I am delighted to follow Mr. Henderson and to speak in this debate, although I suspect that the measures announced in the Queen's speech will play second fiddle to many of those announced in the pre-Budget report and the Budget next spring. At that point, at least the Chancellor will be forced to describe, in more detail, the public finances and our economic condition, which he failed to do today.
We know that our deficit is at least £175 billion, or 12.4 per cent. of GDP. That is forecast to fall, based on what were considered very optimistic growth figures, to 5.5 per cent. of GDP by 2013-14. That will still be more than twice the level of the pre-crash deficit rate of 2.4 per cent. in 2007-08. On the treaty calculation, the national debt is forecast to hit £1.6 trillion in 2013-14, which will be £60,000 per household.
As appalling as those figures are, they might yet be wide of the mark, given that they were based on what were considered to be, putting it gently, heroically optimistic growth forecasts. That is not least because this recession is already longer and in many ways deeper than the two Tory recessions of the 1980s and 1990s, of which I have personal memories-they were not pleasant experiences. Both those recessions lasted for five quarters, while this one has already lasted for six quarters, and their GDP declines were 4.7 and 2.5 per cent. respectively, while this recession's GDP decline has already hit 5.9 per cent. It is inconceivable that it will take any less time to return to pre-recession GDP levels than the two full years that it took, in both cases, after the crashes of 1980-81 and 1990-91.
The tragedy of the recession is that unemployment and youth unemployment are higher today than under the Tories in 1997, just before Labour came to power. Between March and May 1997, all unemployment stood at 7 per cent., compared with 8.1 per cent. today, and youth unemployment was at 12.5 per cent., compared with 18.6 per cent. today. Under Labour, 943,000 young people are now on the dole. That is bad enough, but the real killer is that in both previous recessions unemployment kept rising when the recessions technically ended: for three full years in the case of the 1980-81 recession, and for two full years in the case of the 1990-91 recession. Therefore, things could get much worse.
The Government's response to that, at least in the Queen's Speech, has been precisely nothing. On economic matters, they have suggested a Financial Services Bill and a fiscal responsibility Bill. The Financial Services Bill would introduce powers over contracts and bonuses, powers to allow class actions, and powers to act on short selling, which are all to be welcomed. Removing the incentive to take too many risks is sensible, as is establishing a council for financial stability to consider emerging risks. However, the Bank of England already produces a financial stability report, so the creation of a new body is less important than how its members analyse the data and measure the risk, and whether they feel that they have the authority and ability to stop risky activities that lead to the systemic problems seen in the banking crisis. In that, the Financial Services Bill is sorely lacking.
Back in 2000, I think, the financial stability report included a detailed description of the south-east Asian banking crisis, and set out all the factors that led to the problems: easy credit, over-reliance on income from property and so on. By the time we got the 2007 Bank of England report, many of those factors were in existence. The Bank of England glossed over them, and said that the risk had been spread and that everything was fine. The risk had not been spread; the risk was everywhere, and no one had confidence in any of the assets held by the banks. That was a huge part of the problem that stopped the banks lending to each other.
On banking reform more generally, in the "Reforming financial markets" White Paper in June, the Government spoke about action to enhance the robustness and functioning of key derivatives markets. However, as I think I said at the time, that amounted to no more than a road map to improvements, support for international efforts and the principle of transparency. The new Financial Services Bill does not even build on those statements.
There is no timeline at all for the creation of a regime properly to minimise the systemic risk of these weapons of financial mass destruction. The details of the fiscal responsibility Bill, to be announced in the pre-Budget report, may give us a little more, but all that has been announced so far is a pledge to halve the deficit over four years. Given the Red Book's forecast of a £173 billion deficit next year and a deficit of £97 billion in four years' time, in cash terms the Government will need to find an extra £11 billion worth of cuts over the next four years. In terms of percentage of GDP, a fall from 12.4 per cent. to 5.5 per cent. would mean that they were almost there, but those figures are based on growth forecasts, which were pretty much knocked out of the park last year.
Government consumption has been the main element supporting demand in the economy. It is 2.2 per cent. higher now than it was a year ago. Household consumption has fallen by 3.6 per cent., business investment by 20 per cent., and gross fixed capital formation by 17 per cent. If we strip out what has been keeping the economy afloat at this point-as we go into what is only a gentle recovery-we will risk dipping the economy back into recession, or causing a double-dip recession. The real challenge is to stimulate the economy, get people back to work, reduce social protection costs, increase revenue yield and, after that, tackle the deficit and the debt.
Then there is unemployment. What the recession has laid bare, and what none of the measures in the Queen's Speech will address, is the difficulty of creating jobs in what has become a wholly unbalanced economy. We have become far too dependent on the tax and jobs created by the growth in financial services, to the detriment of traditional employment. There has been a 40 per cent. fall in manufacturing employment over 30 years, and at least 1 million manufacturing jobs have been lost since Labour came to power. Fewer than 10 per cent. of the work force are now employed in wealth-creating manufacturing. Even with sterling down against the dollar and the euro, between 2007 and the beginning of 2009 the United Kingdom had a balance-of-payments deficit of £93 billion in the trade in goods, and a total balance-of-trade deficit that suppressed GDP growth by 1.6 per cent. That is wholly unsustainable. We need to find a strategy that does not rely wholly on tax and jobs for financial services, but creates wealth and gets people back to work.
These are the lessons that I hope the Government will incorporate in the Bills announced in the Queen's Speech and in the pre-Budget report. First, the proposed deep and savage cuts in public investment are wrong. The Government should re-profile capital expenditure for a further year to protect recovery. Secondly, there must be a real focus on rebalancing the economy to create new and sustainable manufacturing jobs. Thirdly, as well as doing their important work on bank bonuses and contracts, the Government need to address the difficult issues of derivatives, securitisation and counter-party risk, so that they can deal with the real systemic problems that caused the banking crisis rather than merely tinkering around the edges.
I thought that Labour had given up on the "We are investing while everyone else is cutting" argument because that is patently untrue, as is clear from the real-terms cut in the Scottish Government budget delivered by the Labour party in Government in London. It was massively disappointing to hear the Chancellor return to the old rhetoric. There will be no credibility in anything that this Government do, good or bad, if they persist with the "We are investing and other people are not" line, because objective reality tells us that London Labour Government budget cuts are driving cuts in every spending Department, every council and every devolved Administration in the country.
Copy and paste this code on your website