Budget Resolutions and Economic Situation

Debate between Alison Seabeck and William Bain

Wednesday 19th March 2014 Commons Chamber

[Mr Bain]

I am grateful for the hon. Gentleman’s intervention, but I recall—it clearly was not an illusion—the promises made by the Chancellor and the Prime Minister that the deficit would be cleared under their successful economic plan in five years of this Parliament. The Chancellor told us today that we had to wait an extra four years to achieve that. The illusion is that the Chancellor and the Prime Minister should ever think that they could clear the deficit, given the fiscal policies that they have followed since 2010 and all the harm that that has caused to living standards.

According to OBR forecasts in June 2010, we should have had growth of 9.1% between then and the end of last year, but we have seen less than half of that—a paltry 3.8%. The Budget, like its four predecessors, has failed properly to address the key factors driving the longest slump in real wages since the 1870s. First, there has been a failure by the banking system to provide liquidity to businesses on the scale required to boost growth in the real economy. Secondly, there has been extraordinarily weak business investment by the standards of previous recoveries. Thirdly, there has been poor export performance, with continuing balance of payments deficits, despite sterling having devalued by a quarter since 2008. Fourthly, there has been declining productivity in seven of the past nine quarters, and fifthly, connected to that, there has been a surge in under-employment, affecting more than 1 million people, who cannot get the hours at work they need to compensate for the collapse in wages in real terms.

The Budget should have begun the work of shaping an economy in which we permanently earn our way to higher living standards. Instead, ordinary people are forced to dip deeper into their savings to pay the bills, or depend on house price inflation, which is set to rise to 9% by next year, to fuel rises in consumer spending.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

I apologise for arriving rather late for this debate. Does my hon. Friend share my concern that the figures used by the Chancellor to highlight what he described as a narrowing of inequalities were based around 2011, before all these dramatic changes, particularly to people’s benefits, had been made? I think that “disingenuous” is a permitted parliamentary word, so does he agree that that was disingenuous?

[Mr Bain]

My hon. Friend makes an important point, because there is no data available to the Government post-2012. To argue that the policies that they have followed over the whole four years have reduced inequality is not a fair comparison for the Chancellor to make.

Last year Britain had the fifth lowest level of investment as a proportion of GDP anywhere in the EU. Between 2010 and 2012, business investment was a meagre 3.7%, compared with the nearly 20% forecast by the OBR in June 2010. While investment lags at nearly a fifth below pre-crisis levels, by contrast, surpluses accumulated by large corporations are up by a staggering 7% over that period. The Government have failed to get investment into the real economy to promote the kinds of jobs that are needed to increase living standards.

It is also worth touching on the OBR’s verdict at this stage in the debate. The Chancellor said that the Budget would rebalance the economy, but the OBR says that net trade will contribute nothing to growth over the next five years. Our export share is to fall in each successive year to 2018. Despite the Chancellor’s welcome doubling of the investment allowance today, the OBR has said that that will not raise levels of investment in the economy and will have a negligible impact on growth. It is a damning verdict on the entirety of the Chancellor’s Budget.

The Budget should have begun to meet the challenge of the changes we need to see in the banks to make them serve society, not the other way around—a challenge left unmet by the Chancellor today. It contains no plans to create a further two challenger banks to break the monopoly of existing players in the retail banking sector; no intention to create a proper infrastructure bank to boost finance to businesses engaged in large capital investment projects; and no plans to create a system of regional lending banks to supply credit on a long-term basis to viable small companies in the way that the Sparkassen have done to great effect, in good times and in bad, in the post-war era in Germany.

Today’s Budget fails the test of fairness on many counts. We know that one of the biggest causes of the rise in family incomes over the past four decades has been the rising employment rate among women. Key to that is increasing the supply of affordable child care. The Budget does nothing to increase the supply of child care places. According to the Family and Childcare Trust, the costs of a nursery place for 25 hours a week for a child under the age of two has risen in Scotland by 26% since 2010, and for a child over the age of two it has risen by 31%. Where were the policies today to increase the supply of child care places? They were entirely absent from the Chancellor’s speech. Most of the benefits of the tax relief he proposed will go to couples in the top half of the income scale, while families with average incomes, such as those in my constituency, will get less than £10 extra a week. Barriers to work will remain for many women, and the long-term potential for economic growth and higher living standards will be left unrealised by the Budget.

The Budget also fails the tests of increasing supply in new housing and beginning the task of rebalancing our jobs market by creating new construction jobs to replace the 214,000 that have been lost during the downturn. It fails the test of justice for our young people by not having a jobs guarantee to remove the scourge of long-term unemployment. I met a young constituent in Stobhill in my constituency last Saturday night. His whole family—parents and grandparents—told me of the hurt they felt about his 18-month search for a job, which has been in vain. It is a moral scourge that affects not only the young person involved, but their family and the wider community. In my constituency there are 179 other young people like him, and there are tens of thousands more across the country. The Budget fails to improve work incentives for the lowest paid by reintroducing a 10p starting rate of tax. It fails to reveal how the Chancellor will make good his promise to reach a minimum wage of £7 an hour for the working poor by next October.

In conclusion, this should have been a Budget that reduced inequality, invested in new child care places, invested in science and innovation, dealt with our rising skills gap and reshaped our jobs market. It is clear that if Britain wants such a Budget, it cannot come from this coalition; it can come only from a change of Government, which is long overdue and set for next May.