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8.6 pm
Ms Angela Eagle (Wallasey): I regret that we have not had a chance to hold a debate specifically on employment during the debate on the Budget. The abolition of the Department of Employment has meant that no separate press release has been issued on specific employment issues.
The Secretary of State for Education and Employment has not appeared at the Dispatch Box to talk about the Budget, but, as my hon. Friend the Member for
Sunderland, South (Mr. Mullin) has just said, tackling unemployment is crucial to our ability to deal with our current economic problems.
The Budget offers tax cuts of £3 billion, which will be paid for by public expenditure cuts of £3 billion. The Budget is notable for what it did not tackle, and the questions it left unanswered.
The forecasts in the Red Book are ominous, and unrelated to reality. Some commentators have even called them heroic. They are incredibly optimistic, and we all know, unfortunately, that the Treasury's record on achieving its forecasts is dubious, to say the least.
The Government's economic strategy, based on forecasts, appears to be founded on the understanding that there will be a slowdown in manufacturing output this year, continuing into next year, and an increase in consumer spending. That will then work its way through to become an increase in growth next year. One of the structural problems with the British economy, which has been well recognised, is our inability to finance growth and recovery from recession by anything other than consumer spending. We should instead try to create a bigger manufacturing base to sustain recovery in the long run. The Government, however, seem to happy to work according to their own forecasts, which suggest that consumer spending will fuel growth.
How will that extra growth be achieved? We are now in the third year of the so-called recovery from the recession. The Red Book reveals that the Government have revised downward the estimate of investment growth from 3 per cent., as expected in last year's Red Book, to a mere 1 per cent. this year. That means that we are managing only 1 per cent. growth in investment, at a time when the economy is meant to be in recovery. That is the worst record of investment out of recession since the 1930s.
According to Treasury forecasts, next year investment is scheduled to grow by 4.5 per cent. However, the Budget strategy gives no indication of how that investment will come about. The Chancellor is paying no attention to stimulating the huge increase in investment that the Government forecast, so how will it be achieved?
I believe that the cuts in public investment are likely to lead to an opposite result. Instead of an increase in investment, we may well have a slowdown. Many City economists also predict that the Treasury's forecasts for growth are grossly optimistic, and are unlikely to reach about 1.75 per cent., let alone the 3 per cent. that the Red Book forecasts.
The swingeing cuts in public investment are likely to cause that downturn. The construction sector, where one usually witnesses the beginnings of economic recovery, is stagnant, and the cuts in public housing, the cuts in other public investment and the £4 billion of cuts in road investment are all likely to lead to continuing stagnation in the construction sector.
I do not believe that the private finance initiative will ever fill that gap. We had some discussion earlier about the likely efficacy of the private finance initiative, but obviously the initiative has failed to reach the targets that were set for it in the past, and I am aware of no reason why the rate of that failure should improve in the next few years.
Last year, £5 billion of private finance initiative so-called investment was announced, but a mere £500 million was delivered during the year. At that rate
of delivery, all we are likely to see are significant cuts in public investment, and the gap created, which was meant to be filled by the private finance initiative, simply left.
We have heard many examples of the failure of the private finance initiative from both sides of the House during today's debate. I add another. The channel tunnel rail link was announced as a private finance initiative in 1986, yet here we are, almost 10 years later, not really any closer to having our high-speed link. Those of us who have been to France and seen how their high-speed rail link works are still waiting for the private finance initiative to deliver the goods in this country. So the omens for filling the gap of that investment are not good.
Why should consumer spending increase and generate growth in the year to come? The modest tax cuts that we have had have left families about £2 better off. That is not £9, as the Government first tried to claim when the Budget emerged, and we know that most of that £2 will be swallowed up in other charges as a result of the Budget. That leaves a deflationary balance of about £16 billion from the tax increases in the past two or three years--21 tax increases, 7p up and only 1p down.
Therefore, although this year's Budget was effectively neutral, I cannot imagine where the stimulus will come from for strong growth in the years to come.
Mr. Jack:
May I take issue with the hon. Lady on one detail? She speaks about people being £2 a week better off as a result of the tax changes in the Budget. Does she agree that the average family would be £190 a year better off specifically as a result of the changes in tax, which I work out to be about £4 a week?
Ms Eagle:
I understand--it is typical of the sleight of hand in the Budget that becomes apparent when one studies it--that initially the Government claimed that people would be £9 a week better off, but that included a Treasury assumption that there would be a 4 per cent. increase in wages next year.
I do not know how many people expect a 4 per cent. increase in wages next year, but I very much doubt that any of those in the public sector do. The Red Book, and various of the press releases that accompanied it, show that the Government have not calculated, or provided any extra finance for, public sector wages next year. Any wage increases are meant to be paid for out of efficiency savings, which have been made so often, year on year, that there is very little left to save, and certainly not 4 per cent.
On the one hand, the Treasury makes an assumption that there will be a 4 per cent. wage increase next year, and on the other, it deliberately fails to fund any of that increase in the public sector. That is a telling comment on the way in which the Government treat the public sector.
I return to my question--why will consumer spending not increase to generate growth? There is the persistence of the feel-bad factor, as I call it, or the lack of the feel-good factor, as some people call it. What did the Chancellor do to tackle that significant phenomenon, which has been with us throughout most of 1990s?
First, why is it here? It is here because of insecurity and fear in the labour market and the flat, stagnant condition of the housing market. The Chancellor had little to say about either. There was no action for the housing market. Perhaps he hopes that interest rate cuts will give some stimulus to that, but we must wait and see.
The Chancellor did nothing about the labour market and unemployment. People will not start unleashing massive spending when they do not know whether they will have a job next week and whether they will be able to pay their mortgage if they become unemployed. They expect to be thrown out of their houses if that happens. After all, we have 1,000 repossessions a week at the moment because of the effects of unemployment and job insecurity. It is impossible to tackle those issues without tackling the causes of the feel-bad factor.
The tax cuts that we have had are wrapped in a large IOU, partially because of those issues but also because of the significant cuts in public spending and public service that were revealed in the press releases that accompanied the Red Book. The £4 billion cut in the road programme, without extra investment in public transport to compensate, can only add costs to business as our roads become more and more congested.
Have the Minister or his officials estimated the increase in costs to business that will result from the decisions to abandon investment in the roads programme? I know that businesses believe that that will add to their costs.
We have cuts in housing budgets, at a time of increasing homelessness, with 1,000 families being repossessed a week. We have cuts--this is shameful--in training budgets and education, at a time when we are carrying mass unemployment and its burdens. We have a 5 per cent. cut in the colleges of further education, in spite of the fact that they are meant to provide 50,000 extra places in further education.
How are those sums to be balanced? How are we meant to preserve a public sector that we can be proud of in the face of cuts of that size? We have 3 per cent. cuts in university budgets: £4 billion of cuts in capital spending in the next three years.
It is the third year of freeze also, as I said, for public sector pay.
Mr. Jack:
Let me give the hon. Lady a simple answer. By the end of the current public expenditure survey, we expect that £14,000 million of private finance initiative deals will have been signed up. That is a massive infusion of capital and provision of services for the benefit of the public.
Ms Eagle:
That is the usual wish list, and it sounds as though the Minister is appealing to Father Christmas. We must wait and see whether he gets his wishes. I have already placed on record my great scepticism about that ever happening.
We have had the nasty little cuts in single-parent benefit, housing benefit for the under-25s and the lone-parent premium, which will have significant effects on individuals, especially lone parents, but save little money.
We must remember, as we contemplate the public sector, that the Government have had £120 billion of North sea oil revenues and £80 billion of revenues from privatisation sales, yet all around us, day in, day out, services for real need continue to be underfunded. It is not a record that I would be proud of.
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