of employment, and rapidly falling unemployment. All that is taking place at a time when the public finances have been approved, and we have moved from being a basket case to a successful economy.
Amendment of the Law
Vince Cable Excerpts(10 years, 2 months ago)
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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?
Sheila Gilmore (Edinburgh East) (Lab)
The Secretary of State seems to be avoiding the fact that people are poorer not since the financial crisis, but since 2010. Changes to tax credits, benefits uprating and so on have, for the lowest paid workers, more than outweighed any advantage gained from raising the tax threshold.
Vince Cable
The distributional analysis, which I am sure the hon. Lady has studied, suggests that the biggest impact of this shock has been on the highest 10%. That may be surprising, but that is what has happened.
Vince Cable
Let me just take apart particular aspects of the argument that has been put forward: how it relates to jobs, production and earnings. Let me start with jobs.
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.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Will the Secretary of State confirm what his colleague, the Chief Secretary to the Treasury, had difficulty in doing the other day: confirm that the employment rate is still below pre-recession levels?
Vince Cable
My understanding is that the employment rate, if the hon. Lady is talking about the total adult population in work, is now at its highest level ever—higher even than in the United States, which is famed for a flexible labour market.
I am surprised that Opposition Members feel that there are issues to pursue. [Interruption.] Somebody muttered “Immigration”. Last year, overwhelmingly the largest number—well over 90%—of jobs went to British workers. I do not know if they have studied those figures.
Mr Stewart Jackson
Does my right hon. Friend not think it disingenuous, given the Government’s inheritance of a 7% reduction in GDP presided over by the Labour party, for Opposition Members to categorise changes in personal allowances, which will affect 25 million people and take 3 million people out of tax altogether, as having nothing to do with the cost of living?
Vince Cable
Yes. I am delighted that the hon. Gentleman has raised that point, and I was going to dwell on it more later. It is a considerable achievement of this coalition that we have delivered, and indeed over-delivered, on the commitments I and my colleagues made before the previous general election. That helps people who are relatively low paid by lifting them out of tax, not just because they pay less tax but because it reduces the tax rate at the margin and provides a significant incentive to work.
Grahame M. Morris (Easington) (Lab)
Will the Secretary of State address the issue of youth unemployment? In my constituency, 825 under-24s are out of work and almost 200 of them have been out of work for almost a year.
Vince Cable
Yes, I will address the issue of youth unemployment and the hon. Gentleman is right to raise it. This is an issue that has, of course, been with us for many years, including under the previous Government when economic conditions were much more benign. Youth unemployment is currently at about 20%, but of course that includes many full-time students. The key trend is that youth unemployment is now declining rapidly. It is certainly less now than the level we inherited, and we have a whole set of policies designed to deal with it in a systematic way.
The shadow Chancellor put forward the idea of a youth guarantee. The problem that that presents is this: how can a job be guaranteed other than through the public sector? Of course guaranteeing a public sector job takes people off the dole, but it also creates a permanent need for subsidy and support. What we have done is create a route that allows people who are not going into full-time higher education to develop the preconditions for proper apprenticeships through traineeships, basic academic requirements and work experience, and then find their way into true apprenticeship training, which has been an enormous success: it has doubled since we came to office. The measures announced in the Budget statement yesterday will enable a further 100,000 people under 24 to be given apprenticeship training, and the quality improvements that we have made are driving up demand and supply at the same time. This is a much better way of dealing with young people who are out of work than creating artificial jobs.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Many Labour Members are very pleased about the improvement in the employment situation that has taken place over the last six months or so—indeed, over the last year or so. However, is not the big issue—apart from the caveats relating to short-time working and zero-hours contracts—the fact that the productive capacity of the economy seems to have shrunk, and productivity per worker has certainly shrunk? That is casting a very grave shadow over the length of the recovery that we might have expected. What are the Government planning to do about it?
Vince Cable
The hon. Gentleman’s analysis is spot on. Of course that is what has happened. We have managed to avoid mass unemployment, but the average productivity level has fallen. If we are to grow, and if living standards are to grow—that seems to be the focus of the debate—productivity must rise, which prompts the question of how we do it. We are currently doing it in an environment that is severely constrained. We must remember—and I think that the shadow Chancellor often forgets this—that one of the massive legacies of the crisis was the structural deficit. A deficit of that kind does not go away when growth increases; it is there, it is structural, and it will have to be dealt with. The structural deficit, defined as we defined it when we formed the coalition, has fallen from about 5.4% of GDP to 2.7%. We are nearly halfway, but we have to continue the job, and the next Government will have to continue the job. In that context, we must proceed with an agenda of raising productivity and growth.
Stephen Timms (East Ham) (Lab)
Does the Secretary of State acknowledge that a particularly serious problem is long-term unemployment among both young and older people, which, according to the figures released yesterday, has increased? Does not more need to be done to tackle that problem?
Vince Cable
It does, but the figures produced over the last year suggest that long-term unemployment is falling, along with unemployment in general.
Sir Edward Leigh
My right hon. Friend is making an excellent speech in favour of hard work. I read in the papers yesterday—so it cannot possibly be true—that the Chief Secretary had boasted that he had personally vetoed any indexing of relief for higher-rate taxpayers. Surely my right hon. Friend, who is pro-enterprise, cannot think it right that a police sergeant is paying higher-rate tax.
Vince Cable
I listened carefully to what was said, and I thought that there was an acknowledgement of the position of the people on the top-rate threshold. This is a modest increase, but there is a recognition that marginal rates of tax are beginning to bite on middle earners, and I think that that issue is now being addressed.
Mr Ellwood
My right hon. Friend has alluded to the important point that the figures for long-term youth unemployment—which was mentioned by the shadow Chancellor—include young people who are engaged in full-time study. Perhaps he will join me in congratulating Bournemouth, where Arts University Bournemouth, Bournemouth university and the Bournemouth and Poole college have doubled in size. Because of that, the figures suggest that long-term youth unemployment has indeed increased, which is not the case.
Vince Cable
I believe that about a third of the total number who are classified as “youth unemployed” are, in fact, engaged in full-time study. One of the big changes for which the coalition Government should take credit is the continued expansion in higher education: despite all the doomsday predictions from Opposition Members about the radical higher education reforms, the number of people going into higher education, particularly those from disadvantaged backgrounds, has risen.
Neil Carmichael (Stroud) (Con)
Does the Secretary of State agree that the issue of our productivity is linked directly to skills? Is it not rather ironic that the shadow Chancellor, who was Secretary of State for Children, Schools and Families, signally failed to help the nation to secure the right degree of skills—unlike us, with our long-term economic plan?
Vince Cable
Yes, indeed. I think that the apprenticeship model which we are now developing and expanding rapidly, in terms of both quality and quantity, is the remedy for the long-standing neglect to which my hon. Friend has rightly drawn attention.
Mr Robert Syms (Poole) (Con)
Is it not a fact that the British car industry will produce 1.6 million cars this year, and that Jaguar Land Rover alone will export 13.5 billion? Is it not also true that the Budget, with its help for manufacturing and exporters, is bound to help such industries and produce a good British success story?
Vince Cable
I had intended to say something about manufacturing incentives, but let me now emphasise a point that my hon. Friend has made very well. Some of our manufacturing industries, including the car industry, are expanding rapidly, and showing very high productivity and rapid export growth. The aerospace industry is another example. I was delighted to learn this morning that Hitachi, the leading Japanese company, is to establish the global headquarters of its railway manufacturing business in the United Kingdom on the basis of its existing investment in the north-east of England, and it is expanding and seeking business opportunities from the rail revolution that is taking place here. Manufacturing industries such as those, which were previously in decline, are now beginning to become resurgent in some key sectors.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Will the Secretary of State give way?
Vince Cable
That is not actually true. All recoveries tend to start with consumer spending, but lack of investment is a deep-rooted problem in the United Kingdom, and it is a problem with which we are trying to deal. However, if the hon. Gentleman studies the figures from the Office for Budget Responsibility, he will see that business investment increased by 7% last year, and the CBI projections for this year are higher than that. Business investment is beginning to take serious shape.
I think that, when we speak of growth, recovery and productivity, it is worth our while reflecting on some of the 18 Budget statements to which I have listened and responded in the past. For more than a decade, Budgets were introduced by the present Opposition, and there was a very positive story every year until we reached 2008. We had 2% growth, and there was enormous triumphalist cheering about the wonders of the brilliant Government economic policy that had produced that achievement. Comparisons were made with the past which suggested that this was the greatest economic performance, if not since the Victorians, probably since the Georgians, the Tudors or even the Romans. However, we had to go back to the Greeks to find the word that captured the spirit of those early Budgets. It was the word “hubris”, which encapsulated the Opposition’s simple inability to understand that weaknesses were building up during that growth.
Our Government are confident that we now have recovery. We are positive about it, and proud of our contribution to it. However, we acknowledge that there are some deep-seated historical weaknesses that now need to be addressed, and the Chancellor did address them in a systematic way in the Budget yesterday. The first and most important way of dealing with those weaknesses—and the driver of productivity—is, of course, higher levels of investment. That is why the extension of investment allowances, which will substantially increase the incentives for small and medium-sized companies, particularly those in the manufacturing sector—over time and in terms of scale—is such a big step forward, and is so welcome.
Gavin Shuker (Luton South) (Lab/Co-op)
The Business Secretary is clearly confident that he could have run the economy better than Labour during the 13 years during which it was in power, and I suspect that that enthusiasm and confidence have continued into the present Parliament. Perhaps the right hon. Gentleman could outline some of the ways in which the economy would be run differently if he, rather than the right hon. Member for Tatton (Mr Osborne), were Chancellor.
Vince Cable
I find that many of my ideas have been incorporated in Government policy, and I am very pleased about the progress that we are making in that respect.
Of course, increased investment depends on business confidence. Because we are approaching the election season, a danger is posed by some of the comments being made by the Opposition. Sir George Cox, who used to be at the Institute of Directors and is now an adviser to the Opposition, suggested recently that the business-averse policies of the shadow Chancellor and his leader were doing serious damage not to their own credibility, but to confidence in the country. I would underline that. If we have policies that appear to commit future Governments to energy price freezes that prevent new energy investment, we are undermining investment. Of course it is not just the Opposition; the people who want to take Britain out of the European Union and want to take Scotland out of Britain are also undermining investment confidence. Political certainty requires at least literate policies from the Opposition, which in the area of price freezes certainly is not the case.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I think the Secretary of State will know that that is not an accurate representation of what was said. May I ask him to comment on net lending particularly to small businesses, which is a concern? Why does he think that has continued to fall on his watch, and what is going to be done about it?
Vince Cable
Yes, there has been a continuing decline in net lending to small business. We think it is bottoming out, but it has happened and it is damaging. It is a consequence of the near-collapse of the banking system and the fact that some banks are now responding to much tougher regulation by being much more conservative in their lending. That is not true in all cases: Lloyds and Santander are increasing their net lending to small businesses, but many are not.
In response, the Government are establishing institutions, particularly the business bank, which are developing new flows and types of finance—internet-based lending, asset-based finance, invoice finance—in areas that hitherto were deficient, as well as supporting the establishment of new banks. About 20 new banks have been licensed over the last year, and that deals with the issue of bank competition that should have been dealt with when the last Government were in power and we had the Cruickshank report. That is now happening, however, and I therefore think we will begin to see the net lending trend becoming much more positive, but there is no underestimating the enormous damage that was done to the British economy as a result of the collapse of the banks, over which the last Government had responsibility for many years yet did absolutely nothing.
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.
Richard Graham (Gloucester) (Con)
The Secretary of State is making powerful points about the importance of supporting manufacturing. Under the last Government, the city of Gloucester lost 6,000 jobs. We have created 2,500 jobs since this Government came in, quadrupled the number of apprenticeships and seen manufacturing increase in a way that has not happened for about 30 years. Does the Secretary of State agree that the Opposition simply do not understand what manufacturing needs, and that the doubling of the capital allowance is a huge step forward?
Vince Cable
That is right, and the industrial strategy we are following across government gives particular priority to the aerospace industry, and I know my hon. Friend’s part of the country has benefited considerably from the development of the aerospace supply chain.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
The Secretary of State touched on the compensation scheme announced yesterday. For the sake of clarity, will he inform the House how much of the compensation scheme announced in November 2011 and which was due to come in in April 2013 has so far been paid to energy-intensive industries?
Vince Cable
The element that relates to the European emissions trading scheme has already been paid. The companies have already received the cheque. The sums are not large because the ETS scheme proved to be pretty ineffective, but none the less the compensation is being paid and it is now being extended to a wider range of costs. [Interruption.] The hon. Gentleman seems to be indignant, but I think he should talk to his local manufacturers who have expressed full satisfaction with what we are doing.
Chris Kelly (Dudley South) (Con)
The Secretary of State is talking about energy-intensive industry and there is still a great deal of that in my constituency. Does he agree we do not want these industries going offshore where environmental legislation may not be as stringently enforced as it is in the UK? We need to keep those industries here in the UK, and yesterday’s Budget helps us to achieve that. [Interruption.]
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. Before the Secretary of State answers the intervention, I should say that there are far too many conversations on the Back Benches. The House is getting restless. If the House does not calm down and let the Secretary of State get on with it, he will never come to the end of his speech.
Vince Cable
I am trying very hard, Madam Deputy Speaker, to take as many interventions as Members wish to throw at me.
In relation to Dudley and manufacturing, my hon. Friend is right that it is not sensible to lose manufacturing overseas as we will get carbon leakage and lose the production and the jobs. It is very much in our interests to stop that happening and we are doing so. There is a lot of evidence of the reshoring of production, including to the industries in the west midlands to which my hon. Friend refers.
The priority the Chancellor has given to manufacturing, to investment and the savings that lie behind investment, and to exports through the expansion of export credit are absolutely appropriate to getting long-term growth and the productivity that that entails. There is a lot more to be done. We still have serious constraints in terms of skilled labour. There are still problems in opening up business finance. We have to invest much more in science and innovation, although we are doing that. However, the themes that run through yesterday’s Budget of support for investment, for savings and for exports are absolutely right and they will take this country to the right place.
Consumer Rights Bill
Vince Cable Excerpts(10 years, 3 months ago)
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The Secretary of State for Business, Innovation and Skills (Vince Cable)
I beg to move, That the Bill be now read a Second time.
I am delighted to introduce this important Bill. It has been widely consulted on outside and inside the House and our understanding is that it is welcomed by both business and consumer groups. There has been some constructive criticism from inside the House during domestic scrutiny and we have taken on board the large majority of the suggestions. As the Bill proceeds, we will further debate much of the detail.
The context of the Bill is our determination to build and enhance a climate of trust in which UK business operates, restoring trust, which is often needed, in markets and market transactions. The consumer law reforms that we are discussing lie at the heart of a crusade towards trusted business and trusted capitalism. We see them as part of the overarching overhaul of UK competition and consumer legislation that we have been undertaking over the past four years.
Essentially, the coin has two sides: competition policy and consumer protection. Let me start with the competition reforms. A competition regime is essential to encourage efficient and innovative businesses, allowing the best to grow and enter new markets, driving investment in new and better products, and pushing prices down and quality up. That is good for growth and good for consumers. That is why earlier in the Session we introduced reforms of competition policy and the new Competition and Markets Authority, which will come into effect in April with strong new powers to take robust decisions more quickly. Changes we have made to the criminal cartel offence will enable the CMA to address the pernicious influence of cartels.
What we are doing in the UK is mirrored in what is happening in the European Union. There are people who think that the European Commission is entirely about regulation, but it does important work in opening up markets, deregulating and increasing competition. It is worth citing several examples. Last year, fines of almost €1.5 billion were imposed on companies engaged in fixing the price of TV and computer monitor tubes and fines of €1.7 billion were imposed on companies that had established a cartel to fix interest rate derivatives. The European Commission is conducting a competition investigation into Google’s business practices. Among other things, the Commission is considering how Google uses third-party content without consent and how it structures its search results. Our domestic Consumer Rights Bill will enable us to strengthen that framework by making it easier for individuals and businesses to seek redress through private actions where they have been harmed by anti-competitive behaviour. That is covered in one of the clauses.
Competition also relies on consumer law and the framework of protection for individuals who suffer from unfair business behaviour. That is why we are reforming the landscape of consumer bodies funded by Government to improve consumer protection and give greater clarity about where consumers need to turn for help and advice. I hope that will deliver a better deal overall for consumers through clearer responsibilities and better co-ordination.
We cannot expect consumers to be confident when they do not understand their rights or when they find it hard to know what they are entitled to if something goes wrong. Unclear rights and remedies mean that businesses can also find it costly to understand their responsibilities. We seek to address those concerns. We have set out in one place key consumer rights and what consumers are entitled to. The measure covers goods, services and, for the first time, digital content such as e-books and software. We estimate in the impact assessment a value in the order of £4 billion over a 10-year period.
Of course, this involves strengthening statute and regulation, but overall this is a deregulatory measure, with a positive impact on business. It makes it easier for business to understand what should happen when a problem arises. It will stop problems escalating, with all the associated costs and the development of disputes, and it will help to create a level playing field for business. It is pro-consumer, but it is also pro-business.
Robert Flello (Stoke-on-Trent South) (Lab)
Will the Secretary of State elaborate on the reason why the downloaded digital regime is different from the physical regime? If I go and buy some software on a physical DVD or CD, under the Bill, that is different from a downloaded version.
Vince Cable
I will elaborate on that when I discuss digital measures. The hon. Gentleman is quite right: there are different consumer protection arrangements for the DVD—the physical equipment—and for content. The measures in the Bill specifically relate to how we strengthen protection on content.
The Bill was published in draft last summer and, as I have acknowledged, we are grateful for the feedback we received as a result of scrutiny, particularly by the Select Committee on Business, Innovation and Skills. Many of its recommendations are reflected in the Bill before the House, and I believe that it has been improved as a consequence of that scrutiny.
The first main measure in the Bill deals with goods, which are a critical part of the economy. There are roughly 350,000 retail businesses, but much of the law pertaining to this area is 30 to 40 years old. We have tackled the complexity that makes compliance burdensome for companies and confusing for consumers by setting out in one place the standards that have to be met. For example, we have defined a 30-day period within which goods have to be inspected. We have made it clear that, where consumers have a faulty item repaired or replaced, that repair or replacement must remedy the problem the first time round, or they can insist on some money back. Survey data show that all but 6% of faulty goods can be remedied the first time round, but we have embedded that in a clear set of rules.
We often hear, for example, about consumers trapped in a cycle of repairs that fail to fix a fault. Which? recently reported a case of a car owner who had fault after fault after fault, but he was consistently fobbed off with further repairs that failed each time to fix the fault. Under the Bill, that will not arise, as we will narrow down the obligations.
The hon. Member for Stoke-on-Trent South (Robert Flello) asked about digital content. There is a good deal of legal uncertainty about consumer rights in relation to digital content, which is unacceptable in a rapidly growing segment of the economy with a turnover of around £200 billion. That is why we have introduced a new category of digital content with a set of quality rights. As I said, we need a distinction between the way in which we protect content, which is intangible, and the way in which we protect goods, such as DVDs, which are tangible and are dealt with under the goods provision.
For example, many people now download music albums, but if one of the tracks is corrupted and will not play, it is not clear what they are entitled to. Under the Bill, they are entitled to a repair or replacement of the digital content and, if that does not fix the problem, they will get their money back. This is a complex matter, and we recognise that, in relation to complex software, for example, there are flaws—that is the nature of the business—but we have tried as far as possible to narrow down the areas of fault and consumer obligation. Clear digital rights are good, not just for consumers but for responsive businesses, particularly new market entrants—a key part of the industry—which will find it easier to attract customers, even if they are not an established brand, because they can establish a track record in consumer service underpinned by the legislation.
Another part of the Bill deals with consumer protection in relation to services. We know from reviews by the Law Commission that the law governing the provision of services is difficult to understand and, when things go wrong, there is no statutory redress regime to put them right. However, we are talking about 75% of the British economy. That is why the Bill provides new statutory rights and introduces new statutory remedies when things go wrong. There is a great deal of debate about the specifics: the Business, Innovation and Skills Committee has suggested a statutory quality right, which we looked at, but we found it too complex. We considered the evidence from Australia, and we are certainly happy to engage in further debate on the matter.
As an example of how the new rights would apply, we can look at the case of cowboy builders. Almost all of us have dealt with such cases in our constituencies, and they cause particular anger. A cowboy builder is doing domestic work and altering someone’s bathroom. They start the work, but there are problems, with debris strewn around the house and disruptions to the water supply. Currently, it is unclear what the householder is entitled to, and a lot of frustration flows from that. Under the Bill, there will be a statutory right to ask for a poorly performed service to be redone if possible. If it cannot be redone within a reasonable time or without significant inconvenience there is a right to money back. I stress the example of cowboy builders, as I think that the hon. Member for Walthamstow (Stella Creasy), who may well want to discuss this, issued a press release this morning in which she singled out cowboy builders and said that there was no reference to them in the Bill. In fact, these measures will improve significantly consumer protection in that area.
Another area in which the Bill introduces reform is unfair contract terms—essentially the small-print problem. Legal ambiguity arises from recent landmark court cases—the so-called banks case in particular—and our reforms endeavour to protect consumers from the small print while making it easier for businesses to understand how they can prevent contract terms from being challenged in court. In a typical example, someone joins a gym in January with a lot of enthusiasm, but they have not read or fully understood the details of the small print. When they cancel the contract in March, as many people do—I seem to remember cancelling my gym contract rather earlier in the year—they have to pay for a full year’s membership. Currently, it is not clear whether a court would find that unfair. Under our proposals, it is clear: a court can find it unfair, and if it is unfair the consumer is not bound by it.
The reforms endeavour to make clear what the courts can and cannot consider in assessing fairness. In particular, we make it a key test that price and subject matter in a contract need to be transparent and prominent—the operative word is “prominent”—to ensure that it cannot be challenged for fairness in court.
Mr Gordon Marsden (Blackpool South) (Lab)
I am interested and encouraged to hear that proposal, because I dealt with a constituency case in which a young man found himself with precisely the sort of problems that the Secretary of State has described. Does he agree that there is a role for local councils, if it is a local gym or other local body, and their consumer protection departments, which should intervene in these issues? Will he encourage local authorities to use their public protection departments in that way?
Vince Cable
Trading standards at a local level are extremely important. It is not a statutory obligation, and councils vary in their support for it, but it is absolutely crucial. This is where much of the enforcement action will be eventually taken. At national level, as the hon. Gentleman will know, we put £13 million a year into the National Trading Standards Board, which provides training support, for example, and helps trading standards authorities to co-ordinate activities. That is often required, because an abuse can occur across borough boundaries. He is absolutely right: local trading standards officers are crucial in implementing much of this legislation.
Stephen Lloyd (Eastbourne) (LD)
I am chair of the all-party parliamentary group on consumer affairs and trading standards. In my constituency and around the country, trading standards do a tremendous amount of very good work, but one of their challenges is that their budget depends on local authorities and can be patchy. I appreciate that, as a result of the streamlining measures in the Bill, much of the enforcement will be done by trading standards. I think that the Bill will make that easier and make a real difference. Will the Secretary of State or his officials meet me and some senior trading standards colleagues so that we can work out how that can be done more efficiently or better, or even find ways to squeeze more income from the Government to help them to do that?
Vince Cable
I know very well my hon. Friend’s interest in this area and the work that he has done on it. He has made Eastbourne an exemplar of good practice. I accept that local authority budgets are squeezed, and sometimes trading standards are squeezed relatively severely. We can help with that by helping to rationalise their operations, training and cross-border co-operation. I am happy to meet my hon. Friend and others, cross-party or otherwise, to see how we can progress this.
A further set of measures in the Bill relates to consumer law enforcement. We will consolidate and simplify the investigatory powers of consumer law enforcers—this takes us back to the discussion we have just had on local trading standards officers—into one generic set to make it easier for enforcers and businesses to understand what powers can be used and in what circumstances. We estimate that that measure alone will save businesses around £40 million during the next 10 years. We will also make it easier for trading standards to collaborate across local authority boundaries to tackle the kind of rogues we saw in a recent scam drawing people throughout the country into costly and unnecessary driveway repairs.
John Woodcock (Barrow and Furness) (Lab/Co-op)
I thank the Secretary of State for his generosity in giving way, particularly as I unfortunately missed the start of his speech. He makes an interesting speech—as interesting as he can given the subject. Why is there so little in the Bill for people who are failed by public sector agencies? Is there not a great need for increased rights when consumers or citizens find themselves on the wrong side of these bureaucracies when they let them down?
Vince Cable
Some of us find this a passionately interesting subject. The enthusiasm shows, I know. There is the ombudsman for the public sector. One could argue that the legislation will bring the private sector up to the same standards of scrutiny that we would expect when there are failures in public administration.
Sammy Wilson (East Antrim) (DUP)
I am extremely interested in what the Secretary of State has been saying, which is important for consumers throughout the United Kingdom. As some of the measures that he has been speaking about today are devolved to Northern Ireland, in the interests of consistency, how will he ensure that whatever is introduced in this House is also introduced in other parts of the UK where there is devolution?
Vince Cable
There have already been discussions with the Northern Ireland authorities, and we plan to introduce the same measures in Northern Ireland. There is agreement on the subject. I cannot say off the cuff where we are in relation to Scotland and Wales, but there are discussions with devolved authorities to try to ensure that this is widely applied. Everyone agrees that these are improvements and it would be desirable if everybody throughout the UK benefited from them.
Richard Burden (Birmingham, Northfield) (Lab)
I was so fascinated by what the Secretary of State would be saying today that when I realised that I had missed the start of his speech I came hotfoot over here.
My point also relates to the issue of public services. On premium rate phone lines, the Government have said that all Departments should migrate to the use of geographic phone lines—03 lines—or others to ensure that consumers will not be charged rip-off rates by Government Departments. I welcome that, but will he give us some indication about when that will happen? The promise is good, but consumers need action.
Vince Cable
The hon. Gentleman is correct that an undertaking was made, which I understand is in process. Different Departments are proceeding at different speeds, but there is a commitment to do this. If he wants more information on it, I will try to get it to him. It is a perfectly legitimate complaint that people have.
The consumer law enforcement powers establish a primary authority to improve co-ordination. The enhanced consumer measures relate to the law and the gap between criminal and civil law in relation to consumer enforcement. At the moment, consumers rarely get their money back when a business breaks consumer law. That is partly because criminal courts are reluctant to award consumers redress and enforcers are often unable to seek redress in the civil courts. There is a common law remedy, but it is often difficult to realise it. What then tends to happen is that the more extreme cowboys are prosecuted on criminal grounds, but compensation, particularly for lesser levels of abuse, is more difficult to obtain. The legislation will enhance consumer measures to give enforcers greater flexibility to get the best outcome for consumers.
Valerie Vaz (Walsall South) (Lab)
The Secretary of State has set out a lot of rights for consumers. What has been the impact of the lack of legal aid for those consumers to enforce those rights?
Vince Cable
Many of these issues are dealt with through small claims courts. I recognise that there is often a difficulty in enforcing claims in the small claims courts. I am not sure that legal aid is the central issue there. It is a question of ensuring that, when court remedies are imposed by the courts, they enforce them and there are proper fines on companies that do not yield at that point.
The measures on the civil courts seek to ensure that there are properly specified rights aimed at giving consumers their money back, giving them more information and increasing business compliance. We must try to ensure that the measures are reasonable and proportionate, and that there is flexibility. Let me give a concrete example, because this is a slightly abstract and legalistic issue. Under a more flexible regime, a furniture retailer that has made false promises on delivery dates may not only have to give consumers their money back, but have to advertise in the press or social media what they are doing to put the situation right. They may also be required to change their internal systems to ensure that there is no repeat of the breach of the law. Essentially, the changes will enable enforcement to take place in a much more flexible way that reflects the circumstances of particular companies and customers.
Yvonne Fovargue (Makerfield) (Lab)
How will the Bill address the issue of companies going into liquidation and what happens to their creditors? We have all seen what happened with the Farepak scandal. Consumers do not understand the difference between part-payments, deposits and prepayments. Will that be clarified in the Bill?
Vince Cable
Those issues are covered by insolvency legislation, which we hope to review later in this Parliament. I am aware of the hon. Lady’s close involvement in the Farepak victims’ case, on which she has worked with my Department and helped a great deal. The issue that has been triggered is whether we should change the order of claims of creditors. We have looked at this sympathetically. The danger is that by promoting one group of creditors, another, perhaps equally worthy, is subordinated. We have not yet found a satisfactory way of reordering creditor claims that everybody would accept as fair and just. I am aware of the Farepak problems, but we have made quite a lot of progress in that case.
Mrs Madeleine Moon (Bridgend) (Lab)
I thank the Secretary of State for singling out the furniture industry, which has a number of problems. In particular, people can spend a lot of money on one item of furniture from a company that they think is UK-based, but discover that that is not so if the product delivered is in any way faulty. It can then take months to get it repaired or replaced. Can we look at how we deal with such companies, including Laura Ashley, which has terrible reviews of its furniture on the complaints board? Its consumers also have to pay 10p a minute to make a complaint. It is very difficult to get redress if it delivers something that is faulty, as with any furniture company not based in the UK.
Vince Cable
The proposals are designed to address exactly that kind of problem, because they would enable the remedies to be tailored and varied according to circumstances and the seriousness of the offence.
Sir Greg Knight (East Yorkshire) (Con)
Will the Bill be in any way retrospective? For example, will it bring relief to a customer who has entered into a long-term contract, the provisions of which extend beyond the Act’s implementation date? Will a customer in those circumstances be able to cancel any unfair terms?
Vince Cable
The right hon. Gentleman asks a tricky and quite specific legal question, and I do not want to guess the answer. Of course, in general we always try to avoid retrospective legislation, but I can see that for contracts spanning a period of time we need to cover the whole contract period. I will check the details of the proposal and get back to him.
Robert Flello
I appreciate the Secretary of State’s generosity in giving way to me a second time. I want to touch on something my hon. Friend the Member for Bridgend (Mrs Moon) raised: the issue of companies based overseas. The Secretary of State has generously met me and other colleagues from north Staffordshire on a couple of occasions to discuss the ceramics industry. People can sometimes be misled into buying something that they think was made in Stoke-on-Trent, but when they get it home they discover it was made not in Fenton, but in Indonesia or China. How does the consumer get redress in those circumstances? If that is not dealt with in the Bill, is it something he will look at?
Vince Cable
As the hon. Gentleman says, I have discussed that with him before. Indeed, there was a discussion in the European Union last week about rules of origin legislation. I am very sympathetic. The potteries are reviving somewhat and the ceramics industry is returning, and we want to ensure that that is sustained. I think that the issues raised are somewhat different from the content of the Bill. We might be talking about fraud, trading standards or enforcement, and there is an issue about mandatory origin reporting, which is currently being debated in the European Union. I fear that the Bill’s provisions will probably not help to solve the problem, but those are important issues.
Mark Durkan (Foyle) (SDLP)
I want to raise a further question that is not addressed by the Bill as currently drafted, surprisingly. It relates to electrical product recalls, which are clearly a matter of safety for people and properties. The law is currently deficient, and the Electrical Safety Council has made it clear that it wants it improved. It points out that the recall checker on its website often lists products for which there is no procedure in place and no traceable manufacturer. Surely, with regard to consumer rights, that is an area that needs to be addressed.
Vince Cable
The hon. Gentleman is right that the safety aspects are dealt with separately. I was under the impression that the relevant law was tightened up several years ago. I am familiar with it because a colleague who formerly represented Richmond Park in the House had a family tragedy in circumstances similar to those that the hon. Gentleman describes. I understood that the regulations relating to defective electrical equipment had been tightened, but that is a specific point that we can check.
Sammy Wilson
With regard to the time it can take for products purchased from manufacturers based overseas to be returned, or the number of times someone may have to be called out to repair a product before it is fit for purpose, does the Bill set out a time scale within which repairs must be done, products must be replaced or money must be returned?
Vince Cable
As I tried to explain when describing the reforms relating to deficient goods, repairs must be done the first time round. If they cannot be done in a reasonable time, there will be cash compensation. Previously that was ambiguous and unsatisfactory. There will be either a repair or cash compensation, and that will be much clearer than it has been in the past.
Let me talk about the provisions in the Bill that relate to competition law and the role of private actions. Competition is good for growth and one of the pillars of a vibrant economy, so a key part of the work is tackling anti-competitive behaviour. The European Commission—I quoted some examples a few moments ago—has estimated that cartels can raise prices by between 20% and 35%. Despite the strong competition framework that the Government are putting in place, the Office of Fair Trading has shown that businesses believe that the current regime for private actions is too slow and costly. As a result, businesses and consumers rarely get redress when they have been harmed by anti-competitive behaviour. In 10 years, there has been only one collective action case in this country, and only one 10th of 1% of the consumers who were eligible signed up to it.
We have tried to strike a careful balance. We do not want an American-style system of prodigious and constant litigation, which would be costly and benefit only lawyers. None the less, we believe that there is some imbalance in the current system that needs to be redressed. We will try to discourage parties from engaging in costly court cases by encouraging alternative dispute resolution. We propose reforming the Competition Appeal Tribunal by introducing a fast-track regime so that small and medium-sized companies can get quicker and cheaper access.
For example, let us take a car garage that relies on spare parts from a large supplier that has started withholding supplies to drive up prices, showing cartel-type behaviour. Previously, the garage would have had to take costly legal action in the High Court, possibly bankrupting itself in the process—it is a small company up against a big one. Under the Bill, the garage could take the case to the Competition Appeal Tribunal, which could swiftly issue an injunction resulting in the supplier having to restart its supply.
We will also introduce an opt-out collective action regime for consumers and businesses that have been harmed by anti-competitive practice, with safeguards to ensure that cases are appropriate and merit that approach.
Stephen Lloyd
I am grateful for what the Department for Business, Innovation and Skills is doing in relation to the Competition Appeal Tribunal. As a result of the cost of legal intervention, numerous small businesses have been unable to challenge anti-competitive behaviour, so I applaud that and think that it will make a real difference for small businesses. Has the Department made any impact assessment of the number of cases it anticipates over the next three to five years and, if not, is it in the pipeline so that we can get some sort of idea?
Vince Cable
I cannot give any figures, but we are starting from virtually zero, so there will almost certainly be an increase. We will have to conduct an impact assessment as part of the regulatory regime in Government. I will endeavour to give my hon. Friend more facts and figures if I can unearth them.
In conclusion, the Bill represents a radical and far-reaching set of reforms designed to streamline the law, making it clearer and more accessible. It will enhance consumer rights and deregulate for business. It will benefit consumers by reducing the time and cost of finding out how to deal with problems. It will protect consumers from the small print in contracts and increase the redress they get when things go wrong. It will benefit businesses by reducing the need for ongoing legal advice, and it will save legitimate businesses from losses from anti-competitive practices. The benefits are substantial. They will create more confident consumers, who in turn will be more likely to try new and innovative goods and services, which in turn will create a more responsive and vibrant UK economy.
Stella Creasy
The hon. Lady does not quite recognise that a contract involves both a vendor and a purchaser, and the terms of a contract can apply to both. That is the point of the amendments we will table. On secondary ticketing, for example—the Secretary of State should be interested in this as the Member for Twickenham—legislating to make the rugby world cup an event of national significance would require tickets to be resold through recognised ticket vendors at face value, as happened in 2012. It would then be illegal to sell tickets through any other means. Indeed, viagogo already has tickets on sale for that event at huge mark-ups, and tickets do not even go on sale until the autumn. Some 2.3 million tickets will be sold at between £7 and £15 for children, with a top price of £700 for adults. That means that touts will be able to cash in on those prices on top of that, and damage the affordable ticketing policy of the organisers. Surely it cannot be right for us not to include in the Bill a way of ensuring that if someone wants to sell a ticket at a certain price, they can.
Stella Creasy
I will give way to the Secretary of State who I am sure is a passionate rugby fan.
Vince Cable
Not least because the hon. Lady is looking after my constituency for me. Let me reassure her that I live on the road from Twickenham station to the rugby ground, and I am well aware of ticket touts as they operate outside my front door. There is, of course, a public order offence of ticket touting, and in addition, the hon. Lady might not be aware that there have been extensive discussions between the Department for Culture, Media and Sport and Ticketmaster—the agent for the world cup—to ensure that those problems are minimised. It is not as if the issue is being overlooked.
Stella Creasy
I think the fact that the Secretary of State is considering the ticket touts rather than the rugby fans is the challenge. If we get consumer rights legislation right, rugby fans will be put first in such matters. That is why Labour, including my hon. Friend the Member for Eltham (Clive Efford), has offered to co-operate with the Government to get the legislation through and support the negotiations in time to protect rugby fans next year. The fact that the Bill is silent on such issues—I say this as a regular gig-goer in my time off—causes me great pain because it is consumers who suffer.
We see such problems not only in the secondary ticketing market but with letting agencies, because there are no regulations about how charges are levied, and there is a high demand for properties. My hon. Friend the Member for Wolverhampton North East (Emma Reynolds) has highlighted those problems, including charges such as excessive up-front fees, additional letting agency fees, and people losing deposits.
Pub Companies
Vince Cable Excerpts(10 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Secretary of State for Business, Innovation and Skills (Vince Cable)
I beg to move an amendment, to leave out from “House” to the end of the Question and add:
“welcomes the opportunity to debate the issue of fairness in the relationship between publicans and pub owning companies; notes the concerns, acknowledged by the Government in January 2013, about the failure of pub company self-regulation to rebalance risk and reward between the companies and their tenants and lessees; recognises the excellent work and the four Reports that the Business, Innovation and Skills Select Committee and predecessor Committees have produced over the years on this issue; further notes that the previous Government failed to take any position on this important issue until February 2010, just two months before the dissolution of Parliament and the end of its term in office; further notes that this Government held the first ever consultation to explore how best to protect tenants and lessees through a statutory code of practice backed by an independent adjudicator; further notes that this consultation received a very large response and that it is right that the Government carefully considers the huge volume of the evidence received as part of this consultation before publishing its response as soon as it can in 2014.”.
I welcome the opportunity to debate, again, fairness in the relationship between publicans and pub-owning companies, on which, at least on the broad principle, there is a wide measure of agreement. Perhaps I might thank the hon. Member for Chesterfield (Toby Perkins) for what, by his standards, must rank as a calm and consensual introduction. I wrote down the word “statesmanlike” at one point, but that was probably a bit excessive, so we will save it for another occasion.
My own approach to the matter is slightly coloured by the fact that I have only just stepped off an aeroplane from a part of the world where tasting alcohol is likely to lead someone into prison, if they are lucky. Indeed, I spent yesterday evening in a bar where the most potent drinks on offer were “mocktails”. At least in this country we do value our pubs, not simply for the drinks but for the fact that this is a major industry, with a large number of small and medium-sized companies. The people who run them are hard-working and not well paid. Hundreds of thousands of people work in the industry, which, as the hon. Gentleman said, makes a contribution to the communities in which we live.
The central issue in the debate is not about the principles, which we have debated before and on which there is a lot of common ground, but, “Why the delay? Why have the Government not given a formal response?” Let me explain the point. We received a big response to the consultation, which, let us remember, was the first Government consultation on a specific set of proposals in the long period, under both Governments, during which the issue has been considered by the Select Committee and others. We had a formal consultation, to which there was a massive response. We received about 9,000 responses, more than 1,000 of which were very specific—they were often written communications with nuanced arguments, which we must try to address. We are trying to look at the evidence in an objective way. The evidence may well point in one direction, but there are competing studies; the London Economics survey has been mentioned, but another good study has been done by the Federation of Small Businesses. Such studies do give different arguments, which we must evaluate.
Let us also remember that the industry is a complex one, and it was not a simple “yes or no” issue. The consultation also covered a set of other issues, including flow monitoring, guest beer and the gaming tie, each of which must be examined properly, not to mention its open question, which was about the mandatory free-of-tie option and open market rent review. Everybody concerned with the matter knows that that is the core issue, on which, although there was a strong opinion, there was less unanimity. We must respond to those issues and try to come forward with a proposal that carries the House and as many of the stakeholders as possible. I am very conscious of the legislative timetable, and I can assure the hon. Gentleman that there is no attempt to delay on those grounds. We want to see action, but first we must provide a thorough and proper response to the consultation. Of course we have already released the evidence.
Simon Danczuk (Rochdale) (Lab)
There is a lot of cross-party support for this matter, but I get the impression that the Government are taking for granted my good nature and that of other hon. Members. Will the Liberals go into the next general election having done absolutely nothing on this important issue?
Vince Cable
The simple one-word answer is no, but we will wait to hear the Government’s response.
Vince Cable
As I have said, I cannot anticipate exactly what the Government will say in their official response, but the whole purpose of the consultation was to seek views on legislative action, and our response will be built around that set of questions.
Mr Laurence Robertson (Tewkesbury) (Con)
I have a lot of sympathy for what has been said in the debate so far, but I am a little troubled by suggestions that this problem arose only in May 2010. I had an Adjournment debate on the issue during the previous Parliament, and a number of other debates were also held, but nothing was ever done. My right hon. Friend was right to suggest that this is not a simple issue.
Vince Cable
I thank my hon. Friend, who remembers such things from his time in the House, for his reminder. We have, I think, had four Select Committee reports under different Governments. The matter has been actively debated for something in the order of eight years, and we have moved quickly on it in comparison with what went before.
Jim Shannon (Strangford) (DUP)
The failure of the pub companies to self-regulate underlines the need for an adjudicator, as does the fact that a number of pubs are closing. Does the Minister not feel that there is a sense of urgency in relation to bringing in legislation?
Vince Cable
As I will say later—we have covered the matter in earlier debates—we did try to encourage self-regulation. We drew the conclusion that the action had not been adequate, which is why we moved on to proposals for statutory regulation on which we are now consulting. We have been down that road; we have tried that.
Mr Henry Bellingham (North West Norfolk) (Con)
I agree with the Secretary of State that it is important that we get this right. I must impress on him that there is a degree of urgency now with the forthcoming Queen’s Speech. Does he agree that we should recognise the fantastic job that local organisations, such as the Campaign for Real Ale group, are doing? In my area, CAMRA has pioneered a number of pub salvations, working with the community to ensure that the King’s Arms at Shouldham and the Dabbling Duck at Great Massingham were able to survive.
Vince Cable
My hon. Friend is right to remind us that this is not simply a top-down campaign. It involves not just Parliament, but an enormous grass-roots campaign. I am talking about community organisations, and I will go on to develop that point in a moment.
Ian Lucas (Wrexham) (Lab)
The right hon. Gentleman is being very generous with his time. Will he confirm that he now believes that statutory regulation is necessary?
Vince Cable
That was the purpose of the Government consultation. Statutory regulation was necessary, and we consulted on how to do it. We are now evaluating the results of that process. The House will soon hear our conclusions on how to take the matter forward.
Let me repeat my appreciation for the work that has been done by Members from all parts of the House. I also thank the Business, Innovation and Skills Committee, whose Chairman is here, and the various campaigning groups for their work on the matter. It would not be amiss to single out Fair Deal For Your Local, which is the campaign that has been mobilised by my hon. Friend the Member for Leeds North West (Greg Mulholland). As part of his campaign, he has brought together CAMRA, the Federation of Small Businesses and the GMB union as well as various other groups. We are talking about local and national groups across industry and across the country.
Toby Perkins
I am grateful to the Secretary of State for giving way and for what he said about me being a statesman. If I may, I will press him on the timetable issue that has been raised. If he accepts that statutory regulation of some sort is necessary and the consultation overwhelmingly supports the majority of such aspects, will he at least commit to some sort of legislative action in the next Queen’s Speech, and will he say that we will not get to the end of this Parliament with nothing having changed?
Vince Cable
I cannot really add to what I have already said. The hon. Gentleman knows that we are following a process. I am conscious of the legislative timetable, and he will remember—indeed it is the whole purpose of this debate—that the Government did not consult in an open-ended way over this question; we consulted on a specific proposal to introduce statutory regulation, and that is what we are responding to. Although I am conscious of the legislative timetable, I will not give a specific date on which this report will be concluded.
Mr Robin Walker (Worcester) (Con)
As a member of the Select Committee, I urge the Secretary of State to take action as soon as possible, but I do understand the need to listen to the consultation. A moment ago, he mentioned some of the broad campaigning that has gone into this matter, and the organisation Fair Deal For Your Local, which I support. Does he agree that it is unfair of Opposition Members to suggest that this Government have done nothing for pubs when we have paid attention to the important campaign to end the unfair and job-destroying beer duty escalator?
Vince Cable
Indeed. I will go on to talk about some of the things that the Government have done to help the pub industry, the most important of which is the tax measure. The combination of the 1p cut and the abolition of the escalator is the equivalent of 4p on a pint. There have also been various other measures to support community pubs, of which my hon. Friend will be well aware.
Rushanara Ali (Bethnal Green and Bow) (Lab)
I have two points to make. One relates to the many pubs in my constituency and the curry industry, which is worth about £4 billion, and the other to the inter-relationship between beer and curry. What assessment has the Secretary of State’s Department made of the impact on pubs and the alcohol and restaurant industries of the increase in VAT to 20%?
Vince Cable
Just about every aspect of the fiscal and economic implications for this industry has been exhaustively reviewed, and I will try to find out the answer to that specific question from the various studies that have been done. I do not think that we have specifically analysed the interaction between beers and curries, but I am sure that there is a positive correlation.
Ms Margaret Ritchie (South Down) (SDLP)
Will the Secretary of State urge his colleague, the Chancellor of the Exchequer, to give full consideration in advance of the Budget to a reduction in VAT on the hospitality industry, as it is urgently required not only in Northern Ireland but by the British Hospitality Association?
Vince Cable
I have met the hospitality industry and it has set out its case for a VAT reduction. As the hon. Lady will know, I do not make the decisions on what goes into the Budget on tax measures. I am sure that there are many other claims on the Budget in terms of tax reduction and spending. Certainly, the hospitality industry has been very effective in making its case.
Andrew Griffiths (Burton) (Con)
I thank my right hon. Friend for the measured way in which he is considering all the responses to the consultation. Does he understand the concerns raised by the Office of Fair Trading about the free-of-tie proposal as outlined in the consultation? It claims that it will increase rents and the price of beer and lead to the closure of more pubs.
Vince Cable
I have not seen those comments by the Office of Fair Trading, but I will certainly look for them. I am rather surprised by them because the whole purpose of that option is to increase competition and market forces. If my hon. Friend could send me the details, I would be interested to see the response of the competition authorities.
Mr Sheerman
As I own a pub, I have a great interest in this debate; I am chair of the John Clare Trust and we will be bringing this pub back to life through crowdfunding. The Secretary of State might not have control of the Budget, but he knows that there is a consultation on crowdfunding regulation. If we get that regulation wrong, it will stop a lot of community enterprises funding themselves, so will he ensure that it is appropriate?
Vince Cable
I am well aware of the importance of crowdfunding, and the hon. Gentleman might have followed the progress of the business bank, which is now actively engaged in, and supporting, crowdfunding, certainly through the peer-to-peer lending streams. I am aware of the issues with the regulation. Some incumbents, understandably, want their industry regulated, but we need to balance that against the fact that new companies coming into the industry might be less enthusiastic about regulation. Incumbents such as Funding Circle have made a very good case for sensible, moderate regulation.
Let me move on. As I said, we have had four Select Committee investigations into whether the tied model is at the root of the unfairness in the relationship. We have received an enormous amount of correspondence, quite apart from that received from the various action groups, from tenants about problems in their relationships with pub companies and from MPs. The response I have had in the past 10 to 15 minutes shows how widespread such concerns are.
Although pub-owning companies can and sometimes do treat their tenants well, the overall sense from those representations is that the tie arrangements with the pub-owning companies are unfair and that a lack of transparency causes a severe imbalance of negotiating power. That is the essence of the problem. There is an issue about what exactly we should do about it, which is what we are consulting on, but there is no doubt about the problems.
It has also been very clear from the discussions led by the Select Committee over the years that the problem is not so much the tied business model but the unfairness with which it operates. There is quite a lot of debate about the evidence on the speed of closures and how they operate in the tied sector and the non-tied sector. My understanding is that there has been a fairly steady rate of decline, from some 70,000 pubs in 1980 to 50,000 today. Depressingly, that is something in the order of 18 a week net. That decline has continued even after some of the big changes that have taken place in the industry—from the beer orders to pub company consolidation. I know that there is a debate among campaigners about whether tied pubs are more likely to close than pubs that are free of tie, but the evidence I have seen goes both ways. This is not fundamentally an argument about pub closures; it is essentially about the unfairness of and inequalities in the relationship.
Duncan Hames (Chippenham) (LD)
My right hon. Friend is right to broaden his critique beyond the tie itself, important though that is. In my constituency, the landlord of a pub in Melksham complains that Punch is in breach of its own code of practice and of the framework of the British pub industry. He asks where else he can go under the current arrangements, without statutory regulation, when he finds that he gets no joy from the self-regulatory system on a range of issues from dilapidation surveys to meetings that are not minuted.
Vince Cable
As I said earlier, there were more than 1,000 individual responses to the consultation. Many described very similar stories to the one that my hon. Friend has just mentioned.
Vince Cable
May I move on, as the hon. Gentleman has intervened once already?
Just as this is not primarily an issue about the rate of closures, I think we would all agree that it is not fundamentally an issue of consumer choice. Otherwise, the competition authorities would have been engaged a long time ago. It has already been shown that the share of microbreweries has increased over the period for which many pubs have been under a great deal of stress. The number of breweries now tops 1,000, the highest figure since the 1930s.
The conclusion that I think we have all reached is that there are issues with the beer tie, but that is not the fundamental problem in itself. The Business, Innovation and Skills Committee argued that it does not want to see the tie model disappear. Under proper conditions, it is a business model that can be used and it has been around in various forms since the 18th century. The abuses are a different matter and are due in part to the lack of transparency in the relationship between the pub-owning companies and their tenants, which is what I want to turn to.
Pauline Latham (Mid Derbyshire) (Con)
I was recently contacted by my constituent, Claire, who has been told by her landlords, Enterprise Inns, that the rent on her pub, the Pattenmakers Arms in Duffield, will increase by 42% in April. Claire loves her pub and has brought it from being a grubby and run-down pub to an award winner; she even worked while she was battling breast cancer. Does my right hon. Friend believe that the pub companies whose business practices force out committed publicans such as Claire will be dealt with effectively by some sort of adjudicator?
Vince Cable
That is a truly awful case. I hope to see the details of that example, because although we have a lot of cases, it seems to be a particularly bad one. I guess that would be one of the factors that led the Government to conclude that the voluntary code approach was not satisfactory, as presumably it has already been used.
The voluntary approach did have some positive outcomes, such as the Pubs Independent Conciliation and Arbitration Service and the framework code, but the conclusion we came to at the beginning of last year was that the changes had not gone far enough and that problems persisted. To us, the essential point is best captured in the work done by CAMRA that suggests that 57% of tied tenants earn less than £10,000 a year. If we apply that to 35-hour week, 48 weeks a year, we are talking about less than £6 an hour, which means that people are working for considerably less than the minimum wage. Since many work much longer hours, that means that this is a very low-paid industry. Many publicans are struggling. In contrast, only 25% of those who are free of tie are on at the same income level. There is a striking disparity, which is at the heart of the question.
Mr Bellingham
The Secretary of State is being very generous in giving way. Does he agree that many of these disputes need to go to adjudication? Does he share my view and that of many colleagues that getting an adjudication system in place as soon as possible is essential?
Vince Cable
Indeed. That was the objective of the consultation. Let me briefly reveal the history, as we have been talking about it implicitly throughout these exchanges. We announced last January that it was time for the Government to step in and the consultation was launched along the lines envisaged by the Select Committee on a statutory code of practice and an independent adjudicator. That was the framework of the Government recommendation. We included an open question on the mandatory free-of-tie option with open rent review and we tried to underpin a specific intervention with a framework, a philosophy, a set of principles, the overarching fair-dealing provision and the core principle that a tied tenant should be no worse off than a free-of-tie tenant.
Julie Hilling (Bolton West) (Lab)
I thank the right hon. Gentleman for giving way, he is being very generous. Does he recognise that because of the relationship between the licensee and the pub companies, whatever the licensee does means in some circumstances that the pub company asks them for more money? If they put on food, for example, the pub company increases their rent. The relationship is fundamentally unequal and difficult.
Vince Cable
The hon. Lady is stating in her own way what I have already said several times and what I think is the consensus. There is an imbalance in the relationship, which is not equal. The market does not deliver a fair outcome, which is why we are considering how we can change it.
We did not want to reopen the fundamental issue about the pub tie, but to decide how to address the unfairness of it, and the consultation revealed the depth of feeling on the subject, which all the interventions that we have had so far have reinforced. The responses came not just from the pubcos and the tenants, but from supply chain companies, consumer groups and trade bodies, all of which fed into the consultation, and they were so many and diverse that we published them just before Christmas so that hon. Members were aware of what was being said before we came to a conclusion on how to respond.
As I have said already, we want to respond as quickly as possible. We fully understand the problems, not just because distressing cases are continuing but because people in the industry want clarity, and it is perfectly reasonable for people to want regulatory certainty. We do not want to rush into a decision. We want to get this right, but we realise that there is some urgency because people need to make investment decisions. We are trying to get this absolutely right and we want the intervention that we make to be proportionate and properly targeted.
Paul Blomfield (Sheffield Central) (Lab)
I thank the right hon. Gentleman for taking a further intervention and for all the others that he has taken. He makes the case for urgency, which is reflected across the House. Does he not accept that his failure to answer the question from the shadow Minister and the Chair of the Select Committee, together with the wording of the Government’s amendment, will be seen widely throughout the country as an attempt simply to kick this issue into the long grass? Will he reassure the House that that is not the case by giving a commitment that legislation will come forward in this Parliament?
Vince Cable
There is no attempt to kick this into the long grass. We are trying to do this properly. I can assure him that it will be dealt with in a timely way. We are not cutting corners. As I said at the beginning, we have a large number of responses and different strands of evidence that we are trying to reconcile and respond to properly. We must do this right.
The whole issue of the beer tie, the relationship with the pubcos, is crucial, and we must take action in the way that we have discussed, but it is not the only set of measures for the pub industry. We are sometimes in danger of losing sight of the bigger picture. Thanks to interventions from Government Members there was reference to the budgetary measures that have been taken, and I would add to that the action taken on business rates, including the capping of the business rate increase, the continuation of business rate relief, the £1,000 discount for retail outlets, which include pubs, and some of the action taken by my colleagues in the Department for Communities and Local Government, for example the pub is the hub scheme and the community right to bid to keep pubs open. A lot needs to happen and a lot is happening on a broad front, and I reassure the House of my commitment, which remains as strong as ever, to addressing the unfairness in the relationship between pub companies and their tenants.
National Minimum Wage
Vince Cable Excerpts(10 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Secretary of State for Business, Innovation and Skills (Vince Cable)
I beg to move an amendment, to leave out from “House” to the end of the Question and add:
“notes that since 2010, the Government has increased the National Minimum Wage each year, despite the worst recession in living memory, to protect the income of the low paid and increase their wages relative to average earnings, and is cutting taxes for the low paid to boost take home pay by £705 a year, taking 2.7 million out of income tax altogether; welcomes increased employment under this Government, which is at its highest ever level; notes that the Secretary of State for Business, Innovation and Skills has asked the Low Pay Commission for an assessment of how it might achieve a higher National Minimum Wage in the future without damaging employment; further notes that the Government has maintained a central enforcement body that covers all areas of the UK and ensures a consistent approach and high quality service; and further notes that the Government is quadrupling fines for employers in breach of paying the National Minimum Wage and has already made it easier to name and shame employers who flout the rules.”.
I am delighted to have the opportunity to move the Government amendment. Before I get down to the detailed substance of the motion, I want to say that this debate gives us the opportunity to discuss in more detail the regulations that, following my announcement before Christmas, I have laid today to increase penalties for non-compliance with the minimum wage by a factor of four. I also want to reinforce my earlier commitment that we will not merely do that but will proceed to introduce primary legislation to enable fines to be applied per worker, rather than per company, which will make them a great deal more forceful.
Vince Cable
I will take an intervention later.
The shadow Secretary of State, the hon. Member for Leeds West (Rachel Reeves), misadvised one of her Back Benchers, the hon. Member for Westminster North (Ms Buck), who quite rightly intervened, in relation to care workers, about there being no payment between jobs for social workers carrying out domiciliary care. That is actually an abuse of the minimum wage legislation. It has now been recognised as an abuse, and colleagues in the Department of Health, as well as my Department and Her Majesty’s Revenue and Customs, are making efforts to ensure that the regulations are properly enforced.
Vince Cable
Let me carry on for a few minutes. The hon. Gentleman knows that I always take interventions. Let me just build an argument and then I will allow him to respond.
Let me start with the very basics. It is a little difficult to do so in the face of the relentless tribalism that we have just heard, but I would say at the outset that the introduction of the national minimum wage was a real achievement of the previous Government. There were not many achievements, but two will stand the test of time: the establishment of the independent Bank of England and the establishment of the national minimum wage. [Interruption.] Indeed, there were others, but those were the two main ones in the economic field.
Having said that, I attempted to be constructive about the motion, but one blindingly obvious point is that the centrepiece of the national minimum wage legislation—the establishment of a non-partisan, non-political Low Pay Commission—did not even merit a mention. The shadow Secretary of State referred to it only in response to an intervention. That is rather important, because it suggests one of two things. The first possibility is that Labour Members do not understand how their own system works. Indeed, I heard a Labour Member cry out earlier, “Why don’t you make it increase the minimum wage?”, so there are clearly people who do not understand the mechanism. The second possibility is that Labour Members do not respect the basis of the system, which is independent advice from a non-partisan body. That advice has been followed consistently by successive Secretaries of State, including my Labour predecessors. That is the strength of the system and that is why there is political consensus behind it.
Vince Cable
I will just deal with the politics of this matter before I take interventions.
The hon. Member for Leeds West made a great deal of the fact that, as she put it, the Conservatives opposed the national minimum wage and many Liberal Democrats opposed it. She speaks with all the self-confidence of somebody who was not here at the time.
Vince Cable
I did not particularly wish to raise this, but I am being asked personally to explain why I did not vote. It had a lot to do with the fact that my late wife was terminally ill at the time and I was in the Royal Marsden hospital. That is why my voting record at the time was poor on that and other issues.
As it happens, my party supported the national minimum wage; nobody opposed it. I became the party’s spokesman shortly after the vote and I made it absolutely clear throughout that Parliament that we supported the principle of the national minimum wage. There was never any question about that.
Perfectly legitimate issues were raised about why there was no regional variation. There is a proper debate to be had about whether there should be a regional or a national minimum wage. As it happens, I endorsed the principle of the national minimum wage. However, there is a perfectly respectable argument for regional variation. As I understand it, the Labour party now promotes the living wage, at the heart of which is the idea that there should be regional differentials, with people in London being paid more and people in the west country or the north of England being paid relatively less. There is an argument for that. Why criticise people who have put forward that idea in good faith?
As for the Conservatives, although I do not always speak in their defence, I think that they should get credit for accepting that there is a good system that works and for deciding to support it. That is creditable. Although I and my party have supported the national minimum wage, there is a perfectly respectable intellectual and moral argument for not having a minimum wage. Countries that do not have a minimum wage include Sweden, Finland, Norway, Denmark and Austria. Those countries are all in the social democratic tradition, but have felt that it is too problematic. Germany, which has had either social democratic or national unity Governments for most of the post-war period, has adopted a national minimum wage only in the last few weeks. In those countries, where there are civilised values and a sense of solidarity, the costs and benefits of the minimum wage have been debated properly. Why should we criticise people in this country who wanted to have such a debate, but who have now come to a consensus that it is a good system and that we should make it work?
Seema Malhotra
Is the Secretary of State saying that Government Members and Conservative Members in particular support the national minimum wage for all businesses in all circumstances?
Vince Cable
Yes, it is now the law. Of course we support enforcement of the law. I do not understand the question.
Mr Donohoe
Will the Secretary of State tell us why he came to the conclusion that the fine should go from £5,000 to £20,000, rather than the £50,000 that would deter all those gangsters out there who are not paying the minimum wage?
Vince Cable
The rise to £20,000 is a fourfold increase. However, the big difference is in applying that fine per worker rather than per company. That is a considerable escalation of the penalties. I hope that we will have the support of Opposition Members in voting that through.
John McDonnell (Hayes and Harlington) (Lab)
Is not the difference between this country and the countries cited by the right hon. Gentleman that they still have vibrant trade union rights and are not condemned annually by the International Labour Organisation, as this country is, for undermining trade union rights?
Vince Cable
Those countries have had a variety of Governments, both left-wing and right-wing. I was simply making the point that it is possible to have a perfectly viable system without a national minimum wage. I agree with the hon. Gentleman that in practice what is needed is either a strong system of trade union rights or a national minimum wage. We have now all accepted that the national minimum wage is the best system. I think all the minority parties accept that, too.
Mr Hanson
I am grateful to the Secretary of State for giving way. Does he accept that enforcement, as well as the fine, is important? Currently, the national minimum wage is enforced only by Her Majesty’s Revenue and Customs. Will he give serious consideration to supporting giving local councils the power, as they now have on trading standards, to enforce the minimum wage locally?
Vince Cable
As the right hon. Gentleman says, the primary authority is HMRC, but it works with other agencies to enforce the national minimum wage. There are some important cases where HMRC has worked with local authorities—I think with Blackpool council and others—to enforce it in areas where we have sensed there is a systematic weakness.
Jim Sheridan
I thank the Secretary of State for giving way. The national minimum wage is exactly what it says on the tin: a minimum wage. Does he accept the overwhelming evidence that union-organised work forces are paid more and have better conditions than non-union-organised workplaces?
Vince Cable
In general, that is the case. However, my experience, from talking regularly to trade unions and employers, is that most of our trade unions, certainly in the private sector, are extremely pragmatic and flexible on wages—indeed, that is one of the reasons why we have had relatively low unemployment. They deserve some credit for that.
Mr David Anderson (Blaydon) (Lab)
I thank the right hon. Gentleman for giving way; he is being very generous. At whatever level the fines are set, will he look at the possibility of reinvesting the money they raise directly into enforcement, so that the enforcement keeps on going to the point where, hopefully, we do not have to fine anybody, because nobody is breaching the rules?
Vince Cable
In line with the commitment to enforcement, I think we have produced more resources for that. My hon. Friend the Economic Secretary to the Treasury, who will be summating, may want to say a little more about that, but we recognise that the enforcement authorities need resources to do their job.
Charlie Elphicke
I thank my right hon. Friend for giving way. As a Conservative Member of Parliament representing a constituency with a lot of social deprivation, I support the national minimum wage and the work of the Low Pay Commission, which is really important. In response to my intervention, the shadow Secretary of State dismissed the Low Pay Commission and talked about restoring the value of the minimum wage. Does my right hon. Friend know what exactly restoring the value of the minimum wage means and how much that would cost?
Vince Cable
I welcome the hon. Gentleman’s support and I know that it is shared among his colleagues. This is a historical issue: it has now been laid to rest. I will talk a little more about the mandate of the Low Pay Commission and the fact that successive Secretaries of State, including me, have respected its judgment, which is non-political, non-partisan and represents both the union and employer standpoint.
Let me talk about the wider economic consequences. The shadow Secretary of State talked with a real sense of righteous indignation about things that are, frankly, blindingly obvious. We have had a massive financial crisis, the biggest in our history—certainly in modern times. As a result, the country is poorer. That is a matter of fact. It is not a polemical point: the country is poorer, and that has been translated into lower earnings. That is simple economic reality and nobody is disputing that.
In the wake of the economic crisis in 2008-09, we now know that British GDP fell by 7.5%. That was more than after the great crash in 1929 and worse than in any other western country. I am not going into the business of who did what when; I am just recording a matter of fact. Recession inevitably followed the financial disaster and real earnings have been affected. The shadow Secretary of State is right on simple matters of fact: real earnings fell by 7% and the minimum wage fell by 5%. That is a matter of fact. What I find so very difficult to understand is that the Opposition Front Benchers—it is not just her; her colleagues are the same—have seen the greatest economic disaster in modern economic history and apparently not noticed it, and they have not taken any account of the inevitable economic consequences. What matters is that the Government of the day seek to mitigate those effects.
Mr William Bain (Glasgow North East) (Lab)
Does the Secretary of State accept that while he has been in office, the real-terms value of the adult national minimum wage has declined by 50p an hour since May 2010? It is his responsibility to review the remit of the Low Pay Commission. Why is he acting so slowly on this, given that 28% of part-time workers in his constituency are earning less than the living wage? Does that not show the failure he is presiding over on poverty pay across the whole country?
Vince Cable
I do not know about the numbers, but certainly the minimum wage, in real terms, has declined by 5%, as a result of my predecessor on two occasions and me on three occasions following the advice of the Low Pay Commission.
Alex Cunningham
The RBS bankers and others in the City who led us into this terrible economic situation do a lot better than the national minimum wage, so does the Secretary of State think they should get bonuses of more than 100% of their salaries?
Vince Cable
I think hon. Members have had a chance to debate that already. I am a great advocate of the new model developed by Handelsbanken of relationship banking and no bonuses—that is what we ought to have—but I suspect that even their branch managers are paid above the minimum wage.
Alec Shelbrooke (Elmet and Rothwell) (Con)
Does my right hon. Friend share the incredulity of Government Members that for all the talk of bankers not having been affected, not one person has condemned the fact that trade union leaders have been getting double-digit pay rises in the same period?
Vince Cable
I suspect that that is also true, but I am trying to get away from the tribal debate that the shadow Secretary of State was so keen to launch.
To return to the thread of the argument, we have had a major shock, and it has reduced real earnings and the real minimum wage. I fully acknowledge that; it is a matter of fact. The question is: what is being done to mitigate the effects? Two major changes have taken place. First, the Government have recognised that earnings are not the same as take-home pay and disposable income, and we have therefore concentrated our tax policy on lifting low earners out of tax. As a result, 2.7 million low earners now pay no income tax. Those working 28 hours a week on the minimum wage pay no income tax, while those on 35 hours pay only one third of the income tax they paid at the beginning of this Government. We have therefore considerably reduced the impact of the squeeze on real incomes by using tax policy.
The second highly relevant issue is the level of unemployment. After the great crash in 1929, unemployment rose to 20%. In the recent financial crisis, countries less affected than the UK have had considerably higher unemployment—I am talking about France and Sweden, among others. We reached a peak of 8.5%; it has now gone down to 7% and is falling. We have record numbers of people in work, while the number of jobs has increased by 1.3 million, in the wake of this enormous economic crisis. Now, why has that happened? It has happened because millions of individual workers, realising that there is a choice to be made between jobs and pay, have wisely decided that it is much more important to keep the employment.
The Low Pay Commission, speaking for the country as a whole, rather than for individuals, has reinforced that assessment. In its 2012 report, it explained its analysis in the following terms—let us remember this is not the Government, but an independent commission representing unions, employers and independent assessors. It said its aim was a minimum wage that helped
“as many low-paid workers as possible without any significant adverse impact on employment or the economy.”
That became the mandate—the remit—that I have used, and it is virtually identical to the remit used by my Labour predecessor. I simply ask Labour Members what they object to in that remit. Do they seriously think that the Low Pay Commission and the Secretary of State should ignore the state of the economy or the level of employment? What do they think is fundamentally wrong with the remit?
Gavin Shuker
From the tone of the Secretary of State’s remarks, it is clear that, following the banking crisis of 2008, this is a deep issue that confronts us as a nation. He is right in his analysis, and many workers have chosen not to push for pay rises in the light of that situation. The challenge facing us, however, is surely one that requires a political response. I disagree slightly with his characterisation of this Government’s policy. What it has resulted in has been clearly demonstrated in 41 of the last 42 months, with people being able to buy less with what they are being paid. If he is saying there will be no change, then Opposition Members will continue to call out for that change.
Vince Cable
I keep hearing the call from Opposition Members for a political intervention. Are the hon. Gentleman and his colleagues saying that this system—a very good system that his Government established, based on the Low Pay Commission analysis—should be torn up and a political settlement imposed? Is he suggesting that the remit, which takes account of the impact of the minimum wage on employment, should be disregarded? Is that the argument?
Michael Connarty (Linlithgow and East Falkirk) (Lab)
Let me give the Secretary of State an example. The Low Pay Commission recommended against amending section 31(1)(b) of the minimum wage regulations, which allowed employers to pay hospitality workers out of their tips. The last Government took the courageous step of changing that provision and preventing that from happening. That is a good example of where politics looks to the good of the individual and does not play to what I believe are the prejudices and fears of people in the Low Pay Commission. Is it not also true that if the minimum wage were raised—I have seen many cases of this—the bill for tax credits would go down and the Government would probably be better off in terms of public sector expenditure?
Vince Cable
On the last point, the hon. Gentleman may well be right, although I have seen an analysis suggesting that, because of the effect on corporate taxation, which offsets those gains, he is not. However, on the more substantive point about politicians intervening to override the Low Pay Commission, I believe that we should not be dogmatic about it. In the overriding majority of cases, it behoves the Secretary of State to listen carefully to the Low Pay Commission and it would be unusual to override it. He cites one case, and I have actually overridden the Low Pay Commission—on the apprenticeship wage, which I thought was excessively low, giving the wrong signal to young people and others who wanted to do apprenticeships. I made a decision on that specific issue to intervene and disregard the advice of the Low Pay Commission. If that became a habit, however, and if its advice were overridden on a major issue of pay policy, the minimum wage structure would crumble from being politicised in that way.
Mr Donohoe
To ask a simple question, what is the minimum wage for apprenticeships?
Vince Cable
I think it is £2.68, and it was going to be frozen at £2.65. [Interruption.] It is a very small increase, but there was an issue of principle involved, which is why I intervened to change it.
Let me proceed on the issue of the mandate. The Low Pay Commission has consistently regarded jobs as an important objective of policy—rightly, and we must respect that judgment because it is based on serious analysis. Let me quote a good study carried out by the Resolution Foundation, and I believe the National Institute of Economic and Social Research was involved, too. It analysed the effects of a general increase to the living wage level, which Labour Members would like to see happen.
The analysis suggests that if other things were equal and if all low pay were increased to the level of the living wage, there would be a net loss of 160,000 jobs. Worse than that, there would be a loss of 300,000 jobs among the unskilled and among young workers, because massive substitution would take place. That does not mean that the living wage is a bad idea as a voluntary principle, but it does spell out very brutally what would happen if Governments ignored the Low Pay Commission and took a cavalier view of the impact of the minimum wage on jobs.
Chris Williamson (Derby North) (Lab)
Is that not precisely the argument that was used by those who opposed the introduction of the national minimum wage in the first place? Is this not just a repetition of that flawed argument?
Vince Cable
I must tell the hon. Gentleman that it is an argument to which the trade unions on the Low Pay Commission fully subscribe. This is the first time that I have heard Members seriously question the competence of the Low Pay Commission and challenge the whole principle of its remit. I am appalled and alarmed that they should want to tear up and politicise a basically good system which has worked well under the last Government and under this one, in different circumstances. That really is very dangerous.
Alec Shelbrooke
What I find strange—I am sure that my right hon. Friend agrees with me—is that the subject of the living wage keeps popping up on the Opposition Benches. Today’s debate is about the minimum wage, and the Labour motion does not call for the Low Pay Commission even to consider the issue of the living wage.
Vince Cable
Indeed. Admittedly the issue of the living wage is now part of the public debate, and of course I believe that if employers are profitable they should adopt it—particularly if they are taking advantage of their work forces—but we must be clear about the fact that making the living wage mandatory, either directly or indirectly, would have enormous implications for jobs.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
Will the Secretary of State give way?
Mark Lazarowicz
The fact is that millions of workers are now enjoying the living wage because of the actions of local authorities—the vast majority of them Labour-controlled—and progressive employers. Rather than just saying that the living wage is a good idea, should not the Government encourage employers to adopt the living wage through specific measures, such as those suggested by Labour in the motion and in our policies generally?
Vince Cable
I have noticed the word “encourage” before. Ministers are being told that they should encourage employers to pay the living wage. I have thought about that: what does it actually mean? It is motherhood and apple pie on one level, but if we take it seriously, what does it mean?
If I encounter a company that is perfectly profitable, particularly if it seems to be taking advantage of its work force, of course I will urge it to pay the living wage, but many companies are on the brink of bankruptcy. Would Members urge them to increase their pay levels substantially in those circumstances? That would be extremely irresponsible. These bland phrases, although they may be superficially attractive, are potentially very dangerous.
Vince Cable
I have given way a number of times, and I should now like to finish what I have to say.
Along with the element of its remit that relates to the impact on employment, one of the key concepts in the work of the Low Pay Commission is what it calls the “bite”. That terrible bit of jargon refers to the relationship between the minimum wage and the median. It may be technical, but it is very important, because the closer the minimum wage gets to the median, the more likely it is that a big increase will displace employment. When the minimum wage was first introduced in 1999, it was about 46% of the median; now it is 53%, and there have been successive increases.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
The median wage is falling.
Vince Cable
It did fall slightly last year—just slightly. However, the minimum wage is now significantly above that level.
That is a major issue for young workers and for apprenticeships. For young workers, particularly those aged 16 and 17, the so-called bite is close to 80%, which means that any significant increase in the minimum wage would have the unfortunate effect of displacing most of them from the labour force. That is a factor that has weighed very heavily with the Low Pay Commission when it has made its recommendations.
Grahame M. Morris
Will the Secretary of State give way? I will be very brief.
Grahame M. Morris
I am grateful to the Secretary of State. He is being very generous, and I appreciate the way in which he has engaged with interventions. May I just put one thought in his mind? A number of very profitable companies are offering their workers—many of them young workers—zero-hours or four-hours contracts, which have a terrible effect on a person’s ability not just to live but to exist.
Vince Cable
I have already said in the House on several occasions that the Government are now engaged in a public conversation about how we deal with zero-hours contract abuses. I think the hon. Gentleman has to be careful as the research that has been carried out suggests that very large numbers of people on zero-hours contracts like that model, but we must deal with the abuses, of course.
Vince Cable
It would be remiss of me not to take at least one intervention from the Scottish nationalists, so I will do so.
Mr MacNeil
May I put in the right hon. Gentleman’s mind the words of Paul Krugman earlier this week? He spoke about unemployment insurance and how when money is in the hands of the poorest in society, that creates demand, which in turn creates jobs. The corollary of that is that the higher the minimum wage, the more money is put in people’s pockets and the more it circulates, and we return to a system, as in the 1950s, when inequality is reduced, rather than the situation now, when inequality is equivalent to what it was in the 1920s.
Vince Cable
Of course an increase in wages among other things increases demand, and that is one factor that has to be taken into account. That leads me on to the next point I want to make, which is how this year I have approached the issue of the mandate of the Low Pay Commission. Opposition Members have been questioning that and saying, “Why don’t you change the way we look at it?” I have done that, while respecting its independence. I have said the Government want a faster increase in the minimum wage, reflecting the fact we now have a real recovery, and in order to achieve that the LPC should look at a wider range of factors governing low pay. They include the fact that at the national economy level, the Governor of the Bank of England has now said that if unemployment falls to 7%, he would want there to be some tightening of monetary policy, as the environment will have changed. We would want to see what impact that will have on the cost of employment, which has been cushioned by the Chancellor’s decision to bring in the employment allowance—£2,000 for the first employee—as it significantly changes the cost of employment. We also need to look at the impact it would have on the Government, because there is an interaction with tax credits, tax yields and corporate taxation. There is the impact on take-home pay, too, and therefore we have to factor in our tax policy.
I have therefore asked the LPC to look at this problem in a much more holistic way. I do not know what it will conclude, and I will be respectful of its independent advice, but that is the way we are approaching this and we do now recognise that in a recovering economy low-paid workers should derive benefits, and that is how we are approaching this matter.
Katy Clark (North Ayrshire and Arran) (Lab)
Will the right hon. Gentleman give way?
Vince Cable
I have taken several interventions already.
Finally, let me say a few more words about enforcement. Clearly the minimum wage is only effective if it is properly enforced and has the force of law. It is important not just for its own sake but to give workers confidence that if they complain, those complaints will be followed through. There are several levels as enforcement is a complicated process. First, it is a problem of securing arrears and then imposing fines. We then have a name and shame system, and ultimately there is prosecution in court, but that has hardly been used either under the last Government or this one because it requires a demonstration of proof of intent, which is very difficult to demonstrate.
Let me explain how these various levels are now operating. In the last year, arrears of about £4 million were paid, compared with an average of about £3 million over recent years. About 26,000 workers benefited from that. Fines are crucial, because under the last Government and this one, that is where the main enforcement action has been taken. Last year 700 enforcement cases were taken to the level of fines. The amount paid was seven times as much as was paid under the last year of the Labour Government. One can argue about this from one year to another, and these things fluctuate, but any suggestion that the regime has become easier is simply not true.
Vince Cable
I am going to proceed to the end of my speech.
We are now in the process of considerably increasing the penalties, both in terms of raising the fine from £5,000 to £20,000, subject to the House approving the legislation, and applying it per worker rather than per firm, which is, of course, much more draconian.
The new guidelines for the naming and shaming process were issued to HMRC in October. There is also the question of due process. Companies that are about to be named and shamed can appeal, and it is estimated that that process takes roughly 150 days. I imagine that a significant number of cases would begin to emerge by the end of February; we can test that when the issue arises.
To summarise, we have a good system, but we want to strengthen it, and to strengthen enforcement. We also want to respect the principles of the Low Pay Commission. We want to see improvements to the minimum wage, but that needs to be done properly, through the independent Low Pay Commission. I therefore urge my colleagues to oppose the motion, and to support the Government’s amendment.
Budget Resolutions and Economic Situation
Vince Cable Excerpts(11 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Secretary of State for Business, Innovation and Skills (Vince Cable)
I am delighted to speak in support of the Budget and thank the shadow Chancellor for 35 minutes of pantomime. More worryingly for me, I occasionally read in the newspapers that we agree with each other; I am not sure whether he regards that as a bigger slander than I do. I have been trying to find out what it is that I am supposed to agree with and to understand what actually is his plan B. A quick search revealed seven different variants of plan B. In fact, that is almost certainly an understatement, because the shadow Chancellor has had more positions on the economy than there are positions in the “Kama Sutra”.
Let me run through some of the variations that we have heard from the shadow Chancellor over the past couple of years. He started with the big stimulus to the economy that was going to come from the bankers’ bonus tax, which would have imposed a £2 billion tax on a tax base—a bonus pool—of £1.6 billion. He had not realised that, since his time in charge of the City, the bonus pool had shrunk from £14 billion.
The shadow Chancellor then moved on to the five-point plan, which was mostly pretty sensible. It included apprenticeships, which we are already doing on a much bigger scale. He also wanted, I think, £200 million for the regional growth fund. Well, we have given it billions, not hundreds of millions. He then moved on to the reallocation of the money from the 4G auction sale, but it had already been allocated—I have already spent quite a lot of it.
We have now moved on to trying to understand what plan B actually means today. As far as I can fit it together, it consists of several elements, including a big stimulus from a value added tax cut, stopping Government spending cuts and, somehow out of the alchemy, reducing borrowing. I have tried to work out how this plan was created and am struck by its similarity to the economic strategy being developed by Nigel Farage, although I may be doing the UK Independence party a disservice.
The shadow Chancellor and I have a serious interest in economics. Before we discuss how to deal with this crisis, we have to try to understand how it originated. I think that most serious economists, whether they are in the Keynesian tradition or not, would acknowledge that this is not a cyclical recession. It is what is now called a balance sheet recession, and in order to understand how that happened we need to understand why the balance sheet got so big in the first place and why private sector deleveraging is now happening on such a massive and damaging scale.
This is an uncomfortable set of questions for the shadow Chancellor because, among other things, he has to explain the following. Why was it that in the 50 quarters of growth without inflation, nobody noticed the massive asset bubble in residential and commercial property, which has since burst? He has to explain why households in the UK, which have become heavily over-leveraged, managed in that period to acquire the highest level of personal debt in relation to income of any country in the developed world. He has to explain why a medium-sized bank in Scotland was encouraged and actively supported by his Government in trying to become the biggest bank in the world on the basis of dodgy acquisitions and gambling in its casino operations. He also has to explain why, when his former boss commissioned an excellent study on the banking system in 2000, which explained why there was a cartel operating that was squeezing the life out of small business, his Government did absolutely nothing about it.
We have a major economic crisis caused by balance sheet deleveraging, arising out of a major financial crisis. One would have thought that those on the left would want to talk about a crisis of financial capitalism, but they do not want to talk about it at all. In fact, the shadow Chancellor has a striking resemblance to the lead character in “Fawlty Towers”. Colleagues may remember the episode in which he goes around with great indignation, wanting to have an animated conversation about Germany, but nobody wants to talk about the war. The shadow Chancellor wants to talk about the economic crisis, but not the financial collapse that he presided over.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
The right hon. Gentleman has talked about an asset bubble. What is the Chancellor’s mortgage scheme, other than the hope of an asset bubble to get him out of trouble? What growth or capacity would that add to the economy? The problems of this economy will not be answered by yet another asset bubble. What are the Government trying to do? All that their scheme will do is create another asset bubble.
Vince Cable
There are two elements to the Chancellor’s housing package. The first is the development of the FirstBuy scheme, which will provide £3.5 billion for shared ownership. That has been widely welcomed because it will increase the demand for housing and get the housing market going. The other, more ambitious scheme is a form of insurance for mortgages, which has been very successfully applied in Canada, for example, where it prevented a collapse of the market of the kind that occurred here and introduced greater stability. The Chancellor is now consulting on how that scheme should be designed, which is absolutely right.
Helen Goodman (Bishop Auckland) (Lab)
The Secretary of State needs to be a champion of the mansion tax, which would be a very sensible thing to do at the moment. Why is he supporting this scheme, which will support the purchase of houses up to the value of £600,000?
Vince Cable
I remain a champion of the mansion tax and will continue to champion it with my colleagues on the Liberal Democrat Benches. The Chancellor is going to consult on how this major reform to the housing market will be implemented. We recognise that there are many complex products in the mortgage market. For example, many parents support their children’s housing acquisitions. Those kinds of transactions have to be properly analysed before the scheme is launched.
Mr David Hanson (Delyn) (Lab)
I will be going back to my constituency tonight and would like to give the Budget a fair wind if I could. Will the Secretary of State therefore confirm that the scheme will not apply to second homes or to people who can afford to provide such a subsidy themselves?
Vince Cable
As I said a few moments ago, there are two schemes. The first, which is the development of a scheme that is already operating, most emphatically does not apply to second homes. The major mortgage guarantee scheme is complex and the Chancellor will consult on how to draw the boundaries around eligible mortgages.
Vince Cable
I will in a moment. Let me just deal with the question of the millionaires who benefit. I remember the 13 years that I spent on the Opposition Benches, asking about taxes. Let us remember the situation. We had a 40p top tax rate, we had an 18% capital gains tax, which was widely used for tax avoidance in the private equity industry and elsewhere, and non-dom tax reliefs were completely uncapped. When we challenged that situation, we were told repeatedly by this shadow Chancellor and others, “No, you can’t do that. You’ll frighten away all the bankers who are generating wealth in the City of London.”
Of course we need a more equitable tax system. That is why the Liberal Democrats continue to argue for a mansion tax. But we have a higher rate of income tax at the top than prevailed in any year of the Labour Government.
Ed Balls
The Business Secretary is a member of the Cabinet and a student of these matters, and he cares a lot about how the economy works. Can he tell us, because he will have been part of the discussions, whether the new mortgage scheme applies to second homes and buy-to-let. Yes or no? He is the Business Secretary; can he answer the question?
Vince Cable
The scheme has not yet been designed in detail. It was typical of the Labour party that it frequently launched into half-baked schemes without thinking about the detail. This is a major change and it will be planned carefully.
Ed Balls
To be absolutely clear, in two weeks’ time millionaires are getting an income tax cut and the new scheme that was introduced yesterday could allow them to use that tax cut to get a taxpayer subsidy for a second home or a buy-to-let, but the Business Secretary cannot tell us—yes or no—whether that will be the case. Is that not an absolute shambles? Is it not set to be totally unfair? It is a spare home subsidy.
Vince Cable
The right hon. Gentleman does not know, and I do not yet know, what the final outcome of this massive scheme will be. To be lectured with righteous indignation by the people who created a massive property bubble that destroyed this country’s economy and wiped out enormous gains in people’s living standards is the most gross hypocrisy.
Let me turn to some of the other issues that the shadow Chancellor raised.
Guy Opperman (Hexham) (Con)
The shadow Chancellor took us on an interesting history tour of former Chancellors. Does the Business Secretary recall who it was who advocated light-touch banking regulation, sold our gold and uttered the famous phrase, “No more boom and bust”?
Vince Cable
Yes, I think we do. That bears repetition and the hon. Gentleman has done it very well.
Mr Reid
Was my right hon. Friend as disappointed as I was that the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) intervened and did not thank the Government for the 18p cut in fuel duty that this Government have given his constituents, thanks to campaigns by myself and other Government Members?
Vince Cable
My colleague is absolutely right. He reminds us of two things that the Government have done. One is the freezing of petrol duty. The other is the allowance for remote communities, which he ably represents, as does the hon. Member for Na h-Eileanan an Iar (Mr MacNeil).
Mr MacNeil
Does the Secretary of State agree that the rural fuel derogation should be increased? A 5p cut is not enough; we really need a 10p cut. I am sure that the hon. Member for Argyll and Bute (Mr Reid) would agree with me.
Vince Cable
I am sure that we would have free petrol in a perfect world.
Let me deal with some of the points of economic substance that have been raised. The first was about job creation. It is true that in the last set of figures there was a very small increase in unemployment. However, that happened against the context of the last three months, in which 130,000 new jobs were created, vacancies rose and redundancies fell. In this Parliament, we have created 1.25 million new private sector jobs. It is difficult to understand why, if the economy is performing as badly as the shadow Chancellor claims, a large number of new private sector companies are creating jobs in that way. There are regions of the country, such as the west midlands, that in the boom periods saw a decline in private sector employment. That is now being comprehensively reversed.
The question put by my hon. Friend the Member for Portsmouth North (Penny Mordaunt) is apposite: why does the Labour party think that 600,000 jobs are being predicted by the OBR in the coming year? We got the ludicrous answer that it has something to do with immigration, but immigration is about the supply of labour, not the demand. Where is the demand coming from, other than a favourable business environment that encourages small companies to establish and grow jobs?
Mr Russell Brown (Dumfries and Galloway) (Lab)
We have listened long and hard to the Government about the number of private sector jobs that have been created—it went from 1 million, to 1.2 million, fell back to 1 million for some reason, and yesterday we heard an announcement of 1.25 million new jobs. Will the Secretary of State put in the Library a complete breakdown of those jobs that states where they are located—not just percentage-wise but numbers-wise—which sectors they are in, and the hours that people are working, so that we know exactly what is happening?
Vince Cable
I understand that some of those details were placed in the Library yesterday, and the hon. Gentleman is free to consult them. I hope he is not trying to deny that the phenomenon is taking place.
Julie Hilling (Bolton West) (Lab)
It is not clear how many unpaid, workfare jobs are counted among the jobs created. Clearly, they are not jobs created if people are working for nothing. How many of the jobs are like that?
Vince Cable
These are proper jobs, as defined by the Office for National Statistics. I honestly do not know why Opposition Members are trying to deny a genuine piece of good news that affects their constituents.
Sheila Gilmore (Edinburgh East) (Lab)
I thought that perhaps the Secretary of State would like to hear the answer to the question, which is actually in the report by the Office for Budget Responsibility. Of jobs described as jobs created over the past year, 14% are unpaid work experience or work placements.
Vince Cable
I do not understand why the Opposition should be hostile to work experience. All our evidence suggests that people who enjoy work experience go on to stable employment. It is an extraordinary state of denial when we have a successful process of job creation that the Opposition do not want to acknowledge exists.
Ed Balls
To clear up the Business Secretary’s confusion a few moments ago—I am not sure whether he or the Chancellor have seen this document, but it might be helpful to them—the Treasury has published a document, “Help to Buy: mortgage guarantee”, which makes it clear that the scheme does not apply to buy-to-let properties. A person cannot take out a mortgage for a buy-to-let property; it must be residential. As far as we can see from the document, however, the scheme absolutely does allow second homes. It is a spare homes subsidy. I do not know whether the Business Secretary has seen the document, but perhaps he would like to comment.
Vince Cable
I am glad the right hon. Gentleman felt able to withdraw his earlier allegation that this was about buy-to-let mortgages.
Ed Balls
For absolute clarity, I asked the Chancellor and the Business Secretary whether the scheme applied to buy-to-let properties, and whether it would allow second homes. Neither of them knew. The Business Secretary said that it had not been decided, but in fact the document has been published and states that the scheme does not apply to buy-to-let properties, but it does allow second homes. The accusation stands. Is that true? It is not in the document; are they going to amend it?
Vince Cable
I think the shadow Chancellor is digging himself into a certain amount of trouble. He refers to a document as fact, but it is actually a consultation document. Rather more sensibly, the shadow Business Secretary yesterday applauded the new housing initiatives. We will proceed with the consultation, and if the shadow Chancellor has any technical criticisms of the tenure arrangements, he can make them in the consultation process and we will listen constructively.
Mr Chuka Umunna (Streatham) (Lab)
With the greatest respect to the Business Secretary, he mentioned what I said yesterday, but I said that not knowing that people who want second homes can take advantage of the scheme. He did not know that either.
Vince Cable
The Opposition Front Bench is getting a little silly. Let us leave it to the consultation and see what comes out. I am sure that those imaginary horrors will not be realised.
The second criticism from the Opposition was about the level of borrowing. I was not clear whether the shadow Chancellor regards high levels of borrowing as a good or bad thing—a rather basic question. Is the Labour party in favour of more borrowing, or less? The Institute for Fiscal Studies made a thorough comparison between what is likely to happen under the Government’s fiscal plans and what would have happened under the so-called Darling plan. It was a bit perfunctory, but it gave us a framework and concluded that in 2016-17 the level of borrowing under the Labour trajectory would have been £76 billion, but £24 billion under the coalition’s policy. That is after the revisions that have taken place.
As someone brought up in the Keynesian tradition, I think it rather creditable that the Chancellor has responded to a slow-down in the economy by allowing counter-cyclical stabilisers to apply. I am amazed that those on the Opposition Front Bench find that a source of criticism, when it is good, common-sense, practical economics.
Penny Mordaunt
The shadow Chancellor’s speech not only did a grave disservice to the Chancellor, but to Philip Snowden. I declare an interest as my late mother was Jennifer Snowden so I am related to the first Labour Chancellor of the Exchequer. As a consequence I have his biography which states:
“He was raised in an atmosphere which regarded borrowing as an evil and free trade as an essential ingredient of prosperity.”
Does the Business Secretary think that I should loan my copy to Opposition Members?
Vince Cable
We seem to have forgotten, but I think Philip Snowden was the first Labour Chancellor—[Interruption.] Indeed, there have been many others.
Mr Brooks Newmark (Braintree) (Con)
My right hon. Friend mentioned a study by the Institute for Fiscal Studies, but the IFS also noted that under the shadow Chancellor’s plan B, the extra cost of borrowing would be another £200 billion. That surely cannot be good for UK plc.
Vince Cable
The hon. Gentleman has obviously found another version of plan B that I did not discover in my search, but I am sure he is right.
Let us consider what has caused this slow-down, which the shadow Chancellor blames on Government policy. The OBR was clear and explicit and stated that the downward revision in our forecast for 2012 is largely accounted for by a reduction in the contribution of net trade. We are operating in a difficult international context—particularly in the eurozone, which accounts for half our exports—and that largely explains the slow-down that has occurred, and the consequential impact on Government debt and borrowing.
We are giving overriding priority to developing British trade in those markets that have been neglected for many years. Over the past two years, led by the Prime Minister, I and other Ministers have gone back time and again to people in the big emerging economies to promote exports and inward investment. That is why our exports to Brazil and India have increased by more than half, and by approximately 100% to China and 130% to Russia. That diversification of our export base is fundamental to getting us out of this crisis. That is what we are doing, and we are succeeding.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
I welcome the Secretary of State’s comments, but they appear pretty poor words for companies such as Alcan in Northumberland that is going to shut —the Budget did not come soon enough to provide tax breaks for energy-intensive industries. Furthermore, the steel industry in England and Scotland has been losing out to foreign, imported steel in bridge contracts, as my hon. Friend the Member for Scunthorpe (Nic Dakin) mentioned today in business questions.
Vince Cable
That is a serious point and I am sympathetic to it. My colleagues and I have spent a lot of time talking to the EEF, the CBI and other employers groups about the higher costs of energy and how we compensate for it. A compensation package has been through consultation and is being implemented—the cash will be disbursed soon—for the higher cost of the carbon price floor and the EU emissions trading scheme. I fully understand the hon. Gentleman’s concern—he is absolutely right—and we are addressing it.
Tom Blenkinsop
Further to that point, places such as Wilton, which has the largest chemical industry in the country—
Tom Blenkinsop
As my hon. Friend reminds me, it is the largest in Europe. Wilton has lost out on the carbon capture and storage programme, which would have added 20 or 30 years’ longevity to the capital on site. The north-east is pushing more than any other region in providing exports for the country, and yet the Secretary of State is not providing the financial support for the infrastructure that was provided by the Labour Government.
Vince Cable
A CCS competition is taking place. As the Chancellor pointed out in his Budget, there is a recognition of the problems of energy-intensive industries in the north-east, Scunthorpe and south Wales. They will be given an extra year of support as a result of yesterday’s announcement.
Richard Fuller
I commend my right hon. Friend’s comments on exports—I have seen for myself UK exports to the Nigerian market. Does he agree that getting traditionally reluctant small and medium-sized business to export is key? Does he also agree that the employment allowance will enable some of our small businesses to take on those additional employees to attack those new markets?
Vince Cable
The hon. Gentleman is right on both counts. I was recently in Nigeria supporting that effort. If we are to have momentum, it must come through small and medium-sized companies. Frankly, the export effort in many emerging markets was neglected for most of the past decade—the relationships are not there and must be built up. He is also right that the employment allowance, which will help 400,000 micro-companies, is a big step forward and a big incentive to them to take on that extra member of staff.
In my concluding section, I shall address some of the big strategic choices made in the Budget. We can argue about temporary changes, but it is important that the country has a sense of direction. First, the industrial strategy gives a sense of direction; secondly, the changes in money and banking policy are fundamental after the crisis; and thirdly, the tax agenda creates a greater level of fairness.
On the industrial strategy, I was teased earlier about the “compelling vision” for the British economy, but we clearly need a vision of the economy that goes beyond one Parliament and Government, and that stretches decades ahead. That is why we have made the commitment to long-term planning and working in partnership with business in those sectors of the economy that need such a framework. We have produced agreements with the aerospace industry, and will do so with the automotive and biological sciences industries, and with the supply chains in renewable and non-renewable energy, which were desperately hollowed out in the years when manufacturing was neglected under the previous Government. We are trying to rebuild those supply chains.
A Back-Bench colleague made the point that we have an extra 70,000 jobs in manufacturing after 1 million were lost in the decade of the Labour Government. Of course, the industrial strategy is not just about manufacturing; it is about key service sectors such as education and higher education, and professional and financial services, which are equally important in driving exports.
Andrew Gwynne (Denton and Reddish) (Lab)
In the right hon. Gentleman’s three years as Secretary of State for Business, Innovation and Skills, he has mastered being an apologist for the Conservative-led Government. May I politely remind him that he was elected in 2010 as a Liberal Democrat on the Liberal Democrat manifesto, in which, on page 15, he says:
“If spending is cut too soon, it would undermine the much-needed recovery”?
He was right then, but does he still believe he was right?
Vince Cable
I recommend that the hon. Gentleman look at the OBR’s figures to see what has happened to Government consumption in the past three years. In 2010, it grew by 0.5%; in 2011, it grew by 2.6%; and last year, it grew by 0.6%. It is true that aspects of Government spending have been cut in a way that has been damaging. The Chancellor has acknowledged, as I have, that capital spending cuts were a mistake. That was the one bit of fiscal consolidation that the Labour Government launched, and it has had damaging consequences, which is why we are now reversing it.
Helen Goodman
That is not how things look from the perspective of the north-east. The Government destroyed regional development agencies. Of the capital spending the Government have introduced, only 0.5% has gone to the north-east. Why?
Vince Cable
Job creation in the north-east is growing more rapidly than it is in many other parts of the country. It is precisely because the north-east has a higher share of exports in its regional gross domestic product than any other region that it is benefiting from the shift that is now taking place to manufacturing.
Mr Umunna
The Secretary of State says that the Government have made a mistake with their capital spending cuts and that they are reversing them— presumably, he refers to the extra £3 billion. However, why are he and his colleagues reversing the mistake only from 2015, when the economy needs the support now?
Vince Cable
I answered the hon. Gentleman’s point in Business, Innovation and Skills questions. Some of the increases in capital spending have already taken place. There was a significant increase in the capital outlay on universities, which my colleague the Minister for Universities and Science is seeing through at the moment in the establishment of R and D centres. After the fiasco of further education college building under the previous Government, the current Government are, in a systematic way, restoring the infrastructure of the FE sector.
George Freeman
This week, AstraZeneca announced a global restructuring, in which it committed its advanced manufacturing facility to Macclesfield in Cheshire, and moved its global R and D to Cambridge, with £300 million investment and 2,000 employees. The Government have moved quickly to set up a taskforce to help with the changeover of the old site to an incubator. AstraZeneca has congratulated the Government on their life sciences strategy. May I congratulate the Secretary of State and Lord Heseltine, whose birthday is today, on the leadership that the Conservative and Liberal coalition is giving on a modern industrial policy for new businesses?
Vince Cable
I accept the hon. Gentleman’s congratulations. Life sciences are a key area. It is a difficult sector, because the business model of pharmaceutical companies is changing—they are taking much of their R and D to spin-off companies rather than having it at their headquarters. That has been painful, but my colleague the Chancellor of the Exchequer intervened to help to make the process in his constituency less painful than it otherwise would have been. However, the decision of that large company to have its headquarters and R and D centre in the UK in East Anglia is a vote of confidence in Britain.
I want to make one more point on the industrial strategy. Apart from supporting successful sectors, we must reinforce those elements of the economy that drive long-term growth—meaning, basically, innovation and skills. That is why I and the Under-Secretary of State for Skills who is responsible for apprenticeships are driving enormous growth in apprenticeships, particularly in key areas such as advanced manufacturing skills. It is also why we must invest significantly in innovation. We have therefore established the chain of catapults, and we have the excellent proposal that my colleague the Chancellor made yesterday for the small business research initiative for small business innovation.
Jack Dromey (Birmingham, Erdington) (Lab)
The Secretary of State is right that it was a mistake to cut investment in affordable house building. The £4 billion cut in 2010 brought about a collapse in affordable house building. Housing starts were down 11% last year, 70,000 more construction workers are on the dole, and there has been an 8% contraction in construction. If capital investment is key to getting house building and the economy moving, why did the Government not accept the proposal of my right hon. Friend the shadow Chancellor of the Exchequer for investment to build 100,000 affordable homes, which would have added 1% to GDP, put 100,000 construction workers back to work, and got the economy moving?
Vince Cable
Why did the Labour party not do that when it was in government? Why was its first proposal for stabilising the budget to cut capital spending, including on affordable housing? If the hon. Gentleman had read the Budget, he would have discovered that, in addition to the housing policies that will affect private mortgages, it included a significant increase in support for affordable housing in the social sector.
The second long-term change relates to money and banking. One of the big features of the post-crisis economies has been the way in which Governments have had to pursue fiscal consolidation—because of the inheritance they received, and ours was worse than most—alongside supportive monetary policy. I made my maiden speech in 1997 in support of the then Chancellor when he made the Bank of England operationally independent. That was an important and good reform. But we have realised over the years that the world has changed. Inflation took no account of the massive asset bubbles that grew up, and the regime was not prepared for the collapse of the financial system and the difficulties we have had rectifying it. That is why it is right that, following on from the very successful, improvised monetary policies that we have experienced, the Chancellor is now consulting on a changed regime, which will be more flexible and take account of the level of unemployment, the level of nominal GDP and other variables that are crucial to long-term growth.
Jim Sheridan (Paisley and Renfrewshire North) (Lab)
In the past, the Secretary of State has rightly criticised the banks and bankers for their contribution to the serious financial difficulties we are in. Can he therefore clarify whether he agrees with the Chancellor that bankers’ bonuses should be capped?
Vince Cable
There already are regulations that affect bankers’ bonuses, which we introduced long before the European Parliament and which firmly cap the amount of bonuses that can be paid out in cash, as opposed to stock, which is not redeemable in the short run. That reform has already been made in order to stabilise the banking system.
I agree that the banking crisis did enormous damage. As someone who has probably spent more time thinking and writing about it than most people in the House, I acknowledge that I have underestimated the damage that was done by the collapse of the banking system, especially the crippled, semi-state owned banks—to such an extent that even if we now ordered those banks to lend more, they would be institutionally incapable of doing so. What we have realised is that there are two problems. The first is the problem that has arisen from the banking collapse itself and the de-leveraging that followed it. The other is the fact that over a decade ago the bankers stripped out their capacity for local relationship banking. Effectively, they looted their banks and denuded them of the capacity to engage in sensible business lending. Of course, that was anticipated in the Cruickshank report, which the Labour Government ignored, but it has done serious damage that makes it difficult to revive conventional business lending. We are trying a series of initiatives to do that.
On Friday, a new tranche of money will be made available for non-bank lending. Today, we had the advanced manufacturing supply chain initiative, which is helping to fund our supply chains. I put in the Library this morning a written ministerial reply on the business bank, which gives a time profile for how that new institution will support challenger banks and new forms of wholesale financing in the banking sector. The Chancellor’s speech yesterday included a positive initiative on equity capital and helping to relieve some of the burdens on companies going to the alternative investment market on the equity side.
Andrew Selous (South West Bedfordshire) (Con)
The Secretary of State is right about the loss of relationship banking: we need to put that right. However, will he acknowledge that businesses can fund themselves in two ways? One is to go to the bank and the other is to raise share capital. What the Chancellor did yesterday on AIM shares and ISDX shares—getting rid of stamp duty—is incredibly useful, but does the Secretary of State agree that business owners need education in how to seek out share capital to grow their businesses? That is key.
Vince Cable
My hon. Friend is right. There are a series of bottlenecks in raising risk capital. At the top end, the problem is accessing equity markets, and at the bottom end the problem is in raising angel finance, which is something else that we are trying to support. As it happens, the business bank will have a role not just in lending, but in developing equity markets for small-scale companies.
Andrea Leadsom
I was delighted that recently the Financial Secretary announced a consultation on a new independent payments regulator. Does my right hon. Friend agree that if we are to solve the problem of the lack of bank lending to SMEs, we need a raft of new challenger banks? The best way to achieve that would be full account number portability, which would encourage new entrants into the market.
Vince Cable
My hon. Friend is right, and the details of the Treasury’s proposals on that point are emerging quickly. For the first time in a lifetime, we are now getting serious challenger banks in the UK, such as Aldermore, Metro, Shawbrook and others, which are an important addition. I hope that the Co-op, the Nationwide and other mutuals that are trying to get into this market will also contribute.
Sheila Gilmore
Is not the real problem the collapse in demand in the economy, partly caused by the stripping out of the public sector, why people are not borrowing, why banks are not lending and why companies are sitting on big assets that they are not spending?
Vince Cable
There is a demand in the economy. When the Government come forward with proposals to stimulate demand, as they did in the housing sector, the Opposition jump up and criticise them.
Jim Sheridan
If press reports are to be believed, a banker is about to receive a £17.5 million bonus. If that is correct, what has the cap been set at?
Vince Cable
I deprecate that and I am surprised that the new chief executive of Barclays, who seemed to have turned over a new leaf, has allowed that to happen on his watch. But of course it is a private bank. It is subject to regulation and the high-paid executives will be properly taxed at a higher rate than ever happened under the Labour Government.
While we achieve long-term change, develop an industrial strategy and change the monetary and credit landscape, people have to have a sense of fairness, which is why some of the basic changes, including taxation reforms, are being made. I reminded the shadow Chancellor a few minutes ago of my 13 years in opposition, pointing to the tax regime that applied under the Labour Government, with lower income tax, lower capital gains tax and more generous treatment of non-dom investors than is occurring under this Government. The Opposition complain about a millionaires’ tax break, but they should remember that in office they created a tax haven for billionaires. That is the legacy that we have had to deal with, and we are dealing with it at the top end of the income and wealth scale, as well as at the bottom with our ambitious proposals to lift low earners out of tax. In 2006, when I was shadow Chancellor, I remember explaining these proposals for the first time, and they were ridiculed by Labour as impractical, unaffordable and a fantasy land. In government, we have now delivered them, and some 2.5 million low-paid workers, many of them women, will pay no income tax when these changes are introduced. That is a major change in the direction of providing incentives and fairness, and I am proud to be associated with that and the other reforms that we are putting through in this Budget.
Business and the Economy
Vince Cable Excerpts(12 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Secretary of State for Business, Innovation and Skills (Vince Cable)
The measures set out in the Queen’s Speech reassert the coalition Government’s fundamental commitment to rescuing the UK economy and promoting growth. There is no easy route out of the debris of a financial collapse. I start with that point, since one of the most important pieces of legislation in the Queen’s Speech is structural reform of banking, which I have worked on closely with the Chancellor.
More broadly in relation to pursuing growth, it is clear that the economic model that produced growth in the past decade and a half was fatally flawed. It rested on the illusion that growth could be created by a bloated banking sector, a bubble in property values, ballooning household debt and an unsustainable budget deficit. In practice, what we saw was that business investment stagnated, and British manufacturing industry was left to decline as a consequence of an overvalued exchange rate that resulted from the imbalances in the economy.
The ongoing crisis in the eurozone makes the task even harder. The turmoil in Europe serves to illustrate the wisdom of creating a firewall of confidence in the UK against otherwise panicky financial markets. The low interest rates that our policies have created provide an economic platform for support of private and public investment in infrastructure and housing.
We are very conscious that the absence of growth is a major challenge and it accounts for much of the frustration of the public, who are understandably impatient to see a recovery from the financial crisis and its aftermath, which wiped out 10% of our economy, dragging down the living standards of many families.
Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)
Can the right hon. Gentleman explain to the House why the Labour Government were responsible for the global meltdown, but the present Government are not responsible for the drop in growth and the double-dip recession?
Vince Cable
Clearly, the previous Government were not responsible for the global meltdown, but they were responsible for building up the largest and most volatile banking sector in the western world, and it was from that that the collapse followed.
To achieve a recovery, we need to build on some of the positive trends that are beginning to emerge. Despite the deep-seated problems of the economy and the slow growth, we have seen 634,000 private sector jobs created in the past two years, which is almost twice as many as have been lost in the public sector. Private sector job growth explains why our unemployment level, although distressingly high and a tragedy for many individuals, is no higher than that in the United States.
Sheila Gilmore (Edinburgh East) (Lab)
That figure of 600,000 private sector jobs has been given, on and off, for the past two years. Is it not the truth that the vast bulk of those new jobs were created in the early part of this Government’s term but were clearly related to the financial policies pursued by the previous Government, and that the number of private sector jobs created in the latter part of this Government’s term to date is extremely small?
Vince Cable
That is not correct. There has been a sustained improvement in private sector employment.
Julian Smith (Skipton and Ripon) (Con)
Will the Secretary of State list some of the international companies that have invested across Britain during the past six months?
Vince Cable
I would be here for much of the afternoon if I listed all of them, but I am sure that my hon. Friend will be familiar with some of the big and high-profile investments, including those in the car industry by companies such as Nissan, Jaguar Land Rover and others, which are important not just in themselves, but because they involve a long-term investment commitment to the UK and bring behind them a large supply chain of small companies.
Mr Brian H. Donohoe (Central Ayrshire) (Lab)
But is it not the case that specifically in Scotland, as a consequence of the delays that are being created by the nats, inward investment is faltering?
Vince Cable
No doubt there is uncertainty in Scotland because of the political situation there. I have been in Scotland supporting new inward investment. Scotland is participating in the substantial increase in investment that is taking place.
The policies required to sustain this growth of tradeable activities, such as manufacturing and creative industries, lie in aspects of economic policy that are not part of the Queen’s Speech, but they do provide the context to explain why the enterprise and regulatory reform Bill is at the heart of the forthcoming legislative programme.
Mr David Evennett (Bexleyheath and Crayford) (Con)
Does my right hon. Friend agree that to get growth we need successful businesses? Successful businesses need less red tape, regulation and bureaucracy, but also the Government’s apprenticeship scheme, which is making more well-trained young people available to meet the needs of those businesses.
Vince Cable
Yes, and this is one of the big success stories. I understand that since the Government came in, half a million apprentices have now been trained through this process, which is 63% growth in an area where we made a major commitment, even in the context of necessarily declining public expenditure.
My hon. Friend’s first point leads on to my comment on the reform Bill, which contains a wide-ranging package of measures to overhaul the competition framework to support dynamic markets, to scrap unnecessary bureaucracy that is holding back companies, and to boost business and consumer confidence.
Mr William Cash (Stone) (Con)
We have been here before. We have heard about enterprise and regulatory reform Bills and all the like. Will the Secretary of State categorically assure us that he will arrange in the Bill for the overriding of that European legislation that imposes an impossible burden on small and medium-sized businesses? He knows it, the Government know it, promises have been made, and the Prime Minister said that he regarded it as an imperative necessity. Will the Secretary of State please get on with it?
Vince Cable
I think that I can deliver the spirit if not the letter of the hon. Gentleman’s intervention. I do not think that we can override European legislation in quite that way, but I do agree that there is a lot of unnecessary and burdensome European regulation, and I am working with what we call like-minded Ministers in other European Governments to get rid of it as much as possible.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I have great admiration and respect for the Secretary of State because he is one of the few leaders of the coalition Government who has ever had a proper job. What does he say to the Foreign Secretary, a man who has had very little experience in the real world, whose message to business people is that they are lazy and should work harder?
Vince Cable
I do not think that the Foreign Secretary actually said that. He works extremely hard with me and my colleagues promoting British business around the world. A large part of his job is commercial diplomacy and he is doing it extremely well.
One key proposal in the enterprise and regulatory reform Bill is legislation for the UK green investment bank, which will drive the transition to a green economy. The Bill will set the bank’s purpose, ensure its independence and make funding provision. The bank will be formed as a public company under the Companies Act, with initial funding of £3 billion to March 2015. It will operate independently from Government, but will agree its strategic priorities with the Government. Until formally established, the Government are making investments, on commercial terms, in green infrastructure through a specialist team in my Department. I reported to a Standing Committee of the House two weeks ago on its progress.
Mr John Redwood (Wokingham) (Con)
I think that the Secretary of State agrees with me that the Vickers proposals for more competition among our domestic banks are very good. What further measures can the Government take urgently to get some competition in banking capacity in the high street?
Vince Cable
My right hon. Friend is right that, in addition to the structural reforms, competition is essential. He will know that the Government are endeavouring to carry through as ambitiously as possible the divestment of branches from Lloyds, and a potential solution to that is in sight. There are also some excellent new banks coming up—Handelsbanken and Metro bank are good examples—and we must ensure that the regulatory process is as efficient as possible in order to get those up and running. I thank him for his continued pressure on that important point.
Sir Peter Tapsell (Louth and Horncastle) (Con)
My right hon. Friend the Member for Wokingham (Mr Redwood) mentioned the Vickers report. I very much welcome the announcement in the Queen’s Speech that its proposals will be implemented, but in the light of the recent massive losses in the derivatives market by no less a firm than J.P. Morgan, is not it clear that Vickers does not go far enough and that we really must go back to the basic principles of the Volcker rule and the Glass-Steagall Act by having a total separation of the retail banking system and the speculative banking system, which will otherwise destroy our business in this country and throughout the world?
Vince Cable
My right hon. Friend is quite right that the J.P. Morgan experience underlines the wisdom of separating the so-called casinos from traditional banking, but we take the view that in this country—J.P. Morgan, of course, is not a British bank—the solution we have advocated achieves that result at considerably lower cost than would the more extreme measures that I think he is advocating.
As with many other important industrial transformations, the Government’s role in the green investment bank’s infancy is key. By setting up the bank, which is the first of its kind in the world, we can provide capital and funding to nurture these nascent markets and secure a global competitive advantage for the UK.
Mr Andrew Love (Edmonton) (Lab/Co-op)
May I take the right hon. Gentleman back to an earlier point? As I understand it, the Volcker rule would have outlawed the activities that led to J.P. Morgan losing $1.5 billion. Is such a proposal included in the Bill he is talking about?
Vince Cable
No, the Volcker rule as such is not in the legislation, but there is nothing stopping the hon. Gentleman bringing his proposals forward when the Bill is debated on the Floor of the House.
As several colleagues behind me have said, regulation is an issue, particularly excessive regulation for small companies, but inconsistent regulation damages businesses just as much, so the enterprise and regulatory reform Bill, as well as repealing some unnecessary requirements on business, will extend the primary authority scheme, enabling businesses that trade across local authority boundaries to deal with one authority on particular regulatory issues. If we consider that local authorities are responsible for 80% of inspection activity, covering areas such as trading standards, health and safety, and environmental health, the benefits of this approach are clear. As of last month, more than 450 businesses were members of the scheme, covering more than 50,000 premises in the UK, including many of our major high street retailers. Our reforms will make the primary authority scheme available to many more small and medium-sized enterprises and help improve the targeting of inspections, which can be so time consuming.
The Bill also contains provision for accelerating deregulation. Much is being done at present through the one-in, one-out system to prevent small companies, in particular, from being suffocated by red tape, and we are working with like-minded Governments in Europe, as I pointed out to the hon. Member for Stone (Mr Cash) a few moments ago, to roll back excessive regulation emanating from Brussels. The red tape challenge is repealing many of the 22,000 Government regulations that impose unnecessary costs on business, mostly by secondary legislation, but also, where necessary, through the Bill. The Bill will also embed sunset clauses.
Julian Smith
Will the Bill include the possible inclusion of European legislation in the quarterly statements that are now put in place for all Departments? Is that under consideration?
Vince Cable
I do not see why we should not do that, but I do not think that legislation is required to make that possible. We will certainly see whether it is feasible.
Small businesses also tell us that the fear of employment tribunals is a real disincentive to expanding and to taking on new staff. An employment tribunal is often a costly and stressful process for all concerned. I am fully persuaded that there has to be a balance between the legitimate expectations of workers that they will be protected from abusive employers and the legitimate expectation of businesses, especially small companies, that they can dismiss underperforming staff and not face costly and bureaucratic procedures. That balance is best pursued not through an adversarial system but by fostering conciliation in the workplace.
Our reforms will therefore promote the early resolution of disputes through the greater use of early conciliation and settlement agreements, so that fewer disputes end up in a tribunal. A tribunal is an admission of failure, so we want tribunals to be a last resort.
Mr Donohoe
Is the right hon. Gentleman saying, in that respect, that the trade unions have a major part to play, and that people should join them so that they are protected against the legislation?
Vince Cable
The unions certainly have a part to play, and I will continue to discuss the proposals with the TUC and affiliated unions, as well as with the employers’ groups.
One area in which good regulation strengthens a market economy is competition policy, so the Bill establishes a new competition and markets authority, bringing together the competition functions of the Office of Fair Trading and the Competition Commission. It will be the principal competition authority with a remit to tackle anti-competitive behaviour and to ensure dynamic and open markets. Competition processes will be faster, with clearer time frames bringing greater certainty and reduced burdens on business.
Jonathan Evans (Cardiff North) (Con)
It is not only the structure of the competition authorities which is important, but their budget. Over the past five years there have been a number of areas in which the OFT has not investigated because of resource constraints under the previous Government, so what will happen to the resources of the competition authorities?
Vince Cable
Bringing the two organisations together will in itself produce some efficiencies, but I cannot assure the hon. Gentleman that they will be protected from the efficiency savings that the rest of the public sector is having to undergo. We are confident, however, that with the reforms that we are undertaking, competition procedures will be faster, not slower.
The same concerns about competition underpin our decision to bring forward a separate Bill, establishing an independent groceries code adjudicator, which will protect suppliers—small firms and farmers—from unfair treatment. In doing so, we will support investment and innovation in the groceries supply chain, and support British food manufacturing and British farming. The measure has been welcomed by the Food and Drink Federation, the National Farmers Union and the Association of Convenience Stores.
The case of a highly concentrated industry buying from and selling to large numbers of suppliers and customers is a classic, economic textbook case in which intervention is needed to prevent monopoly profits. Retailers should not of course be prevented from securing the best deals and passing on the benefits to consumers, but equally retailers should be required to treat their suppliers fairly and lawfully. An independent adjudicator will ensure that the market is working in the best long-term interest of consumers. It will have the powers to intervene proactively and to name and shame offenders. In such a competitive market we consider that those powers will be an effective tool, but if it appears that they are not adequate, I, as Secretary of State, will be able to grant the adjudicator the power to impose financial penalties.
Andrew George (St Ives) (LD)
I must congratulate my right hon. Friend and the Government on bringing forward this important measure, which has all-party support. If supermarkets have nothing to hide, they have nothing to fear from the introduction of the adjudicator. Given that the OFT and the Competition Commission are due to merge, however, may I urge him to introduce the measure as quickly as possible so that the merger does not distract from the important job of getting on with the adjudication that is clearly necessary in the sector?
Vince Cable
May I first congratulate my hon. Friend, who I think was one of the prime movers behind the legislation and was very persistent in demanding it? Of course, I have no control over the parliamentary timetable, but given that the Bill is small and there is a consensus, it should go through very quickly.
Steve McCabe (Birmingham, Selly Oak) (Lab)
On that point, will the right hon. Gentleman make clear the circumstances in which there will be penalties? That seems to be the proposal’s grey area. Previously he seemed to be more interested in naming and shaming. Is he now saying that in order to protect people the adjudicator will have the power to fine and to impose sanctions?
Vince Cable
That is a reserve power. When the Bill comes before the House, we will discuss precisely how the mechanism operates. We are committed to back-up powers. Voluntary mechanisms are desirable, and ideally we should not need such powers, but we will take them if necessary.
Chris Bryant (Rhondda) (Lab)
Does the Secretary of State think that the powers will be sufficient to deal with a situation in south Wales in which Tesco has tried to prevent a smaller operator from opening a local ice cream parlour because it, too, sells ice cream? This is not only about dealing with suppliers, but about the whole product chain and ensuring that there is a level playing field for smaller operators.
Vince Cable
That is the type of case that needs to be investigated; clearly, I do not know the facts behind that particular case. I do not want to take this as an opportunity to have go at Tesco; of course, its highly competitive retailing has been of great benefit to millions of customers, and we should not lose sight of that.
This intervention is designed to promote healthy competition, but it also speaks to a wider agenda that has emerged from this crisis, which is for business to be not only confident to expand and invest, but responsible too. That is the motivating factor behind one key element in the enterprise and regulatory reform Bill: our proposals to address directors’ remuneration, where the link between performance and reward has been weakened in recent years. We have a responsibility to make sure that shareholders of UK-quoted companies have sufficient information and power to challenge boards. Under the current regime, companies can all too easily ignore shareholders, and that is why we intend to give shareholders binding votes on directors’ pay.
We published detailed proposals in January and our consultation has just come to a close. We are now considering the responses and working carefully with stakeholders on the details. When we have finalised and published them, legislative measures will be introduced by Government amendment at the Committee stage of the Bill. Shareholders have shown admirable spirit in challenging boards. The so-called shareholder spring is a positive development. They are right to challenge boards; after all, it is their money. Our measures will give them the tools to maintain this challenge and, I hope, to reverse a trend that Labour was far too relaxed about.
Nowhere was Labour more relaxed, and with such disastrous consequences, as in relation to the excesses of the banking sector. We have been persuaded that it will be possible for the banking sector to perform its proper role in channelling savings towards productive business only if there is structural reform separating the so-called casinos from real, traditional banking. The banking reform Bill will boost the resilience of the UK banking sector, making it easier and less costly to wind down banks that get into trouble and curtailing the implicit Government guarantees from which the banking sector benefits. As I said to my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell), we intend to achieve this by mandating the ring-fencing of essential banking services from riskier wholesale and investment activities, as recommended by the Independent Commission on Banking chaired by Sir John Vickers.
The Government have given a clear commitment to legislate by the end of this Parliament, and banks will be expected to implement a ring fence as soon as practically possible thereafter. Implementation of the banking reforms will proceed in stages, with the final, non-structural changes fully completed by the beginning of 2019. This is another historic reform, and one where we lead the world.
Mr Frank Field (Birkenhead) (Lab)
I am sure that most of our constituents are grateful for this aspect of the Queen’s Speech. Does the Secretary of State see some link between the support that the Governor of the Bank of England has given him for these reforms, the hoped-for effects of reform on the City, and the fact that certain journalists are now trying to rubbish the Governor of the Bank of England for his support?
Vince Cable
I am not here to attack journalists; I am not sure which ones the right hon. Gentleman is referring to. It is certainly true that the Governor of the Bank of England has been absolutely clear from the outset that in order to have long-term stability in banking, these reforms, or something very like them, had to be implemented, as we are now doing.
One area where business success and responsibility coincide is in relation to flexible working. The UK employment framework compares well internationally and has helped to keep unemployment relatively low, despite the extremely difficult economic conditions, but that is not to say it cannot be improved, both for workers and employers. We want a flexible labour market that supports growth and creates employment, and making sure that that happens requires acknowledgement of changes in family life.
Most women now go out to work and men shoulder more of the duties at home. As roles and responsibilities have changed, our lives have become increasingly complex. That is not just true of parents with young children. Many have to combine working with looking after an elderly parent, a sick partner or a grandchild. Extending the right to request flexible working to every employee will make that easier.
Sheila Gilmore
I am pleased to hear the Secretary of State endorse the needs of parents and carers. Will he comment on and perhaps put to bed the proposals appearing in the media over this weekend saying that we should restrict maternity leave to no more than six months? For example, The Sunday Times seemed to be full of that proposal yesterday.
Vince Cable
That proposal is not in the enterprise and regulatory reform Bill. We are committing to extending flexibility at work in a way that avoids unnecessary costs for companies and delivers real economic benefits. Research from the CBI, for example, found that 63% of firms offering flexible working reported lower staff turnover, saving on recruitment and training costs.
Julian Smith
Will the Secretary of State confirm that there is a strong argument for excluding micro-businesses—those comprising fewer than 10 employees— from these proposals and allowing them just to get on and run their businesses on their own?
Vince Cable
I recognise that there are particular problems for small companies in adapting their work practices, but of course many of the most successful small companies have flexible practices. The idea of creating a two-tier labour market in this respect has many practical difficulties, but we can debate that as the Bill goes through Parliament.
Mr Sheerman
Before the Secretary of State moves on from that point—I can see from his papers, I think, that he is coming towards the end of his speech—I would like to point out that he has not once yet said anything about innovation, he has said little about entrepreneurs and enterprise, and he has said something complacent about the levels of unemployment, which include 1 million unemployed young people. What is in the Queen’s Speech about that and what is he going to do about that?
Vince Cable
That sounds like the basis of a speech in the debate. The hon. Gentleman will know that we are pursuing forceful policies in respect of innovation, including the establishment of the catapults across the country—something entirely new and positive in the innovation sphere—without the need for legislative approval.
Mark Pawsey (Rugby) (Con)
In recognising the needs of small businesses in respect of parental leave, will the Secretary of State consider the matter of employees giving as much notice as possible to those businesses in order that they can make allowances for when staff are not going to be present?
Vince Cable
That suggestion sounds eminently sensible. I do not know the extent to which it is required to be incorporated in the law, but it seems eminently sensible to pursue it in guidance.
Tristram Hunt (Stoke-on-Trent Central) (Lab)
Further to the point made by my hon. Friend the Member for Huddersfield (Mr Sheerman), can the Secretary of State explain why there is no higher education Bill in the Queen’s Speech? If we are interested in innovation, skills and training, and future competitiveness, why on earth is there no such Bill?
Vince Cable
There were many candidates for the Queen’s Speech—a lot of productive legislation. The reforms in higher education are being pursued successfully. Many of the alarms sounded about the university reforms have not been realised. We can pursue questions about higher education in Business, Innovation and Skills questions next week. This is not about the higher education Bill.
Stella Creasy (Walthamstow) (Lab/Co-op)
On the point about what is not in the Queen’s Speech, I agree with what the Secretary of State said about concern about Governments who were intensely relaxed about excessive financial practices. In a week when we found out that Wonga intends to lend to small businesses failed by Project Merlin, does the Secretary of State regret that there is nothing in the Queen’s Speech to deal with legal loan sharking?
Vince Cable
As the hon. Lady knows, there is a lot of discussion about whether, in respect of loan sharking, we should best proceed through different forms of regulation. It is not required to be in the Queen’s Speech. In terms of small business lending, of course, we acknowledge that there is a real problem. There is a decline in net business lending, as the Bank of England has highlighted. Those who are closely engaged with small business, as I am, will tell her that the current issues are complex ones of security and the terms of loans. We need to engage again with the banking system about how to get proper flows of funds, and the structural reforms that we propose will certainly help.
Mr Ronnie Campbell (Blyth Valley) (Lab)
On Friday I had a visit from a small business association in the north-east, and it told me two things: that it wants the banks to lend, and that it wants the big companies to pay small businesses. It said that if that were to happen, small businesses would be able to take on more employees and get the economy moving.
Vince Cable
I agree with the hon. Gentleman that we want banks to lend to small businesses, and one of the sources of finance, as identified recently in the Breedon report, which my Department commissioned, is big companies at the top of supply chains financing their own suppliers. They should do more of that, and we have introduced a programme, with some Government funding, to enable that to happen on a much bigger scale.
Mr Chuka Umunna (Streatham) (Lab)
Project Merlin failed, and we were told that credit easing and the national loan guarantee scheme would resolve small businesses’ problems in accessing finance. What does it say about those schemes that, since they were introduced, Wonga has seen fit to enter the market for lending to small and medium-sized enterprises?
Vince Cable
Nobody ever argued that the credit easing scheme would solve the problem of small business lending. We argued that it would cheapen the cost, and that will happen. All the major banks are now engaged in arranging packages to enable those lower costs to be passed through. I think the hon. Gentleman will be pleasantly surprised by the take-up within a few months.
Mr Love
The right hon. Gentleman is well known for his support for co-operative and mutual organisations. In January, the Prime Minister spoke warmly about a consolidating Bill for co-operatives, but it did not appear in the Queen’s Speech. Will the right hon. Gentleman assure us that the Government have not forgotten about it?
Vince Cable
I have worked with the hon. Gentleman for many years on the promotion of mutuality. I seem to remember that there was considerable progress under the Labour Government, but almost all achieved through private Members’ legislation. Maybe he should put in a bid.
The benefits of flexibility also apply to flexible parental leave. The current system of maternity, paternity and parental leave is not fit for purpose. It is old-fashioned, inflexible and gender-biased. Indeed, research has found that a quarter of fathers change jobs, often in the two years after a child is born, so that they can spend more time with their family. That generates costs for employers, so the answer lies in a system that reflects modern parenting without placing excessive burdens on business. A period of leave will be reserved for both the mother and the father, and a period of shared flexible leave will be available to the family for them to choose how to use. Greater flexibility in how leave is taken in the first year of a child’s life will make it easier for both parents to work, keeping their attachment to the labour market. However, I recognise that we need to work closely with the small business community to ensure that those changes are introduced in ways that supports its growth rather than undermine it.
Legislation alone will not solve the economic challenges that we face or generate the economic renewal for which we are striving. However, our measures will help to create a platform for sustainable recovery. As I said at the start of my speech, we face an immense challenge, and the Government are determined to succeed in meeting it so that we rebuild the UK economy for the long term.
Mr Umunna
My hon. Friend is right. I know that his constituency contains some of those industries.
The Government refuse to heed the call of businesses to get our economy going, and they refuse to adopt the active industrial strategy that we need. Instead, we have a Chancellor who is seeking to play the same old Tory tunes and watering down employee rights as a substitute for a proper growth strategy, along with a Business Secretary who is at best seemingly powerless to stop the Treasury juggernaut, and at worst going along with its nonsense on employee rights. We do not yet know what form the changes to employment law contained in the enterprise and regulatory reform Bill will take. All that we have been told to date by the Business Secretary’s Department is that the Bill will
“Overhaul the employment tribunal system, and transform the dispute resolution landscape.”
The Business Secretary alluded to that earlier. However, reforming the employment tribunal rules of procedure is one thing; making it easier for companies to hire and fire their workers, as the Government have spun it in the media, is quite another.
In March, the Business Secretary told the House that we already had the most flexible labour market in Europe, a claim that he repeated today. He also said that ours was the second most flexible labour market in the OECD. However, in an opinion piece which appeared in The Telegraph on 7 May and which was referred to by the hon. Member for Stone (Mr Cash), there was the Business Secretary parroting his Tory masters’ line.
“Britain is no longer a lone voice in the push”
for an even more “flexible labour market”, he told us. He then proceeded to round on the working time directive, which he condemned for being “'wasteful”. What has happened in the interim? Why the change of tone? I think that the Business Secretary has been got at.
Let us consider what the working time directive does through the working time regulations that give it effect in UK law. It ensures that workers have at least 11 hours’ rest in any 24-hour period. It ensures that workers have one day off in any seven days. It guarantees four weeks’ paid leave a year, and the right to a rest break of at least 20 minutes during a working day of six hours or more. I know that Ministers do not think we are all working hard enough, but I did not envisage that they would seek to tamper with those basic rights to a modicum of time off and a rest.
Vince Cable
Is the hon. Gentleman not aware that the individual opt-out of which I was speaking was defended for over a decade by the last Labour Government?
Vince Cable
If the hon. Gentleman is following this matter closely, he will know that there has been a series of judgments by the European Court of Justice that, unless repealed, will add very considerably to the burdens faced by companies, and that that was fully recognised by his party when it was in office.
Mr Umunna
So, in contrast to what seems to be in the Secretary of State’s Telegraph piece—I have a copy of it to hand—he has no problem with the working time regulations; instead, he simply has a problem with ECJ cases. [Interruption.] For the benefit of the record, the Secretary of State is saying he does not have a problem with the working time regulations. So why on earth is he publishing an article in The Telegraph saying
“the tide is turning against EU bureaucracy”
and
“Britain is no longer a lone voice in the push for deregulation”?
Who is that designed to please?
The reason we are in recession is not our employment law regime; it is this Government’s policies. [Interruption.] The Chief Secretary chunters from a sedentary position about the Labour Government. He has been in power for two years now. When he became Chief Secretary to the Treasury, he inherited a situation in which, as I said at the beginning of my speech, growth was rising, unemployment was falling and a recovery was setting in. Now, after two years at the Treasury, he is presiding over an economy that is in a double-dip recession. We will take no lectures from him.
The reason our economy has not grown is not our employment regime; it is this Government’s policies. The Secretary of State should be working to make it easier for firms to hire people—for example, by giving all micro-businesses who take on extra workers a national insurance break—not enabling firms to fire people as they want, with all the instability that that brings.
So there we have it: a Government who have tipped this country into a double-dip recession; a Government who will not listen, or take responsibility for the mess they have created; and a Government who tell our businesses and everyone else to work harder. Yet it is they who should change course and work a lot harder to provide the policies and leadership this country deserves and needs.
Amendment of the Law
Vince Cable Excerpts(12 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Secretary of State for Business, Innovation and Skills (Vince Cable)
The central issue on which this Budget—and, indeed, the coalition Government—will be judged is how we cope with the fallout from the massive financial collapse and the destruction of wealth, with the loss of approximately 10% of our national income, and put the economy back on a sustainable path.
The shadow Chancellor made some very kind and considerate remarks, and I thank him for his concern about my personal finances. Perhaps I can take him back to a toe-curling interview he gave a few days ago, when he described his two-decade relationship with his former boss, mentor, guide and friend as “unbelievably debilitating”. That is relevant to this debate, because it gets to the heart of the problem of who is responsible for the legacy that we are having to manage. We inherited not merely a large fiscal deficit, but the largest in the G20 and the largest amount of household indebtedness of any developed country.
We inherited an economy in which the share of the banking sector—the banking assets—had doubled in Labour’s period of government, to become the largest of any major economy, and in which, simultaneously, the share of manufacturing had contracted by almost a half, from 18% to 10%. We have heard a long speech about equality and fairness, but we also inherited an economy in which, throughout Labour’s period of government, the share of income of the top 1% and the top 10% of the population inexorably rose, and in which wealth became progressively more unequal.
Vince Cable
I will take the intervention in a moment.
A narrative has developed in which one man was responsible for this fiasco, but it was a genuine team effort, and the shadow Chancellor was an absolutely key member of that team. Being lectured now on how to manage an economy is a little bit like being given a talk on seamanship by the captain of the Costa Concordia—another believer in light-touch steering.
Mr Russell Brown (Dumfries and Galloway) (Lab)
The Secretary of State talked earlier about indebtedness. Can he share with the House how much of the debt was down to the previous Government having supported the banks and the finance houses to get through the potential economic crisis?
Vince Cable
It was actually on the back of an uncontrolled housing boom. Personal indebtedness as a share of people’s incomes doubled in the period of the last Government. Of course the process of deregulation beforehand did not help, but the core increase—the fundamental problem of indebtedness—arose when the shadow Chancellor was a key decision maker in that Government.
I want to talk about the Government’s basic economic strategy, but before I do, I want to address the issue of unfairness and distribution. There were two allegations. One was that the policies have had a damaging effect on the so-called squeezed middle; the other was about the millionaires. Let me deal with each in turn. On the squeezed middle, if hon. Members look at the distribution charts, they will see that the squeezed middle has been squeezed a great deal less than the squeezed top. The major cash impact of the Budget was on low and middle-income families, as a result of lifting the threshold to over £9,200, with £220 for more than 20 million taxpayers. That was right, not just because of the fairness involved, but because it gives a significant economic stimulus, and at the margin—the 1 million people being lifted out of tax—it is a major incentive to work. The policy also contrasts favourably with the strategy that the Labour Government adopted in office—which we discussed many times—of using tax credits. By increasing tax allowances in the way we have, we are giving people the freedom to choose how to spend their own money, not taking it from them and then giving it back to them, through a complex, means-tested system, with high marginal rates of withdrawal.
Sheila Gilmore
Is the Secretary of State disappointed that he lost the battle to rescind the cuts to working tax credit for couples working 16 hours, given that they do not benefit at all from raising the tax threshold, because they already do not pay tax? Did he lose that battle or did he not fight it?
Vince Cable
The shift from a system based on tax credits to one based on tax allowances obviously benefits the middle and low-income population as a whole. The impact on particular groups depends on a variety of things, including the minimum wage, which we have just uprated, and the complex interaction of tax and tax credits.
However, let me turn to the point about pensioner income. I find it quite extraordinary to hear the shadow Chancellor expressing such alarm about the impact of the Budget on pensioners. I do not know whether he has looked at the scorecard, but it is clear. In 2012-13, the effect of the increase in the basic state pension and the pension credit minimum income guarantee will be to transfer £1.75 billion to pensioners. The impact of the changes on age-related allowances is £360 million—one fifth of the additional funding going to pensioners as a consequence of this Budget. When we look at the pensioner population, we of course see big differences. There are 5 million pensioners who do not pay tax, many of whom are poor, and who are not, of course, affected by the changes at all. There is a small group of people—frankly, my contemporaries—who have high retirement incomes and considerable asset wealth, and it is right in principle that they should pay a bit more. There is a group in between, as the shadow Chancellor rightly said, of people who are not wealthy and do not have particularly high incomes, but who could be affected to a limited extent, as a result of inflation eroding the value of the allowances—inflation is currently estimated at 2.5%. Those people will benefit enormously from the increase in the basic pension.
Let us just remind ourselves what is happening. We have an increase of £5.30 in the basic state pension for a single person. On top of the increase last year, we are talking about a £10 increase in the basic state pension, as a result of the protections that this Government have introduced. For many years, the pension steadily fell behind earnings as a result of de-linking, and, despite numerous promises, the previous Government did absolutely nothing about the problem. More and more pensioners were sucked into means-testing. This Government have corrected that problem. We have a triple lock system and, as a result of that, and of this Budget, the vast majority of pensioners on low and middle incomes will be considerably better off than they were before.
Angela Smith (Penistone and Stocksbridge) (Lab)
What does the Secretary of State have to say to the Institute for Fiscal Studies, which has today described the Budget as a “hotch-potch of reforms” that are risky because they might be “less fiscally neutral” than the Chancellor is claiming?
Vince Cable
I am sorry; I do not follow the logic of the question. The Budget is of course fiscally neutral. I have just quoted figures, which the Office for Budget Responsibility has validated, which show that pensioners as a whole will gain five times as much from the increase in the pension and from pension tax credits as from the change in allowances.
Kate Green (Stretford and Urmston) (Lab)
What will the Secretary of State say to people who have saved into a pension all their working lives and who have only modest additional pension provision to rely on, but who will now, completely unexpectedly, see the reward for making that effort to save wiped away?
Vince Cable
There is a genuine issue about pensioners with limited income, much of it savings income, which has been progressively ignored over the years. I have fought very hard in Parliament on the issue of annuities reform, as have many colleagues, particularly on the Government Benches. Many of the people the hon. Lady describes are annuitants who have been severely squeezed by the very low interest rates. Despite numerous appeals to the previous Government, absolutely nothing was done about annuity reform. We have made an absolute commitment to end compulsory annuitisation, which will offer far more practical help than any of the things that she and her colleagues are describing.
Let me turn to these millionaires. I agree with the Chancellor that the decision to cut the top rate of tax from 50p to 45p was economically the rational thing to do. I want to focus the debate not on symbols but on substance. I share the emotional reaction of the many people who are disgusted to hear pampered financiers whinging about their taxes. On an emotional level, nobody can sympathise with that. However, we have to deal with the practical realities that were burned on my consciousness as a result of sitting in my place on the Opposition Benches for 13 years, exchanging views on the top rate of tax with successive Labour Ministers from Blair to Brown to Balls. Year after year, they would tell the Liberal Democrats that it was economically stupid to raise the top rate of tax above 40%. That was their message, year after year. Then, a few weeks before the end of their Government—I think it was 57 days—they introduced the 50p rate in order to create a political dividing line. That decision had nothing whatever to do with economics. The point that they had been making over all those years was that raising the top rate in that way would raise relatively little revenue.
Despite the casuistry of the shadow Chancellor’s intervention a few moments ago, in trying to argue that vast sums of money had been sacrificed, line 3 of the scorecard makes it absolutely clear that we are talking about a revenue loss of £100 million a year. That figure has been endorsed by the Office for Budget Responsibility. The changes that have been introduced in the Budget, including increased taxation of high-value property, plugging loopholes and much tougher anti-avoidance rules, will bring in at least five times that amount.
Ed Balls
The HMRC report states that, in 2013-14, the static cost—that is, the cost to existing top rate taxpayers—will be £3 billion, rising to £3.35 billion, then £3.7 billion and £4.2 billion. It then states that that will be offset by a behavioural impact of £2.9 billion, £3.2 billion, £3.6 billion and £4 billion, which I think is heroic. The document states that behavioural responses are often “highly uncertain”, and the Business Secretary himself said that such assumptions were utter nonsense. He said, “Pull the other one!” Is he now saying, “Mea culpa—I got it totally wrong”?
Vince Cable
I am just trying to deal with the facts. I believe in evidence-based decision making. The information in the Budget document, which has been validated as the best central estimate by Robert Chote of the OBR, suggests that we are talking about a revenue loss of £100 million. I think that the right hon. Gentleman is fundamentally underestimating the financial significance of something that happened on an epic scale when his Government moved on the top rate, which involved simply switching from one year to another. The underlying impact on revenue has been independently estimated at £100 million.
Ed Balls
The document from HMRC makes it absolutely clear in section A.19 that that is not HMRC’s view but the Government’s view. It was a ministerial decision on those estimates. But that does not take away from the fact that a £3 billion cost—£10,000 on average for top rate taxpayers—will be offset by a behavioural impact that is huge and, in the Business Secretary’s own words, absolute nonsense. Let us deal in the complexity of the facts, not the simplistic nonsense that the Chancellor told the House yesterday. Does the Business Secretary, with his integrity, look at those numbers—£2.9 billion, £3.2 billion, £3.6 billion and £4 billion—and say, “Yup, I agree”?
Vince Cable
I think we are talking about integrity and statistics. Of course there has been a big change under this Government, compared with their predecessor. The numbers that the shadow Chancellor used to use were his own numbers. The numbers we are quoting here are independently verified by the Office for Budget Responsibility. We will analyse the underlying assumptions in those figures. The figures in the Budget document are absolutely unambiguous and they have been endorsed by an independent assessor—something that the right hon. Gentleman was never used to when he was in government—which confirms the value of the numbers that we have described.
George Freeman (Mid Norfolk) (Con)
Is not the shadow Chancellor’s knockabout class warfare much more to do with appeasing Labour’s union paymasters? The truth is that all the evidence shows that a competitive personal and corporate tax rate is a powerful driver of entrepreneurship. We proved in the 1980s, when we last had to dismantle Labour’s tax time bomb, that lower marginal rates of tax increased revenue. The announcement today from GlaxoSmithKline of inward investment in this country is a sign that this is working.
Vince Cable
It is certainly true. My hon. Friend’s central point, which was made very effectively by the Labour Government when they were in office, is that in a highly mobile world, we have to take account of marginal rates of tax in comparable countries. The current top rate of marginal tax in Canada, Australia, France and Germany is around 45%, and that is the level to which we have moved.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Does the Secretary of State acknowledge that business leaders, who will benefit from the tax cut, said yesterday that the priority should have been to cut taxes for those on low and middle incomes in order to stimulate consumer spending? Does he agree that that should have been the priority, rather than cutting the 50% rate?
Vince Cable
I do not know where the hon. Lady has been for the past 24 hours. The central feature of the Budget was a very large tax cut for exactly the group of people she describes, and it will have exactly the consequences that she describes.
Let me get back to the core issue, which exercises me and the shadow Chancellor. The basic economic strategy of the Government is to get back to a stable, sustainable form of economic growth. I want to address head-on his central criticism, which he has made many times. It can be summarised in the phrase “too much, too fast”. This Government have a deficit reduction programme that was developed following the autumn statement, and it involves removing the structural deficit over a period of six years.
The Darling plan, which the last Government set out, involved a deficit elimination programme of seven years. What I am not clear about, particularly in view of the stridency of the shadow Chancellor’s views, is: what is the Balls plan? Is it for seven years, eight, 10, 20 or never? What is the alternative speed of deficit reduction that the Opposition are urging on us?
We are acting, successfully, on good advice. A few weeks ago, the head of the International Monetary Fund, Christine Lagarde said:
“Those countries that have fiscal space, and that can slow down their fiscal consolidation efforts are very few, and I’m afraid Britain is not in that particular group.”
That is because of the sheer scale of the structural deficit that we inherited.
Vince Cable
I will give way in a moment.
The CBI, quoted in evidence by the Opposition, was equally clear, as reflected in its view that we cannot afford to slow down the austerity programme. That is what authoritative people have to say about “too much, too fast”.
Ed Balls
The Business Secretary is a former chief economist. He read out a quote from the head of the International Monetary Fund. On the previous day, the chief economist of the IMF said exactly the opposite—that if growth was “undershooting”, a country like Britain should
“slow the pace of deficit reduction”.
Is the Business Secretary really saying that he is ignoring the advice of Olivier Blanchard, the chief economist of the IMF? I would have thought that the right hon. Gentleman would have recognised Mr Blanchard’s economic credentials.
Vince Cable
I think Mr Blanchard is very firmly on record as endorsing the strategy that we have adopted.
There is, of course, a fundamental dilemma, which any Government in this situation would face. If a deficit is cut very fast, it clearly has an impact on demand; and if it is cut too slowly, we lose the confidence of international creditors and markets. That is what we have not done. Unlike many eurozone countries that are now introducing budgets in panic and under pressure, we have introduced a politically and financially stable approach to deficit reduction. The underlying theme has to be one of financial discipline.
I cannot resist quoting an excellent statement of what this Government are about, and of what any Government should be about. It says that
“we must ensure we pass the test of fiscal credibility. If we don’t get this right, it doesn’t matter what we say about anything else.”
That was the shadow Chief Secretary, the hon. Member for Leeds West (Rachel Reeves). She is absolutely right and has brought fiscal rigour to the Opposition Front Bench for the first time. I just wonder what kind of response she has made privately to some of the commitments that the shadow Chancellor, and indeed the Leader of the Opposition, have been making in the last few weeks. They have been promising to get rid of the fuel duty changes, child benefit changes, child tax credit changes and the changes to public sector pay. I think the total volume of commitments is something in the order of £30 billion. Before we proceed any further with a debate on the Budget, we need to have absolute clarity about which of those measures the Opposition are committed to and to which they are not—and if they are committed, we need to know what else they are going to cut to make way for them.
Let me summarise where we as a Government are proceeding. Unlike many other countries in Europe, we have not introduced our Budget in an environment of panic or under pressure from financial markets. Unlike in the United States, we do not have political paralysis; we have stable government. This is our strategy: we have, and we will retain, fiscal discipline and we will stimulate the economy. There has to be demand—the shadow Chancellor is absolutely right about that—but this is coming through monetary policy. In order to have a monetary policy that stimulates the economy, we need the confidence of the central bank. The central bank has made it absolutely clear that the Government have to be fully committed to fiscal discipline in order to allow that to happen. Thus we have a combination of low interest rates, quantitative easing, now credit easing and a substantial devaluation. This is where the stimulus to demand comes from.
The third element is fundamental: we are dealing with a broken banking system—something we inherited. The banking system was massively expanded under the last Government, but collapsed with disastrous consequences. There is a continuing problem of credit supply. That is a very real problem—and every small and medium-sized enterprise would tell the same story. We have introduced a whole series of initiatives. The Chancellor has taken this forward with credit easing, while my Department has a new programme building on the Breeden report relating to non-bank finance. I have no doubt that we shall have to come back to this, because the banking system is still not functioning, but this is at the heart of the economic crisis that we are trying to manage. For the first time in our lifetimes, the financial system has collapsed—with disastrous consequences—and we are having to put that right.
The fourth and final element in the story is rebalancing the economy and putting it on a proper sustainable basis. That is why the Chancellor underlined in the Budget our commitment to the growth review and to improving infrastructure. We need to recognise that banks have to be properly regulated, which is why we have increased the bank levy, but in addition, we need to give backing to our successful industries, particularly our export industries—aerospace, creative industries, the oil and gas sector, and pharmaceuticals. Over the last few weeks and months, we have been correcting some of the long-standing errors of policy pursued by the Labour Government—the way in which, for example, public procurement took no account of supply chains; we are putting that right. We are beginning to see serious positive commitment by overseas investors—we are seeing it in the car industry and in pharmaceuticals—as a result of this industrial strategy.
Clive Efford (Eltham) (Lab)
With all due respect, we have heard it all before. In May last year, the Business Secretary said:
“I will fight, and do fight…for manufacturing industry…It is leading this country out of recession”.—[Official Report, 24 May 2011; Vol. 528, c. 793.]
Will he tell us what went wrong with manufacturing?
Vince Cable
Has the hon. Gentleman followed what is happening? The car industry, for example, has grown by approximately 20% over the last year, and all the major producers are investing in the UK.
Vince Cable
Let me finish my summary. Hon. Members can make their points in their own speeches.
We are dealing with an extraordinarily dangerous and difficult situation. Quite apart from our own horrendous legacy, we have to contend with the threat of high oil prices and the currently stabilised but continuing crisis in the eurozone. As a consequence, our economic position is very difficult. The economy is not, of course, growingly rapidly. Ever since we came into office, I seem to recall the shadow Chancellor predicting a double-dip recession, which has not happened. This year, growth is not spectacular, but it is higher than Germany’s and significantly better than the eurozone’s.
We acknowledge that we undoubtedly have major problems to deal with. Unemployment is far too high, but it is the same rate as in the United States, which is often regarded as providing a role model of how to deal with a crisis. We recognise the seriousness of the problem; what we will be judged by is our effectiveness in digging this country out of the enormous economic hole that we inherited. We are on track to do it, and we will stick with the policies that we have adopted.