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22 Jun 2010 : Column 180

Too often, when countries undertake major consolidations of this kind, it is the poorest-those who had least to do with the cause of the economic misfortunes-who are hit hardest. Perhaps that is a mistake that our country has made in the past. This coalition Government will be different. We are a progressive alliance governing in the national interest, and that requires us to make two final decisions.

First, we will provide lasting help for pensioners. The earnings link was broken by the last Conservative Government, and was never restored through 13 years of a Labour Government. That meant that each year more and more pensioners were drawn into the means test, which punished those who had done the right thing and saved for their retirement. I can announce today that from April next year we will re-link the basic state pension to earnings. Now pensioners can save with confidence. They will also be protected by our new triple lock, which will guarantee each and every year a rise in the basic state pension in line with earnings or prices or a 2.5% increase, whichever is the greater. There will be no more 75p increases in the basic state pension. With this coalition Government, pensioners will have the income to live with dignity in retirement.

Secondly, we will provide additional support for families in poverty. They are among the most vulnerable people in our society, and they need our help. I have decided to increase the child element of the child tax credit by £150 above indexation next year. That is a £2 billion a year commitment to low-income families, and we make it even now, in these difficult times. I can tell the House that the policies in this Budget, taken together, will not increase measured child poverty over the next two years. Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top. It is a progressive Budget.

Today we take decisive action to deal with the debts that we inherited, and confront the greatest economic risk facing our country. We have been tough, but we have also been fair. We have set the course for a balanced budget and falling national debt by the end of this Parliament. We have insisted that four pounds of every five needed to reduce our deficit will be found from Government spending. We have protected capital investment from additional cuts, and have got to grips with the soaring costs of welfare. We have provided the foundations for economic recovery in all parts of our nation, and have given our country some of the most competitive business taxes in the world. We have taken almost a million people out of income tax and half a million people out of national insurance, and we have done all that without increasing child poverty.

Sadly, in this unavoidable Budget we have had to increase taxes. We have had to pay the bills of past irresponsibility. We have had to relearn the virtue of financial prudence. But in doing so, we have ensured that the burden is fairly shared. Today we have paid the debts of a failed past and laid the foundations for a more prosperous future. The richest paying the most and the vulnerable protected: that is our approach. Prosperity for all: that is our goal.

I commend this Budget to the House.

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Mr Deputy Speaker: I now call on the Chancellor of the Exchequer to move the motion entitled "Capital Gains Tax (Rates)". It is on that motion that the debate will take place today and on succeeding days. The questions on the remaining motions will be put at the end of the Budget debate on Monday 28 June.

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Budget Resolutions and Economic Situation

Motion made, and Question proposed,

1.29 pm

Ms Harriet Harman (Camberwell and Peckham) (Lab): The Chancellor of the Exchequer has delivered his Budget. It is his first Budget, but we have seen it all before. This is a Tory Budget that will throw people out of work, will hold back economic growth- [Interruption.] Read the book! This Budget will hold back economic growth, and will harm vital public services. Yes, it is the Chancellor's first Budget, but it is the same old Tories, hitting hardest at those who can least afford it and breaking their promises. This is true to form for the Tories, but it includes things that the Liberal Democrats have always fought against. Surely they cannot vote for this.

The Chancellor says his top priority is to cut the deficit. In order to get the deficit down, we need to keep economic growth up and we need to keep unemployment down. Today's Budget- [Interruption.] Read the book! Today's Budget is bad for growth, and that will make it harder to cut the deficit.

The new Office for Budget Responsibility has said in its report today that because of this Budget, growth next year will be lower than it would have been under our policies to support the economy through difficult times. It has revised growth for next year down from 2.6% to 2.3% because of the harm that the Chancellor's Budget does. He said he was going to tell it straight, but the Chancellor has not told it straight today on jobs. Today's Budget is bad for jobs and that, too, will make it harder to cut the deficit. The OBR forecasts on page 84 of its report that the price of the plans he has set out today in his Budget is tens of thousands of people out of work. [Interruption.] I say to hon. Members, look at the OBR report last week and compare it, on the International Labour Organisation unemployment and claimant count, with the forecast as a result of this Budget: tens of thousands more people out of work, and unemployment higher next year and every year of this Parliament. For people affected, this is a high price to pay, and it is equivalent in scale to putting every working man and woman in the city of Coventry out of work; that is the scale of the changes on jobs. And it is counter-productive. Private sector jobs will not spontaneously emerge as we see fewer people employed in public services. This Budget will hit private sector jobs as well as public sector jobs.

The reality is we do not get borrowing down by pulling the plug on support for businesses. We do not get borrowing down by throwing people out of work and on to the dole. [Interruption.] Look at the forecasts! We do not get borrowing down by stifling economic growth. This reckless Budget's short-sighted approach will jeopardise the recovery and make the deficit worse, and when we do that, we end up with more tax rises further down the track, and it is unfair.

It is unfair on young people who need help to get work and get a decent start in life. The Government have scrapped the future jobs fund before it has even been formally evaluated, but every young person helped
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into work shows its value. It is unfair on the regions, whose manufacturing industries will suffer. They have cancelled the loan to Sheffield Forgemasters; they have snatched away the chance of new jobs. It is unfair on families: cuts to the value of child benefit; cuts to the disability living allowance; cuts to help for the jobless; ending the health in pregnancy grant; cutting the Sure Start maternity grant; ending free swimming; and cutting back free school meals. It is also unfair to older people, who will have to pay higher VAT and will have less money to spend in their local shops.

The Chancellor tells us that his plans are fair: that the rich will pay most. That is not true. As the Prime Minister himself said of VAT:

and as the hon. Member for Bermondsey and Old Southwark (Simon Hughes) rightly pointed out last week, VAT "penalises the poor".

It is unfair when cuts in public spending hit those people and those areas where public services and benefits matter most. The impact of the Chancellor's changes to benefits and tax will be greatest in the poorest areas. We agree that borrowing must be brought down, but look at whom he has chosen to bear the brunt of cutting the deficit. The area most affected by his austerity policy, where people will see the biggest fall in average incomes, is Merseyside; the area least affected by his austerity policy-least affected by the fall in income-will be Cheshire. Yes, that includes his own constituency. This is not a fair Budget; it will entrench unfairness for the future.

Simon Hughes (Bermondsey and Old Southwark) (LD) rose-

Mr Deputy Speaker (Mr Lindsay Hoyle): Please wait until after the right hon. and learned Lady has spoken.

Ms Harman: And the VAT rise makes this a Budget of broken promises. Before the election the Prime Minister said he had no plans to put up VAT, and now, in his first Budget, he puts up VAT. During the election campaign the Liberal Democrats attacked what they called the Tory secret VAT bombshell. Little did we know that the Lib Dems had their own secret bombshell to drop on us: that they would vote for it.

The Tories present this Budget but they try to evade responsibility for it. They try to justify their broken promises, saying that things have changed-that things are worse than they realised-but what is this new information? The OBR forecasts are better than we predicted at the time of the March Budget: less borrowing than expected, and lower unemployment than expected, because of our actions.

The Government like to cite new information from abroad: the problems of Greece. Greece is in a completely different position from us: it is still in recession; it does not control its interest rates; and its debt is over 115% of its GDP. Greece is no alibi for this Tory Budget.

Nor should they pray in aid the story of Canada's Budget cuts. Canada's deficit reduction was taking place as Canada's economy was boosted by strong growth in its neighbouring economy and main export market, the United States. Our export market is mainly the EU and growth there is sluggish. That is why President Obama wrote to his fellow G20 leaders this week urging them to
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turn away from the rush to austerity. Yes, deficits must be reduced, but we must not risk undermining the fragile global recovery. This is a Budget based on rewritten history and false excuses.

They say there is no alternative, but the truth is this is what they want. This Budget is not driven by economics; it is driven by ideology-their commitment to a smaller state. The Chancellor claims he has no alternative, but the OBR last week clearly stated that our plans would have more than halved the deficit over four years. No, this austerity Budget is their choice, and right now it is exactly the wrong choice.

This reckless Tory Budget would not be possible without the Lib Dems. The Lib Dems denounced early cuts; now they are backing them. They denounced VAT increases; now they are voting for them. How could they support everything they fought against? How could they let down everyone who voted for them? How could they let the Tories so exploit them? Do they not see that they are just a fig leaf? The Liberal Democrat Chief Secretary is just the Chancellor's fig leaf. The Deputy Prime Minister is just the Prime Minister's fig leaf. The Lib Dems' leaders have sacrificed everything they ever stood for to ride in ministerial cars and to ride on the coat tails of the Tory Government. Twenty-two Liberal Democrat ministerial jobs have been bought at the cost of tens of thousands of other people's. The Liberal Democrats used to stand up for people's jobs, but now they only stand up for their own.

Look at the Business Secretary, the right hon. Member for Twickenham (Vince Cable). The House has noticed his remarkable transformation in the past few weeks from national treasure to Treasury poodle. They have no mandate for this Budget; this Budget has no legitimacy. Even if the Lib Dems will not speak up for jobs, we will. Even if they will not fight for fairness, we will, and even if they will not protest against Tory broken promises, we will.

We will support measures that are fair and that will help the economy. We will support the increase in capital gains tax. As the Chancellor said, it will help to stop people avoiding income tax by getting payment in capital. Such avoidance of tax is even more objectionable when we need to cut borrowing. We welcome the retention of the 50p tax rate. The Labour party was the first to call for a levy on the banks and the Government are going ahead with it. We will support that move, although I note that the banks will get a corporation tax cut to compensate them. We will support the increase in personal allowance, but the public, who will be hit by a rise in VAT, will feel short-changed.

In the face of a global economic crisis, this has been a difficult time for businesses and families, not just here but around the world. What this country needed was a Budget to support economic growth, to protect jobs and to cut the deficit fairly, but what we have got is a reckless Budget that pulls the rug out from under the economy. Predictably, the Tories do not care and are not listening. The Lib Dems are wringing their hands, and well they might, but that is not good enough. They should think about their constituents who will suffer if this Budget goes ahead. The Lib Dems should think again, but whatever they do, we will vote against it.

Chris Bryant (Rhondda) (Lab): On a point of order, Mr Deputy Speaker. The Chancellor of the Exchequer said to us earlier that this country would hear the facts
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about his Budget straight from him at the Dispatch Box, but this morning his freeze of the civil list moneys was announced in The Guardian, his announcements on capital spending plans were in The Guardian and his proposals on national insurance, child tax credit and the VAT rise being delayed were all in The Guardian. Also, the precise figures about the changes to income tax-rising by £1,000 to £7,475-were in every single media outlet in this country. That is an abuse of the privilege of this House. Will Mr Speaker, or you on his behalf, refer this issue of the abuse of the privilege of the House to the Select Committee on Standards and Privileges?

Mr Deputy Speaker: As hon. Members well know, Mr Speaker is unhappy about announcements being trailed before they come to this House. If the hon. Member speaks later, he can bring it to the House's attention once more. No doubt, this will be passed on to Mr Speaker.

1.43 pm

Mr Andrew Tyrie (Chichester) (Con): It falls to me to respond just as everybody quite reasonably goes off for a bite to eat. I commiserate with the right hon. and learned Member for Camberwell and Peckham (Ms Harman) about having to respond to the Budget without a chance to absorb it, although I must say that that showed in some of the things she said. She made the best of a very weak hand, but a couple of points must be borne in mind. I shall say this as best I can without partisanship.

First, all three parties were committed at the last election to sharp cuts in spending. According to the Institute for Fiscal Studies, Labour was planning about £45 billion-worth of cuts, which, because of ring-fencing, would have had to fall on only four main areas: education, defence, transport and housing. To give people an idea of the scale, defence spending is only about £40 billion, so massive adjustments would have had to be made by Labour, but that did not seem to feature in anything the right hon. and learned Lady said.

A second point that needs to be made is that we went into the recession carrying a huge structural deficit. Again, the right hon. and learned Lady did not acknowledge that at all. That deficit developed as a result of over-ambitious spending over many years by the previous Government, particularly by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). It simply had to be tackled; it could not have been left unaddressed. It really is not correct to attribute most of the tightening we need now to the mistakes of banks, the global recession or, as she has suggested today, to coalition ideology. The overwhelming majority of people who have looked at this have concluded that we must take early action to curb the huge, burgeoning deficit.

Mr John Redwood (Wokingham) (Con): Does my hon. Friend agree that it was a disgraceful performance by the acting leader of the Labour party to accept no responsibility for the disgraceful state of the public accounts, and to dare to say that we wanted to cut when Labour was going to have to cut?

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Mr Tyrie: In my new job, I am doing my best to avoid putting things in such trenchant terms, but I feel that not enough has been accepted by the Labour party about the scale of the mismanagement on the economy-requiring us to do something about it now.

This was an astonishing and phenomenal Budget-a tour de force. It really was a further addition to the early economic radicalism of the coalition Government. We have already had announcements about a complete overhaul of financial regulation and an innovative body, the Office for Budget Responsibility, has been created. We have also had announcements about vigorous action being taken on the deficit as well as major proposals for tax and benefit reform. The first of these measures is needed, among other things, to change the culture. The politics of plenty have to give way to the politics of thrift in Whitehall. That, above all, is why it is right for the Government to make the £6 billion-worth of cuts.

On the second of the measures that I have just mentioned, we must have tax reform and simplification if we are to have any chance of improving Britain's long-run growth rate, which has been imperilled by immense complexity in the tax system.

Kevin Brennan (Cardiff West) (Lab): On taxation, when the Prime Minister said on 1 April, when he was the Leader of the Opposition:

did the hon. Gentleman believe him?

Mr Tyrie: As I recall, all three parties talked about having no plans to increase VAT, and it would not have surprised me a scrap, had the positions been reversed, if we had had an increase in VAT. How would Labour have filled the £45 billion deficit? We have not heard a word on that. That brings me to a point that I had decided, on the grounds of non-partisanship, not to make, but that I now think needs to be made. It was irresponsible and damaging to British democracy not to have had a spending review on which to judge the decisions to be taken. In my current job, if I were to find the coalition Government as evasive as that, I would do everything in my power to call them to account and to make sure that they told us the facts.

Albert Owen (Ynys Môn) (Lab): I congratulate the hon. Gentleman on his election as Chair of the Treasury Committee. Does he accept that the rise in VAT that the Chancellor announced today will have a huge impact on small companies in the construction industry in my constituency that are looking for business building extensions to houses and so on? They will have to pass the rise on to those individuals, so the rise will slow down growth in that sector and will cause further job losses.

Mr Tyrie: All tax rises slow down growth in one way or another. They, by definition, take demand out of the economy. The only question is how one should do it. The Chancellor has had a very difficult choice to make.

Iain Stewart (Milton Keynes South) (Con): Does my hon. Friend recall that when the former Chancellor temporarily reduced VAT to 15%, a Treasury document clearly showed that afterwards the Labour Government were planning to increase it to 20%?

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