The Economy

Adrian Bailey Excerpts

Tuesday 6th December 2011 Commons Chamber

[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.

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.

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[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 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.