Budget Resolutions and Economic Situation

Austin Mitchell Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Mr John Redwood (Wokingham) (Con)]

I remind the House that, in the declaration of Members’ interests, I have revealed that I offer business advice to a global industrial company and an investment company.

In her response to my right hon. Friend the Chancellor’s Budget, the Leader of the Opposition gave one of the worst speeches I have ever heard in the House. It was intemperate and ill judged, and did not seem to be based at all on the Budget presented to us today. It is a great pity that she and her party still do not understand their culpability for the financial mess in which we find ourselves, show a little humility over the inheritance they have passed on—the worst financial and economic inheritance any Government have received since the second world war—and show a little willingness to work with us on getting out of this hole.

Many Labour Members, having been Ministers or ministerial advisers until just a few weeks ago, have a lot of information. They told us during the election, in general terms, that they would unleash substantial public spending cuts after the election, and it would be good to know from them where those cuts would have been made. They might be preferable to some of the ones we are thinking about, and it would be most useful if they would share them with us. If they are not prepared to share them with us or the country, the country is entitled to say, “These people got us into this mess, are totally unconstructive and still have not learned anything.” As other Members have said, it might be better if they got on with their leadership election, and let us get on with the serious task of debating the state of the country.

[Austin Mitchell (Great Grimsby) (Lab)]

If the public finances are in such a mess, why did the Conservative party want to adopt Labour’s spending targets in 2008, and did it oppose the huge amounts of money put into the banks to save the banking system, which was responsible for much of the borrowing?

[Mr Redwood]

I was clear throughout the previous Parliament that I thought Labour’s spending targets were unaffordable, and I said so in the economic policy review that I wrote for the Conservative party at the time. I was strongly opposed to the indiscriminate subsidies and moneys flung at the banks on a scale that defied belief and which I felt was totally unnecessary. I offered an alternative way of saving what needed saving in those banks, for the sake of the general economy and at a much lower cost, so I think that the hon. Gentleman has challenged the wrong person on that issue.

I pay tribute to my hon. Friend the Member for Dewsbury (Simon Reevell). He gave an elegant, traditional and classical maiden speech that bodes well for his representation of the people of Dewsbury. It was funny and detailed; showed a great love of the territory and people he now represents; and showed that he will be a campaigning politician. I also detected just a little conservatism in his attitudes, so I was entirely happy with it and wish him a long and successful stay with us in the House.

The Budget has been little understood by some of the people who have commented on it so far—perhaps that is not surprising because those who speak early do not necessarily manage to read the Red Book quickly enough. I praise my right hon. Friend the Chancellor for producing a Red Book half the length of the Labour Red Book—and, therefore, a lot cheaper and economical—but containing much more useful information. With a short read one can understand exactly what he is trying to do in the measures he is proposing, whereas I used to find it took more than a day to winnow out the truths from the great weight of paper that the previous Chancellors of the Exchequer used to present, because they were always trying to disguise the negatives and highlight and exaggerate the positives.

My right hon. Friend is right to say in his Budget that we can get out of this mess only with a strong and vigorous private sector-led recovery. We need to preside over the creation of a very large number of new private sector jobs, because we need to absorb many of the people languishing on benefits as a result of past policies—almost 6 million people of working age without a job, many of whom would like and need a job. We need to create a much more vibrant private sector that can take them into employment, so that the benefit costs come off the public accounts and those people can start to make a contribution through taxes.

We also need to create many more jobs because the 6 million people currently employed in the public sector are too many. I do not wish to see compulsory redundancies, but I am glad that my right hon. Friends in ministerial office are now imposing freezes on recruitment and allowing recruitment from outside only where it is really necessary. We need to reduce the number of people across the public sector, and I am pleased that we will be showing the way here as well, so that nobody can say that MPs are exempt from the process.

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[Austin Mitchell (Great Grimsby) (Lab)]

In rising to make what must be my 13th maiden speech, I congratulate the hon. Member for Bedford (Richard Fuller) on his graceful maiden speech. He ensured that what can be an ordeal for new Members was not an ordeal for the rest of the House. I am afraid that my one association with Bedford is an unhappy one. I was carted there in an ambulance after a car crash on the A1 and was in concussion for some time. When I woke up, the surgeon came to see me and congratulated himself on having stitched my right hand together, before telling me that I should be very grateful to him. When I explained that I am left handed, he just said, “Damn!” and went away. It was interesting to hear of the famous people from Bedford—better John Le Mesurier than Eddie Waring, I suppose—and of the attractions of the town. I am sure it has produced almost as many interesting people and has almost as many attractions to visit as Grimsby.

I am less congratulatory to the Chancellor on his Budget. I congratulate him on the provision to protect low-paid civil servants, of whom there are many, from the rigours of a pay freeze, but I am not sure that such measures will be sufficient to outweigh what my hon. Friend the Member for Nottingham East (Chris Leslie) called, in his very effective speech, stealth cuts, or the general depressive impact of not only the Budget, but the £6 billion of cuts that went before it and the massive cuts still to come. Those are not part of the Budget package, but they must be viewed as part of the approach. I am sure those measures will have such a depressing effect on the economy that the poor cannot be protected by the simple measures the Chancellor introduced.

In fact, collectively, the package of cuts and the Budget lead me to lament the economic ignorance and social arrogance behind them. The Budget is a dangerous assault on the economy when growth is just beginning—it is not fully entrenched or powerful yet—and there is a glimmer of light ahead. It also represents a transformation in the attitude of the Conservative party. Its leader tried to win the election—he did not actually do so—by charm and by presenting the face of compassionate conservatism. He undertook to protect spending on aid, defence, the NHS and education, to protect front-line services, and to preserve free bus travel and winter fuel payments for pensioners. He also told us that he had no plans to increase VAT. Those must have been the same non-plans that the Conservatives had in 1979, when they increased VAT from 8% to 15%—their non-plans then were equally fulfilled.

That charm offensive—compassionate conservatism—has been replaced by the Chancellor, who was clearly kept in the attic, like Mrs Rochester, during the election campaign, so that he did not go out and frighten people with the extent of the cuts that he wanted to make. He has now been released from the attic to impose his Mrs Rochester economics on the system, with a few pathetic crumbs and benefits, such as the abolition of the cider duty, which we had already in fact abolished before the election. That has now been dropped from the Tory table to the Liberal Democrats to give them and their leader something, however small, to compensate them for having betrayed those who voted for them, thinking them an independent-minded, compassionate middle party.

[Martin Horwood]

Does the hon. Gentleman really think that taking nearly 1 million people out of income tax, which was a key pledge in the Liberal Democrat manifesto on which we insisted in the coalition agreement, is a small matter?

[Austin Mitchell]

No, it is of great benefit. I congratulated the Chancellor on it, and I am glad the Liberals won it. However, it is still not sufficient to compensate those 1 million people for the increase in VAT, which is a regressive tax, and for the general depressing effects on the economy and employment of the other measures in the package of cuts in the Budget. That policy on income tax is a gain for the Liberals—and, indeed, the country—and it was right. I congratulated the Liberals at the time on including it in their manifesto.

The transformation of the Liberals is like that of the pigs in “Nineteen Eighty-Four”—I am not calling the Liberals pigs, but they were pigs in “Nineteen Eighty-Four”—into human beings, if not Tories. The Liberals have been transmuted not into Tories, but into European liberals—I am thinking, in particular, of the Free Democratic party, which is an economic liberal party that, I am pleased to note, is now disrupting the coalition in Germany by demanding stringent cuts from Angela Merkel and the Christian Democrats. I am sorry to see my friends in that situation. There are difficulties in the coalition between the Liberals and the Conservatives, because it is like merging a Brownie pack with the Brigade of Guards. I feel sorry for Liberal Ministers who have to sit there and join in the chorus of nodding dogs on the Front Bench at every Tory policy announcement. I am sorry to see that habit spreading to the Liberals.

[Richard Graham (Gloucester) (Con)]

Will the hon. Gentleman give way?

[Austin Mitchell]

In a minute, when I have finished the joke!

It is sad to see the Liberals justifying Tory policies, while their Ministers in the Cabinet are being picked off one by one by the Tory press, which is maligning them and doing them down. That is a pathetic spectacle.

[Richard Graham]

Does the hon. Gentleman agree with Oona King’s remarks to The Guardian last week that the tragedy of new Labour is that, while many signed up to the concept of social justice and economic growth, too many Labour Members concentrated on social justice and forgot about economic growth? The reality can be seen in my constituency of Gloucester, where 4,600 jobs have been lost in the private sector over 10 years, 7,600 have been created in the public sector and there is record youth unemployment. Economic growth has completely disappeared, so it is the Government’s job to restore the economic growth in order to provide the social justice we all want.

[Austin Mitchell]

I am surprised that the hon. Gentleman has not heard of the economic recession and its effect on our economy. Before now, we have enjoyed 10 years of steady, substantial economic growth that has improved everything—it has put more people in work, improved people’s quality of life and made them better off. Does he deny that reality? I do not want to get into an argument about history, but he is blaming the recession and putting the blame for that on the Labour Government.

I want to move on to the substance of the Budget. The package of cuts in the Budget represents a gigantic confidence trick bigger than the Zinoviev letter, which the Tory party was seen to be responsible for as well. We have to accept that recession brings a need for social democratic, governmental state solutions. Recession brings a need for regulation and fairness, and for public spending to counter the curtailment of private spending and to protect the community. The Conservative party has reacted to that by creating panic about debt, borrowing and the possible foreclosure of our credit cards in Europe. Conservative Members warn about us becoming another Greek economy and, through their tirade of anti-British complaint, they consistently knock Britain.

The clamour about debt is designed to frighten people into accepting measures, cuts in public spending and the roll-back of the state that the Conservative party certainly wanted to put in place anyway.

[Richard Graham]

rose—

[Austin Mitchell]

There is no need to defend the Conservative party at every juncture in my speech. The hon. Gentleman might concentrate on defending his own party for its part in the process—[Hon. Members: “He’s a Conservative.”] In that case, I apologise and give way.

[Richard Graham]

I am very grateful to the hon. Gentleman for giving way again. Has he looked at the other role model example, which is that of Spain? Currently, it has 20% unemployment, and 40% youth unemployment, having followed precisely the policies that he and so many of his colleagues appear to be advocating—that is, to carry on spending regardless. That leads not to economic growth but to economic disaster. If it were to happen in my constituency, there would be riots on the streets.

--- Later in debate ---

[Austin Mitchell]

I am sorry for mistaking the hon. Gentleman for a Liberal. As a Conservative, he must be sitting in some kind of custodial role on the Liberal Benches.

The analogy that the hon. Gentleman makes is false. It is no use comparing us with Spain, Greece or any of the European countries. Our borrowing is on 13 or 14-year terms, and the interest rates that we pay on it are much lower, whereas Greece’s borrowing is on two-year terms, or less.

We are protected by something for which our previous Prime Minister is never given credit—the fact that we did not enter the euro. The Liberal party wanted us to do that, but our being outside it means that we can take exchange rate adjustments that Greece, Spain, Portugal and the other countries in this situation cannot. As a result, we are not facing the same problem, or the same threat to our debt.

[Chris Heaton-Harris (Daventry) (Con)]

I take it, therefore, that the hon. Gentleman is proud of the fact that we pay £80,000 in debt interest every minute that ticks by. Is he proud of that?

[Austin Mitchell]

I am proud of that, because it keeps the economy running at a higher level than would otherwise be the case. It keeps people in work, and it stimulates the growth that is the only answer—

[Several hon. Members]

rose—

[Austin Mitchell]

I am sorry, but I want to make a little progress with my argument. I am proud of borrowing. I believe that we have not placed enough emphasis on the need for borrowing, or its role. Borrowing is extremely important, and the panic being created about debt and borrowing is totally unrealistic. It is counter-productive economics at a time when we are facing a recession.

First, I should point out that the debt is not a serious problem. Our debt-to-GDP ratio is lower than that of any other country in the G7, except Canada. We are in a healthy situation when it comes to debt.

Secondly, borrowing by the Government is not the same as borrowing by a household or a company. A Government cannot feel the burden of debt in the same way, because Government borrowing stimulates the economy, growth, jobs and employment.

[Mr Sam Gyimah (East Surrey) (Con)]

To see the problems caused to a country by debt, we only have to look at what happened to Greece. It is clear that it can be a problem, and that something has to be done to resolve it.

[Austin Mitchell]

We are doing something to resolve it, and that is to get growth. The only way to bring down borrowing and get the economy moving so that it can bear a heavier burden of debt repayment is through economic growth—all the rest is simple piggy-banking and economic ignorance. If I am going to have to face a chorus of that kind of piggy-banking attitude for the rest of my speech, it will be very unfunny, and I had intended it be as humorous as I could make it.

We have to accept that borrowing is important, and that borrowing by a Government is not the same as borrowing by a household. That is because Government borrowing stimulates the economy, growth and jobs. Borrowing in a recession is a virtue. Indeed, it is absolutely essential, because if the private sector is contracting and credit is tight, and if people are not spending, borrowing is the only way that purchasing power can be kept up, so that the economy can be stimulated. It is simple Keynesianism, and I am surprised that the Tory party seems to have forgotten Keynes.

[Steve Baker]

The hon. Gentleman has said the word himself, so I will make the same point that I made to the hon. Member for Nottingham East (Chris Leslie) earlier. The hon. Gentleman is just rehearsing Keynesian arguments that died in the 1970s. Even the Labour party in the ’70s understood that, to the extent that Keynesianism worked at all, it only succeeded in stimulating inflation. Would he please consider the inflationary effects of the policies that he is recommending?

[Austin Mitchell]

Well, where are they? The Government claim that we have been borrowing at too high a level, yet in 2008 the Conservatives were keen to accept—as an electoral manoeuvre—our spending targets, saying that they would adopt the same targets themselves. Did they mean that we should not have borrowed to save the banks? Should we have let the banks go under, with the cataclysmic consequence of credit contracting in our society? Much of that borrowing went into saving the banks. Should we not have done that?

[Claire Perry]

I am listening, as always with great interest and enjoyment, to what the hon. Gentleman is saying, but in my constituency people were worried that we were about to lose our sovereign credit rating, which would have been a consequence of the sort of borrowing that he is talking about. Do his constituents not care about that, or not think that it is a risk?

[Austin Mitchell]

My constituents care about the jobs, benefits and growth that borrowing can give them. That kind of threat that the hon. Lady describes is not talked of in the fish and chip shops of Grimsby, nor is it part of any realistic assessment of our economic situation. There is no threat to our credit rating. The idea is absolutely ludicrous. In fact, the Office for Budget Responsibility, which is a wholly owned subsidiary of the Bank of England as far as I can see, has said that the borrowing estimates are coming down. We are borrowing less than the Government predicted. We can well bear that total of borrowing—we should bear it; we must bear it—to get the economy growing again, because that is the only way to pay off the borrowing and to reduce the overdraft.

The Government insist on cutting spending, but I am not sure about the scale of unemployment that today’s cuts in spending will produce. The figure might be 100,000, but it might be up to 500,000, because that is how many jobs have been saved by Labour’s expansionary policies and stimulus spending. However, if we increase total unemployment, those people will no longer be paying taxes. They will be receiving benefits and all kinds of public support, which is necessary to support them and their families. That means that the deficit will increase. Therefore, borrowing goes up as a consequence of an increase in unemployment. The only way to counter that is for the Government to spend and borrow to stimulate the economy.

The proof of that point is dramatically demonstrated in British history by the situation from 1931 to 1934. Because of the cuts made in 1931, with the Geddes axe and all that, public sector borrowing increased substantially from 1931 to 1934, because the economy was not growing. From 1934, when the economy began to grow under the stimulus of the housing boom and, later, rearmament, the public sector borrowing requirement as a proportion of GDP came down rapidly and substantially. That indicates my point, as did our experience when we came into government in 1997. The Conservatives seem to forget that, when Labour came to power in 1997, we paid off massive amounts of debt in the first three years, because the economy was growing and we could do so.

That is the solution to our problems. Only growth will allow what we borrow to be paid off. It is no use knocking Britain and saying that we are like Greece, Spain or Portugal. We are not like any of those: our credit standing is not threatened in any way and we can adjust through the exchange rate, because of what our previous Prime Minister did in keeping us out. The only way to reduce borrowing is to get economic growth. I hope that I have made that point sufficiently clear, because I have made it pedantically and at some repetitive length. It does indicate to me that borrowing is not a problem, and the panic created about it is something of a confidence trick. It is a smokescreen to allow the Chancellor to do what he wants to do for his own political motives: cut public services, roll back the state, cut public spending, cut benefits, cut provisions, and weaken the protection of the poor and those on benefit that comes from borrowing and higher public spending. It enables him to implement his own prejudices.

The cuts are supported by untrue claims about what Mrs Thatcher did in the 1980s. Mrs Thatcher was able to get away with those cuts, which destroyed so much of British manufacturing and certainly turned us from a net manufacturing exporter into a net manufacturing importer, because of the cushion of North sea oil. The Norwegians invested the proceeds of North sea oil in the future; what we did was waste them on a process of creative destruction of British manufacturing industry, which left us the weaker at the end of it.

The cuts are also justified by the claims that Canada and Sweden were able to carry successful spending rounds, but in both cases, the spending cuts were across the board with no huge chunks of the public sector being exempted from them. Both were carried out at a time when the world economy—including the American economy—was expanding rapidly, so that sustained the Canadian and the Swedish economies. We are carrying out our spending cuts, however, at a time of growing recession. Our ex-Prime Minister was trying to lead the world—he did lead it successfully—to agree on stimulus spending to get the economy to grow. This Government are joining a chorus of cuts that will deflate European economies and the world economy.

[Bill Esterson]

Has my hon. Friend had the same experience as I did in my constituency when discussing how to deal with the budget deficit? Not one person mentioned to me the issue of sovereign debt, yet every single person I spoke to agreed with our analysis that the deficit should be paid off by growing the economy.

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[Austin Mitchell]

Yes, certainly. Sovereign debt is never mentioned. Indeed, this is one of the weaknesses of the Liberal party approach of supposedly involving the whole community in deciding on the cuts. First, it assumes that the cuts are necessary, but, secondly, we have to remember that one person’s cut is another person’s Trident missile.

[Martin Horwood]

In advancing this rather extraordinary proposition that we have nothing to worry about with the level of borrowing in this economy, is the hon. Gentleman saying that he would have opposed the Labour Government’s plans to reduce departmental budgets by more than £40 billion over the next four years?

[Austin Mitchell]

Look, I am not an apologist for everything that happened under the Labour Government. I thought that that was an unnecessary commitment, particularly as it was made in order to safeguard our position and not frighten people in response to the Tory clamour about cuts. The Liberal party made the same concessions, actually, so it is no use the hon. Gentleman coming back to me on that. Even if we attempted to cut the deficit by half in four years, it is all a question of timing. There is a time for cuts—“Lord, make us cut borrowing, but not now” would have been my approach, and I believe that that is the only sensible approach. These cuts are premature. The economy is teetering on the brink of recovery, but it is not recovering, unemployment is still rising, the difficulties are still there, and credit is still tight. The banks are not providing credit on a sufficient scale; they need to expand credit and their lending. In that situation, cuts compound the problem. Thanks to these cuts and thanks to this Budget, we now face the danger of the economy slipping back into a recession.

[Martin Horwood]

Will the hon. Gentleman clarify his position, as it seems to have changed within the space of one speech? Five minutes ago, he was saying that only through growth would these issues be tackled and that we need not worry about borrowing. Now he is saying that it is only a matter of timing and that the Labour Government would have done exactly the same thing in due course.

[Austin Mitchell]

I was not responsible for the decision to try to cut borrowing within four years, but I assumed that it would be a question of “Let us do it as time allows”. I am sorry that the hon. Gentleman is so strenuous in defending Tory positions—for his is essentially a Tory argument.

The answer is to expand the economy. Growth was beginning, and, as the report from the Office for Budget Responsibility shows, it is now threatened by the cuts and the Budget. Is that what the Liberal Democrats want? Do they want to reverse the improvement that is taking place? If the improvement continues and becomes more substantial, we shall be able to begin to cut borrowing, but that can only be done once the economy is growing strongly and effectively; and it will only need to be done then. We must keep spending high if we are to achieve that economic growth. The Liberal Democrats can make a lot of sacrifices to support the Conservatives, but prostituting their intellects is not one of them.

[Claire Perry]

I am learning a great deal about economics today. Presumably the hon. Gentleman would have advocated a strong reduction in borrowing at the height of the last piped-up economic boom at some point in the mid-2000 cycle. I should be interested to know what his views were back then.

[Austin Mitchell]

I think, retrospectively, that we expanded public spending without increasing taxation enough to pay for it. The result was a series of subterfuges, such as the public finance initiative and the public-private partnership. It would be interesting to know what the Government are going to do about them in order to get borrowing off the books.

It was right for us to expand public spending. Society has improved enormously. Public spending improves the lot and the lives of the people, and it is our job to improve those things. I would certainly have spent more, but I would probably have taxed more to pay for that spending. I do not see why the people who benefited so substantially and did so well during the period of growth that we experienced under a Labour Government should not pay more in taxes now in order to counteract the recession with which we are currently trying to deal.

This is a circular argument, but, as I have said, the only answer to the borrowing problem and the deficit problem is economic growth to close the deficit and ease the borrowing, and to make it easier—as we did between 1997 and 2000—to reduce borrowing substantially. When we have growth, that is an easy process. It is silly to worry about it, become obsessed with it and create an atmosphere of fear, but that is what the Government are doing.

The leader of the Liberal Democrats, the Deputy Prime Minister, told us that this was a Free Democratic party moment, and that these would be progressive cuts, the poor and the north would be protected, and the cuts would deliver fairness. That is totally wishful thinking. Cuts always, and must necessarily, hit the poor and the vulnerable hardest. They have less with which to protect themselves. They are more dependent on public spending. Grimsby is more dependent on public spending than, say, Weybridge, or some of the other more prosperous southern areas. Any group or area that is heavily dependent on public spending will be hit by cuts, and that means Grimsby. I am now trying to protect Grimsby from those consequences.

An article in yesterday’s Financial Times provided us with an interesting map. Members should read the article, headed “Poorer areas are to be hardest hit”, and stating that the cuts would be

“striking twice as deeply in parts of the Labour-dominated north of England as in the Conservative-dominated home counties.”

That is the effect of cuts on the people and the spending in my area.

[Richard Graham]

Does the hon. Gentleman agree with Lord Myners, whose speech in the House of Lords last week reflected his deep frustration following conversations with Ministers in the previous Government who constantly expressed the belief that Government created jobs? His core point was that Government create the environment—the framework—in which jobs will be created by business. The problem with constituencies such as the hon. Gentleman’s, and to some extent mine, is that over the years Government have been led into the belief that they can create jobs themselves. In fact, what has happened is that more people have gone on to benefits, and our cities have stopped being working cities and have increasingly become benefit cities that need to be rescued today.

[Austin Mitchell]

The short answer is that I do not agree with Lord Myners in any respect at all.

I have just been passed a note from the Hansard reporters, which must imply that I have finished speaking, but in fact I have not.

I must point out to Members, particularly those on the Government Benches, that public money follows need. We are spending at a higher level because need is greater because of the recession. If we cut public spending, as the Government intend to do, we punish need. We do not punish the greed that brought the banks and the economy into recession, nor do we punish the people who have done well out of the economic growth. We punish the needy people and the needy regions. As I represent one of those needy areas—Grimsby—I object strongly to the £6 billion of cuts now being carried out, which the Liberals joined in with, as well as the cuts to come and the cuts foreshadowed in this Budget.

I cannot welcome this Budget, therefore. I think it will be disastrous for the Liberal Democrats. It will also be bad for the poor and the vulnerable. It will be bad because it will hit the recovery that is now taking place, and which is all too slow. It will be bad because it will increase unemployment. It will be bad because it will increase the deficit, and it will be a disaster for our nation, which will be locked into deflation; it will be pushed into it longer than need be.

I give the Chancellor a message from Grimsby, therefore: we who are about to suffer, certainly do not salute you.