6.57 pm
Damian Collins (Folkestone and Hythe) (Con): Throughout the debate this afternoon we have been asked to consider that the debt situation that we are in is not as bad as it seems and that we can spend money that we do not have to try and get out of it. That argument lacks any credibility with the money markets.
Helen Goodman: That is not what I said.
Damian Collins: The hon. Member for Bishop Auckland (Helen Goodman) is speaking from a sedentary position. I shall come to her remarks, which are pertinent to my constituency, particularly her comments on the habitats regulations and how they impact on the local economy.
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Opposition Members have put to one side the seriousness of the debt situation. The other issue that has not been spoken about at all—certainly not by the right hon. Member for Edinburgh South West (Mr Darling) or by the shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls)—is the underlying competitiveness of the economy. When we look at the debt situation and the world economic crisis, which are grave and severe, we should also consider that our economy may not be as fit and competitive and as able to grow the sort of jobs that we will need in the future as we thought it was.
Statistics showing how this country has fallen behind in the competitiveness league tables published by the World Economic Forum are often brushed aside. From being seventh in 1997 when the Conservative party left office, we fell to 13th last year and are 10th now. That means that in 1997 we had the most competitive economy in the European Union. We find ourselves today behind Sweden, Finland, Germany, the Netherlands and Denmark on competitiveness.
On the broader question of infrastructure, which is so important to the competitiveness of our economy, we find that Britain lies in 28th position, according to the latest figures, not rubbing shoulders with France, which is third, or Germany, which is 10th, but instead between Saudi Arabia and the Czech Republic.
Sheila Gilmore: I am fascinated by the comparisons that have been given. Virtually all of the first group of countries that the hon. Gentleman mentioned have a very large public sector and a very comprehensive welfare system. It would appear that they have a competitive economy as well. Perhaps we should be looking more to the Scandinavian model.
Damian Collins: The hon. Lady will be pleased to know that we are also behind Singapore, the United States and Japan, so there are more countries ahead of us than there used to be, and more than there should be. When we consider trying to create jobs in the economy, Opposition Members seem wilfully to ignore the fact that our competitiveness in an increasingly competitive world matters. To them, competitiveness is not worth talking about and is irrelevant to creating jobs. If we are serious about doing what President Clinton has called getting back in the future business—his criticism of the US economy can be applied to the UK economy over the past 10 to 15 years—we must recognise that we have not invested as we should have done to make our economy as competitive as it should be.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab): The common denominator in all the European countries to which my hon. Friend the Member for Edinburgh East (Sheila Gilmore) alluded is their manufacturing base, and Germany, Japan and China are of course also manufacturing surplus economies. Britain used to have such an economy, until 1979.
Damian Collins:
I am not sure what the hon. Gentleman’s critique is of the party that was in power for 13 years and delivered these statistics. The point I made at the beginning of my speech is that after 18 years of Conservative Government Britain’s competitiveness in Europe was much higher than it is now. I do not know what sort of
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indictment he finds after 13 years of Labour Government, but it sounds pretty damning to me. The hon. Member for Bishop Auckland talked about the habitats regulations, which I will move on to because it is an important point. She was slightly dismissive, but I do not think that she meant to be.
Helen Goodman: No, you are dismissive.
Damian Collins: She was very dismissive of the significance of the review the Chancellor announced last week on whether the habitats regulations are being used to hamper growth and business development and whether they are being unfairly and unreasonably applied. A particularly pertinent case in my constituency is whether Dungeness nuclear power station in Kent should be allowed on the list of new nuclear power sites, and I have written to the Chancellor to ask him to give it special consideration in the review. There is a huge amount of local support and there are two nuclear power stations there already.
Land was set aside for the creation of a third power station in the 1960s, most of which was disturbed during the building of the first two. The land is within a special protected area next to a Ramsar site that gives special protection not to butterflies, but to vegetation that grows on the shingle banks and to birds. The bird sanctuary was created largely after the building of the existing power stations. The area of development for the new nuclear power station is less than 1% of the protected area, so it would be difficult to claim that building it would damage the integrity of the whole site or destroy the habitats totally. They remain within a large, protected and conserved area and will be protected.
Nevertheless, based on Natural England’s interpretation of the habitats regulations, it was recommended to the Government that a third power station should not be built on the site, and that is the only reason why it cannot be built. It would create thousands of jobs during the construction phase and 500 permanent jobs for its operation. It would be an incredibly important investment, and that is an example of how the interpretation of some of these regulations is impeding growth and investment in our economy. The power station would be built not on a greenfield site in a protected area, but next door to two existing power stations and on land that was set aside for the purpose. I obviously feel strongly about this example because the new power station would help my constituency directly, but it would also be a new energy source in an area of high demand in the south-east of England, close to south-east London.
Another local example is Lydd airport. Extending or building new regional airports is a controversial issue. In my constituency the local council decided some time ago to approve a planning application to expand the airport. There had been a previous public inquiry on that in the 1990s, which had lapsed, so the process has to be gone through again. A private developer who is willing to invest money with the support of the local council, which approved the planning decision, is being put through a costly and lengthy process, wasting hundreds of thousands of pounds, with the prospect of possible judicial review at the end. That is also because of the way the habitats regulations have been interpreted, and during the course of the most recent planning inspector’s
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inquiry many of the objections were set aside. It is frustrating that these rules and regulations are hampering investment and growth.
Angela Smith: I thought that the hon. Gentleman’s party was going to form the greenest Government ever.
Damian Collins: The hon. Lady seems to think that there is something incompatible between sensible investment in growth that respects environmental regulations and having no jobs or investment at all. I think that that is possible in this area. The contention in my constituency and those of many hon. Members is that the rules are being applied in a way that restricts growth and investment, largely from private investors and operators, where it is really needed, and that is unacceptable.
The regional growth fund is a big help for constituencies, such as mine, where extra support is needed to attract investors to create new jobs. That is certainly something we welcome in east Kent. Another point about infrastructure investment, which I touched on at the beginning of my remarks, is the importance of the Government’s commitment to invest in broadband and improve the extent of mobile phone networks and coverage. I was pleased to hear in the Chancellor’s statement that, thanks to the extra £150 million that has been made available for new masts in rural areas, the coverage target for mobile operators is now 99%, rather than the 95% target in the last Parliament. That is good news for people in rural communities who are excluded from current coverage and something we should welcome. It is an important investment in our infrastructure for the future.
7.5 pm
Sammy Wilson (East Antrim) (DUP): First, I welcome a number of things set out in the autumn statement, such as the increased money for infrastructure that will come to Northern Ireland. It will not make up for the 40% cut in capital spending announced in the Budget, but it will fill some of the gaps. Secondly, I wish the Chancellor well in his battle with the Secretary of State for Energy and Climate Change, and perhaps the Prime Minister, as he takes on the green lobby and seeks to strike a balance in the economy and redress the damage that many green policies are doing to industry.
I will focus on some of the points that have been made on the need for growth. All the problems that have been identified as impeding growth in the UK economy overall are magnified in Northern Ireland. First, there is the heavy dependence on the public sector, which means that public sector spending cuts have a greater impact. Secondly, there is the difficulty businesses have in obtaining finance from banks in an economy that is heavily dependent upon failed Irish banks and where penetration by UK mainland banks is not great. Of course, the problems in the eurozone have been magnified because we live next door to, and are heavily dependent upon, an economy that has been greatly affected by what has happened in the eurozone and the austerity measures that the Irish Government have had to take. Indeed, many more such measures were announced yesterday in the Irish budget.
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One of the things the Chancellor has focused on, and rightly so, is the importance of keeping interest rates low, and I do not think that any Member disagrees with that. It has an impact on businesses and mortgages and on those who have taken out loans, so it is correct that we should be following policies that keep interest rates low. However, I do not accept that they have been kept low in the UK only because of his plan A and his austerity measures. Looking at the reasons, one sees that of course economic management and confidence in it is important, but so too is the fact that the Bank of England has been buying up £220 billion-worth of Government bonds as a result of quantitative easing. That has injected confidence that other European countries that have been mentioned today would perhaps not have had because the European Central Bank has not done the same.
Secondly, we also have the flexibility to adjust our exchange rate and so have a way of stimulating some growth, whereas many European countries that are tied to the euro do not have that. Thirdly, even though the Government have admitted that their plan for getting rid of the deficit will not be fulfilled in the set period and that they will have to borrow more than expected, the financial markets have not deserted the UK. In fact, they have remained solid. I believe that one of the reasons for that is that we are not regarded in the way that some of the other European countries are, for the very reasons I have given. If anything, the Government ought to capitalise on that. If the markets are prepared to lend to pay for unemployment, would they not be even more willing to lend to pay for investment in infrastructure that could give growth which, in turn, could provide the ability to pay back the debt we already have? Rather than walking away from borrowing, and from borrowing—perhaps only modestly—to do the things that Members have mentioned today, the Government should capitalise on the reputation that their management and our flexibility outside the eurozone gives the Chancellor when it comes to borrowing money.
There are already signs that the Government know their plan is wrong: they are engaged in quantitative easing, which is a way of stimulating the economy by monetary means; and in the autumn statement they indicated that they were prepared to spend more money on infrastructure. They ought then to look at what they can do and at what borrowing they can undertake not to pay to leave people sitting at home, but to pay to get them into work, growing the economy and generating tax revenues.
The hon. Member for Gainsborough (Mr Leigh) said that he did not want to see the public sector increase, but such borrowing would not have to be for the public sector. Indeed, the hon. Member for Ochil and South Perthshire (Gordon Banks) mentioned VAT cuts for the building industry. That would not increase the size of the public sector; it would stimulate the private sector and grow the economy.
Mr Anderson:
In reality, can the two sectors not work together? My hon. Friend the Member for Bishop Auckland (Helen Goodman) mentioned a classic example, Building Schools for the Future, for which we had money earmarked in our constituencies. In my constituency, there was £80 million, and it would have gone not to the public sector but to Gateshead council, which would have
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passed it straight on to private sector builders to build the schools that we need. Is that not the way we should be working our way out of this crisis?
Sammy Wilson: That is exactly the point that I am trying to make. Borrowing does not necessarily have to mean a bigger, bloated public sector; it can be directed in many other ways that would meet the demands of even some Government Members. In Northern Ireland, tourism is a huge industry, and selective cuts in VAT could stimulate spending there and help the Finance Minister to realise the potential to increase tourist numbers by 3.5 million over the next two years, thereby generating private sector growth and helping us to rebalance the economy.
Things can be done and there is potential. The Government have more flexibility than they accept, and if we are to deal with the social strain, the economic hardship and the impact on businesses we need to see examples of that flexibility in order to get back on to a path to growth and back into a position where we can repay our debts.
7.12 pm
Nigel Mills (Amber Valley) (Con): It is a pleasure to follow the hon. Member for East Antrim (Sammy Wilson). Having recently joined the Northern Ireland Committee, I am becoming more familiar with the issues that he raises and, in particular, with Northern Ireland’s attempts to show that one can compete on tax rates to grow one’s economy. It has the right idea in wanting to match Ireland’s lower corporation tax rate in order to grow the Northern Ireland economy, but I sense that it will not want to match Ireland’s new higher VAT rate in an attempt to grow the economy over there. That is aiming for the best of both worlds.
I welcome the chance to contribute to this important debate on what is the central issue for my constituents. I am sure that every Member who has spoken to constituents and businesses cannot have failed to notice how difficult economic conditions have become, and that is why I welcome in particular the fact that the Chancellor, in his autumn statement last week, did not try to hide the full extent of the difficulty, but set out exactly how difficult things are now and will be for the next few years.
The response was robust, and it should see us maintain the market’s confidence, which is the key to our recovery. I am not aware of any serious commentator who suggests that we should change our plan, and borrow more and spend more than we plan to, when we are running a deficit of more than £120 billion this year already. The shadow Chancellor chose earlier to quote Voltaire, and I have found a second quotation for him:
“Common sense is not so common.”
Some of his speech showed eminently that that is true.
I shall touch on the measures in the autumn statement that are relevant to my constituents and work through those issues that are raised most frequently. People—especially first-time buyers—complain that they cannot get mortgages or, if they can, that the deposit requirements are too high or the cost is too high, so last week we announced measures to make it easier for first-time buyers to get mortgages and thus get the building industry started again. I can think of some building
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sites where a couple of houses were started on the edge but the rest of the estate was mothballed for a few years, and getting those finished has to be a good thing.
Small businesses have for a long time complained that they cannot get funds out of the banks, and, although all our measures may have helped a little, they certainly have not solved the problem, so the loan guarantee scheme will I hope be a real step forward. Many businesses are struggling to decide whether investment is a great idea in the current climate, but as things start to improve the scheme will be in place and enable them to secure the finance that they need. In the meantime, every small business will welcome the extension of the business rate holiday for a few more months, but it keeps being extended, and at some stage it might be nice to extend it to a distant horizon so that we know where we are.
The worst impact of any economic downturn is on unemployment, and especially on youth unemployment, and the £1 billion of funding that we announced to tackle that will be hugely welcome. As I visit businesses throughout my constituency, I see that some are taking real steps, at their own cost, to employ local young people. I pay tribute especially to David Nieper in Alfreton, a fashion business that has started its own fashion academy, taking students from nearby universities and showing them the entire industry—from designing clothes all the way through to marketing them, selling them and producing brochures—in order to give them that whole-industry experience so that they really are job-ready.
Helen Goodman: I am pleased that the hon. Gentleman congratulates David Nieper, because my sister works in that factory.
Nigel Mills: Well, I am sure that she recognises how great an employer it is—and it is very kind of the hon. Lady to give me an extra minute!
Many other businesses in my constituency have expressed their concern about the impact of rising energy bills, especially given the Government’s climate change policies, which increase those costs. In my constituency, I have another great business, Denby Pottery. I do not know whether the hon. Lady has family working there, too, but it has expressed a real concern that even the welcome help that we announced for energy-intensive industries last week will not assist the ceramics sector, so I urge the Government to keep working on those measures to protect such valuable and historic industries.
Another particularly welcome announcement for me was the announcement of expenditure on infrastructure and road building. New road construction in Amber Valley has been a little neglected, so I urge the Government to look favourably on the bid that I and Amber Valley borough council have championed for the new Ripley-Codnor bypass, which would link the A38 and M1. We are not asking for the full funding, because the council is busy arranging it through developers that can pay for up to half the bypass, but if the whole road were completed it would present a real chance for regeneration and a real chance to attract new business to the area, which is exactly what the Government’s infrastructure funding is trying to do.
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I am happy with what the Government have announced. In a difficult situation, they have announced some short-term measures to tackle the worst impacts of economic downturn. Now, we need to look at the long-term strategy and at the measures we need in place to make our economy as competitive as it can be in five or 10 years’ time.
In the final minute of my speech, I shall turn to the reform that we need in our tax system. As my hon. Friend the Member for Chichester (Mr Tyrie), the Chairman of the Treasury Committee suggested, many tax regimes that affect our businesses are unduly complex and out of date, discouraging investment while encouraging strange and perverse behaviour, which is why we have to introduce a huge number of more complex anti-avoidance rules, such as those announced today.
Wholesale simplification would ensure that we had a system which encourages what we do want and make it easier to stop the avoidance behaviour that we rightly wish to tackle—and I think the Government are coming round to that. Last week, they announced that 100% capital allowances will be made available to enterprise zones, and, to all those businesses in my constituency which would like to invest in new machinery and need to do so to remain competitive, we should send the message that we want to provide tax incentives for people to invest in capital equipment at this time. If we need 100% capital allowances for enterprise zones, can we not find a way of being more generous with capital investment throughout the whole country, not just in those zones?
7.19 pm
Mr David Anderson (Blaydon) (Lab): Last week was the week when the bubble burst and the Conservatives had to accept what everybody else knew: that the Chancellor had got it wrong on growth, this year and next; on unemployment, up by half a million next year; on borrowing, going up to £158 billion; on children in poverty, again set to rise; and on hitting women the hardest. The House of Commons Library says that the effect of cuts to tax credits and attacking public sector pay will impact on 73% of the women involved. There is complete humiliation for the Chancellor and even more damage to our economy, but who carries the can for the failure of the system? The old, the young, the jobless, the disabled and the women of this country.
As always, when capitalism fails, it is the most vulnerable who suffer. We should look back to the 1930s. Only a few weeks ago, young people marched to London in a sad echo of the crusades of those who left Jarrow 75 years ago. Those brave souls in 1936 did not march to London for the exercise—they did it because they were starving, jobless, and desperate. Just like today, they were turned away empty-handed and made to carry the can for a mess they did not create.
We all know that history repeated itself in the 1980s, when the country was led in a series of recessions by a neo-liberal Government who saw the deindustrialisation of this nation as a price worth paying. They destroyed not only the coal mining and shipbuilding industries of this country but the manufacturing industry that those industries helped to create and that was making leading, cutting-edge technology for the coal-mining industry.
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Why did we do that? Because the market demanded that we did it. It said that British coal was too expensive and that we needed cheaper coal to deliver cheap power. The Government’s response was, “That’s okay. It’s a price worth paying.” They were not paying it and their constituents were not paying it; the people in my part of the world were paying it. The outcome was that hundreds and thousands of lives were decimated, local communities withered and died, and support industries died off.
The truth remains that it is the less well-off, the poor, the frail, the poorly educated who lose the most, while those in charge—the ones to blame—get off scot-free. What else can we say when we face a situation where a quarter of our children will be living in poverty, record numbers of people are out of work, and those lucky enough to retain a job face pay freezes, an unprecedented drop in living standards, and a real lack of security, while at the same time Barclays makes a £11.6 billion profit and pays only £113 million in corporation tax, and its poor chief executive is paid only a measly quarter of a million pound salary but, luckily for him, it is topped up with a bonus of £6.5 million?
Mr Bain: My hon. Friend is making a passionate argument, as ever. The Chancellor said earlier that the only people who were calling for an alternative were, in effect, communists. Does my hon. Friend share my sense of disgust at the Chancellor’s slurring the democratically elected Government of Denmark, who are engaged in a stimulus programme and have seen their bond yields fall?
Mr Anderson: I am very clear that the Chancellor is trying to pretend that nobody else in the world wants what we want. The whole world is crying out for a change to a system that has let it down.
The people of this country—the nurses, the doctors, the care workers—are carrying the can for the failure of global capitalism. We now know that 98 of the top 100 FTSE-listed companies are avoiding £20 billion-plus of tax by putting their money into offshore tax havens.
Lorely Burt (Solihull) (LD): I am very sympathetic to what the hon. Gentleman is saying about high pay and tax evasion; we are trying to do all we can about that. As regards stimulating the economy, what would he say about the situation in America, where that stimulus has been tried and it is now £15 trillion in debt?
Mr Anderson: I will come to what the hon. Lady’s party has had to say and pick up her point then.
It is little wonder that we are in a mess. We are told that even in the City of London—the heart of capitalism—job vacancies have fallen by 16% in a single month. In the past month alone, retail sales have dropped by 1.7% despite huge pre-Christmas discounts. The Engineering Employers Federation says that it expects a drop in its production from 2.2% to 0.9% next year. But do not worry—the Deputy Prime Minister, the leader of the hon. Lady’s party, tells us that he is going to crack down on top corporate pay. Does that mean that he will do what he and his friends in the Conservative party are doing to public sector workers—to nurses, doctors, firefighters and policemen—by putting a two-year pay
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freeze and a 1% cap on to private sector pay and the fat cats? Of course not. The Deputy Prime Minister tells us:
“I don’t mean the government starts going around setting pay rates in the private sector...I believe that people should be well paid if they succeed.”
Can he tell me where the nurses, the doctors, the firefighters, the police, the home care workers, the child care workers, and millions of others are failing?
Jim McGovern (Dundee West) (Lab): As everyone is aware, the Prime Minister referred to last week’s day of action as a “damp squib”. I think that it was anything but a damp squib. Does my hon. Friend agree that if the coalition Government stay on the course they are on at the moment, there will be many more squibs and none of them will be damp?
Mr Anderson: I certainly hope that there is no need for any more squibs, damp or otherwise. It was absolutely wrong that people felt forced to go on strike last week, but they felt that they had no option because the Government were clearly not listening; I hope that they are now.
All in this together? What a laugh! Has Bob Diamond really become 5,000% more successful than his predecessor was 30 years ago? Of course not, but his salary is 5,000% more than his predecessor’s was in the early 1980s. The people who are running our public services are asking, “Where is the fairness?” At a time when other people are wandering around with massive pay packets, they are losing their jobs by the bucketful. Last week, in a throwaway line, the Chancellor dropped in the horribly disrespectful term, “headcount”, when he said that the headcount of job losses in the public sector would rise from 400,000 to 710,000. The headcount! These are men and women, flesh and blood—people with kids, with mortgages, with debt, and with holidays, cars and Christmas to pay for, and they face a future with no hope because this Government put the interests of the market before the interests of the people. It is economic madness driven by an ideology that does not care about the impact on real people.
Of course, the Conservatives will argue that this is all necessary. Perhaps we could accept that if it was actually working, but we see now that it is not. This year, in the north-east alone, 32,000 public sector jobs have gone, 1,080 of them at Gateshead council, with another £38 million cuts to come next year. We will have more people on the dole, poorer service delivery and more hardship all round. It is the classic Tory remedy, and we have seen it all before. Mervyn King may well be right—this might be the worst crisis in our history—but, sadly, the Tories are using exactly the same old methods to get out of it.
As my hon. Friend the Member for Birmingham, Hall Green (Mr Godsiff) said, we need a real dialogue that puts the needs of ordinary people first, and not the demands of the market. We need to move away from the appalling situation that we are in yet again, where bankers and people in the money markets are acting like the arsonist who burns your house down and then comes back next week and offers to rebuild it for you and charges you twice the price for doing it. This is a challenge to all parties in this country, including mine. We need to go beyond the narrowness of the past
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30 years and look to develop an economic system that ignores the markets and does right for the people of this country.
7.28 pm
Eric Ollerenshaw (Lancaster and Fleetwood) (Con): It is great to follow such passion from the north-east, but I would say to the hon. Member for Blaydon (Mr Anderson) that the problem is that my electorate remember 13 years when they were promised that there would be an end to boom and bust, and they are still waiting for an answer from his party as to what went wrong.
I want to make a few observations about what is happening in my constituency and generally in the north-west, and perhaps to have the temerity to suggest something to the Treasury, but we will see how I get on with that. The key focus for my area is on growth and how we get through this crisis. My electorate accept that the deficit reduction programme is delivering low interest rates for businesses, mortgage holders and many others, and that is seen as a good thing. They also see what is happening in other countries across the world and recognise that this Government are delivering by keeping us out of the mess that there has been in Ireland and in Greece.
Many hon. Members constantly see the kinds of businesses that I see in the north-west that have the potential for growth and have the orders, but cannot manage to bridge the gap and buy the extra machine or the extra shed that they need to get things moving. That is why I, like my hon. Friend the Member for Amber Valley (Nigel Mills), am behind the Chancellor’s support for infrastructure, the national loan guarantee scheme of £20 billion and the business finance partnership. I was pleased that earlier in Treasury questions, the Chancellor said that he hopes to get that up and running in January. That will be vital for small businesses.
Sammy Wilson: The hon. Gentleman has given a list of reasons why businesses are not investing. Does he also accept that one reason is that businesses lack confidence because they see an economic policy being pursued that will not release the kind of growth that is needed to sell the goods once they have made the investment?
Eric Ollerenshaw: I am grateful for the intervention. I was going to go on to say that some of these things are actually working.
One of the biggest employers in Lancaster, Northern Tissue Group, is halfway down the line of achieving extra support from the regional growth fund. That will lead to extra jobs. Oaktec, a small company that is developing innovative energy recovery from vehicles, has just got a grant from the Technology Strategy Board to take that innovation further. Those are small beginnings, but the innovation is there.
I want to suggest how we can develop that through the local enterprise partnerships and the new enterprise zones that hon. Members have talked about. One problem that my part of the north-west has had with all Governments is that every time they look at the north-west, they look at Greater Manchester or Merseyside. Although I welcome Lord Heseltine’s intervention, or should I say re-intervention, in the north-south divide and his talk of city hubs, which we are all behind, my part of the
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north-west also has businesses that have potential, as you will understand, Mr Deputy Speaker. With a bit of extra investment, which I hope is coming following the Chancellor’s announcements in the autumn statement, those businesses could provide a good return. I have cited two small examples—Northern Tissue and Oaktec—but there are many other possibilities in the area.
My area also has two universities, Lancaster university and the university of Cumbria, and Lancaster university does a great deal in terms of innovation. My suggestion draws on two developments that we already have. The first is technology innovation centres, which are planned for Warwick, Strathclyde, Bristol, Rotherham and Sedgefield. In 13 years, the Labour Government delivered none of them. At least we are now getting five. Germany has 59 of them. Their mission is to bridge
“the gap between research findings and outputs, and their development into commercial propositions”.
The second development is enterprise zones, the mission of which is
“to support genuinely additional growth and create new businesses and new jobs”.
The original concept envisaged only one zone per local enterprise partnership. Perhaps that idea was developed by some Treasury mandarin who had to calculate the hypothetical loss in taxes due to the hypothetical creation of the new businesses and jobs. As they will be new, I am yet to understand how they can calculate that. Obviously, I am just a simpleton when it comes to the Treasury.
In a nutshell, my suggestion is that we should allow all universities to bid to designate mini-enterprise zones on their campuses. Perhaps not all universities would take that up, but it might fulfil the other Government objective of ensuring that there are more direct outcomes for the economy from universities. It seems to me that there is nothing in the practical definition of an enterprise zone that most universities cannot fulfil.
I suggest that there would be savings to the taxpayer, because universities would not need all the investment that is required for the planned enterprise zones. By their nature, the zones would be incubators for new start-ups that would eventually have to move off campus on reaching a certain size. A mini-enterprise zone on a university campus would therefore create a quicker turnover than the planned enterprise zones. The hypothetical loss in taxes calculated by the Treasury mandarin would therefore be far less, because once a business on a campus got to a certain size, it would feel restricted and would have to move off quicker than those in the planned enterprise zones.
Matthew Hancock: I am interested by my hon. Friend’s proposal. Does he recognise that it is similar in structure to what happened at Stanford in the United States from the 1960s onwards, where the cheap start-up costs for IT firms led to the creation of Google and many other world-beating companies?
Eric Ollerenshaw:
I thank my hon. Friend for that intervention. My suggestion is a hybrid scheme for which universities could bid. As part of a technology strategy, the universities could make some money out of the start-up companies through joint ventures with
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them, which could then be reinvested. I believe that it would cost the taxpayer less in the long run if we just let such zones happen.
To use Lancaster as an example, I can think of two or three innovative businesses on campus that are struggling to find extra funds, but that had to start paying taxes straight away. Just a little bit extra would allow them to move. By the nature of a university campus, the businesses will not be there for ever. By definition, they will have to move on and there will be a swifter turnover.
To put it simply, let 100 university zones bloom. The hon. Member for Blaydon is not in his place, but he would have liked that phrase. There is potential for growth and for new jobs. This could apply to most universities. It would be a simple thing to do, provided that we could get it through the Treasury mandarin.
7.36 pm
Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab): I have listened to this debate with interest. My experience is that the problems that my constituents bring forward for me to deal with are a reliable barometer of what is happening in our economy. At present my constituents are getting it tough—very tough. They are not alone. Earlier this month, The Guardian reported that half a million people will be forced off incapacity benefit. Additionally, child poverty, youth unemployment and fuel poverty have increased and are set to rise further. At the same time, fuel and food prices are rising to unprecedented levels.
Angela Smith: I wonder whether my right hon. Friend feels insulted that, given the seriousness of the debate, no Minister could be present on the Front Bench.
Mr Clarke: The Chancellor likes to hear himself, but I do not see him often when others are speaking.
We are entitled to be extremely worried given that over the past three months unemployment has reached its highest level in 17 years. There are now more women unemployed than at any time since 1988. All of this is a consequence of this Government’s austerity measures—and what improvement has there been as a result of the hardship?
Mr Bain: My right hon. Friend has been a champion of equality since being elected to this House in 1982. I wonder whether he has had an opportunity to consider the report issued by the Institute for Fiscal Studies this morning, which says that one of the biggest drivers of the lift in household incomes has been female employment. How does he believe the cuts announced by the Chancellor in the Budget and the autumn statement will contribute to living standards?
Mr Clarke: My hon. Friend, as usual, makes an interesting and relevant point. I hope to return to it later if time allows.
The Office for Budget Responsibility has forecast that growth will now be lower this year, and for every year until 2014. Unemployment will rise next year and be higher than previously forecast in every year until 2015. Consequently, Government borrowing, which we have heard so much about, is set to be £158 billion higher than was planned a year ago.
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The coalition Government’s economic policy is simply not working. When Labour left office, the economy was growing. In the past 12 months, only Greece, Portugal and Cyprus have grown more slowly than Britain. That is not just because of the eurozone crisis. The British recovery was choked off more than a year ago. In the 12 months since the Government’s spending review the UK economy has grown, but by a mere 0.5%, while the EU has grown by an average of 1.4%. Their policy has starved us of growth.
Britain needs sensible public sector projects that will stimulate our economy, so that it is less dependent on a downward spiral of destructive cuts. Instead, the OBR forecasts more than 700,000 public sector job losses as a result of Government measures, and for anyone who remains, a ceiling of 1% is being put on pay rises for the two years following the spending review period.
Youth unemployment has exceeded the 1 million mark, and long-term unemployment among 18 to 24-year-olds is up by a shocking 83% since the start of 2011. What do the Government do in the face of that crisis? They scrap the future jobs fund and introduce three-year work placement subsidies, which will mean just over 53,000 funded jobs—a far smaller number than the 105,000 starts provided by the future jobs fund between October 2009 and March 2011. Those new placements are not even guaranteed. No wonder our young people feel cheated by society. That message certainly comes over to me in my constituency.
If we are not careful there will again be a lost generation of young people—just as there was in the ’80s, Mrs Thatcher’s time—which will lead to broken homes, broken relationships, dashed hopes and broken dreams. I would not for one second condone the riots that took place in England earlier this year, particularly as I am asking the House to reflect on what youth unemployment actually means. Indeed, I am pleased that they did not extend to Scotland. However, it would be naive in the extreme to think that we can continue with the figures and statistics that are a reality in Scotland and not expect young people to articulate their views.
We were first warned about these matters as long ago as during the war, when Sir William Beveridge wrote:
“If full employment is not won and kept, no liberties are secure, for to many they will not seem worth while.”
So what about the poor and people with disabilities? Since 2010 jobseeker’s allowance claimants have risen in the most deprived areas of my constituency—I underline the word “deprived”—from 26.3% to 28.1%, against a UK average of 3.9%. We are asking what the Government’s response will be, because that is a real problem. Additionally, Mencap has found that one in two families with a disabled child live in poverty. The Chancellor is playing with the lives of those people. As they teeter on the breadline, tax credits are being cut, Sure Start centres are closing at an alarming rate and the number of people able to claim disability benefit is being cut.
Jim McGovern: My right hon. Friend may be aware that last Friday, a Spanish wind turbine company called Gamesa abandoned its plans to locate in Dundee, my home city. It is a devastating blow for Dundee and means that a prospective 1,800 jobs will not be created. Does he agree that the UK Government and the Chancellor should work more closely with the devolved Administrations to ensure inward investment throughout the UK?
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Mr Clarke: My hon. Friend makes an excellent point, with which I agree.
When it was promised that the coalition Government would protect the most vulnerable from the impact of spending cuts, what part of that commitment did the Chancellor not understand? Instead, the situation of those individuals will only worsen as the Government announce yet more and more cuts to make up for a lack of growth. It does not have to be that way. It should not and need not. The Government could change course and adopt Labour’s plans for jobs, to seek to grow the United Kingdom and take us out of debt. Our people deserve no less.
7.44 pm
John Stevenson (Carlisle) (Con): It is a pleasure to have the opportunity to participate in the debate. I appreciate that it is primarily concerned with the state of the economy at present, and I accept the reality that the economy is likely to dominate our debate and politics for the next few years as we concentrate on improving it and trying to achieve some growth. However, as this is a general debate I thought I would take a slightly different approach. In the short time that I have, I wish to consider what sort of economy I would like to see in the next five or 10 years, and what sort of economy we should aspire to.
Members of all parties want a rich and growing economy that provides quality public services and well-paid jobs. That is clearly our ultimate goal. We therefore need to consider matters such as: the balance between the public and private sector; what level of taxes we should have and what those taxes should be; how much regulation there should be and what we should be regulating; what industries the Government should support and encourage; what the relationship should be between central and local government on economic policy; and what policies on education, training and the like will best support a growing economy. Those are all very big issues in their own right, but I shall concentrate on three general themes.
My first theme is the public sector. The critical starting point for me is that government, whether it be national or local, can and should be a vehicle for good. However, the danger of government being a hindrance is all too obvious. It can become too big, acquire too much debt and an oversize deficit that crowds out wealth-creating sectors, and introduce too much regulation, strangling any innovation. Probably worst of all, officialdom and bureaucracy can become all-powerful and interfering. That has happened to some extent over the past few years, and it is this Government’s job to try to reverse it.
It is vital that over the next few years, we start to rebalance things. I accept that the state has an important role to play, but it should be smaller and more efficient. Government should not try to do everything, it should try to do some things extremely well, particularly the things that the private sector cannot do. The state sector needs to raise its productivity levels, and we must always remember that it is not always about the amount of money that is spent, it is also about how we spend it. We need to create a competitive environment within the public sector wherever possible, and most importantly of all we need to encourage clear leadership and quality management, to maximise freedoms in the public sector
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so that leaders and managers can perform their jobs to the best of their ability and as efficiently as possible. Those overriding concepts can lead to a much more productive and effective public sector providing better services for the people of this country.
We also have the wealth-creating sector, which must also be a vehicle for good, creating jobs and wealth for our country. Our goal should be to create an environment in which the private sector can flourish, with a sensible tax regime and an appropriate regulatory regime. We need consistent Government policy so that business can plan for the future, and we need to ensure that the Government’s finances are stable. That should be their aim.
We need a balanced economy, but at the same time we must recognise that we have certain strengths as a country, for instance our financial sector, and should play to those strengths where appropriate. The key is to ensure that we have a competitive environment and a skilled and educated work force. Wherever possible, we need to ensure that barriers to entry are kept to a minimum. The prime example is the banking sector, in which organisations are too few and too big. Indeed, we could go on and criticise the accountancy world, in which we have four very large firms. Are they also too big and too few? There is work to be done over the next few years in helping our economy rebalance, creating the right environment for business to grow and ensuring that we have a skilled and educated work force and a competitive market for businesses to compete in.
The final key area on which I wish to reflect is how Britain made its fortune in the past, which was through trade. We are a trading nation and a very open economy, but we appear not to have performed as well as we should. We have a deficit of £100 billion in the trade in goods, so there is clearly a problem. Some 50% of our trade is with Europe, and our main trading partner is Ireland. What about the BRIC countries—Brazil, Russia, India and China? Ten years ago they represented 8% of the world’s GDP. It is now 20%, yet we have only £2 billion-worth of trade with Brazil.
Charlie Elphicke: Does my hon. Friend agree that a key Government priority should be to boost trade with BRIC countries so that we can diversify our economic base internationally?
John Stevenson: I completely agree. Growth is not in Europe but elsewhere in the world, and we should try to increase our trade with the BRIC countries. We need to look at those new markets and rediscover our trading instincts.
I accept that our concern is primarily the state of the economy here and now and in the next 12 months. However, we need to remember to raise our eyes above the horizon and think about what kind of economy we aspire to in five or 10 years’ time, and how we will create it.
7.50 pm
Mr Pat McFadden (Wolverhampton South East) (Lab):
I shall use the time available to make a couple of points about the economic challenge facing the country, and in
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particular about the era of the politics of less. All of us must look to achieve our political and economic aims in an era of lower growth than we have been used to in recent years.
The central feature of the autumn statement last week was the further downgrading of economic forecasts for the short term. The Office for Budget Responsibility downgraded its growth forecast for this year from 2.6% to 0.9% and for next year from 2.8% to 0.7%, and said that by 2015 the economy will be 3.5% or £65 billion smaller than previously forecast. The Financial Times has estimated that the gap between the economic growth trajectory had the recession not happened and where we will be in a few years’ time is 14% of GDP. We are therefore entering an era in which our economy is smaller—and by some projections significantly so—than it would otherwise be. Recovery will be weaker than expected, unemployment will be higher and the economy will be smaller for some years to come.
Mr Denis MacShane (Rotherham) (Lab): Is my right hon. Friend aware that between 1997 and 2010 the British economy grew by 75%—in other words, that it almost doubled? It has now come to a shuddering stop and is going into reverse. Can he think of any previous historical period in the past 200 years, and not only in the 1970s, when a Conservative Government presided over such an astonishing, shrinking, no-growth economy?
Mr McFadden: I agree with my right hon. Friend that the economic times that we are in should make us reassess what we think of as normal.
The human implications have been laid out by the Institute for Fiscal Studies in its analysis of the impact on households. As was mentioned earlier in the debate, the IFS has shown that the distributional impact of the measures is geared so that the greatest losses come in the lowest-income deciles, and that there are particularly harsh effects on families with children. The shadow Chancellor in his opening speech referred to the impact of the tax credit measures on individual constituencies. The most striking figure for me is that the IFS forecasts that between 2009-10 and 2012-13 there will be a 7.4% fall in real median net household income, which is about the same as the largest fall since records began.
Angela Smith: In the context of what my right hon. Friend says, can it be fair that while £1.2 billion in tax credits for low-income families is taken away, only £300 million extra will be required from the bankers?
Mr McFadden: Anyone who looks at the IFS distributional charts would certainly not judge the impact of the Government’s measures as fair.
The background, therefore, is less disposable income, weaker growth, more unemployment and more borrowing. Against that, it is little wonder that there is such low confidence among families and businesses alike.
The question, therefore, is what to do to promote the economic growth that we so urgently need to create jobs. The Chancellor set out a number of measures in the autumn statement—more lending to small businesses, more spending on infrastructure and so on—to try to boost growth. Some of those individual measures are perfectly sensible and should be welcomed. Of course
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small businesses want more lending, and more capital spending will create jobs, but the real question is whether those measures will contribute to economic growth.
The OBR has already given its verdict. Paragraph 1.14 of its report states:
“We have not made any material adjustments to our economy forecast on the basis of these policy announcements”,
meaning the ones in the autumn statement. Its verdict is that however worthy the individual measures are, they will not make a material difference to the overall picture. Therefore, if growth will not come from consumer spending because the consumer is being squeezed in the way that the IFS has set out, and if it cannot come from Government expenditure because that is contracting, it must come from trade and investment.
The Government should ask what more they can do to encourage business to invest. My contention is that that is not a matter of putting one or two measures suggested by business lobby groups into such statements. Rather, it is a matter of making a sea change in our thinking of how we get growth in these economic times.
I shall focus on one particular issue on which I have spoken before in the House. Although industry welcomes the change announced on R and D tax credits, there is real concern about why the Chancellor is pressing ahead with his plan for a £3 billion-a-year hit on manufacturing industry through his cuts to capital allowances. It is not enough to argue for enhanced capital allowances in enterprise zones when manufacturing in the economy as a whole is putting up with that £3 billion tax hit. How does it help us to generate a low-carbon economy if the Government make investment in the equipment and machinery that will get us there more expensive through their tax policy? Even the excuse that that is a necessary deficit-reduction measure is not available, because the money is not being used to reduce the deficit; it is being recycled in a give-away to businesses in those sectors of the economy that do not invest, including the very banks that will not lend to manufacturing businesses in the first place.
If we really want to rebalance the economy, our manufacturing tax stance should recognise the shortened lifespan of machinery, help businesses to invest, and ensure that British companies have an incentive to invest and that they are not hindered in their efforts to keep ahead of the game. That is made more urgent by the sharp downgrading last week of the forecast for growth over the next couple of years. That shows that the Government need to be more, not less, ambitious in their plans to promote trade and investment.
We have twice heard Government plans that have been billed as plans for growth, yet at each economic statement, growth has fallen, and it is projected to fall further. If we should have learned one thing in the past three or four years, it is that assumptions of snapping back to so-called normal trend rates of growth have been consistently over-optimistic. These are not normal economic times. The downturn has been longer lasting than we feared and hopeful projections of future growth have a habit of retreating into the middle distance.
My contention, therefore, is that the era of the politics of less poses challenges for us all—Government and Opposition. How do we secure economic efficiency and social justice in an era of lower growth and squeezed household incomes? If the Government’s spending is to
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continue on a downward path for some years, and if households face the kind of squeeze in their incomes set out by the IFS, the circumstances demand an industry policy on a scale and ambition way beyond what we saw in the autumn statement last week. They demand a resolve from the Government, industry and all levels of education to make the rebalancing that we talk about happen, and to put weight behind those areas where Britain can succeed. The situation demands more than a regional growth fund at half the level of spending of the regional development agencies; more than a tiny fraction of the €5 billion-a-year relief for energy-intensive industries that is available in Germany; and tax policies that support the rebalancing effort rather than pull in the opposite direction.
7.59 pm
Matthew Hancock (West Suffolk) (Con): I shall continue directly from what was said by the right hon. Member for Wolverhampton South East (Mr McFadden). Our country faces very difficult economic times, as does the continent of Europe. In recovering from a debt crisis throughout the west, we face difficult challenges. I listened with great interest to the right hon. Gentleman’s speech. It closely followed the line of argument that was put forward by the right hon. Member for South Shields (David Miliband) in a speech last week. The right hon. Member for Wolverhampton South East recognised the scale of the problem and the need to deal with the deficit. Some of his suggestions were sensible; others I would not follow so closely. None the less, he was engaged in the economic argument. People across the country want to see politicians engaging directly in the economic argument about how we deal with the problem that exists now. I am not talking about the forecast that was set out before the credit crunch in 2007 and before the last election. Incomes are 14% smaller than anticipated, which is a serious problem. Most of the blame rests with the previous Administration, so it is absurd to make party point-scoring interventions on this particular issue. This is an important argument with which to engage, which is why I am so disappointed by the arguments that were put forward by the shadow Chancellor and the Labour party; they completely failed to engage in the seriousness of the economic debate.
I should like to tackle three issues that show just how much the Opposition arguments miss the point. I will not dwell on the fact that the Opposition seem to believe that borrowing is in and of itself a good thing and I will not set out any further than has been set out already the chaos of their euro policy—a policy that was changed from the Dispatch Box in response to an intervention. However, I will set out the complete failure of the Opposition on three specific points.
Karl Turner: (Kingston upon Hull East) (Lab): Before the hon. Gentleman moves on to his next point, will he accept that economic growth was choked off well before the eurozone crisis? Government Members were being warned about the situation by many people. They were even warned by me, and I have very little knowledge of the economy.
Matthew Hancock:
I certainly accept that growth and the protection of the economy will be difficult because we are escaping from a debt crisis in which we had the
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biggest boom and the biggest bust. Certainly there are some very important domestic causes of our problems. The massive boom was funded by borrowing—both by the Government and in the banking sector. I also accept that inflation, and especially commodity price inflation, has had a negative impact on the economy as set out by the OBR. Moreover, the Greek crisis broke in the weekend after Labour had lost the election, but before the coalition was formed. The then Chancellor set out that Britain should participate in bail-outs, a position from which this Government have extricated themselves. The euro crisis certainly has had an impact and it broke in May 2010.
My first specific point is that I have not yet had an answer to a question that I have been posing on TV, on the radio and in this House, which is how can spending more money lead to lower borrowing?
Matthew Hancock: Let me set out my point and then I will take the intervention. The conditions under which that can be true are highly specific so as to be utterly extraordinary. The Lafferites on the right argue that in the case of very high marginal personal taxation rates, they can pay for themselves if they are cut, but there is little evidence of that. Margaret Thatcher said that the problem with the Laffer curve is that one does not know where one is on it.
The idea that spending can lead to a Lafferite consequence—that borrowing is lower because of more spending—has absolutely no force in economic evidence or logic.
Sheila Gilmore: It has more force in economic theory. That was precisely the point that was made during the 1930s and subsequently by Keynes. It was said that the time one should be borrowing is during a recession. We should borrow to build houses, create construction jobs and to keep people in work and not, as this Government are doing, to keep people out of work.
Matthew Hancock: I will come on to that point a little later. That is the argument that is put. The question that has to be answered is how can the extra tax that the Government get from employing people exceed the cost of employment when it is the Government who are paying the tax? It does not make sense.
Matthew Hancock: No, I will make the point in another way. If a person borrows money to employ somebody and then claims that they will get back more than the cost of employing that person through tax and lower unemployment benefits, the Government would have to pay more to themselves in tax than they spend in tax. That cannot be true in logic let alone in economics.
Angie Bray (Ealing Central and Acton) (Con): Is the point not being missed by the hon. Member for Edinburgh East (Sheila Gilmore)? On this Keynesian argument, a person would have had to be saving during the good times, and that is what was missing from the programme of expenditure of the Labour party.
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Matthew Hancock: Keynes himself argued that we need to save in the good times or, as JFK on the left put it, we need to fix the roof when the sun is shining. That argument has no foundation in economic theory or experience. I have a second argument that I want to challenge. It was put this morning by the shadow Chancellor in The Times . He said:
“The argument is whether it is better to be borrowing billions more… or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a fairer way.”
I could not agree with him more. It is better to be taking action now to get our economy moving rather than borrowing billions more, which is the policy of the Labour party. Their position, therefore, is illogical. Their argument is that borrowing is going up. However, the shadow Chancellor was forced to admit after an intervention that borrowing is falling; it is lower this year than last year and it was lower last year than the year before under Labour. It is falling in the OBR’s forecast every year. Labour members may smile, but when their argument is inconsistent with the truth, they know that they are on weak territory.
My final argument concerns the idea that low interest rates are a bad idea. The shadow Chancellor holds both that borrowing is good and that higher interest rates would be better because he has said that low interest rates “are a failure”. I put it to all Members in this House to ask their mortgage-holding constituents and their small businesses whether that is the case. The only conclusion I can come to is that the reason they hold this position is purely political so that they can oppose the cuts.
8.8 pm
Angela Smith (Penistone and Stocksbridge) (Lab): Follow that, as they say.
There is no doubt that the economic news of the past few weeks has been appalling. In last Tuesday’s autumn statement, the Chancellor finally admitted what the shadow Chancellor and many economists had been telling him for months—that the massive gamble that he took in June 2010 has failed.
Last week, the Chancellor announced not plan B but plan A-plus. Over this Parliament, the Government will now have to borrow £158 billion more than they said just 18 months ago. That is despite the pain of cuts worth £40 billion imposed on the economy and tax rises imposed on ordinary families up and down the country.
Mr Bain: Is my hon. Friend aware of the figures from the OBR which indicate the scale of the Chancellor’s disaster? There has been £15 billion less in tax revenues coming into the Treasury. Does that not explain the scale of his under-achievement on growth?
Angela Smith: It absolutely does explain the scale of it. Let us make real-life sense out of some of these figures. They mean that 700,000 public servants had to be cast aside, 300,000 more than the Chancellor said would lose their jobs just a few months ago. Some £1.2 billion has been taken off tax credits while bankers suffer a mere £300 million increase in the take from their pay packets by the Treasury.
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Any pretence of fairness and of our all being in this together went out the window last Tuesday. Ordinary families are taking a massive hit: already more people are unemployed than at any time since 1994—the current figure is 2.6 million—and to make matters worse the number of people out of work for more than a year is 868,000, with the long-term rate for 16 to 24-year-olds standing at a staggering 30%.
Mr McFadden: My hon. Friend refers to the cuts in tax credits in the autumn statement. Since they entered office, the Government have made great play of increasing the incentive to work. How does she think that the incentive to work will be affected by cutting tax credits for low-income families?
Angela Smith: It can only have a regressive impact because it will mean that families are less able to provide for their children and to develop the aspirations that are so important in later life.
One in three young people have been unemployed for more than one year and youth unemployment stands at a staggering 1 million, with the figure for those not in education, employment or training standing at a terrifying 1.2 million. The Government are creating another lost generation similar to the one that they created in the 1980s. Clearly, the Chancellor’s policies are hurting the British people, but they are certainly not working. The young in particular are paying a high price for his failures.
There is worse to come as the OBR now states that, at best, the British economy is set to stagnate next year and the year after, with growth broadly remaining flat. Even worse, if the well-respected OECD is correct, the economy will dip again into recession early next year. The British economy has been stagnating for the past 15 years, and the growth and jobs crisis has its roots firmly planted at No. 10 and No. 11 Downing street. Real incomes are being squeezed like never before, with high inflation and rocketing fuel bills not helped by the Government’s decision to increase VAT in January.
Last week’s statement gave hard-pressed families two more years of austerity, with real median incomes set to fall by 7.8% according to the Institute for Fiscal Studies. That means that real median household incomes will be no higher in 2015-16 than they were in 2002-03 and that we will have suffered the longest period of austerity since the second world war.
The Government inherited an economy that was fragile but nevertheless in growth, yet they gambled that recovery on the basis of tired ideas that have been tried before and found wanting. The right-wing prescription failed in the ’30s and is failing again now, with the consequence that the economy could dive into a double-dip recession. The level of unemployment in Yorkshire is almost twice what it is in the south-east and is growing at twice the rate. It is entirely possible that Yorkshire is already in recession.
The autumn statement did not announce any new resources to be injected into the economy—all it announced was a moving around of the money. It will be families with children who will pay for the back to the future jobs fund—the youth contract—through the £1 billion cut to the child element of family tax credits. If this country is not to face a lost decade, or even worse, we need a strategy for growth, and we need it now. The stakes are high and we urgently need to get people back
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to work before another generation has to pay the same price as mine for an ideologically driven Government who refuse to learn the lessons of history.
In particular, we need as a starting point Labour’s five-point plan, which would reverse the damaging rise in VAT temporarily and give a one-year national insurance tax break for every small firm that takes on extra workers. And crucially, it would bring forward long-term investment projects for schools, roads and transport to get people back to work. What we do not need is what has been recently proposed: a shopping list of projects here and there paid for by redistributed money. Instead, we need a rigorous, strategically driven investment regime designed to drive long-term economic growth.
In the medium and long term, we need a better economic way forward. On that point, I echo the points made by my hon. Friends. The Thatcher-Reagan consensus is crumbling before our eyes. Will Hutton put it even more starkly in a recent article when he said that
“we are about to experience economic, social and political tectonic plates on the move”.
We desperately need to develop an alternative economic paradigm, which means changing the way our capitalist structures work. We need to go back to making things and to give manufacturing a much bigger role in our economy. We need a capitalism that looks to the long term, not just to short-term profits, and we need a society where reward and risk are shared and where it is understood that the state has a role to play in pioneering and driving strategic investment. And we need to invest in innovation
The Government’s strategy of cutting and hoping that growth will magically reappear is not working now and did not work in the past. The Government are bankrupt of ideas for our future and lack the imagination and the bravery needed to take our country forward to its next phase. These extraordinary days require extraordinary solutions, but the fear is that it could soon be too late for many millions of British families who are paying the price for this out-of-touch, ideologically driven Government who seem determined to follow their chosen course no matter what damage it does to the British economy and to families in this country.
8.16 pm
Richard Fuller (Bedford) (Con): I listened with great interest to the comments of the hon. Member for Penistone and Stocksbridge (Angela Smith), who spoke eloquently about the short-term pain that many families in her constituency and, I am sure, in mine are going through in these difficult economic circumstances. She also rightly pointed to the need for the Government to think about the long term. I hope that she will listen to my observations in the same spirit.
Under the previous Government, the United Kingdom became the most indebted major economy on earth. That was not the fault of the bankers alone, of Government borrowing alone or of companies alone; it was the fault of us all, although led by a Government who were at best asleep at the wheel and at worst systematically undermining our long-term finances for short-term political gain. These problems are so endemic that they cannot possibly be put right in one year, in one term or by one policy.
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The absolute core policy that a massively indebted nation must pursue is the maintenance of low interest rates for as long as possible. The McKinsey Global Institute study on debt and deleveraging shows that the UK led the pack of the world’s largest economies in terms of its debt-to-GDP ratio and became increasingly more indebted from the mid-’90s and, in particular, from 2003. From 2000 to 2010, domestic, public and private debt as a percentage of our GDP rose by 182 percentage points to nearly 500% of GDP, making the UK the most indebted of all major economies—even more so than Japan at the end of the period.
Mr MacShane: In the 1930s, interest rates were close to zero, as they were in Japan in the 1990s. Arguably, that increases indebtedness because if people can borrow massively without having to pay serious interest rates, they might run up debts. I am just gently saying that the idea that one factor can explain the problem and that we should focus on that is wrong. We need a holistic approach.
Richard Fuller: The right hon. Gentleman makes a helpful point. It is precisely my point, although unfortunately the shadow Chancellor missed it when he seemed to think that the responsibility of the Government towards debt management was to do with Government debt alone. It is not. The responsibility of the Government is to look at the whole economy. The debt of a nation, whether taken on by the Government, households or companies, has to be repaid by the nation. That is what got so out of control over the past 10 years.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op): I assume that in his figures for debt, the hon. Gentleman is talking about secured debt as well as unsecured debt. Did he read the article in the Financial Times about three weeks ago demonstrating that the level of unsecured debt under the Labour Government actually lagged behind economic growth, which means that our boom was not led by unsustainable borrowing?
Richard Fuller: I thank the hon. Gentleman for his intervention. He makes one correct point but draws a false conclusion. It may well be true that unsecured debt did not rise as rapidly as secured household debt under the last, Labour Government, but it is absolutely not true that the last, Labour Government did not preside over one of the most massive increases in debt of any nation on earth.
In response to the right hon. Member for Rotherham (Mr MacShane), let me make four points. The first is about the potentially crushing impact of household mortgage debt. Let us compare a household deciding whether to purchase a house with a mortgage in 1997 with one making that decision in 2007, looking at the loan-to-value ratio and average house prices in those two periods, and ask how much money the average household will lose over the next 25 years because house prices were allowed to rise so much. The answer is that the average household will have £250,000 less to spend—it will be a quarter of a million pounds worse off—in the next 25 years precisely because the last, Labour Government thought that they were creating wealth by making average house prices escalate way out of the range of the average family.
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As a Government we need to look at building more houses and regulating mortgage lending to maintain sustainable norms. We need to look—as we are—at simplifying planning controls and removing obstacles standing in the way of house building. At some stage we also need to analyse the impact of the reintroduction of mortgage interest tax relief, should interest rates rise precipitously.
Matthew Hancock: Should we not also consider regulating the overall debt in the economy, as was done until 1997, but then stopped?
Richard Fuller: My hon. Friend makes a good point; indeed, that is also an idea that we should consider.
The other thing that we are leaving the next generation that we need to consider is our pensions liabilities and how to resolve them. The happily titled “Project Armageddon” report from Tullet Prebon shows that the public sector pensions liability is £1.18 trillion, which is almost the same as the published, or “treaty”, Government debt of £1.11 trillion. I do not particularly want to dwell on public sector pensions, but this raises in my mind the way in which we have structured our pensions liabilities—that is, the pay-as-you-go nature of the basic pension scheme—such that we expect the next generation to pay for them rather than paying ourselves. Given that this generation will pass on such significant debts to the next generation in other ways, I have been considering various ways to change how we fund our pensions in this period.
In 2006 the Australian Government established the future fund, with 18 billion Australian dollars of seed capital. The goal was to invest in long-term infrastructure projects with a commercial return in order fully to fund the pension liability of public servants—that is, to move from a pay-as-you-go approach to an essentially self-funding system for public sector pensions. In the autumn statement my right hon. Friend the Chancellor talked about £21 billion of credit easing, which he will put through the banks via the national loan guarantee scheme. Let me suggest to the Minister that instead of putting that £21 billion of credit easing through the banks, perhaps we should create a UK version of the Australian future fund, essentially moving a portion of our pensions liability into what might be termed a hypothecated fund for that purpose. That is one thing that the Government could do that would significantly benefit the future generations that will have to pay off the debts racked up over the past 15 years.
Let me make two observations about job creation. There is nothing worse than people not having work to do when they are seeking it—hon. Members on both sides of the House think that is true. I am very pleased that the Chancellor has said that he will ask the independent pay review bodies to consider how public sector pay can be made more responsive to local labour markets. That would be a far more effective way of addressing wage-price rigidities than calls to scrap the minimum wage or other such measures. It is an issue—I listened to a speech by an Opposition Member about this earlier—that in certain parts in the north of our country, the public sector premium over private sector pay is 20%, whereas in other parts it is much lower, at 4%. In those areas the private sector should not be priced out of the market getting people to work for it because public sector pay is set significantly higher.
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In closing, let me also gently suggest to the Minister that, with national insurance contributions at 13.8%, we have a significant tax on jobs. As we look to implement our policy to take the lowest paid out of tax, may I ask him perhaps to consider the national insurance tax on jobs too?
8.25 pm
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op): I will resist the temptation to answer the points made by the previous speaker, the hon. Member for Bedford (Richard Fuller).
The autumn statement last week was the most astonishing litany of failure. The shadow Chancellor described the Chancellor’s view as Panglossian; I myself thought it was more like something from “Alice in Wonderland”. I just cannot see how the situation that the Chancellor inherited 18 months ago—a growing economy, and inflation, unemployment and our debt dropping—was so bad that it had to be destroyed and a set of policies put in place that have done the reverse. Now the Chancellor stands there and says, “This is what is needed. This is what the rest of the world admires and praises us for.” Quite frankly, that bears no resemblance to reality whatever. I cast my mind back to 1997, when the former Prime Minister, then the Chancellor, resisted the temptation when he came into power to overturn everything that the previous Government had done. He kept within the previous Government’s public spending limits for two years, laying the fiscal foundation for 10 years of prosperity. Perhaps the current Chancellor should eat humble pie and look at his example.
When the Chancellor announced his policies, I tried to pick from them the rationale for why they might work. As far as I could see, they were predicated on two assumptions. The first was that we would export our way out of trouble, the second that we would invest domestically to grow the private sector so that it could take the unemployment arising from the public sector. He did not really take into account the fact that in many regions the private sector is dependent on the public sector; indeed, the main thrust behind the surge in our manufacturing exports was because of the weaker pound and the sustained high demand in Europe. At the same time, he failed to co-ordinate the rest of the departmental policies to sustain that. He removed the regional development agencies. He also failed to deal with the banks and enable them to borrow to companies so that they could export, which meant that those companies immediately ran into capacity problems.
Then, of course, the squeeze hit, and confidence—not helped by the apocalyptic economic rhetoric that the Chancellor used to justify his policies—fell, reducing demand from companies to invest more. Now we face the problem of a difficult credit situation from the banking sector alongside low confidence, which means that people do not have the incentive to apply for loans. When I look at the measures in the autumn Budget, I fail to see how that would be addressed.
The Chancellor has introduced a whole set of supply-side measures that are in themselves a recognition of the mistakes he made when he first took office. I refer to things like the bank loan guarantees, which are just an extension of Labour’s enterprise finance guarantee scheme. Then there are the infrastructure commitments, the
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regional growth fund, which is a poor alternative to the regional development agencies, and the youth jobs measures. These are basically repackaged measures, which the Chancellor claimed when Labour delivered them were one reason why we had this record deficit.
The problem is that the Chancellor is funding these measures out of cuts in current expenditure. We have long-term infrastructure projects, which do not have a short pay-off period; we have credit easing, which is borrowing by another name, and neither bankers nor businesses know how it will work—it will not work unless people feel they can sell the products that come from the extra investment; and we have RGF funding, which is glacial in its progress in tackling unemployment. I have asked the Minister several times how many jobs have been created nearly a year after its first implementation, but he cannot even give me a figure.
What we have at this moment is a set of long-term supply-side projects, which are not in themselves bad—I would support them—but they are funded out of short-term current expenditure at a time when we have the worst possible squeeze on personal expenditure. The real danger is that our capacity to grow in the future will be impaired by the present squeeze because many companies will either shed skilled workers in the meantime or will go under. When we get into a position to grow out, we will not have the capacity to do so. The Office for Budget Responsibility has drawn attention to that very point.
8.31 pm
Charlie Elphicke (Dover) (Con): I am pleased to be the first to welcome you to the Chair, Madam Deputy Speaker. I want to make a few remarks about economic impacts on the households and families that find it the hardest to make ends meet. Some call them the strivers; some call them hard-pressed families; I have even heard them talked about as alarm-clock Britons. Many families with children find it very hard to make ends meet, so it is worth underlining the strong action that the Government have taken to help people in that position.
First and most important of all is keeping interest rates low. I noted with interest the intervention of the shadow Chancellor on the Chancellor to point out, “Well, there is a liquidity trap; interest rates are too low; it is a bad sign; we need higher interest rates.” I think that that will ring very poorly with Britain as a whole. For people who are striving and finding it hard to make ends meet, having to pay higher mortgage interest is not in their interest. The shadow Chancellor and the Labour party are wrong if they are entertaining a policy that is about raising interest rates. That was my understanding of the drift of the shadow Chancellor’s speech. I regret it; I do not think it is the right thing to do. Let us bear in mind that a 1% hike in interest rates would mean £10 billion more in interest payments—about £1,000 extra on the average mortgage. People are finding it hard to make ends meet because of rising global commodity prices and the current difficult situation. Higher mortgage interest rates would be a massively retrograde step. One of this Government’s most important achievements has been to keep interest rates low by providing stability, clarity and a positive deficit reduction plan to get our finances in order. That is helping millions of families up and down the country and millions of businesses with lower interest rates are far better off than they would be otherwise.
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The other really important thing is the help the Government are providing with child care. For a long time it has been difficult, particularly in deprived communities like parts of Dover and Deal in my constituency, for joint working parents to juggle child care. The announcement to help those deprived areas with extra help for child care places was one of the most important in the autumn statement.
Sheila Gilmore: At the same time the Government reduced the amount of child care tax credit last year, so far from helping working families, that did exactly the opposite. These provisions for nursery care, though important, are not really a substitute for the kind of costs people face if they want to work.
Charlie Elphicke: I thought that child care tax credits had been protected. Indeed, I believe they are going up £135 next year, so I am not sure that the hon. Lady has that right.
Sheila Gilmore: Like others who have spoken today, the hon. Gentleman is confusing several different issues. The purpose of child care tax credits is to pay the cost of child care. The Government reduced the proportion of the cost that was paid from 80% to 70%. Child tax credits are a completely different entity, and yes, they are being increased. Earlier, the hon. Member for Bristol West (Stephen Williams) suggested that tax credits had not been frozen, but they have been, and that is another hit suffered by working families. It would help if Government Members understood more about the benefit and tax credit system.
Charlie Elphicke: As the hon. Lady well knows, she and I debated the issue at length during the Committee stage of the Welfare Reform Bill. I know that Opposition Members sneer at this, but I think it important that child tax credits are rising by £135 next year. That is a move in the right direction. It is good that the lowest paid in the public sector are being protected from the pay freeze because they are disproportionately women, just as it is good that 1 million people are being taken out of the income tax system because they are disproportionately women. We need more action of that kind. The hon. Lady’s party had 13 years in which to take such action, but, as we know, child poverty sky-rocketed during the last Parliament. At least this Government are trying to take positive action in difficult times.
Hard-working families need to see stable finances, a stable Government and a stable fiscal position, because that is the only way in which we will bring back real growth. If we had continued to pursue the policies of the past, what would have happened to our country? We would have ended up as a basket case, like Greece, Italy, Portugal and Ireland. However, we had a credible plan, and we took firm action to control the deficit and sort out our national finances. We have made tough decisions that hit the least well-off, but also the most well-off. We are all in it together. Everyone is sharing the pain, more or less equally, and I think that that is the right direction of travel for the Government.
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Members on the rowdy Opposition Back Bench may not agree with what I am saying, but the figures make it clear to me that we are working to create fairness. For instance, unlike the Opposition, we want to create fairness for motorists. By the end of next year, those who experienced such difficulty as a result of Labour’s fuel duty escalator will save £144 on the cost of filling up the average car by the end of next year. That is an important example of progress. The apprenticeship scheme has also been a real help to our young people after youth unemployment rocketed, particularly under the last Labour Government. [Interruption.]
Madam Deputy Speaker (Dawn Primarolo): Order. Members do not have to agree with what is being said, but they do have to listen to it, and not continually interrupt.
Charlie Elphicke: Thank you, Madam Deputy Speaker.
In the last Parliament, youth unemployment in the shadow Chancellor’s constituency rose by approaching 150%, whereas in the current Parliament the rise has been much lower. We are having to try to turn around the supertanker to return to our young people the futures that were so disappointingly taken from them by the last Government. We need to look after the younger generation, and allow them hope for a better future.
Let me end by saying a little about what the Government are doing for east Kent. The South East England Development Agency spent £20 million on a business park project and created tarmac, but no buildings and no business park. Money was too often wasted. Now we have a local enterprise partnership that has already created an enterprise zone, which is important to a community that experienced difficulties after Pfizer decided to run down its research in the United Kingdom. That is real progress.
Our area has benefited from massive activism. The fast train service to Deal and Sandwich will help to improve the economic situation, as will the £40 million regional growth fund. I also welcome the £180 million catalyst fund that the Prime Minister announced the other day. Such things are very important. We have seen more economic activism in east Kent in the last year than we have seen in the last decade.
If we can establish the people’s port in Dover, it will give the community a sense of ownership, place and control of their destiny which will have an important impact on their confidence in us. East Kent is so often at the end of the line, a poor relation of the rest of Kent. I hope we can establish the people’s port project, and make it work so that it is a great showcase. If we make it a success, we will be able to hand back confidence and the idea of building a future, and thereby regenerate Dover, making it every bit as good as it can be so that it is once again a jewel in the crown of the nation.
Looking across the piece at what we are doing both nationally and locally in Dover and Deal, we can see that the Government have the right policies at the right time. They are making the difficult decisions that will pay off for us over the next decade or so.
8.40 pm
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab):
The plan of the Prime Minister and the Chancellor had been fiscal austerity coupled with
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an evacuation from the public sector, and it was initially assumed that that plan would by itself provide private sector growth. The plan has clearly failed because of its flawed logic and odd priorities. Under that flawed logic, more spending was planned for Post Office mutualisation than the original English regional growth fund.
Forecast growth has consistently been downgraded, while borrowing has been consistently revised upwards, from £46 billion extra to more than £158 billion extra and rising. While deficit reduction is highlighted by the Prime Minister, private sector growth was assumed, reliant upon foreign consumption at a time of international downturn in all consumption. That international downturn is nowhere more evident than in the eurozone, which the Government are at pains to attack politically at a time when the eurozone needs political union more than ever in order to provide fiscal credibility. Counter-intuitively, however, the Government undermine the required confidence, and in so doing only succeed in bad-mouthing the very export markets we so desperately need to retain in the interim until new market partners are developed.
Not until last week’s autumn statement did we hear an acceptance by the Chancellor that private sector investment requires confidence and a reduction in risk via the injection of public investment. That is either achieved directly by underwriting projects or, as we have seen, by off-balance-sheet lending on an unprecedented scale. That lending is, of course, premised upon Britain’s own position in respect of a now highly likely eurozone bank failure if no political union is established to reinforce fiscal union. The consequences of that will be extraordinarily grave for our financial institutions, given the potential for contagion. What is even more troubling is that the Office for Budget Responsibility believes the effect of the autumn statement’s attempt to rectify this situation is negligible.
The Chancellor will also be aware that the Bank of England has purchased 42% of gilt issuance, owning 30% of total gilt stock. Britain’s interest rates have been made lower as a result. That has been achieved by the independent Bank of England’s purchasing policy, not because of the Chancellor’s fiscal measures. It is interesting to note that this self-given “safe haven status” by the Chancellor has not led to increased international market ownership of British gilts. Indeed, international market ownership of gilts has not changed from 2008 levels.
Quantitative easing is also a reason for that. When the independent Bank of England buys gilts from banks and pension funds, some of the money is re-channelled into the sterling corporate bond market. That is great for the City, sterling and London property investment, but as yet there has been no trickle-down for regional small and medium-sized enterprises or regional high streets despite the much-hailed Project Merlin.
What have been the consequences of the Government’s counter-intuitive policy for manufacturing and industry? I should state that the Government’s aim to address our deteriorating balance of trade in order to create the surpluses we need is admirable. However, our balance of trade has deteriorated in the last 18 months under the Prime Minister’s and Chancellor’s watch. Last month’s Markit and Chartered Institute of Purchasing and Supply index slumped to 47.6, the lowest level since June 2009. Any figure below 50 is usually an early indicator of contraction.
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In the EEF’s last quarterly survey of more than 450 manufacturers the growth forecast for 2012 has been cut to 0.9% from 2.5%, a figure it predicted only a few months ago. There is obviously a contraction, and a contraction that prefigures the eurozone crisis. This contraction undermines the Government’s valid ambition to pursue export-led manufacturing growth. There is no manufacturing growth, and also an interim skills mismatch as any private sector manufacturing roles are being supplied with surplus labour from mass public sector redundancies and retail redundancies. In the 1980s there was the cultural phenomenon of mass long-term male unemployment due to a politicised attack upon unionised, largely male, manufacturing sites, and we now face the proposition of mass female unemployment as the public sector and retail sector shed employees, again in the public sector’s case due to a largely anti-trade union, dogmatic narrative mirroring the diatribes from the Conservatives in the 1980s.
Nic Dakin (Scunthorpe) (Lab): My hon. Friend is giving a powerful analysis of the situation the country faces. Does he agree that we desperately need demand in the economy from somewhere, whereas what he is describing is a situation of contraction, rather than demand to fuel economic growth?
Tom Blenkinsop: My hon. Friend will know the consequences of the policies so far. We have seen massive job haemorrhages at Scunthorpe steelworks, and there was the recent announcement about Llanwern, where nearly 200 steelworkers face unemployment as a result of the mothballing of that site. Another site in Scunthorpe, next door to the steelworks, has decided to move to a short-time working agreement. Those are the consequences of these economic policies.
Culturally and economically, these policies are counter-intuitive to the needs of the economy. We need not just to rebalance the economy per se, but to rebalance structural unemployment, which requires as large an investment as that proposed for the infrastructure. For example, in the steel industry, becoming a waterman—probably the most important job on a blast furnace, involving as it does ensuring that water does not mix with molten steel—requires a minimum of two years’ training. That is a considerable cost for the industry.
Unemployment is predicted to pass 9% next year, according to the “optimistic” estimate of the Office for Budget Responsibility—and at what cost to the Exchequer? Such estimates actually predate the autumn statement, which increased public sector unemployment by 200,000—from 500,000 to more than 710,000. My major concern, as the son of a British expatriate family that sought a future in Qatar during the early 1980s, when the previous Tory Government ratcheted up unemployment on Teesside, is another diaspora of British skilled manufacturing labour moving to other, far-flung nations. The promise of warmer climes and job certainty will be hard to resist for many, especially as a recent Experian study for BBC’s “Newsnight” showed that Redcar and Cleveland, and Middlesbrough are among the top three areas hardest hit by the Chancellor’s autumn statement.
It is not just the public sector cuts. The proximity of the north-east, which has no regional development agency, to Scotland is having severe consequences for our regional economy, as Scotland, which has its own RDA, is absorbing that manufacturing.
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Women are losing their jobs at twice the rate that men are, and the Chancellor’s decision to freeze the working tax credit will hit women hard, especially working single mothers. That move, coupled with his decision to claw back money that would have been spent on the child tax credit, will have a significant impact on the well-being of the 36% of single mothers who claim working tax credit, and their families. What will happen to their incentive to work?
Mrs Chapman: My hon. Friend is making a fantastic speech.
Tom Blenkinsop: I thank my hon. Friend for that lovely intervention; it is an early Christmas present, in many ways.
What will be the consequences in benefit payouts to the Exchequer? The OBR tells us that by 2017, we can expect to have lost 710,000 public sector jobs. With 40% of women working in the public sector, making up 65% of the public sector work force, it is not unreasonable to assume that they will bear the brunt of these cuts, which could have potentially disastrous effects on the unemployment rate for women, with private sector growth not providing enough employment to compensate for these job losses.
Currently, 2,133 out of 6,622 Care to Learn claimants are aged 19 or over, including seven claimants each in the boroughs of Middlesbrough, and Redcar and Cleveland. As if young women in further education were not already facing massive financial challenges due to the education maintenance allowance being scrapped, I hear that the Government have recently consulted on the future of Care to Learn funding. These are the social consequences of counter-intuitive economic policies, which only beget further social consequences, further fiscal strain and spiralling social breakdown, without addressing any of the necessary economic rebalancing requirements.
8.48 pm
David Rutley (Macclesfield) (Con): It is an honour to follow the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), a member of the “rowdy” Bench, perhaps better known as Snow White and what were four grumpy Members.
In the current economic climate rebalancing the economy is a critical task, and I am pleased that the Government are taking urgent action in this direction. We need to create the conditions in which sectors vital to the nation’s growth have the best possible chance of success. Yesterday’s launch of the UK’s strategy for life sciences was an important step in improving the competitiveness of life sciences and pharmaceuticals, which are vital to the UK and to the local economy in Macclesfield, where AstraZeneca employs some 2,000 people. Across the country, those sectors employ about 160,000 people and have a combined turnover of roughly £50 billion.
The launch set out important positive policies for the life sciences sector: it will create new research partnerships with companies such as AstraZeneca to cut the time between the development of new treatments and their application; it will introduce a £180 million catalyst
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fund for the most promising medical treatments; it will reduce the time for the first recruitment of patients for clinical trials to 70 days from a staggering 600 days; it will ensure that medicines approved by the National Institute for Health and Clinical Excellence are automatically approved for use in hospitals; and it will establish an early access scheme that will allow thousands of seriously ill patients to get access to cutting-edge drugs up to a year earlier than they can now. Those steps will not only help to reaffirm the competitiveness of the UK’s life sciences industry, but will encourage major pharmaceutical businesses to stay based in the UK and materially help to rebalance the economy. But the approach goes further, because it will enable patients who have simply been waiting for far too long for new medicines to get them earlier. The Government are absolutely right to tackle that unacceptable situation.
Our approach is not just about rebalancing the economy, because we need to rebalance our skills set too. There has never been a more important time to prepare a generation of young men and women for a future in business and enterprise.
Charlie Elphicke: Does my hon. Friend agree that apprenticeships have been a real step forward and have made a massive difference to our young people?
David Rutley: I completely agree with my hon. Friend, and I will come on to talk about the impact in Macclesfield, and no doubt in Dover too. Apprenticeships have been a phenomenal step forward.
A crucial priority for us now is getting to grips with reshaping the life chances of millions of young people and helping to improve the long-term economic prospects of the United Kingdom. There is clearly a lot to do. A recent survey of 3,000 parents with children aged 11 and under found that the top career aspirations for their children were: first, being a sports star; secondly, being a pop star; and thirdly, being an actor or actress. Going into business did not even feature in the top 10. More worryingly, those aspirations are increasingly reflected in the subject choices in school, with business-related subjects lagging far behind in the popularity stakes.
Pat Glass (North West Durham) (Lab): Does the hon. Gentleman believe that the Government’s policy of putting a hierarchy of subjects into their English baccalaureate, so that classical Judaism comes above subjects such as business studies and IT, will help that situation?
David Rutley: It is good to hear from those on the rowdy Bench again.
Pat Glass: I was not rowdy; I listened.
David Rutley: It is good to hear that, and the hon. Lady makes an important point. Of course vocational skills are important and, as my hon. Friend the Member for Dover (Charlie Elphicke) was saying, the Government have taken important steps on vocational training. But it is also important to raise academic standards across the board in education, which is why it is vital that the English baccalaureate is being put in place.
To return to the theme that I was discussing, it is vital that employers get confidence in the education being given to our young people; in a recent survey, 70% said that not enough business awareness was demonstrated
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by school leavers. In June an Ofsted report on business education went further, saying that students taking part in business-related education often had
“only vague ideas about the economy, interest rates and their impact”.
That is clearly concerning and it will be an important spur to addressing business-related subjects in the much-needed national curriculum review in the months and years ahead.
The focus on business education needs to be improved in universities as well. Management, economics and accounting were much less popular than media studies and sociology in 2010, and the growth in media studies—15% over the past five years—continues to outstrip the growth in both management science and economics, the figures for which were 5% and 12% respectively. At a time when companies are crying out for commercial talent, it is troubling that the upcoming generation is not demonstrating an interest in business education, which is clearly growing in other countries.
So how can we begin to address those long-standing trends? Much can be done back at school. That same Ofsted report highlighted the fact that more than a third of schools failed to provide sufficient opportunities for students to engage directly with businesses.
Mrs Chapman: How can the hon. Gentleman possibly square that point with the dramatic nose-dive this year in applications for education from kids in the north-east post-16? What does he put that down to?
David Rutley: I am not familiar with circumstances in the north-east; I am making the point that too few students want a career in business because until now they have not had the right education, and we need to get them back on to a better path. [ Interruption. ] Apprenticeships are clearly one of the ways forward.
One of the key things we have to do is expose young people to more local business leaders. We have to get those people into the classroom to make the case for business, and we have to make sure that they provide positive role models. Work experience programmes go further, acting as an important way of helping children to apply and develop skills learned in school. In Cheshire, Bentley has created a successful work experience scheme with local schools; more than 850 pupils have gone through the programme over the last five years. We need more such schemes. KPMG, Tesco, Morrisons and others are starting to sponsor students at university. More needs to be done to engage businesses at university level.
As my hon. Friend the Member for Dover pointed out, it is vital to look at alternative ways for young people to get business skills. Apprenticeships are one of those ways, and we are seeing real success not just in shop floor disciplines but across a wider range of business skills, such as accounting apprenticeships. Macclesfield college is working with Elior, a French catering group, achieving real success not just for the business but for the young people involved. The Government are doing well in putting forward the case for apprenticeships, and I commend them.
Although it is vital to rebalance the economy and our skills base, the most important thing we need to do in the long term is to rebalance and raise the ambitions of future generations. I encourage the Government in those efforts.
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8.57 pm
Mr Michael Meacher (Oldham West and Royton) (Lab): There is a paradox at the centre of the autumn statement that makes it self-defeating. The statement was widely touted as a growth Budget, but it is the opposite. The infrastructure plans relate to the medium-term future, on a three to 10-year time scale, but even if they materialise they are not the stimulus that is urgently needed now. Pension funds will certainly not invest in infrastructure unless the Government fully underwrite the risk, in which case it will be registered in the national accounts as a potential increase in expenditure and thus a rise in indebtedness. The paradox is that even to achieve that “smoke and mirrors” impression of growth the Chancellor is such a deficit fetishist that he has been obliged to tell the markets that there is no increase in spending at all, and everything has been funded by cutting spending elsewhere.
Significantly, the Chancellor has chosen to make those cuts by hitting the poorest hardest. Of the £1.2 billion child tax credit and working tax credit savings over the next year, 32%—nearly a third—will come from the poorest fifth but only 6% from the richest fifth, yet the poorest are precisely the segment of our population that is by far the most likely to spend and thus to stimulate growth. Reducing that source of growth in favour of will-o’-the-wisp infrastructure plans in the medium-term future is a pretty silly policy. It is certainly perverse and anti-growth.
The biggest problem facing Britain is not indebtedness, but the lack of aggregate demand. Everyone recognises that except our myopic Chancellor. In the 1930s, John Maynard Keynes said that if we look after unemployment, the budget will look after itself. Exactly the same thing applies today. Christine Lagarde, the head of the International Monetary Fund, warns that if all countries deleverage at the same time, it will be economic suicide. It is absurd to imagine that the markets would not accept some modest loosening of the monetary targets if it was likely to produce a serious prospect of growth; indeed, they would welcome that.
Of course we have constantly heard the Chancellor’s refrain against this argument, his canard that any increase in public expenditure will push up interest rates, threaten the precious triple A rating and cost Britain more, but he does not have to increase public borrowing to kick-start growth. There are two sources of funding that he could draw on at no risk from the markets whatsoever. One is to require the super-rich to make a fair contribution to the Exchequer at a time of crisis for the country. At present they are contributing next to nothing.
In the past year, according to the IFS, the income of the bottom 10th of the population rose by 0.1%. The income of the directors of the top FTSE 100 companies rose by 49%. That is just about 500 times as much. It is time those latter people and the financial and corporate elite of which they are such a part made a fair contribution.
Jim Shannon (Strangford) (DUP): The right hon. Gentleman has clearly identified those at the top of the earnings scale, but at the bottom of the earnings scale are the long-term unemployed. Does he accept the concern of many in the House that the long-term unemployed are not looked after, and that there seems to be little regard for them?
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Mr Meacher: Indeed. I very much support that point, and I shall come on to it later, if the hon. Gentleman allows me to make my argument.
I draw the attention of the House to the point that I was making. The latest version of The Sunday Times rich list, published in May, shows that in the 1990s the 1,000 richest people in this country—0.003% of the population, a tiny number of people—had assets of £99 billion, which by 2010 had more than tripled to £335 billion. That is truly staggering. It means that those 1,000 persons alone could pay off the entire budget deficit with just half of the gains that they have made over that period. So not to make the ultra-rich pay down a significant part of the deficit, which they themselves have largely created, is perverse, unjust and wilfully prejudiced.
There is a second source of funding that the Chancellor could and should, with no net increase in expenditure, use in order to resuscitate growth. Here I come to the point to which the hon. Member for Strangford (Jim Shannon) drew attention. It costs £8 billion to £10 billion every year to keep a million people on the dole. Instead of letting them rot on the dole, the Chancellor could create, with the same amount of money and no net increase in borrowing at all, up to 500,000 jobs to begin the house building, the energy and transport infrastructure improvement, and the development of the new green digital economy—all the things that the country so desperately needs.
The Chancellor would then have a triple whammy. He would reduce joblessness by a fifth, he would get income tax and national insurance contributions and he would get VAT, all by having people working rather than drawing benefits. He could well get Britain moving again. That is what the Labour party stands for, and it is about time the Chancellor, who has wreaked such devastation, caught on to a plan that will reduce the deficit fairly and sustainably and finally produce some growth in this country.
Madam Deputy Speaker (Dawn Primarolo): Order. There are still seven speakers who wish to contribute to the debate, so I am reducing the time limit to five minutes each. I ask each Member to pay attention to the clock, and to colleagues in the Chamber, so that they stand some chance of getting into the debate today. That is five minutes, starting with Mr Steve Baker.
9.4 pm
Steve Baker (Wycombe) (Con): As I rise to speak I am reminded of a quotation from an economist who was a fierce critic of Keynes, a chap called Henry Hazlitt, who said:
“Today is already the tomorrow which the bad economist yesterday urged us to ignore.”
We have heard today some moving accounts of individual and collective suffering in different regions of the country and among different sections of the public. We should be asking ourselves why, oh why, have we been delivered into this misery, which looks as if it will extend over years. Much of the conversation we have heard has been along the lines of aggregates, coarse economic aggregates,
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and has tended to stray away from individual choices and consequences. We have talked about markets in the abstract, and it is a pity that we seem to have forgotten that markets are a social phenomenon, and that they are about people co-operating. When we talk about markets, we tend to imagine overpaid people, high-frequency trading and those who add nothing to society.
I am reminded of something a constituent said to me recently after hearing a Minister’s speech. He asked, “Why is it that everything always seems to get harder for the working man, whoever is in power?” Indeed, in my constituency unemployment is up by 6.3% among the over-50s, up by 9.5% among those aged 25 to 49 and, scandalously, up by 23% among the young. We have heard that child poverty increased by 200,000 under the previous Government and that it is likely to increase by up to 100,000 under this Government. In the 21st century, that should not be our economic position.
Why are we in this debt crisis? I have just checked the M4 money supply figures—I am sorry to return to aggregates, but needs must. When Labour came to power the money supply was about £700 billion and it is now about £2.1 trillion, so it has tripled over the past 14 years. Unfortunately, most economists talk about money flowing into the economy as if it were water poured into a tank that found its own level immediately, but what if it is like treacle or honey? What if it builds up in piles when poured into the economy and takes a while to spread out? What if that money was loaned into existence in response to individual choices led by the excessively low interest rates pushed by the central bank? What if it was loaned into existence in particular sectors, such as the housing sector, where prices have more than doubled over the same period, and what if it was the financial sector that received the benefit of that new money first? Would that not explain why financiers and bankers are so much wealthier than everyone else, and why economic activity and wealth has been reorientated towards the south-east?
Unfortunately, the idea that money takes some time to move around the economy is lost on most economists, which I very much regret. Why did most economists not see the crisis coming? I put it to the House that it is because their theories of credit are mistaken. They make fundamental errors. Unfortunately I do not have time to go into that, but the fundamental point is that credit is a choice to consume more now and less later. It is about the exchange of present goods for future goods, and co-ordinating the economy through time, and I am afraid that the current intellectual mainstream in economics has dropped us into this desperate mess.
Opposition Members criticise the Thatcher and Reagan years. I think that there was much to applaud in those years, but unfortunately their intellectual underpinning was monetarism, which, like Keynesianism, is infected with those dreadful mistakes. People in the Occupy movement, and our constituents, are right to question the justice of our economic processes. The hon. Member for Penistone and Stocksbridge (Angela Smith) said earlier that the system cannot endure, and I am inclined to agree. I agree that the current debt-based and—I am afraid to say—statist system cannot endure. However, if this system is not to endure, which way should it fall? Humanity tried the statist direction in the past and it
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led to misery and murder. I stand for free markets and free co-operation, but I say this to the House: if this is capitalism, I am not a capitalist.
9.9 pm
Chris Evans (Islwyn) (Lab/Co-op): We have heard the name of John Maynard Keynes again in this debate. My favourite Keynes quotation is the one in which he says that there comes a time when every Government have to indulge in “ruthless truth-telling”, and it is time that this House stopped acting like Nero when Rome was burning.
We stand on the edge of the abyss, and we have a eurozone crisis that is not being solved. Nothing seems to be happening. Greece is on the point of defaulting, it could exit the euro and it could be quickly followed by Spain, Portugal and, even, Italy. Yes, we might say, “We’re not in the euro: we’re little Britain; they can’t touch us,” but the key thing is that their bonds are held by British banks, and British banks will have to bail them out once again.
We have to ask ourselves, “Are we going to stand back and allow ourselves to sleepwalk into another financial crisis, or are we going to heed the warnings and do something about it?” Last week, when we had the autumn statement, the headlines were that the OBR had downgraded its forecasts, but what worried me more than anything, and what was not said anywhere or by anybody in the House, was that the OBR could not quantify what a crisis in the eurozone would do to the British economy. The best economists in the Bank of England could not even quantify or say what disaster might befall us if there were a euro crisis, and to me that is very concerning.
There comes a time with every Government when they have to put ideology aside. When Labour nationalised the banks, it did not do so because of ideology; nationalisation was 30 years ago and belonged to the past. It did so because nationalisation was a necessity and a practicality, so now, as we face the crisis in the eurozone, we have to put ideology aside, see what the practicalities are and put them into practice. It calls for the type of bravery that is rarely seen in this House, but, if we had to nationalise the Bank of England and bail out the high street banks again, we would be saying to our constituents, “If you have the dream and the hope of setting up a business, it ain’t gonna happen, because the banks are going to be even more cautious about lending to you,” and, “If you have a mortgage, you’re not going to be able to move it on to a lower interest rate, because the banks are not going to take that risk again.”
The problem is that, with every crisis, every politician will stand up and say, “Oh, it’s never gonna happen again. It won’t happen on my watch.” Even the Chancellor has said, “It won’t happen again. No, not while I’m Chancellor—no it can’t,” but the truth is that it can, because we have not learned the lessons of the previous financial crisis.
In my speech, I wanted to analyse the legislation that affects banking, so I looked, researched and went to the Library, but I could not find any. There was none at all, so we are facing another crisis with the same banking practices and with a Government unwilling to do anything.
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One thing on which I agree with Keynes is that, “During a recession you do not raise taxes.” But what have the Government gone and done? They have put VAT up. It is all very well saying, “We’re going to create jobs,” but, if someone needs to drive to work and they are paying £1.33 for petrol and £1.41 for diesel, they might find it difficult to do so. If they are shopping and find that the price of their shopping basket has increased by 5% in the past year, they might not be able to afford food. Those are the decisions that people face.
I wish I had more time, but I will say this: the Government have an opportunity to do something. We need to look at skills and education, and to have a grown-up, adult conversation, asking, “Why are our young people leaving school not equipped to go into work?” I talk to people in my constituency with apprenticeship schemes, and they say that the kids are not prepared, so let us have an adult conversation and ask, “Why are they not prepared? What is wrong with the education system?”
The final point that we need to look at is tax reform. It is all very well the Government giving people a 1p cut in corporation tax, but when I speak to the small business man I find the thing that concerns him more is red tape. He asks me, “When I have a micro-business, why do I have to employ an accountant? Why can’t I have a simplistic tax form to fill in?” I wish I had more time to develop those arguments, Madam Deputy Speaker, but I will sit down now.
Madam Deputy Speaker (Dawn Primarolo): Good!
9.14 pm
Harriett Baldwin (West Worcestershire) (Con): How can I follow the wonderful, lilting oratory from the hon. Member for Islwyn (Chris Evans)?
It is very difficult to turn round a supertanker. The supertanker that my right hon. Friend the Chancellor inherited was weighed down by the lead weight of having to pay out £120 million a day in interest and artificially inflated by a Government who were spending more than they were taking in, so that, in effect, £1 out of every £4 spent was borrowed. There was a very challenging situation when the Chancellor took the steering wheel of the supertanker, and we need a significant process of change to alter its direction towards one where we have a much healthier public sector financial position and where the private sector is able to continue its process of growth. [ Interruption. ]
Madam Deputy Speaker (Dawn Primarolo): Order. I am sorry to interrupt the hon. Lady. If Members want to have private conversations, they should leave the Chamber. If they are in the Chamber, they are taking part in the debate and they will listen to the person who is speaking.
Harriett Baldwin: Thank you, Madam Deputy Speaker.
I want to feed back to those on the Treasury Bench some of my constituents’ reactions to the decisions that the Chancellor announced last week in his autumn statement as regards the process of steering the supertanker. Those decisions were taken very much with a view to his understanding their impact on household budgets. Businesses and drivers in my constituency have welcomed
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the fact that the increase in fuel duty promised for January is not going to happen. Following the victory in Libya and acknowledged slower economic growth, they were expecting the price of oil to fall and the price of petrol and diesel at the pump to decline, but it has not. The increase in January would be extremely unwelcome for them.
My constituency has a very high percentage of people over pension age, who, needless to say, welcome the fact that they are to receive the largest cash increase in the state pension in history. They also welcome the Chancellor’s decision to allow councils to freeze the council tax for a further year, because for those who are on fixed incomes or receiving modest pay increases, not having to suffer that increase in their council tax is another significant help to their household budgets.
For the many small businesses in my constituency, the fact that the small business rate relief is to be extended until April 2013 is very welcome. The new initiative whereby larger businesses can defer some of the rate increase by 60% for two years will also greatly help businesses with their cashflows.
On the credit easing measures, I would like to draw the Chamber’s attention to an innovative idea in my constituency called ThinCats.com—presumably the opposite of FatCats.com. People can put their savings to work with ThinCats.com and it will lend the money out for them. It is one of the credit circles that are becoming increasingly popular. Credit easing is another way in which we will be able to get the benefit of lower interest rates into our business sector to allow businesses to receive help with their cashflow.
Finally, let me mention my concerns about the whirlpool that is offshore of the supertanker in the eurozone. The three possible outcomes that could occur are an underwriting of eurobonds, a break-up of the entire currency union, or the current uncertainty as we jolt from summit to summit with great promises and then huge disappointment. Of those, the current situation causes the worst damage to business confidence in my constituency. I therefore urge Ministers, as they go into these negotiations, to try to steer them towards one of those two alternative outcomes, which would provide some of the monetary stimulus that the eurozone needs and thereby a resolution of the current situation, which is the worst of all possible worlds.
9.19 pm
Mr William Bain (Glasgow North East) (Lab): Thank you, Madam Deputy Speaker, for calling me to speak in this extremely important debate.
The huge error made by the Chancellor on assuming office last year was to mistake a global crisis of demand, growth and jobs for one purely of debt and deficit. He launched a grand experiment of so-called expansionary fiscal contraction, which he must now admit has been the most disastrous episode in British fiscal policy since the 1930s.
The Chancellor took an economy recovering at an annualised rate of 2.1% at the end of the previous Government’s period in office and turned it into an economy with flatlining growth. This autumn, our rate of growth stands as the fifth lowest in the EU according
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to the European Commission and is lower than the eurozone average. The National Institute of Economic and Social Research has said that this is the slowest recovery from recession in Britain in a century. In the great recession of the 1930s, it took just 48 months to rebuild the lost output in the economy. Under this Chancellor, it will be 69 months and counting. Even taking into account the measures announced by the Government last week, the OBR has downgraded growth for the fourth time since its initial forecasts last June. Growth is now 0.8% lower this year and a whopping 1.8% lower next year than in the previous March forecasts.
The burden is not being shouldered by the Chancellor, nor by the rich and powerful in society. It is being paid by women working part time to help support their families. It is being paid by children facing lower living standards than the generation before them. Above all, it is being paid by the poor, with the number of people in food poverty in this country approaching 4 million, and by the unemployed, with the number of young jobless now more than a million.
The respected Fraser of Allander Institute has said in its latest commentary that there is still some scope for fiscal easing without damaging our fiscal credibility in the long term. As Tony Dolphin of the Institute for Public Policy Research wrote last week in relation to the Government’s fiscal consolidation plan and its impact on bond yields:
“If it had started with a plan that reduced the deficit more slowly—say over six years rather than four—yields would probably be little different from current levels now.”
What is particularly worrying is that the same austerity medicine is being applied in many other EU countries with similar results.
The Chancellor’s growth strategy is now predicated on maintaining loose monetary policy indefinitely, with ever higher levels of quantitative easing, a policy he once derided as
“the last resort of desperate governments”
whose other economic policies had failed. As the experience in the 1990s shows, low interest rates in themselves are insufficient to generate new demand. Japan has net debt of more than 200% of GDP, but even lower bond yields than the UK. As the Japanese economist Richard Koo recently said of austerity economics in an interview with Moneymagazinein the United States:
“The Japanese made a horrendous mistake in 1997.”
“The cutback caused a second recession… The Japanese Government didn’t do enough spending in the early 1990s and added another 10 years to the problem.”
It is precisely that thinking that underpins what the Chancellor is doing today.
The Government are ignoring four basic realities about our economy. The first is that living standards for families with working-age parents are being squeezed to levels last seen in the 1920s, amid slumping consumer confidence, slumping demand and weak retail sales. The second is that supply-side reforms are needed to stimulate growth in manufacturing and construction. In particular, a national investment bank could produce the borrowing capital needed to kick-start new investment in the green economy. The third is that mass unemployment creates massive social costs and unrest, and devastates lives, which ends up placing a higher burden on future
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taxpayers. That is the price of economic failure. Finally, we need to build an economy in which those on low and middle incomes share more of the proceeds of growth than they have over the past three decades.
The country is crying out for a fair alternative to this failed Tory plan that is sucking demand from our economy, and hope and life from our communities. Our country deserves better leadership and a more optimistic vision of the future than that which has been offered by the downgraded Chancellor of this deflationary Government.