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As appalling as those figures are, they might yet be wide of the mark, given that they were based on what were considered to be, putting it gently, heroically optimistic growth forecasts. That is not least because this recession is already longer and in many ways deeper than the two Tory recessions of the 1980s and 1990s, of which I have personal memories-they were not pleasant experiences. Both those recessions lasted for five quarters, while this one has already lasted for six quarters, and their GDP declines were 4.7 and 2.5 per cent. respectively, while this recession's GDP decline has already hit 5.9 per cent. It is inconceivable that it will take any less time to return
to pre-recession GDP levels than the two full years that it took, in both cases, after the crashes of 1980-81 and 1990-91.
The tragedy of the recession is that unemployment and youth unemployment are higher today than under the Tories in 1997, just before Labour came to power. Between March and May 1997, all unemployment stood at 7 per cent., compared with 8.1 per cent. today, and youth unemployment was at 12.5 per cent., compared with 18.6 per cent. today. Under Labour, 943,000 young people are now on the dole. That is bad enough, but the real killer is that in both previous recessions unemployment kept rising when the recessions technically ended: for three full years in the case of the 1980-81 recession, and for two full years in the case of the 1990-91 recession. Therefore, things could get much worse.
The Government's response to that, at least in the Queen's Speech, has been precisely nothing. On economic matters, they have suggested a Financial Services Bill and a fiscal responsibility Bill. The Financial Services Bill would introduce powers over contracts and bonuses, powers to allow class actions, and powers to act on short selling, which are all to be welcomed. Removing the incentive to take too many risks is sensible, as is establishing a council for financial stability to consider emerging risks. However, the Bank of England already produces a financial stability report, so the creation of a new body is less important than how its members analyse the data and measure the risk, and whether they feel that they have the authority and ability to stop risky activities that lead to the systemic problems seen in the banking crisis. In that, the Financial Services Bill is sorely lacking.
Back in 2000, I think, the financial stability report included a detailed description of the south-east Asian banking crisis, and set out all the factors that led to the problems: easy credit, over-reliance on income from property and so on. By the time we got the 2007 Bank of England report, many of those factors were in existence. The Bank of England glossed over them, and said that the risk had been spread and that everything was fine. The risk had not been spread; the risk was everywhere, and no one had confidence in any of the assets held by the banks. That was a huge part of the problem that stopped the banks lending to each other.
On banking reform more generally, in the "Reforming financial markets" White Paper in June, the Government spoke about action to enhance the robustness and functioning of key derivatives markets. However, as I think I said at the time, that amounted to no more than a road map to improvements, support for international efforts and the principle of transparency. The new Financial Services Bill does not even build on those statements.
There is no timeline at all for the creation of a regime properly to minimise the systemic risk of these weapons of financial mass destruction. The details of the fiscal responsibility Bill, to be announced in the pre-Budget report, may give us a little more, but all that has been announced so far is a pledge to halve the deficit over four years. Given the Red Book's forecast of a £173 billion deficit next year and a deficit of £97 billion in four years' time, in cash terms the Government will need to find an extra £11 billion worth of cuts over the next four years. In terms of percentage of GDP, a fall from 12.4 per cent. to 5.5 per cent. would mean that
they were almost there, but those figures are based on growth forecasts, which were pretty much knocked out of the park last year.
Government consumption has been the main element supporting demand in the economy. It is 2.2 per cent. higher now than it was a year ago. Household consumption has fallen by 3.6 per cent., business investment by 20 per cent., and gross fixed capital formation by 17 per cent. If we strip out what has been keeping the economy afloat at this point-as we go into what is only a gentle recovery-we will risk dipping the economy back into recession, or causing a double-dip recession. The real challenge is to stimulate the economy, get people back to work, reduce social protection costs, increase revenue yield and, after that, tackle the deficit and the debt.
Then there is unemployment. What the recession has laid bare, and what none of the measures in the Queen's Speech will address, is the difficulty of creating jobs in what has become a wholly unbalanced economy. We have become far too dependent on the tax and jobs created by the growth in financial services, to the detriment of traditional employment. There has been a 40 per cent. fall in manufacturing employment over 30 years, and at least 1 million manufacturing jobs have been lost since Labour came to power. Fewer than 10 per cent. of the work force are now employed in wealth-creating manufacturing. Even with sterling down against the dollar and the euro, between 2007 and the beginning of 2009 the United Kingdom had a balance-of-payments deficit of £93 billion in the trade in goods, and a total balance-of-trade deficit that suppressed GDP growth by 1.6 per cent. That is wholly unsustainable. We need to find a strategy that does not rely wholly on tax and jobs for financial services, but creates wealth and gets people back to work.
These are the lessons that I hope the Government will incorporate in the Bills announced in the Queen's Speech and in the pre-Budget report. First, the proposed deep and savage cuts in public investment are wrong. The Government should re-profile capital expenditure for a further year to protect recovery. Secondly, there must be a real focus on rebalancing the economy to create new and sustainable manufacturing jobs. Thirdly, as well as doing their important work on bank bonuses and contracts, the Government need to address the difficult issues of derivatives, securitisation and counter-party risk, so that they can deal with the real systemic problems that caused the banking crisis rather than merely tinkering around the edges.
I thought that Labour had given up on the "We are investing while everyone else is cutting" argument because that is patently untrue, as is clear from the real-terms cut in the Scottish Government budget delivered by the Labour party in Government in London. It was massively disappointing to hear the Chancellor return to the old rhetoric. There will be no credibility in anything that this Government do, good or bad, if they persist with the "We are investing and other people are not" line, because objective reality tells us that London Labour Government budget cuts are driving cuts in every spending Department, every council and every devolved Administration in the country.
4.29 pm
Mr. Jim Cunningham (Coventry, South) (Lab):
I was a little disappointed while listening to the shadow Chancellor, the hon. Member for Tatton (Mr. Osborne),
outline how he would approach the current economic difficulties. Eighteen months or so ago, the Opposition's main argument was not to do with the economy; their theme then was that Britain was a broken society. Since then they have abandoned that, however, and they are now instead trying to suggest there was no international banking crisis, but that the difficulties were all down to the Labour Government, even though most people know that to be untrue. The current economic difficulties are different from the difficulties of the '80s; the current situation is an international crisis, whereas in the '80s it took place in this country and was Government-made. That is the fundamental difference, and it is one of the reasons why the current economic crisis is also a lot deeper.
I certainly remember the '80s, and it is worth while all of us remembering them. I have a manufacturing background, and in the '80s under the previous Government manufacturing was almost entirely massacred, certainly in the west midlands. We need only recall what happened to the car industry-what happened to all the car companies that were household names not only in our country, but internationally, and the small businesses that relied on them for their trade. There were some problems with Rolls-Royce, too. All that happened under the previous Government. The Conservatives do not like to talk about the past, because when we look at how they behaved in the past, it gives us a good idea as to how they will behave in the future.
In today's debate I have identified only one Conservative alternative proposal to our policies: public sector cuts. That has serious implications. Would such cuts mean that we would go back to having fewer doctors, nurses and schoolteachers? Would public sector pension funds come under attack? The throwaway line on those cuts in the shadow Chancellor's speech today gave a lot away, although he was not spelling it out. However, if the Conservatives want to be an alternative Government, they need to spell this out to the British people now; they cannot hide from that. All the shadow Chancellor did today was quote Labour MPs and attack the Chancellor or the Prime Minister. That was a smokescreen put up to hide the fact that his party's proposals would represent a return to the past in the form of a modern-day version of Thatcherite economics.
I want to discuss some matters of local concern for me and for my Coventry constituents, in particular the recent announcement by Ericsson that 700 jobs will go. A couple of years ago there was a similarly arbitrary proposal from Peugeot. It is clear from talking to the labour force that they feel that they do not have as much protection as labour forces in Europe. We could refer back to more of the history, such as what happened at Rover. The Government must seriously think about giving people's jobs in this country more protection. As I am sure my hon. Friend the Member for Coventry, North-West (Mr. Robinson) would confirm, the company in question told us in a telephone conversation that it would not go back on its decision, but that it would start to consult. In such circumstances, all that happens in a "consultation" is that company representatives announce, "We're now going to tell you that your jobs are going."
The other important factor in the Ericsson situation is that we are short of technicians in this country, yet most of the jobs that will go will be technicians' jobs.
That is another reason why the situation is so serious. That will, of course, have an effect on Coventry, but there is another issue that we in Coventry want to talk about in connection with investing in skills in the area and the wider west midlands region. We know that Warwick university is going to make cuts, yet we are always saying we want more skills. There is also a big debate going on about student tuition fees. If we are not very careful, that could become a form of student rationing. More importantly, however, jobs may be going at this university. We are due to have a meeting with the vice-chancellor to discuss that.
If the Government truly want to help Coventry economically, they could also look at the Nuckle project. My hon. Friend the Member for Coventry, North-West and I have had a number of meetings on that over the last five years. The council blames the Government for the delay, and the Government blame the council on the basis that the council has not produced a business plan. If the Government truly want to start getting the west midlands economy going-and in particular the Coventry economy-they must start to throw their weight behind that project, because it is, in a way, a west midlands project.
I am sure many Members will know about the Ricoh arena in Coventry, which is now in many ways really a national arena. It attracts a lot of visitors, as well as a lot of bands and various groups, and it could be a major player in the Olympics. That is why the Nuckle project that I mentioned is important, because we need a new railway station in the vicinity of the arena to allow people to travel back and forth. The project could create more jobs, and I hope that the Minister for Business, Innovation and Skills will talk to my right hon. Friend the Chancellor to give this a little push; as he is a west midlands MP, I would like to think that he will.
I must pay tribute to my Front-Bench colleagues from the west midlands, because the Government have taken the area seriously. If they had not, would we have had a Select Committee and a Minister? The aim is to give a bit of impetus to the west midlands, but it is equally important that Ministers understand that unemployment in the west midlands is far too high. It is probably about 10 per cent. now -[Interruption.] My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) seems to agree with me, and he is quite good with figures.
The Government have to start to take a good look at what is happening now in the west midlands, particularly in manufacturing. The innovation fund could be used a little more to help companies such as Jaguar and a number of others that wish to go into green technology. That is where the fund could play a major part in creating the new industries for the west midlands, and Coventry in particular. Its universities have always played a major part in engineering projects in Coventry. If the Government can get strongly behind these areas, they will start to get the west midlands moving again and give the labour force confidence, and we will retain those skills in the west midlands. These issues are therefore vital to the west midlands.
Lorely Burt:
As a fellow west midlands MP, I am sure that the hon. Gentleman is aware that unemployment is higher there than anywhere else in the country. I am sure he must also know that the university enterprise network scheme is being piloted at Coventry university
and the university of Warwick. What a fantastic way that is to harness the skills and innovation of young people and to introduce the enterprise culture-it is common in the west midlands, but we need more of it at the moment.
Mr. Cunningham: The hon. Lady makes my point for me; Warwick university is fourth in the country, and we do not want to lose that impetus. Surrounding the university are the business and science parks and all sorts of things. When we went down that road about 25 years ago, a previous Minister in the Thatcher Government said that the local authority had no business getting involved. Who was looking ahead to the future-was it the local authority or the Thatcher Government? Hon. Members can take their pick. I agree with the hon. Lady that unemployment in the west midlands is far too high, which is why I made some of my remarks about what we can do when we put some shoulder behind things.
Another issue that worries people in Coventry is the amount of credit available to small businesses. Like many others who have spoken today, I think that banks have been very slow to release credit for small businesses, and when it has been made available small businesses have been made to pay a high price for it through interest charges and so on. The Government should certainly put their shoulder behind things in that area, because as we all know, and as has been said in previous debates, small businesses are the backbone of innovation and industry in this country. These are areas in which the Government have done a lot, but we have to keep the pressure on them and tell them that although they are doing a good job, they must do more.
I hope that Ministers will take back with them some of the things that I have said today, but I wish to finish my contribution by discussing the King's Hill project. It will have major implications on the environment in the King's Hill area in Coventry, particularly in relation to the green belt. There has been a major demonstration in Coventry about the King's Hill project. It all centres around the fact that the region was asked to provide 365,000 houses. Lots of negotiations went on with local authorities-which are trying to blame the Government-but they reached a figure of 33,000 for Coventry.
It is said that the brown belt-or brownfield site-can take only 25,000 houses, and those involved want to cross into the green belt. The green-belt area of Coventry-the King's Hill area-goes back to mediaeval times. There is a vacant mediaeval village, a monument, all sorts of wildlife and all sorts of environmental things to attract schoolchildren. In my view, it would be a desecration if 3,000 houses were allowed to be built there. The infrastructure will not take it. There was a suggestion of a new railway station that would help the infrastructure, because there would then have been transport facilities, but that has now been abandoned. The roads are congested at the moment-about a fortnight ago it took me two hours to get home from my surgery-and now they want to heap more traffic on those roads. All in all, I would say that it would be an act of environmental vandalism to allow that project to go ahead.
4.41 pm
Mr. Alan Reid (Argyll and Bute) (LD): The main theme of my speech will be a common theme today: the banks and the problems that many of their customers in small and medium-sized businesses face.
In a short space of time, the banks seem to have gone from one extreme to the other-from excessive risk-taking to excessive caution. We all have companies in our constituencies coming to us with the same story. They have a good sound business, a good track record and plenty of orders, but when they try to raise money from the banks to see themselves through the recession, they are either turned down flat or, if money is offered, it is offered at a very high interest rate with a large arrangement fee and often demands for high levels of security for any loans that are offered.
Another common theme is complaints from small businesses that the cuts in the base rate are not passed on by the banks to individuals or to business customers. Getting lending moving again at reasonable interest rates is important, because although we are, I hope, starting to come out of the recession, there will still be difficult times ahead for businesses. For example, the Government's plans are to reverse the VAT cut shortly and many of the other schemes to help businesses will also come to an end.
I remind the Government that when they reduced VAT last year, two sectors did not benefit from that cut because fuel duty and alcohol duty were put up to cancel it out. Both sectors are of importance in my constituency. Fuel duty increases penalise my constituency because we must, out of necessity, drive long distances. I shall return to a theme that I have raised often in Finance Bill debates and urge the Treasury yet again to consider making use of the EU derogation that allows countries to levy lower rates of fuel duty in remote rural areas. If the Treasury could take advantage of that EU derogation and levy a lower rate of fuel duty at filling stations in the remote parts of the highlands and islands, that would contribute greatly to the local economy. It is important to remember that people in the highlands and islands face higher fuel costs as well as having to travel long distances, so the price of fuel is very important.
As far as alcohol duty is concerned, I much preferred the policy of the previous Chancellor to that of the present Chancellor. The previous Chancellor, during his long tenure in the post, had a policy of freezing the duty on spirits while allowing that on beers and wines to go up in line with inflation. The alcohol duty on spirits is far higher per unit of alcohol than that on beers and wines. Surely, if alcohol is taxed for health reasons, the only logic is that it should be taxed at the same rate per unit of alcohol. I urge the Chancellor to revert to the policy of his predecessor and freeze the duty on spirits. Whisky distilleries are major employers in my constituency, providing jobs on remote islands where other work is hard to find. I therefore hope that the Chancellor will listen to that advice.
As I said earlier, small businesses still face a difficult time. The banks that were bailed out by the taxpayer with eye-wateringly large sums of money should have a duty to help small businesses through these difficult times. Nationally owned banks should act in the national interest, and the Chancellor is the main shareholder in several banks, having a controlling interest in some and a substantial holding in others. When the Minister sums up the debate, I hope that he will tell the House what instructions the Government have given to the banks in which they are the main shareholder.
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