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I can agree with the right hon. Gentleman on that, but he did not say whether he welcomed the Governments putting money into the banks to improve their reserve ratios, which will get them lending again.
He did not say whether he agreed with the Governments making liquidity available to the Bank of England, which will also help to get lending going again. He told us that markets were the answer, when it is markets that got us into this position in the first place. He criticised the failure to reduce interest rates, although he knows full well that those rates are controlled by the Bank of England, independently of the Governmenta development that his party welcomed. I was pretty critical of it, but all that contributed to high interest rates, which he denounced as the cause of the problem.
The right hon. Gentleman, in his eagerness to criticise what the Government are doing, did not give us an answer. He might have been referring to the economics of Montagu Norman and Otto Niemeyer; I do not know. Perhaps that is the source of his website information, but there was no answer in the right hon. Gentlemans speech, apart from having an extended Prime Ministers Question Time. Marvellous, but that will not help all the people who are hurting in the country at large. What we need is concrete measures, which I will come to in a little while. I have no doubt that the right hon. Gentleman would disagree with me on the sort of measures that I believe are necessary, but I am surprised that a very short Queens Speecha very short one indeedhas brought about such a flood of indignation and complaint.
I was even more surprised to find that both the Conservative leader and the leader of the Liberal Democrats said that most of the measures in the Queens Speech had been proposed by them in the first place, only to go on to denounce them and say that they would not work. That criticism seemed a little contradictory to me. In fact, the right hon. Member for Sheffield, Hallam (Mr. Clegg) was even more critical of the Queens Speech than he was of his own Front Benchers when he was on his plane flight. I wish that flight had been a little longer, as we might have heard what he thought about the entire Liberal party. That might have been fairly damaging, but my point is that he was not at all supportive of the important measures that the Government have taken or of the further measures that they are proposing.
It was a short Queens Speech and ritual indignation was in inverse ratio to the length of it. It may well be that we will have a lighter legislative load in the Session; I hope we do. I hope that the proposals put to the Prime Minister earlier by the hon. Member for Oxford, West and Abingdon (Dr. Harris) for better Report stages are followed up, so that we can actually get to grips with all the amendments, including the Government amendments. We need more serious consideration of the basis of a Bill on Report, and I hope that that will be a product of having a lighter legislative load. I imagine that the Daily Mail will demand that our expenses be cut appropriately to reflect the lightness of the load.
The Governments overriding priority is to ensure the stability of the British economy during the global economic downturn.
to improve incentives for people to move from benefits into sustained employment.
If that is to work, there has to be sustained employment available and jobs for people to move into. My worry is that we will be pressuring people to move into jobs that are not there as unemployment rises.
That is a last vestige of new Labour, but I want to argue today that new Labour is a dead parrot so far as economic management is concerned. New Labour was an approach geared towards the economic management of good times and of steady growth, which we have had. We tend to forget it, but we have had long years of continuous growth that have made everybody in this country better off, improved schools, hospitals, public buildings and the centres of our cities. We should not forget that but we are now in a different situation; we are in a recession, a more difficult situation.
I am speaking today to bury new Labour, not to praise it. It does not deserve the kiss of life that Lord Mandelson has been trying to give it. It was economics for another time and it has been killed, effectively, by the bursting of the bubble; a bubble based largely on increasing house prices, as a result of which everyone got optimistic and borrowed more. People felt able to borrow more and the banks felt able to lend more on the basis of increasing house prices. There is a simple law of economics, which is that if a thing cannot go on for ever, it probably will not, and it did not. The bubble burst and we are now in a new situation, one in which, I must tell the right hon. Member for Wokingham, we are all socialists now; even George Bush. What King Edward VII said at the start of the last century is appropriate now; We are all socialists.
Only the state has the power and the strength to deal with the situation, to recapitalise the banks and to push them into lending. As the right hon. Member for Wokingham said, they need to lend more to small businesses and individuals, but only the state has the power to give them the money and to push them into doing that. Only the state has the power during a recession to maintain a policy of fair shares. Only the state has the power to protect the individuals hit by the recession, as the Prime Minister announced today we are to do by strengthening the position of people who face repossessions; an important step in these economic difficulties. Only the state has the power to re-regulate in the way that the right hon. Gentleman clearly wanted. I agree that we have to re-regulate, but only the state can do it and counteract the market by those regulations.
This is a new time and a new age in which we need new policies for companies that are over-leveraged and weighed down with debt. The problem now is not inflation, which has been the main problem over the long period of steady growth; it is deflation and lack of demand. That is causing the problems and it is vital to break that downward spiral and to boost demand.
I see here a contrast emerging between what the Government will do and what the Conservatives would do. We do not need to look into the oracle; we can see it in the history of the last Conservative Government, who dealt with two recessions by measures of deflationcuts, unemployment and high interest rates, reaching 15 per cent. at one time. That is the Tory answer to recession; it is not the answer from the Labour party and it is not the answer that will work. What will work is a policy of boosting purchasing power and consumer
demand by a policy of spend, spend, spend. To spend, the Government have to borrow. We must borrow more and we must spend it.
The right hon. Member for Wokingham was a little sarcastic about the cut in VAT. I would join him in that because a better use for the money would be to pump it out into the community to spend rather than cutting VAT. When sales with discounts of 10, 20 and 30 per cent. have become a way of life in the high street, a cut of 2.5 per cent. in VAT makes no difference at all. As a camera fanatic, I shall finish my speech early so that I can get to Jessops to get 10 per cent. off its prices. Unfortunately, I see that it will be closed so my speech can extend to its natural length.
But the money could have been better directed at taking people out of the tax net altogether. We still have to deal with the 1 million or so who have not been compensated yet for the abolition of the 10p rate. Going by the mail I get, half that number appear to live in my constituency. That has to be dealt with. It is more sensible to take people out of tax altogether by raising the allowances and to help people by increasing benefits. Why not double the winter fuel allowance? Fifty pounds on the winter fuel allowance, which is now £250 or £400, for those over 80 is not adequate to deal with the huge rise in fuel bills people are facing this winter. Double it; increase benefits; and increase tax credits for working families. That directs the money straight at the problem of child poverty that we pledged to deal with.
The aim of policy should not be to cut VAT by 2.5 per cent., but to put money not into the pockets of the rich but into the pockets of the less well-off and the people who go out and spend it. We want them to spend and buy; we want consumer demand to increase. The increase in the top rate of tax to 45 per cent. was welcome to me, but it should have been 50 per cent. and I think the community would have accepted that. There is a feeling that people who benefited so richly in the good years should now help to pay their share in the period of difficulty. Increase the top rate of tax next year; not now as we do not increase taxes in a recession. But the bottom 20 per cent. of the population pay about 40 per cent. of their incomes in direct and indirect tax whereas the top 20 per cent. only pay 35 per cent.
Mr. Llwyd: Therefore would not it have been sensible to raise the threshold to take what the hon. Gentleman describes as bottom earners out of income tax? I understand that that would have cost £2 billion, a sixth of what the VAT fiasco has cost.
Mr. Mitchell: Exactly. I was about to propose that and I am grateful to the hon. Gentleman for taking the words out of my mouth and using them more eloquently and articulately than I ever could. That is what we should have done; take people out of tax altogether. We could have taken a large number out of tax by raising the allowances.
Apart from spend, spend, spend, which has to be the economic norm in a recession, the second approach in good old Keynesian fashion is to build, build, build. It is by building that we put people back into work. Was it Keynes who said that if we employed people to dig holes in the road, they would be receiving a wage and that would stimulate the economy? But we can more
easily employ people to build houses, in particular, but also schools and all the other things our communities need.
Housing is a particular problem. Unfortunately, we are obsessed with ownership, and I think that that obsession has led us into having a real problem, because the rate of building of public housing for rent has been far too low. Unless the building of public housing for rent is kept pari passu with private building, there will be two developments: first, a bigger price increase than would occur if there were more public housing available for rent; and, secondly, people pushed into ownership who cannot sustain that. That is why we are now facing a repossessions problem.
We must have a big-scale building programme of public housing for rent. The housing associations will play their part, and we are giving them money, which is very welcome. Housing associations are comparatively slow to build, however. They also have their own financial difficulties at present, and they have difficulty in raising credit in the current tight credit market. Building can best be boosted, therefore, by bringing councils back into building. It is an appalling fact that whereas in all the other big Labour building drivesthose of the 1960s and 1970sthe rate of council house building kept up with that of private building, in the last year for which figures are available we built only 300 council houses. There are 2.8 million council houses in the country, and they require renovation and repairs, and their estates need upgrading and developing. We must allocate money to the councils to enable them to build again. It is no use our saying, Well wait for the housing revenue account review that is now taking place. That will not be completed until May next year, and it cannot be implemented until May 2010, which is, in my view, a good month for an election. We should put money into the councils now, or stop taking as much out of the HRAs, and then the councils will build. The councils can put builders back to work if they are given the power and the money to build. That is the only way forward if we are to get the housing drive we need to stimulate the economy, and if we are to achieve the target, since demoted to an aspiration, of 3 million houses by 2020.
There are 1.6 million people on council house waiting lists, and that figure is rising. They will have no chance of getting a house unless councils are allowed to build again. This is what we should do: large-scale building of council housing, because we have put too much emphasis on ownership and the ownership streams have not workedthe numbers taking them up have been comparatively small. Affordable housing has turned out to be not very affordable, and shared purchasepart-purchase from housing associationsis not particularly popular either. Why should people take on the burden of doing repairs as well as paying the rent and the purchase price of part-purchase? We should provide the money for such building to take place.
I agree with the right hon. Member for Wokingham that we should have reduced interest rates months ago. The Bank of England has now been more or less coerced into making the 1.5 per cent. reduction of last month, but we should consider the pressure that was required, and the representations it had to endure from so many organisations in industry and business and from all the economic pundits writing in the papers
crying out for interest rate reductions. It eventually did cut them. In my view, rates will have to be reduced further, because we need to get them down to the American level to stimulate the economy. That is the best means of making money available, stimulating the banks into lending, and bringing down costs, because interest rates are a cost on everybody. Our country is burdened with debt, and it needs lower interest rates if it is to come through and start spending.
We should think about changing the rubric for the Bank of England. I argued for that at the time of the Treasury privileges inquiry. Our Bank has the rubric of only needing to maintain inflation at about 2 per cent. The Fed has a double-header ruling: to deal with inflation and to maximise employment. That is far more sensible, because it gives greater leeway to reducing interest rates and to matching them to the needs of the economy.
We need the value of the pound to come down. It has been too high for too long, with the result that it has not been profitable to produce in this country. We should make it profitable to do so by means of having a more competitive exchange rate. The value of the pound is coming down. It has now reached about the level it was after the Tory 1992 devaluation, when we left the exchange rate mechanism. In my view, it needs to come down still further, but let us look at what that fall in the value of the pound in 1992 did for growth in this country; it immediately produced growth without the feared inflation. We need that effect again.
A fall in the value of the pound will not only help industry to export, but it will help to adjust the balances in our society, which have been tilted too far in favour of finance and the City of London, which do not produce jobsalthough they do produce high incomes and bonuses for the comparatively small number of people who work in those sectors. We should tilt the balance back towards manufacturing. We have to pay our way in the world. The oil contributions are going to fade away, and unless we produce in this country, we cannot pay our way in the world or provide our people with a good standard of living. The fall in the value of the pound is a major step in the direction of rebalancing the economy.
A banking Bill is promised, and we must re-regulate the banking system. I hope the Bill will go some way towards doing that. New duties must be imposed on the banks, and they will be, because the banks have failed us. We need to control their use of derivatives and off-balance sheet accounting, and to require them to register derivatives and special purpose vehicles. Registration implies a charge for the creation of the SPVs, which have been a form of gambling, but it could also ensure that the contracts arrived at are not legal unless the products in question are registered. That would be a convenient method of getting revenue and controlling that situation.
The Government are moving in the right direction on all these issues, and making substantial progress. We need the strong and experienced leadership our Prime Minister is providing, and can provide for us to see this country through. On all these issues, the Conservative partys answers are, however, pathetic. What was announced last week is piggy-banking economics. It is no answer to a recession to put people out of work and to demand cuts in Government spending and less borrowing. We have to borrow to expand the economy. Because of the position taken by the Leader of the Opposition last
week on all these issues, the Conservative party has wrong-footed itself. Clear red water is opening up between the Government and the Opposition, and I and the Government are on the right side in using the power of the state to deal with the recession rather than using the Thatcherite processes that were employed in the recessions of the 1980s and 1990s. It falls to Labour to deal with this situation, and we are taking the right approach.
Mr. Michael Clapham (Barnsley, West and Penistone) (Lab): My hon. Friend referred to the 1980s and the implementation of monetarist policy. He will recall that in that period £100 billion of oil revenue was spent on unemployment benefit, instead of going into the infrastructure of the country, which would have put us in a better position today.
Mr. Mitchell: My hon. Friend, whose experience in that area goes back a long way, is exactly right. The oil revenues, which the Labour Government of the 1970s had looked forward to as a means of rebuilding, expanding and improving this economy and providing a bonus for the people, as they should have done, were used, in effect, to smash British industry under the guise of modernisation and to break the power of the unions through high unemployment and stringent economic conditions. The revenues were used by the Government to fight their own people. That is what they were doing in the early 80s, and it was a crime against the economy and against the British people. We cannot go back to those methods of dealing with a recession now; we have to move forward. We have to use the methods that the Government are using, and will develop over time, of expansion, growth, Keynesian economic management and re-regulation, so that this situation does not happen again.
Peter Bottomley (Worthing, West) (Con): On the night that the hon. Member for Great Grimsby (Mr. Mitchell) was elected, Labour lost a mining constituency in the midlands because almost every miner there hated the then Labour Government for the things that they had been doing. From his election to this House to the 1979 election there was industrial unrest, with people fighting the police in the streets; life was not the cosy little life that we are led to believe we have under Labour.
Many in this House think it will be up to the Conservatives, when we come to power, to put right many of the things that have gone wrong under the Labour Governments. Not everything that they have tried to do is wrong, not everything that they have done is wrong and not everything that they propose in this Queens Speech is wrong, but the idea that on the red side it all goes well and on the blue side it is all wrong is a total misreading of things. Someone examining the condition of peoples lives between 1979 and 1997, especially in the five years after 1992, when the years of continuous growth started, could look at the record and say that there was good to be said about both sides and things that each party could have done better.
I want to turn to the pressing problem of what will face our constituents in business and in their personal lives during the next year or so, and perhaps even after that. Even when we start to come out of the recession,
many in the churn will lose their jobs and will face insecurity where they thought they had security. I shall not spend my time discussing the changes in the pension arrangements that the former Chancellor, now the Prime Minister, brought into effect, because there are other times to discuss those.
I wish to discuss two examples in the world of business. We have heard a lot of talk about banking, in terms of both the Bill that is to be introduced and the Governments involvement in the banking industry during the past few months. Let us pretend that I am in partnership in a good business where my partner and I work hard, produce a stream of revenue and have been paying back the bank loans for our premises. Let us suppose that we have done those premises up and, by doing so, we have provided building work and helped the economy to move around. Let us suppose that my partner wants to retire and that I made an application to a bank less than a year ago, telling it that buying out my partner would cost a certain sum and asking whether we could negotiate a loan. Let us suppose that the bank said yes in principle, but when I wanted the money six months later, because I plan in advance, the bank just flatly said no. I pursue it, but the bank sends another letter saying that things have changed.
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