Budget Resolutions and Economic Situation — House of Commons, 2015-03-20
Topic: Macroeconomics
David Willetts (Conservative, Centre-right): I am touched by the hon. Lady’s intervention. Let me try to explain to her the part of the long-term economic plan that I think is relevant to the comments made by the shadow Secretary of State. When the original fiscal strategy was set out, which included the forecast for economic growth set out by the OBR, the Chancellor made it clear that if growth was not as great as forecast by the OBR, he would accept that tax revenues would regrettably be less and the fall in public spending might not be as great—because of what are called the automatic stabilisers. Those automatic stabilisers were explicitly part of the plan from the beginning and, because of them, we have ended up borrowing rather more than was forecast initially. In other words, what the Opposition criticise as somehow a failure of the plan was always part of the plan. There was always a recognition that it would need that flexibility and if they are really saying that we should have cut even more or raised taxes even more as a result of the economy performing less well in the early years than had been forecast by the OBR because of the crisis in the eurozone, that would have been bad for the economy. I am grateful for this opportunity to explain a key feature of the plan I draw the House’s attention to my entry in the Register of Members’ Financial Interests, and I want to focus on two or three aspects of the Budget. I particularly welcome the imaginative package on savings. The Help to Buy ISA is an excellent innovation. I like the new flexibilities through which savers can put money into an ISA and temporarily withdraw it. It reminds me of the work that I did in the long days of opposition on what we called a lifetime savings account. It was intended to have the flexibility of people being able to put money in and take it out because it recognised the paradox that if people know that they can take their savings out of a savings instrument, they might be willing to save more in the first place. It is like the paradox that the device in the car that enables us to drive faster is the brake—when we know that we can brake we are willing to drive faster and when we know that we can take money out we might be willing to put more in Alongside those measures is the extra revenue generated by restricting the lifetime allowance for pension savings to £1 million. That presents the Opposition with a dilemma, because of course it was one of the measures that they announced would help fund their policy on higher education. I would be very interested to hear from the Opposition spokesman, the hon. Member for Liverpool, Wavertree (Luciana Berger), when she winds up what the Labour party envisages as the future of that much-derided commitment on university finance. Let us be clear what we are talking about. If Labour reduces fees to £6,000, that must be financed by an increase in the public expenditure going to universities. That is of no direct benefit to students, and the most that universities might hope for is some compensation for the loss of the income from fees. The beneficiaries are solely affluent graduates in middle age who will find themselves completing the process of paying loans back rather earlier When I heard the shadow Secretary of State speaking so passionately about housing and the importance of investing in it, I wondered what it said about Labour’s priorities. If Labour had £5 billion or £10 billion to spend, why on earth did it decide that its priority was affluent middle-aged graduates rather than, for example, a further package on housing? Many members of the shadow Cabinet must be frustrated by the bizarre priorities reflected in that judgment.