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8.26 pm
Ian Lucas (Wrexham) (Lab): I am grateful for the opportunity to contribute to the debate. I want to talk about the reality of the British economy today, in particular in my constituency in Wrexham in north-east Wales. The reality bears little resemblance to the words of the prophets of doom on the Opposition Benches. The Government’s record over the past 10 years in building the foundations for a strong economy is testament to their being a Government of great economic reform.
Today the A380, one of the most magnificent examples of British engineering, landed at Heathrow after its first commercial flight. The wings for the A380 are built at the Broughton plant in north-east Wales and are testament, first, to the engineering skill of the people of north Wales but also to the Labour Government’s investment in the Airbus company and the British economy generally. That work is also testament to European co-operation, something that the Conservatives certainly do not believe in.
Airbus employs 13,000 people in the UK—about 8,000 at the Broughton plant in north-east Wales. Several hundred people from my constituency work there. In addition to the contribution that the civil
aircraft sector has made in the past few years, Airbus has announced in the past fortnight that the air tanker project commissioned by the US Government, worth £3 billion, is to be awarded to the European Aeronautic Defence and Space company—EADS—and Airbus. Again, that is a huge vote of confidence in UK manufacturing industry, and it shows the reality of the manufacturing sector in north-east Wales. The sector extends further than aerospace; Sharp, the Japanese manufacturing company, manufactures photovoltaic cells in my constituency and has invested in the manufacture of those cells for export to the UK market. That investment came to the UK in preference to any other country in western Europe because north-east Wales and the UK was the best place to invest, manufacture and export.
The pharmaceutical sector has invested in Wrexham, too. An Indian company, Wockhardt, is investing in the manufacture of pharmaceutical products in Wrexham, and a French company, Ipsen BioPharm, is investing in Wrexham so that it can export to the US market. All those investments have been made in the Wrexham economy in the past five years. The reality for the people of Wrexham is that the rate of unemployment has declined since 1997, when, under the Conservative Government, about 2,000 people in my constituency were registered as unemployed. That figure has halved; it is now just over 900.
The reality of manufacturing industry—I have focused only on manufacturing—in my constituency under the Labour Government is that it has been successful, has developed and strengthened, and is prospering. We should listen less to the doom-mongers on the UK economy and recognise progress when it has been made. I say quite candidly to the Conservatives that it would be extraordinary to listen to their lectures about running the economy. I was born in the same town as my hon. Friend the Member for Blaydon (Mr. Anderson), I think, and I experienced what a Conservative Government did to the UK economy between 1979 and 1997. I remember when, in the early 1980s, 3 million people were unemployed. I was seeking work in the north-east at the time, but I went to Germany to work during a summer holiday because there were no jobs available in the north-east. Unemployment was at 3 million not just once but twice under the Conservative Government. Lives were wasted and set aside for 18 years, so I do not listen at all to the arguments put forward by the Conservatives; they can give no lectures whatever about the economy and how to run it.
Mr. David Anderson: Does my hon. Friend agree that the unemployment experienced in the 1980s was not an accident, but was the result of a policy of which the Conservatives were actually quite proud?
Ian Lucas:
Absolutely, and it was a policy of waste. We should remember that during all those years when 3 million people were unemployed, each of those individuals was being paid benefits. A dependency culture developed, and we are still struggling with it today. There are individuals who were put on the incapacity benefit scrapheap by the Conservatives and
who are still on incapacity benefit today. That dependency culture cannot be cured overnight; we are working to defeat it, and we are making real strides towards doing so. The most important stride that we are taking is in creating an economy where work is available—something that did not happen under the Conservative Government.
Mr. Philip Hammond: If the hon. Gentleman does not want to take any lectures on the UK economy from us, what does he think about Alan Greenspan, the Prime Minister’s adviser, who says that the UK economy is “more exposed” than that of the US to financial instability, or Goldman Sachs, the Treasury’s appointed adviser, which says that
“The UK is slowing more than the rest of Europe”,
or the OECD, which says that the slow-down will be larger in the UK than elsewhere?
Ian Lucas: I should be delighted to invite the hon. Gentleman to visit my constituency of Wrexham, with which I believe he has some familiarity. I invite him to see the prosperity, which is built not on public sector investment—although there has been such investment in Wrexham—but on the inward, private-sector investment in north-east Wales that I described. Retail investment is going into the north-east Wales economy from the private sector because it has confidence in the UK economy and the people who are bringing prosperity to the manufacturing industry and the area.
I refer to one specific proposal in the Budget relating to child poverty—
Stewart Hosie: Before the hon. Gentleman moves from manufacturing to child poverty, may I say that I welcome what he said about north-east Wales and I am delighted for his constituents working in those industries, but he should not be complacent about the 650 employees at NCR who were laid off last year or the 100 at Michelin in my constituency, the closure of the Yorkshire Fittings plant in my constituency, the wheelchair company that moved production to China, and Patak’s Foods? There is not a universal picture. A million manufacturing jobs have been lost, including 1,100 across Dundee in the past year. The hon. Gentleman must realise that the picture that he paints is not uniform across the UK.
Ian Lucas: I speak of my constituency, and I realise, of course, that companies close in all constituencies, including mine, because we live in a globalised economy. We must confront the challenges of competitiveness and low-wage economies. We must progress and constantly improve our manufacturing base. The way forward has been shown by companies such as Airbus and Sharp UK, which have invested in high-technology products.
I could also speak about the development of the apprenticeship network, which is strong in north-east Wales. Apprentices were a lost breed under the Conservatives, but are now resurgent. When I go to my local further education colleges, I see local companies employing apprentices and planning and investing in the future. That is how we will compete as an economy in the future.
I wish to mention a specific aspect of the Budget that I welcome. Mrs. Sheila Harrison, who is the manager of my local citizens advice bureau in Wrexham, approached me last year and suggested that it would be a major step
forward in tackling child poverty if the Government considered disregarding child benefit for the purposes of calculating housing benefit and council tax benefit. At that time, I wrote to the Treasury and to the Department for Work and Pensions. I also tabled a parliamentary question and established that it would cost about £300 million to implement that. I tabled an early-day motion, which I am sure had an inordinate effect.
I was delighted to read in the Budget that from next year the Government will implement that very proposal. Mrs. Harrison rang me up, having been apprised of it by the citizens advice bureau network. I take this opportunity to thank the Government for taking the wise words of advice from Mrs. Harrison. No doubt other individuals made representations to that effect. It is heartening indeed to hear that we have a Government who are committed to eliminating child poverty by 2020 and halving it by 2010, and who are taking steps year by year in that direction.
The difference between the present Government and the Conservative Governments is that when the Conservative Governments were in power, they did not even regard that as a goal that they wished to achieve. I am proud that we have a Government who are creating manufacturing industry that is developing and prospering in north-east Wales, and who are confronting and attacking child poverty in our midst.
8.38 pm
Mr. Philip Dunne (Ludlow) (Con): It is a—I was about to say a pleasure to follow the hon. Member for Wrexham (Ian Lucas). I note that in many of the references that he made to the success of Wales in attracting high-tech manufacturers he did not give credit to the Welsh Development Agency and the political skill that Welsh Labour MPs in particular have in persuading it to support business in Wales. On the other side of the Welsh border we notice that to our cost. The hon. Gentleman is to be congratulated on the role that he plays in that.
Ian Lucas: On a point of information, I should point out that the Welsh Development Agency no longer exists.
Mr. Dunne: I am grateful for having been brought up to date on the extent to which Wales keeps ahead of other regions of the country in developing its support for industry.
I should like to focus most of my remarks on the macro aspects of the Budget. Many speakers have discussed the extent to which the Chancellor is in denial of the events surrounding this country. So concerned has he been to convince us that all is well with his stewardship of the economy and that all is stable in his hands, that he failed to recognise—and barely mentioned in his speech—that the stable door has been blown open by the financial storm coursing around the globe, and is left flapping in the wind.
In opening the debate, the Secretary of State for Business, Enterprise and Regulatory Reform repeated the mantra about stability; apparently, the problems are all the Conservatives’ fault for talking the economy down. However, we did not cause the credit crunch, as was generously acknowledged in one of the Labour
contributions. We did not cause the crisis; nor are we talking it up. However, we do believe that the Chancellor needs to wake up to the consequences of these unprecedented events, as many commentators warn that he should.
What is the Chancellor’s reaction to the shocks? In his speech last week, he talked up the resilience of the UK economy and today Ministers and the few Back Benchers who have turned up to support the Chancellor have been parroting that mantra too. However, what is there to be so resilient about in an economy whose house price inflation is among the highest and most resilient—in that sense—in the world? Our household debt levels are at record highs and our consumer saving ratios are at record lows. The day after the Budget, Roger Bootle, a leading economist, wrote:
“Our housing market is one of the most over-valued; our consumer saving ratio has plunged to levels only exceeded by the US; we are heavily exposed to the global economy, which is threatened; we are heavily dependent upon international financial activity, which could be severely hit; and our scope to take expansionary fiscal action is limited by our recently lax fiscal policy. On balance we are relatively badly placed to weather the storm.”
That says it all—far more than the Chancellor has acknowledged in his assessment of how we are placed to cope with the financial crisis.
It is not only our own economists who are spreading cautionary tales. The managing director of the International Monetary Fund, Dominique Strauss-Kahn, was quoted in the papers as saying:
“It’s a problem for economic growth. We clearly face a situation in which the risks to economic growth are more and more serious.”
I hope that he passed that message on to the Prime Minister and the Chancellor when he met them today.
Today, the Bank of England published its latest quarterly review. In commenting on activity in the sterling financial markets in February, it pointed out that the
“difficult conditions in bank term funding markets would continue for some time, which would be likely to lead to a reduction in the supply of credit to the economy generally...This could act as a drag on economic activity, and in turn could prompt further deterioration in the quality of banks’ assets and limit their ability and willingness to lend”.
One example of the speed of change is that the central forecast in the Budget is for house price growth of 2.5 per cent. per annum. Figures for last month show that house prices have already declined, after five successive months, to an annual rate of only 1.4 per cent. So, before the year has even begun, we are considering an optimistic annual house price assumption in the Red Book.
Where does that leave Government finances and the Chancellor’s forecasts? It leads to an overwhelming lack of credibility. The Chancellor chose to downgrade his GDP growth range for 2008 to a range of 1.75 to 2.25 per cent., rising back to trend after 2009. However, he did that on the back of consensus economic forecasts, which looked to 1.5 to 1.7 per cent. The bottom of the Chancellor’s range for growth in GDP in the year that is about to start is marginally above the consensus average. Independent commentators, who gave evidence to the Treasury Committee on Monday, raised particular anxieties about that. Bridget Rosewell
from Volterra Consulting described the Chancellor’s forecast as complacent. She said:
“The particular form of optimism that I find most disturbing was not that overall headline number, where even the bottom end of the range is above the current consensus, which seems odd, but also the discussion about the UK’s resilience to economic shocks and how this is expected to have increased. It was the complacency surrounding that which I found particularly disturbing.”
What does that forecasting optimism mean for the public finances? The Government, especially the Chancellor’s predecessor, have form on forecasting the public finances. Every year since 2003—seven years in a row—the year in which public finances cross over into Budget surplus has been pushed out. In the 2003 Budget, it was predicted to happen in 2005-06. Only last year, in the 2007 Budget, the date was pushed to 2008-09. The pre-Budget report, which was published only last October, pushed it to 2009-10 and the Red Book now says that it is to be 2010-11.
The public sector net debt, excluding Northern Rock and the international financial reporting standards—IFRS—changes, to which my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) referred, has increased by £20 billion over the period of the Red Book. What impact does that deterioration in public finances have on the Government’s famed sustainable investment rule? It places it perilously close to a breach. Table C5 on page 184 of the Red Book shows that public sector net debt reaches 39.8 per cent. of GDP. How much headroom does that give us? Headroom of 0.2 per cent. is equivalent to only £2.8 billion. That compares with a £13 billion to £14 billion average forecasting error since 2003. That leaves a high probability of a breach—a 50:50 chance, according to the experts who spoke to us on Monday. Where is the discussion about what happens in those circumstances in the Chancellor’s explanation of the Budget? It appeared nowhere in his speech or in the Red Book. The Chancellor is crossing his fingers that it will not happen.
Of course, the figures completely exclude the impact of Northern Rock, which the Office for National Statistics declared will have to be added to the public debt yet the Chancellor conveniently decides that he can ignore. The ONS calculated the Northern Rock debt at 30 June as adding 6.7 per cent. to the public sector net debt as a proportion of GDP, blowing us way off the sustainable investment rule. Yet that has not been discussed and there has been no explanation of what the Government will do.
The figures also exclude the impact of moving the public accounts on to an IFRS basis. The Government have agreed to that but decided to defer doing it for another year. That is likely to add a further £30 billion of PFI off-balance-sheet debt to the public sector net debt. Again, there was almost no discussion of that in the Chancellor’s presentation.
Let me consider briefly the specific measures that the Chancellor proposes. We are debating a tax-raising Budget. Much has been made of the fact that it is fiscally neutral and, technically, it is, but only for the year that starts in April. Measures to be introduced in April 2009 raise just short of £800 million and those to be introduced in April 2010 raise a further £1.8 billion. When taken with measures that were announced in the
Budget in 2007 and since, the figure rises by a further £1 billion to £2.8 billion in the third year of the Budget, so we are talking about a tax-raising Budget, not a tax-neutral Budget.
By and large, the measures in the Budget are puny—that point was well made by the hon. Member for Taunton (Mr. Browne). Of the 52 measures set out in table A.1, which shows the fiscal impact of the policy decisions in the Budget, 42 have a fiscal impact in the first year of plus or minus £25 million or less. Indeed, many have either a zero or an insignificant impact. By 2010-11, some 34 of those 52 measures will continue to have a minimal impact. Those measures amount to tinkering at the edges and have little significance on the national accounts.
Overall, the measures are also regressive. Almost everybody earning less than £18,000 will be worse off under the proposals, particularly if they drink, smoke or drive. The more significant measures have been shambolically introduced. Other hon. Members have talked about the capital gains tax changes, which were announced in the pre-Budget report. It was then announced that there would be a rethink, but the rethink was delayed. Finally, the proposals were confirmed a few weeks ahead of the Budget, giving business men very little opportunity to arrange their affairs before the end of the tax year.
The Secretary of State for Business, Enterprise and Regulatory Reform had the gall to argue that the Budget is a Budget for entrepreneurs that, to use the expression that I think he used, abandons short-termism. In fact, the Government’s capital gains tax proposals abandoned the very incentives that encouraged long-term investing. Is it any wonder that the Government’s reputation for economic competence has now been exposed as blowing in the wind?
8.52 pm
Paul Flynn (Newport, West) (Lab): It is a pleasure to follow the hon. Member for Ludlow (Mr. Dunne), which is part of Wales’s Sudetenland, as he knows, not that we have any plans to re-conquer it. I am sorry that I did not hear an expression of the spirit of generosity that we have seen from the English rugby XV, following recent events on the other side. We have heard what seems to be a Meldrew approach to the Budget. I was also delighted recently to see something that I had not noticed before—that the English rugby team has “O” and “2” on its kit. Apparently, that is the answer to the question of how many times certain countries have won the triple crown in the past five years: two times for Wales and zero, sadly, for England. However, it is nice of England to do that for us.
The hon. Member for Hertford and Stortford (Mr. Prisk), who has just left the Chamber, made some selective points about entrepreneurship. It is only fair that I should cite some facts about entrepreneurship that he unfortunately omitted. The UK is now third in the G8 ranking for early stage entrepreneurship, which is very creditable, up from fifth in 2001. That is a considerable improvement. The proportion of the working age population expecting to start a business in the next three years has increased by 70 per cent. Again, that is very creditable and a good story. The proportion of the population who believe that they have the skills to start a business has increased by a quarter, from 40.2 to 49 per cent.
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