John Redwood speaks about Corporation Tax in the Finance Bill debate

Speaking in yesterday’s debate on the Finance Bill, John Redwood warned that we need to look beyond the current trough of the recession and recognise the seriousness of the threat to British industry from other G20 countries. He recommended cutting Corporation Tax to 25% as a basic first step, but said further cuts to 20% were needed if we wanted to encourage businesses to stay in the UK rather than relocate to competitors with lower tax regimes.

The full text of John’s Hansard speech now follows:

Mr. Redwood: I am a director of two companies, as declared in the Register of Members’ Interests, but I wish to make some general remarks about the tax system.
My hon. Friend the Member for Fareham (Mr. Hoban) has been quite right to say that a lower headline rate of tax could be very important in attracting more business to this country. I think he could have added that it will also affect the judgments of quite a lot of multinational businesses that already have some representation in Britain but have options over where they could carry out their various activities.

Quite rightly, it is not legal for a company to fiddle its transfer prices by suppressing profit in a high-tax regime in order to allow the transfer of that profit to a low-tax regime by artificial means. Under this and previous Governments, the Treasury has rightly adopted methods of preventing or stopping that practice. It is, however, an entirely legitimate business strategy for a multinational with factories, service areas and operational centres around the world to decide where, at any given time, it is best to allocate particular types of business. Obviously, if a multinational has footloose business of a high-technology, high-value-added, high-growth kind which will produce a high margin and plenty of profit, it will look very carefully at the effective and, especially, the headline tax rates around the world. All other things being equal, it may then decide to put more of its high-value, high-profit business into the parts of the world that offer the most competitive headline rates.

I am sure that, in their saner moments, Treasury Ministers agree that that is the case. They know that it happens and that it is a real possibility now, which is one of the additional reasons why I think my hon. Friend the Member for Fareham is right to press them again on whether they are certain that 28 per cent. is a sufficiently competitive rate at a time when the whole world is hungry for jobs and for higher-technology and high-value-added business, and when there is not enough business to go round and there are not enough jobs to go round.
It is true that our debate takes place against the background of a sharp devaluation of the pound. Such a devaluation has many drawbacks. It makes us all poorer, and it pushes up inflation—although it has one important advantage in that it makes our industrial and service activity much more competitive in the short term from a British base, which I trust will limit the damage in Britain compared with that in some of our competitor economies. However, we need to think beyond the one-off impact of the devaluation. We need to think beyond the present trough of the recession. We cannot be sure how long it will take, but there will be recovery, and we need to ask ourselves that fundamental question: is 28 per cent. a sufficiently competitive rate at the present time?

The hon. Member for Coventry, North-West (Mr. Robinson) rightly pointed out that the present Government had continued the previous Government’s policy of cutting the headline rate. That was very sensible, but I think that they got stuck. I do not think that they realised how rapidly the rest of the world had moved on. In the opening exchanges today, my hon. Friend the Member for Fareham was asked if he recognised that all that we needed was one of the more competitive rates in the G7, and that if we had it we would be all right. Of course we will not be all right. The world has been completely transformed. The Prime Minister accepted that in hosting and chairing the G20. The serious competitive threat to keeping manufacturing in Britain or attracting it to Britain today comes primarily from China and India. It is a serious option for most multinational companies to switch production from the United Kingdom or Germany to China or India. Most multinational companies already have several factories in those countries, as well as having manufacturer capability in Britain, Germany, the United States or some combination of all three.
The proposal that we are discussing goes to the heart of that issue. Why are we talking about the headline rate? Because it is the headline rate that people usually use in their simulations, models and forecasts when considering where to put their future investment. They also look at the underlying trend of policy. If, as in Canada, it is clearly a commitment to make the current rate the maximum and to say that in future it will be reduced, that will be a fairly influential factor when it comes to the judgment on the back of the numbers. If people see a Government who face a monumental deficit and who seem to think that it is only possible to secure more tax revenue by raising tax rates—itself a very dubious argument, in my view—they may well say to themselves that the Government could not be bothered to cut the rate below 28 per cent. although they knew that 28 per cent. was no longer particularly competitive, and that in a year’s time they, or some other Government, might be forced to put the rate up. That is not a good background against which to make an investment judgment.

I urge Treasury Ministers to think again. I urge them to understand that our prime competitors have much lower tax rates than ours, as well as having lower remuneration and other competitive advantages. I urge them to understand that the big investment players in manufacturing in this world already have capacity around the world, and the ability to switch. I also urge them to understand that we are talking about not just where the new factory goes, but where the work is allocated around the different factories of the world, and that if we allow our country to be perceived as more hostile to business—less competitive in tax and regulatory terms—we will start to be on the wrong end of business judgments. The people in the American, Japanese or Chinese multinational will start to say, “Well, we’ll leave the old, low value-added, less profitable business in Britain because of the tax rate,” and that means that Britain will lose jobs rather than create them, and that, in the end, the British plant will be the one most likely to face the closure notice because—surprise, surprise—it has the worst business and then it has the worst figures. The people in the multinationals will forget that the reason why that particular country has less good factory results is because, for tax reasons, they chose to locate a less profitable business in it. Therefore, if countries are not careful, they can find that they are on a very slippery slope indeed.
In today’s exchanges, we have already heard Labour Members voicing scepticism about whether the setting of a 10 per cent. rate in Ireland was the reason why so much business was attracted there. I can assure Labour Members that, from conversations I have had on account of my work on the policy review and for other purposes, it is clear that the low headline rate of corporation tax has probably been the number one attraction to footloose international businesses in choosing to go to the Republic of Ireland. They did not go there for the European Union grants; most of those were paid to agriculture, which was not a particularly successful sector. They did not go there to join the euro either, because they have to deal in a multi-currency world and what matters to them is the rate into the dollar, the renminbi and the rupee, so the euro is not that important. What mattered to them was that they assumed that they would run profitable businesses—and for quite a lot of years, many of them did—and it makes a huge difference to their forecast cash flows on an investment if they are keeping 90 per cent. of them rather than only 70 or 72 per cent. of them with the rest going to the Government. The Financial Secretary is a clever man, and he knows the power of compound arithmetic. The compound effects of taxing at 10 per cent. are so much more benign than the compound effects of taxing at 28 per cent.

I do have one, friendly, disagreement with my Conservative Front-Bench colleagues in that I believe that the Laffer curve works—they are sitting up and taking notice, Sir Alan. I am trying to make our lives easier, because I believe that this is one of those rare cases where we can have our cake and eat it. I believe that if a country is brave enough to set a lower tax rate, as the Irish were in spades, it can attract a huge extra amount of business, because world business is very footloose and very sensitive to the individual tax rates on offer. The Irish moved from being a lot poorer than the United Kingdom to being a lot richer. At the same time, they moved from spending less per head to being able to spend a lot more on public services because the low rates brought in so much more revenue. Such low rates can therefore have an extremely benign effect, but there is also the reverse effect: if a country allows itself to become too uncompetitive on the headline rate, it discovers that even putting it up does not solve its revenue problem, but can actually make the revenue problem worse.

Fortunately, so far, although we have had a run of companies leaving the country, such departures have been paced out and the Government have managed to suppress a lot of bad commentary on that, but I suggest to them that they should not push their luck any further. My hon. Friend the Member for Fareham (Mr. Hoban) produced a partial list of those companies that have gone. There are others as well, and in certain sectors, such as insurance, it is becoming a rush to get to the exit on time. The situation could be the same for some of the higher charging investment management companies, one of which my hon. Friend mentioned. This is a serious problem for the United Kingdom. To those on the Labour Benches who say, “Well, we don’t want to keep those sorts of businesses if they’re that sensitive to the tax rate and do not want to pay their fair due”, I say that that is a very short-sighted view. Businesses are, on the whole, motivated by profit and money as well as by wishing to serve the public, but they know they have to serve the public well to generate the revenues—that is the deal—and if we are too cavalier in our approach to taxing them, we do not just lose the tax revenue they were paying in terms of corporation tax, but we lose the tax revenue they were paying in terms of the tax on their employees, the national insurance and the VAT on the money their employees would have spent in the shops. We lose a great deal of tax revenue if we become too cavalier about where businesses are to be located.

The case is very straightforward: cutting the rate from 28 per cent. to 25 per cent. would send a very strong signal to our international competitors and, more importantly, to international manufacturing investors that this country is serious about remaining tax competitive. I hope that my Front-Bench colleagues agree that a change to 25 per cent. is the minimum that we need to do and that it is not the final resting place. I would be much happier with a rate of 20 per cent., because that would make a huge statement, would catapult us back to being a place that people talked about as a desirable location for investment and would definitely illustrate the Laffer curve—one might say that one would be “Laffing” all the way to the bank if one was to do that, because so much more business would be attracted and so much more revenue would be coming in.

As a result of these straitened times, my hon. Friend the Member for Fareham says that we should be absolutely sure and pay for this proposal out of removing allowances. That is my second-best option—I would rather just cut the rate—but it makes more sense than doing nothing, because it does take the trick on the headline rate and I do not believe it does the damage that the hon. Member for Coventry, North-West (Mr. Robinson), who is no longer in his place, seemed to suggest. Past corporation tax reforms have cut allowances and cut rates, and they have been helpful and benign; they have usually resulted in more flows of business as long as they establish a competitive international rate that we can work with and of which we can be proud.

I do not think that those on the Treasury Bench are communicating a strong enough sense of the danger to our economy that the current situation represents. Perhaps they are resting on the laurels of the devaluation and perhaps they do not understand how tough the situation is, particularly in the manufacturing heartlands. They are not energetic enough in making the case within government that if we are serious about rebuilding our manufacturing, we need to put in place a package of measures, and this considerably lower corporation tax headline rate would be an important first step.

I would like this country to export more and make more, as that is part of the necessary process for recovery. A lower corporation tax rate would help to do that. I do not despise financial services. I would like us to grow and improve our financial services offering in Britain and keep London as a very important financial centre. That, too, is very dependent on a very competitive corporation tax regime. The Financial Secretary knows that I am not happy with the huge sums tipped into banks, which have grossly distorted the economy’s adjustment process and have delayed the necessary adjustment in those banks. I wanted to keep them going at a much lower cost.

Of course I did not want the banks to go bankrupt, but it is a disgrace that so much money has been absorbed in them. If we had not wasted all that money in the banks, even the Financial Secretary could have afforded my 20p in the pound proposal for corporation tax, given his view that it does not generate the extra revenue that I believe it does. That option would have been a much better competitive package for Britain than losing billions in RBS and delaying the time when RBS sorts itself out and actually generates some money for British taxpayers and for the Treasury, instead of taking away all the money that we need in order to offer a more competitive package. I hope that the Treasury will also go away and think about squeezing some money out of the banks to make the rest of British business profitable, rather than squeezing the rest of British business to try to buttress the banks.

John Redwood welcomes u-turn on mobility benefit for blind people

Wokingham MP John Redwood has welcomed a Government decision that allows blind people to receive a benefit called the Higher Rate Mobility Component of Disability Living Allowance. This is a small sum of money to help disabled people with extra mobility costs, such as taxis or private hire vehicles. Currently, blind people are excluded from receiving this benefit, despite facing some of the biggest obstacles when trying to travel independently.

After meeting with a group of his constituents last year, John Redwood threw his weight behind the campaign to give blind people an extra helping hand. He supported a parliamentary motion calling on the Government to stop excluding blind people from eligibility for the benefit, and wrote to the Minister for Disabled People at the Department for Work and Pensions arguing the case.

During Report Stage of the Welfare Report Bill in the House of Commons, the Minister for Disabled People said that from April 2011, people with no useful sight for mobility purposes will be able to claim the Higher Rate Mobility Component. This will give them an extra ÂŁ29 a week. Although this is not a huge sum of money, the RNIB has estimated that it will assist some 26,000 people, helping them to travel to job interviews, visit friends or family and engage in their local communities.

Speaking about the Government’s decision, John Redwood said: “I was pleased to have been able to lend my voice to this important campaign. My constituents put forward a powerful case, and I was glad to have been able to represent them to the Minister”.

“The public finances are tight and the Government does need to find ways to cut its expenditure. However, the way to do this is not to neglect disabled or other vulnerable people but to reduce wasteful spending like regional assemblies, Identity Cards, bank bailouts and the lavish pension benefits of Whitehall bureaucrats”.

“I am pleased the Government has shown a degree of sense and compassion in this case, and that my constituents who lobbied so hard for such a change will benefit”.

John Redwood criticises the Government’s approach to saving

Speaking during the debate on the Saving Gateway Accounts Bill in the House of Commons earlier this week, John Redwood strongly criticised the Government’s record on savings. In his speech, he questioned whether new measures to promote saving would have any effect, given that interest rates for savers are so low. He also highlighted the ridiculousness of the situation whereby the Government is borrowing money in order to fund measures that are supposed to encouraging people to save.

The full text of John’s speech, taken from Hansard, now follows:

Mr. John Redwood (Wokingham) (Con): The Bill is a mouse of a measure to handle an elephant of a problem. The Liberal Democrats say that this is the Oscars ceremony, but can anyone believe that the Bill deserves an Oscar when it is well below the standard of an amateur production, albeit by a group of professionals who should know better? Indeed, Ministers’ audacity in not realising how feeble the Bill is in relation to the savings problem that they confront takes one’s breath away.

We meet against the background of a huge economic crisis, in which savers are being wiped out daily. If they have risky assets, they are falling in value catastrophically. If their money is on deposit in the banks, the interest rate is now tiny. In the stages of the Bill in which I participated, one of my biggest disappointments was the unwillingness or inability of the Economic Secretary and the Government to tell us anything about how the money would be invested and what sort of return it might earn, yet they have had a decade to prepare the measure. They tell us that they have consulted the savings industry, which will help effect the Bill, but there the Economic Secretary sits, thinking of something else, because he knows that he will get his Bill and he has not a clue about what sort of offer or deal will be available when it is enacted and translated into action on the ground.

It is a disgrace that so many people in this country are so poor that they have no savings. It is a disgrace that a savings culture for such people has not been more actively promoted to give them a buffer and more options and choices in life. It is a common aim of all the parties represented in the House to do something about it. However, do the Government genuinely believe that such a measure will work if interest rates for savers are 0.5 per cent or 1 per cent.? Do they believe that it will work if all they do is borrow more and more, thus conveying the message that the way to get ahead and have a decent job is to borrow and borrow, not save and be prudent?

The Government are by far the most imprudent with which the country has ever been cursed. They add trillions to the public debt— [Interruption.] They think that that is funny, but they have the audacity to say to the very poor that they must never borrow, but save, and that the Government will give them a tiny increment from the money that they will borrow on behalf of us all. They cannot even tell the prospective savers what sort of an interest rate they might get on their money.
25 Feb 2009 : Column 327
It is typical of a Government who have lost the plot, who are wrecking the economy and driving us deeper and deeper into gross national debt that they introduce a pathetic, limp, delayed and inadequate Bill and feel proud of themselves.

John Redwood exposes Government hypocrisy on aviation

Wokingham MP John Redwood has criticised the Government’s hypocrisy over aviation after several Whitehall departments refused to reveal how many flights have been taken by Ministers and civil servants over the last few years.

In a series of Parliamentary Questions, John asked how many flights have been taken by Ministers and their officials in the course of their duties over each of the last three years. Several departments refused to answer, including the Department for Transport, the Treasury and the Ministry of Defence, saying it would be disproportionately costly. The Ministry of Justice stated that it has “no historic record of flights undertaken by the Secretary of State or Ministry of Justice officials”.

Speaking about the refusal of these departments to answer his questions, John Redwood said: “It is ridiculous of Minister to suggest that information regarding the number of flights taken by civil servants is not available. If a private company were to have no knowledge of who has flown at the company’s expense and where, it would be in serious trouble”.

Several departments did provide answers to the questions, including the Scottish Office and the Department of Health.

Figures from the Scottish Office show that the number of flights taken by Ministers more than doubled between 2005–2006 and 2007-2008, and that Ministers and officials took 544 flights in the year 2007-2008.

The Department of Health’s figures indicate that between 2004-2005 and 2006-2007, the year the Government introduced its Climate Change Programme, the number of flights taken by the Secretary of State increased more than threefold, although the department has since then reduced the number back under their 2004 level.

Speaking about the figures, John Redwood said: “These figures are astonishing considering the enthusiasm that some Labour politicians have in wanting us to take the train, not the plane”.

“It is not that long ago an assistant to Ken Livingstone was suggesting that middle class families should be banned from taking city breaks and flights should be rationed. The Government needs to explain why they believe hard-working families taking a well-deserved break will lead to irreversible and cataclysmic climate change, but flights taken by Ministers and civil servants cause no such problem”.

“Yet again, this is one rule for Labour Ministers and Whitehall bureaucrats and another rule for the rest of us”.

John Redwood cautiously optimistic over Equitable Life

Wokingham’s MP has welcomed last week’s response by the Government to the Ombudsman’s report into the collapse of Equitable Life, but expressed concern that policyholders may still not receive adequate compensation in a timely manner.

In a statement to the House of Commons last week, the Government acknowledged that maladministration did take place, and that actions taken by public bodies contributed to the failure of Equitable Life. The Government has decided to set up an ex-gratia payments scheme to compensate those who were “disproportionately” impacted by Equitable Life’s collapse. However, we do not yet know how much compensation is to be paid and how many policyholders will receive any money. The Ombudsman suggested in her report that compensation should be made no later than two and a half years after the decision to grant payment has been made, but the Government has said it expects the timetable will be “considerably longer” than this.

In a letter to Wokingham constituents who lost out as a result of Equitable Life’s collapse, John Redwood has said: “In my view there was regulatory failure and compensation should be paid to all losers as soon as possible. The Government’s reply does not go as far as we might have liked but it does represent progress”.

“I wish to see Equitable Life policyholders get the compensation they deserve and hope the Government will do all it can to act swiftly. I will continue to press them on this on behalf of all those who have written to me outline their own experiences of how they lost out at the hands of this inexcusable regulatory failure”.

John Redwood criticises Equitable Life delays

John Redwood has expressed disappointment at the Government’s announcement that they will not be publishing their response to the Ombudsman’s report into Equitable Life until later in the New Year. During Business Questions in the House of Commons last week, the Leader of the House announced that the Government would give their response to the Ombudsman’s recommendations into how Equitable Life policyholders could be compensated in January. This is despite their previous promises that they would announce their plans “before Christmas”.

John has been following this matter with interest as he has had some Wokingham constituents contacting him over the last few years to outline how they have suffered losses at the hands of Equitable Life, and pressing for a compensation package.

In a letter to many of the constituents who have written to him about this matter, John said: “I do find these repeated delays most unsatisfactory. The Ombudsman’s report took an unprecedented four years to complete because the Treasury decided to submit 500 pages of ‘evidence’. Although the report was published in July, the Government would have seen a draft version some months earlier. Had they been so minded, they could have responded straight away, but during the summer they told us they would do so ‘in the autumn’. Meanwhile, thousands of Equitable Life policyholders are waiting anxiously to see if they will be given recompense for a regulatory failure that took place through no fault of their own”.

Wokingham MP gets connected with Facebook

Wokingham MP John Redwood has signed up to the online social networking site Facebook to make it easier for his constituents to keep up to date with what he is doing locally and in Parliament on their behalf. John joins a number of other Conservative MPs who have signed up for the service, and which enables users to keep up to date with his latest blog entries, view photographs of his campaigning activity and leave comments about his articles, speeches, and contributions in the House of Commons.

Currently, 40 people are using Facebook to track when John updates his website or makes contributions in Parliament, and John hopes more people in Wokingham will use the opportunity to engage with their MP online.

Speaking about his Facebook page, John Redwood said: “Facebook may be the bane of office productivity but we have also seen how social networking technology can be used to mobilise people who feel strongly about a particular issue. At a time when more and more people feel that politics is dominated by spin and politicians are seen as remote and inaccessible, this is another way that the internet can be used so MPs can outline what they are doing for their constituents, and people can let their MP know what issues concern them the most”.

John already makes good use of online technology to keep in touch with his constituents. He has been blogging since December 2006 and his website has won several awards, including being selected as the top ranking MP’s blog in the Total Politics blogging awards. John’s blog, which has a “local issues” section outlining his views on such topics as local rail services, the future of Arborfield post office and the development proposals at Kennet Valley Park, is also read widely outside of Wokingham. Visitors to his site have come from inside the Houses of Parliament, the BBC, the European Parliament, Oxford University, and various banks and financial institutions.

Note for editors:

To sign up as a supporter of John Redwood on Facebook, search for “John Redwood” and, under the option “John Redwood – Politician”, click on “Become a supporter”.

John Redwood’s Christmas message for 2008

Don’t let this nasty recession wreck your Christmas. One of the things I most like about the Christmas break is you have time to do more homely things for yourself, and more time to think of others. So often what people want is some company and thoughtfulness rather than expensive presents. The comfort of the family group, the warmth of neighbourliness is easier to achieve when you do not have to do battle with peak hour traffic or wait on a cold station for the delayed train.

Of course this Christmas has an economic shadow over it. On the High Street some famous stores are struggling. Many are nervous of how long their jobs will last or whether the incomes for their businesses will hold up. I am doing all I can to explain the crisis to government and to offer advice to try to lift us out of the downturn.

In the meantime against such a background the true spirit of Christmas can make a difference. The work of our local charities and the countless deeds of friendship and helpfulness of so many in our community are all the more welcome at a time when people are counting the pennies. I want to say a big Thank you to all the volunteers, carers, Mums and Dads, and good neighbours who do so much to make the lives of others better day by day.

Christmas got off to a good start in Wokingham thanks to the organisers of the Winter Carnival. The lights came on to the sound of the first carols. There are many good Christmas events planned over the days ahead to light up the dark winter days. If we can all recapture some of that magic of Christmas that most of us were lucky to experience as a child, it will have done its job. It’s not how much you spend or what it says on the label that makes the difference. It’s the spirit you do it in that matters most. Sometimes the most modestly priced gift gives the greatest joy because it is what the person wants, or because they are moved that you bothered.

So what can I give, poor as I am? Give my heart.

John Redwood contributes to Queen’s Speech debate

During yesterday’s debate on the Queen’s Speech, John Redwood called on the Government to re-visit the banking package and also look again at the regulatory framework in order to get credit flowing again. He also called for Parliament to be given greater opportunity to hold the Government to account, and consider the laws and statutory instruments which they intend to push through. John also expressed disappointment that the Prime Minister had engaged in party political point-scoring over his suggestions on how to beat the recession.

The full text of John’s contributions, taken from Hansard, now follows:

Mr. John Redwood (Wokingham) (Con): Will the Prime Minister re-examine the ÂŁ487 billion banking package, because surely he shares our disappointment that more lending is not taking place to decent businesses in our country?

The Prime Minister: The right hon. Gentleman signed the report that said that we should give up regulation in mortgage finance. I criticised a Conservative Member last week for saying that the recession should take its course, but what the right hon. Gentleman said yesterday on his website is even more amazing:

“Living standards in both the public and private sector have to be brought down.”

That is the Conservative party’s answer to the problems that we face, not taking the necessary action.

Mr. Redwood: Does the Liberal Democrat leader also agree that we need more time to consider the Budgets, the statutory instruments and the laws that go through the House with very little of their content being debated?
Mr. Clegg: I agree with the right hon. Gentleman. That involves the much wider issue of the lop-sided nature of the information, power and prerogatives of the Executive, compared with the increasingly feeble powers and prerogatives of the legislature.

Mr. Redwood: I spent quite a lot of time on that. I explained that the Government needed to revisit the banking package to get the banks lending again. I said that they needed to look again at the regulatory framework for the banks so that credit could flow. I also explained that we needed lower interest rates. Those are all suggestions that I made.

Mr. Mitchell: I can agree with the right hon. Gentleman on that, but he did not say whether he welcomed the Government’s putting money into the banks to improve their reserve ratios, which will get them lending again.

Mr. John Redwood (Wokingham) (Con): I remind the House that I am a company director, and that I have declared my interests on the register.

I echo the words of the right hon. Member for Leicester, East (Keith Vaz) about legislation often not being the answer to the pressing problems that confront the nation. Perhaps I should begin with a rare word of praise for the Government: the good thing about this Queen’s Speech is that there is not too much legislation in it. I make two pleas, however. First, may we please have the time to debate, at length and seriously, the proposed legislation in it, in order to do it justice? If one legislates in haste, one repents at leisure and has to legislate again and again, as we have seen.

Secondly, may we also have more time in which to hold the Executive to account? What Ministers do when they spend money and when they lead or mislead their civil service teams, or do not lead them at all, is crucial work. Their implementation of programmes and their day-to-day work of judging cases and hearing representations is also crucial work. As a parliamentarian who would like the opportunity to have more sittings here that we could attend, I feel that we could profitably spend our time probing and discussing more of those matters. Sensible Ministers would welcome that scrutiny. As a Minister, I often found it good to have to explain to the House what I was doing. It made one marshall one’s case and realise where one needed to raise one’s game. Colleagues on both sides of the House made helpful points, sometimes in anger or desperation and sometimes as friends, and one would have been a fool not to take such points on board and to understand what the House was doing.
I want to speak mainly about the leading item in the Queen’s Speech, which is reflected in some Treasury legislation: the need to create financial stability. I think that is the Government’s phrase to mean that we need better economic policy so that living standards can start to rise again instead of falling, and so that we can do better by our constituents who face serious trouble. We see factory closure after factory closure and people going on to short-time working. Many people face having employment for only three or four days a week, some people are facing extended factory closures over Christmas and the new year and some people are facing redundancy.

All our living standards have been chopped brutally by the 25 per cent. fall in the value of sterling of the past four months. Most people’s living standards have
3 Dec 2008 : Column 63
fallen in the past year because wages have risen less quickly than prices. Living standards are also falling because although the oil price has come down a long way in dollar terms, it has not come down so far in sterling terms because of the weakness of the pound. It certainly has not come down when one faces the gas or electricity bill at home. Practically everyone in the country, save those who have managed to get an extra job on better pay, is experiencing a severe squeeze on living standards.

When I made a non-party political point to the Prime Minister during the course of his remarks on the Gracious Speech, which was designed as a helpful suggestion to him to tackle the biggest problem that confronts us today—the lack of credit and money flowing through the banking system—I was treated to the usual, foolish political put-down, which was not even accurate. Apparently, the Prime Minister has nothing better to do with his time than to consider the latest offerings on my website. I am greatly flattered by this, and perhaps that shows his true sense of priority, but would he and his acolytes please read it carefully, because what it said was that markets and Government policy are forcing living standards down. That is what I have just told the House, but I have done so at greater length on the website. That is not what I want or propose or think a good idea. I have gone hoarse and have written a lot on the website in the past two years making sensible, serious proposals to try to avoid that calamity and to prevent living standards from falling.

I deeply resent the way in which time and time again I am told personally, and the Conservative party told generally, that we in some way welcome a recession, that we want to do nothing about a recession, that we accept a recession, that we think a recession is good enough and somehow we like recessions. I loathe recessions; I have seen too many. Yes, they have occurred when different parties have been in office, but they have all been because major policy mistakes have been made. Every one of them has occurred in ways that could have been abated or ameliorated if different policy action had been taken. That is why I have spent the past two years trying to persuade the Government that they needed to take different action to avoid recession or, now that we are deep in it, to get out of it more quickly.

Bob Spink (Castle Point) (Ind): Did the right hon. Gentleman note that Her Majesty said, in the Gracious Speech:

“My Government will work towards European action on economic stability”?

Does that fill him with fear given that this country is a net contributor to the European budget and that we subsidise 20 or so other countries in Europe? Does he think that it will be a way out of recession for us to put more money into Europe to be used in its particular and peculiar way to tackle economic stability?

Mr. Redwood: I welcome intergovernmental action of any kind that will address the banking crisis that runs across Europe and the United States of America. I do not take the hon. Gentleman’s bait. He well knows that I think that a lot of money is wasted in the European Union, and that I should like it to have a much smaller
3 Dec 2008 : Column 64
budget and much less power. However, that is not the point of this debate. We are discussing the very big crisis that confronts a range of economies in the world.

Britain happens to have one of the worst and most persistent examples of that crisis. We went into it quite early, with the collapse of Northern Rock, and we are now deep in it in a way that is not mirrored in China, Japan or Germany. Those countries are rather stronger when it comes to their balance of payments and financial position. Our position is closer to that of the United States of America, where similar policy errors were made to those that were made here.

Let us be under no delusion. We did not inherit this problem from the United States of America; we do not have it because something went wrong there. Our policy makers and authorities, using their powers, made similar mistakes to the American mistakes. They should have known better, and they should listen to those of us who can give some explanation as to what went wrong. They should listen to those of us who care so much about our country that we offer them good advice to get out of the situation.

This is a big crisis, and it is not something to play party politics with. I agree with that proposition, which some have advanced from time to time. Everyone knows that I like a good party political scrap, and that I am not afraid of a good argument, but on this occasion, the magnitude of the crisis and the way in which action has been ineffective so far should be of grave concern to us all. We should listen a little more carefully and think together a little more about how to get out of the situation.

Let us consider some of the mistakes that have been made. In August 2007, it was obvious to me, as a commentator, and to many people in the City, that the money markets were drying out, that the Bank of England was not supplying enough cash and that there was going to be a banking catastrophe. We warned the Bank and told it to supply more cash, but it failed to do so. We had lectures from the Governor and the Chancellor that it served the banks right, but shortly after those lectures, the run on Northern Rock began. Shortly after that, I am pleased to say, they reversed their policy and agreed that they had to do something and to put money in. Had the Government put in the amount of money in August that they had put in by the end of the year, Northern Rock would not have gone down. It was a totally unnecessary casualty, as a result of obstinacy, foolishness and the inability of the authorities to understand the state of the markets.

In my new-year message, and in other speeches, comments and articles that I wrote at the turn of the year, I told the Government that interest rates were far too high and that, because they were keeping them so high, we were going to have a very nasty and deep recession in a year’s time. I said that if action had been taken to slash interest rates at that time—I suggested halving them, and that has now just about been done, nine months too late—some of the severity of the downturn could have been avoided. The Government decided, however, that they did not want to do that. They now have to answer to the House and tell us why they refused that well-intentioned advice, and why they could not see for themselves that interest rates were far too high and doing enormous damage, and that this was drying up credit in a way that was going to hit the
3 Dec 2008 : Column 65
jobs of their constituents as well as ours, in a way that meant that a lot of businesses were going to run out of cash and in a way that was bound to bring things down.

The Government have taken several famous lines on the recession. First, they have told us that they are on the side of everyone at this time. Well, I would hope that they are. We are all on the side of the people who are about to suffer; that is not something that creates a party political divide in this country. We are elected here to serve people, and I think that we all come here because we have a passion about the people we represent, and because we want them to have a better standard of life and better opportunities in life. That is not something that divides the parties, so it is quite wrong of the Government to go round suggesting that it is only they who are on the side of the people.

The Government, unlike us, are in a very privileged position. We can suggest, propose and argue about what we think should be done to show that we are on people’s side, but the Government can actually do these things. When they threw the challenge across to my right hon. Friend the Member for Witney (Mr. Cameron)—who was in extremely good voice today—to name five things that he would do to help people during this very nasty recession, he reeled off five extremely sensible proposals that he and others on our Front Bench have been arguing for. He obviously took the wind out of the sails of that foolish attack.
The Government should stop playing trivial politics with this issue, and see that the loyal Opposition are on the side of the people as well, and that we have some proposals that the Government have not yet adopted and which could help a bit. They need to understand that what the people want more than anything else is not help when they have a repossession crisis, when they have lost their job or when they cannot afford to pay the gas bill, but to see the Government following an economic policy that will get us out of this situation. They want the Government to offer some real hope to show that they have got on top of the banking crisis.

In its early stages, the Gracious Speech referred to legislation for the banks. I have no objection to the Government wishing to put the banking code into legislation, and I understand that the banks have no objection either. The timing of the proposal is quite bizarre, however, because the Government are going to be legislating on banking conduct at precisely the time when a big chunk of the banking sector is coming under their direct control as a nationalised industry. Perhaps the Government do not trust themselves. Perhaps they suddenly see the need to have lots of banking regulation codified in statute because they are going to be the shareholder representatives, as well as choosing and getting rid of the directors and otherwise exercising some sort of control.

This brings us to an interesting dilemma that the Government now face, and which they need to resolve. Again, it would be helpful if we could have some intelligent dialogue on this matter, rather than silly yah-boo politics. Here is the dilemma. The banks were called in on one famous weekend and told that they did not have enough capital for their existing amount of lending, and that they had to raise large sums of capital very quickly to satisfy the Government and the regulator, who could then say that the banks were secure and safe. That was a rather odd thing to do in the middle of a
3 Dec 2008 : Column 66
very bad credit crunch. It would have been very good to have done it three years ago, before the credit explosion really got under way, because it would have taken some of the pressure out of the system and moderated banking conduct. It would also have been sensible to have done it in private, and not to have leaked it, so that the banks could have had a chance to raise the money from private sources without share prices being pushed against them by untimely and worrying leaks about how strong the banks really were.
If the Government are serious that this is the right time to demand so much more capital for the existing amount of lending, they have to understand that the banks are going to lend less. There are two ways in which banks can meet the new capital requirements. One is to raise very large sums of money, and they have done that a bit, to the extent that they and the Government think that they can. The other way is to lend less, which will result in the ratio improving—the ratio compares the lending with the amount of capital—and this is primarily why the banks are lending less. They have been told, by the Government’s regulator, that they need to lend less, relative to the amount of capital that they have.

At the same time, however, the Government are saying that, now that the banks are coming under public ownership, it is terribly important that they should lend more. Are the Government going to adjust the capital ratio? Are they going to provide even more shareholder capital from the taxpayer? Or do they not understand that their statements are pointing in opposite directions and are contradictory? We need a better explanation from the Government of what they really expect from the banks. Do they want them to be super-prudent, now that they realise how imprudent the regulatory regime, the monetary regime—and, yes, banking conduct—were in the run-up to the credit crisis? Or are they now saying that they have probably overdone it, and they need the banks to lend more? If that is the case, they need to look again at the ratios and consider what they are going to do.

Of course, no bank of any major scale must be allowed to go down, and I am pleased that the Government understand that. They normally suggest that people like me would like to see that happen, but of course I would not. I have gone blue in the face trying to explain why banks need to be supported, and that they need to be supported in the right way. I think that they need to be supported by an intelligent central bank that will lend them short-term funds when they need them, and by an intelligent regulator privately telling them how much extra capital they need to raise and giving them the chance to raise that capital, either by selling assets, cutting costs and generating more profit, or by going to the market, if that option is open to them. There are many ways in which banks can improve and increase their strength and their capital base, but they were not given the chance to do that because of the damaging leaks that occurred over that fateful weekend, when they were called in by the Government and the regulator.

The subject of leaks is, of course, extremely topical, and I find it odd that such an asymmetric approach is being taken to the matter. A high-level inquiry is taking place into a series of leaks from the Home Office. There will be plenty of opportunity to debate that matter, and I do not wish to detain the House by talking about it
3 Dec 2008 : Column 67
now. We need to know more before we can have an informed debate. I find it odd, however, that the same level of interest was not shown in the leaks about banking share capital, which were highly price sensitive and market sensitive, and which got out through a well-known conduit when what should have been secret talks were taking place at the Treasury. That had a big impact on the handling of the banking crisis in Britain. It speeded up the decision making, which possibly led to bad decisions being made, and, for some banks, it ruled out going to the market in the normal way or generating profit in the normal way to meet the targets. The leaks will prove extremely damaging to the taxpayer, and the information was highly price sensitive. It is surprising that no one is taking a great deal of interest in those leaks.

The other day, we heard a statement that was meant to be the pre-Budget report. The pre-Budget report is quite rightly normally delivered as a statement, in which the Government revise their economic forecasts and give some background to the real Budget. On this occasion, however, the statement was not a pre-Budget report at all; it was a Budget. In fact, it was the biggest Budget that I have ever sat through in the House of Commons. It moved more money—in absolute terms, and as a proportion of the economy—than I have ever seen a Chancellor of the Exchequer propose to move. It was vast. It was a Budget that divided the House on party lines. The Conservatives rightly said that it involved the least sensible tax cut that could possibly be introduced, which would not have the desired effect. We also pointed out that the borrowing figures were so preposterously large that the Government would be running much too great a risk. The Government, however, believe that that tax cut and that amount of extra borrowing are the right way to handle the recession.

That was a perfectly good disagreement that needed to be exposed. It was worth a decent debate. However, we got a debate only thanks to the Speaker and only after a lot of huffing and puffing. A Government who come to the House in the person of the Prime Minister to say that they believe in parliamentary democracy should automatically have tabled two or three days to debate that Budget. The Prime Minister should have been proud of it, for heaven’s sake. If he really believes in his case, if he thinks that he is right to gamble with so much borrowed money, and if he thinks that an immediate VAT reduction is what is needed to get everyone feeling happy and spending again, and to open the factories and stop the job losses, he has every entitlement to hold that view and to come and tell us about it. Surely he must be proud of it. I think that proposal is completely wrong; I wish it were not: if there were a quick, easy fix and if I thought that taking 2.5 per cent. off VAT would suddenly turn the economy around, I would be encouraging my colleagues on the Conservative Benches—whether or not they agreed with me—to say, “Yes, this is exactly what we should be doing”. Unfortunately, I do not think there is a prayer of it working. That is why it deserved a proper parliamentary debate.
That brings me to the concluding part of my remarks, which is about democracy itself. On this day of all days, we should be reminded of the mighty battles our predecessors fought so that this place could stand up for
3 Dec 2008 : Column 68
the people against an over-mighty Executive. Now the form of the ceremony handles the King or Queen as the possible aggressor: that was true 300 to 400 years ago, but it is not true today in an era of a wonderful monarch, who is a democratic one and does not interfere in the political process. Today, the power is on the Treasury Bench; today, the power is in ministerial offices; today, the power is there in the form of Ministers who will not tell us what is going on, who will not answer to this House, who will not answer questions and who will not hold debates on the things that really matter.

That is why Opposition Members—I think Liberal Democrats as well as Conservatives—are united in believing that the Government have to wake up and listen to those who say that we need a stronger democracy in this Parliament and that we will have better government if it is more accountable government. We will have better government if the Government respect the traditions of this place; we will have better government if Ministers try to answer questions instead of playing silly politics all the time and refusing to answer. It would not have hurt the Prime Minister to have treated my intervention seriously and answered my question about the £487 billion that he is spending on the banks and the banking sector. It is a colossal sum of money; I, of course, wish him well with it; I agree with all the £37 billion of it—but it is not working and it needs to be reconsidered. The Prime Minister needs to re-examine the package to get it working quickly for all our sakes; otherwise, we are simply going to have more factory closures, more job losses, more office closures throughout this country’s constituencies.

If the Prime Minister cannot see that that is how he should conduct himself, it is going to be very difficult for him to make the difficult and important decisions he needs to make to start to get us out of this crisis. It is regrettable if he does not understand that most of the information handled in Government offices is not private information for Ministers to hoard and release to their favourite journalists when they choose, but public information that Ministers have a duty to release in due time and in the proper way to this House of Commons first. The privilege of belonging to this House should be that we get the information first and that we cross-examine the Government first. Why do we need that privilege? Because that is the way we do our job for our constituents. They expect to see Government policy and information tested in the furnace of the House of Commons first, not given to preferred journalists on the side and spun in favourable ways that do not allow the alternative case to be made.

Our democracy is at risk. We have gone from having twice-a-week opportunities to cross-examine the Prime Minister to having only one opportunity. We were told, “All will be fine, as you are going to get half an hour instead of a quarter of an hour”, but that matters very much. It means that the Opposition have a chance of making the agenda only one day a week instead of the two days that we used to have with two 15-minute sessions. We have gone from a system under which most of the time most parliamentary questions got sensible answers in response to the question asked to a position today when most of written parliamentary questions I table get absolutely no answer at all. I am referred to a website or I am told that I have put the wrong question, that I have no right to ask it or that the issue I raised
3 Dec 2008 : Column 69
relates to a Government-owned bank or a quango and the Minister cannot comment on it. It is pathetic, Madam Deputy Speaker. The quality of answers to written questions is very low and we cannot have an informed public debate if the Government will not answer those written questions.
When it comes to oral questions, it is a remarkable occasion if a Minister actually knows the answer and shares it with the House. We have two sorts of Ministers: very clever ones who know the answer and will not give it away because they find it so embarrassing, and not-so-clever ones who do not even know the answer that they must not give away. It is high time that we saw some Ministers on the Treasury Bench who know their subject well enough and have enough confidence in their case to tell us what the facts are, put the spin they want to put on it and try to satisfy the more moderate-minded people on the Opposition Benches. There are some and they would be satisfied with that; others would still disagree, but do so over something that mattered and based on proper information.

When I was a Minister, before making major statements or announcements, I used to allow my shadow Minister access to civil servants because I wanted him to know quite a lot of what I knew so that we would not have a row or argument about the facts—the facts would be in common so we could have a debate about what the public wanted to hear, namely what interpretation was placed on those facts and what action had been decided on as a result of them. All too little of that happens nowadays. That is why people outside are frustrated with this place; that is why people do not think it is working as it should be; that is why people feel that all the spin—that the Government are on the people’s side and the Opposition do not have a clue—is not actually working. People are hurting out there; they are losing their jobs; their living standards are falling; they are under pressure. It need not be like that: the Government should listen and they should, above all, become democratic.
6.25 pm

Mr. Austin Mitchell (Great Grimsby) (Lab): I will not attempt to follow the right hon. Member for Wokingham (Mr. Redwood) in the animated version of his website, fascinating as it was. It seemed to me that his speech was a pot pourri of ideas about banking and parliamentary reform, which somehow did not gel together. He told us that he had foreseen the crisis—well, congratulations on that—and that the Government’s measures were wrong, but he never told us what he would do. He then launched into his diatribe about parliamentary reform. Perhaps he thinks that having an extended Prime Minister’s Question Time is the answer for all those people out there who are hurting. Is that his answer?

Mr. Redwood: I spent quite a lot of time on that. I explained that the Government needed to revisit the banking package to get the banks lending again. I said that they needed to look again at the regulatory framework for the banks so that credit could flow. I also explained that we needed lower interest rates. Those are all suggestions that I made.

Winnersh Primary School pupil wins John Redwood’s Christmas Card competition

A Christmas painting by Winnersh Primary School pupil Sam Pulleyn, aged 8, has been chosen as the picture that will be used on the front of Wokingham MP John Redwood’s parliamentary Christmas cards.

Sam’s picture was chosen by a panel of two judges as the winning entry in the annual Wokingham Christmas Card Competition, in which individual school pupils submit their Christmas themed drawings or paintings to John Redwood’s constituency office in Rose Street.

Sam’s picture will be printed on the front of Mr. Redwood’s Christmas cards. The back of the cards will also feature pictures by the four runners up, who are Aarron Ponsford (age 5, Shinfield Infants School); Henry Tompkins (age 9, Ludgrove School); Olivia Mansfield (age 5, Emmbrook Infants School) and Imogen Cowgill (age 7, Winnersh Primary School).

Speaking about the competition, John Redwood said: “I am very grateful to all the pupils who took the time to submit their drawings and paintings. The judges had a very difficult task choosing a winning entry, as the quality of many of the pictures was so high”.

“I would like to congratulate Sam, Aarron, Henry, Olivia and Imogen, and we look forward to seeing the final product which should come back from the printers soon”.

For more information please contact Carl Thomson on 020 7219 4205