Balancing the Public Finances

Chris Evans Excerpts

Tuesday 11th July 2017 Westminster Hall

[Chris Evans (Islwyn) (Lab/Co-op)]

I pay tribute to the right hon. Member for Forest of Dean (Mr Harper), who made an interesting and succinct speech, as he always does. He has come to be known in this place as a deep thinker about all matters economic, and I hope that one day he will return to the Front Bench, from which he is sorely missed.

I feel somewhat like Custer at the battle of the Little Bighorn, as the Comanches come running towards me. I apologise to those Tories present, because I will pour cold water on some of the more political points raised by the right hon. Member for Forest of Dean. Over the past seven years the Government have been good at one thing—patting themselves on the back and congratulating themselves on what a great job they are doing with the economy. Even though so many families are more pessimistic than ever about the future, the Government still trade on the myth that they are overseeing a strong and robust economy. When they were elected in 2010, they were given a mandate alongside the Liberal Democrats to bring about change. They allowed people—intentionally, I believe—to believe that the deficit and the national debt were one and the same thing, and told the British people in 2010 that they would pay off the debt and bring the budget into surplus by 2015. It is now 2017, and they have failed.

Despite its being enshrined in legislation in October 2015, the Government have now abandoned their plan to achieve a budget surplus by 2019-20. The Chancellor of the Exchequer has said that the previous commitment will be replaced by a vague pledge to deliver a budget surplus as early as possible in the next Parliament. Since we have had a general election since that statement was made in November 2016, I imagine that that could happen in the next five years. According to the Institute for Fiscal Studies, even reaching that is likely to be difficult. The deficit this year is forecast by the Office for Budget Responsibility to be £68.2 billion, or 3.5% of national income. That is high by historical standards. Over 60 years, from 1948 until the eve of the financial crash and associated recession, average UK Government borrowing was 1.9% of national income.

[Alex Chalk (Cheltenham) (Con)]

If the hon. Gentleman is so concerned about closing the deficit, why has the Labour party, at every opportunity, thwarted every attempt to keep it under control?

[Chris Evans]

I admire the hon. Gentleman, as he knows; I know his constituency well. I believe that we said there was a rush to pay off the deficit; the former Prime Minister and the previous Chancellor started an unnecessary rush to pay off the debt. We said it needed to be slower. We were concerned about high unemployment and a double-dip recession. But for monetary policy, that might have happened.

After six years of austerity, the deficit this year will be higher than it was for 80% of the time in the 60 years before the financial crash, while debt is now at its highest level as a proportion of national income since 1965-66. Is it any wonder that when the Tories tell the electorate “Trust us to pay off the deficit”, voters respond by taking their majority away? The Conservative party just do not get it. The electorate told them time and again that they wanted change, but they were given business as usual. Nearly 10 years after the financial crash of 2008, its legacy still weighs heavy on confidence and growth. By its very nature, it rocked financial institutions in this country. Suddenly, phrases such as “safe as houses” or “money in the bank” became laughable clichés. As the Labour Government rushed to bail out the banks and bring about a stimulus that was one of the largest in peace time, the Tories nodded their approval. It was not until much later that, for political purposes, they brought words such as “deficit denial” or “the age of austerity” into the political lexicon.

Sustained austerity has in the main been bad for the British economy. As the deficit fell from 10% to 3.5%, around a percentage point has been reduced from demand each year. The labour market has been unable to return productivity growth to anything resembling pre-crash levels. In June, the British Chambers of Commerce released its second quarterly economic forecast for this year, and the predictions do not make good reading. It forecast that, for the next few years, economic growth would underperform its historical average, falling to 1.3% next year and rising to only 1.5% in 2019. It also predicted that inflation would rise to a five-year high of 3.4% towards the end of the year. Interest rates are also expected to rise by 0.5% in the first quartile of 2018—much earlier than initially predicted. At the same time, there is a tax gap of £36 billion between expected and actual receipts in 2016. We can talk about tinkering with tax levels, but it means very little if we do not collect taxes effectively in the first place.

The Government have still not given any clarity on their plans for the post-Brexit world. The Government’s main tool to address inherent weakness in our economy has been monetary policy. Constraints on how low interest rates could go meant that the Bank of England had to buy gilts—so-called quantitative easing. That move, together with the cut in interest rates to their lowest possible level, has probably kept the lid on high unemployment, but it is only papering over the cracks. Listening to some of the speeches about how sunny the economic outlook is over the years during my time in the House, it has to be asked why people are not cracking open the champagne and singing, “Happy days are here again”? The reason is simple; people feel more anxious than ever, they view innovative technology with suspicion and they fear that jobs will be automated or lost. GDP can be a measure of the health of the Government’s spending, but it can never be a measure of people’s happiness, concerns, or worries.

Productivity has not recovered, and as a consequence, real wages are below what they were a decade ago—something no one alive has ever experienced before. The facts are stark. There is a 16% shortfall in the UK’s productive capacity. Monetary policy can only stabilise demand around the economy’s potential, it cannot increase it. Boosting long-term prosperity is firmly the job of the Government’s structural or supply-side policies—something that has been sorely lacking from the Tories over the past seven years.

Government policies influence investment in education and skills, capacity for research and development, the regulatory environment in which business operates, the flexibility of the labour market and—above all, in the light of Brexit—its openness to trade and investment. In the Queen’s Speech, the Prime Minister said that her Government would work to attract investment in infrastructure, so as to support economic growth. She also spoke of plans to spread prosperity and opportunity across the country.

[Alex Burghart (Brentwood and Ongar) (Con)]

Will the hon. Gentleman take this opportunity to welcome record employment in our country?

[Chris Evans]

I admire the hon. Gentleman for the mischief he is trying to cause me. Of course, I will always welcome people being in jobs, but I am concerned about the inherent weakness in the economy, which is the lack of investment and the lack of an industrial strategy over the past seven years.

[Vicky Ford (Chelmsford) (Con)]

I hear the hon. Gentleman saying that the economy is not growing, but my memory of the statistics is that we are the second-fastest-growing economy in the developed world, after Germany. On what metric does the hon. Gentleman say that we are not a fast-growing or strong economy?

[Chris Evans]

The hon. Lady should have listened to my speech earlier— I do not know if she was on her iPhone or something—because I never said anything about growth. I spoke about productivity, which is 16% down. It has not returned to pre-crash levels, and the facts from the IFS bear that out. If the hon. Lady wants to challenge me on that, I am willing to take another intervention.

[Vicky Ford]

I understand that the hon. Gentleman was discussing productivity, but he also challenged the strength of the economy. The economic strength of this country is such that we are the second fastest-growing economy anywhere in the developed world, after Germany.

[Chris Evans]

I accept that we are not growing at the same rate as we have historically. That is the point I was making. I believe there is an inherent weakness in the economy; it has been over-reliant on monetary policy—quantitative easing, low interest rates. But I do not believe that there has been investment in the real economy. That is the point I am making and that is why productivity is down.

The Prime Minister has mentioned the industrial strategy, but it is still empty words. There is no insight or strategy for how the Government will attract investment.

[Neil O'Brien (Harborough) (Con)]

The hon. Gentleman says that the industrial strategy is empty words. However, the industrial strategy has involved, for example, the biggest increase in research and development and science spending since 1979. How can he possibly say that those are just empty words? Those are real actions that will increase the trend rate of the growth of the economy.

[Chris Evans]

When productivity is down, those things are too little, too late. They should have been thought of after the financial crash, when the Government told us from the very beginning that they were going to rebalance the economy and invest in manufacturing. I remember the former Prime Minister even saying at one point that we were going to invest to become an economy that makes things rather than sells them. That has not happened, so it is a bit late in the day to be talking about this.

In the light of the report by the British Chambers of Commerce, it is so important, now more than ever, that the Government implement a strategy to attract investment and generate the economic growth that we all want to see. That is easier said than done in a globalised world. Too many people have been left behind by globalisation. However, globalisation is here, and that will not change. The financial crash was probably the first crisis of globalisation. The only way to address growth, higher inequality and rising insecurity is to build a globalisation that works for all.

Society has to redistribute some of the gains from new technology. Technology constantly evolves and can lead to rapid changes in production, and therefore reskilling must be a constant. In a job market subject to frequent radical changes, people’s prospects rely solely on lifelong learning, which should be factored in by each and every employer. In the age in which we live, anyone can produce anything, anywhere. Someone sitting in their bedroom right now can broadcast across the world in minutes. They can sell to anyone at any time. We need to harness that entrepreneurial spirit. It should be the Government’s intention to bring that about in a way that equips people with skills for the future.

We live in exciting and changing times. With the right level of investment in our people, the age of austerity can come to an end.

[Leo Docherty (Aldershot) (Con)]

The Labour party manifesto had some rather alarming plans for renationalisation, which would have cost more than £100 billion. Can the hon. Gentleman tell us how that would be paid for?

[Chris Evans]

I thank the hon. Gentleman for interrupting me just as I entered my finishing flourish; I was trying to come to my rhetorical peak. There are inherent weaknesses in the former nationalised industries. As I was talking about before, people feel that they are being ripped off and have no control. They see energy companies squeezing them all the time, and something has to be done about that. Most people, and basic economics, ask why we would privatise an industry that has no competition. That has been the problem, but that is a debate for another day.

I will finish, because I have spoken for far too long. I have no doubt that, with the right level of investment, the UK economy can seize the opportunities ahead of it.

[Several hon. Members rose—]