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6.33 pm
Mr. Gerry Sutcliffe (Bradford, South): It is interesting to see Conservative Members putting on a brave face after listening to the Budget. One could feel the penny drop this afternoon as they listened quietly to the Chancellor's statement. The hon. Member for Chingford (Mr. Duncan Smith) said that my right hon. Friend the Leader of the Opposition did not welcome the measures for the elderly. That is not true. He did, but he said that they were far too little too late. One could feel the penny drop as Conservative Members realised that what was hyped up this morning by the media and their spin doctors as the big bang Budget that would save the Tory party at the next general election would not save them. They realised that many of them will not be in the House after the next general election as a result of the Budget.
The Budget demonstrated the arrogance that the Government have displayed in the past 16 years. The Government hoped that ordinary people and the Opposition would forget what had gone on during the past 16 years and the waste of people. A generation of people are without work. The figures show that 800,000 people have been unemployed for more than 12 months. Resources have been wasted. We heard today about North sea oil and gas, which could have helped to create a booming economy and put people back to work, but public borrowing has been greater under the Tory Government than under any previous Government. We have heard about the horrendous sale of public assets at knock-down prices, but direct and indirect taxation are at their highest ever level.
The Budget continues the theme of the Tory Government--a Government who are so divisive. The Tories will never be forgiven by the British people. The key statistics which will rout the Government from office are on the distribution of wealth. They have created a society in which the real income of the top 10 per cent. has grown by 62 per cent. while that of the bottom 10 per cent. has dropped by 17 per cent. We have a two-tier society and a society that confines pensioners to living in poverty. Many young people are unemployed. They will now be homeless because they will not receive the housing benefit to which they are entitled. Many families live on welfare benefit. A third of the population in my city live on some form of benefit. We have a Government without vision governing a country which cries out for leadership.
There are several ways in which the Government could have stimulated the economy to create an effective environment for growth. They chose not to do so but to continue with a stop-start economy that relies on outdated, unjust and unfair cures. It is scandalous that the country spends £20 billion on keeping people out of work rather than improving the economy by providing desperately needed jobs in our communities, thereby raising people's self-esteem and letting them make the decisions that they want to make in their lives.
The manufacturing base has been destroyed. Communities such as Bradford have suffered greatly in the past 16 years. The history of Britain in the past
16 years could be seen as the inevitable effect of the decline in investment in our people, our infrastructure and our industry. The Tories have almost given up on Britain. The task facing us today is to equip Britain for the future by securing investment in industry and infrastructure and meeting the needs of people in today's society. Today's Budget did nothing to meet that task.
It is almost three years since the recession officially ended, but as we entered the Budget debate today Britain had a faltering recovery. There are still more than 2 million people unemployed. Borrowing is higher than expected. Inflation looks likely to overshoot the Government's own targets. Perhaps of much greater concern, we have critically low levels of investment.
The Tories have presided over the two deepest recessions since 1979. The economy does not have the capacity for strong growth. Organisation for Economic Co-operation and Development calculations show that Britain has fallen down the prosperity league from 13th place in 1979 to 18th in 1993. The main reason why we are falling is simple. We do not invest enough. In 1979 Japan invested 56 per cent. more, Germany invested 21 per cent. more and Belgium invested 11 per cent. more than Britain. Now the gap has grown even wider. Japan invests 141 per cent. more, Germany invests 60 per cent. more and Belgium invests 35 per cent. more than Britain.
The real issue in the Budget is not that income tax is a penny down but how we can increase investment and boost the economy. The fundamental difference between the Conservatives and Labour is that while Conservatives believe in a minimalist state in which the Government abdicate responsibility for investment, Labour believes that the only route to success is high investment in infrastructure, people and technology. They believe that investment will follow success; we believe that success will follow investment.
Conservative Budgets have consistently failed the country. The Conservative party's key promise in 1979 was that it would reverse Britain's decline. Sir Geoffrey Howe, as he then was, said in his 1979 Budget:
The Tories' record of the past 16 years is one of Britain's falling further and further behind. As originally pointed out by the Bank of England in its August 1995 inflation report, investment has been weak in the present recovery. In two years of the recovery, business investment has increased by only 4 per cent., compared with 28 per cent. in the 1980s and 16 per cent. in the 1970s. Weak investment and skill shortages are laying down the foundations of the next recession.
In 1994, total investment was more than 10 per cent. below the level that it was in 1989, before the recession. The investment share of the economy has fallen for six years in a row--from 24 per cent. in 1989, to 17 per cent. in 1994. In 1993, the United Kingdom was 20th out of the 24 OECD countries in terms of the share of the economy devoted to investment.
Investment is the key macroeconomic variable for growth, inflation, unemployment and trade. Not only does spending on investment increase output in the current
period, but, as an addition to the capital stock, it can be used to produce three times as much output in the following period. With a higher capital stock comes higher capacity, which means higher growth rates can be sustained without inflationary pressures.
For all the reasons that we have heard, Britain has too small a manufacturing base. It no longer meets some domestic demands, so we have to import, which worsens the balance of trade. Higher investment is not only the key to growth and, therefore, to lower unemployment, but the means by which sustained low inflation can be achieved.
The Chancellor was keen to point out that manufacturing investment is 12 per cent. higher than a year ago, but it is still about 14 per cent. below the peak of 1989. In real terms, manufacturing investment in 1994 was 20 per cent. below the level of 1979.
The Government portray the United Kingdom as the enterprise capital of Europe. We heard it again from the Chancellor today--I think that he said it three times. He said that we achieved that status by receiving one third of all inward investment into the European Community in 1993 and more than 40 per cent. of Japanese and foreign investment. What is not generally recognised is that even more investment is leaving the country. Inward investment was £6.6 billion in 1994, but outward investment was £16.4 billion. Since 1979, the cumulative balance of inward investment less outward investment was a deficit of £58 billion. In 1979, manufacturing accounted for around 30 per cent. of the output of the economy. By 1994, that figure had fallen to 21 per cent., with a loss of more than 2.5 million jobs.
It is clear that, without tackling the problems of capacity in the economy, we face the re-emergence of the problems of stop-go and boom-bust, which have historically afflicted the British economy. Throughout the 1980s, the Conservatives argued that high unemployment was a price that had to be paid for low inflation. The reality is that high unemployment and high inflation are products of under-investment.
It is no good Conservative Members talking about the scourge of unemployment and how hard it is for people who are out of work, when the Government do nothing to sustain the economy. I have some sympathy with my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands), who said that the Bank of England and the Chancellor talk about the "acceptable" level of unemployment, but that there should not be an acceptable level. We must study ways to avoid it.
Unemployment is a waste of people and it shows an enormous lack of investment in the British people by the Conservatives. The Prime Minister took office in November 1990, and in June of that year the work force in employment stood at 27.186 million. By June this year, it had fallen to 25.7 million--a drop of 1.46 million. There are grave doubts about the accuracy of the unemployment figures. I have given the Government figures. There might really be more than 4 million people out of work. We see that in the large number of our constituents who do not have jobs.
Another worry is that the country has a problem with skills. There is a mismatch between the skills of the unemployed and those required by industry. That fact is accepted, not merely by Opposition Members but by the Deputy Prime Minister, who has called for a job skills
audit. The unskilled and the poorly educated have suffered most from the rise in unemployment. The Tories have failed to invest in new technologies and industry and in the skills of the work force. In an internationally competitive global economy, where investment capital is mobile, a highly skilled work force is the key factor in competition.
The United Kingdom lags behind all OECD countries except Turkey in the proportion of 17 and 18-year-olds in education--180,000 of our 17 and 18-year-olds are not in education, work or training. As my hon. Friend the Member for Merthyr Tydfil and Rhymney said, they have gone missing.
The Government have slashed the training for work budget by 29 per cent. since 1992. In 1994, the economic adviser to Lloyds bank warned that Britain was in danger of becoming a low-skill economy unless the levels of investment and training in manufacturing were raised. He said:
After 16 years of Tory government, it is funny that they are asking us to draw lessons, not from Britain, which they have been governing, but from the Asian tiger economies, where very different policies have been pursued. As usual, the Tories have drawn the wrong lessons from the Pacific rim. The main reason that they have been so much more successful than Britain in recent years lies not in the difference between levels of public spending, but in the much higher levels of investment, both public and private. They have achieved those higher investment levels by encouraging higher levels of savings and competitive domestic markets and by investing in education and infrastructure. They have promoted a culture that values long-term investment, not short-term return.
The Tories reject that role for government. That is why Britain has fallen so far behind in investment since 1979. While Hong Kong and Singapore invested £1.3 and
£1.1 respectively for every pound per head invested in Britain in 1979, today they invest nearly £3. The lesson to be learned from Hong Kong and Singapore is not that public spending necessarily creates economic success, but that high investment does. Indeed, the lesson that those countries could teach us on public spending is that economic success can cut the need for public spending.
Essentially, there are two options for Britain--carry on with the failed prescriptions of the past 16 years, or adopt a new common-sense approach. For Britain in the 1990s and heading towards the 21st century, the central challenge of economic modernisation is to overcome the long-standing problem of under-investment in people and in our social and economic fabric to expand the capacity of the economy.
Investment must be a priority, and the Budget does not achieve that. We must ensure that investment is long-term. The Government have been too complacent for too long about investment and have ignored warnings from business, industry and the Bank of England.
The Budget is not about a choice between investment and tax cuts, but about increasing investment as the only route to decent public services and a sustainable economy. For the past 16 years--too long--we have suffered the political dogma of the Conservatives, and they have accused us of political dogma. The British public will not fall for the bribery of tax cuts. Conservative Members wanted cuts in the region of 4p or 5p, not the 1p announced today. The British public will not be bribed in the way that the Tories feel that they can be.
Last year, I was a member of the Standing Committee that considered the Finance Bill, which was an interesting experience in itself. A key phrase for Tory members of that Committee was the difference between tax evasion, which is illegal, and tax avoidance, which is legitimate. That subtlety allows disabled people to pay tax on benefits, while huge corporations employ expensive accountants to find ways not to pay it.
"in the last few years the hard facts of our relative decline have become increasingly plain, and the threat of absolute decline has gradually become very real."--[Official Report, 12 June 1979; Vol. 968, c. 237.]
That is a prospect that I am not prepared to accept, and nor are the British people.
"Low skills will discourage industry from adopting best technology, further undermining the need for better training. This downward spiral is probably the greatest threat to the opportunities now facing the UK".
Those are the words, not of a Labour sympathiser, but an economist looking at the facts.
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