I beg to move,
That this House
notes that there has been no growth in the UK economy over the last nine months, compared to 1.8 per cent. growth in the previous nine months;
further notes that families are feeling the squeeze, unemployment is rising again and the recovery was choked off last autumn, well before the eurozone crisis of recent months;
agrees with the International Monetary Fund’s managing director that ‘growth is necessary for fiscal credibility’ and the IMF’s recent report which warned that ‘if activity were to undershoot current expectations and risk a period of stagnation’ the Government should ‘consider delaying some of their planned consolidation’;
further notes that borrowing is forecast to be £46 billion higher than planned because of the slower growth and higher unemployment arising from the Government’s policy of cutting spending and raising taxes too far and too fast;
further believes that the Government need a plan for jobs and growth if the deficit is to be reduced in a sustainable way;
and calls on the Government to implement a steadier deficit plan and the Opposition’s five point plan for jobs, which includes a tax on bank bonuses to fund 100,000 jobs for young people, bringing forward long-term investment projects, reversing temporarily the VAT increase to provide an average £450 increase for a couple with children, implementing a one-year cut in VAT on home improvements, repairs and maintenance to five per cent, and a one-year national insurance tax break for small firms taking on extra workers.
In opening this Opposition debate on the economy and moving our motion urging the Government to kick-start Britain’s choked-off recovery and adopt Labour’s five-point plan for jobs and growth, I shall start by setting out the facts for the House and for the country. Over the past year the British economy has ground to a complete halt. The latest figures show no growth at all since last autumn. Consumer and business confidence has slumped. For three months manufacturing output has been falling. More than 16,000 companies have gone out of business. Employment is falling and today’s chilling news is that unemployment has risen by 114,000 in the past three months alone.
Unemployment here in Britain now stands at 2.57 million people out of work—the highest level since 1994. Unemployment is rising across the country. We have the highest level of unemployment among women since 1988. Most worryingly of all, youth unemployment, which a year ago was falling, is now rising again, up 74,000 in the past three months, with 991,000—more than one in five—young people out of work. There has been a 60% rise in youth long-term unemployment since February, and the overall level of youth long-term unemployment is at its highest for 19 years. What a waste of talent, what a waste of money and what a betrayal of this young generation.
Unemployment is rising and growth is flatlining. The Prime Minister said just a few months ago that the only person supporting me was The Guardian leader writer. Since then, what have we seen? The OECD and the International Monetary Fund are saying that the Government should change course. What has happened to The Guardian leader writer? He has become the speech writer to the Prime Minister.
To those who say that these are just the effects of a world economic crisis now hitting Britain—the same people who absurdly claim that the global financial crisis was all the fault of the British Labour Government, but who now want to blame the British growth crisis on the rest of the world—I say yes—
In a minute.
Yes, the deepening euro crisis and the weaker US recovery have made things harder for British exporters in the past three months, but one cannot blame the eurozone or the world economy for the collapse of economic recovery here in Britain when, since last autumn, our economy has grown more slowly than that of any EU country except Greece and Portugal, when we have the highest level of inflation of any EU country except Estonia and Latvia, and when, over the past year, we have seen a bigger rise in unemployment than the EU average, when most EU countries have seen unemployment not rising, but falling. I know the Chancellor does not like it, but those are the facts. The Prime Minister said today, “I accept responsibility for everything that happens in our economy”. I hope the Chancellor will do the same today.
Does the right hon. Gentleman accept that the trade deficit between ourselves and the 17 countries in the eurozone has gone up from minus £4 billion to minus £38 billion in the past year alone, and that one of the main reasons, both as respects the whole of Europe and as respects the United Kingdom, is that employment and social regulations are strangling small businesses, for which the Labour party was also responsible in Government? I am critical of the present Government, but am I not also critical of the right hon. Gentleman’s party’s performance in the past 10 years?
The Chancellor’s big boast over the past six months, which we were told regularly, was that between 400,000 and 500,000 more jobs had been created in the British economy, but today’s figures months show that employment has not gone up at all in the past 12 months; it has actually gone down. We were also told that public sector job cuts would be more than outweighed by the rise in private sector jobs, but I am afraid that employment is falling because the private sector has been unable to deliver the recovery we were promised. It has been a complete fantasy.
It is nice that the shadow Chancellor acknowledges the Government’s responsibility for the economy, but it would also be nice if he took some responsibility for the damage he did to it when he was in power. A former Chancellor has said that Labour lacks economic credibility. If the right hon. Gentleman cannot even convince a former Chancellor on his own Back Benches, how can he convince the country?
The hon. Gentleman will have to convince his constituents because, despite the fact that we were told a year ago that the recovery would be on track, growth has flatlined for a year and unemployment is rising right across the country, which means that borrowing will be higher, not lower.
The shadow Chancellor responds to questions about his failing to convince his shadow Cabinet colleagues and former Cabinet colleagues by talking about convincing constituents, so why have his poll ratings for economic credibility fallen among his constituents and my constituents and across the whole country?
I would be happy to have a debate with the hon. Gentleman on economic credibility. He said in June this year:
The figures show that unemployment in his constituency has gone up by 456 in the past year. Perhaps he should apologise to his constituents for getting it wrong.
I will make some progress before giving way again. A year ago we warned that a global hurricane was brewing and that it was exactly the wrong time to rip out the foundations of the house here in Britain.
By definition, it is impossible to get out of recession without growth, which is why in the past nine months we have seen no growth at all. We were told we were out of the danger zone, but we do not hear that very often now.
I will make some progress before giving way again. I am always very happy to take interventions. It is clear that the Chancellor has a good whipping operation in place today, although good whipping is something he knows quite a lot about.
A year ago, we warned that a global hurricane was brewing and that it was exactly the wrong time to rip out the foundations of the house but the Chancellor disagreed and recklessly decided to raise taxes and cut spending further and faster than in any other economy. The evidence is clear that his plan has not made the British economy better able to withstand the global storm and that by going too far and too fast he has left it badly exposed. Families and businesses up and down the country are asking how many more businesses must go bankrupt, how many more families must see their living standards fall, how many more young people will have to lose their jobs, how much more unemployment and misery and rising child poverty must we see. How much more evidence do the Government need before they finally change course?
I am grateful to the shadow Chancellor for giving way, but I wonder whether he has got it the wrong way round. With a global storm brewing, the right thing to do was ensure that the gilt market was secure and that we could carry on borrowing cheaply, which has ensured that a recovery will eventually come. He can no doubt find something I said in 1830 and quote it back to me, but that is not really the point.
I am not sure about 1830, but if the hon. Gentleman was in the House in 1930—he might have been—he will know the dangers of very low bond yields accompanied by rising national debt, rising unemployment and economies locked in stagnation. I do not know whether he was around at the time, but some forefathers and foremothers certainly were. Let me quote the director of the National Institute of Economic and Social Research, the think-tank of the year, who said:
“The reason people are marking down the gilt yields is because they think that the economy is weak.”
That is the truth.
Let me make a prediction. I do not expect the Chancellor to announce a change of course today, but will we hear him repeat his boast made this time last year that the British economy’s recovery is on track? I doubt it. Will he repeat the Prime Minister’s deeply complacent boast that Britain is out of the danger zone? I doubt that, too. Will he describe Britain as a safe haven that is immune from the global storm? Will he repeat his naive forecast that cutting public jobs will boost private confidence and create more private jobs? Even this Chancellor cannot fly in the face of the facts. Employment has fallen in the past 12 months. On the day when unemployment has risen again, will he give any indication that he understands at all how hard things are for families up and down the country? Is he so out of touch that he really believes that a £1.40 a week council tax freeze can compensate for a £9 a week rise in VAT?
Well, unemployment has fallen as a percentage—[ Interruption. ] As I said, that whipping operation knows no bounds. I was hoping that the hon. Gentleman was going to repeat what Matthew Hancock said earlier this year. He said that
“manufacturing is expanding under this Government”.—[Hansard, 23 March 2011; Vol. 525, c. 1024.]
The trouble is that manufacturing output has fallen in every one of the past three—[ Interruption. ] I am going to agree with Nadhim Zahawi, who wrote on his blog that
“deficit reduction alone isn’t enough. If we are to smooth the waters of this choppy recovery we need to ensure that we also support sustainable growth in the private sector.”
Where is that growth? Will the Chancellor repeat his claim that—
As a lifelong Keynesian, I fully understand that growth can be achieved only by increased demand. Every Finance Minister in the western world is grappling with that problem. What are the right hon. Gentleman’s proposals for increasing demand without causing damaging side-effects for the rest of the economy?
Does my right hon. Friend agree that it is no surprise that, if the Chancellor announces half a million job cuts in the public sector, those people will save rather than spend and that the people in the private sector, who normally sell things to them, contract and stop taking people on? It is no surprise that that very announcement underpins the lack of growth in our economy and puts the guilt on the Government side of the Chamber.
I think that the Chancellor will regret talking down the British economy a year ago, because the rise in private sector jobs has been swamped by public sector job cuts. That is why employment is falling. That is why the private sector is not investing. That is why his corporation tax cut has had no impact on private sector investment. Will he repeat his claim made in January 2009 that
“quantitative easing is the last resort of desperate governments when all their other policies have failed”?
Those are prescient words, because we know the truth, and so do his increasingly desperate-looking supporters on the Government Benches.
Let me say what the Chancellor cannot admit: the private sector-led recovery he promised has proved to be a fantasy, as we predicted. In the past year, the growth that he predicted has failed to materialise.
In a moment.
Unemployment is rising, and a vicious cycle of higher unemployment, fewer people in work paying tax and more people on benefit means that the Chancellor’s deficit reduction plan is going badly off track. We all know the truth, and so does he—plan A has failed.
I understand the hon. Gentleman’s point. If, rather than preparing his intervention, he had listened to my last point, he would have understood why borrowing is already set to be £46 billion higher than the Chancellor planned. The reason is that if unemployment goes up, if the economy flatlines, if fewer people are paying tax and if more people are on benefits, you borrow more. In the hon. Gentleman’s constituency, 50 more people are unemployed than a year ago. Perhaps he should be apologising for backing a Chancellor who got it so badly wrong.
This increasingly desperate Chancellor is now relying on plan B—or should I say plan BOE? But quantitative easing cannot work on its own, and any sensible economist can tell him why that is. The new shadow Chief Secretary to the Treasury, my hon. Friend Rachel Reeves, who is a former Bank of England economist, can certainly explain to the Chancellor why quantitative easing cannot do the job on its own. Whether the current Chief Secretary—the former national parks press officer—could explain to the Chancellor how quantitative easing works is another question. As the shadow Chief Secretary could very well explain—[ Interruption. ] Does Matthew Hancock want to intervene? If so, I will happily take his intervention.
I am so pleased that the hon. Gentleman has made his intervention, because we have missed him for the past couple of debates, and now he is back. Last time he intervened on me, he put this on his website:
I want to do the same again. His campaigns to get more money for schools, to keep Thetford forest safe and to stop cuts to school crossing patrols are going well. The chief executive of his council has been sacked, and the Labour council in Ipswich has intervened and backed his campaign on school crossing controls and libraries. I have a quote from the shadow Chancellor for his press release: “Mr Hancock has been tireless in his campaign against unfair cuts to local services imposed by the Conservative-led Government—cuts which go too far and too fast.” He can leave the last bit out if he likes; I do not mind.
I will give way, but before I do, let me return to quantitative easing. As these Bank of England economists know well, simply printing money cannot boost demand and keep interest rates low when they are already close to zero. Printing money cannot boost spending when companies are too scared to invest and consumers to spend. QE—the hon. Gentleman should know this—cannot revive a stalling economy by boosting demand in one direction when fiscal policy is working in a contractionary way in completely the opposite direction. As the Bank of England Governor said only last week, and in this respect I agree with him:
“We can do our part in it but we can’t solve all our problems alone.”
I now give way to the hon. Gentleman.
I think the hon. Gentleman got the name wrong. He does not mean Norwich City—he means premiership Norwich City, which is more than one can say for any football team in Suffolk. I will back his campaigns to stop the cuts and to spend more, and I fully support the dualling of the A11. At last some Conservatives have persuaded some Conservative councils to do the right thing about these proposals, which is very good.
It is all very humorous here today, but in my constituency we already have above-average national levels of unemployment and unemployment has increased. It is always interesting to hear an economist debate with another economist. However, may I ask the shadow Chancellor what direct personal experience he has of working in business, helping to create jobs, and knowing what it is like to make payroll each week? If he does not have any of that experience, will he please undertake to this House that he will go out and get some?
I have worked in Government and at the Financial Times. I have never run a business, but I respect people who run businesses and I understand why they are so worried at the moment. In the hon. Gentleman’s constituency, where unemployment has gone up by over 400 in the past 12 months, there will be some very worried businesses, and it is important that we listen to them and hear what they are saying.
That is why now is the time for our oh-so-political Chancellor to put politics aside and start to do the right thing. Protecting our economy and protecting valuable businesses and jobs is more important than trying to protect a failed plain. We do not have to wait for another month of unemployment rising, or for 46 more days until we finally get the economic and fiscal forecast from the Chancellor, to know what he is going to have to say. He is going to have to downgrade his growth forecast for this year for the fourth time in 18 months and downgrade his growth forecast for next year. As I have explained, we already have £46 billion more borrowing in the pipeline, and unemployment is now rising. He is going to have to admit that borrowing will be billions higher still than at the time of his last forecast. The Prime Minister says:
“You can’t borrow your way out of a debt crisis”, but he just doesn’t get it. [Interruption.] No, he doesn’t get it. Because with growth flatlining, and with today’s bleak news of rising unemployment, the Chancellor’s failing plan is leading to not lower borrowing but higher borrowing than he planned.
I will return to the hon. Gentleman and his party in a moment. They gave the Government some very good advice 18 months ago, but unfortunately it was not heeded.
The right hon. Gentleman has talked about infrastructure and the A11. Labour cancelled the road-building programme, whereas we are breaking new ground on the A11. In addition, so much red tape was put in place that we are now 83rd in the world for regulation. Does he think that is helping small businesses in our country?
To be fair to the hon. Lady, she is half on message, as she was back in January when she called for national police cuts, but not in Norfolk. That is little better than her neighbour over the border, the hon. Member for West Suffolk. I am in favour of the dualling of the A11. I personally wish we had done that, given that we did a lot of road-building and investment, but for some reason Norwich City season ticket holders did not have a strong enough voice in this House. Perhaps Mr Charles Clarke is to blame.
I congratulate the shadow Chancellor on listening to what I said in this place a year ago and on the major change in Labour’s economic policy in the last three weeks, which has gone unnoticed. Last year’s policy of a permanent reduction in VAT has changed to the far more credible policy of a temporary reduction in VAT, which is precisely what I argued for in this place a year ago. Will the shadow Chancellor listen carefully if I have the chance to make a point about national insurance in this debate?
My hon. Friend is a leading indicator, not a lagging indicator.
The fact is that the deficit plan is going too far and too fast. As I have said, we should stop putting party political advantage before the national interest. That is why the right thing to do to help struggling families and businesses in the constituencies of Members across the House is to adopt a plan now to get our deficit down by getting our economy moving. We should repeat the bank bonus tax; build 25,000 homes; guarantee a job for 100,000 young people; genuinely bring forward long-term investment projects in schools, transport and roads; temporarily reverse the damaging rise in VAT, which would mean £450 for a couple with children; have an immediate one-year cut in VAT to 5% on home improvement, repairs and maintenance; and introduce a one-year national insurance tax break for every small firm that takes on extra workers.
The Chancellor does not have to wait 46 days. He can bring forward emergency resolutions in this House next week and we will support them. He can call the plan what he likes. If he wants to appease The Spectator, he can call it plan A-plus. That is fine by us. Britain just needs a plan that works for jobs and growth, which is why he should adopt Labour’s five-point plan for jobs and growth.
While we are on the topic of football, may I congratulate the right hon. Gentleman on his ample use of the substitutes’ bench, although it was of course not him who used the substitutes’ bench? What would be the cost of his temporary cut in VAT, how does he propose to finance it, and what would be the gain in GDP growth as a result?
Get back in your phone box, I am answering the question. We need a slower pace of deficit reduction, not the £40 billion more that the Chancellor boasted of. An injection now to get the economy growing and unemployment coming down is the best way to get our deficit down. People do not have to take it from me; that is what the IMF and the OECD are advising the Chancellor to do. They say, “If the economy gets into sustained contraction, slow down the pace of consolidation.” I will give the hon. Gentleman another go.
The hon. Gentleman would know the answer if he listened. I said that attempting to go £40 billion faster in deficit reduction than the plan the Chancellor inherited is not working, but pushing borrowing up. The right thing to do now is to expand demand—[ Interruption. ] Look, a one-year cut in VAT in its own terms would cost £12 billion. The question is what would be the impact on jobs, growth and deficit reduction. I am afraid that the Chancellor is borrowing not £12 billion more, but £46 billion more. The flatlining economy and rising unemployment mean that his deficit reduction plans are going off track. He should take the advice of the IMF and the OECD and change course.
I will make a little more progress, but I will take interventions from people who have not intervened. Good grief, I have given Charlie Elphicke enough of the wrong type of publicity already and do not want to do his career any more damage.
There is a credible alternative. Why will the Chancellor not act? He used to be so confident that his plan was working. It is patently not working. He and his cheerleaders on the Government Benches claim that however bad things get, he is trapped by the financial markets. He cannot take the advice of the IMF and the OECD and change course because it would lead to higher interest rates and recession. However, the IMF has said that we cannot have credibility without growth.
The markets know that rising unemployment and zero growth are undermining the Chancellor’s deficit reduction plan. One chief economist in the City at Baring Asset Management said last week:
“Growth is essential if the UK is to be able to finance new debt, repay old debt and convince the markets and credit rating agencies there is a modicum of competency in policymaking. The longer we pursue current policies, the more likely it becomes that the UK will be the next target”.
That is the real market view. We know that the credit rating agencies put out their press releases, but the real view, as the IMF has told us, is that having a flatlining economy and rising unemployment is the wrong way to get the deficit down. As I said, even the Chancellor’s friend at the IMF has said that
“growth is necessary for fiscal credibility”.
Britain has no growth. That is why our Chancellor is losing credibility.
The Chancellor’s whipping team really must tell people to listen to the answers before they intervene.
The Nobel prize winner himself, Chris Pissarides, says in the New Statesman tomorrow that a temporary VAT cut is the right way—[ Interruption. ] I say to Government Members that Nobel prize winners who give good advice to the Chancellor should be listened to. Given that 70 more people are unemployed in the constituency of Harriett Baldwin than a year ago, perhaps she should start to listen too.
I know that the shadow Chancellor is aware of the “Cut the VAT” campaign, which wants the Government to reduce the VAT on home repairs, maintenance and improvement work from 20% to 5%. Its analysis shows that when the rate was 17.5%, cutting it to 5% would have injected £1.4 billion into the UK economy in the first year alone. I wonder whether he is aware that the campaign is backed by 49 business organisations.
I know the details of that campaign, although I do not know all 49 members. I know that it argues for a widening of our proposal.
One business organisation, the Federation of Small Businesses, has said:
“the Government’s growth strategy is just not working…We must see a cut in VAT to five per cent in the construction and tourism sectors to boost consumer demand.”
The business demand for a change of course is growing.
Our constituents are seeing growth in VAT and in unemployment as well. The only thing that they are not seeing is growth in growth.
The markets are not the real reason why the Chancellor is determined to cling on to his failing economic policy. There are two obstacles in his way. The first is the coalition agreement. We know how desperate the Chief
Secretary and the Deputy Prime Minister are for the Chancellor to stick to the deficit reduction plan, because they steamrollered their colleagues into signing up to a manifesto that explicitly rejected it. The Liberal Democrats’ manifesto stated:
“If spending is cut too soon, it would undermine the much-needed recovery and cost jobs.”
They were right, which is why there are so few of them here for this debate. They all know that their leaders graphically predicted before the election the very calamity that has happened after the election. The fact is, any successful coalition has to have the flexibility to change course when things go wrong.
“When the facts change, I change my mind. What do you do?”
When I became shadow Chancellor six months ago, I said that I could not responsibly come along here and make commitments on what would be in our manifesto in four years’ time. What I can do is give the Chancellor good advice, and a temporary cut now is the right thing for growth and jobs in our economy.
It is clear that the plan is not working. The markets know it, and so, increasingly, do the Chancellor’s coalition colleagues, but there is a second reason why this very political Chancellor will not budge. The clue was in the Prime Minister’s speech last week in Manchester. What did he say of the Chancellor? How did he describe his closest political friend? As “the man who would be king”. It was a very strange choice of book, because it is the story of two fantasists who end up stripped, beaten, tortured and forced to beg for their lives. That is some people’s idea of a good night out, but the idea that the Prime Minister should say that of the Chancellor is somewhat odd.
Anyway, there we are—“the man who would be king”. It was not in the printed text of the Prime Minister’s speech but was another slip from him. However, it is so revealing, because those words show why the Chancellor just cannot admit that he has got it wrong, even at a time when, at the weekend, The Sunday Times doubted his judgment. To change course now would be to admit that the Chancellor has got the key economic judgment of this Parliament wrong, and that would be a terrible blow to his ambitions. We therefore see him putting politics before the national economic interest.
Ploughing on with a failing policy is not leadership; it is the antithesis of leadership. It is not the making of King George; it is the madness of King George. A Chancellor without the strength to change his mind is a King Canute Chancellor, who says that he will stay the waves even as the tide turns before him. A man who would be king? He is a Chancellor exposed naked before the crowd, an emperor with no clothes, a Chancellor heading for a fall. I give him some good advice. For his sake, for his party’s sake and in the national interest, he needs to change course and do so quickly. It could be the making of the man.
In the face of the new global slowdown, we desperately need the Chancellor to rise above the here and now and see the need to change course, have a plan for growth and jobs, kick-start our economy and get us out of the slow lane. We need a balanced and credible plan on jobs, growth and the deficit, and action now before it is too late—Labour’s five-point plan for jobs and growth. I commend the motion to the House.
I welcome this opportunity to discuss the very difficult economic situation that this country and the rest of the western world face at the moment. After that vaudeville act, I am trying to remember whether the shadow Chancellor actually set out the five-point plan. He did not actually go through it, so we will go through it for him.
Of course, the concern of everyone here is to see growth, support jobs and get Britain through this debt storm; that is what we are talking about and working on. As this is an Opposition day, however, before I turn to what the Government are doing it is worth considering what the Opposition propose, and what the shadow Chancellor did and did not say. We should consider what his political friends, as well as his political opponents, are saying about him.
The right hon. Gentleman dismissed the intervention by one of my hon. Friends about Charles Clarke—[Interruption.] Well, there you go. It was not picked up by the microphones, but the shadow Chancellor just dismissively said, “Charles Clarke!” The Opposition dismiss everyone with whom they served in government. They boo their ex-Prime Ministers, they dismiss their ex-Ministers. Here is what the man who was the Labour Home Secretary said, not weeks ago but yesterday:
“I think the Labour conference failed to come across strongly with an alternative to what the Government is doing. I think the economic proposition that Labour puts at the moment is unconvincing…we are simply dismissed by most people thinking about the most central question facing the country today, which is the economy.”
That is the verdict not of the Conservative party, the Liberal Democrats or anyone else but of former members of the Labour Cabinet.
If we want to know why the shadow Chancellor is failing to convince the country, let alone his own party, of why he has not come forward with a convincing alternative, I suggest that we focus on three things that were not in his speech. I will cover each in turn. First, there was absolutely no plan to deal with the deficit. There was a not a single suggestion of how public expenditure could be saved. Let us remember what he said—
He nods, but where on earth is that tough, medium-term plan to get the deficit down? It was promised two months ago. Where are the cuts that he would make? He should give us some examples. We have been waiting for three years for ideas from the Labour party about what it would cut, and none has been forthcoming. The former Chancellor, Mr Darling, who is in his place, was pretty revealing in his memoir about what was actually going on. He stated that
“the ‘investment versus cuts’ argument…simply wasn’t credible…I did want some examples of things we were prepared to cut. I could see, though, that there was no appetite for this in No. 10.”
And we know who was advising the occupant of No. 10 Downing street at the time.
The International Monetary Fund has stated that if the UK has a period of stagnation or contraction, the Government should change course and delay their planned tax rise and spending cuts. The economy has flatlined since the autumn, with zero growth. Does that represent the sustained stagnation that would cause the Chancellor to take the IMF’s advice and change course?
The right hon. Gentleman quotes the IMF, but its managing director said a month ago that
“in the United Kingdom strong fiscal consolidation is essential to restore debt sustainability… The policy stance remains appropriate.”
The right hon. Gentleman also quoted the OECD, saying that it was telling me to change course, but the OECD’s chief economist, whom he used to quote in the House, says:
“The Government should not change its course. A cut in the VAT…would not be appropriate in our view.”
“If activity were to undershoot”—[Interruption.]
Let me read it, because the Chancellor has asked for the full quote, which is from October.
“If activity were to undershoot current expectations and risk a period of stagnation or contraction, countries that face historically low yields (for example, Germany and the United Kingdom) should also consider delaying some of their planned consolidation.”
Is that stagnation and contraction in place, and has it been in place for long enough yet to justify his taking the IMF’s advice of just two weeks ago?
In precisely the advice that the right hon. Gentleman reads out, the IMF, in its current forecasts for the UK economy, is very specific that the UK should not change its fiscal stance. It has consistently recommended that this country undertake credible deficit reduction. The Government have set out many proposals—controversial proposals—to get our budget deficit down, but in the 16 months that we have been in office we have heard not one single suggestion from the shadow Chancellor on how he would get the deficit down.
The shadow Chancellor has quoted the IMF. Why does the Chancellor think that the Labour party voted against our subscription to the IMF? Why did the Labour Government not put their best people to work to deal with the deficit and the debt, but instead hire 17 people and spend £4.8 million on the euro preparation unit?
The shadow Chancellor, who has just been quoting the IMF, wants to intervene again, but let me say this, because my hon. Friend Nadhim Zahawi reminds me of another important point. Will the shadow Chancellor explain why he led his party—not everyone in his party, because I can see in the Chamber some prominent Labour Members who chose not to vote in that Division—into voting against a quota increase to the IMF, which was a central part of the London G20 summit chaired by the previous Prime Minister? How on earth does he think he could be taken seriously in any of the international meetings taking place at the moment if he had succeeded in winning that vote? Why did he do it?
As the former chair of the IMF deputies, I am a huge supporter of the IMF. The rise in subscriptions is important, but for the Chancellor to try to ram it through the House before he sorted out the flawed
European stability mechanism was a mistake—we voted against because we had doubts about his European policy.
However, to come back to my earlier intervention, let me ask the Chancellor this question again. Unemployment is rising, and output has been flat for a year: how much longer does he have to wait before he takes the IMF’s advice and changes his deficit reduction plan? How bad does it have to get?
We are sorting out the mess that we inherited from the Labour party. Much as I wish that that could be done overnight, it cannot. So great was the hole into which they put the British economy that it takes time and effort to come out of it.
Before my right hon. Friend was distracted, he quoted the previous Chancellor, who writes in his memoirs of his last pre-Budget report. He says that any coherent strategy would have been better than none, but that the previous Government simply did not have one. Are not the facts of the matter that the Labour party did not have a coherent economic strategy before the last general election, and that it still does not have one, as we all clearly heard this afternoon in the knockabout speech by the shadow Chancellor?
My hon. Friend is absolutely right. The previous Chancellor’s memoirs reveal the very divisive role that the shadow Chancellor played in stopping the previous Labour Government from coming up with a coherent economic policy and a credible economic plan, and even in stopping Nos. 10 and 11 talking to each other.
I shall tell the hon. Gentleman what I inherited as Chancellor and what this country inherited from the previous Government: we inherited the second deepest recession in the entire world. The hon. Gentleman talks about GDP, but we had the biggest fall in GDP of any country in the world with the sole exception of Japan.
I will give way in a moment, because I want to ask Opposition Members some questions. The House is today asked to support an Opposition motion that would add another £20 billion to the structural deficit. They maintain the fiction that they are sticking with the so-called Darling plan on the deficit—[ Interruption. ] That is what they say. Does the shadow Chancellor agree?
The hon. Lady has to defend the record of the former Prime Minister because he never turns up in this House to defend it himself.
The one thing that we want to avoid in a debt crisis is a sharp rise in interest rates, but that is what the motion would bring about. Let me give the House some new information.
I can give the House new information on what just a 1% rise in interest rates would mean for this country at the moment. Such a rise would cost British families an additional £10 billion a year in higher mortgage payments and the British Government an additional £6 billion a year in higher interest costs, and it would increase our net payments to foreign creditors by around £15 billion a year—£15 billion that would leave our economy. Given the sums involved, the impact on family mortgages and small business loans would completely outweigh any fiscal effects of the proposals in the shadow Chancellor’s motion.
I said that I will give way in a moment. Labour’s approach would lead to a credit downgrade of this country. The shadow Chancellor shakes his head, but there is no doubt about that any more. This is what the credit rating agency, Standard & Poor’s—[ Laughter. ] Opposition Members laugh at the credit rating agencies and the need for this country to preserve its triple A credit rating, but Standard & Poor’s says that the ratings would
“come under downward pressure if the Coalition’s commitment to fiscal consolidation falters”.
That is what we would get under Labour: a downgrade to our credit rating, higher interest rates and the economy sent into a tailspin.
Why does the Chancellor give such credence to Standard & Poor’s, which gave triple A ratings to every stupid, risk-taking banker, including those in Northern Rock? Standard & Poor’s advised Northern Rock on one of its products for about a year, and then surprisingly gave Northern Rock a triple A rating. Why should we take any notice of people like that?
That, of course, is the attitude of the Labour party. It ignores entirely the views of the world bond markets and the credit rating agencies. That is exactly the approach that got Britain into this economic mess. Because the Government have a credible plan, we are pulling this country out of that mess.
Does the Chancellor share my amazement at the lack of reality on the Opposition Benches? The eurozone is in crisis, the credit markets for the banking system across Europe are in desperate straits, and yields are rising, and yet the Opposition would squander £20 billion to £30 billion and increase our deficit.
My hon. Friend is absolutely right. Low interest rates are a precious commodity for the UK at the moment, and Members of the House, sent here to represent their constituents, have to ask themselves, “Do we really want an increase in interest rates at this time?” Is that what we want? It is what the motion would lead to.
As I have said, the British structural deficit is coming down because of the measures that we are taking, but the proposal put to the House today would push the budget deficit this year into double figures. No country in the world would consider that a sensible approach at a time such as this for a country such as Britain. It is economic nonsense, and I suspect that the hon. Gentleman knows it.
I thank the Minister for giving way. He is being very generous. May I take him back to his exchange with the shadow Chancellor on IMF quotes? On
“policies in…the UK should only be loosened if growth really threatens to slow down substantially, relative to what we are forecasting. For so long as the forecast seems to pan out, there is no reason to change fiscal plans.”
The IMF has set down a marker for growth and, in effect, said that if it falls substantially, as it is doing, it would accept fiscal loosening. Does the Chancellor recognise that if growth continues to flatline or fall, there is at least an argument for fiscal loosening?
The IMF is clear that on its forecasts, which are some of the more pessimistic forecasts for the UK at the moment, it is not recommending a change in policy stance. That is what it says. It is what the managing director has said; what the article 4 report on the UK said; what the OECD is saying; and what all the business organisations in Britain are saying. That is why the path that the shadow Chancellor has laid out for the country is so incredible and does nothing to deal with the problems that he left to the country.
In response to the question from Stewart Hosie, I would say that that is not the answer to a debt recession, because a debt recession relies on credibility. One of the key points in the motion is that the Labour party’s so-called plan would provide, through a temporary reverse of the VAT increase, a benefit of £450 for every couple with children. Has the Chancellor worked out the benefit to average families in the country of maintaining the credibility of our country’s finances and ensuring lower interest rates?
“Low long-term interest rates appear to reflect economic weakness and lack of market confidence in the prospects of the UK economy, not the reverse.”
Is the Chancellor saying that the former chief economist at the Cabinet Office, now head of the National Institute of Economic and Social Research, is wrong to say that low interest rates are a sign of lack of confidence and prospects for growth?
I am glad that I took that intervention, because the implication is that the shadow Chancellor wants higher interest rates in Britain. That is the revelation we have just heard from him, and it tells us everything about what he is proposing: a catchy five-point plan—the clue is in the title—for a conference speech that would put Britain back at the mercy of the international bond markets, with higher interest rates affecting families and businesses and causing homes to be repossessed and jobs to be lost. We will have no part in it.
The Chancellor—the Chancellor!—must be the only person in the whole country who thinks that to have Bank of England interest rates at less than 1% for three months is a sign of economic strength, not of the fact that our economy has not grown for a year and that unemployment is rising. The long-term interest rates at the long end of the curve are a reflection of expectations that those interest rates will stay persistently low. The former chief economist said that they
“reflect economic weakness and lack of market confidence in the prospects of the UK economy, not the reverse”.
Is the Chancellor saying that Jonathan Portes, from the National Institute of Economic and Social Research, is wrong?
My first point is that Jonathan Portes and I have had our disagreements for the past 16 months. He was not my appointment to the Government, but the shadow Chancellor’s, and he is not working for the Government any more. The second thing I want to say is that he cannot have it both ways. He cannot say that Britain is alone in facing these problems, which was the implication of his speech, and then not look at long-term interest rates—or, indeed, the short-term interest rates—in the United States and Germany, which are lower than ours, although we are close to them. [Interruption.] The shadow Chancellor says that they are weak. One of our problems is that the German, US and French economies have ground to a halt. That is why we also need a solution to the eurozone crisis, which has hit all western economies. His idea that Britain is unique in the world in facing these problems is frankly laughable.
My constituents listening to this will be unable to comprehend all the statistics that the Chancellor is placing in front of us. However, we are missing the human dimension. In Rotherham, for the first time in nearly 20 years, unemployment today rose above 10%. That is taking us back to the south Yorkshire de-industrialisation of the 1980s. We are talking about real people. Does the Chancellor have even the tiniest nanoscintilla of doubt about his policy? He has been in charge for nearly 18 months. Does he have any concerns that perhaps his policy is not working?
I am clear that what we are doing is tough but necessary because of the very difficult situation that we inherited. The right hon. Gentleman talked about the impact in south Yorkshire. We inherited a record budget deficit and a bigger recession than in any other country in the world apart from Japan. That is what we are recovering from. Arguably, it was the biggest banking crash in the entire history of the country—at a time when those banks were supposed to be regulated by the Government of which he was a Minister. That is what we are dealing with. Of course, it is extremely difficult, and many countries are facing problems at the moment, but I think that the steps that we have taken have helped us to weather this global debt storm and kept interest rates low for people in Rotherham. I shall come on to the steps that we can take to ensure that Rotherham does not suffer in the future as it has done in recent years under the Labour Government.
I shall make some progress and then take some more interventions.
I shall touch briefly—because we covered this during Monday’s statement—on the situation in the eurozone. I set out on Monday what I felt was needed and what many in the world now feel is needed: we need to ring-fence the eurozone by giving its bail-out fund maximum power; recapitalise Europe’s banks when they are weak; resolve the situation in Greece; and then set out the path to the political and economic changes required to make monetary union work, with greater fiscal integration and improvement in competitiveness on the periphery. I said that Britain wanted no part in the fiscal integration, but that we want to protect our say in the single market, financial services and competition issues. We also want the whole of the UK to become more competitive—with a more complete single market and freer trade.
Since Monday’s statement, we have had the news that the Slovakian Parliament has voted down the proposed changes to the eurozone financial fund—the European financial stability facility—which is clearly a disappointment. We all hope that it will pass in the coming days and urge the Slovakian Parliament to pass it. What has also been disappointing in the past couple of days is the suggestion from the President of the European Commission that Britain should make a direct contribution to eurozone bail-outs. Britain chose not to join the euro and the British Prime Minister has fought hard to get Britain out of the bail-out fund to which the previous Government signed us up. I want to make it clear that whatever the Commission President says, British taxpayers will not be contributing to the eurozone’s bail-out of Greece—full stop. However, we will work with our eurozone partners to help them to resolve the crisis and work with our international partners in institutions such as the IMF to ensure that they have the resources to deal with the problems across the world.
Let me make just a little bit of progress and then I shall give way.
There was an absolutely staggering second omission from the shadow Chancellor’s speech, which was any reference—I will take an intervention if I have got this wrong—to Labour’s big new economic policy idea, which was unveiled at the Labour conference two weeks ago. I am referring, in case hon. Members have forgotten, to that great plan to divide British businesses into producers and predators—good and bad—and to levy different tax rates on them. Remember the speech from the Labour leader? Did the shadow Chancellor have any part in writing that speech?
At last there is something we agree on. It was absolutely the speech that we wanted to hear from the Labour leader at the Labour conference. I want to know what happened to this great idea, which was the centrepiece of Labour’s growth strategy for the new economy. Two weeks later it is not even referred to in the motion that we are being asked to debate. It is like the Lord Lucan of policy ideas: we do not know whether it is dead already or whether it has just gone missing for ever. I was really disappointed, because we know that the shadow Chancellor likes to cover all the policy areas in the shadow Cabinet and I was hoping for an explanation from him about how the idea was going to work. Are we supposed to grow our economy by levying new taxes and regulations on companies owned by private equity firms such as Boots, T-Mobile, the AA, Saga, Somerfield, Legoland and Chessington World of Adventures, those well known centres of predatory business activity?
It would be laughable if it were not the centrepiece of the Opposition’s economic policy.
The Prime Minister gave his speech, which the shadow Chancellor should have paid close attention to, and made it absolutely clear that people are paying off their credit cards—because of the situation that the Labour party has left this country in—but I would ask the shadow Chancellor this question. He had a chance before; will he please mention—just once, in one intervention—the policy of the Labour leader? Come on, just get up and say you support it.
I think the research and development tax credit to encourage and incentivise investment in research and development was a good thing. I think our proposal to cut national insurance for small companies that take on more employees is a good policy. It was in the Leader of the Opposition’s speech; it was in our five-point plan; it is in the motion—so why do Government Members not vote for it?
I guess that is called an “Ed Balls endorsement”—that is what the last Chancellor and Tony Blair got used to. We increased the R and D tax credit for small businesses in the Budget, so we have taken that idea—which we came up with—and introduced it. I am very pleased that the Labour party now supports it, but what about this idea that a Labour Chancellor would sit there in No. 11 with his home-made scales of justice weighing up the companies he likes and those he does not like and levying different levels of tax on them? What happened to that? It was the centrepiece of the Labour conference two weeks ago, and it shows why Labour simply cannot be trusted to run the economy of this country and why it has become the anti-business party again.
I thank the Chancellor for giving way. It is interesting that he brings up those points, but can he please tell us where the ghost—or the ghoul—of the regional growth fund is? It has now been six months and the north-east is still waiting for the regional growth fund money that it was promised. Businesses are hanging on the wire for that money. Will he please tell us where that cash is?
Again, that was another opportunity to talk about Labour’s big economy idea. The hon. Gentleman did not take it, but I am glad that he raised the regional growth fund, which has allocated money to the north-east and other parts of the country. That money is flowing and those projects will get going. We are also setting up enterprise zones in Teesside and Tyneside, and doing what we can to get the north-east economy, which also suffered in recent years, on the front foot, creating private sector jobs so that that region, too, has prosperity.
I am grateful to the Chancellor for giving way. I welcome the work that he and his colleagues are doing on a growth strategy, which he said is needed. A big component of that is the £75 billion of quantitative easing. We are also told that there will be credit easing to get the money into private companies. Will that be on top of the £75 billion injection or within it?
It will be on top of the £75 billion. I have not gone through the QE and credit easing policies in detail today because I went through them in the House on Monday, but I would be happy to do so if Members like. QE is an operation undertaken by the Bank of England under the procedures established by my predecessor. The credit easing options that we are looking at involve the Treasury—or rather the Government—using its balance sheet to get money to small businesses either by purchasing securitised small loans, purchasing mid-cap company bonds in the bond market or issuing guarantees through the banking system. All those things currently happen in Britain, but on a very small scale. Our intention is greatly to increase them, and I will set out the proposals in November.
No, and not even in my memoirs, because the conversations between the Chancellor and the Governor of the Bank of England should be confidential. However, let me make it absolutely clear to the hon. Gentleman that we are talking about an entirely independent decision by the Monetary Policy Committee—not just the Governor of the Bank—and that I followed exactly the procedures established by my predecessor.
No, I will make some progress and then perhaps take an intervention from the hon. Gentleman.
We did not hear today about the big Labour idea on the economy that was unveiled two weeks ago. Hitting businesses with more taxes and more regulation at a time like this is absolutely the wrong thing. The way to help businesses to create jobs is to give them competitive tax rates. That is why we have cut corporation tax this year—we have three more cuts to come—and why we have reversed the proposed Labour increase in the small companies tax rate and frozen business rates for all. It is also why we have set up a series of schemes to help unemployed people who have either just lost their jobs or never had a job into the labour market by getting them work. We have launched the biggest back-to-work scheme that the country has seen in 80 years and funded 250,000 more apprenticeships and 100,000 work experience places. Today we have launched the new sector-based work academies to help tens of thousands of young people with training and job interviews. Youth unemployment in this country has been rising since 2004. The last Government did next to nothing to confront it; we are rolling up our sleeves and getting stuck in to sort out this long-term problem for Britain.
The Chancellor has been very generous in giving way, although not so generous in actually answering the questions that he has been asked. He has just laid out all the things that he is doing to put things right, yet the economy is flatlining, with record youth unemployment and no growth back in the economy. What is he going to do to improve the situation? Does he not recognise that we cannot just cut the deficit if we do not have growth?
We would not have growth if there was a big increase in interest rates. Let us look at other countries in the world that do not have a credible plan to deal with their deficits. Of course this is a difficult time, when many western economies have this problem, but we are taking the tough steps necessary to get the economy going and make it easier for businesses to hire people, which brings me on—
I will take interventions in a moment, because I want to know the Labour attitude to these policies that we are proposing.
We are proposing to extend the probation period before a new employee can make an unfair dismissal claim from one to two years. We are also proposing to introduce, for the first time ever, a fee that someone has to pay before they can take a case to an employment tribunal and which they get back if they win. Those are two difficult measures; they are controversial, but they will make it easier and less risky for businesses to hire people. I want to know whether the Labour party will support those measures when they come before the House of Commons. Will it? I want to know whether the right hon. Gentleman will support these things when they come before the House of Commons. Yes or no?
Let me just ask the Chancellor—[Hon. Members: “Answer!”] Let me ask him a question to help us to shape our view. Will the impact of extending that probation period from one year to two years disproportionately hit men more than women, or women more than men?
It is not going to hit people; it is going to help people into work. I want to know another thing from the shadow Chancellor. I have made it clear that this proposal is going to help people to get into work and help businesses to hire men and women to do jobs without taking the risk that they might bring an unfair dismissal claim within the first couple of years. He kept talking about the Federation of Small Businesses in his speech; it supports the proposal. Does he? It is a simple question. Yes or no?
No, no—I am talking about claims for unfair dismissal, and I want to know whether the right hon. Gentleman supports those proposals. This is not about statutory maternity pay; it is about extending the probation period for unfair dismissal.
Here is another question for the Labour party. The trade unions are proposing to go on strike this autumn. That is what they are balloting on. I think everyone in the House would agree that a strike is absolutely the worst thing for the British economy at the moment, and I want to know whether Labour will support that strike or condemn it. Is the shadow Chancellor going to condemn the strike—yes or no? And I do not want any weasel words about a proper negotiation process; I want to know whether, if it comes to a strike, he will condemn it.
The whole country wants to avoid a strike, but that will require this Chancellor to change his proposals on a deeply unfair 3% rise in pension contributions. We can avoid a strike, but it will require this inflexible Chancellor to do the right thing, not the wrong thing.
That is another thing that Labour refuses to condemn. There we have it. We asked the former Labour Work and Pensions Secretary, Lord Hutton, to do a report for us. In his interim report, he set out a case for increased contributions. In his final report, he set out proposals for the defined benefit. We are negotiating on the basis of that. I want to know whether, if it comes to a strike, the people who are paid for by the trade unions are going to condemn trade union activity that would be the wrong thing for the British economy at the moment. Will the shadow Chancellor condemn it?
The only people in this country who want a strike are the people sitting on the Government Benches, because they think that they will get a short-term political gain from it. The Chancellor has mentioned interest rates a number of times. Is it not the truth that they, and confidence, are low because the economy has ground to a standstill because of his policies? Will he confirm that?
I will make a bit of progress before I give way.
Not only are we taking measures to make it easier to employ people and putting in place measures to get people back into work—[ Interruption. ] They are not going to hit women; they are going to help women get into work. We have also announced new investment in local transport links. We are spending more on roads and railways than the last Labour Government did. We have plans for 200,000 new homes, many of them on the back of a new right to buy. We have created two dozen new enterprise zones, and this month committed almost £250 million to world-beating scientific research. That is because, unlike the last Government, we think it is important that things are made in Britain again.
The Chancellor has just told us that there have been £31 billion of extra Labour spending pledges—£11 billion from an amendment last week and £20 billion today. Given that we already pay £120 million every day in debt interest, can he tell us how much extra debt interest we would be paying every day if those Labour proposals went through?
I have not got that calculation on me, but I will certainly give it to my hon. Friend and use it at a future opportunity, because it is a reminder that this money is coming directly out of the Government coffers in debt interest payments every single day.
I will make a little progress, as I know that many people want to speak in the debate.
We have taken steps to try to help people who are facing this difficult situation. We have announced a freeze in council tax, not just this year but next year, and we have taken more than 1 million people out of income tax and delivered an income tax cut for 20 million more. The shadow Chancellor often talks about fairness in paying for all those things, but I want to know why, in all the years that he was chief economic adviser to the previous Government, he blocked and never introduced a permanent bank levy. Why did he never introduce a higher charge for long-staying non-doms? Why did he never conclude a tax treaty with Switzerland to get back some of the money that should be paid into the British Exchequer?
I will give way to the right hon. Gentleman after I have made this point. His only achievement in that field was to introduce a capital gains tax regime so riddled with loopholes that some of the richest people in this country boasted about paying less tax than the people who cleaned their houses. Is he proud of that record?
The IFS says that child poverty is rising, but the reason it is rising is that the right hon. Gentleman put this country into a complete economic mess. I can see my right hon. Friend the Secretary of State for Work and Pensions standing at the Bar of the House. He is introducing universal credit, which will do more than any other measure to bring child poverty down, to give opportunities to people who have none at all, and to ensure that work pays. That is what we are doing, and I want to know whether the shadow Chancellor supports that. Does he?
I support welfare reform—[Hon. Members: “Ah!”] Of course I do, but I have to say that I hope the Chancellor will give the Work and Pensions Secretary the money to make it work. The IFS said this week that any gain in child poverty through universal credit would be more than swamped by the Chancellor’s other measures, particularly the change from RPI to CPI, so that the fall in child poverty under Labour would be reversed under the Tories. Is the IFS right?
I thought that Labour supported the link to CPI. Is the shadow Chancellor changing his mind on that? In the debates, the Labour party supported the link to CPI, and he has just raised the matter. Has he changed his mind? [ Interruption. ] Thank God he has a new shadow Chief Secretary to give him the answer.
We have always said that we would support a temporary rise in CPI during this Parliament, but that we would not support a permanent rise. It is a permanent rise that will see child poverty rising year on year under the Tories. Child poverty fell under Labour; it will rise under the Tories. That tells us everything that we need to know.
The shadow Chancellor is all over the place. He was asking me about child poverty numbers in 2012, 2013 and 2014, and he said that, according to the IFS, the principal cause of the rise was a policy to link benefit increases to CPI. That is a policy supported for this Parliament—that is, in 2012, 2013 and 2014—by the Labour Opposition, and it is complete hypocrisy for them to complain about it now. Will the shadow Chancellor confirm that he supports the CPI policy for this Parliament—yes or no?
We have kept that target, but the right hon. Gentleman has still not confirmed that—[ Interruption. ] I welcome the shadow Chief Secretary to her position, but I have to tell her that the shadow Chancellor has just raised with me the question of the IFS estimates on child poverty over this Parliament. The IFS says that one of the principal causes is the policy on the link to CPI. That is the IFS’s view, although universal credit will do a huge amount to offset that impact. It is a policy supported by the Labour party, and it is completely hypocritical of the Labour party to come to this Parliament and raise those statistics and complain about that policy when they said they supported it all along.
Let me make a little progress, as I know many Members want to speak.
I shall touch finally and briefly on the last thing missing from the shadow Chancellor’s speech—and we all know what that was. It was an apology for everything that had gone wrong. The right hon. Gentleman has apologised for so many things now—for the worst banking crash in our history, the 10p tax rate, the 75p pensions increase, gold, although I am not sure that he has apologised for that, the feuds in Downing street—yet he still refuses to apologise for spending and borrowing too much. He said that Labour did not spend “more money” than “we had available”, but he missed his golden rule by more than £400 billion. He doubled and then redoubled the national debt. Everyone knows he was spending too much, and everyone has said so. The IFS, since he mentioned it, has said so; Tony Blair has said so; the last Chancellor conceded it in 2007. It is an open secret that half the shadow Cabinet wants him to make this apology, but the shadow Chancellor refuses to do it—and we know why. If he did, it would be the final damning indictment of the economic policies he imposed on this country for a decade or more. It would be the final confirmation that his promise to end boom and bust—remember that?—led to the greatest boom and the biggest bust this country has ever seen.
What did we get? No apology; no mention of Labour’s latest economic idea; no credible plan to reduce the deficit. That is why Labour is neither convincing nor credible on the economy. Yes, these are difficult times; yes, this is a global debt crisis. We are dealing with Britain’s record debt problems. We have set out a course to ride through the storm and build a more prosperous future. Today we were reminded that no one, least of all the people who got us into the mess, has produced a convincing alternative to the course we have set.
Order. I inform the House that more than 40 Members wish to participate in this afternoon’s debate, so Mr Speaker has applied an eight-minute time limit to all speeches from the Back Benches from now on.
As the Chancellor has referred to my book—and no doubt others will do so, too—perhaps I should draw the House’s attention to my declaration in the Register of Members’ Financial Interests.
From listening to the Chancellor, it is easy to forget one important fact. When we left office in 2010, our economy was growing; 12 months later, our economy is not growing at all. Growth has stalled, probably for more than a year. Despite everything that the Chancellor and his colleagues said during the last election about its all being the fault of the last Labour Government and nothing to do with global problems or Europe, our economy was growing. Now, 16 months after that general election, while the Chancellor has been in charge and responsible for setting the economic direction, our economy has stopped growing. Even a few months ago people believed that we might see a slow but gradual climb out of recession into growth, but now, right across the world, people are seriously worried that we could be in for a prolonged period of stagnation—at tremendous cost to the country, as today’s unemployment figures show.
As we have heard today, the shadow Chancellor and the Labour party are still adopting my policy on the deficit. It was a sensible policy when I first announced it in 2008, and it is still a sensible policy today. The heart of my present argument is that while no one doubts that the deficit has to come down, the judgment to be made is about how fast we bring it down and the risks involved in doing so too fast and ending up crashing the economy. That is the position we have reached today.
It is interesting that the International Monetary Fund has been much discussed this afternoon. It is worth reading what the IMF and Christine Lagarde, who talks a lot of sense on these issues, have been saying. Of course the IMF is always going to be wary of taking on one of its principal shareholders, but we do not have to read too far between the lines to see what the IMF is saying. It is saying quite clearly that there is now a serious risk of a slow-down in major economies, including our own, which will result in not less but more borrowing, and economies stagnating.
It is also interesting that when the Bank of England announced last week further measures of quantitative easing, which I support, it did so against a completely different background from its first announcement in 2009. The Bank is now worried about what is happening in Europe, which means that the economy is slowing down. The Bank is seriously worried about the lack of growth. The QE announcement last week is just the beginning of what might be called plan B or even plan 1A, because the Bank is worried. That is why it is changing direction.
I was pleased to hear the Chancellor talking about credit easing for businesses on top of the £75 billion. Surely that is at least some recognition of the fact that the plan he announced with so much confidence last summer, which was going to do so much to reduce our borrowing, is not working. He has to adapt it and my bet is that—whether it be in the autumn statement in a month’s time or in next year’s Budget—we will see more measures that acknowledge that the policy pursued by this Government is simply not working. If we do not change it, we will pay a very heavy price.
I have always made my position clear. One of the big achievements of April’s G20 meeting, led by the then Prime Minister my right hon. Friend Mr Brown, was to get countries to sign up to an increase in IMF funding. That has always been my position, and I am not going to depart from it because I believe that the IMF has a central role to play. With respect to the hon. Gentleman, his intervention does not get him off the central point of this debate, which is what is different now from the position when we left office. My deficit reduction plan was on the back of an economy that had started to grow, so my right hon. Friend the shadow Chancellor is quite right to ask himself what we need to do now, 16 months later, when economic growth has stalled, and what other measures are necessary to get the economy going.
My right hon. Friend is also quite right to say that, although a few months ago very few people were talking about the need to reduce taxes, bring forward capital spending or take measures to help businesses, that has now become common currency among many commentators. It is only the present Government who simply do not accept that the plan they announced 16 months ago is not working. As my right hon. Friend said, the Chancellor has had to downgrade his growth forecast four times. I remember his having great fun at my expense when saying that my growth forecasts were wrong. Actually, mine lasted a lot longer than his. He should reflect on that and on the fact that he is having to borrow more.
I raised another point about quantitative easing with the Chancellor on Monday and I hope we will hear more about it. If that money does not leave the vaults of the banks and get out on to the high streets, it will have failed. I know that the Chancellor has had exactly the same trouble with the Bank of England as I had. I could not persuade it to buy corporate assets; he has obviously failed as well, which is why he has had to think up his own scheme. We really need to get that money out on to the high streets; if it is not manifested in the form of loans to businesses, it will simply not work.
I note that Matthew Hancock is no longer in his place. He said that quantitative easing works only when there is a credible policy. Given that the Bank of England has said that it worked, we must have had a credible policy at the time. I am sorry that the hon. Gentleman is not here to hear that; he might want to ponder it when he reads Hansard tomorrow morning, as I am sure he will. The Chancellor needs to ensure that the money gets out on to the high street; otherwise, it will fail. It is remarkable that the Bank of England is almost now doing what the Government should be doing. It recognises that the policy is not working, which is why it has embarked on another round of quantitative easing.
The Chancellor is fond of saying that all our problems are on account of the eurozone. That, too, is remarkable. When he came into office, the Tory story, backed by the Liberal Democrats, was that it was all the fault of the last Labour Government. All was fine with the rest of the world, so it was just Labour’s overspending that was responsible. Incidentally, the Chancellor supported it right up to the end of 2008 and the Liberal Democrats supported it until the day after the general election, so it could not have all have been wrong at that stage. Now they are saying that the problem is not domestic at all; that it is all to do with what is happening in the eurozone.
Of course the eurozone is a major problem and it is becoming a bigger one by the day. I hope the Chancellor was right when he said at the beginning of the week that wiser counsels are prevailing in Europe, but I am not so sure. We should remember this: although people talk about the fact that the German Parliament ratified the deal a couple of weeks ago—and Slovakia will probably put it through later this week—it was in fact agreed in July, and it is blindingly obvious that it is now out of date. At that time no one would talk about Greek default, whereas now everyone knows that Greece will default, and the only question is whether it will be done in a managed way or become a disorderly breakdown.
Another thing that is obvious—the Chancellor acknowledged this on Monday—is that the austerity measures being imposed on Greece simply are not working. Greece is reaching a point at which it is unlikely to be able to repay the interest on its borrowing, let alone reduce its borrowing and debt. The policy of austerity endorsed by far too many European countries over the last 16 months or so worked at first, but it is not working now, and Greece is living proof of that.
I hope that something compelling and convincing will be agreed at the G20 in a couple of weeks’ time, but I have my doubts. The trouble with the eurozone countries is that they are still fighting as though nothing has changed since the early summer, which has been their position since the early part of 2009. If we have any influence I hope that we will bring it to bear. If we do not, there is a risk, as the Chancellor himself recognises, that if things go wrong in the eurozone they will affect this country. While I agree with the Chancellor that we should certainly should not contribute to the bailing out of the eurozone, he is also right to say that a break-up of the euro at the present time is the last thing that the world economy needs, ourselves included.
That brings me to our policies back at home. I have always believed that reducing public expenditure at such a rate, in a climate in which the private sector is not taking its place, risks crashing the economy. I reached that view when my party was in office, and I still hold it today. The evidence seems to suggest that that is precisely what is happening now, and that is why it is so damaging.
I will not, because it will count against me if I give way again.
I hope that the Chancellor will produce measures to deal with the situation. He may wish to embark on infrastructure projects, although in my experience that is much easier said than done, and the interval between making a plan and putting a shovel into the ground can be a long one. Some of the road schemes that the Chancellor mentioned were planned by the Labour Government—one of them back in the 1970s—so we should not get too carried away about them. However, he should certainly introduce the tax reductions and other measures to help businesses to which my right hon. Friend Ed Balls ascribed such importance.
It is clear to me that we cannot resign ourselves to circumstances in which people feel that nothing can be done, that it is all inevitable, and that nature must take its course. Governments can make a difference—they made a difference two years ago at the G20 in 2009—but we currently have no international leadership, and we have precious little leadership from our own Government when it comes to what we should be doing in this country. There is, and there must be, an urgency attached to getting these things right, but that means a change of policy here at home as well.
This debate about growth contains three distinct components, although, of course, there are close connections between them: the strategy to stabilise the public finances, the strategy to secure recovery, and the strategy to raise the long-run growth rate. I want to say a little about each of those.
There has been a fair amount of partisan politics around today, and I do not intend to add to it unless severely provoked. As I have said in the House a number of times before, Mr Darling deserves considerable credit for his March 2010 Budget, with its plans for sharp cuts in spending and borrowing. Equally, the coalition deserves credit for its own plans. Our present low debt service costs speak for themselves. They reflect the credibility invested by markets in the deficit reduction strategy and the belief that the coalition will stick with it, and the country will be the beneficiary of that.
As for policies to secure recovery, we can all agree that, given the eurozone crisis, the international economic outlook is much worse than forecast either by the right hon. Gentleman in his Budget 18 months ago or by the Office for Budget Responsibility this spring, and I am sure more surprises will follow. However, it is not true that the Government are doing nothing in response, as the right hon. Gentleman implied. They have rightly adapted to the situation, and the recovery strategy has changed. The Bank of England has adapted by announcing the second tranche of quantitative easing, and the Chancellor will adapt by announcing credit easing in his autumn statement.
I strongly endorse the Chancellor’s decision to favour monetary policy as the short-term tool rather than tinkering with tax changes, which is what is proposed in the five-point plan. I am sure that the Treasury Committee will want to examine exactly how the Government have changed their policy on the recovery strategy and whether QE2 and credit easing are the best tools, but I think everybody can agree that it was timely to take action. We can also agree that British taxpayers should not be asked to contribute to any further eurozone bail-out.
History shows that the use of monetary policy has invariably led to an increase in inflation, which has sometimes been a hidden deliberate policy aim. Regardless of whether it is a good or a bad policy, does the hon. Gentleman expect an upward drift of inflation as the conclusion to the way in which monetary policy is currently being used?
I will not answer that at any length, except to say that I am of course making my points in a personal capacity, because as a Committee we may comment on growth after the autumn statement. Let me also point out that the Governor gave a comprehensive reply to the hon. Gentleman’s question when he introduced the second £75 billion tranche of measures. He pointed out that money demand was extremely low at present, and that therefore he thought that the risk of inflation over the next two to three years was extremely low.
I broadly agree with that. There is always a problem with measuring inflation—there is always a dispute about exactly how to capture it best—and we will never get it exactly right. I will not go into any further details now, but I agree with the core of what my hon. Friend has said.
Work on both the deficit reduction plan and the recovery plan have been firefighting to deal with our inheritance—less from the right hon. Member for Edinburgh South West than from his predecessor, Mr Brown. Let me now deal with the third aspect of the growth strategy, which consists of policies to improve the long-run growth rate and long-run economic performance: what the policy wonks call supply-side reform. The coalition's inheritance needed attention in that regard as well.
A few days ago I made a number of proposals for supply-side reform in a pamphlet, and they seemed to make everyone very excited. The Government growth agenda set out in the spring was a start, but, as the Chancellor said in his party conference speech,
“We need to do more”.
In that pamphlet, in a personal capacity, I made a few suggestions. In a nutshell, we need to work much harder to produce a comprehensive strategy embracing tax, reform of the labour markets, financial regulation, energy policy, transport and competition policy. We have been firefighting so far, but now is the time to start developing that longer term strategy.
It is worth bearing in mind that it took the Thatcher Administration the best part of four years to get round to doing much of this, and I realise that this type of policy is easy to talk about but difficult to deliver. What matters most is that the creative energies of small businesses in our constituencies are released to increase the long-run growth potential of the economy. That is a big reform job. We have to bear in mind all the time that it involves millions of people—small traders and people working in small businesses—and that it is they who will restore the economy to health, not Governments and not Parliament. We need to make it much easier for them. Let us consider just one area: taxation. The Treasury Committee has flagged up some of the—largely inherited—contradictions and inconsistencies in the tax system, and argues that further tax reforms should be based on a few simple and coherent principles: certainty, simplicity, stability and fairness. We are a long way from achieving that in our tax system and there is a lot still to do. Encouragingly, the Chancellor said he strongly supported tax simplification; he has made that point on a number of occasions and he has created the Office of Tax Simplification.
The Chancellor announced in his speech at last week’s Conservative party conference that he would push ahead with further labour market reforms, and he has mentioned that again today. Of even greater significance could be the Chancellor’s commitment not to push ahead of other European countries on carbon reduction targets. I and many other people have been arguing for that for a long time, all the way back to our deliberations on the Climate Change Act 2008. The rapid pace of carbon reduction will push up business costs and also provoke great controversy, for example in respect of wind farms. Therefore, the Government are right to think again about that policy. It is now crucial that the coming autumn statement gives a decisive push to measures for improving long-run economic performance. It is equally important that that is seen not as a programme for a year, but as a remorseless project for the long term.
For much of the last decade, politicians of both major parties talked as if the economy need no longer be the top priority. For it was an age of abundance: it seemed that we could concentrate on how to spend it and quality-of-life issues. We forgot that most politics is hot air unless the economy can afford to deliver on the promises made by politicians. The complacency about growth that infected both parties encouraged the irresponsible lending and borrowing of the last decade. The electorate have noticed that they were led up the garden path, most notably by the absurd claim that Governments could put an end to boom and bust—so my final point is a presentational one. Politicians and Parliament must demonstrate that the public’s No. 1 priority is also their own No. 1 priority. The electorate’s No. 1 priority at present is to protect their living standards and their children’s prospects.
This Government’s refusal thus far to countenance a plan B will come back to haunt the Chancellor, the Chief Secretary and the Prime Minister. The current plan to remove the entire structural deficit in the fixed time scale of a single Parliament was incredibly risky to start with, and now appears almost impossible. It was dependent on export growth from a strong eurozone, which is not there. To be fair, the overall trade figures are a little better this year: the balance of trade is £9 billion in the red for the first quarter, but in the second quarter it stood at £24 billion in the red, and the aggregate for the first two quarters is almost as much as last year’s catastrophic £99 billion deficit in the trade in goods out-turn.
The Government’s plan depended on business investment growth of a rather heroic 8% to 11% each and every year, but that is not there either. Indeed, the gross fixed capital investment figures for this year show that investment fell by 2% in the first quarter and is lower than in the same quarter in 2010. Growth is now effectively flatlining, and although borrowing was down between April and August, it is up between August this year and August last year and is forecast to be as much as £46 billion greater. Therefore, something needs to change, not least because according to the National Institute of Economic and Social Research it is likely that the entire consolidation plan will cut almost an entire percentage point off GDP growth this year. It has said that
“it remains our view that in the short term fiscal policy is too tight, and a modest loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility.”
If the Government are concerned, as they would be right to be, about the credibility of their plan and if others are saying that a modest loosening, which would help growth, would have no impact on the credibility of the plan, they should listen, not least because if they do not, the entire deficit reduction strategy is at risk, as the NIESR suggests.
“The Chancellor will miss his primary target of balancing the cyclically adjusted current budget by…around 1 per cent of GDP.”
Perhaps the Chancellor has listened and perhaps that is what he was alluding to in his statement on
The Opposition motion, which the hon. Gentleman presumably supports, focuses very much on a plan for jobs and growth. I would like to share with him some statistics that I found with the help of the Library. They show that between 1997 and 2010, when the shadow Chancellor was the previous Government’s chief economic adviser, the number of jobs in business in my constituency shrank by 5,600, or by 13% of the employment work force in the entire constituency. From what I have heard today, plan B really amounts to adding more mortgage costs for families and doing nothing for growth of jobs in the business sector. This Government are doing a lot to help that with structural change. Does he agree?
We believe that there has to be a change because this plan is not working. That will involve: direct capital investment, which we know does work, and I shall come on to that; consumer confidence, which is vital; and access to bank finance. The Labour Opposition’s motion is a good tactic to debate this matter and we will back it, because in principle we want to see something done. However, if the hon. Gentleman does not mind, I will concentrate on my proposals.
I have said that there are problems with the Government’s plans. This has not just been about the absence of a strong eurozone to export to or of heroic rates of business investment; it has been about the fact that the forecast rates of growth for this and the next years of 2.3%, 2.8%, 2.9%, 2.7% and 2.7%, as set out in the 2010 Budget, will not be achieved. Indeed, Robert Chote, the head of the independent Office for Budget Responsibility, said that even to achieve a 1.7% growth rate now would require
“quarter-on-quarter growth rates of 1%...and there aren’t many people out there expecting that.”
I suspect that there are no people in here expecting that.
So the Chancellor needs to stimulate now, and the best way of doing so is through direct capital investment. As we know, the OBR has said that the impact multiplier for this is 1:1. It is the most effective form of stimulus that the Government have and they should use it. It is also the area where the Government can make the most damaging cut. I know that he wants to tell me that they are keeping £2 billion more in direct capital investment than Labour planned, but very large cuts are still being made. It was not just the OBR saying this, as the British Private Equity and Venture Capital Association was doing so too. On
“boosting capital spending is a far more effective way of boosting GDP than cutting VAT, tweaking welfare entitlements or increasing current spending. In fact, the OBR’s multiplier on capital spending is one-for-one…This means that the Government could increase capital spending and still deliver the planned reduction in net debt as a share of GDP.”
So again, there is no lack of credibility in changing policy and there is no impact in the planned reduction of net debt as a share of GDP in changing the policy.
The BVCA goes on to say:
“There are other good reasons for targeting infrastructure. The dramatic cuts to the investment budget that were pushed through last year will weigh substantially on private sector productivity in the years ahead. Capital spending is due to be cut by about a third in cash terms between FY09/10 and FY15/16, implying an even larger real decline.”
So if the UK Government really are serious about private sector growth in the medium and long term, they should be very concerned that a body such as the BVCA is prepared to say that cuts now will weigh substantially on private sector productivity in the years ahead. Of course, its key point is not even that. It states that
“in order to have an immediate impact on activity, the Government would need to start spending money straight away. That could mean dusting off some previously shelved plans, as there is no point in waiting 12 months”—
I think it is right—
“for any boost to be felt.”
That is good advice and I hope the Chancellor is listening.
The Chancellor does not need to focus only on capital investment. He needs to ensure proper access to business finance and that the £75 billion of quantitative and credit easing hits the real economy. Evidence from Japan suggests that bank lending fell during the whole quantitative easing exercise, and evidence here shows that between February 2009 and January 2010, when £200 billion of QE was issued, bank lending fell month on month and has remained below the starting point in every month since. That is extremely damaging. This time, the Chancellor must ensure that that money does not go through a pipe to the banks to pack balance sheets but touches the edges and hits the real economy.
That is absolutely right. I heard the Chancellor say this week that he has considered how the Government might fund business investment directly.
There is merit in that. I am prepared to give this term of QE and the credit easing a chance to work, but I tell the Chancellor that if the £75 billion-plus of new electronic money goes to the banks or is used to buy back Government debt and does not hit the real economy, neither the banks nor the Government will be forgiven this time if it fails. Too many businesses are hurting due to a lack of business finance.
No, I shall stick to the same adage as everyone else and give way twice.
The third thing that needs to be done is to restore consumer confidence and economic security. Fundamentally, that means keeping people in their jobs, and Government and their agencies remain responsible for plenty of jobs. That means that pay policy in the public sector should bring down the salaries of senior people, bonuses should be removed from senior public servants, there should be temporary pay freezes for those on average incomes, help should be provided for those earning under £21,000 and specialist systems and a working wage should be introduced for those earning least of all. However, it also means delivering a no-compulsory-redundancy policy for staff employed by Government, the NHS and the other public bodies when agreement can be reached. We know that this plan—a mix of direct capital investment, confidence, and improved business finance or taking some of the burden off businesses—can work. We have seen it in Scotland, where even with the unemployment figures published today, unemployment is lower, employment is higher and economic inactivity is lower.
We know that such a mix of activity can work and, of course, it is broadly in line with what Christine Lagarde called for in September, when she said that
“countries must act now—and act boldly—to steer their economies through this dangerous new phase of the recovery”.
It also mirrors her comment in August to the Financial Times when she said that
“short-term measures must be supportive of growth, yet economical in terms of the impact on fiscal sustainability, and can include policies supporting employment creation, advancing planned infrastructure and easing adjustment in housing markets.”
There is no reason, other than dogma, not to follow the ideas laid out by those on the Opposition Benches today to kick the economy out of its torpor. I urge the Chancellor to use his autumn statement to do just that. He can call it plan A-plus, he can call it plan B, but he must change, develop and deliver quickly.
I remind the House of my interest recorded in the register.
There is some common ground on both sides of the House. Growth is the key, and although the Government cannot create jobs and businesses, they can set the conditions for sustainable growth through sound money, a fair and competitive tax system, an infrastructure in which businesses can flourish and, above all, keeping control of their side of the economy—the public finances. The previous Government clearly failed to do that. They failed to balance their budget for nine successive years after 2001 and they doubled then redoubled the national debt, leaving us with the largest structural deficit in the G20. Worse still, for the longer term, they left us a rate of growth that simply was not sustainable because it depended on ever-increasing public expenditure—now, I note, more than 50% of GDP for the third year running—on a boom in commercial and residential property prices that simply was not viable in the longer term, and on an over-blown banking and financial sector. We are now dealing with the consequences of the collapse of that sector.
In the end, it was all an illusion. The previous Government created a pyramid of debt and called it investment. They spent all our money on an unreformed public sector without bringing the improvements in productivity that we saw over the same period in the private sector. On the capital side, they spent it on a whole series of expensively engineered, private finance arranged schools, hospitals and the rest. Above all, as was sadly confirmed yet again today, they left us a lost generation of nearly 1 million youngsters under the age of 25 who were under-educated, underskilled and under-equipped for the needs of modern business. That is why I support a Government who are now laying the proper foundations for genuine growth on top of their fiscal consolidation plan by encouraging bank lending, cutting taxes on business and cutting regulation.
I particularly welcome the announcement made by the Chancellor in Manchester, which he repeated today, about reforming the rules regarding employment tribunals, which will make employment easier. That is one reason why I support it—another is because it will reduce the huge cost to business not only of the awards themselves but of the time taken to manage and handle cases that businesses would prefer not to get to tribunal. I also support it because it is fundamentally, as the Chancellor has emphasised this afternoon, a deregulatory measure that recognises the rights of non-workers—those who are currently frozen out of the labour market but would be prepared to work if businesses found it easier to take them on.
We are being asked to accept that all small businesses that might take on employees have as their first consideration the possibility of being faced with an industrial tribunal, but, of course, if they are good employers, that is most unlikely to happen. Surely, the fact that they cannot sell their products if there is no demand for them because so many people are unemployed or feel at risk of unemployment, rather than whether they might be faced with an industrial tribunal, is the most important consideration for an employer in deciding whether to take on another employee.
Employers in my constituency tell me that they will do almost anything to avoid taking on any single additional member of staff. The hon. Lady has to recognise that the number of cases jumped to a quarter of a million in 2009-10. I welcome the change.
I hope that there might be agreement across the House on my next point. The two things that seem to be missing at the moment in our quest for growth are cash and confidence. I fully support what the Government are doing to encourage bank lending. It beggars belief that there was no agreement in place with the banks to stimulate lending to small businesses before the Merlin agreement was concluded this year. I support that agreement, but I also share the scepticism of the Chancellor and the former Chancellor about the stimulus that the first round of quantitative easing may or may not have given to bank lending. The jury seems to be out on that, but what it does seem to have stimulated is inflation. The Bank now admits, I think, that it may have added between 0.75% and 1.5% to consumer price inflation. Two years ago, consumer price inflation was 1.1%, whereas today it is four times that. I hope that the Bank will be mindful, if there is an inflationary effect, that inflation is already higher than we would like. If there is a squeezed middle, inflation is doing quite a bit of the squeezing, and I hope that the Bank will not forget its core task of getting inflation back on target.
In the end, confidence is the key. I hope that the Government will do everything that they can to back the companies that are successful, and to learn from their success.
I will not, if the hon. Gentleman will excuse me.
I visited a small business in my constituency that I want to tell the House about. It is called Rotosound and—I say this for colleagues who play guitar or other stringed instruments—it is the prime maker of guitar strings. It sells them not only throughout the United Kingdom, but to 60 countries around the world, and it is one of our great success stories. It sold guitar strings that were used by Jimi Hendrix, The Who and many other bands. It sells them to China, which could quite easily make its own guitar strings, probably more cheaply. People in China choose to buy our guitar strings because they are associated with one of our most successful industries—popular music—and because they are British. We need to distil the essence of successful exporters such as that company. The Government need to find the secret of those companies and do everything possible to back more of them if we are to deliver the jobs that our young people need.
It is clear from the debate so far, and certainly from the Chancellor’s speech, that only this Government can help to deliver the growth that the economy needs by laying the proper foundations for our fiscal consolidation, so that we get the modern economy that we need growing successfully again.
I am delighted to see the Chancellor still in his place. Oh, he is just going. I have that effect on him. I think he has heard enough in the previous four speeches, three of which were by members of the Treasury Committee—its best members; the rest are coming now. The last four speeches were very thoughtful, in contrast with what happened when the two Front Benchers had a go at one another. The public must see that as the Chamber at its worst; it was described as vaudeville. That is not the fault of the individuals concerned; it is the way this place is. Following on from the speeches of the Front Benchers were speeches from the former Chancellor, my right hon. Friend Mr Darling; the Chairman of the Select Committee; Stewart Hosie, who represents the seat in which I was born; and my good friend from the
Treasury Committee, Michael Fallon. They were very good speeches, but that contrasts with what we heard before them, which is sad, in a way.
Two kinds of people watch the parliamentary channel during the day. There are people who will find the Front-Bench speeches lovely, because they are party animals of either party, and they like the cut and thrust, but there are also 100,000-odd additional people who are, or could be, looking at that channel: those who, in the last year—in the last quarter or month—have lost their job. Almost a million youngsters between 16 and 24 are out of work; they could be watching that channel, hoping that they will see that action will be taken to get them a job. They will have been despairing, until the last four speeches.
The hon. Member for Sevenoaks said that he saw some common ground. I think that there is some, inasmuch as whatever the bluster, something is clear after 15 months: cutting the deficit at the speed first suggested, backed up by a lack of a coherent growth policy—there was no growth policy; a document was hatched and brought forward six months later as an autumn statement—meant that the people watching knew that we were going to have a hard time. This debate will be an achievement if there is any acceptance in the Chamber that we cannot do what we have been doing for the past 15 months, but must do something additional—something different—because what we have been doing is not working. There are signs of that. The fact that the Chancellor went to the Bank of England and asked for credit easing to be done through the Bank, which was refused, and the fact that he is now taking the steps to do it himself, is good—
Shall I start again, Mr Deputy Speaker? You have put me off. Can you remind me where I was?
The Chancellor was turned by the Governor, but he was treated very well by the House because he had spent half an hour saying that he would not spend money. He now has the job for the next two months, until the autumn statement, of making a reality of credit easing, which means that because the Governor will not do it from the Bank of England, it will have to be done by the Government through public expenditure. And that, from a man who was saying that there is too much public expenditure and the only way is to cut, is a major achievement and a major philosophical breakthrough.
There are clear signs that the Chancellor realises that he boxed himself in. It was described three or four months ago on a radio programme as flexibility—“I have flexibility in my programmes”. That would give him the ability to move off plan A, but it is now clear that he is moving off with a vengeance because he sees the danger. When we in the House speak about growth, that means a lot to politicians, but the ordinary person does not realise that it means their job, the security of their home and their income. If the Chancellor is moving on that, it is very good.
I shall put three suggestions on the table for the Chancellor. First, he could reconsider the disastrous decision to abolish regional development agencies and the disgraceful decision to give the local enterprise partnerships that he set up in their place less money, no staff, no powers, no authority and no influence. They have pulled together in every area in the country schemes that have been presented to Lord Heseltine to filter out and put forward for funding. As only one scheme has come from each area, there is a whole list of schemes sitting on the table that are good schemes that could be put into operation.
Secondly, when we speak about infrastructure, we invariably go to roads. The key, however, is housing because it triggers so many additional jobs and so much additional expenditure. There is one thing the Chancellor could do without spending any money. I know there is a balance. An average two-bedroom house costs £160,000. To get a mortgage requires a deposit of £32,000. Need we look any further to understand why youngsters are not buying houses? I know we have to protect people from being irresponsible, but such a value to loan ratio has knocked house purchase off the table. As we are not building social housing, it is a real block. Perhaps the Chancellor could speak to the Financial Services Authority and to the banks and say, “Ease off and look at each case on its merits.”
Finally, during the 1980s recession we had some very good community programmes—youth training schemes and so on. They were sometimes derided but they kept youngsters at work and gave them some self-belief and purpose. Youngsters got up and turned up on time. The schemes prepared them for work and kept them intact as individuals. In Leeds we had 2,500 places and we did enormous work across the city with unemployed people who, to this day, pay tribute to the fact that such schemes kept them going when they would have disintegrated as personalities if they had not had that discipline and chance. I should like the Chancellor to think about those.
I confess that as I listened to the shadow Chancellor this afternoon, I almost felt a growing sense of admiration for the sheer effrontery of the man. This man who came to deliver a lesson to the Chancellor was personally responsible for much of the economic mess that the country now finds itself in. He, of course, is no longer in his place, but I wonder whether I might give a quick economic history lesson to those Members on the Opposition Front Bench who have hung around to listen to the debate.
In 1997 this country had a national debt of £350 billion and was basically spending what it earned. By May 2008, well before the collapse of Lehman Brothers and the banking problems, the national debt had already increased to £629 billion and the Government, during the boom times, had run a deficit of around £30 billion a year. I am yet to hear any Opposition Member explain why, when the country was booming, they spent £30 billion a year more than the country was taking in taxes. Once we hit the banking problems, which the previous Government successfully blamed all the economic problems on, the debt skyrocketed to £1 trillion.
Of course, even that is not the full story, because many sensible economists claim that the national debt is at least twice as large, as the figures used do not take into account the PFI contracts used for all the schools and hospitals that the previous Government built but never paid for. It does not take account of the liabilities for organisations such as Railtrack and Metronet, and of course it takes no account of public sector pensions. The reality is that we must now deal with a debt of at least £1 trillion and the deficit of £160 billion that we inherited.
Opposition Members like to blame it all on the banks. “It was all the fault of the wicked bankers”, they say. I have done a little checking with the House of Commons Library, and as far as I can ascertain the banks received £100 billion. That money was given out not simply in cash, but in shares and the rest of it, so a lot of it might come back to us. If we take the best-case scenario for the national debt, which is £1 trillion, rather than the £2 trillion suggested by many economists, and the worst-case scenario for the £100 billion that was given to the banks, which is that nothing will come back, even then that money accounts for only 10% of the national debt. What about the other £900 billion? When will the Opposition start accounting for that?
One trillion pounds is a lot of money. I was thinking about it earlier and trying to put it in perspective. If we were to create a graph and used 1 cm to show £1 million, it would have to stretch all the way from here to Highgate cemetery to show the scale of the wanton spending for which Opposition Members are responsible—I do not know whether it is relevant, but that is the burial place of Karl Marx.
Has the hon. Lady finished now, and may I continue? I am always fascinated by the fact that comparisons are made between levels of debt as a percentage of GDP. I will certainly give way again if someone can explain why we compare national debt with GDP. Why do we not do what any company would do and compare it with revenue? If we look at a comparison with 2010, when this Government took over and when the national debt was £1 trillion, we will see that the revenue coming in was £520 billion. The country had a national debt that was almost twice the revenue it was taking. Anyone who has run a company—most Opposition Members have not, but I have—will know that any company that found itself in such a situation would be declared bankrupt immediately.
My hon. Friend asks a very good question. They managed to come up with an excuse after 2008, following the collapse of the banks, but as I said earlier, I am yet to hear an answer on why they ran a deficit from 2001 to 2008. Perhaps we will get one later.
What I did hear from the shadow Chancellor was some rather mealy-mouthed insults directed towards my right hon. Friend the Chief Secretary to the Treasury, who had a proper job outside politics and Government, as I did, which the shadow Chancellor seems to think is worth mocking him for. My right hon. Friend was not the man who was responsible for the £1 trillion-worth of debt, for selling gold at a fraction of the price, or for running up deficits in boom years. [ Interruption. ] I will not say anything about the euro at the moment, but there are many Labour Members who were urging us to the join the euro during those times and are now trying to give us a lesson in economics. I notice that they have all now gone very quiet.
The reality is that Labour Members never, ever learn their lesson. For them, it is not a case of plan A or plan B; there is only one plan: “Let’s tax people as highly as we can, and when we’ve finished squeezing every penny out of them, we’ll borrow more money.” They do not remember the words of one Labour Chancellor of the Exchequer during a Labour conference: “Comrades, you may think that we can tax and spend our way out of a recession, but I tell you that is no longer an option.” They still have not learned the lesson.
Clement Attlee failed in the 1940s when he tried to build his welfare state on the back of American war loans. There was Harold Wilson in the 1960s telling the public that the pound in their pocket was worth the same when he was rapidly devaluing it. Then there was Jim “Crisis, what crisis?” Callaghan, who, just like his successors, brought the country to the brink of utter bankruptcy, and did not even seem to think that he had done anything wrong. It was 18 years before they got another chance, and they have done exactly the same thing again: tax and spend, borrow and spend, just keep on doing it and do not worry about it.
I am glad that we have a Government who are not going to go for the easy option, which would be to borrow a whole load more money now in the hope of winning an election, which is exactly what Labour Members were doing for a couple of years. We are going to take some tough decisions, and that means getting our books in order. Unlike the shadow Chancellor, I know, having run a small family haulage business, that one cannot carry on spending more money than one gets indefinitely. I welcome the fact that the Chancellor is going to encourage real growth by making it easier for businesses to take people on and not have to worry about employment tribunals, which anyone who has run a small business does worry about all the time because of the number of spurious claims.
I wonder whether the hon. Gentleman has ever had any experience of running a business or dealing with spurious employment tribunals—I very much doubt it.
I am also glad that the Chancellor has recognised that reducing our carbon emissions at a time when the economy is facing problems is not necessarily the wisest thing to do, particularly when the Government are now having to accept that our winters are getting colder, that more people are dying through cold than through heat, and that the link between carbon dioxide and global warming is not quite as clear-cut as many people say.
I will not give way again, because I have done so twice and I do not want to cut myself off.
I congratulate the Chancellor and all his colleagues in the Conservative and Liberal Democrat parties and urge them to stay the course, to ensure that we spend what we earn, and not to listen to Labour Members or take any notice of people such as the former Prime Minister. Even he did not seem to know the difference between debt and deficit, because anyone who looks at the YouTube video of him abusing Mrs Duffy and calling her a bigot will notice that halfway through he said, “We will cut the debt in half.” Did he not know the difference between debt and deficit, or was he planning much deeper cuts than the coalition Government? Perhaps someone will answer that question.
All Back Benchers on this side of the House are supportive of the Government because we recognise, as we always have, that it is not possible to carry on spending money that one does not have because that merely creates a bigger problem further down the line for our children. That is why I urge my colleagues to stay the course.
As ever, it gives me great pleasure to follow David T. C. Davies, who talks about learning lessons. Following the erudite economic contributions that we have heard from many hon. Members, I am going to talk about the real lessons of human life in my constituency.
First, let me give some numbers. Over the past year, claims for jobseeker’s allowance in London increased by 10%, compared with the UK as a whole at 8%. Those figures are pretty bad, and today’s unemployment statistics underline the general trend. In my constituency, the figure increased by 18%. If one looks more closely, it gets worse. Claimants under the age of 24 increased by 18.1% in the past year, and for someone who is over 50 the outlook is bleak. The increase in the number of claimants in that group was 29.2%. That is right—nearly a third more over-50s are seeking work than a year ago.
I will focus on people and their lives, and on the families who are affected by this Government’s policies. About one in three residents in the borough of Hackney, which I represent with my hon. Friend Ms Abbott, are under the age of 24. Therefore, as well as the percentage increases, a significant number of young people in both constituencies are affected by the Government’s reckless programme.
Will the hon. Lady explain how abandoning our deficit reduction plans, losing our triple A credit rating, and forcing up interest rates to UK plc, homeowners and business will lower unemployment?
That question demonstrates the detachment of this Government and their Back Benchers from the reality of human lives. If the hon. Gentleman will let me develop my argument, I will point out that there are real challenges for people. There is an alternative plan, which my right hon. Friend the shadow Chancellor and his colleagues have laid out, and I back it.
I have met young people who have already been made redundant in their early 20s and others who have done everything that the Government have asked of them, such as working hard at school. Our borough has seen huge improvements in schools and education, and its results are improving. Our young people are increasingly going to university, which was pie in the sky for many young people when I was first selected for my seat. And still, there are no jobs. We risk having a lost generation, although not like the lost generation that Michael Fallon spoke about, because we made great strides in government, although there is still more to do on skills. We risk a lost generation of young people who have achieved a lot and still cannot get a job.
Does my hon. Friend agree that one of the most alarming consequences of the Government’s economic policies for those of us in inner-city communities is how hard the cuts hit the public sector and women workers in the public sector? Particularly in inner-city London, disproportionate numbers of public sector workers are black and minority ethnic, and there are no private sector jobs for them to go into. Those people are often the head of their household and the only earner in their household. They are the sacrifices of this misconceived economic policy.
I could not put it better than my hon. Friend and I will not try. She is absolutely right.
Young people who have never worked are now desperately seeking even unpaid work experience. What have this Government done in response? They have cut the future jobs fund so that there is no more chance of employment and no more try-before-you-buy for employers. They have cut education maintenance allowance and increased student tuition fees. Just as young people in Hackney are emerging from school, ready and qualified for university, they are losing the help that they had.
The cuts programme is so deep and so fast that it gives no hope. It does exactly what my hon. Friend the Member for Hackney North and Stoke Newington said: it cuts the jobs that were providing for so many households in my constituency and keeping our local economy going.
Although the Chancellor is not in his seat, let me tell him about real people. Last week, I met a 16-year-old who said to me, “I really want a Saturday job because I want to grow from a boy into a man and this will help me.” He also told me that he wants and needs to contribute to his household’s increasingly squeezed income. He is losing the education maintenance allowance that he would have been entitled to and he is very worried.
There is the sixth-former who used her education maintenance allowance to top up the family’s electricity key on a Thursday so that she could keep the lights and heating on until the end of the week for the basics of study and existence. There is the teenager who attended school on alternate days because he and his brother had to share a pair of school trousers. Thanks to EMA, he is now at university, where he has escaped from his chaotic family background and is ready to succeed. I hope that there will be a job for him when he leaves.
There is the woman who is working to bring up her children and is using an expensive prepay meter key.
I am afraid that I will not.
That woman told me that she uses the prepay meter key because of her fear of a large quarterly bill at the end of the autumn, even though she knows that it costs more. She is doing what the Government tell her to do. She is a single parent with four children who is working to support her family, but she lives in fear of the bills every day. There is the man who came to my surgery on Monday. He has a job offer, but he faces the choice between a job and a home because of the Government’s short-sighted approach to housing benefit.
Where are the private sector jobs? In my constituency and that of my hon. Friend the Member for Hackney North and Stoke Newington, most small businesses employ fewer than six people and they are struggling. I have been up and down my high street many times since the events of
The Federation of Small Businesses has been very critical of the Government’s approach, as my right hon. Friend Ed Balls indicated. Businesses on the high street need quantitative easing, including those that are being incubated by entrepreneurs in my constituency. The Prime Minister is very fond of talking about creating a silicon valley when it suits him, but those high-street businesses are exactly the sort that could be creating jobs for young and older people in my constituency. However, they risk being throttled at birth, or if they do survive—I wish them well and hope they do—they risk not growing at the rate that they could with the right support from Government.
I am afraid I will not.
Families are being squeezed. Prices are going up, with food prices having increased by 6.1% in the past year. For those who drive, petrol has gone up. Energy prices have gone up, VAT is at 20% and we are seeing a huge hike in fare prices thanks to the Tory Mayor of London. If people have a job, they are worried that they will not have it in future, and they are worried because they will not be getting pay rises. Families in my constituency have nowhere to go to get the extra money: not for them the easy credit that is available to many or the bank overdraft that is available at the end of a phone call; not for them the rich family member who can help them out or a cushion that they have saved over years of work, because they have been living a difficult existence as it is and are now squeezing until the pips squeak. They cannot squeeze any more out of their household budgets.
This Government are cutting too far, too fast, and it is not working for families, for young people or for businesses. It is not working at all, nor, sadly, are far too many of my constituents.
Order. This debate is very popular and I want to accommodate as many Members as I possibly can, so the time limit is being reduced to six minutes, with the usual injury time for two interventions.
I am delighted to see that the reshuffle of the shadow Cabinet has had a real effect on its sense of humour. Government Members are of course used to the fake outrage all the time, but the terms of the motion suggest that the Opposition seem to have discovered irony.
I will not support the motion, because it demonstrates the Opposition’s fundamental failure to have any credible economic policy whatever. This five-point plan is a nationalised Ponzi scheme on steroids. Even in itself it would add £3.1 billion to our deficit. The Opposition probably do not understand what a Ponzi scheme is, but they should look at their own manifesto. People in my constituency do not believe that the way out of debt is to take on more debt. They do not believe that the way to reduce their personal liability is to spend more money.
I never said it was a fake Ponzi scheme, I said it was a real Ponzi scheme. That is the basis of the Opposition’s entire policy.
The markets believe in our plan and want us to stick to plan A: actually, so does every hard-working family in my constituency. They are struggling with personal loans and do not want interest rates to go up. Like so many of us, they are struggling with mortgages and cannot afford that to happen. The Prime Minister has offered real leadership throughout this, and the Chancellor of the Exchequer has been honest. That is in stark contrast to the Labour party’s constant line of “too far, too fast”.
What is the Opposition’s alternative? This five-point plan is simply too little, too late. They believe, “Why repay borrowing today when we can have business as usual and bankrupt Britain tomorrow?”
I do, and for all addicts the hardest thing to do is admit that they have a problem. When this Government came to power in May 2010, we admitted that we had a problem with debt. Even if we fall off the wagon temporarily, we know we have that problem and so we get straight back on it. The Labour party has not even admitted it—it thinks it gave us a golden economic inheritance.
I do know. However, I can guarantee my constituents one thing, and one thing only: unemployment has not gone up by as much as it would have done if we had had Labour’s Ponzi scheme.
I am sorry, but I will not give way again because I am running out of time and I have many points to make.
Let us look at the facts. Back in May 2010, when we came to power, we had 0.1% less debt than Greece as a proportion of GDP. Labour Members can criticise us and say that making cuts damages growth, but let us look at their alternative. Their alternative—too little, too late—would mean, as in Greece, a 15% pay cut for every doctor, nurse and policeman, and every public sector worker; and a cut of up to 40% in pensions. That is what too little, too late means.
I am sorry, but I will not give way. I want to make progress.
The Labour party opposes the Government’s public spending cuts, but its alternative—the too little, too late alternative—would mean that our economy, like Greece’s, would shrink by 5% this year, and that mortgage rates would rocket. One of the things that Government Members are most proud of is our desire and aspiration to increase the tax threshold to take many of the lowest paid in our society out of tax altogether. Had we followed the too little, too late approach, as Greece did, we would have had to cut our tax-free allowance by 50%.
The Chancellor has been frank about the choppy waters ahead, yet businesses in my constituency of Rossendale and Darwen still strive to succeed. Businesses such as J&J Ormerod, the largest employer in my constituency, B&E Boys, Crown Paints and WEC engineering, are doing their best to manufacture proper products and to rebalance the UK economy, despite tough times. Those businesses know about the Labour party’s economic illiteracy. That is why, before the general election, some of them signed a letter opposing Labour’s jobs tax. Businesses in my constituency will not forget that the previous Government were the enemy of enterprise and industry, and that Labour is the party of the jobs tax.
The Opposition Front Bencher says from a sedentary position that the increase is 29.2%. I have real sympathy for those experiencing the increase in unemployment. People are facing an unbelievably tough time. These are uncertain times for all of us. However, if we are to have a successful economy in Rossendale and Darwen, and if we are to get people back into work, we must keep low borrowing rates and support the new enterprise zone in Lancashire, which will create jobs. Our manufacturing businesses are not thriving, but they are still growing. Companies such as Linemark in my constituency, which has just won the Queen’s award for enterprise, are growing through innovation.
The key to our success in east Lancashire in business, jobs and families is low interest rates, so we must stick to plan A. We must enable jobs and growth in Rossendale and Darwen.
“This Plan for Growth is an urgent call for action. Britain has lost ground in the world’s economy, and needs to catch up. If we do not act now, jobs will be lost, our country will become poorer and we will find it difficult to afford the public services we all want. If we do not wake up to the world around us, our standard of living will fall, not rise.”
Those are fine words, but the Government’s actions since have only inflicted more damage. Since May last year, they have systematically dismantled and reduced the UK economy’s capacity. Ideologically driven by a quest to reduce the public sector, they have relentlessly pressed one single policy button—deficit reduction. In the northern region and my constituency, the Government’s policy is looking very much like a scorched-earth strategy.
While imposing draconian and disproportionate spending cuts, which this year alone have reduced grants to the 12 local authorities in the north-east of England by an average of £84 per head of population—compared with only £5 per head of population in the 12 least-deprived local authorities in the south of England—the Government have reduced resources for regional development in our region by at least two thirds. Before the election, the Prime Minister identified the northern region, along with Northern Ireland, as an area that would require special support to rebalance its economy—we all know what that “special support” really resembles. From my perspective, it looks like the support given to a hanged man—a rope.
I was being kind to the Prime Minister, but he did actually use the words “rebalance the economy”. One North East, the regional development agency set up by the previous Government, is being abolished and replaced by as-yet-unfunded and as-yet-totally-impotent local enterprise partnerships in the north, including in Teesside.
The hon. Gentleman says “the Government this” and “the Government that”, but if we are talking about jobs, he ought to be talking, as I am sure that he is, to small business owners in his constituency. In those conversations, how many of them have said that they would put at risk low interest rates in this country to pursue some of the policies in the five-point plan, and how many said that they would welcome the job tax that the previous Government said that they would impose on businesses up and down the country?
Many of the businesses that I speak to in areas such as the Team Valley trading estate, which employs about 20,000 people in the private sector, complain about the pace and depth of the Government cuts. They are impacting on their order books because many of them provide for the public sector. Unemployment in the region now stands at 142,000, which means that 11.3% of the working population in the north-east is now unemployed. The only conclusion that we can draw from the rationale of the parties in government is that, for them, unemployment in the north-east is a price worth paying.
The hon. Gentleman is making some powerful points about the north-east and the gap in gross value added per head between it and London and the south-east. However, does he accept that over the past two decades that gap reached its widest in the last year of the previous Government?
I was critical, in many respects, of the previous Government’s regional development policy, and I admit that I never understood the rationale for spending regional development money in the south-east when it would have been better spent in areas such as the north-east to rebalance the British economy. Having said that, however, I am not going to criticise my colleagues in the south-east—they have voters as well.
The regional growth fund, which stands at only £1.4 billion over three years, is being used to plug the gap left by the RDAs, which helped significantly in areas such as the north-east and collectively had a budget of £1.4 billion every year. In areas such as the north-east of England, the RDAs were vital. So much for the words of the Deputy Prime Minister last June, when he said that the regional growth fund would
“make a real difference to companies during difficult times.”
We have yet to see a single penny of the regional growth fund being spent in any company in the north-east of England. Oh, what it must be like to have responsibility for Government policy without having any real influence over it! The Secretary of State for Communities and Local Government said that he did not want to
“strangle business with red tape,” but wanted “urgent action,” which was needed to
“rebuild and rebalance local economies…across the country.”
What we are actually seeing in response is the infliction of savage cuts that are sucking money, spending power and potential demand out of the economies of regions such as the north-east.
The north-east is part of England and part of the United Kingdom, but we are being treated disproportionately badly by this Government’s economic policies. If they ever get round to paying out money from the regional growth fund, we will frankly struggle to notice the impact because of the unemployment that already exists in the north-east after the deficit reduction strategy. The regional growth fund is taking on the appearance of a pathetic fig leaf that cannot hide the stark truth that the Government do not have a real growth strategy for Britain or a region such as the north-east of England. As we know, the local enterprise partnerships have no start-up funding, no core funding, no guaranteed access to the regional growth fund and no new legal powers. The case against the Government’s policy in the north has been eloquently set out by the Smith Institute of all people—hardly an organisation renowned for its left-leaning attitudes towards public policy—in its report “Rebalancing the economy: prospects for the North”.
The Government’s plan is simply not working, but is inflicting enormous damage on the economic capacity of the north. It is stifling and strangling our economy, not rebalancing it. Oblivious to the consequences of their actions, the Government press on blindly with plan A: deficit reduction. Tens of thousands of jobs destroyed, 1 million young people unemployed, the poorest and most vulnerable in our communities paying the most for the cuts—it is quite clear that we are not all in this together. Over the past 17 months the Government have been absolutely clear that deficit reduction has been their priority above all other considerations. Everything that has been said by the Chancellor and his supporters in the Chamber this afternoon adds to the one simple sentence: “It’s a price worth paying.” To those in the coalition Government, Tory and Lib Dem alike, I ask this. Unemployment of 2.5 million, with 1 million unemployed people under 25—is it a price worth paying? I do not think so.
It is a pleasure to be able to speak in this debate, but sometimes I listen to Opposition Members and just cannot understand where they have been for the last 10 or 12 years. If my constituents have been listening to some of the Opposition speeches, they will be equally shocked. They will remember a Chancellor who once used to speak of prudence and financial stability creating an economy where the books were balanced. Well, prudence was jettisoned a long time ago and it is certainly not a friend of the new shadow Chancellor. Until Opposition Members understand that they have to have a sensible, balanced economic approach, they will never have credibility with the people of South Staffordshire or, I am sure, the people of this country.
We often hear Opposition Members talk of a lost decade of low growth, low employment and low private sector employment. Well, we had a lost decade—a lost 13 years—in the west midlands between 1997 and 2010. You probably often sit there, Mr Deputy Speaker, wondering how many private sector jobs were created in the west midlands between 1998 and 2008. You were probably thinking it was perhaps 250,000—in those halcyon days, when house prices were booming and the economy was growing—but I am afraid to say that you would be wrong if you thought that. If you thought that the figure was 100,000, I am afraid that you would also be wrong. In fact, there was not a single net private sector job created between 1998 and 2008 in the west midlands. We saw a decline of more than 60,000 private sector jobs in the region.
The hon. Gentleman makes an interesting point. Between September 2010 and September 2011, 74 additional people became unemployed in my constituency. That is a tragic situation, but this Government are doing something about it. Unlike the previous Government, who did little or nothing for my constituency, this Government are delivering. I will explain how. We are out there creating and delivering jobs, and making things happen in South Staffordshire. Already, thanks to the actions of this Government, we have been able to save 400 jobs there by ensuring that the investment was delivered for Moog, an important employer in my constituency, which is relocating to a new factory on the i54 business park.
What is more, this Government are committed to delivering more jobs, not only in my constituency but right across the west midlands. Through the Government’s actions, we have secured an enormous investment of £350 million from Jaguar Land Rover to build a new engine plant on the i54, which has been designated an enterprise zone.
I live about 300 metres from the i54 site. Will the hon. Gentleman admit that, were it not for the Labour Government and the regional development agency, which decontaminated the site, invested in it and made it a strategic site, we would never have had that investment in the first place?
I thank the hon. Lady for making that point, but let me explain something. Having run a manufacturing business for many years before entering the House, I quickly discovered that when considering relocating a factory to a new site, two core ingredients are needed. They are electricity and gas, but no funding had been provided by Advantage West Midlands to install either on that site. If that is far-sighted policy from a regional development agency, I do not think it is particularly great.
The investment from Jaguar Land Rover will create 750 jobs in my constituency and the wider area, as well as many thousands more. This country is now investing in manufacturing again. It is no longer a country with a declining manufacturing base, in which manufacturing declined from 21% to 12% of our gross domestic product. We are now ensuring that that percentage will grow, because that is what we need. I believe that this Government will deliver that.
This is not just about encouraging manufacturing; it is about encouraging the service sector and all the other sectors. We are supporting small businesses as well as big ones. We have already seen a massive increase in the research and development tax credits available to small businesses. I recently visited Squire, the makers of some of the finest padlocks in the country. I suggest that Members purchase one for their garden shed. The R and D tax credits introduced at the last Budget for small and medium-sized enterprises are encouraging businesses such as Squire to invest in research and development and in innovation to provide them with a secure, prosperous and healthy future.
Those are the initiatives that South Staffordshire needs, and that the whole country needs. The Government have a difficult legacy to deal with, thanks to Labour, but they are helping Jaguar Land Rover, Moog and all those other businesses through the creation of enterprise zones and the lowering of corporation tax. They are supporting those businesses at every level, and that is what will deliver growth for this country.
I will not tax your brain, Mr Deputy Speaker, by getting you to guess about job creation or anything like that; I would like to make just a couple of points.
First, I sometimes approach a debate such as this with a degree of unease. There is always a tendency either to pretend that there is no problem because the existing policy has to be defended or else to magnify the existing problems and in doing so to have an impact on confidence. One thing I have found from speaking to business people in Northern Ireland is that although we are going through difficult circumstances, which everyone recognises, there is no point in further impacting on consumer and investment confidence by, through political point scoring, making the situation appear worse. We need to try to avoid that in a debate such as this.
Secondly, I have looked at the statistics on Northern Ireland and found that we have seen no growth in the economy over the past 24 months. We have had an increase in unemployment and, of course, given our heavy dependence on the public sector, the public spending cuts of £4 billion over the next four years—40% of the capital budget—are bound to have a deflating impact on the economy.
In listening to today’s debate, to the Chancellor’s reaction and to some of the Opposition’s proposals, we have to consider whether the rigid battle lines that have been drawn are of benefit to the economy in the long term. I accept what the Chancellor has said today—there is considerable risk in changing position—but any economic strategy is bound to carry risk with it, as it involves trying to project and look into the future on the basis of many different variables, such as how markets will react and what will be the impact of a decision. We do not have perfect knowledge about those things, so sticking rigidly to the current plan carries a risk.
We do not know how the markets are going to react to the increased borrowing that will be required as tax revenues fall and spending on unemployment and other benefits rises. Currently, the markets seem prepared to accept that there might well be an increase in the deficit because of what is happening, but that the Government are still on plan to reduce the deficit. Where is the tipping point when the markets begin to say, “Do we really have a credible plan?” Equally, if we go down the path of increasing spending and reducing taxation, at what stage will the markets say, “You are deviating from the plan”?
One thing that I suppose has come out of the debate so far—at least from the IMF, the OECD and even some of the credit agencies—is an acceptance that there can be some flexibility. Even the Chancellor is beginning to accept that demand in the economy needs to be stimulated. I suppose his attitude and approach to quantitative easing is an indication that he sees demand stimulated by monetary policy but equally that good fiscal policies and ideas may also be considered as a means of trying to stimulate growth. I am not so sure, when I look at what is happening to bank lending in Northern Ireland, that quantitative easing is having an impact. The British Bankers Association has published its quarterly figures. From the last quarter of last year to the second quarter of this year, bank lending to small businesses fell by 30% in Northern Ireland. With the Chancellor telling us that there is sufficient liquidity in the banking system, one has to ask whether simply making money available is going to be the answer.
Some fiscal measures have been suggested here today. It has been suggested that we need not increase spending and reduce taxes to create extra demand. Instead, we could direct extra spending towards the activities that create the biggest multiplier effect—for instance, spending on housing and reductions in VAT, whether for extensions to houses or for the tourist industry. There are measures that do not cost a penny, such as reducing regulation. I welcome the Chancellor’s announcement that he will not stick to the carbon reduction targets. As one who voted against the Climate Change Act 2008, I am pleased to observe that some reality is now entering that debate. Why should we impose a 40% increase in energy costs on our industry when that is not being done elsewhere, with the aim of reducing carbon emissions into the atmosphere and thereby somehow or other affecting the climate?
There are many suggestions to be considered. I believe that the Chancellor has more leeway than he claims, and I hope that we shall see some movement as a result of today’s debate.
I am grateful for the opportunity to speak in the debate.
I am pleased and interested to learn that the shadow Chancellor recognises that the problem we face is an international problem. He spoke eloquently about the deepening eurozone crisis, and also about the prospects for Greece and Portugal, which frankly are not too good. I am also pleased to speak having heard the speech of Meg Hillier, who gave a graphic account of the difficulties that we face from the point of view of her constituents. What we have not heard from the Opposition is an admission that they were in any way responsible for the difficulties that we face today. What we have heard, from Members on both sides of the House, is the expression of a desire for a bipartisan approach and a civilised debate, and I am all for that. However, if we are to understand the challenges that we face today, we must understand how we got into this mess in the first place.
It is true that every country in the OECD and in the economically developed world faces similar challenges, but it is not true that those countries managed their public finances as badly as we did in the years between 1997 and 2010. Let us rehearse some of the facts. We entered this period of our national life with a higher deficit-to-GDP ratio than any other OECD country: 12%, when the German ratio was 3.3%. That was a direct consequence of decisions made on the Treasury Bench between 1997 and 2010. As my hon. Friend Michael Fallon pointed out, the then Government ran a deficit in every year between 2001 and 2010—for nine straight years. Even when the economy was booming, we ran deficits of £30 billion a year in 2002, 2003 and 2004. The shadow Chancellor referred to Lord Keynes—
What the markets were looking at was the deficit. The hon. Lady may remember what happened to the gilt market as her party’s Government were being shunted out. The price of British Government debt rose and yields fell in direct anticipation of Labour leaving power. The markets made their own decision. In the last 18 months, the price of British Government debt—that is, the interest rates that we pay—has fallen. It has managed to remain at the same level, precisely because markets realise that the Chancellor and his team are doing the right thing in tackling the deficit. We have been told repeatedly that if we were to show any relaxation of our deficit reduction programme the markets would dump our bonds and interest rates would rise, which would cause immense damage to the hon. Lady’s constituents as well as mine.
Does the hon. Gentleman accept that before the last general election—between January and May 2010—yields on Government bonds were falling and they have stayed at low rates since the general election? The markets did not know which party would win the election because the campaign was so close. Therefore, the hon. Gentleman cannot argue that those yields were falling in anticipation of an incoming Conservative Government, because nobody knew that.
The yields were not falling in anticipation of a Conservative Government, but they were certainly falling in anticipation of the then Labour Government going out. Markets anticipate events—that is how people make money—and the markets had, in their wisdom, decided that Labour would not be re-elected. I assure the House that if Labour had been re-elected, the markets would have dumped British debt and we would be facing a much tougher interest rate environment than we currently face.
I always enjoy listening to the shadow Chancellor’s speeches, as they are very entertaining, and I enjoyed his speech today—I think one Member even mentioned vaudeville, which I think does vaudeville discredit. However, I was staggered by the shadow Chancellor’s assertion that the fact that we have low interest rates is somehow a reflection of our having a weak economy. That was an extraordinary claim. People in my constituency are very grateful indeed that we have low interest rates, because that enables them to pay their mortgage liabilities. It seemed extremely arrogant for a supposedly responsible politician to say on the Floor of the House that low interest rates were a bad thing, which was essentially what the shadow Chancellor was arguing.
He was suggesting that they were a symptom of a weak economy, which is a bad thing.
On the contrary, however, our low interest rates are a signal that the markets have confidence in this Government. They have absolute belief that the current Government are going to deal with the deficit that was created, almost deliberately, by the Labour Government. We in the House of Commons have to understand why this deficit arose, so we can explain that to the country. It was not just handed down to us by some Moses figure—although Mr Brown probably thinks of himself in that way. It was not handed down from on high; rather, it was created by Governments and by the Members who then sat on the Treasury Bench, and it was created for the simple reason that they, in their arrogance, honestly believed that they had abolished boom and bust. We all remember those statements, and it is an arrogant misrepresentation of the past to suggest that they did not think that. The last Prime Minister believed that he had solved the key economic question of our time, but he was wrong, and it is as a direct consequence of his mistake that our Government have had to introduce the policies we are currently pursuing.
Many people will ask why we do not have a different plan. They will ask: “Why don’t you suddenly borrow and spend more money in the time-honoured Labour fashion?” That would be a road to disaster, however. It would create a massive lack of confidence and lack of credibility in the British Government’s programme, leading to the markets dumping our Government debt and our interest rates rising. It would lead to people in our constituencies having to face higher payments every month. They would be squeezed even more if we were not as focused and committed as we are to reducing the deficit.
I have tried to inject some reality into this debate. We have heard consistent denials from Labour Members, and we have heard no admission of guilt or wrongdoing and no ideas as to how we might get out of the situation we are in. We have also heard no real arguments to attempt to explain why what the last Labour Government did was right. Interestingly, no Labour Member has said in this debate, “We did a marvellous job; we gave you a golden inheritance.” I would grant them more credit if any of them would be bold enough to stand up and say that, but they will not do so. That is because, as everyone in this country knows, Labour is bereft of ideas, and it would be a disaster if we were ever to leave our future in its hands again.
I recall taking part in a number of debates on the economy before the general election and saying on several occasions that there were four ways to deal with the deficit: by cutting spending; by increasing taxation; through economic growth, which would be the most important way by far; and through inflation, the method that dare not speak its name. Since then we have seen the cuts, we have seen people losing their jobs and we have seen the economy undermined. The thing to remember is that when someone is thrown out of work we lose the output of their goods and services and, on average, they cost us £12,000 in tax not taken in and benefits paid out. We now have the highest jobless total since the one under the previous Tory Government. Some of us—not just Tories—have memories about what went on before.
I am not going to give way to anybody because it takes up time from everybody else’s speeches.
VAT has been increased, and that hits the worst-off most. There has also been what is, in effect, a tax increase on everybody who has to commute to work: the massive fare increases that have been pushed through, which are far above the rate of inflation. We have certainly seen inflation. One of the reasons why Governments quite like inflation is that if they borrow £1 and there is 5% inflation, they pay back 95p instead of £1. That is why the Government have not taken any notice of the problems caused by the rate of inflation, but it certainly hits people’s pensions and wages.
As for growth, there simply isn’t any. Growth is needed both in this country and worldwide. Growth was the theme of the London G20 summit. I know that it is very unfashionable to praise the former Prime Minister, Gordon Brown, but the fact is that at that summit, and in the run-up to it, he did more than anybody in the world to convince all the Governments that they had to start investing more in the world economy. I have heard from someone else that it is Sarkozy’s private view that Gordon Brown’s intellect and drive—
Since then, the new UK Government have joined the backsliders; they are not going for growth, either here or worldwide. They have let the bankers and speculators back in charge, blaming public spending everywhere in the world and blaming public services for what has gone wrong. This Government have been delighted to wheel on witnesses defending their policy, but I ask people to look at who these famous witnesses are. They are the bankers, the financiers and the speculators—the people who caused the worldwide problem in the first place.
About two days before its recent unfortunate fraud case, a very distinguished person from UBS said that we needed austerity for all and then everything would be okay. Unfortunately, the interviewer did not ask, “Are you one of the people who lost £44 billion in the crash?” A couple of days later, someone from Citigroup was advocating austerity for all. Unfortunately, the interviewer did not say, “You are from the company that lost £60 billion in the crash. Why should we take a shred of notice of someone with your track record?” Then, my favourite, Ernst and Young, said that we need austerity for all, but never mentioned being the auditors of Lehman Brothers. One would think that a period of silence—a decade of silence—would have been appropriate.
Frankly, we have seen that the bankers, financiers and speculators have far too much power in this world. We have the Alice in Wonderland situation where the banks cause a recession; the Greek economy declines; the banks in effect charge the Greeks exorbitant rates of interest; the banks, who created the crisis, then threaten the ability of the Greeks to pay them back, meaning that the Greeks might default; and, if the Greeks default, the banks default. The banks start it off, and in the end might default—and what happens? They do not rely on the private sector or market forces. They come grovelling to taxpayers all over Europe to ask them to bail them out of their stupidity—for that is what their policies are. We hear about social security scroungers, but the worst social security scrounger in the world does not compare to the scrounging banks when they get things wrong.
I am glad that the right hon. Member for Holborn and St Pancras mentioned Alice in Wonderland, because that is exactly where Labour is. What we have heard from the shadow Chancellor today suggests that it believes that we can solve a debt crisis by taking on more debt. Let us remind ourselves of the position that this country was in when the Government changed 18 months ago. We had a national debt of £940 billion, up from £350 billion when the Labour Government entered power.
Emma Reynolds mentioned the debt to GDP ratio, and in terms of net debt that is at 62% today. She is right that it was lower—it gradually went up as the previous Government came to their end—but she missed out the fact that the markets do not just look at the official national debt but take into account the unofficial national debt. The good thing is that now this Government are in power we have started to have a transparent process to assess what that debt is. Before the market was all based on estimates.
I can tell the hon. Lady that the £940 billion is not even half the story. In fact, it is one third of the story because it represents one third of the total national debt of this country. The whole of Government accounts published in July by the independent Office for Budget Responsibility said that the public pension liability of the UK is £1,100 billion. PFI liabilities increased tenfold over the 13 years of the previous Government to £40 billion according to the OBR. The Office for National Statistics reported in the summer that the cost of financial interventions because of the bank bail-outs is £1,300 billion of additional debt. If we add all those numbers up, they come to £3,380 billion—a mind-boggling number equal to 225% of GDP.
Let us look at the five-point scam suggested by the shadow Chancellor. Four of those five policies would lead to a direct increase in our debt and one, the bankers’ bonus tax, would raise less than the levy that the Government have already imposed. I spent 20 years trading Government bonds. I advised Mexico, Brazil, Indonesia, Russia and Argentina when they were at default or close to default and I can tell anyone who cares to know that the way out of a debt crisis is not to borrow more money. Investors have a choice. They do not have to buy anyone’s bonds. They can look at any country or corporation in the world and there is no way to force those bonds down their throat. That was exactly the point we had reached before the last election and if the Government had not changed, we could very well have been in the same predicament as countries such as Greece, Portugal, Ireland and Iceland.
It is not just our triple A rating that shows that the Government’s policy in dealing with the debt is the right one. It is not just the gilt deals, as my hon. Friend Kwasi Kwarteng mentioned, although our 10-year gilt yield is at 2.6%.
My hon. Friend might recall that the previous Government created £200 billion-worth of quantitative easing just prior to the general election. However, that money was not pumped into the banking market to give liquidity—98% of it was used to buy Government debt because nobody else wanted to buy it at that stage.
I quite agree with my hon. Friend. The 10-year gilt yield today is 2.6%—one of the lowest we have ever had in our history—versus 3.8% when this Government came to power. That number is not just important to the financial markets: it makes a big difference to the amount of money this Government have to spend on servicing our national debt, to the amount that corporations have to spend when they borrow and then invest, and to the amount that ordinary households need to spend on things such as their mortgages. It makes a real difference to the cost of living.
Let us consider another indicator. I always like to look at the credit default swap spread, which is the amount that the markets charge for insurance against a potential sovereign default. Today, Britain has, for the first time, the lowest CDS spread of any large European country. According to Bloomberg, of the 157 sovereigns that trade in the CDS market, Britain has the fifth-lowest CDS spread in the world. That, again, is a reflection of the policies of this Government.
“we will set out for our manifesto tough fiscal rules that the next Labour government will have to stick to”.
I am glad that he has recognised the need for tough fiscal rules that are independently monitored by the Office for Budget Responsibility, as that is exactly what I suggested in a private Member’s Bill in July, the National Debt Cap Bill, which will have its Second Reading on
My proposal is that we should have an independent, tough cap on the net outstanding national debt as a proportion of GDP, monitored by the OBR. That would not be a magic bullet for dealing with potential future debt problems, but it would force the House to have a national conversation every time any Government wanted to increase debt beyond a certain point. If they had a good reason for doing that, the House could support them and Members might have an opportunity to discuss the issue with their constituents. If the House did not accept the Government’s reasons, it could prevent our country from becoming more indebted. I say to the shadow Chancellor that there is no point waiting for the next Labour manifesto because there may not be another Labour Government—at least, not any time soon. It would be far better for him to take action now, put his money where his mouth is and support my Bill, which is coming to the House in just a few months.
In conclusion, there is nothing in the motion that would help to generate investment and create jobs. In fact, if it were implemented in any form, it would destroy jobs. I urge the House to vote against it.
I am grateful for the opportunity to follow Sajid Javid, who has real knowledge and experience of the bond markets, as he has revealed today. He obviously knows a lot about the ratings agencies and he has a Bill before the House on debt ceilings. He is also an expert on credit default swaps. I share his great enthusiasm for that, but he will have to explain, on the basis of what he has said and what the Government’s policy is, why, if this is about deficit reduction and debt reduction, £46 billion more is going to have to be borrowed and spent in the next few years to cover their policies.
I want to mention Teesside because we have had the good news in the past few days that the insurance company, AXA, proposes to create 450 jobs in Middlesbrough, adding to the 300 staff it employs at Teesdale in Stockton. A great deal of comment—indeed, criticism, I would say—has come from my hon. Friends the Members for Leeds East (Mr Mudie) and for Gateshead (Ian Mearns) about the creation of enterprise zones and about the regional growth fund. In all my years in the House of Commons, I have had to deal with the Government of the day and although we might have liked to keep the regional development agencies, the reality is that we now have enterprise zones and the regional growth fund. We on Teesside have benefited from the regional growth fund and we also have an enterprise zone that we worked very hard to achieve—and now we will work very hard with the Government. There is also the good news that 1,000 staff are being taken on at the former Teesside Cast Products plant, with 100 already beginning the induction programme.
The Prime Minister, in Question Time today, ventured to say, in his feisty exchange with the Leader of the Opposition, that 300,000 new apprenticeships had been created in our country. I visited Carillion in my constituency last week to see the sterling work that it does in training apprentices in the real-life work of bricklaying, concrete mixing, pneumatic drilling, and other such skilled tasks. That is the kind of work that we see being done across the land on rainy and windy days—precisely the conditions under which those young men were working. Those young apprentices are a credit to themselves and to their future. I welcome the Prime Minister’s comments on the apprenticeship scheme.
If we take an overall look at what the Government are doing, we find the law of unforeseen consequences. There is a lack of compatibility in their objectives. Unemployment rises, so benefits have to rise. Benefits have gone up by £12 billion. We have heard a lot about the Welfare Reform Bill; the Prime Minister referred at Question Time to universal credit, and the Chancellor referred to the Bill today; he said that our amendments to it would add to the deficit. Of course, amendments can be reasoned, substantive or probing. Until we see them when they come before the House and know how we will vote, they have no great significance.
We see in our country, and we saw in Greece, that a too-rapid deficit reduction will lead to reduced growth. The classic example of Greece, to which my right hon. Friend Mr Darling referred, shows that if deficit reduction is too steep, there will be zero growth. That is the situation in our country: we have been reducing far too quickly. We talk as though my right hon. Friend never had a deficit reduction programme. We had one: we would have reduced the deficit by half over four years—a policy that even Mervyn King supported before the Government changed; then he changed to a different policy.
We were compared with Greece, which I always find very offensive to the Greeks, never mind to ourselves. The fifth largest economy in the world was being compared with a nation state of 12 million people in the Mediterranean—a state that cheated on its accounts with the European Union. Not only was that comparison offensive, but it distorted our country’s entire policy on deficit reduction.
I am not giving way; it is too late in the day. The unforeseen consequence of a too-rapid reduction in the deficit and no growth is that confidence has gone from our system. Michael Fallon referred to that. We have lost confidence. We say that we have the confidence of the markets, and of course we do; why would we not? We do not have the confidence of the people—of those trying to find jobs, of the young who have lost their jobs, and of other unemployed people. We do not have the confidence of the ordinary person in the street, who looks at the Government and sees the failure of their policies, so I would be cautious if I were a Government Member.
I come back to a statement made by my right hon. Friend the Member for Edinburgh South West, and I invite the House to remember it. There will be a change in policy. It will not be plan B or plan C. It will come in the autumn statement or the next Budget. The policy needs to change if we are to get growth. There is no future in a steep deficit reduction that will never lead to growth—not now, and not in the future.