My Lords, in September the International Monetary Fund concluded this year’s review of the UK economy by noting that Britain had moved,
“from the top to near the bottom of the G7 growth tables”.
We are now vying with Italy and Japan for the G7’s “Bringing Up the Rear of the Year” award. The UK growth trend is downwards. The British economy is still growing, but it is also slowing: it has grown slower every year for four years in a row. Growth this year is expected to be under half what it was in 2014. The British Chambers of Commerce has warned that growth will slow to “a snail’s pace” this year—barely 1.1%. Surely we should all know why. Years of austerity have stymied UK growth, leaving most people no better off now than they were a decade ago, when the global financial crisis pitched the real economy into the great recession.
Despite this dismal record, the Chancellor would have us believe that he is the bearer of good news about public finances, that the Budget deficit is shrinking fast and that things are looking up. But good news can indeed be relative. Back in December 2014, the Chancellor’s predecessor promised that this year, 2018-19, would be the breakthrough year—the year when the Budget would finally move out of the red and into the black, from deficit to an overall £4 billion surplus. Today the OBR expects this year’s Budget still to be in deficit to the tune of £25 billion. I repeat: not the predicted £4 billion surplus but a £25 billion deficit. The slippage has not stopped. The Government are still behind schedule with their deficit-reduction plans, and still overpromising and underdelivering, despite the misery, despair and economic vandalism of never-ending austerity.
Earlier this year the Chancellor’s Spring Statement envisaged a £37 billion deficit for the current year 2018-19. That figure was the very target that George Osborne set for 2014-15 in his infamous June 2010 emergency Budget—by the way, exactly half the target set for that year by Alistair Darling in his final March 2010 Budget. It has taken the Tories eight years to hit their four-year target. All their 2010 talk about Britain being on the brink of bankruptcy and needing urgently to close the budget deficit before we sunk into the Greek abyss—all that nonsense has been exposed as the hogwash some of us always said it was.
Many Members of this House will have noticed a new study of the financial crisis that appeared during the Summer Recess—Crashed, by Professor Adam Tooze of Columbia University, New York. On page 350 he notes George Osborne’s claim that by 2015 he had slashed £98 billion in annual spending from the UK budget, and OECD evidence that only Greece, Ireland and Spain endured worse contractions than those inflicted on the British people—which is why it took GDP two years longer to recover to pre-crisis levels in the UK than in the United States, where President Obama did the very opposite: rather than cutting spending, he invested and expanded, and US growth picked up where ours went down.
For all the talk of a giveaway Budget and the Tory fiscal squeeze coming to an end, the reality is that Philip Hammond is pressing on with austerity. Office for Budget Responsibility figures show that between 2010 and March 2018, the Tories squeezed £130 billion of spending out of the economy in tax rises and public spending cuts. This latest Budget does not mark the end of austerity—it prolongs it. By 2020, 10 years of Tory austerity will have squeezed over £150 billion of spending out of the economy, 80% of which will have come from public spending cuts.
That £150 billion is 30% bigger than the whole of this year’s budget for NHS England. Figures from the House of Commons Library show that a quarter of that £150 billion in lost spending will be due to cuts in working age social security. Some of the greatest falls in living standards are being experienced by the worst off. So much for the Tory slogan, “We’re all in this together”. This is not a new chapter as the Chancellor claims: it is the same old story, and the Government plan to make it last into the mid-2020s.
Austerity is the reason why care homes are closing, why police numbers are down and why prisons are short of staff. Austerity is the reason why we hear cries of anguish over the lack of elderly care places and cries of desperation over the lack of housing for our young people. Instead of responding to Britain’s urgent social needs, the Chancellor committed nearly £10 billion to income tax cuts over the next five years, which will benefit the better off and the richest the most. Utterly wrong priorities, surely.
A disturbing new chapter in UK economic policy has now opened. The balance of fiscal and monetary policy is shifting towards monetary restraint, even before the austerity-induced slowdown has ended and before the full effects of Brexit uncertainty have become clear. Premature rises in interest rates can only hinder rather than help Britain’s recovery. Yet the fact that the Bank of England has begun to raise interest rates seems to have passed the Chancellor by. He is sticking to his tight fiscal grip when he should be offsetting the drag of higher interest rates by giving the economy a substantial Budget boost. Worse still, instead of encouraging growth he is preparing further cuts in the event of a no-deal exit from the European Union.
The economy really needs a Budget boost in infrastructure investment, skills and training, and low-carbon, greener growth. I welcome the recent call from the Institute for Public Policy Research commission on economic justice for a £15 billion increase in annual public investment spending over and above current plans, taking it to 3.5% of GDP, the average for the G7 countries. That would be double the current rate. It would help to correct decades of underinvestment in UK infrastructure and consequently generate greater growth which will in turn reduce borrowing and debt.
To those who say it cannot be done, I say this: we did it. It is exactly what the last Labour Government did at the height of the global financial crisis. We increased public investment by £14 billion in 2008 and by £15 billion in 2009, over and above previously planned levels, taking it to a 40-year high, and growth began picking up—until the Tories won in 2010 and it collapsed under the weight of savage austerity.
Maintaining infrastructure investment on a permanently higher plateau would encourage faster economic growth, deliver higher living standards and provide a better quality of life for all of our people. The Chancellor’s Budget falls short on all those criteria. He has dismally failed to provide the kind of fillip that is desperately needed for our economy—especially as the Government drives forward, lemming-like, towards an economically suicidal Brexit.