Amendment of the Law

Alison McGovern Excerpts

Wednesday 23rd March 2011 Commons Chamber

[Joseph Johnson]

The hon. Gentleman may be a great economic expert, but he might find that the world’s foremost economists and international financial organisations, from the International Monetary Fund to the OECD—the entire gamut of respected economic thought—see this fiscal consolidation as necessary. There is no backsliding, which I applaud.

Before those interventions, I was saying that Portugal is moving ever closer to becoming the third eurozone periphery country to need a bail-out. Borrowing costs are again rising to a new euro-era high in Ireland, which desperately needs eurozone members at tomorrow’s summit to reach a political compromise on revised lending terms.

By contrast, Britain is a different story, thanks to the credible policies in the emergency Budget last June and the policies announced in October’s spending review. There is no sign whatever of any funding problems in the gilts market—quite the opposite—and we must prize that achievement. We have saved our triple A credit rating, which was under threat of downgrade in the last months of the previous Government, and kept our borrowing costs close to historic lows.

The coalition Government have earned the respect of the international capital markets and have their confidence, because the combination of a tight fiscal and a loose monetary policy remains the best chance of avoiding a sovereign debt crisis while ensuring acceptable increases in GDP. Britain simply could not for long run a budget deficit of 11% of GDP—the second highest in the OECD—without taking the unacceptable risk of losing the confidence of the bond markets. Almost a year on, the wisdom of taking decisive action to reduce the risk of sovereign debt crisis is obvious to all except perhaps Labour Members. Even Gavyn Davies, the Labour-supporting economist, conceded in yesterday’s Financial Times that getting the deficit down was a “defensible decision”.

A debt crisis would have been disastrous for growth and unemployment, as many European nations are now discovering. Furthermore, unlike those countries, Britain can, and is, using monetary and exchange rate policy to offset the fiscal tightening, as my right hon. Friend the Member for Wokingham said. I hope that that will keep the economy recovering.

As I have said, all manner of international bodies, from the IMF to the OECD, are unanimous in urging the Chancellor to stay the fiscal course that he has so consistently outlined for this country. Yes, real GDP growth may have dipped temporarily as consumers’ expenditure has been weakened, and today’s growth forecasts for 2011 from the Office for Budget Responsibility may be a little lower than we would have liked. However—

[Alison McGovern (Wirral South) (Lab)]

rose—

[Joseph Johnson]

I will continue, if I may.

However, business surveys have been much stronger than the official data, and the Institute for Fiscal Studies says that the chances of a double-dip recession are no more than 20%. Even Gavyn Davies, the great Labour-supporting economist, admits that this figure is

“not high enough to jettison the government’s main strategy, with the loss of credibility which that would imply.”

Mr Davies is, of course, completely right. Maintaining the current policy remains the best bet for Britain in the medium to long term, and that is what matters most.

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[Diana Johnson]

No, I want to carry on making the point about why there is a real need in Yorkshire and, in particular, the Humber to grow the economy. The measures that have been taken are not helping. The result of all that money being taken out of my city is that construction jobs are going and we shall not have the training or the apprenticeships that the Chancellor has talked about. For the first time, we have seen compulsory redundancies at BAE Systems, a major private sector employer just outside Hull on which many of my constituents rely for skilled jobs. It is a place where people want to work, but private sector jobs are being lost there.

The abolition of the regional development agency, Yorkshire Forward, is a huge loss to the region and to the building up of the regional economy. The coalition has introduced local enterprise partnerships to assist regeneration. We all agree that we need to regenerate areas such as East Yorkshire and the Humber, and Yorkshire Forward was doing a very good job of building up the economy. The Government’s answer was to remove the RDA and create a regional growth fund. Now, whenever a question is raised about where funding can be accessed, we are told to go to the regional growth fund. The housing pathfinder has been scrapped, and the Prime Minister told my hon. Friend the Member for Kingston upon Hull East (Karl Turner) to go to the regional growth fund for money. It seems to me that the fund must already have been spent about 100 times over. It is just ridiculous.

[Alison McGovern]

Does my hon. Friend acknowledge, as I do, that the impact of these policies is borne out by the numbers, as the growth forecasts are downgraded?

[Diana Johnson]

That is absolutely clear.

The proposal for a business-led solution to deal with economic growth in the regions appears sensible. In my area, however, local authority politicians on Conservative-led East Yorkshire council and Liberal Democrat-led Hull council have been squabbling among themselves. The business leaders have made it clear that they want a pan-Humber LEP that will bring the economy together on the north and south banks of the Humber. As I said, we have had the wonderful announcement from Siemens on the future of renewable energy in our area, but because of the way in which the local councils in East Riding and Hull are behaving, the business community has been left without an LEP; the Business Secretary would not agree to one because it did not have the support of the business community.

This just shows that the Government’s approach is flawed. My area desperately needs economic growth, yet it has been left with no LEP and with the council in Hull squabbling with the councils on the south bank of the Humber. We have great potential for growth in the renewable energy sector, but there is no co-ordinating force. The idea is that LEPs will lead us into the growth strategy that we all want to see, but that is not going to happen in my area.

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[Richard Harrington]

My hon. Friend makes a good point, but we heard about Siemens so long ago that it had slipped my mind.

I shall restrict my comments to my experiences in business of dealing with the economy, and the experiences of my constituents and their businesses in Watford. Watford is not dissimilar to Kingston upon Hull. It has significant unemployment and shares all the same problems as many other parts of the country. Notwithstanding the Chancellor’s commendable statement today, the most significant factor in encouraging businesses to invest is the general macro-economic situation. Therefore, the most important aspects of this Budget and the last Budget are the measures for reducing the deficit.

[Alison McGovern]

The hon. Gentleman is making his speech in his usual eloquent style. Will he comment on why the growth forecasts have been revised downwards?

[Richard Harrington]

The comments that the hon. Lady somewhat generously applied to my erudition can also be applied to hers. To respond to her question on growth forecasts, we cannot select one figure and say that it makes a fundamental difference, because assessments of growth must be made over a period of time. In my experience, the most important factor for growth is the confidence people have in the economy, and that will definitely come about because of the Government’s sensible approach, as opposed to the reckless irresponsibility of their predecessor.

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[Alison McGovern (Wirral South) (Lab)]

It is an honour to participate in the debate in which my hon. Friend the Member for Barnsley Central (Dan Jarvis) made his maiden speech. He made a really excellent contribution.

I want to comment on two aspects of the Chancellor’s statement: first, on inflation and the cost of living that people in Wirral and elsewhere are facing; secondly, on young people and employment. On inflation and the cost of living, we all need to acknowledge the global pressures that are causing price increases in the shops. Those pressures, including what is happening in the middle east and the price of food and other basic materials, make it more important that we get our policy right domestically. We have recently seen CPI inflation rise to 4.4% and RPI inflation rise to 5.5% in the UK, yet inflation for the EU as a whole is 2.8%. This picture of increased prices must also be taken into consideration in the context of our constituents whose wages are being held down. People have not seen an increase in their pay packets, but they are seeing price increases in the shops.

What is causing this inflation? I am well aware of the structure for setting interest rates and controlling price increases, and I look to the Governor of the Bank of England for an explanation as to why inflation has moved away from the targets. He says that

“three factors can account for the current high level of inflation: the rise in VAT relative to a year ago, the continuing consequences of the fall in sterling in late 2007 and 2008, and recent increases in commodity prices”.

He cites the Tory tax hike as having played a part in building inflation. My worry is not just about inflation this year, however; it is about people’s expectations of building inflation and the permanent hit that they will have on families.

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

Will the hon. Lady give way?

[Alison McGovern]

I will not, if the hon. Gentleman does not mind; I am conscious that other Members want to speak.

Labour rightly instigated a temporary reduction in the rate of VAT to help us through the downturn, but I am now worried because the Tory-led Government have implemented a permanent hike in the prices that ordinary people in my constituency face in the shops. That is clearly having a huge impact on our economy and threatening future growth, as has been illustrated by the reduction in the growth forecast.

On the increase in commodity prices which has also caused inflation, the Chancellor said in his statement that the UK would seek to have an impact on those prices through the G20. It is therefore incumbent on Ministers to explain how they are going to engage with our international partners to achieve that. There is no doubt that those worldwide events are having an impact on the streets of Bromborough, Bebbington, Heswall and New Ferry in my constituency, and I would like to know what action the Government are going to take in that regard.

I shall deal briefly with young people and employment. I know that Members across the House care about the issue, but we need to bring some words of caution to the debate. The Chancellor rightly reserved extra funds for the future training of apprentices, but money reserved does not equal apprentices hired. Other factors are necessary for getting young people into employment. The first, business confidence, is vital: businesses must have the confidence to invest. I refer hon. Members to what I said about the in-built inflationary expectations in the economy and what they might do to investment. It is a matter of great concern. A second necessary factor is growth, and it is worrying to see growth forecasts revised downwards. The Chancellor might have said that this was a Budget for growth, but I feel that it was all words and very little action. A final necessary factor is a change in culture, whereby businesses feel that it is their role to bring on the next generation. The current generation at work should be allowed to share their skills in the informal setting of the workplace to bring on the next generation.

I highlight, as always, the role of my own local authority. Wirral has shown great leadership in the sphere of encouraging small and medium-sized businesses to take on apprentices. However, the local authority cuts, which have been much greater in our area than in others, have put Wirral’s ability to play this role in jeopardy. The Government need to think about how they will bring about this change of culture in practice rather than simply reserve the funds and say they are there if business wants to take them.

Finally, I fear that Britain is seeing the end of any interventionist role for the Government. I feel strongly that the future jobs fund was an excellent answer to youth unemployment, but the Government have withdrawn from it. They say they are reserving funds for apprentices, but they are doing little more than that to encourage businesses to invest. We are also seeing inflationary pressures on the cost of living, which the Governor of the Bank of England relates to the rise in VAT. This is a price hike that hard-pressed families in Wirral and elsewhere can little afford. On those two issues that I have prioritised, I would like to see Ministers taking much more action.

[Mr Deputy Speaker (Mr Nigel Evans)]

I thank the hon. Lady for her time restraint.