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In my home city of Leeds, the public sector plays a significant role. I recently worked out the figures for a debate on my great city, so I know that there are more than 110,000 jobs in public services in the Leeds region. The Conservative plans for cuts in the public sector would hit those employees and their families hard, as people would lose their jobs. That is what we have to understand. We can talk high economics here, but I am really interested in the impact that those policies would have on ordinary people. Indeed, the potential for job losses goes further. A recent study showed that 64p of every £1 that public sector workers earn is spent in the local economy, so those cuts would hit areas of the wider Leeds economy that depend on spending by public sector employees. The idea that we can separate the public from the private is ridiculous. On top of all that, there would be the cost of paying benefits to those who were unemployed as a result of the cuts. A recent study showed that those costs would be about £16,000 per
redundancy, so that policy would not be not easy or pain-free. I argue, as would millions of others, that it is unfair and perverse that the price for a crisis caused by bankers and the financial system should be paid by millions of ordinary people-nurses, teachers, pensioners or whatever-through public sector slash-and-burn policies.
Perhaps the Conservative party's desire to go down that road has something to do with the fact recently noted by my union, the GMB, that 63 of those selected by that party to stand at the forthcoming general election are drawn from the banking and finance industries. I am reminded of something said by President Roosevelt during his sixth fireside chat in 1934:
"Those, fortunately few in number, who are frightened by boldness and cowed by the necessity for making decisions, complain that all we have done is unnecessary and subject to great risks. Now that these people are coming out of their storm cellars, they forget that there ever was a storm."
I take the view, which is common outside the Chamber, that it is unfair that ordinary people should pay for a crisis that they did not create. However, as well as being morally and politically wrong, a cuts agenda advocated by any party-even my own; I have a tendency to go off message-would be economically illiterate. That is not just my argument, because calls for immediate cuts in the economy have been met with a growing chorus of criticism by some of the world's leading economists. Those esteemed people warn that the cuts policy risks sending the economy back into recession, so they have called for the very opposite and stated that the fragile nature of the economy means that it is necessary to continue the fiscal stimulus.
A letter to the Financial Times on 18 February that was signed by Professor Stiglitz, the former World Bank chief economist and a winner of the Nobel prize for economics, along with another 60 economists, said that those who call for immediate cuts
"seek to frighten us with the present level of the deficit".
"if implementing fierce spending cuts tips the economy back into recession".
Mr. Jack: I am listening to the hon. Gentleman's argument with care, but will he help me on one point? Is it not the case that in the early days of the Prime Minister's chancellorship, the expansion of employment in the public sector happened on the back of rising tax receipts, many of which came from the expanding financial sector and because of the success of the private economy? The public sector was therefore happy to accept the fruits of growth, and the hon. Gentleman's attempts to dissociate himself from the consequences of profligacy seem to fly in the face of reality.
Colin Burgon: I am not sure that I have always bought into that analysis, but I will try to deal with the state and structure of the British economy during my speech because it is central to the debate.
"History is littered with examples of premature withdrawal of the government stimulus, from the US in 1937 to Japan in 1997".
"Britain's level of government debt is not out of control. The net debt relative to GDP is lower than the Group of Seven average, and on present government plans it will peak at 78 per cent. of annual GDP in 2014-15, and then fall. Even at its peak, the debt ratio will be lower than in the majority of peacetime years since 1815."
As well as the views of such economists, we have real-life examples from other countries that show how the cuts policy would damage our economy, why our Government were right to stimulate the economy last year to offset some of the worst effects of the recession, and why that should continue. Ireland gives us such an example because, interestingly, it has taken the route with which the cuts club is so enamoured by cutting back to restore confidence to the markets.
Even more interestingly, Opposition politicians have urged us to look and learn from across the Irish sea. What do we learn from the experiences of the Irish economy? As I argued in the House just before Christmas, the Fianna Fail-led Government in Ireland have been unique among the industrialised countries. In 2009, while virtually the whole world was busy implementing a variety of packages to stimulate the economy, Ireland was alone in implementing a series of deep cuts in Government spending. The lessons from that are clear: the savage cuts agenda has deepened the Irish recession, and Government finances have worsened as economic activity has slumped.
So the first priority should be to restore robust growth, which will not be achieved by cuts. What is the way forward? The key common factor in the economies that have suffered badly in this recession is that there has been a huge collapse in investment. In the UK, the fall in investment accounts for nearly £6 out of every £10 by which the economy has shrunk. This is because investment is mainly done by the private sector, and in the recession the private sector is not investing. Business investment was 24 per cent. lower at the end of 2009 than at the start, the worst annual decline since records began in 1967.
Without investment to generate demand and rebuild the economy, we will fall back into recession or be left with years of low growth. The way forward is clear. When the private sector will not invest, the Government must step in. We need to invest our way out of recession. For those who argue that this is not affordable, there is some good news. When the Government invest, that has a much wider impact on the economy, an impact much greater than the initial outlay. That, in economic jargon, is called the multiplier. What is more, the Government get taxes back on this wider economic growth, and the Treasury's own figures show that, if done properly, such investment pays for itself through higher tax takes.
Mr. Phil Willis (Harrogate and Knaresborough) (LD):
The hon. Gentleman and I were fellow teachers in Leeds, so I have much sympathy with many of the points that he makes about Leeds. Will he take into account the fact that-as documented by the Royal Society in its response to the Government's proposed cuts in investment in science, and as I am sure the right hon. Member for Wokingham (Mr. Redwood), who is no longer in his place, would agree-from 1980 onwards, wherever there is an investment by the Government,
particularly in research and development, there is a correlation between that and the spend that comes from the private sector? In other words, provided the Government's investment is targeted and strategic, the private sector matches it. Is there not a danger that if we start to cut that investment, expecting the private sector to take over and accelerate, exactly the opposite will occur, resulting in a double whammy?
Colin Burgon: I share the hon. Gentleman's analysis. Indeed, we share a common analysis of the problems at Leeds United, but we had better not go there. It is interesting to see that we share that economic analysis as well.
"investments in technology, education and infrastructure . . . In short, more such spending will stimulate the economy and create jobs in the short run and promote growth and debt reduction in the long run."
Making those investments would give us a chance to build a new economy, and in turn a new Britain, which the economic crisis has underlined is necessary. It would allow us to move away from the dangerous financialisation of our deeply unbalanced economy and away from the neo-liberal economics that have left such deep social scars over the past 30 years-the scars of greater inequality, a sense of vulnerability, and in the workplace a race to the bottom in terms of conditions and wages. Instead, Government investment to modernise the economy, especially in housing and transport, where investment has fallen most, and with a focus on developing a low-carbon economy and on providing the education that is needed for a high-skilled economy, would boost the economy in the short term, as well as improving long-term growth and prosperity.
That brings me to today's proposals by the Chancellor and how we should judge the Budget. On first hearing, I would say that there has been some recognition of the need to increase investment and of the role of Government to ensure that. I did not join in the applause of many of my hon. Friends when my right hon. Friend said that we would be selling the banks back at a profit. I think that we should retain some of these banks under Government control, so that they become national investment banks.
I especially welcome the green investment bank, and I hope that it is given sufficient funds to invest directly in creating the modern, green economy that we need. A recent report by the Green New Deal group explained how a £10 billion green investment would re-skill 1.5 million people, bringing 120,000 people back into the work force and increasing, very importantly, the earnings of those on low incomes by a total of more than £15 billion. It explains that such investment would save the Government billions of pounds in reduced benefits and increased taxes alone.
On the wider Budget, there are some questions to consider. Is the level of investment announced in the Budget enough? Is it being implemented in the correct way? Is it going to the right sectors to create the kind of
high-skilled, highly paid jobs that Britain needs? I would argue that judgments cannot be formed in the immediate aftermath of a Budget, and echo the response of the Chinese premier, Zhou Enlai, who, in the 1960s, was asked by the French ambassador what he thought was the impact of the French revolution of 1790. Zhou Enlai thought for a while and said, "It's too early to say."
When the dust settles over the next few weeks, today's Budget will be judged on whether it will provide the Government investment needed to get the economy back on track. However, one thing is already clear. The plans of the Opposition for cuts not investment-for slash-and-burn economics-certainly offer no way forward. Like many in this House, I remember the devastation caused by such policies in the 1980s. They would hit ordinary people, hit our services, and drag the economy backwards. We must ensure that we do not return to that failed economic model. If this Budget is the beginning of a break with new Labour's love affair with neo-liberalism, I welcome it, but there is a long, hard road before us.
Mr. Michael Jack (Fylde) (Con): That was an interesting trip down memory lane, organised, I think, by the hon. Member for Middlesbrough (Sir Stuart Bell). I congratulate the hon. Member for Elmet (Colin Burgon) on reliving, just for a brief moment, his party's romance with clause IV, when he said, "I'd like to keep these banks as state assets." There are many on the Labour Benches who long for that bit of yesteryear but for whom, sadly, reality has told a different story.
Mr. Todd: Did not the right hon. Gentleman find surprising the comments of the right hon. Member for Wokingham (Mr. Redwood), who appeared to share the view of my hon. Friend the Member for Elmet (Colin Burgon) that we should keep those banks for a considerable time longer, and be active in their direct management?
Mr. Jack: I smile at what the hon. Gentleman has said, because I really could not see my right hon. Friend lining up with those who wish to relive clause IV. I think that he was saying that there was a time and a place for rebuilding their value, but also a time and a place for their ultimate disposal, whereas the hon. Member for Elmet may have been thinking on a more long-term basis-well, perhaps for ever-as regards retaining those assets in state ownership.
It is obvious from the brief messages that I have managed to garner about how the Budget is seen outwith this House that bodies such as the CBI and the Institute for Fiscal Studies are raising questions over its assumptions about growth and reductions in public expenditure. The Budget may have painted part of the picture, but it is a bit like painting pictures by numbers when some of the numbers are missing. We do not know precisely what the colours will be, or what the final form of the economy will look like in years to come, because the Chancellor neatly skated over that point of detail.
It was interesting to hear the Chancellor's analysis when he was talking about the efficiency savings that had been made and the reductions in public expenditure that would result. As soon as he got past where we are now, there was no detail about the future. It was interesting to see the rate of the pound against the euro, for example, within minutes of his sitting down; there had effectively been no change. As far as I can see, there has been no outbreak of improved confidence in the current Government's management of the economy. If we are realistic, we have to say that until we have had our general election and the mist of political battle has cleared from the field, when whoever wins can say with certainty what their policies for the future will be, the markets, which have a fundamental role to play in enabling us to fund ourselves out of recession, will still say that the jury is out, and there will still be large question marks against the value of the economy.
Like the Financial Secretary to the Treasury, I have sat on the Government Benches through a few Budgets, and I believe that the first thing any Treasury Minister asks himself is, "How did it go down?" I thought it was interesting that there was a subdued response from the Labour Benches. Sometimes in the past that has been said to be a good sign, because when there is too much cheering the Government can find that they have bitten off too much, only to discover that like a large meal, the cheering rapidly dissipates at the end of the debate.
However, just at the end, the Chancellor announced that he had got three effective double taxation and income tax information agreements, one of which was with Belize. There was stunning cheering, and I wonder how that is going to play on the doorstep. The elector will look at the hapless Labour canvasser and ask, "Why did you cheer so loudly about Belize, when I am worried about the factories down the road, jobs for my young people and the tax bill I am going to have to pay? Should you not have been talking about those issues, instead of cheering the fact that Belize will be able to exchange information once inquiries about individuals are put in train?" It may be of some interest, but it is an absolute irrelevance to the needs of this country's economy. Yet that was what Labour Members cheered when the Chancellor came to the conclusion of his Budget.
There were no economic rabbits to be pulled out of the hat. In fact, I felt that the Chancellor had been involved in either some kind of fantasy economic activity, or the economics of the ostrich. Not looking to the future and telling us what was in the forthcoming attractions column was a damaging way to present a Budget.
It was interesting that there was a lot of discussion in the Budget about help for businesses. I do not believe anybody in the House would disagree with the concept of helping small and medium-sized enterprises in particular that have suffered, especially in their ability to raise money. Yet while the Chancellor stood at the Dispatch Box with what he said was a positive message, we have learned that the budget of the Department for Business, Innovation and Skills is going to be cut by in excess of £400 million. That makes one wonder where the funding will come from for some of the schemes to help business that the Chancellor outlined. I will be interested to see that matter digested in the newspapers tomorrow, and to see whether they have found out how that trick will be pulled.
There is sometimes a danger-I suppose that I am going to fall into this trap-that we talk about what we have heard in the Chamber and provide our own analysis without remembering that the messages about the economy affect everybody in this country. Judging by the interviews that I have seen on television and listened to on the radio, I believe that the public are further down the road than we sometimes wish to admit to ourselves. They recognise the severity of the economic situation that the country faces, and I should think every household in the country has had its own conversation around the breakfast table about what the unemployment situation in its part of the world will be and when the tax axe will fall.
People realise that, whatever anybody says, there is a bill to be paid, and it is quite clear from what the IFS has said about the Budget that, however much we might get upset about "cuts", the economic squeeze on public spending is coming. The Chancellor has said that it is coming; there are only two things that public spending goes on-capital and people. I am afraid that, hard as it is, both will be affected by any reduction in the public sector.
I shall pick up on the point that the hon. Member for Elmet made. Public sector employment has been growing, and recent figures confirm that it has even grown in the past few months, but if, as a result of improving the operating efficiency of the economy, the job-creating ability of the private sector improves, there will be a transfer of people into private sector jobs, which may be secure and well paid, as the economy restructures. To suggest that "squeezing", "cutting" or-whatever word one chooses to use-reducing public expenditure means that someone will be without work for ever and a day is to create a false impression. We all want a vibrant economy, but reallocating resources from public to private is a good idea, because the private sector may well create better jobs for individuals in the long term. Indeed, the economy will have to face such restructuring if we are to make progress.
It is always correct for a Member to declare their interests at the beginning of their contribution, so I apologise to the House for the slight delay. I am a non-executive director of a retail company called Topps Tiles. We are Britain's largest seller of tiles and wood flooring. [ Interruption. ] With declarations, people sometimes look quizzically and ask, "What is actually being declared?" However, it has been very interesting to sit on the board of a retail company and watch not only what happened during the recession, but where we are going now. I talk generally, not specifically about my company, but in the run-up to Christmas people could see that VAT would rise in January and there were some really good bargains to be had. They were going to make certain that what money they had to spend was spent as wisely as possible. So expenditure was therefore pulled forward from 2010 to 2009, and for the Chancellor to stand at the Dispatch Box and signal the increase in revenues that resulted from that pulling forward of consumer expenditure as the dawn of some great new era just flies in the face of hard reality.
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