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2 Feb 2009 : Column 593

Opposition Day


[3rd Allotted Day]

Government Capital Expenditure

Mr. Speaker: I inform the House that I have selected the amendments in the name of the Prime Minister for both debates.

4.20 pm

Dr. Vincent Cable (Twickenham) (LD): I beg to move,

The ministerial statement set out the chilling context in which this debate takes place. We are dealing with rapidly rising unemployment, much of it centred on the construction industry, and the situation is bitter and divisive. We shall try to suggest a positive approach to the problem through fiscal stimulus from capital spending.

I wish to make three simple points. First, fiscal stimulus is necessary, and the best way of providing it is through properly targeted public investment. Secondly, despite the Government’s claim to be bringing forward capital investment, that is not happening. There are severe problems in the public investment area, and the situation is complicated by the virtually complete collapse of private finance initiative projects. Thirdly, if we are to have public investment in an environment where there are growing anxieties about public debt, we need a mechanism for proper evaluation of such things in a way that does not happen now, because much of it takes place in the framework of the commercial secrecy that surrounds PFI projects.

Let me develop each of the points in turn. First, like most western Governments, we believe—and the Government say that they believe—in the need for a fiscal stimulus. Despite the severe financial constraints on the public sector, we believe that such a stimulus is right and necessary, and that the best way of bringing it about is through properly targeted public investment rather than, as has happened, the value added tax reduction. A few weeks ago, we proposed in the House that, assuming a belief in the fiscal stimulus, a much better use of that £12.5 billion would have been to introduce a series of public investment measures aimed at, for example, home insulation, social housing projects and public transport. We remain of the view that that would have been the correct way forward.


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Why is public investment so important in a recession? Partly because it creates employment. There is a big opportunity cost to the alternative of not investing: people remain unemployed. Some 100,000 construction workers have already been laid off in this recession. The figure was 300,000 at the peak of the last recession in the early 1990s, and there is a reasonable expectation that the number of unemployed construction workers in this recession will be even bigger than that.

Mr. Paul Burstow (Sutton and Cheam) (LD): My hon. Friend is talking about the absolute importance of fiscal stimulus through capital investment. Does he share my concern about local authorities that put together capital programmes which rely partly on anticipated receipts on capital sales and the disposal of assets? Such local authorities are finding it increasingly difficult to make their programmes add up, as the opportunities for disposing of assets at a reasonable price dry up because of the recession. Does he agree that if the Government want the economic stimulus and local councils to deliver better street lighting, and improvements in schools and various other assets that councils hold on the public’s behalf, they need to find ways to bridge the funding gap to allow councils to make the capital investment today?

Dr. Cable: My hon. Friend makes a good point that I shall develop later. He is absolutely right that in the current environment trying to finance projects by selling off assets cheaply in highly depressed asset markets is not efficient, and that is one of the reasons why the Government’s own programmes are in considerable difficulty.

Let me finish my central point about the importance of public investment. Of course, it is important for employment generation, but it also generates an asset. If it is properly constructed, it generates a stream of income and environmental and social benefits. That is why we presented our series of proposals before Christmas.

My second basic point is that, despite the Government’s commitment in principle to accelerating public investment, a growing amount of evidence—anecdotal so far, but I hope that the Government will clarify the matter—shows that many of their enhanced public investment projects are not happening or are severely delayed. Let me enumerate some of the difficulties that we hear about from councils, parliamentary questions and elsewhere.

In the middle of last week, we heard about the serious problems that are beginning to arise with the large capital works programme for further education colleges and adult colleges. Two in my constituency are affected. Twenty-two advanced projects have been put on hold and a long pipeline of more than 100 others has been put into abeyance. There may be good technical reasons for re-examining the projects—for example, some depend on asset disposal, as my hon. Friend the Member for Sutton and Cheam (Mr. Burstow) said. However, many do not. The adult college and the tertiary college in my constituency do not have that problem, or the other problems that are supposed to be associated with the building programme, and cannot understand why the projects are being held up. They say that they may have to retender. The process will take a long time—they will have to renegotiate bank loans, which will cause serious delay. Some of the colleges, which are being held up by what appears to be merely a
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three-month delay, say that it will retard construction by up to two years. When they come on stream, the recession may have passed, though perhaps that is an optimistic interpretation.

Annette Brooke (Mid-Dorset and North Poole) (LD): I visited Bournemouth and Poole college on Friday to learn that a project of £150 million had to be divided in two. Half has been deferred for at least 24 months and half is faced with general uncertainty. Does my hon. Friend believe that the Government should give a clear explanation for the hold-up and the possible waste of money for up-front expenditure, and a timeline for tackling that? My local college has already spent £11 million and it is faced with total uncertainty and antiquated buildings.

Dr. Cable: My hon. Friend makes her point well. Indeed, hon. Members of all parties made similar points last Thursday during Innovation, Universities and Skills questions. The problem is not only wasteful and exacerbates delays, but it affects a specific form of public investment, which, as the Government have demonstrated, is of great benefit. The colleges that have been built in the existing programme have produced quick returns in accelerating apprenticeship training and other useful activities.

Mr. John Hayes (South Holland and The Deepings) (Con): The only explanation for the circumstances that the hon. Gentleman describes is either that the Learning and Skills Council overcommitted and led people to believe in an outcome that was never on the cards, or the Treasury has put a stop on the projects and blocked the pipeline. The cause of the problem was not clear from Innovation, Universities and Skills questions. Will he speculate on the answer?

Dr. Cable: I do not know the answer. The Financial Secretary is here and I am happy to take an intervention from him, but I am sure that he will give a proper explanation in his speech. Having talked to my local learning and skills council, I have a sense of Treasury involvement, but I do not know whether it is exclusively responsible.

In addition to the problems that affect colleges, other bits of the advanced investment programme are running into difficulties. I was recently shown a summary of a meeting of council leaders in the south-west. It reported repeated appeals to the Department for Transport to say whether the advanced projects that the Government had flagged up would happen and simply never getting an answer. The projects are not moving ahead. If that is happening in the south-west, I am sure that it is happening everywhere else.

There are particular problems with social housing. In the past year, my colleagues and I have asked the Government about the obvious things they can do in the face of the collapsing housing market, such as investing in social housing, both in new build and in acquiring unsold properties. The Government have responded in a general sense, but only very little is happening.

The Government had approval, within the envelope of the spending review, to spend £1 billion on social housing. As far as we can establish, only a tiny fraction
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of that has been committed. One of the reasons is that public housing projects—social housing—whether undertaken by councils or by housing associations, depend on agreements with developers and section 106 money. Private development has largely ground to a halt and section 106 money is not available, so public sector housing is not proceeding either. We also know that many social landlords have collaborated with developers, and many of them overcommitted themselves with bank borrowing. There is about £50 billion of borrowing by social landlords—certainly by the registered social landlords. Many of them are now paralysed and unable to proceed with developments.

The ambitious targets for social housing are not being met at a time of growing housing need. Moreover, in the middle of a recession, one of the things that the Government concretely can do, and which we all agree is an imperative, is simply not happening. I would be interested to hear exactly what is happening on that front. We have repeatedly asked the Government. As far as we can establish, virtually no money is coming out of the appropriate Department to develop social housing when it is most needed.

Sir Nicholas Winterton (Macclesfield) (Con): The hon. Gentleman is advancing a sound case. Does he believe that because of the seriousness of the credit crunch and the financial crisis, there should be more genuine co-operation, contact and communication between the Government and the Opposition parties, to see whether there could be co-operation in bringing about a solution to the extremely serious problems that we face?

Dr. Cable: I am certainly up for constructive discussions. I was last invited into the Treasury in October. I always welcome a good chat with the Chancellor, and I am sure it will happen.

Simon Hughes (North Southwark and Bermondsey) (LD): Over the past couple of weeks, Ministers, including the Prime Minister, have accepted the case that my hon. Friend makes and the need to get things going in the social housing, housing association and housing trust sector. Will my hon. Friend seek to elicit from the Government today a commitment, first, to draw down more money from the new Homes and Communities Agency—it says that it has lots of money that it is willing to spend, and that could plug the gap—and, secondly, to call in local authorities with a large social housing programme that is currently blocked, so that the money can be released? The sites are there, planning permission has been granted, and there are people queuing up waiting for the homes. Something could be done if the Government gave the matter urgent attention.

Dr. Cable: The idea of getting the councils in to talk to the Government about what can be done is right. It should also be possible to bring in some of the developers and get them to work together. There should not necessarily be a public/private sector demarcation. My hon. Friend is right. Although I think the failings are largely in the Government, they are not entirely in the Government. The new agency is probably highly conservative in its approach. I get a sense that it is reluctant, for example, to encourage the buying up of empty stock because it says that it is the wrong quality and cannot be used for public sector housing, so housing stock just sits there
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empty when many people are desperate. There is a conservatism and a reluctance to act across the board. If my hon. Friend’s suggestion is taken seriously, the Government should get all the parties round the table, bang their heads together and get some action.

Julia Goldsworthy (Falmouth and Camborne) (LD): Does my hon. Friend agree that a key barrier preventing many councils from investing in more social house building is the continuance of the housing revenue account system? While that is under review, should not everything be done to bring forward the review, so that we can see changes sooner rather than later?

Dr. Cable: I very much agree. Until recently, the assumption was that only housing associations should do social housing, but of course councils have a key role in that, and they cannot perform it while such an archaic and irrelevant formula persists. My hon. Friend is right about that.

Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): My hon. Friend is right about everything he says, but is he aware that in Scotland the situation has been made even worse by rule changes imposed by the Scottish Government which require housing associations to borrow much more money from the private sector, so causing small housing associations in rural areas to have to suspend their house building programmes in many cases? Does he agree that the Scottish Government, as well as the Westminster Government, should be making changes?

Dr. Cable: Unlike Treasury Ministers, the Scottish nationalists are not here to answer for themselves, but we shall take it that my hon. Friend’s point is entirely correct.

My final point on the way in which existing programmes are not working relates to the developing PFI crisis. In the past six months, only one PFI project—as it happens, the M80 motorway in Scotland—has been able to proceed. All others have ground to a halt, as I understand it. The Financial Secretary shakes his head; if he can encourage us with some good news, I would be delighted to hear it. The PFI process is in considerable difficulty because commercial partners will not come forward, and the number of banks willing to participate has drastically contracted, mainly because of the credit crunch. It was always a rather questionable financial mechanism, and it is now in the deepest difficulty.

I have made several points about the difficulty that the Government are having in making capital investment take place. The problem is that the context is one of a crisis that is far worse than we knew it to be even three months ago. One of last week’s revelations was the fairly clear indication from independent outside bodies, such as the International Monetary Fund, that the crisis in the UK is significantly worse than that of almost any other developed country. It is worth reflecting briefly on why that is the case.

There are two major reasons why the British recession is likely to be much worse than in other developed countries. The first is that the bubble in the housing market and the growth of personal debt were more
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extreme than they were in almost any other developed country, except for Ireland and possibly Spain. The blame for that is quite widely distributed, but it is partly down to a failure of regulation: the deregulations of the 1980s and the liberation of the building societies that allowed them to become banks. It is partly due to failures by the Financial Services Authority, and partly due to a failure of monetary policy. Much of the responsibility for the failure to spot the bubble in the housing market lies with the Government, but also with irresponsible lending by the banking system. That was exceptional in the UK.

The second reason, and the full significance of this point is only now becoming fully apparent, is that Britain will suffer severely because we are host to some of the world’s largest banks. Of the largest five, three are in the UK, and they are ultimately the responsibility of the British taxpayer—not counting Lloyds HBOS, which is not far behind them. The City of London hosts those enormous, universal banks that are now in extreme difficulty, and the effects are rippling through our economy. That is happening because banks are rapidly—to use an ugly phrase—deleveraging, which is showing up in a contraction of credit to British companies, and because of the loss of revenue from the City on which the Government hitherto relied. A factor that has not yet come through, but which could be of enormous magnitude, is the big losses that the banks will accrue, much of which will end up with the Treasury. We do not know how much, but the amount will be large.

The context of the debate is one in which we understand that the recession in Britain could be much worse than it is everywhere else. Therefore, Government action, including fiscal stimulus, is all the more important.

Mr. Andrew Tyrie (Chichester) (Con): I wonder whether the hon. Gentleman could give us a clear indication of the size of the fiscal stimulus for this year, and the next two full years, if he thinks that it is appropriate to announce it at this stage. The automatic stabilisers constitute more than 80 per cent. of the current stimulus package, given the fall in tax revenues and the rise in public spending, and less than 20 per cent. of the package will come from measures in the Government’s announcement.

Dr. Cable: Although £12 billion is a lot of money, the Government’s fiscal stimulus is not large in terms of the British economy. It is less than 1 per cent. of the economy, which is a much smaller proportion than in the United States. We have supported that measure, but we suggested a different mechanism for going about it.

A problem arises from the fact that we have growing budget deficits and growing public debt, which may have the effect of squeezing out any future public investment, which will be crucial in providing a continued fiscal stimulus.

Mr. Tyrie: The hon. Gentleman is very thoughtful on these subjects. Can he now say what is Liberal Democrat party policy? How big a fiscal stimulus is it recommending?


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