Letter from Gavin Barwell

Posted: 02/12/2011 in Croydon Riots, Gavin Barwell

Dear Mr Bunny Chow 

Apologies for sending another email so soon; however, I wanted to let you have some information about the Autumn Statement that the Chancellor delivered on Tuesday and yesterday’s strike.

 

I hope you find it useful.  I’ll send out a further bulletin before Christmas with the revised dates for landfill and recycling collections over Christmas, where you can recycle your Christmas trees etc.

 

Gavin

 

Gavin Barwell

Member of Parliament for Croydon Central

 

Reflections on the Autumn Statement

 

On Tuesday, the Chancellor gave his annual Autumn Statement. He also published the independent Office for Budget Responsibility’s (OBR) assessment of the economic outlook (he deserves a lot of credit for setting up an independent organisation to produce these forecasts – in the past, Chancellors have been tempted to put a positive gloss on the figures; economic forecasting is a pretty inexact science but at least now we know we are getting the experts’ best guess as to what is going to happen).

 

I’m sure it won’t surprise you to learn that the OBR’s assessment made for pretty grim reading. As a result of the crisis in the Eurozone, higher than expected inflation and new data which suggests that the last recession did even more damage to our economy than originally thought, they have significantly reduced their forecast of how much the economy will grow this year, next year and the year after.

 

As a result, the Chancellor is having to make some additional savings and even with these savings it is going to take longer than he originally planned to eliminate the record deficit that we inherited from the last government and get us to the point where Government debt as a proportion of our national wealth is falling.

 

And the OBR warn that if there is a disorderly collapse of the euro things could get even worse.

 

Ed Balls, responding to the statement for Labour, said the OBR’s forecast showed that the Government’s strategy isn’t working but if you read the OBR’s report (see http://cdn.budgetresponsibility.independent.gov.uk/Autumn2011EFO_web_version138469072346.pdf if you are interested) it is very clear that they have downgraded growth projections for the reasons referred to above, not because they have changed their minds about the impact that this Government’s policies are having.

 

Having criticised the Government for not reducing borrowing quickly enough (without apologising for building up the debt in the first place), Mr Balls then said we should cut taxes, increase spending and borrow even more. Now we’d all like to pay less tax and we’d all like better public services but think for a moment what the consequences of following his advice would be.

 

When this Government came to power, we didn’t have a credible plan to reduce debt and as a result our credit rating was on negative outlook and our market interest rates were higher than Italy’s. 18 months later, we are the only major western country which has seen its credit rating improve and our market interest rates are less than 2.5% whereas Italy’s are 7.2%. What does this mean for you and I in practical terms? Well, a one per cent rise in market interest rates would add £1,000 to the average family’s annual mortgage payments. In other words, if we listened to Mr Balls and borrowed even more money and the markets lost confidence in our ability to repay this debt as they have with Greece and Portugal and Italy, the higher mortgage payments we would all be facing would dwarf the extra money we would have as a result of tax cuts. His plan is the equivalent of taking out a high interest loan when you’ve maxed out your credit card, rather than cutting down on your spending. And not only would it mean higher interest rates and mortgage payments for many of us, it would load our children with even more debt. How is that fair?

 

The blunt truth is you can’t borrow your way out of a debt crisis. Painful as it is – and I appreciate that it is extremely painful for many of my constituents – we have no alternative but to start living within our means. As a result, the Chancellor had very little room for manoevure yesterday. But by making some additional savings – eg not increasing spending on overseas aid by as much as planned (though still meeting our promise to spend 0.7% of our national income) – he found some money for some important initiatives to help families struggling with the cost of living and small businesses such as:

 

  • doubling the number of two-year old children who will receive 15 hours of free nursery care a week (40% of all children will now receive this with a focus on the most disadvantaged families);

 

  • reducing the planned increases in rail fares from inflation + 3% a year to inflation + 1%;

 

  • cancelling the proposed increase in fuel duty in January and reducing the planned increase in August;

 

  • extending the business rates holiday for small businesses to April 2013; and

 

  • introducing a national Loan Guarantee Scheme to reduce the interest rates small businesses can borrow at.

 

He also found some money for extra investment in infrastructure to try to get the economy moving. Two areas of particular benefit to Croydon are:

 

  • £1.2 billion to provide new school places, half of which will go to local councils like Croydon with the greatest need and half of which will go on new free schools; and

 

  • £80 million for 130 new train carriages to tackle overcrowding on south London rail services.

 

And he confirmed that the basic state pension will rise by £5.30 next April, the largest ever cash increase.

 

All in all, then, difficult times ahead but the Chancellor is taking the tough decisions to get us through the storm and he has done what he can, within the very limited means at his disposal, to help small businesses and struggling families.

 

Yesterday’s strike

 

I’d like to say a big thank you to all those public sector workers who carried on serving the people of Croydon today.

 

I understand how angry many public servants feel about having their pay frozen and changes proposed to their pensions to help deal with a debt problem that they didn’t cause.

 

But even if we hadn’t inherited this debt problem, we would still need to make changes to public sector pensions. We are all living longer – the average 60 year-old today can expect to live 10 years longer than the average 60 year-old in the 1970s – which is great news, but it means that if public sector workers want to enjoy just as generous pensions when they retire as their predecessors do today they need to contribute more while they are working and/or work longer, otherwise the taxpayer will end up picking up the tab. Public sector pensions currently cost taxpayers £32 billion a year – more than we spend on the police, prisons and the court system combined – and that’s increased by a third after discounting for inflation over the last 10 years. There’s a basic question of fairness here – people who work in the private sector are having to contribute more to their pensions and work longer; you can’t also ask them to pay more in tax so that public sector workers can retire earlier than them and contribute a lower proportion of their salaries.

 

And the fact that we have inherited a debt problem – the last Government was spending about £150,000,000,000 a year it didn’t have, money our children will have to pay back – makes this problem even more urgent than it already was.

 

So given there is a strong case for change, negotiations are ongoing, the Government has recently made a more generous offer, the economy is struggling and the public could have done without the disruption, I think it was wrong for union leaders to call yesterday’s strike.

 

And I am concerned that many of their members who have contacted me don’t seem to be aware of the details of the Government’s offer and in some cases appear to have been misled:

 

  • Public sector workers will still have guaranteed, inflation proofed pensions. Only 1 in 10 private sector workers have access to such schemes.

 

  • Most will see no reduction in the size of the pension they receive when they retire and many low and middle income earners will receive larger pensions.

 

  • Those on a full-time equivalent salary of less than £15,000 a year will not have to make an increased contribution and those on a full-time equivalent salary of between £15,000 and £21,000 a year will only face a small increase.

 

  • The pensions people have built up so far will be protected.

 

  • No-one within ten years of retirement will see any change either in the age when they can start receiving their pension or in the amount of pension they will receive.

 

  • Many public sector workers have been told their scheme is in surplus and hence there is no need for them to pay more in. But in most cases there is no scheme – the contributions paid by existing employees are used to pay other people’s pensions rather than being invested for the future.

 

  • A Croydon Labour councillor was on Twitter today alleging that most of the extra contributions people are being asked to pay will be used to bail out the banks. That is completely untrue.

 

The two sides need to get round a table and resolve this dispute so that the public don’t have to put up with any more disruption.

 


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