The Economy

Angela Smith Excerpts

Tuesday 6th December 2011 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

I beg to move,

That this House has considered the matter of the economy.

I am pleased that the House has been given this early opportunity to debate last week’s autumn statement and to discuss the economic challenges that our country and continent face. Being conscious that many people have asked to speak, I shall try to tailor my remarks appropriately.

Seven days ago I set out the Office for Budget Responsibility’s latest independent forecasts and the measures that we would take to reinforce our country’s fiscal credibility and keep our interest rates low, increase the supply of money and credit to ensure that those rates were passed on to businesses and home buyers, and lay the foundations for a more resilient, more competitive and more balanced economy.

That was one week ago, and in the seven days since events have provided further confirmation of why these measures are necessary: countries such as Ireland and Italy have announced further budget measures from VAT rises to pension age increases, reminding us of the value of getting ahead of the markets not following them, and the credit ratings of 15 eurozone countries have been put on negative watch, while here in Britain interest rates have stayed low despite the deterioration of the fiscal forecast, which has meant that last week we continued to borrow at below 2.5%. [Interruption.] I thought that the shadow Chancellor was about to intervene, but we shall have to wait.

Last week I answered questions from Members who wished to ask me about the detailed policy measures in the autumn statement, and I am happy to answer such questions again today, but I thought this might also be a good opportunity to address three broader issues: first, the crisis in the eurozone; secondly, how we believe that the UK banking system should respond to the ongoing crisis and the advice that we received on Thursday from the Bank of England’s Financial Policy Committee; and thirdly, given the eurozone debt crisis and the banking issues that we face, why the credibility of our fiscal policy must be constantly reinforced. Let me take each in turn.

On the eurozone, our overriding responsibility is to protect and advance the interests of the United Kingdom. Those interests are best served by the countries of the euro finding a path out of the crisis, while also ensuring that our economic interests in the single market are protected. There is no doubt that the crisis is having a chilling effect on the British economy and destroying jobs here. In the words of the Governor of the Bank of England last Thursday, it is, in his judgment, the primary cause of the downward revision of the British growth forecasts, as it was one of the primary causes of the OBR’s downward revision of its growth forecast. Of course, the OBR warned us that it had assumed an orderly resolution of the crisis over the next two years. This impact sadly comes as no surprise, when 40% of our exports are to the euro area and £1 in every £7 that Britain exports goes to Ireland, Portugal, Greece, Spain or Italy. Although we must plan for all contingencies—and we are—we should not lose sight of the truth that Britain has a fundamental national interest in the eurozone sorting out its problems, even though we are not in the euro and will not be while this Government are in office.

Action is required by the eurozone on three counts. First, as Germany has argued, and as I made clear in July, there needs to be much tighter fiscal discipline within member states and much tighter fiscal co-ordination within the euro. This is the remorseless logic of monetary union. Secondly, those reforms to economic governance should provide the confidence in the future discipline that the European Central Bank requires to take whatever action is necessary to protect financial confidence. We have been calling consistently for a big firewall, properly capitalised banks and lasting structural reform, and we now need that delivered. Thirdly, all this will succeed only if there is an improvement in the competitiveness of the whole of Europe, and also, crucially, in the competitiveness of the peripheral eurozone countries vis-à-vis countries such as Germany. That will involve difficult change, but it is encouraging to see some European Governments, such as Ireland and Italy, now starting to take the necessary steps on issues such as pensions and labour market reform.

Britain has a huge interest in all that happening and has put forward specific proposals to ensure that our entire continent is not priced out of the world economy. As an open, trading nation, we benefit from the single market. We would like it strengthened and deepened, but we will also insist that our interests in the single market are protected from any future developments, including our interest in financial services. That is the approach that Britain will take to the European Council later this week. We need better regulated financial services to protect our economy when things go wrong, which is one reason why we commissioned John Vickers’s report. We want a single market in Europe so that our banks, our insurance companies and our pension companies can sell their products abroad, but 70% of Europe’s financial services are based in London. We will ensure as we approach this European Council that the interests of the European Union 27 are protected and that Britain’s national interests are protected too. That is our obligation to the British people.

Let me turn from the eurozone crisis to what all this means for our banks. British banks are well capitalised and liquid. Not one of them was identified as a cause for concern in the recent exercise by the European Banking Authority. I remind people that retail deposits in British banks or the subsidiaries of foreign banks here in Britain are protected by our country’s Financial Services Compensation Scheme, which ensures that £85,000 per person per bank is protected. Individuals with deposits in a UK branch of a European bank are protected by their national schemes.

The eurozone crisis is tightening credit conditions across the world and across Europe. The Bank of England announced today the introduction of a new contingency liquidity facility—the extended collateral term repo—which it will make available if needed. In addition, to protect small businesses from the higher costs of credit, we are pursuing the credit easing policy that I set out last week. I have set a ceiling of £40 billion on those operations, and have committed to £20 billion of guarantees through the national loan guarantee scheme, and £1 billion through the business finance partnership. Although the means are different, the ends we seek are the same.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

Is not the Chancellor’s credit easing scheme an admission that his earlier deal—the Merlin deal—has completely and utterly failed?

[Mr Osborne]

The Merlin deal was for this year, and it was a commitment to increase gross lending to small businesses, which is what the banks have done. Of course, the previous Government, having tried net lending targets, then had gross lending targets with just two banks. The Merlin deal extended that to all the main high street banks. It was a one-year-only deal; the credit easing package that I have set out is, I think, what is required—not least in view of the tightening credit conditions across the continent of Europe and, indeed, across the world at the moment. The Government are using the credibility they have in the financial markets to borrow at low interest rates and passing those rates on to small businesses. As I said at Treasury questions, we are seeking state aid clearance and hope to have the national loan guarantee scheme operational by early next year.

At a time like this, we also have to be alert to risks across the financial system. One of the weaknesses of the tripartite regime is that no one felt they had a particular responsibility for monitoring the overall health of the financial system or felt they had the tools to do anything about it. We have created a Financial Policy Committee to do just that. We have established it on an interim basis to get it operating as soon as possible, instead of waiting for next year’s primary legislation. The FPC reported last week. Let me put it on the record that it is absolutely the job of the Governor of the Bank of England to be frank with the country about the challenges we face.

As the Financial Policy Committee warned very starkly:

“Sovereign and banking risks emanating from the euro area remain the most significant and immediate threat to UK financial stability.”

The committee encouraged banks to improve the resilience of their balance sheets in a way that does not exacerbate market fragility or reduce lending to the real economy. Given what it calls

“the current exceptionally threatening environment, the Committee recommends that, if bank earnings were insufficient to build capital levels further, banks should limit distributions and give serious consideration to raising external capital in the coming months.”

That is the point put to me by the Chairman of the Treasury Select Committee just an hour ago at Treasury questions. Limiting distribution includes restricting bonuses. Excessive pay in the financial sector is a concern at any time because of the perverse incentives it creates.

When it comes to linking pay to performance and being transparent, we are implementing the most comprehensive regime of any financial centre anywhere in the world. Today the Treasury launches a consultation that will extend transparency arrangements at large banks by requiring the eight highest-paid non-board executives to disclose their pay and bonus arrangements. This will cover an estimated 15 banks, including the largest UK banks and the UK banking operations of large foreign banks.

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[Helen Goodman]

Will the Chancellor give way?

[Angela Smith]

Will the Chancellor give way?

[Mr Osborne]

I have given way to both hon. Members, and I know that many people want to speak in this debate.

The permanent savings we have made reaffirm Britain’s commitment to dealing with its debts. Who backs this commitment? The international organisations do. The OECD says that

“the ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields”.

The head of the IMF, whom the shadow Chancellor was talking about, said when she came to the UK that

“strong fiscal consolidation is essential to restore debt sustainability”,

and that the Government’s “policy stance remains appropriate”.

During Treasury questions, the shadow Chancellor was, I think, quoting The New York Times. What he did not quote was the Financial Times, where he actually worked. It said that

“the Government’s plans for fiscal consolidation have allowed Britain to regain the confidence of investors at a time when all too many countries have forfeited it”.

That is the kind of editorial he would have written when he was a leader writer there. The Economist says that the credibility the Government have achieved is “priceless”. The CBI has supported what we have done. The Institute of Directors said that we did the right thing. The Federation of Small Businesses, which the shadow Chancellor often quotes, and the British Chambers of Commerce have both welcomed the measures we announced for business.

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[Gordon Banks]

The Scottish Minister’s decision is responsible for the cuts that could also impact on investment and delivery in the construction industry. The flipside is that if we are prepared to invest in the construction industry, it will deliver; if we cut public spending, it will destroy the industry and with it the economy.

For businesses to grow, they need access to affordable funding. Historically, most small business funding has been generated from our banks, but the Institute for Family Business and the Federation of Small Businesses tell us that, due to the actions of the banks and small businesses’ distrust of them, many such businesses are seeking funding from family members or not seeking it at all. To do the latter damages the business and the economy; to do the former may place limitations on the business, with the same impacts.

However, what is clear is that small and medium-sized enterprises are not at ease with the banking sector. The much-hailed Project Merlin has been a resounding failure. The British Bankers Association has declared that lending targets have been met; however, the FSB and the Federation of Master Builders have other ideas. I have been told of banks meeting their Merlin targets by re-signing existing, unexpired deals. But the truth is, we will never know how much of Merlin is re-signed and regurgitated arrangements. Indeed, this is smoke and mirrors that the Merlin of folklore would be proud of, but I suppose we should not be surprised: the clue is in the name.

I know of financing arrangements that have long been in place being removed with immediate effect, leaving a business in turmoil. Then, the bank returns to the business a few days later with the offer of a term loan that is new business for the bank to write—no doubt adding to the Merlin figures—at increased rates and with arrangement fees, all paid for by the business and with less capital provision for the lender, but leaving the business without any long-term funding in place.

Small businesses in the construction sector have been victimised on two fronts: for being small, and for being in the construction sector, which is deemed toxic by many lenders.

When considering finance, however, we should not forget first-time buyers and the crisis in mortgage lending. In 2007, there were 357,000 first-time buyers in the UK, and as a result the British high street was boosted by some £2.1 billion when these people kitted out their homes. However, today, young people, who are the majority of would-be first-time buyers, are unable to purchase their own home. Now, the average age of a first-time buyer without parental support is 38. With 25 or 30-year mortgages, these first-time buyers could still be paying off their mortgages as they approach their 70s. Surely, pensioners paying mortgages is not something we want to see in Britain in years to come.

In my business, where investment in vehicles can cost up to £130,000 each, and where forklifts and loading shovels cost tens of thousands of pounds, the real driver for investment is the footfall of customers and the profit margin. Both have taken a tumble in recent years, and nothing that I have seen this Government do or promise to do will result in more customers or a rise in profit margins.

[Angela Smith]

My hon. Friend is making a very strong case against the Government’s economic policy. Does he agree with Will Hutton’s comments in The Observer on Sunday? He said that the Chancellor

“is operating within a framework that permits no vision for how the British economy can be re-energised and reimagined.”

[Gordon Banks]

I agree with that, and I would add to that the comments of my hon. Friend the Member for Glasgow North East (Mr Bain) in his intervention a moment ago: there is a lack of vision in both Scotland and No. 11.

Falling business opportunities equals reducing margins and cuts to investment and employee numbers, which add further to the decline in the economy. Businesses in my constituency and in the construction sector want to know whether this Government see themselves as a driver for growth, or not.

It is all about priorities. As far as the SMEs in the construction sector are concerned, the comments on the report card, sadly, are not “could do better” but more like “shows no interest in the subject”.

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[Phil Wilson]

That is absolutely right. If a regional pay structure went ahead, in whatever variety it may take, it would just exacerbate that situation. The regions would become silos, and people would not be able to move around the country.

It is also a myth that there are major variations in the cost of living around the country. The reason why the variation is less explicit outside London is because major retailers have national pricing policies, and internet shopping is having a similar effect in ensuring that the cost of living is more convergent around the UK than it would otherwise seem to be. In addition, major private sector companies—BT, British Gas, Waterstone’s, First Great Western and Santander, to name but a few—have national pay structures, although they have, for example, allowances for workers in London. When the previous Government examined this issue they came out against regional pay bargaining for the following reasons, which were quoted in a Treasury guidance note in 2003. It said:

“At the extreme, local pay in theory could mean devolved pay…to local bodies. In practice, extremely devolved arrangements are not desirable. There are risks of workers being treated differently for no good reason. There could be dangers of leapfrogging and parts of the public sector competing against each other for the best staff.”

That illustrates the point that has just been made by my hon. Friend the Member for Darlington (Mrs Chapman).

The wage disparities do not arise from an overactive public sector displacing private sector jobs; that cannot be so, given that 700,000 public sector jobs are to be lost in the coming years. I want to see a vibrant private sector, with skilled jobs that are well paid and full time, but to achieve that we need growth.

[Angela Smith]

Does my hon. Friend believe for a minute that the Government have thought through the complexities of moving to local pay scales, given that it will inevitably involve consultants in establishing exactly where on the new pay scales the public sector employees will belong?

[Phil Wilson]

My hon. Friend raises an important point. I do not think the Government have thought all these things through; I know they will be looking at them in more detail, but the process seems ideologically led.

One North East was a dynamo for private sector job creation in the north-east. To abolish it was the wrong decision. We need the expertise of the public sector to generate private sector jobs in the area. That is how Hitachi Rail was attracted to Newton Aycliffe in my constituency, creating hundreds of direct private sector jobs and thousands in the supply chain. Hitachi did not come to the north-east because of the public sector, but it did have the help of the public sector. I want more Hitachis coming to the north-east, bringing highly skilled jobs that will deliver good wages. That is how we shall redress wage disparities in the north-east; not by suppressing the wages of a section of the community but by raising the wages of all employees, through investment, training and skills. With that will come good wages, and I call on the Government to promote a living wage, not a regional wage, for the north-east and the rest of the UK.

There is no evidence that regional pay will rebalance the economy. Driving down wages will only exacerbate economic disparities, not resolve them. Driving down relative wage costs and taking money out of the economy is as bad for the private sector in areas such as the north-east as it is for the public sector. That is why I make a special plea, not for the public sector but for all employees in the north-east of England, whatever they do and wherever they work.

Public sector employees face a two-year pay freeze and then two years with only a 1% increase. It has been estimated that between 2010 and 2015 public sector workers will see their incomes decrease by 14%. Average pay in the north-east is just over £19,000. How low do the Government want it to be? The policy is wrong, and I believe it is ideologically led. The answer is a living wage, not a regional wage.

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[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 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.

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[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?

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[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 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 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.

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[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.

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 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.