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The proof of that point is dramatically demonstrated in British history by the situation from 1931 to 1934. Because of the cuts made in 1931, with the Geddes axe and all that, public sector borrowing increased substantially from 1931 to 1934, because the economy was not growing. From 1934, when the economy began to grow under the stimulus of the housing boom and, later, rearmament, the public sector borrowing requirement as a proportion of GDP came down rapidly and substantially. That indicates my point, as did our experience when we came into government in 1997. The Conservatives seem to forget that, when Labour came to power in 1997, we paid off massive amounts of debt in the first three years, because the economy was growing and we could do so.
That is the solution to our problems. Only growth will allow what we borrow to be paid off. It is no use knocking Britain and saying that we are like Greece, Spain or Portugal. We are not like any of those: our credit standing is not threatened in any way and we can adjust through the exchange rate, because of what our previous Prime Minister did in keeping us out. The only way to reduce borrowing is to get economic growth. I hope that I have made that point sufficiently clear, because I have made it pedantically and at some repetitive length. It does indicate to me that borrowing is not a problem, and the panic created about it is something of a confidence trick. It is a smokescreen to allow the Chancellor to do what he wants to do for his own political motives: cut public services, roll back the state, cut public spending, cut benefits, cut provisions, and weaken the protection of the poor and those on benefit that comes from borrowing and higher public spending. It enables him to implement his own prejudices.
The cuts are supported by untrue claims about what Mrs Thatcher did in the 1980s. Mrs Thatcher was able to get away with those cuts, which destroyed so much of British manufacturing and certainly turned us from a net manufacturing exporter into a net manufacturing importer, because of the cushion of North sea oil. The Norwegians invested the proceeds of North sea oil in the future; what we did was waste them on a process of creative destruction of British manufacturing industry, which left us the weaker at the end of it.
The cuts are also justified by the claims that Canada and Sweden were able to carry successful spending rounds, but in both cases, the spending cuts were across the board with no huge chunks of the public sector being exempted from them. Both were carried out at a time when the world economy-including the American economy-was expanding rapidly, so that sustained the Canadian and the Swedish economies. We are carrying out our spending cuts, however, at a time of growing recession. Our ex-Prime Minister was trying to lead the world-he did lead it successfully-to agree on stimulus spending to get the economy to grow. This Government are joining a chorus of cuts that will deflate European economies and the world economy.
Bill Esterson: Has my hon. Friend had the same experience as I did in my constituency when discussing how to deal with the budget deficit? Not one person mentioned to me the issue of sovereign debt, yet every single person I spoke to agreed with our analysis that the deficit should be paid off by growing the economy.
Austin Mitchell: Yes, certainly. Sovereign debt is never mentioned. Indeed, this is one of the weaknesses of the Liberal party approach of supposedly involving the whole community in deciding on the cuts. First, it assumes that the cuts are necessary, but, secondly, we have to remember that one person's cut is another person's Trident missile.
Martin Horwood: In advancing this rather extraordinary proposition that we have nothing to worry about with the level of borrowing in this economy, is the hon. Gentleman saying that he would have opposed the Labour Government's plans to reduce departmental budgets by more than £40 billion over the next four years?
Austin Mitchell: Look, I am not an apologist for everything that happened under the Labour Government. I thought that that was an unnecessary commitment, particularly as it was made in order to safeguard our position and not frighten people in response to the Tory clamour about cuts. The Liberal party made the same concessions, actually, so it is no use the hon. Gentleman coming back to me on that. Even if we attempted to cut the deficit by half in four years, it is all a question of timing. There is a time for cuts-"Lord, make us cut borrowing, but not now" would have been my approach, and I believe that that is the only sensible approach. These cuts are premature. The economy is teetering on the brink of recovery, but it is not recovering, unemployment is still rising, the difficulties are still there, and credit is still tight. The banks are not providing credit on a sufficient scale; they need to expand credit and their lending. In that situation, cuts compound the problem. Thanks to these cuts and thanks to this Budget, we now face the danger of the economy slipping back into a recession.
Martin Horwood: Will the hon. Gentleman clarify his position, as it seems to have changed within the space of one speech? Five minutes ago, he was saying that only through growth would these issues be tackled and that we need not worry about borrowing. Now he is saying that it is only a matter of timing and that the Labour Government would have done exactly the same thing in due course.
Austin Mitchell: I was not responsible for the decision to try to cut borrowing within four years, but I assumed that it would be a question of "Let us do it as time allows". I am sorry that the hon. Gentleman is so strenuous in defending Tory positions-for his is essentially a Tory argument.
The answer is to expand the economy. Growth was beginning, and, as the report from the Office for Budget Responsibility shows, it is now threatened by the cuts and the Budget. Is that what the Liberal Democrats want? Do they want to reverse the improvement that is taking place? If the improvement continues and becomes more substantial, we shall be able to begin to cut borrowing, but that can only be done once the economy is growing strongly and effectively; and it will only need to be done then. We must keep spending high if we are to achieve that economic growth. The Liberal Democrats can make a lot of sacrifices to support the Conservatives, but prostituting their intellects is not one of them.
Claire Perry: I am learning a great deal about economics today. Presumably the hon. Gentleman would have advocated a strong reduction in borrowing at the height of the last piped-up economic boom at some point in the mid-2000 cycle. I should be interested to know what his views were back then.
Austin Mitchell: I think, retrospectively, that we expanded public spending without increasing taxation enough to pay for it. The result was a series of subterfuges, such as the public finance initiative and the public-private partnership. It would be interesting to know what the Government are going to do about them in order to get borrowing off the books.
It was right for us to expand public spending. Society has improved enormously. Public spending improves the lot and the lives of the people, and it is our job to improve those things. I would certainly have spent more, but I would probably have taxed more to pay for that spending. I do not see why the people who benefited so substantially and did so well during the period of growth that we experienced under a Labour Government should not pay more in taxes now in order to counteract the recession with which we are currently trying to deal.
This is a circular argument, but, as I have said, the only answer to the borrowing problem and the deficit problem is economic growth to close the deficit and ease the borrowing, and to make it easier-as we did between 1997 and 2000-to reduce borrowing substantially. When we have growth, that is an easy process. It is silly to worry about it, become obsessed with it and create an atmosphere of fear, but that is what the Government are doing.
The leader of the Liberal Democrats, the Deputy Prime Minister, told us that this was a Free Democratic party moment, and that these would be progressive cuts, the poor and the north would be protected, and the cuts would deliver fairness. That is totally wishful thinking. Cuts always, and must necessarily, hit the poor and the vulnerable hardest. They have less with which to protect themselves. They are more dependent on public spending. Grimsby is more dependent on public spending than, say, Weybridge, or some of the other more prosperous southern areas. Any group or area that is heavily dependent on public spending will be hit by cuts, and that means Grimsby. I am now trying to protect Grimsby from those consequences.
"striking twice as deeply in parts of the Labour-dominated north of England as in the Conservative-dominated home counties."
Does the hon. Gentleman agree with Lord Myners, whose speech in the House of Lords last week reflected his deep frustration following conversations with Ministers in the previous Government who constantly expressed the belief that Government created jobs? His core point was that Government create the environment-the framework-in which jobs will be created by business. The problem with constituencies such as the hon. Gentleman's, and to some extent mine, is that over the years Government have been led into the
belief that they can create jobs themselves. In fact, what has happened is that more people have gone on to benefits, and our cities have stopped being working cities and have increasingly become benefit cities that need to be rescued today.
I must point out to Members, particularly those on the Government Benches, that public money follows need. We are spending at a higher level because need is greater because of the recession. If we cut public spending, as the Government intend to do, we punish need. We do not punish the greed that brought the banks and the economy into recession, nor do we punish the people who have done well out of the economic growth. We punish the needy people and the needy regions. As I represent one of those needy areas-Grimsby-I object strongly to the £6 billion of cuts now being carried out, which the Liberals joined in with, as well as the cuts to come and the cuts foreshadowed in this Budget.
I cannot welcome this Budget, therefore. I think it will be disastrous for the Liberal Democrats. It will also be bad for the poor and the vulnerable. It will be bad because it will hit the recovery that is now taking place, and which is all too slow. It will be bad because it will increase unemployment. It will be bad because it will increase the deficit, and it will be a disaster for our nation, which will be locked into deflation; it will be pushed into it longer than need be.
Andrea Leadsom (South Northamptonshire) (Con): According to the Bank for International Settlements, the amount of global derivatives outstanding is now $1.14 quadrillion; that is more than $1,000 trillion and more than 10 times the GDP of the entire world. It is a vast risk, and not only that; it is largely unregulated and traded between the banks themselves.
I am grateful for this opportunity to give my maiden speech during today's crucial Budget debate. There is no doubt that the actions we take now to cut our deficit and make our banking system safer will determine how quickly our economy recovers.
In speaking today, I am following in the big footsteps of my predecessor, Tim Boswell. He made his maiden speech during a debate on the Finance Bill in 1987, and I hope I am not tempting fate, because within a few months of his speech the stock market spectacularly crashed.
It is a great pleasure to pay tribute to Tim's 23 years of service in this House. He is one of a small number of politicians to have been called a saint by The Daily Telegraph and he has certainly been an honourable Member of this House. As well as his many virtues, however, he also has a wicked sense of humour. He recently e-mailed me to tell me he was never going to vote for me again-ever. It was only after a few minutes of sheer panic that I realised that that was his way of giving me the great news of his elevation to the other
place. Tim has many friends on both sides of the House and I am sure many Members will want to join me in congratulating him on his well-deserved new role.
South Northamptonshire is a new constituency, with two thirds of it from Tim Boswell's Daventry and a third from Northampton South. My family members have worked and farmed there for generations. It is a wonderful place in the heart of England: we have a mixture of ancient villages, with the market towns of Brackley and Towcester; we have thriving new communities on the outskirts of Northampton; and, of course, we have the world-famous Silverstone circuit. Engineering and technology businesses are a great strength, and we also have some big local employers, such as Barclaycard and Carlsberg.
We do have our own challenges, however. Under the last Government Northamptonshire was a huge target for housing growth, with little regard for the needs and desires of existing long-standing communities, and I am very glad that my right hon. Friend the Secretary of State for Communities and Local Government has announced plans to scrap the regional spatial strategies, thereby giving power back to local people.
More recently, we have whole communities under threat from Labour's preferred route for high-speed rail. It would literally cut through farms and villages in my constituency, in some places on a 6 metre-high embankment. We all know that we cannot build new infrastructure painlessly, but there is a huge price to pay by people whose homes and businesses would be destroyed by the track. I urge our Government to make sure that the consultation on high-speed rail gives to everyone whose life and business will be affected the opportunity to have their voice heard. South Northamptonshire is a gem of a place to live, to work and to visit and I am hugely honoured to be its first Member of Parliament.
Let me return to the subject of the debate. To me, it is absolutely key to restore the health of our financial services sector as a critical part of restoring our broken economy. There are two ways of doing that. First, I am glad that my right hon. Friend the Chancellor of the Exchequer has already decided to give back extra responsibility to the Bank of England.
In 1995, Barings bank collapsed due to rogue trading in the far east. Nick Leeson had found a way to put on massive uncovered derivatives exposure without the knowledge of Barings' treasury in London, in a different time zone if not on a different planet. At the time, I was managing the investment banks team at Barclays, and we were the principal banker to Barings. The collapse came on a Friday evening and the markets were threatening chaos, but Eddie George, the then Governor of the Bank of England, called together a small group of bankers, including myself, and we worked over the weekend to calm the fears of banks that were exposed to Barings. The direct result was that there was no run on the banks on the Monday morning, Barings was allowed to fail and there was no systemic contagion.
The difference between that experience and the more recent experience with Northern Rock is the difference between accountability and the tripartite system. In 1995, Eddie George knew that it was down to him to
prevent a run on the banks, whereas in the case of Northern Rock, we had the Financial Services Agency looking to the Bank of England, which was looking to the Treasury for action. The result was the first run on a bank in 150 years and a taste of the financial meltdown to come.
From my experience, I am positive that a key to restoring the health of our financial sector is giving back powers and accountability to the Bank of England, and I am delighted that my right hon. Friend plans to do just that.
There is a second key action that we need to take as well. The financial crisis was not just a failure of regulation; it was also a failure of competition. The great Adam Smith always said in his wealth-creation ideas that for markets to be free and for us to create new wealth we have to have free entry and free exit of market players.
But in the world of finance those principles have not been true for years: cost and complexity have created huge barriers to new entry; we have already seen that Governments cannot possibly allow a single bank to fail when there are issues of systemic contagion; and we see every day the distortion of free competition in the power of investment banks to charge huge margins for derivatives trading and underwriting.
So, I and many of my ex-City colleagues argue that a key way of making our banking system safer is through measures to change the culture of our financial sector. The banks that are supposedly too big to fail must be broken up. The barriers to entry must be removed. The ability to charge monopoly prices must be taken away.
In South Northamptonshire, businesses are struggling because of the lack of available working capital, but with our high-tech and engineering expertise we should be really well placed to build new jobs in the low-carbon economy that our Government want to create.
The Government are right to want to promote a broader mix of business in our economy. That mix must contain a successful financial services sector with healthy competition and the free availability of working capital.
Stewart Hosie (Dundee East) (SNP): I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on her maiden speech. She brings great experience to bear, and her description of accountability versus the tripartite, in the differences between Barings and Northern Rock, was instructive. Many of us remember that there were so many cracks between the three pillars of the tripartite they were unable even to agree a weekend takeover of Northern Rock, which led to a five-month hiatus before the action to nationalise was finally taken. I agree entirely with the hon. Lady, who said enough today to show the whole House that she will be a huge asset to her constituents and her party.
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