But the public sector debt is almost touching £2 trillion. The hon. Gentleman cannot be satisfied with that situation when the whole nature of Tory Governments since 2010 has been not only to reduce the deficit, but also to get the debt down to manageable proportions.
On that point, having debt on a low and falling proportion of GDP provides some scope to absorb the impact of any future economic shock. That was the case with the Labour Government in the run-up to 2008, and in many respects it was the case with the Thatcher Government in 1988, ’89 and ’90, to hit the recession of the early 1990s. But this Government are failing to do the same thing: we will hit any economic turbulence or downturn with public sector debt being about 80% to 85% of GDP. That does not give us the flexibility to be able to respond and help firms and families in a robust and strong way.
The second point I want to make is about the nature of the economic recovery. Seven years ago a Tory Chancellor’s first Budget for 13 years stated that the British economy had become unbalanced, too reliant on growth and, as the 2010 Red Book said,
“driven by the accumulation of unsustainable levels of private sector debt and rising public sector debt.”
Growth was confined to a limited number of sectors and regions. I have mentioned public sector debt, and it is true to say that the British economy has performed well; the UK was the fastest-growing G7 economy last year. However, if we scratch beneath the surface, it is questionable precisely who is benefiting from that growth and what sort of growth we are having. Of course, growth is growth, and it has to be welcomed, but the British economy seems to be reverting to type, which could leave us vulnerable to long-term challenges and mean that we fail to take advantage of great opportunities.
Who is benefiting from the growth? The UK has been the only big advanced economy in which wages have contracted while the economy has expanded. Households are facing a period of 15 years in which average real wage growth simply does not happen. Average earnings in real terms are expected to be the same in 2022 as they were in 2007. Such a long period of wage stagnation is unprecedented since before the industrial revolution. Yet despite the lack of wage growth, household consumption is powering the economy, as George Kerevan mentioned in his powerful contribution. This has led to an expansion in the dominant services sector, but if consumption growth is running faster than wage growth, it must mean that people are either reducing their savings or increasing their borrowing.
The Governor of the Bank of England said in a speech in January that
“the UK expansion is increasingly consumption-led. Evidence from the past quarter century across a range of countries suggests episodes of consumption-led growth tends to be both slower and less durable.”
The household debt-to-income ratio has increased from 140.8% to 143.9% this year alone. These are worrying trends, and we are not seeing an increase in investment or an export-led recovery. Business investment has constantly undershot expectations, and there was a year-on-year fall in business investment of 1.5% last year. Despite the drop in sterling’s value against the dollar by about a fifth since
My third point is that we need a new model for the economy. To be fair to the Prime Minister, she said when she first came into No. 10 that she wanted to see an economy that worked for everyone, and that she wanted to see private sector reform to ensure that growth was rebalanced and reached all parts of the UK. However, that is not what we saw in last week’s Budget. The Government have referred to an industrial strategy as the path by which such growth could be achieved, yet the Chancellor failed to mention the term “industrial strategy” once in his financial statement, which demonstrates the buy-in from the Treasury to the concept. We talk about rebalancing across the regions, but as a north-eastern MP, I could find no reference whatever to the north in the Budget statement, let alone an assurance that we could have an economy that worked for everyone.
In our recent Select Committee report following our inquiry into the industrial strategy, we noted that the Government tend to operate in silos, and this Budget sadly reveals business as usual and more of the same. The Government intervene in the economy every single day, through taxes and regulations, as the Red Book shows. They can do that in an ad hoc, piecemeal way, or they can do it as part of a co-ordinated, strategic purpose. Sadly, the Budget seems to stress the former. It is true that the industrial strategy talks about skills as being essential, and the Chancellor’s announcement on technical education is welcome, but we will not see the fruits of those proposals until 2020-21. The industrial strategy also talks about ensuring that we are one of the most competitive places in the world to start and grow a business, yet the national insurance contributions debacle will result in a tax on enterprise, on ambition and on personal risk-taking by entrepreneurs.
The Committee would have liked to see a more ambitious, mission-based approach in which the Government, working with business, set a long-term direction for the economy in the pursuit of tackling global and national challenges. Where in the Budget was the vision on decarbonisation? Where in the Budget was the ambition to be the leading economy to exploit the fourth industrial revolution? Sadly, we got the same short-term tinkering, which will not address issues such as low productivity, skills deficiencies and massive regional imbalances. If the Prime Minister is serious about an economy that works for everyone, we need to see a step change in the way the economy works. An industrial strategy could be the means by which we achieve that but, sadly, in this Budget we saw business as usual.