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Those were the things that captured the headlines. The Government concede that their total package of measures, and the tax rises in particular, will make up about one third of the £57 billion deficit reduction that they need to make after growth, with the remaining two thirds coming from cuts.
Labour has already announced cuts worth £800 million to the Scottish budget, but it is the cuts to UK spending Departments that will almost certainly have a huge impact across the UK and in Scotland. Those cuts have been hidden due to the lack of a comprehensive spending review, which will not now happen until after the election.
"to ensure the recovery and promote long-term growth".-[ Official Report, 9 December 2009; Vol.502, c. 359.]
Yet the PBR and its measures will do no such things, as they will apply the swingeing cuts in public investment that are to come. The Fiscal Responsibility Bill confirms the total level of the cuts, which will do nothing in the short term to secure recovery and promote longer-term growth. Quite the reverse: the cuts-dishonestly presented without a CSR-will suck the lifeblood out of the economy, and make recovery more difficult.
I suspect that there are few people left in the House who fail to understand that it was the 2.2 per cent. increase in Government consumption that pumped some life into the economy at a time when household expenditure fell by 3.6 per cent., business investment fell by 22 per cent, and gross fixed capital formation declined by 17 per cent. I want to spend a little time on the latter point: it is not much spoken about, but it is vital.
Gross fixed capital formation is the investment in capital assets such as the plant, machinery and technology that will be needed in the future. So where were the plans to help that grow? There were few, or none, in the PBR.
The problem is not just with this PBR and what the Government are planning in the middle of the recession, but that the Government's track record when it comes to encouraging investment in gross fixed capital formation has been so weak. Since 1997, the UK has had the lowest average investment of any G20 OECD 12 country. Our investment has averaged 17 per cent., while the OECD G20 group has averaged over 21 per cent. For the six years between 2003 and 2008, our investment in capital formation was the lowest of any of the G20 countries. Between 1997 and 2007, only Russia spent less, and between 2001 and 2002, only Turkey invested less.
Even in the broader list of G2O countries as a whole, only Argentina and Brazil have invested less than this Labour Government have since they came to power. Indeed, since 1997 there has not been a single year when the Prime Minister-either as Prime Minister or Chancellor-has seen a UK investment level that was not below the EU average. That demonstrates that the problem is not confined to now or this PBR, as we have had a systemic problem of under-investment in productive capacity since this Government came to office.
Why is that important? Many hon. Members who have spoken today have said that we have to get back to inventing, developing and making things, and providing
the jobs in manufacturing-of all sorts- that our people need. I agree: to paraphrase what the Chief Secretary said earlier, we need to rebalance the economy.
This is all about jobs and, to be fair to him, the Chancellor spoke about jobs and employment a great deal in his PBR speech. He did not tell us that unemployment now is higher than it was under the Tories in 1997, when Labour came to power, and he glossed over the problem of the 943,000 youngsters who are unemployed under Labour now. That is a higher figure than when Labour came to power in 1997.
However, those are not the key things. The key question is: what is the Chancellor's plan? The plan, it would appear, is to slash public investment too quickly and so weaken the chances of recovery. The result of that will be that tackling the deficit and the debt will be rendered more difficult, as will creating employment and jobs-especially if the heroic growth rates fail to materialise, or if we tip back into a double-dip recession. I am afraid that unemployment will keep on rising, as it did for two years after the technical end of the 1991 recession and for three years after the technical end of the 1980-81 recession.
"we need to invest in the dynamic sectors of the future-in digital".-[ Official Report, 9 December 2009; Vol. 502, c. 359.]
Here are some responses from those who work in the digital industry, which is vital to Dundee. Colin MacDonald, studio manager at developers Realtime Worlds, described the PBR as a "missed opportunity". Alan Mitchell, the chief executive of the local chamber of commerce, said that there were encouraging signs, but that many measures were a waste of time and that
"there was no specific mention of the games industry."
"While the public finances need to be brought under control...the UK economy desperately needs to go for growth."
Mr. Timms: The hon. Gentleman will recognise that there was a substantial announcement of support for a centre of excellence, including for companies in Dundee. We will continue to look at the industry's case for a change to tax treatment.
A great deal of public money is to be spent on that centre, but I wrote to the Minister or one of his colleagues to suggest that they needed not only to be very careful of unintended consequences, but to ensure that the vast amount of public money being invested in the new centre did not have a detrimental effect on the sector and on employment in the city. I am very well aware of the centre and the potential risks that follow it.
The Chancellor spoke about the need to invest in the digital and other dynamic sectors of the economy, but for those at the coal face of the digital economy there was little but let-down in the PBR. The reason I cite the
software and games sector is not just because it is important to Dundee, but because it is an export business; it generates revenue for the UK. In the PBR the Chancellor said that export trade had been hit hard, and boy was he right.
We had a total trade deficit of £37 billion last year, and a colossal £93 billion deficit in the trade in goods-all that, as others have said, at a time when sterling was down massively against the dollar and the euro. As a result, GDP growth was suppressed by about 1.5 per cent., but there was nothing in the PBR specifically to stimulate export activity other than the statement's vain hope that demand from the US and the euro area might pick up.
The Red Book suggested that GDP would be enhanced by about 0.5 per cent.-that there would be a 0.5 per cent. contribution to GDP growth from 2010 onwards. But, given that, on average, the balance of trade deficit suppressed such growth between 2000 and 2007, I hope that that is not Government wishful thinking.
"We must continue to support the economy until recovery is established."-[ Official Report, 9 December 2009; Vol. 502, c. 359-60.]
"To cut support now could wreck the recovery. That is a risk that I am not prepared to take."-[ Official Report, 9 December 2009; Vol. 502, c. 360.]
"leadership in the low-carbon sector".-[ Official Report, 9 December 2009; Vol. 502, c. 364.]
"The Government is...examining how it might support the development of CCS"-
"Carbon capture and storage protects the environment from carbon emissions by containing them at source."
In the 2006 Budget statement, the Chancellor said that following a joint study with the Norwegian Government, the Government were going to take measures on carbon capture and storage, and the same thing was repeated in the 2006 pre-Budget report and the 2007 Budget statement. We had one such statement after another up until early 2007, and by 23 May BP had pulled out its £500 million investment in Peterhead and taken it to Abu Dhabi because this Government could not make a decision. That shows the systemic problems that we have. There is talk about investing in digital, and then disappointment for those in the sector; talk about not withdrawing the stimulus before the recovery, and then doing precisely that; and talking a good game on the low-carbon economy, and then failing to deliver. That has been the hallmark of this Government over many years.
At its heart-this is a tragedy, because there is a big job of work to be done to tackle the problems in the economy-the PBR was an invented political dividing line whereby the Government pretended that one party was not cutting and that another one or two parties might do so. The truth is that whether it is a Labour cut, a Liberal cut or a Tory cut, making it too early and too quickly will damage everybody's chances of recovery.
Phil Wilson (Sedgefield) (Lab): This is a general debate on the pre-Budget report, but it is a good opportunity for Members in all parts of the House to get various points across on a very important issue.
For me, the PBR was about whose side the Government are on. I believe that the Chancellor proved in his statement that they are on the side of the people from hard-working families who were left behind in previous recessions because unemployment was seen as a price worth paying. This Government do not believe that it should be the function of financial markets to make money out of other people's misery. The PBR was about making choices and naming priorities. The Government's whole economic strategy, since the global economic crisis started in autumn 2008, has been to be on the side of the people.
In my constituency, unemployment currently stands at 2,361. Yes, it has gone up during the recession, but it is still half what it was during the 1980s, when 5,500 people in my constituency were out of work-40 per cent. of them, or more than 2,000, for more than 12 months. Today, about 88,000 people in the north-east are out of work; in the 1990s, at the height of the recession, the figure was more than 100,000, and in the 1980s it was more than 200,000. Today, 1.5 million people are on jobseeker's allowance; in the 1980s, more than 3 million were claiming the equivalent benefit. Today, youth unemployment, if we strip out those young people who are in full-time studies, stands at 9 per cent.; in the 1990s, it was 12 per cent., and in the 1980s it was 13 per cent. Some people expected home repossessions to go through the roof; they have not, but they did in the 1990s. People thought that businesses would go to the wall more rapidly, but they have not, unlike in the 1990s. Today, 70 per cent. of people who are out of work find a job within six months, and the future jobs fund will guarantee that every 18 to 24-year-old receives training after six months. A package of £5 billion is being spent to ensure that our young people get through the downturn. Some people would not have spent that money because they believed the recession should have been allowed to take its course, but surely this initiative is underpinning the economy by helping consumption, which in itself helps to create growth.
However, things are still tough. It was right that the Government intervened to introduce the fiscal stimulus, which has prevented the economy from entering a second great depression; the rest of the world is doing something similar. We are able to borrow money to aid the recovery because before the global economic crisis our debt levels were lower than those of a lot of our competitors. In the Fiscal Responsibility Bill, the Government have said that over four years they intend to cut the deficit by 50 per cent. from 12.6 to 5.5 per cent. They have identified billions of pounds of savings through "smarter Government" reforms. There is a new 50 per cent. tax
band, an increase in national insurance, and a payroll tax on bank bonuses. Because of the fiscal stimulus measures taken by the Government, growth will also enter into the equation eventually.
The Tories lack the political judgment that is needed in tough times. They were wrong on the recession and they are wrong on the recovery. To me, that is a fundamental dividing line between the Government and the Opposition. The Conservatives are the only main political party that aspires to government in any of the 186 states of the Iinternational Monatary Fund that actually believes the fiscal stimulus was a mistake.
The Opposition want to do away with dividing lines, and they have started to say that the Government are using class war. That is not the right attitude to take, and in a democracy it is the wrong way to approach politics. The success of this Government is based on a broad coalition of beliefs in the country and it cuts across so-called class divides, which is why in a few months' time we will win the next election. The other reason is that my constituents are deeply concerned about what would be taken away from them if ever the Tories got into government.
In all my years of political involvement, the only evidence of class war that I have ever experienced was the division created within, and the ultimate closure of, the communities that I grew up in by the Conservative Government during the 1980s. Communities were closed and left behind. To me, the backdrop of "Billy Elliot" is not just a west end show; it is something I lived through. I will never believe the Leader of the Opposition when he purports to be a progressive Conservative until he apologises for the callous behaviour of his predecessors. Class war should remain back in the 1980s-I actually agree with the right hon. Member for Hitchin and Harpenden (Mr. Lilley) about that.
Since then we have had 13 years of a Labour Government, and now we have something called the "progressive Conservatives" because the Opposition know that to stand any chance of getting elected, they have to prove that they have moved on and been reincarnated into a more cuddly version of their former selves. But they have not changed. We now see dividing lines that they interpret as class war. I do not really care whether the Leader of the Opposition went to Eton; my predecessor went to Fettes college, which was seen as being the Eton of Scotland. However, I must say that as a parent I would be really disappointed if I spent all that money on my children's education and they still turned out to be Tory MPs. At least my predecessor obviously learned something.
I understand that there are something like 15 Etonians on the Conservative Front Bench. What would they say if there were 15 Members on the Government Front Bench at any one time who had attended, let us say, Sedgefield comprehensive school or Wellfield community school in my constituency-two perfectly good schools with excellent teachers and pupils-or any other state school, for that matter? What would be the reaction of some? That it was a conspiracy and that the old school network had penetrated the highest echelons of the establishment. Surely that should not be allowed to happen.
I want people from all backgrounds, including from all state schools, to be given the opportunity that has been the preserve of the few for so long. That is why this Government have invested so much in education and the Opposition have opposed it. Any pupil of any school should be allowed to aspire to serve in government, and the broader their experience the better. That is aspiration, and it is what the PBR is intended to underpin.
For me, the PBR is symbolic of the Government's intent, and the Opposition's criticism of the report's fundamentals also speaks volumes. I am not surprised that they want to do away with any talk of dividing lines and are trying to say that it is about class war, because they are on the wrong side of the argument. For all their efforts, they have not changed. They are not progressive Conservatives at all-how can a person be? They can be either progressive or conservative. A progressive would have voted for the creation of the NHS; a conservative would have voted against it. A progressive would have voted in favour of the minimum wage; a conservative would have voted against it. A progressive would vote for investment in health and education; a conservative would vote against it. In this House, I am pleased to be on the side of the progressive. A progressive looks for consensus and acts accordingly. A conservative, in the country's hour of need, makes it his priority to cut tax for the 3,000 largest estates. In this recession, who is looking after the concerns of the many and who is looking after the vested interests of the few?
I wish to say one thing about bankers and bonuses. I read a report in The Times on 4 January stating that Deutsche Bank, which incidentally lost $10 billion during the credit crunch, wants to spread its UK tax across the pot that it holds globally because, as its chief executive officer said, it would be
"unfair to treat the UK bankers differently".
He wants all his bankers around the world who are due bonuses to do some of the heavy lifting. Basically, that gives us an opportunity. The Government should be acting internationally to ensure that bankers are treated the same all around the world. The problem we have is a global challenge. Economies acting in concert should consider a Tobin tax. Even if we do not have a Tobin tax, we need to create mechanisms that help to stabilise international transactions, so that financial planning is a long-term objective and transactions are not used as a means of short-term gain.
While hundreds of thousands of our constituents pay the price for the bankers' failures, the Opposition do not think twice about filling their election coffers with millions of pounds from the City, including from Stanley Fink, the supposed godfather of hedge funds, who has given £1 million to the Tory party. In fact, on the way to half the cash raised by the Tories has come from the City. It is no wonder that one of their priorities is to cut tax for 3,000 large estates. So much for progressive conservatism.
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