Today the House of Commons held an emergency debate on Monday's pre budget report. As it was George Osborne who had called the debate, he had the opening speech. The Shadow Chancellor attacked the pre budget report and the Government's handling of the economic crisis from several angles. He claimed the country had been "shocked" by being brought to the "edge of bankruptcy" and that Labour had "lost the ability to manage taxpayers' money and control public expenditure." He criticised the national debt of 58% as the "highest on record" before saying it is set to double to £1 trillion. He condemned the abandonment of fiscal rules in favour of a temporary operating rule. He then referred to today's press reports that Financial Secretary Stephen Timms had signed initial plans to raise V.A.T. to 18.5% from 2011 as a "secret tax bombshell.
Of the main measures set out by the Chancellor in the report, Osborne remarked that the increase in National Insurance payments would hit people on "modest" incomes, that Alistair Darling had been "less than candid" about alcohol and fuel duty increases and that retailers had been handed a "logistical nightmare" because of the temporary V.A.T. cut. He stated the 0.5 million people who had lost out as a result of the 10p tax abolition had not been compensated by Monday's measures, businesses had not been helped by the Government in their pursuit of credit and bank recapitalisation has not "rescued" the economy. He said the Chancellor should have instead taken "radical action on monetary policy."
Regarding the predictions made by Darling on Monday, the Shadow Chancellor said his counterpart's growth forecasts were more optimistic than those of the Bank of England, the IMF and OECD.
Osborne's Rt. Honourable Friend Kenneth Clarke, himself a former Chancellor, later added that £20bn is not available for fiscal stimulus.
When Darling spoke, he dismissed the press reports of 18.5% V.A.T., explaining that Timms had not signed the document at all. "Someone in the Treasury or Her Majesty's Revenue & Customs" had apparently typed the Financial Secretary's name onto the impact assessment without his permission. The Chancellor confirmed V.A.T. would be at a rate of 15% for 13 months before being brought back up to 17.5% and said that had always been the Government's intention.
The Chancellor stated the Government had two choices in the financial crisis, namely "supporting people, supporting businesses and supporting the economy or walking away...and letting the recession run its course." He said it had chosen to "set out a plan, a plan to help Britain now", adding "I am determined to do everything I can to support people and support businesses" and "people elect their governments to make sure they help them during times of difficulty." Of the main measures he is taking, he claimed "all these things benefit people in this country".
He admitted it is important to get banks lending money again, particularly to small business and he affirmed banks will be held to account. Ruth Kelly later echoed these sentiments.
One of the MPs who intervened during Darling's speech was UKIP's Bob Spink who suggested EU membership costs the U.K. hundreds of thousands of jobs and up to £50bn per year.
Vince Cable used his speech to agree in principle with fiscal stimulus, saying "one of the fundamental duties of government is to sustain the economy" and "in an emergency situation, governments have to act." He in fact pointed out that across the pond, the incoming Obama administration is planning a fiscal stimulus "20 to 25 times bigger" than that of the one Darling revealed on Monday.
The Liberal Democrat Treasury Spokesman also quoted the Institute of Fiscal Studies' prediction that public investment will be cut by 15% over the next 3 years, stating it made a mockery of the Government's ostensible reasons for the level of public borrowing which, he pointed out, is "almost exactly identical" to that of the early 1990s.
Cable described the V.A.T. cut as "pure tokenism".
After several other speeches, Philip Hammond wound up the debate on behalf of the Opposition, saying a targeted response to the "real underlying problem", namely the credit crunch, was required. The Shadow Chief Secretary to the Treasury added getting credit flowing again in order to create jobs and businesses is more important than cutting V.A.T. He stated that in Labour's world, short-term tax cuts before the election would be followed by "a massive tax hike" after the election. He said the Government had allowed the overuse of credit to create an "illusion of a boom "but was now faced with the "reality of a bust".
Yvette Cooper wound up for the Government, claiming the Tories are neither prepared to act now to support the economy nor to make future tough decisions to get the budget back in line. The Chief Secretary to the Treasury also claimed the V.A.T. cut means an average household will find daily living more than £20 cheaper each month.
Come voting on the closure motion, the noes had it. There were 67 ayes to 422 noes.