Economic and Fiscal Outlook
(6 years, 7 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
The Chief Secretary to the Treasury (Elizabeth Truss)
I beg to move,
That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment of the medium term economic and fiscal position as set out in the latest Budget document and the Office for Budget Responsibility’s most recent Economic and Fiscal Outlook and Fiscal Sustainability Report, which forms the basis of the United Kingdom’s Convergence Programme.
Of course, we all look forward to the day when we have left the European Union and we no longer have to file this report. But while we are in the European Union, it is a legal requirement, as part of the stability and growth pact, to present our economic and budgetary plan. Owing, to the opt-out that we negotiated in the 1990s, there are no sanctions or actions should items of the plan not be met. In fact, the only stated requirement is to endeavour to avoid excess deficit. Now, that is something of which I approve anyway and with which we are happy to comply.
I am proud to talk about the record of this Government over the last eight years. We have reduced the deficit by three quarters and have now reached the turning point of debt falling as a share of the economy, which will happen in this financial year. As the Chancellor said in the spring statement, we are now in a much healthier position, but it is very important that we do not abandon this fiscal discipline.
In 2010, the economy was on its knees. We had the highest level of deficit since the second world war, youth unemployment was rising and 1.4 million people were left on the scrap heap. Since then we have turned things around, by reforming the economy and with our fiscal plans. There is a record number of new companies; real wages are increasing; we have record levels of employment; and there are positive signs right across the country. These strong economic fundamentals are down to the decisions of this Government.
We have reformed our welfare system to ensure that it always pays to go to work. We have reformed our education system to make sure that our children and young people have the skills that they need for the modern economy. We have made it easier for companies to take on staff. We have reduced corporation tax. Recently we have seen the two strongest quarters of productivity growth since before the financial crisis. Inflation is set to fall this year and we have seen an easing of pressure on living standards. But despite all this progress, every one of these measures has been opposed by the Labour party.
The shadow Chancellor has said that he sees business as the enemy. Labour Members have opposed our efforts to make Britain open for business and want to go back to the days of punishing taxes and red tape. They have also opposed our welfare and education reforms. [Interruption.] I hear mutterings from the Opposition Front Bench.
These reforms have been accompanied by fiscal discipline. Our fiscal strategy has been vital in boosting confidence in the UK economy and enabling growth in the private sector. We have brought down the deficit by three quarters, and at the same time we have maintained high-quality public services. We spend more per student on education than Japan or Germany, and we have seen our results in reading improve against our international peers. Our health spending is higher than the EU average, and we now have record cancer survival rates. Through our fiscal prudence—that phrase used to be popular on the Labour Benches—we have been able to spend targeted amounts of money to boost our productivity. Infrastructure spending will be at a 40-year high as a proportion of GDP by the end of this period. We are tripling the number of computer science teachers and encouraging more students to take maths at a higher level.
We are now at a turning point. After the highest debt that we have seen in Britain’s peacetime history, we will see debt as a proportion of GDP falling. To people who say that now is the time to turn on the spending taps, I say that would be premature. It is very important that we bring down debt as a proportion of GDP. We know that economies with high levels of debt see a drag on their growth rates and are less resilient to external shocks. We also know that we are spending a huge amount on debt interest. With the debt interest we spend—£50 billion a year—we could completely abolish council tax, business rates or fuel duty.
Simon Hoare (North Dorset) (Con)
Does my right hon. Friend agree that one of the most tempting phrases that we often hear from the Opposition Benches, but the one to be resisted most strongly, is “Borrow to invest”? Irrespective of what one does with the money, one is still borrowing it and it still has to be paid back.
Elizabeth Truss
My hon. Friend is right. We are switching spending from current spending to investment, and that is why we have a 40-year high in our infrastructure investment. He is absolutely right that any spending increases the national debt. Because of the actions of the previous Labour Government, who spent 45% of GDP in the public sector and built up a huge debt, it is our responsibility to bring the debt down and make sure that the country gets back in balance.
Ruth George (High Peak) (Lab)
Bearing that strategy in mind, how does the Minister explain the fact that the debt has risen from 73% of GDP in 2010 to nearly 90% now, so it is higher than both France’s and Germany’s? Our debt was below those countries’ at the end of a Labour Government who had invested in public services, bailed out the banks and saved people’s savings.
Elizabeth Truss
I find it absolutely astonishing that the hon. Lady would say that, given that her party is planning to spend half a trillion pounds, increasing our debt. She has obviously not read the speeches of the shadow Chancellor and the shadow Chief Secretary. The 20% increase in debt that Labour is proposing would make us much more vulnerable to external shocks. The fact is that we have spent the past eight years repairing the damage done to the economy by profligate spending by Labour Members who did not fix the roof while the sun was shining.
Mr Jacob Rees-Mogg (North East Somerset) (Con)
Does my right hon. Friend recall that the previous Labour shadow Chancellor accused the Government of going too far, too fast? He thought that throughout the period of austerity we should have been spending more, leaving us with even further debt. The Government are to be commended for their robust approach.
Elizabeth Truss
I thank my hon. Friend for making that point. Labour Members seem to believe that by spending more money and borrowing more, we can reduce debt. That simply does not add up. Under Labour’s plans, we would be vulnerable to an external crisis, as we were when it was last in office in 2009. The Labour party seems to welcome that prospect. The shadow Chancellor said that the 2008 economic crash was a “capitalist crisis” for which he had been waiting for a generation. We have a Labour party that is actively planning a run on the banks if it gets into office.
Elizabeth Truss
I have already given way to the hon. Lady.
Ten years ago, under Labour, we were in the grip of a financial crisis and scared for the future. It was a period of profligacy, when Labour was spending money we did not have. The state was 45% of GDP, and we saw the longest increase in debt since the Napoleonic wars. It crowded out the private sector, and youth unemployment was on the rise.
We have worked away at the deficit, replenished the public purse and got people back into work, and all while maintaining Britain’s world-class public services. This report shows our sound public finances and our growing economy. [Interruption.] It is a shame that those on the shadow Front Bench seek to talk down our excellent public services. What this debate shows us is that it is vital we stick to the course.
Peter Dowd (Bootle) (Lab)
Meanwhile, back on planet Earth, a prerequisite of the UK’s participation in the EU has been regular submissions of the Government’s assessment of the UK’s medium-term economic and budgetary position. I think the Chief Secretary to the Treasury will appreciate that one of the advantages of leaving the EU—for once, everyone on the Conservative Benches will agree—is the humiliation, wincing and cringing that the Government will forgo when they no longer need to submit their economic record to the scrutiny of European colleagues. The Government are rudderless, collapsing in on the weight of their own contradictions and economic ineptitude.
Let us turn to the record. While countries in the eurozone post a 10-year high in terms of economic growth, the UK under the Tories is left behind. Let us look at the seven deadly sins of the Tories. No. 1 is self-delusion, which we had in spadeloads from the right hon. Lady. Last year, growth in our economy was the lowest in the G7, and growth in the first quarter was the weakest since 2012. The Office for Budget Responsibility has now revised forecast growth down in both 2021 and 2022 since the Government’s autumn Budget, and growth is lower in every year of the forecast compared with March 2017. The upbeat tone of the Chancellor at the spring statement betrays the economic reality that many have experienced over the last eight years of Conservative mismanagement, and while the Chancellor may want to blame recent poor growth on a bit of bad weather, those of us living in the real world see an economy desperate for investment.
The second sin is sloth. The Government have provided the slowest recovery since the 1920s, and productivity growth is at its worst for two centuries. On productivity, the Government’s record is one of failure. Productivity forecasts have been revised down this year and for every year of the forecast. While the Treasury celebrates a slight uptick in the productivity figures referred to by the right hon. Lady with a “thumbs up” emoji and manic optimism, the underlying figures show a fall in production and a fall in the hours worked.
Simon Hoare
Particularly in relation to point 2, were the hon. Gentleman to be making the report to the EU, which of the options of the shadow Education Secretary would he be reporting—would Labour’s policy be shit or bust?
Mr Deputy Speaker (Sir Lindsay Hoyle)
Order. Those are not normal terms that we would use in the House.
Peter Dowd
I would rather not respond to a rather crude comment, which is quite frankly almost as crude as the Government’s economic policy.
Number 3 is profligacy. The right hon. Lady talked about it, but here is a bit of profligacy: since coming to power, the Conservative Government have added more than £700 billion to the national debt. There was no mention of that. The UK’s debt-to-GDP ratio this year stands at a staggering 86.4%, as referred to by my hon. Friend the Member for High Peak (Ruth George). The UK has a higher debt-to-GDP ratio than 20 out of the 27 other EU member states after eight years of this so-called economic miracle.
Sin No. 4 is misplaced pride. The Government have long prided themselves on being the so-called party of business, yet in eight short years they have managed to alienate the business community. Business investment has been revised down for the next two years, and businesses are holding off key investment decisions due to the uncertainty caused by this Government’s shambolic approach to the Brexit negotiations. Ministers claim that the Government have raised an extra £175 billion from clamping down on tax avoidance—another visit to fantasy island—but they have refused to offer a breakdown of this figure, a list of the anti-avoidance measures involved and the amount each has raised.
Huw Merriman (Bexhill and Battle) (Con)
What does the hon. Gentleman think would be the view of the extra 1.2 million businesses that have been created since 2010 on his proposed increases in taxation?
Peter Dowd
I suggest that the hon. Gentleman read the Labour party’s “Funding Britain’s Future”—our Grey Book. I will send him a signed copy for him to look at, and it will show that what he has said is arrant nonsense.
Under the Conservatives, Her Majesty’s Revenue and Customs has become a pale imitation of its former self, with staff and resource levels cut by 17% since 2010. HMRC’s failure to investigate Lycamobile, one of the Conservative party’s largest donors, for money laundering raises further questions about its independence and effectiveness. The Chancellor has been privately lobbied into supporting the former Prime Minister’s UK-China investment fund, but we now learn that it will be domiciled in the Republic of Ireland. That, presumably, is for tax purposes—it is certainly not for charitable purposes. So much for this being the most transparent Government in history.
Sin No. 5 is bullying. I have often heard Ministers speak about the resilience of the economy, but they say little about the resilience of the workers who work in it. The reality is that this Government have spent the past eight years laying siege to the poorest in our society and the public services they depend on. They bully the powerless and, in oleaginous fashion, suck up to the powerful. The Government’s austerity agenda has left our local services on their knees. Since they came to power, local authority spending on early intervention has had a 40% cut in real terms—and so it goes on. I could give a catalogue or litany of these issues, but we know what they are. Rather than throwing our indebted and overstretched local authorities a lifeline, this Government are instead pushing ahead with further cuts.
With sin No. 6, we turn to education, which the Chief Secretary mentioned. The Conservatives are responsible for the first real terms per capita cut in schools funding in 20 years, and they have deprived 1 million children of a decent free school meal. [Interruption.] They just do not like the truth. The trebling of tuition fees, the abolition of maintenance grants and the sale of the student loan book have ensured that students leaving university today will be the most indebted in our country’s history. Meanwhile, the NHS moves from a winter crisis to a spring crisis—and it will go on to a summer crisis —and the staff who run it continue to struggle. Under the Conservatives, they find themselves understaffed, underpaid and under-appreciated. While Rome burns and our public services crumble, the Chief Secretary can be found instagramming and tweeting selfies of herself at the Dispatch Box with other Treasury Ministers.
The last of the sins is pomposity, which the Government do very well: they are very good at pomposity. Listening to the Chief Secretary speak about the need for robust public finances and the merits of the free market, people would wonder which country she has been living in for the past eight years. After all, the Government have missed every deficit target they have ever set themselves. The former Chancellor’s target for a 2020 surplus is but a distant memory—an inconvenient truth, quickly forgotten. Public debt stands a £1.8 trillion, and the Government have put more debt on to the shoulders of the people of this country that any other Government. When they came to power, they proclaimed that we were all in it together—we are all in it together right up to our necks —but eight miserable, oppressive years later, communities have been left to fend for themselves.
What will be the Tories’ parting legacy as we leave the EU? It will be a divided, poorer, less confident, low-growth, low-wage, low-skilled and less productive country, all thanks to a clapped-out, self-obsessed and failing Government who rely on oligarchs to give them £160,000 bungs to help them to hang on to power—I hear the Foreign Secretary say, “Anyone for a game of tennis?”
Huw Merriman (Bexhill and Battle) (Con)
It is a great pleasure to speak in this debate. Section 5 of the European Communities (Amendment) Act 1993 requires Parliament to debate the content of this report on the UK’s economic and budgetary position. It is pleasing that although the UK has voted to leave the European Union, we are still complying with our obligation to submit the report.
Via the European Union (Withdrawal) Bill, we are enshrining in law the rights and obligations that emanate from our EU membership. We are building with the European Union a new relationship, which I very much hope will allow our constituents to trade with, work in, study in and visit the EU. Rather than turning our backs on the EU, we are building a new chapter of our working partnership and friendship, albeit on different terms—on our own terms—which will, I am positive, enable us to maintain our positive relationships in mainland Europe.
We are debating the Government’s assessment of the UK’s economic and budgetary position—a position that we have developed since taking office in 2010. Interestingly, while I was researching our economic position, I came across a page on the BBC website from 2010. Boxes on the right hand side of the page contained our key economic indicators, which in 2010 were as follows: UK economic growth would slow to 0.2%, UK borrowing would hit £163.4 billion, UK unemployment would increase to 2.5 million and UK inflation would rise to 3.4%. Those were the key statistics, as reported by the BBC, as the Labour Government left office.
Fast forward to 2018 and—of course, we still have more to do—growth is projected to rise by 1.5% this year, UK borrowing fell to £42.6 billion during the last financial year, UK unemployment has fallen to 1.4 million and UK inflation fell to 2.5% last month. So if Labour Front Benchers want to talk about how things look now compared with how they looked in 2010, those are the key figures that they need to consider. [Interruption.] From a sedentary position, the hon. Member for High Peak (Ruth George) mentions debt. The UK’s total debt is still too high, but we have reduced the amount being borrowed each year from 9.9% of GDP when Labour left office to 2.6% now. We still pay £50 billion a year on our overdraft, and that is far too high. It is larger than the schools budget, and it needs to come down.
Peter Grant (Glenrothes) (SNP)
It is vital that we do not confuse reducing the deficit with reducing the debt. Will the hon. Gentleman confirm that according to the OBR’s current forecast, the debt will not start to reduce until 2027 at the earliest? Does he think that that is good enough?
Huw Merriman
If we do not reduce the deficit, we will ultimately never reduce the debt. In January, we had a surplus for the first time, so we are getting there. As I say, however, the debt is far too large and needs to be reduced. I applaud the steps that the Government are taking to adopt a balanced approach, whereby we invest in our public services but get the debt down.
The debt causes me a huge amount of concern, because the interest bill will be paid not by my generation or those above me, but by the young. If Labour is serious about adding an extra £100 billion to the debt, the younger generation will be forced to pay back an extra £8 billion a year in interest.
It should not be forgotten that we have focused resources on key public spending commitments, such as health and increasing the amount we spend on the disabled. Opposition Members criticise us for the size of the debt, but when push comes to shove the austerity years, as they are often portrayed, have actually seen spending decreases at about the same rate as those advocated by Alistair Darling in the 2010 Labour party manifesto, so it is either one thing or the other.
My main point on how our economy is working is the fact that an extra 1 million people are now out of unemployment, compared with the last year of the Labour Government. That is crucial. Not only are those people paying into the economy, but they have opportunity, aspiration and hope. That was lost to many people when, yet again, the Labour Government left office with more people unemployed than when they had entered it. We have taken millions out of income tax by lifting the personal allowance from £6,500 to £11,850, reducing bills for 31 million people who still pay income tax. We have introduced the living wage, which will increase pay for 2 million people. One third of my working-age constituents are on the living wage, so it has a huge impact—they are £2,000 better off each year. All those measures make work pay, as seen by the increase in employment to 32 million people—the highest number since records began.
Finally, I would like to make a comparison with our European Union neighbours. Let us consider France. By 2015, we had created more jobs in five years in Yorkshire than have been created by France as a whole. The French are now looking to adopt our welfare reforms. They know that unless they modernise their welfare state, their unemployment rate will never be reduced from a shocking 9.7% to our rate of 4.2%. Some 1.3 million youngsters in France cannot find a job. It is our Government’s policies, in this report, that our EU counterparts are now seeking to replicate. I therefore absolutely recommend the report. I am very proud to stand on the Government Benches on behalf of the party that has delivered it.
Peter Grant (Glenrothes) (SNP)
I am grateful for the chance to speak in this debate, although I do so with some trepidation and a degree of puzzlement.
I speak with trepidation, because in preparing for the debate I had a look in Hansard for the equivalent debates in the previous two years and discovered that nobody who spoke for the Scottish National party came through unscathed at the general election. Looking at the empty Benches behind me, it seems the curse of Section 5 has driven others away, too. I speak with puzzlement, because for the past six months every time I have been in the Chamber and we have talked in the European context about Government economic analyses, those on the Government Front Bench have been at desperate pains to persuade us that Government economic analyses are not worth the paper they are written on and are not to be trusted.
Members will recall that those analyses indicated that leaving the EU could take about 9% off economic growth compared with staying in the EU. That was one of the “benefits” of leaving the EU that the Government tried to hide and still do not want to talk about. The Government’s own analysis indicated that even the much hyped opportunities for striking new trade deals are likely to restore only about 1% of the 9% of the economic growth we will lose. It must therefore strike our European neighbours as somewhat ironic—it certainly strikes me as ironic—that the Government need a parliamentary vote to give them permission to send some numbers to the EU to prove how badly they are running the economy, at the same time as they are doing everything possible to avoid giving a meaningful parliamentary vote on the hard Brexit that threatens to blow even their own projections to smithereens. Perhaps that is what the Office for Budget Responsibility was talking about when it said:
“The probability of a cyclical shock occurring sometime over our forecast horizon is fairly high”.
Despite the brave words from the Chief Secretary this evening, the fact is that Brexit is already hurting the economy and the Government’s incompetent, ideologically obsessed drive towards a hard Brexit is making the damage even worse. The London School of Economics estimates that the average household is already £404 a week worse off thanks to the EU referendum result. The Financial Times puts the figure at 0.9% of GDP. That sounds like an innocuously low percentage, but it translates into £18 billion a year out of the economy. That is about £350 million a week. I have heard that £350 million a week somewhere before. It seems that the big white number on the side of the big red bus, telling us how much difference Brexit would make to our ability to spend on the NHS, was almost exactly correct—they just forgot to put the minus sign in front of it.
It would be bad enough if the pain of this economic failure was fairly shared. In fact, it would be nice if those who were ultimately responsible had to take any share of the pain, let alone a fair share of it, but of course, all those who are responsible seem to be doing very nicely indeed, thank you very much, because the costs of a failed and discredited austerity programme are being piled on to the shoulders of those who are least able to bear them—the very people any civilised Government would see as a priority to protect and look after.
Last week, it was confirmed that food bank use continues to increase. Why did the Chief Secretary not mention that in her overview of the economy? This week, my local authority, Fife Council—the third biggest in Scotland—reported a big increase in rent arrears owed by council tenants. Oddly enough, I predicted that increase last year, as did every MP in Fife and MPs from a number of other constituencies, including, in particular, my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry). Why did he predict it? Because his constituency got hit by the roll-out of universal credit a couple of years ago. He saw what that did to his constituents’ ability to pay their council house rent. He warned that the same thing would happen in my constituency and elsewhere, and it still is happening. It is another symptom of a failed Government austerity obsession that counts cutting the welfare bill as being more important than improving the welfare of the population.
Last week, we saw a signal moment in the history of Scotland’s relationship with welfare benefits, when our Parliament voted unanimously to support the Social Security (Scotland) Bill on its final reading. It is all very well for Westminster to give powers and for Holyrood to use them to try to bring in a modern, caring social security system, but when a major part of the Government’s fiscal success is down to slashing welfare benefits for those who most need them, when Scotland’s resource block grant is being cut in real terms by £213 million this year and by £531 million over the next two years, and when UK Government will have cut nearly £4,000 million out of the availability of social security payments in Scotland over a 10-year period, it is clear that the powers that Holyrood should be using to create a fair society are instead having to be used to mitigate the brutal unfairness that this Government are imposing on citizens across the United Kingdom.
Some might argue that this short-term pain can be justified if it leads to longer-term economic stability, but the longer term seems to get longer and longer every year that we have this debate. The OBR’s briefing indicates that even by 2022-23, we will still have a budget deficit of around £20 billion a year. The debt will be growing by £20 billion a year—it will not be coming down—and despite the modest improvement in some aspects of the outlook over the last few months, the Government’s promise to
“return the public finances to balance at the earliest possible date in the next Parliament”
is not going to be delivered. It will be 10 years before the budget deficit goes away—10 years before we even start to pay off the astronomical levels of debt that we are all having to fund.
Despite the shambolic mismanagement of the business of the House over the last few weeks, the Government will get the motion through tonight, with or without a vote. No doubt the carrier pigeon is standing ready and waiting, because they have just over two and a half hours to get the results of the vote to Brussels if they do not want to miss the deadline. However, there is, of course, a much bigger and much more worrying European deadline that is approaching very quickly. That deadline was arbitrarily and completely irrationally set by the House when it voted to trigger article 50, with no idea of what that would do to the economy. I, and I suspect many MPs on both sides of the House, have a sinking feeling that when we find ourselves a few hours from that deadline, the uncertainties that characterise the OBR report that we are debating tonight and the uncertainties that, as the Opposition Front Bencher, the hon. Member for Bootle (Peter Dowd) pointed out are driving investment away instead of attracting it to us—those financial uncertainties—will be even bigger on 29 March next year than they are today.
Question put and agreed to.