Finance Bill

Part of the debate – in the House of Commons at 7:52 pm on 6th July 2010.

Alert me about debates like this

Photo of Michael Meacher Michael Meacher Labour, Oldham West and Royton 7:52 pm, 6th July 2010

I pay tribute to the three maiden speakers whom we have just listened to: the hon. Members for Ipswich (Ben Gummer) and for North East Cambridgeshire (Stephen Barclay) and my hon. Friend Nic Dakin. I am always struck by how confident, forthright, quite often amusing and, on occasion, even inspiring maiden speakers are. I am sure that we shall hear a great deal more from them all. I also noticed that they all touched on issues of policy. When I first came to the House, it was a custom that maiden speakers talked about their constituencies and their predecessors, but skirted round any question of policy. I am pleased that that rule is obviously now more honoured in the breach, and I hope that we shall hear much more about policy from all the maiden speakers whom we have heard this evening.

On the Finance Bill, let me start by agreeing with what I can-this part of my speech will be very short. I agree that the deficit is too large and that it needs to be reduced. On every other issue-the size of the cuts, their composition, their impact on growth, the balance between tax increases and spending cuts, and the whole question of fairness-I think that the Budget judgment, as expressed in the Finance Bill, is fundamentally and manifestly wrong.

First of all, as some of my hon. Friends have also said, the Chancellor made great play of the idea that his Budget to eliminate the structural deficit within five years was unavoidable. That is absurd. Balanced budgets are the primitive 1920s economics of Montagu Norman in this country and Herbert Hoover in the United States, and in both countries they led directly to the great depression. Capitalism is driven by cyclical forces that need constant regulation, not balanced budgets irrespective of the economic cycle. The truth is that the Chancellor has gone overboard on austerity. The cuts are as tough as those that the IMF is imposing on Greece, which is on the verge of bankruptcy, which we certainly are not. They are also twice as tough as the Canadian measures that the Chancellor has repeatedly prayed in aid to justify what he is doing, three times as tough as Sweden's measures in the mid-1990s and much tougher even than the IMF measures in 1976.

Then there is the question of how the deficit should be reduced-as I have said, no one disagrees that it needs to be. There are three ways of reducing the deficit: not only through tax increases or spending cuts, but through economic growth as well. Before the Budget, the OBR estimated that UK growth this year and over the succeeding four years would be slightly less than 2.5% on average. As each 1% of growth adds an annual £15 billion to UK income, the OBR forward projections of economic growth imply an increase in UK income over the next five-year period-the perspective of the Bill-of between £150 billion and £180 billion.

Because all Governments take roughly 40% of any increase in UK income, those figures imply an increase of revenues to the Government of around £70 billion to £75 billion over this five-year period. That would be enough virtually to halve the current budget deficit over that period, which hugely reduces the need for spending cuts. I do not say that I am against spending cuts totally. Indeed, when it comes to Trident, ID cards and some of the extraordinarily wasteful Government IT databases, there is plenty of room for cuts. However, the figures that I have quoted raise starkly the question of whether the Chancellor's enormous spending cuts will squash out the growth-generating potential of the economy-something that, frankly, would make the cuts simply counter-productive.

Indeed, those figures also raise the central issue, which had something of an airing between those on the Front Benches in the earlier debate, of where the Chancellor expects the growth to come from over the next few years. Household consumption, which accounts for two thirds of national output, is now almost certain to fall, particularly with the increase in VAT. Any growth in wages after inflation is already weak and is likely to weaken further as unemployment rises, which it will. According to all surveys, consumer confidence is fading, while some 60% of UK exports go to the eurozone, which as we all know is in considerable disarray. So where exactly is the growth going to come from?

I give Mr Redwood credit for being the one Government Back Bencher who tries to make a case for the Budget, but he seems to have forgotten the prime rule of computer projections, which is: garbage in, garbage out. If we feed in dodgy premises, we get out dodgy conclusions. Government Members keep quoting the OBR as though it is independent-I do not think that Sir Alan Budd is actually independent, and the OBR is next to the Treasury, so it is not exactly independent-but that is not the point. The key point is that the OBR projections are based on certain premises that are--I say this without exaggeration-fantasy.

Embed this video

Copy and paste this code on your website