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30 Mar 2010 : Column 679

When I left Parliament last Thursday, my first port of call was a mass meeting of teachers and lecturers at my local further education college. The problem is that 70 front-line staff have been told they will be sacked over the Easter recess, and they do not understand why. The college is a top-quality, academic establishment for post-16 year olds., and the staff have been told that the Government attach enormous importance to post-16 education. As far as I know, there is no fault with the college, but people have been told that there are going to be cuts. Those cuts are happening now, and people will get their redundancy notices in a few weeks.

I thought that that may be some kind of strange outlier that was not typical, but I went to the local university the following day and it too is grappling with a completely new set of budget numbers that will almost certainly mean very substantial cuts in student numbers and teachers. Then on Monday morning I had an opportunity to go to the National Physical Laboratory, which happens to be in my constituency. It is one of the country's leading science centres, and it is where Greenwich mean time is based.

I spoke to a staff union meeting there, and again it appears that Lord Mandelson's Department has decided that this very productive corner of British science must have cuts. The Government have suggested that it generates £25 of benefit for UK plc for every £1 that it spends, but 40 or 50 members of staff have been given redundancy notices already and others are to follow.

This is what is actually happening, in the real world. We are talking theoretically about making cuts now or later, but the environment in which some sectors of the economy are operating is one in which cuts are being made already. Coming back from that contact with the real world, I had a fresh look at the Budget in a bid to understand what is going on.

When we read the Budget, we think it appears to have absolutely no impact on the economy at all. We are talking about a change in revenue worth about £1.5 billion, or one tenth of 1 per cent. of the economy. The fiscal changes in the Budget therefore have absolutely no effect on the economy at all, but the report published at the end of last week by the Institute for Fiscal Studies showed that 2010-11, the next financial year, will see a very big fiscal contraction of about 2.5 per cent. of GDP. That is because the fiscal stimulus that the Government supplied is being withdrawn, and it is also due to the big cuts in capital spending.

Again, back in the real world, I was reminded of what that actually means. I was invited to one of the big rooms at Twickenham rugby stadium to speak to a group of roofing contractors-500 of them. They had various experiences, and many of them had had a tough time in the recession. They told me that all their business plans are being affected by the fact that the Government are drastically reducing capital spending. This is happening and it is affecting their businesses. That, combined with the severe contraction of credit from the banks, means that many of those companies are finding it extremely difficult to operate. The artificial debate around the Budget has little connection with the real world in which those companies work.

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Mr. Angus MacNeil (Na h-Eileanan an Iar) (SNP): On the point about the very real world, I notice that just before the Budget the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) was opposing fuel tax rises, but the right hon. Member for Sheffield, Hallam (Mr. Clegg), the Liberal Democrat party leader, was in favour of them. What is the Liberal Democrat position, in the real world, on fuel taxes?

Dr. Cable: We want special provision for remote rural areas. If the Government were able to introduce a scheme of that kind, we would be happier with the fuel tax proposals. The hon. Gentleman will see how we vote on the matter tonight, but that is heavily coloured by the fact that we have had no provision for remote rural areas.

Mr. David Heathcoat-Amory (Wells) (Con): While the hon. Gentleman is clearing up confusions, what about this one? Last night on television, he said he wanted to bring down the budget deficit by, among other things, removing child benefit for high earners. That position was contradicted by the leader of his party earlier this month, when he said that the universality of child benefit would not be questioned by the Liberal Democrats. What is the position of the hon. Gentleman's party on this? Who speaks for the Liberal Democrats?

Dr. Cable: What I said, or what I thought I said, was that we would cut child tax credits for high earners. [Hon. Members: "No!"] Well, if I mispronounced it, then I mispronounced it. [Interruption.] No, we are not talking about cutting child benefit; that is quite clear. We are talking about child tax credits. Let me be absolutely clear, and I apologise if I did mispronounce it, because the policy is unambiguous.

Let me turn to the Budget pluses and minuses. There are pluses. First, the Chancellor clearly did not accept some of the demands that were being made of him to run a populist Budget. He restrained himself from that, which is a big contrast with earlier Budgets. I go back, for example, to 1992, when there was a similar situation. The economy was in difficulty and an election was coming. Large offerings were made, which had to be withdrawn a few months later. This Chancellor, to some credit, has desisted in that respect.

The second, rather minor, positive is the fact that the Chancellor's news on economic borrowing was slightly less severe than it could have been, but that is a little like someone grappling with a very large overdraft discovering that their mobile phone bill is not quite as bad as they thought it would be. Still, it is good news.

The other positive, though I say this slightly sardonically, is the fact that we have had an accurate description of what the fiscal problem actually is-the scale of it and the time scale over which it is due to be dealt with. However, that is a little like saying that the Chancellor has identified and acknowledged, probably for the first time, the fact that we have a very large elephant in the room; has carefully measured the elephant, telling us that in eight years' time it will become a mouse; and has suggested a time scale over which that contraction will occur, but without at any point explaining to us the biology by which that elephant will transform itself into a mouse. There was no discussion whatever of the what and the how of the fiscal contraction occurring.

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Stewart Hosie (Dundee, East) (SNP): That is a very good point indeed, as was the description of the real cuts at the hon. Gentleman's university, his college and the National Physical Laboratory, but in all the national hustings I have done recently, the Liberal spokespeople have tended to use the same form of words, which is that they are on the same page as the Government with this. Is he backing those cuts; or if he has questions now about how we get from a huge deficit to a slightly less huge deficit, is he backing the process or will he give us something new today?

Dr. Cable: No, the criticism is not of the fact that there needs to be a tightening of budgets. Of course there has to be, although we have taken a view, which I have communicated publicly with the hon. Gentleman's party leader, about the emphasis on protecting the Government budget for next year. However, if cuts are to happen, it is important that they should be done openly, not under the radar. My criticism of what is happening in the FE sector, universities and science laboratories is that it is all happening by stealth. There is no discussion whatever of priorities. It is happening through civil servants and quangos. There is no acknowledgement of the fact that cuts are occurring or of how they should occur. That is my central criticism of what is happening at the moment.

On timing, the hon. Gentleman well knows-we have had this communication already-that we broadly support the Government's view that it would be better not to embark on large additional cuts in the budget in the coming financial year, because the economy is fragile and that would aggravate the recession, creating even more unemployment. Arguably, it would make the fiscal deficit even worse. That is our position.

Let me talk about the negatives-the worries-in the Budget. The first is the almost hopelessly optimistic assumption about the rapid return to growth in 2011. There is now a long list of independent forecasters in British industry and in the City, none of whom thinks it remotely likely that growth will approach the level that the Government assume. There is one exception: Goldman Sachs. The Bank of England is also at the upper end of the range, but the overwhelming majority of independent forecasters believe that the Government are far too optimistic.

The second criticism is of how the Government intend to achieve some of the cuts when they come. We had the real Budget announced in press releases after the official statement in Parliament last Wednesday, in the form of these efficiency cuts. For the rest of the day, the hon. Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary, and I had quite an amusing series of exchanges, ridiculing those cuts. Neither of us is normally noted for mirth-we are often compared to undertakers-but we found this very funny, because the efficiency cuts had obviously been cobbled together and written on the back of an envelope. They did not amount to much at all.

That made me all the more surprised yesterday when I discovered that my opposite number, the shadow Chancellor, had adopted all these fictitious cuts-efficiency savings-and used them as the basis for promising to repeal the national insurance increase. These efficiency savings-if we can have them, they are great, but on the
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one hand to ridicule them and on the other to use them as the basis for promised tax cuts has no credibility whatever.

For the record, this is the approach that we have adopted. We are by no means able to explain, any more than anyone else, the full extent to which the fiscal contraction could occur, but we have identified £15 billion gross of savings, which we think we could achieve. We specified them. They are not efficiency savings. Any efficiency savings are above that. We have allocated some of that figure, £5 billion, to job creation in the short term and other spending priorities in the longer term, including the pupil premium, which would provide additional funding for schools. We recognise that there will have to be-especially in 2011-12 and beyond-some serious spending reductions over and above what we have identified.

Mr. Philip Hammond: The hon. Gentleman talks about the credibility of plans to cut spending and he has announced his £15 billion plan. Will he confirm something that he said last night during the television debate-that the £15 billion includes scrapping tranche 2 of the Eurofighter project? Perhaps he has seen a different contract from the one I have seen, but my understanding is that the cancellation charge for tranche 2 exceeds the cost of taking delivery of tranche 2. Can he explain to the House how he would make a saving there?

Dr. Cable: That is not the information that we have received. We have repeatedly checked our understanding of the charges involved in such a decision. There are two different components to the end of the Eurofighter contract, as the hon. Gentleman knows. We believe on the basis of what we have been told-of course, we are not told everything, because some of this is supposedly commercially confidential-and on the basis of our information that some savings could be made.

Like the hon. Gentleman, however, we take the view that the bulk of the savings that will have to come from defence procurement-there will be a lot-must be considered through an overall review of our strategic objectives, provided that that takes place quickly in the early stages of the next Parliament.

Mr. Stewart Jackson (Peterborough) (Con): In the welcome spirit of mea culpa, will the hon. Gentleman share with the House the circumstances that led him to give a grovelling apology to the permanent secretary to of the Treasury for misrepresenting the involvement that he had in terms of a contribution from his Front Bench to that Department?

Dr. Cable: I gave no grovelling apology to the permanent secretary to the Treasury. I misrepresented nothing. I had a meeting with the permanent secretary to the Treasury, as indeed all Opposition Front-Bench spokesmen did. It was a perfectly routine meeting, and that was the way I represented it. People may choose to dramatise it in the context of discussion of hung Parliaments, but I have to say that that was wholly false. I have written no grovelling letter of apology. I have written him a friendly note, confirming what I had said and had not said, but no apology whatever was needed or has been given.

Ed Balls: May the confusion about tranches 1 and 2 of Eurofighter, and therefore the confusion about exactly what the level of spending and efficiency savings add up
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to, have been what the shadow Business Secretary had in mind when he said that one could pay for the reversal of the next increase only after the election? Is that the kind of confusion that the right hon. and learned Gentleman was trying to avoid, and was it wrong that he should be overruled by the shadow Chancellor?

Dr. Cable: I appreciate the Secretary of State coming to my rescue, but I do not think I need it. I have given an explanation that deals with the point.

I conclude by referring to two issues of substance that arose in the Budget in relation to the banks and the banking system. One of the big and unexpected revenue changes was the yield from the bank bonus tax. I acknowledge that we underestimated it, as did the Government. We thought that the tax would be widely avoided and it was not. It suggests a certain degree of chutzpah among the bankers that they were perfectly happy to pay up rather than change their behaviour, but it leaves us with several conclusions that now need to be followed through but are not being followed through.

The first is that the banks are perfectly capable of sustaining a permanent rather than a temporary tax in order to cover the insurance-the protection-that the banks derive from the taxpayer. The second is that it is clear that excess profits are being made in the banking system, particularly in the investment banking arms. I was delighted to see that the head of the Office of Fair Trading is now investigating the possibility of cartel, or other forms of anti-competitive behaviour, which are producing excessive profits from Government and possibly private client relationships, and which are the source of many of the bonuses that are currently paid. I would be interested to hear from the Minister when he replies whether the Government have prompted or are encouraging the OFT to pursue the investigation.

Mr. Oliver Heald (North-East Hertfordshire) (Con): To clarify matters so that there is no misunderstanding, would the hon. Gentleman be prepared to publish the letter to the permanent secretary to the Treasury so that we can all see that the speculation was incorrect?

Dr. Cable: I sent the permanent secretary to the Treasury a handwritten note. His conversation with me was private, and it was a private note. I can assure the hon. Gentleman on the record that no apology was sought or given or was necessary. I did not misrepresent the meeting. It was a routine meeting between Front-Bench spokesmen of both our two parties. That was all that was involved.

My final point concerns the bank lending practices for which the Government have responsibility in the semi-nationalised banks. We get very excited in these debates about the Government's fiscal objectives, but these are tiny by comparison with the significance of the amount of bank lending to the corporate sector. The Government are talking about targets of roughly £90 billion of business lending. My question is: should we believe them? We have had these targets before. They were legally binding. They were not met. We in all parties have experiences of large numbers of small and medium-sized companies either being unable to obtain credit or being offered credit on terms that are so
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onerous they cannot take them up. I ask the Minister when he replies to give a much clearer explanation than he has been able to do so far about how these bank lending targets will be achieved next time when they were not achieved before.

Mr. Byrne: On a point of order, Mr. Deputy Speaker. May I apologise to you and to right hon. and hon. Members for missing the beginning of the debate? I was unavoidably detained on Treasury business, but I am very sorry for any discourtesy. None was intended.

Mr. Philip Hammond: Further to that point of order, Mr. Deputy Speaker. Is it not the convention of the House that an hon. Member who wishes to wind up a debate must have listened to that debate? Indeed, I am quite sure that on a previous occasion you have reminded me of that rule.

Mr. Deputy Speaker (Sir Alan Haselhurst): I cannot recall the exact instance to which the hon. Gentleman refers, but obviously, as I think has been rehearsed already on points of order from his right hon. Friend the Member for West Derbyshire (Mr. McLoughlin), it is usual for the debate to have been heard for the winding up. But having said that, there are occasions when both Ministers and shadow Ministers are missing for parts of a debate. The Chief Secretary has apologised to the House and perhaps it would be better to save the time for further debate. It is now on the record.

Mr. Kenneth Clarke: Further to that point of order, Mr. Deputy Speaker. I do not want to make a meal of this, but I do not think that we should just move off in that way. This is extremely unusual; indeed, no one can remember a Minister winding up who did not attend the first two hours of a debate. There are occasions when some untoward incident causes a Minister, or sometimes a shadow Minister, to miss a lot of a debate. The custom is to send a note to the other side urgently with the apology, which is always accepted, and no one makes a fuss about the absence of the Minister. Foreign affairs can be quite serious and be the reason that has taken the Minister away. That has not been done on this occasion. I do not think that it is adequate for a Minister to turn up and say that he has been busy in his Department and that departmental business has stopped him from coming, and have that accepted and carry on as though missing practically the first half of the debate is an unavoidable problem compared with the very important meetings that he has no doubt been having. We should at least establish a precedent. He is apologising now, but it really makes a farce if the Minister comes along when he can and answers which part of the debate he has listened to.

Mr. Deputy Speaker: I am not for one moment saying from the Chair that the situation today is in any way admirable. We have had an apology. The right hon. and learned Gentleman says that he does not want to make a meal of it, but we have now had three courses on this matter, and perhaps we should regard our appetite as fulfilled on this occasion. The Chief Secretary may feel moved to make further reference to it should he catch my eye at a later point.

With regard to the time limit on speeches, once again, as yesterday, Mr. Speaker and the Deputy Speakers have been wrong-footed by events in their calculation,
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so I give notice that the 15-minute limit that has been imposed by Mr. Speaker will have to be adjusted down at some later point. However, I will try to maintain it for as long as looks credible.

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