Budget Resolutions and Economic Situation

Debate between Brooks Newmark and Helen Goodman

Wednesday 18th March 2015 Commons Chamber

[Helen Goodman (Bishop Auckland) (Lab)]

We heard a characteristically self-congratulatory speech from the Chancellor earlier today. According to him, his strategy is working and his early austerity is paying off, with a growing economy, rising employment, a falling deficit and even enough room for manoeuvre for a few more tax cuts. Let us take each claim in turn.

This has been the slowest recovery from a recession ever recorded. The economy was growing when Labour left office in 2010. The Chancellor slammed on the brakes. The OBR estimates that the economic loss was 2% of GDP in the first two years; a professor of economics at Oxford university estimates it at 5%. That is £1,500 for every man, woman and child.

It is true, of course, that employment is now rising, but not as much as Government Members claim. The JSA claimant count is down to 800,000 but the figure on the International Labour Organisation’s unemployment measure is 1.8 million and the rate varies among particular groups. In the north-east it is 8%, while for young people it is 16%, and, as other colleagues have said, many jobs are zero hours and low paid. Average earnings have fallen. They are not forecast to reach pre-recession levels until 2020, fully 12 years later.

Poverty is up and earnings are down, the consequence of which is that tax revenues have been weak, so the Chancellor of the Exchequer’s deficit and debt reduction targets have both been missed. The deficit is down by a third, not eradicated as planned. Debt is up by a third and £200 billion more has been borrowed than was planned. Living standards have fallen and inflation is below target, verging on the negative, while interest rates have never been lower and are negative in real terms.

None of that suggests that the economy needs to be reined in or that there is spare capacity, yet the Chancellor is planning to go into the next general election with a plan to cut both tax and spending. The Red Book shows a 5% reduction in GDP—between £60 billion and £70 billion of cuts. The OBR analysis also shows huge reductions in the first two years—indeed, bigger than those we have seen in the last five. Obviously that will further deflate the economy. Even the Financial Times this week was describing it as “unnecessarily extreme”.

What the economy needs is continued growth and measures to boost productivity, which fell last year and has stalled in the last six. Productivity in Britain is now lower than it is in the United States, Germany, France and Italy. Higher productivity would mean higher wages and make our exports more competitive, which would be especially useful at the moment, when the pound is rising against the euro. According to the OBR, higher productivity would also mean higher growth and lower debt. Indeed, the OBR’s scenarios show a massive difference in the debt-to-GDP ratio, of 50% to 57%, compared with 87%. The OBR describes the productivity performance in this country over the last five years as disappointing.

In other words, what this Budget should have contained was measures to boost productivity, which would have improved the public finances—measures such as better access to finance for SMEs, through a British investment bank; maintaining and improving the skills of the labour force, through a young person’s job guarantee, better vocational education and cuts to tuition fees; substantial improvements to the nation’s infrastructure; and devolving economic power and funding to city and county regions.

[Mr Newmark]

I will buy the hon. Lady an extra minute, because I can see that she has got a thick wodge. She is one of the more economically literate Members on the Opposition Benches and she has made a number of proposals, so I wonder how she proposes to pay for all those things. Is it more tax, more borrowing or a higher deficit?

[Helen Goodman]

The whole point about the plans that we are putting to the British people is that we think it is reasonable to borrow for investment, in the same way that people borrow to buy a house. We think that is a sensible proposal for the nation as a whole. It would build capacity and mean that everybody had a higher standard of living, that we had faster growth and that revenues were higher, and in the end the deficit would come down.

Today, there is no new money for infrastructure. The Chancellor spoke about it a lot, but he was simply elaborating on the plans he put before the House in the autumn statement. There is no new money for science, for SMEs, for transport or for broadband.

The Chancellor proposed changes to personal tax allowances that will benefit people on higher incomes far more substantially than they will benefit those on lower incomes. A person earning under £10,000 a year will get no benefit. A person earning between £11,000 and £43,000 will benefit to the tune of £80, or by as little as £20 if they are on housing benefit or tax credits, because those benefits will be withdrawn. The biggest benefit of the increased tax allowance will go to people earning between £43,000 and £100,000. They will get £160 in their back pockets.

The Government propose significant changes to the savings and pensions tax regimes that will cost £1.7 billion. I put it to hon. Members that it might be nice for people to save and nice to have a better tax regime for a small number of people, but when our economy is in such a weak state, they can hardly be a priority on which it is appropriate to spend £1.7 billion. That will obviously benefit the better-off people in this country as opposed to the vast majority of people.

My right hon. Friend the Member for Tottenham (Mr Lammy) comprehensively demolished the Government’s help-to-buy proposals. It is absolutely absurd to keep pumping money into the housing bubble in the south-east and not to do something about the underlying problem. Building homes would tackle the housing crisis, create jobs and boost the economy. In my constituency last year, not a single property was exchanged for £600,000, which is the Government’s limit in their Help to Buy scheme. That epitomises all that is wrong with the Government and how totally out of touch they are.

Furthermore, I believe that the Budget is dishonest. It tells only half the story. It does not set out where a further £9 billion cuts in welfare would be found; it does not say what the rate of VAT will be after the election; it does not say how big cuts would be to defence, police and local government; and it does not say whether charges will be needed in the NHS.

I do not believe that the British people want a fundamental re-imagining of the state. They want something simple: a better future with a Labour Government.