Budget Resolutions and Economic Situation

This Budget has been billed as the preface to the Labour manifesto. Based on what we have seen today, it will not be a manifesto but an obituary. The Prime Minister may have wanted a "giveaway Budget", but what we got was a "given up Budget". This is not the preface to a new Government but a footnote to 13 years of failure. After 13 years, the gap between rich and poor has widened. The poorest 20 per cent. pay a higher proportion of their income in tax than the richest—so much for fairness under Labour. We have had the most prolonged recession since the 1930s, and the spectacle of state-owned banks doing deals that put British people out of work. We needed real change. We needed a Budget that gave us honesty on spending and fairness on taxation. We got neither. The spat that we have just seen, with the Leader of the Opposition saying that cuts should come now, is a phoney war about when to make cuts to cover up the fact that he and the Chancellor are both the same. Neither has the courage to come up with the details of the cuts that we will need in the years ahead to tackle Britain's deficit. Neither is being straight with the British people about the tough times ahead. This Budget was a Budget in denial about the scale of change needed—it was about as honest as the CV of the right hon. Member for North Tyneside (Mr. Byers). It is built on growth figures that are unlikely to materialise. It is built on false comfort from a small drop in borrowing that does not affect the structural deficit; we are still borrowing £450 million every single day. Above all, it is a Budget in denial about the unavoidable cuts and savings ahead. The Chancellor claims to have identified billions of pounds of cuts, but there is only real detail about a tiny fraction of the total. Everything else that we have heard today is insubstantial waffle about so-called efficiency savings and a tiny saving in the relocation of civil servants to places outside London. On the other side of the Chamber, we have heard tough talk about the need to be honest on the deficit, but the Conservatives have barely a fig leaf of detail to back up their claims. They say that we need more than £40 billion of cuts by the end of the next Parliament, but they have published details about just £2 billion. Their demands for honesty come straight from the Karl Rove school of politics: make the biggest fuss about the subject on which you have the most to hide. Labour is in denial and the Conservatives are talking tough to cover the truth—they offer more of the same. We needed a Budget that gave us honesty in spending and fairness in tax. We got neither. We Liberal Democrats are putting our cards on the table. We have identified a first instalment of £15 billion of cuts that can be realised by 2012-13: saving half a billion pounds a year by ending Government contributions to child trust funds; saving £1.3 billion a year by stopping means-tested benefits for the top 20 per cent. of tax credit claimants; cancelling identity cards and second-generation biometric passports, saving £2.5 billion over the next Parliament; and making longer-term savings, too, by saying no to the like-for-like replacement of Trident. Those are savings that we will need to start implementing once the economy is strong enough to take the strain. The Chancellor could have made some of those choices today, and so could the Leader of the Opposition, but what do we hear from both of them? Nothing. Lots of noise and no honesty whatever. One of the Government's most shocking sleights of hand in recent months has been to try to duck blame for the recession. Yes, there were global forces at play, but most of the problems started right here at home—the over-dependence on the banking industry, the personal debt bubble encouraged by this Government and the over-inflated housing market that Labour did everything in its power to stoke up. On the stamp duty reforms announced today, of course we welcome any moves to make the system more progressive, but with 1.8 million families still on a waiting list for an affordable home, it is quite astonishing that this Budget was completely silent on the urgent need for more affordable homes for all. The Chancellor has added to that by a change to housing benefit announced today that will make life impossible for low-income families in high-price areas such as London. Labour should stop trying to kid people about this recession. They got us into it, and only by being honest about how we got into this mess will we ever be able to get out. I turn to a few details of today's Budget. The Chancellor has only slightly modified his wildly over-optimistic growth forecast, to between 3 and 3.5 per cent for 2011, against a consensus everywhere else from independent forecasters of 2 per cent. He cannot bury his head in the sand just to hide the truth about how long it will take to reduce the deficit. The Chancellor spent a good portion of his speech boasting about the £11 billion he claims to have saved on unemployment costs and through unexpected higher tax revenues. He is living in a fantasy land. This Government still came in £167 billion over budget last year. That is no record to boast of. Someone living off their credit cards and thousands of pounds in debt is not suddenly flush with cash just because their phone bill comes in slightly cheaper than he predicted. We are not better off; we are just ever-so-slightly less worse off. Even with unemployment lower than originally forecast, we still have more than 2 million people unemployed and 8 million economically inactive. Of course it is sensible at a time of mass unemployment to direct money to help young people especially. I only wish the Chancellor had had the courage to go further and shorten the guarantee for young people from six months to three months. One in five young people are still out of work, and waiting around for six months before they get any help pushes many of them into a state of real desperation. I welcome, of course, the way the Chancellor has more or less carbon-copied our long-standing proposals for an infrastructure bank and support for green industries to stimulate more job creation. On fuel duty, I note the Government's decision to stage future increases, but they are missing the point. There is a fundamental problem with fuel duty in rural areas where using a car is not a luxury but a necessity. The real priority should be to help rural areas, not just a staged reprieve. One of the most shocking omissions from this Budget was the failure to address the systemic failures in our banking system. We bailed out the banks to the tune of £1 trillion, and they are hoarding money that should instead be lent to businesses, killing off sound businesses and people's jobs. The banks are even helping to support deals that put British people out of work, such as the Kraft takeover of Cadbury. The failure to get the banks lending is the absolute centrepiece of the Government's economic mismanagement. The Chancellor today promised new bank lending targets, but why should anyone believe a word he says after what happened last time he made such promises? RBS and Lloyds were told to increase net lending by £27 billion. Instead, they have decreased it by £41 billion. Moving to gross rather than net lending targets is a con that will let the banks off the hook again. The Government must now recognise that their heavy pressure on the banks to rebuild their capital bases is limiting bank lending and threatening the health of the economy in the longer term. The banks end up hoarding money instead of lending it. The priority for the nationalised banks in particular should be putting money into the real economy, not into their balance sheets. Turning to bankers' bonuses, the Government raised more than £2 billion—more money than they had expected—from their tax, but that is because the banks refuse to change their behaviour. It is amazing how much the banks are willing to pay to get back to business as usual. A decent Budget would have set out a plan to ensure that they can never do that. We must ensure that the high street banks on which families and small businesses depend are never again put at risk by the casino culture of investment banking. As the Governor of the Bank of England has repeatedly recommended, we need to separate high street and investment banking for good. Until that split is introduced, all banks will remain the beneficiaries of a unique, open-ended guarantee against failure from the taxpayer—a guarantee that they should pay for. That is why last year we proposed a new levy of 10 per cent. on the profits of the banks until they can be split up. I will give the Chancellor credit at least for some consistency. He has always opposed our plan for that, as he has today, while the Conservatives first ruled it out, then ruled it in, only for their latest proposed bank tax to fall apart in less than 24 hours. Both parties are wrong. Britain is unique in the world in the liabilities of our banking industry relative to the size of our economy. We do not have the luxury of time and we have to protect ourselves against a future collapse. Finally, on tax, the other gross disappointment in this Budget was the failure to make our tax system fair. Under Labour, the bottom 10 per cent. pay a staggering 48 per cent. of their income in tax, while the richest pay 34 per cent. The Chancellor took pride in saying today that he would make no big announcements on tax. How can he look at a system such as that and say, "Let's have more of the same"? Indeed, his comments seemed to suggest a freeze in income tax rates, which would, if earnings rise, once again hit the poorest hardest. So much for fairness under Labour. How can he happily accept that it is okay for a banker in the City of London to pay a far lower rate of tax on their capital gains than their cleaner does on their wages? So much for fairness under Labour. The Liberal Democrats propose the most radical tax reform in a generation, hard-wiring fairness into Britain's taxes once and for all. We will ensure that no one pays tax on the first £10,000 that they earn, paid for by closing loopholes that unfairly benefit those at the top, by a mansion tax and by higher taxes on aircraft. That would mean complete freedom from income tax for 3.6 million more low earners and pensioners, and £700 in the pockets of tens of millions more. Crucially, it would be a down-payment to the British people, who are about to take the brunt of the biggest fiscal contraction in post-war history. It would be a declaration of intent—yes, there will be change, but we guarantee it will be fair. Action on tax is the only way to ensure that we can take people with us down the difficult road of deficit reduction. Only the Liberal Democrats are prepared to make real changes in tax to help the millions of people who simply need a break. After 13 years of Labour, Britain is ready for something different. As we stand on the brink of an election campaign in which there is everything to play for and the future of the country is at stake, my message is simple: this Budget is the old politics, and the old politics is not good enough any more. It is time for honesty in spending and fairness in taxes, and the only party that offers both is the Liberal Democrats.