Section 5 of the European Communities (Amendment) Act 1993

Chris Heaton-Harris Excerpts

Wednesday 27th April 2011 Commons Chamber

[Kelvin Hopkins (Luton North) (Lab)]

I want to speak briefly on this document and to support my hon. Friend the Member for Nottingham East (Chris Leslie), who sits on the Opposition Front Bench. The Government’s economic policy will drive us into recession. The cuts have not really started yet, and when they do, unemployment will rise, and when unemployment rises, people will lose confidence and stop spending, and we will see a downward spiral into recession. I am convinced of that. I am not the only person saying it. As I have pointed out in the Chamber more than once, Paul Krugman, the Nobel prize-winning economist, has said that the Government are going in precisely the wrong direction. They should be trying to stimulate the economy through additional spending in labour-intensive areas, such as construction and the public sector—but that is the absolute opposite of what they are doing.

If we bring down unemployment, revenues will rise, benefit payments will reduce and the economy will grow, and that will reduce the deficit. I have used this example many times: after the second world war, under Conservative and Labour Governments, we had a gross debt two and a half times GDP—about four times what it is now—but we just maintained a policy of full employment, led by the magnificent Atlee Governments in 1945 and 1951. We had full employment, we created the national health service, living standards rose and we even ran a labour shortage such that people came from abroad to work here because the economy was growing so fast. We ran a growth economy led by public spending. That is what we should be doing now, but we are doing the absolute opposite. If other countries do the same, we will see the 1930s relived, but people have so much more to lose now it will be politically quite dangerous.

There is already a reaction in Europe to what is happening. In Finland, a Government have been elected who are baulking at the idea of bailing out some of the weaker members of the eurozone. I have no idea why we should be bailing out members of the eurozone. Ireland is a special case, because it is our nearest neighbour and effectively part of the sterling-zone economy, not the eurozone economy. We are its major trading partner and we have an exchange of population, so Ireland is a different case from the rest of the EU. For us to be bailing out other countries in the eurozone is complete and total nonsense. The sooner they leave the eurozone, recreate their own currencies and depreciate them, the sooner they will recover.

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

The hon. Gentleman puts a happy and cuddly aura around the old hard-left of the Labour party. Bearing in mind that for years we and other European countries have been reporting to the European Commission on these matters, does he think that the Commission has learned any lessons from the information it has been sent? If it has, why did it not try to help the economies of Greece, Ireland, Portugal, Italy and so on?

[Kelvin Hopkins]

I think that the hon. Gentleman and I agree on this point. It has learned absolutely nothing. To try to squeeze the life out of an economy that is already almost wrecked is nonsense. The Commission should allow those economies to grow, and they can grow only if they can recreate and depreciate their own currencies, and start to compete again. Ireland is in a terrible state because it chose—foolishly, I think—to join the euro. I have said to Irish politicians—in as friendly and comradely a way as possible—that they should recreate and depreciate the punt to something like the level of sterling, and rejoin the sterling zone, which is where Ireland belongs. Its economy would then start to recover. Without that, it will not recover.

--- Later in debate ---

[Jacob Rees-Mogg]

We are not having them, so I have 11 minutes—this is very exciting. Thank you, Mr Deputy Speaker for calling me last—it does sometimes happen that the first will come last and the last first.

[Chris Heaton-Harris]

Like under AV.

[Jacob Rees-Mogg]

That is a good point.

I had not intended to speak until we heard so eloquently from the shadow Minister about the virtues of reckless spending—it is tremendously important to stop that view of the world. We have to get back to some of the debate we had yesterday, which is why it is worth supporting the Government’s financial outlook position and policy. The reason for that is that the situation will be increasingly difficult. The economy was left to us in a terrible mess, in terms of not only the public finances, but private sector debt. The idea that this will easily be recovered by getting people to borrow again or banks to lend again is simply wrong.

The hon. Member for Luton North (Kelvin Hopkins), who is an hon. Friend on European matters but an hon. Gentleman on other matters, talked about getting more people to spend and taking money off the rich so that it can be spent by poorer people, who have a greater propensity to spend. That might be fine when the banks have money to lend, but we need to get the loans-to-deposit ratio for the banks as a whole in the United Kingdom below 100%, so that the banks have the liquidity to lend. Until we are able to do that, the idea that we can have debt-fuelled re-growth is simply mistaken.

On Government debt, I wish to return to a point made yesterday by the shadow Chief Secretary on Ricardian equivalence. She does not believe in Ricardian equivalence and I do not think that many people do in exactly the terms that Ricardo spelt it out. None the less, his underlying point was completely sound: the debt of Governments will ultimately have to be paid back through tax income raised. Intelligent electors realise that and know that if the economy is growing on the basis of Government debt, that will eventually be a charge to them. It might not affect their behaviour over one or two months, but over one, two or five years it certainly does. Economies that run indefinitely on debt find that their growth levels are neutered, and anybody who doubts that should look at the Japanese economy.

If we look at what has been going on in Japan since 1990, we see that the Japanese have increased their public sector debt from next to nothing to 200% of their GDP and that in that period they have had absolutely no growth—their economy has been stagnant. Their tax revenues were lower in 2010 than in 1985, because the level of growth in the Japanese economy has been so low.