The Economy Debate

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Department: HM Treasury
Tuesday 6th December 2011

(12 years, 11 months ago)

Commons Chamber
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Ed Balls Portrait Ed Balls
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The economics of this are clear and easy to understand, which is why both the IMF and the OECD have made exactly the point that I am making. The fact is that the Government are borrowing £158 billion more than they planned, and the deficit is coming down much more slowly than was planned, because unemployment is going to be so much higher.

The issue is the pace at which we try to get the deficit down. If we try to get it down too fast, as the Chancellor did a year ago, it blows up in our faces. Growth and taxes slow down, unemployment goes up, and we end up borrowing £158 billion more. The right thing to do is to have a staged and balanced approach, get the economy moving, get people into jobs and get the deficit down. That is the only plan that will work.

Let me make an offer to the Chancellor. It is not too late to change course, and the deepening euro crisis makes it more important for him to see sense. If he does, we will back him—a new start, a second attempt. We read in The Daily Telegraph today about the Chancellor’s recent efforts to land a plane at Manchester airport—on a flight simulator, I should add, to reassure Members. There was too rapid a descent and a crash landing on the runway, narrowly missing ploughing into the terminal building. Too far, too fast—no surprises there. However, the Chancellor had a second go. With a little help from the experts and a steadier hand on the controls, things worked better the second time round. Perhaps there is a lesson for him in that story.

Perhaps the Chancellor should take my prescription after all. He claimed last week that a balanced plan to get our economy moving and to get the deficit down was like

“the promises of a quack doctor selling a miracle cure.”—[Official Report, 29 November 2011; Vol. 536, c. 810.]

Was not the Nobel prize-winning economist Paul Krugman closer to the truth when he described Britain’s experiment in austerity as being

“like a medieval doctor bleeding his patient, observing that the patient is getting sicker, not better, and deciding that this calls for even more bleeding”?

The patient is crying out for a second opinion, and all we hear from the Chancellor is a call for more cuts and more leeches.

Bob Stewart Portrait Bob Stewart (Beckenham) (Con)
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Will the right hon. Gentleman give way?

Ed Balls Portrait Ed Balls
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I will not, because I have gone on too long and there are other important speeches to be made today.

I was thinking about what other doctors the Chancellor resembled, and I concluded that he resembled Voltaire’s giant. I will take an intervention from anybody on the Government Front Bench who knows who Voltaire’s giant doctor was—Voltaire’s great doctor, Dr Pangloss. It does not matter what the evidence says, it simply strengthens Dr Pangloss’s opinion that his philosophy must be right. Britain’s rock-bottom gilts? A sign of success, not a damning verdict from the markets on the prospects for growth. Rising unemployment? Not a bad thing, just creating more space for the private sector-led recovery when it finally arrives. The worse things get in the rest of the world the better for Britain, because we are the only safe haven of prosperity.

In the Chancellor’s Panglossian world, everything is working out just fine, but in the real world, with the world economy darkening, and with the UK now forecast to endure stagnant growth and rising unemployment this year, next year and the year after, this Panglossian Chancellor is making a catastrophic error of judgment, refusing to learn the lessons of history, refusing even to understand the lessons of economics, and refusing to shift to a more balanced plan. He got it wrong 18 months ago; he is getting it so badly wrong today. He is out of his depth and out of touch. Is it not time he changed course before it is too late?

--- Later in debate ---
Julian Smith Portrait Julian Smith (Skipton and Ripon) (Con)
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I want to speak about small business—in particular micro-businesses, which are usually defined as those with fewer than 10 employees—and to thank the Government for their support for such businesses.

Since coming to power, the coalition has taken some significant steps on regulation. It has introduced the one-in, one-out policy—which Labour claimed to have introduced, but never implemented—and the red tape challenge, allowing the public and businesses to say which regulations they want scrapped. The Government have taken a number of specific steps for small and micro-businesses, and have begun to draw a clear distinction between the large multinational, the mid-size company, with a human resources department and a legal department, and the small owner-manager. The Government have created exemptions from all new UK regulations until 2013, delayed legislation on the right to request training for small businesses, extended the unfair dismissal period and introduced fees for employment tribunals. All are powerful measures, giving more confidence to small business to take on staff. The autumn statement also included an announcement on protected conversations, which, for the first time in decades, will allow a small business manager to have a chat with one of his employees without the fear of litigation. Further measures, on compromise agreements and other matters, are on their way.

I am delighted that business organisations have shown their support. I urge the Government to move swiftly with those proposals, because it is worth reflecting on who they are trying to help with those measures. Often we get a kick from the left whenever an attempt is made to reduce workers’ rights, but when we talk about very small businesses or micro-businesses, we are talking about just an owner-manager—a farmer in the dales in my constituency, for instance—setting up a business and trying to take on one or two people to help run it. We are talking about people such as Chris and Rebecca Blunstone from Pateley Bridge, who set up Helping Hands earlier this year while at the same time doing two jobs each. They also have two kids, so they were working flat out. It is people such as the Blunstones whom the Government are trying to support, because small firms and start-ups created two thirds of new jobs nationally between 1998 and 2010. They are the backbone of employment across the country, in all our constituencies, and we desperately need them to succeed and take on more people.

I understand that parts of the Government want to go further with reforms for micro-businesses, particularly in employment law. I believe that those forces are right. We need to make a strong case for rolling back the dead hand of the state on the smallest businesses in our country and make the argument that, despite the risk of having exceptions in the labour market, there are huge benefits for the economy. We cannot look at each measure through the prism of an individual impact assessment; rather, it is the cumulative impact of all the reforms that we need to move forward with. That will mean making some radical decisions on policies that our party is promoting in the areas of flexible working and the right to request training, because for very small businesses such rights legislation is a real burden and a hassle. Ultimately, the owner-manager will make the right decision—to train their staff or give them time off—and certainly does not need an edict from London.

Bob Stewart Portrait Bob Stewart
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In my constituency the complaint from small businesses is that they want to make a profit, not spend their time doing accounts or filling in regulation forms. We have to minimise that and, if possible, try to take it right out of the whole business—if it is small enough—because one in 10 still seems to be concerned with regulations.

Julian Smith Portrait Julian Smith
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My hon. Friend makes a valid point. This is a controversial area, because although the Government are making great strides in shared parental leave, for example—reforms that I support—we need to look at how Whitehall is managing the relationship with micro-businesses on issues such as maternity and parental leave.

There are some exciting initiatives that did not make it into the autumn statement, but which I urge the Government to support and small businesses to show their interest in. They include, for instance, no-fault dismissal. Deciding when to finish an employment relationship as an owner-manager running a small business is really difficult. The idea of a compensated no-fault dismissal—the equivalent of a no-fault divorce in the business world—is worth looking at.

I urge the Government to have the courage of their convictions on policies like that. I would encourage micro-businesses everywhere to follow the Government on their call for evidence, as we need to make the case that expectations about workers’ rights in small firms must be different. We need the small business owner to be confident in taking on more staff. The doers and grafters need to know that this Government are getting fully off their backs.