Cable, Smith and Heath quiz the chancellor on his 'emergency budget'

' . . THE Prime Minister tours the world, a little bit like a celebrity heart surgeon, lecturing the uninitiated on how to carry out financial heart transplants, but meanwhile the patient back here is suffering very badly . . '

• Dr. Vincent Cable (Twickenham) (LD): PERHAPS I may start with some of the positive points with which we can agree: the statement on repossessions, the action on small business lending, the programme on home improvement, and the postponement of the decision on retrospective vehicle excise duty.

This is not a normal pre-Budget statement. We are experiencing a national economic emergency, and what is required, alongside radical cuts in interest rates and radical action on bank lending, is a serious tax cut concentrating on the low paid. The Chancellor has based his plans essentially on a temporary small cut in value added tax. I note that he is relying on the advice of a former Conservative Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), in that regard.

What I fail to see is how the economy receives a major stimulus from, for example, a £5 cut in the price of a £220 imported flat-screen television or a 50p cut in a £25 restaurant bill. Surely it would be much more sensible to put money directly in the pockets of low-paid workers by cutting their income tax, rather than offering them a pathetic £25 and, if they earn over £20,000 a year, the prospect of tax increases.

The Government have at last, after 11 years, acknowledged that there is a problem of inequality relating to the tax system. What they propose is a higher rate of tax for very high earners, after two years-possibly. What is needed, surely, is a comprehensive approach which involves cutting income tax for low-paid middle-income families and removing the vast plethora of tax reliefs and allowances from which the wealthy benefit, rather than this very limited fig leaf for redistributive policy.

What I find wholly incredible about the statement are the assumptions that the Government make about the future trajectory of the economy. They simply assume that after one bad recession year there will be an economic recovery. Buried in the Red Book is the assumption that after next year, the public sector need make no contribution whatever to economic growth. However, the problem is a very deep one. This is not just a conventional recession. We do not just have the home-grown problem of the bursting housing bubble and personal debt; we have the imported credit crunch.

As far as the banks are concerned, the problem is very deep. The Prime Minister tours the world, a little bit like a celebrity heart surgeon, lecturing the uninitiated on how to carry out financial heart transplants, but meanwhile the patient back here is suffering very badly, because the banks are cutting credit and greatly increasing their margins. I welcome what the Chancellor said about the Royal Bank of Scotland's announcement yesterday; that was a positive step. I do not, however, know whether he is aware that today Barclays, whose balance sheet is twice as big as the Government's entire public debt, is in the process of negotiating a deal with Arab investors on such extortionate terms that it is bound to make a drastic reduction in bank lending at the expense of its British customers. It is all very well for the Government to say that they are setting up a panel to monitor bank credit, but what is the Chancellor doing to enforce the conditions that the banks have apparently agreed to?

I welcome some of the Government's comments on public investment, particularly on housing, but let us just consider the status of the Government's commitment on housing, with their £700 million programme of social housing. The Government have a once-in-a-lifetime opportunity. Land is available very cheaply in the current market, and they could make a programme of large-scale social housing construction, meeting housing need and providing employment in the construction industry, but despite the rhetoric and the promises, virtually nothing is currently happening. It is not happening because the housing associations are loaded with bad debt that they acquired in dodgy deals with developers, and the Treasury is blocking any fundamental reform in the housing subsidy system. Nothing is happening.

To conclude, we have a very serious national economic crisis. The Conservatives do not acknowledge it, so they do not propose to do anything. The Government have rhetoric, but the rhetoric is not matched by their actions.

Mr. Darling: Although I do not agree with a lot of what the hon. Gentleman said, his response was a great deal more thoughtful than the shadow Chancellor's.

I appreciate the hon. Gentleman's welcome for some of the measures that we have taken, particularly in relation to repossessions, but our announcements on both VAT reduction and the extension and increase of the amount of money that will go to basic rate taxpayers will help people on low incomes through what are undoubtedly difficult times. The hon. Gentleman's proposal for reducing income tax also comes with a promise to cut public spending very substantially-by about £20 billion-which would impact on the living standards of the very people he is concerned about.

On lending to businesses, I agree with the hon. Gentleman that we need to make sure that we hold to account those banks in which we have shares. The Royal Bank of Scotland group has now agreed to take the Government money, and its announcement this weekend was extremely helpful. Assuming the Lloyds-HBOS merger goes ahead, that transaction will be completed in January, and we will need to make sure that they, too, are held to account. The additional Government help I have announced today of £1 billion being made available to small businesses is also important and will also make a difference. The hon. Gentleman said that he wanted banks to do more, but although I agree with him on that, he does not seem to agree with us on the action we are taking to spend more to encourage businesses and to give them the money they need to get through this difficult time, including the measures I announced this afternoon to help them pay their tax bills and to help those small businesses that are exporting.

On housing, we are providing substantial sums to enable the building of more social housing, as well as to ensure the renovation of homes. Whenever anything is announced, the Liberals always call for more, yet it is not entirely clear how on earth they would be able to fund any of it given the fact that their tax and spending policies simply do not add up. I understand what the hon. Gentleman says, but I simply do not agree with him.

I think that what we have announced today will go a long way. We are putting about £18 billion into the economy between now and April 2010. Such action is supported not just by a wide range of people in this country, but, increasingly, by countries across the world as absolutely essential, and the hon. Gentleman at least understands what the shadow Chancellor does not: many of the problems all of us face today are truly international.

• . . Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): Many of my constituents are beginning to be quite concerned about the future of the North sea oil and gas industry and exactly where the credit crunch is hitting highly geared companies' investment. The Chancellor said that he was considering ways to incentivise and increase investment in the North sea. May I emphasise the urgency of that? Will he give more indication to the House about how he is taking that forward and what time scale he sees for the delivery of such incentives?

Mr. Darling: I understand people's concerns, particularly with the oil price coming down. Although that has many welcome effects, it obviously has an effect on the outlook in the North sea. As the hon. Gentleman ?24 Nov 2008 : Column 516?knows, my right hon. Friend the Prime Minister and I met leaders of the oil industry in Banchory earlier this year. We agreed to work together. We are publishing further proposals today to allow us to develop such things further.

One of the things that the industry told us is that it wants to work closely with us, because there is probably a coalition of interests: both of us want to ensure that we can extract everything that we possibly can from the North sea. We said that we will work closely with the industry to ensure that the tax regime helps that process. I am glad to say that I believe that we are working well together, and I hope that things will come to a satisfactory conclusion as soon as possible.

• . . Mr. David Heath (Somerton and Frome) (LD): The Chancellor appears to have completely abandoned the normal purdah before budgetary announcements with the result that the VAT cut was the least unexpected announcement almost ever. But, if the purpose of the VAT cut was to put more money into the pockets of less well-off people, would not a targeted cut in income tax have done it better? If the purpose is to stimulate spending in our high streets, how is a 2.5 per cent. VAT cut going to work when 20 per cent. to 25 per cent. discounting in all major stores is not?

Mr. Darling: As I said a few moments ago to the hon. Member for St. Albans (Anne Main), any price reduction would be welcomed by people going out to shop, and I have actually reduced income tax, especially for basic rate taxpayers, because I am introducing the increase in the personal allowance. Income tax personal allowances take time to be fully implemented; a cut in VAT can be implemented much more quickly. [Hansard]