Section 5 of the European Communities (Amendment) Act 1993

Chris Leslie Excerpts

Wednesday 27th April 2011 Commons Chamber

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Can the Minister remind the House what the OBR predicted the growth rate would be for the first quarter of 2011? I think it is on page 54 of the convergence programme.

[Mr Hoban]

I am rather surprised that the hon. Gentleman has not congratulated the Government on taking the tough action that put the recovery on track and made sure that we have lower interest rates than Greece, Ireland and Portugal. That is a consequence of the actions that we have taken—actions that the Opposition would not take. We are tackling the legacy that they left. The problem is that the scale of the legacy is huge. That makes the recovery challenging. Today’s figures demonstrate that we are making good progress on that.

To support the economy and to continue the growth in the private sector, my right hon. Friend the Chancellor set out a new economic strategy as part of this year’s Budget. The strategy has four ambitions at its heart—that Britain will have the most competitive tax system in the G20; that it will be the best place in Europe to start, finance and grow a business; that it will be a more balanced economy, by encouraging exports and investment; and that it will have a more educated work force that is the most flexible in Europe. In pursuit of these objectives, we have announced further cuts to corporation tax, taking it down to 26% this year and 23% by the end of this Parliament.

This is alongside our decision to introduce a highly competitive tax rate on profits derived from patents and our fundamental reform of the complex rules for controlled foreign companies, making them much more territorial and making the UK a much more attractive place for businesses to locate, ensuring that we have a far more attractive tax system than either Germany or France.

This year’s Budget also deals directly with the challenge of education and youth unemployment, which has been rising steadily for the past seven years. Instead of 20,000 young people benefiting from our new work experience scheme, as we originally planned, we will increase that number fivefold to 100,000 places over the next two years. Although in Austria and Germany one in four employers offers apprenticeships, in England fewer than one in 10 does so. That must change.

That is why last year my hon. Friend the Minister for Further Education, Skills and Lifelong Learning published a skills strategy and confirmed the largest ever expansion in adult apprenticeships. At the Budget we committed to funding another 40,000 apprenticeships for young unemployed people. That brings a total of 250,000 more apprenticeships over the next four years, as a result of this Government’s policies. This will help to ensure that all parts of the country have access to a better educated work force.

This year’s Budget will help to create a more balanced economy, tackling the imbalances of the past that undermined the economy and led to the longest and deepest recession since the war. This year’s Budget gives support to the private sector and hope to those looking for work, and will stimulate job creation across Britain.

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[Chris Leslie (Nottingham East) (Lab/Co-op)]

Many hon. Members might wonder why we are having this debate tonight. It is an incredibly important debate, but they might be forgiven for not having spotted the small print on, I think, page minus 2 under the ISBN number of the Red Book in probably seven or eight-point font, where it points out that the UK is required to submit to Brussels an annual convergence programme so that it can monitor our economic policy.

I am, however, grateful to the Financial Secretary for having written to me to draw attention to the debate this evening, the papers for which were published only at lunchtime yesterday. In fact, the motion appeared on the Order Paper only yesterday, too, and I am surprised about that, because in the parallel debate a year ago following the 2010 pre-Budget report, the hon. Member for South West Hertfordshire (Mr Gauke), now the Exchequer Secretary, then speaking from the Opposition Benches said:

“It was also very difficult to locate the report. I obtained a copy last week, but it was not available in the Vote Office yesterday. This is a point that has been made many times before”. —[Official Report, 10 February 2010; Vol. 505, c. 947.]

I am surprised that the Government have not really listened to their own Members when it comes to flagging up the importance of this particular debate, but, given that we have a motion asking the House to note “with approval” the Government’s assessment of the economy, and to conform with the requirements laid down in the various European Union treaties, I am sure that it is pure coincidence that Ministers did not flag it up or put bells and whistles around it to draw its attention to many hon. Members.

[Mr Cash]

rose—

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[Chris Leslie]

But I am quite pleased that the hon. Gentleman keeps his eye on these developments.

[Mr Cash]

We certainly do our best on the European Scrutiny Committee, which included our making sure, by the way, that this debate took place on the Floor of the House by objecting to the motion to refer it to a Committee. I thought that we might just as well get it on the Order Paper.

[Chris Leslie]

I am very grateful for the hon. Gentleman’s work on the European Scrutiny Committee. This is, as I say, an incredibly important debate, and more hon. Members ought to be aware of it.

[Martin Horwood]

I am not sure what greater publicity the hon. Gentleman wants other than a debate on the Floor of the House in the middle of a parliamentary week, but, if the implication behind his references to the obligation to report to the European Union is that we should not do so, is he suggesting that that shared obligation among all European economies should not apply to places such as Greece, Italy, Spain or Ireland? Would he be happy for those countries not to report the state of their economies?

[Chris Leslie]

I simply note at the outset that we are now engaging in a particular debate. Yes, I am glad that it is taking place on the Floor of the House, but we did not really know that it was going to be on the Floor of the House, in this particular form, with this set of papers and this particular motion, until 24 hours ago. It is curious that the Government, in their relationship with many hon. Members throughout the Chamber, have not made it clear that this is quite an important component of our obligations under European Union treaties. I know that Ministers are keen to abide by their obligations under such treaties, but I just point out that some Members might be less keen.

[Mr Davidson]

Given that this debate is so important, will my hon. Friend clarify whether the programme has already been sent to the European Union or if we will have to wait for the result of this debate before it is posted off second class?

[Chris Leslie]

I presume that the House has to agree the contents of the convergence programme before it can be posted to the European Commission. The hon. Member for Bury North (Mr Nuttall) implied that the Commission could probably glean all the information online, and there is a perfectly reasonable argument that the Commission should follow events in member state countries rather than expect these matters to be handed to it on a platter. I do not think that presenting the information is necessarily genuflecting in front of Brussels, but the obligation to do so is certainly a core component of the treaties. I simply point out that fact.

The point of the motion about which we need to be most wary is the noting “with approval” the Government’s assessment of the economy, particularly given the Chancellor’s and Treasury Ministers’ lamentable failure to understand the need for economic growth. Page 13 of the convergence programme, which was published just 24 hours ago, says that the recovery is in line with previous recoveries. That, of course, is not the case.

In the recessions of the early ’80s and ’90s the economy had clawed back economic strength by this stage in the economic cycle. However, since this Government took office, the trajectory of recovery has stalled. We are already seeing that the information in the document, published just 24 hours ago, is becoming out of date.

[Kelvin Hopkins]

Is it not rather regrettable that we should have chosen to acquiesce in the Government’s decision rather than call for a Division? I would be happy to vote against the document if we had the chance.

[Chris Leslie]

We have the opportunity to divide the House on this matter, although I think that it would be a deferred Division; obviously, that is a matter for Mr Speaker.

As we go through the details of the document, we see that there are problems in it. Page 17 says that the economy is forecast to grow by 1.7% in 2011—lower than the forecast in the June Budget. Is that forecast sustainable? The Government and the Office for Budget Responsibility revised down their forecasts for growth in June and revised down expectations in November. The OBR then revised down expectations for a third time after the March Budget.

The answer to the question that I asked the Minister earlier—what was the OBR’s prediction for the first quarter of this calendar year—is 0.8%. Yet today the Office for National Statistics gave a rather comatose and limp growth rate of 0.5%. That comes on the heels of a growth rate in the fourth quarter of 2010 of minus 0.5%. Essentially, there has been a zero rate of growth—flat-lining—over the past six months.

As Stephanie Flanders, the BBC’s economics editor, said, it is

“depressing to think that the economy is treading water…in a normal recovery we would expect to see a lot of momentum at this point”.

Chris Giles, economics editor at the Financial Times, said that for there to have been any credible claim to a return of underlying growth, this quarter’s figure should have been 0.7%. He went on:

“Add in one quarter of the growth expected in 2011—about another 0.5 per cent—and the figure necessary to show the economy growing at an average pace in the first quarter is at least 1.2 per cent.

Arguably, it should be even higher, at somewhere about 1.7 per cent, if the underlying stagnation in the fourth quarter of 2010 has been recovered in the first quarter of this year.”

We are a long way from that, and that is a serious problem. Yet the Chancellor seems to think that we are on the right track; as somebody said today, if he thinks that, he needs to chuck away his satnav and get a new one.

The GDP growth figure of 0.5% for the first three months of this year merely replaces the loss of output in the snowbound fourth quarter of 2010 and suggests that the economy has no underlying momentum at all. The chief statistician at the ONS said today that we had been “on a plateau” for the past six months. Tony Dolphin, the chief economist at the Institute for Public Policy Research, says that a 0.5% fall followed by a 0.5% bounce-back is equivalent to two successive quarters of zero growth—

“as close as it is possible to come to a recession without actually being in one”.

Yet the Prime Minister says that this is “good news”—those were his words as he trumpeted this resounding success at Prime Minister’s Questions today. Even the Minister said, a matter of minutes ago, that it is good progress. I am afraid to say, however, that the document we are being asked to approve is already out of date, even though it was published only 24 hours ago. It is a bit of dead parrot. It is no more, it has ceased to be, it has expired; it is an ex-convergence programme.

It is not good enough if the Minister cannot even produce a document when he gets advance notice of ONS growth statistics that matches the realities of the economy rather than the forecasting ideas that are dreamed up in the Treasury. That is a sign that the Government do not understand the importance of growth in our economy, especially when today’s statistics showed that construction has fallen back by 7% over the past six months, with total production already falling back even from the last quarter before Christmas. Government cuts have not yet started in earnest, and the VAT increase is already biting hard.

What are the prospects for business growth? On page 14 of the document, the Treasury says:

“Credit conditions have shown signs of stabilisation”.

That is certainly not the experience of small and medium-sized enterprises: lending to businesses is in an atrocious state. It goes on to say in paragraph 2.43:

“however, credit conditions for smaller firms remain tight”.

That is an exceptional understatement. The Bank of England’s lending report shows that lending to SMEs fell by a further 3% in February. That is echoed by the British Bankers Association’s growth rate statistics on lending to small businesses, which cited a figure of minus 6% in December. So much for the much-vaunted Project Merlin. Yet the mark-ups that small businesses have to pay for loans are widening, and the banks are charging small businesses even more even though less and less lending is available. We have a serious systemic problem with our economy. Underpinning the difficulties with growth are the factors that businesses need in order to fire up the economy, and they are going wrong.

We also have to look at the Government’s failure on employment. Page 84 of the convergence programme document says:

“In line with a weaker outlook for output growth, we expect employment to be lower than forecast in November.”

The OBR predicts that unemployment will go up by 200,000 as a result of the Government’s policies. If each unemployed person costs the Exchequer about £7,800 in welfare costs and lost taxes, that could represent a loss to the Exchequer of more than £1 billion—money that the Exchequer should have coming in that is going the wrong way. In addition, inflation is undermining Government spending plans, as the document admits in terms of VAT fuelling inflation, and it is forecast that borrowing and debt will be higher than predicted in June. As a consequence, the interest that we will need to pay on our borrowing will be higher because of the inflationary costs of social security expenditure.

[Mr Cash]

I have no doubt that the hon. Gentleman has looked at the comparison of unit labour costs throughout the whole of Europe. It shows that in the past 10 years Germany’s costs have increased by only 2% whereas almost every other country’s have increased by massive multiples of up to 35%. Does he accept that one of the real reasons Germany is predominating in the European economy includes, in particular, the fact that its labour costs are so low, which means that it can compete in the BRIC countries, including India, China and the rest?

[Chris Leslie]

There are several factors underpinning the German economy. The Germans do not pursue the same degree of hard and fast austerity that we are pursuing, they have a different approach to productivity, and they are achieving higher levels of growth. Our economy needs a pro-growth strategy. I do not say that as a whim—it is a hard-headed credible necessity for reducing the deficit and getting the economy moving again. Without growth, the Treasury will be losing revenue.

[Jacob Rees-Mogg (North East Somerset) (Con)]

When the hon. Gentleman talks about a pro-growth strategy, does he mean spending? If so, where on earth is the money coming from?

[Chris Leslie]

As the hon. Gentleman knows, the paradox of austerity and of an anti-growth strategy is that it costs more in the long run. I quite understand that many Government Members do not understand the causes of the deficit. It is therefore improbable that they are the right people to solve the deficit. If they understood its causes, perhaps I would accept their rationale on how to solve it, but they do not.

[Kelvin Hopkins]

I hope to help my hon. Friend a little. If one makes unemployment go up, fewer people pay taxes, more people depend on benefits and the deficit gets worse, not better. That is precisely what will happen.

[Chris Leslie]

That is precisely the point that we need to make this evening: an austerity approach that cuts too far and too fast will cost more in the long run. That is not just in terms of the lost generation of young people who are now on the dole—one in five young people are now unemployed—and not just in terms of the higher welfare costs, which will mean higher borrowing. The House of Commons Library told me today that if the past six months of the economy had emulated the first six months since the general election, the Exchequer would have received an additional £6 billion in revenues. However, because growth is flat-lining, the Treasury is recouping less revenue. The Chancellor will therefore have to add £6 billion to borrowing and the deficit will be higher as a consequence of low growth in the years ahead.

[Martin Horwood]

The hon. Gentleman has expanded at length on the fragility of the economy and the recovery, which I do not think is in dispute, but we are still a little thin on the alternative from Labour. In recent months, it has talked rather admiringly of the American economy and its expansionist approach. However, that has earned America a credit warning from the rating agencies. If that had happened to us, it would undoubtedly have led to higher interest rates, which would have hit everyone with a mortgage, everyone with an overdraft, and all the people who are vulnerable to debt—people about whom the hon. Gentleman is supposed to be concerned. That, in turn, would have hit economic growth. What is Labour’s alternative?

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[Chris Leslie]

I would regard the hon. Gentleman’s approach as credible, if it was not for the fact that in precisely the same debate a year ago, he would have argued precisely the opposite points. The Liberal Democrat party has made a volte-face away from supporting the economy and pursuing a pro-growth strategy, and has absolutely no credibility when talking about strategies for growth. They used to be a pro-growth party; they are now an anti-growth party that has joined and been assimilated into the Conservative party.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

I wonder whether I can help the hon. Gentleman. Will he outline for the House whether his speech is based on Keynesian or Brownite economics?

[Chris Leslie]

It is actually based on common-sense economics. I regret that the Government cannot see that. Unfortunately, I think that they will rue the day that they neglected growth in the economy. As we know, there is anxiety in the Treasury at the flat-lining, almost comatose nature of the economy. We hope sincerely that it picks up through the next quarter, but many people predict choppy times in the second quarter of this calendar year. I refer the hon. Gentleman to the paradox that I spoke about: pursuing the austerity approach too hard and too fast undermines growth and pulls from under the economy some of the key drivers for future prosperity that support it. Cutting too far and too fast is bad not just for the economy, but for deficit reduction strategies.

The Government’s spending plans are already coming unstuck. I will wind up with this point because I know that a lot of hon. Members want to speak. On tuition fees, which we debated earlier, we know that the cuts to higher education budgets will mean that universities will charge the highest fees, which will result in the ballooning of student loan pressures and the creation of a funding shortfall. Where will that money come from? We know that the Government have U-turned on school sports and that, when it came to the crunch, even the Financial Secretary had to U-turn on the financial inclusion fund. We are glad that he did so, but it changed the spending trajectory. On forests and on any number of other spending plans, when the rubber has hit the road, the Government have been unable to fulfil many of the so-called spending cuts that they promised in their much-vaunted June Budget.

[Mr Cash]

Does the hon. Gentleman concede that, leaving aside the question of cuts for a moment, the motor for an economic revival comes from growth, which in turn can come only from private business and private enterprise generating the taxation to pay for public expenditure? Without that, there is no public sector.

[Chris Leslie]

I agree with the first part of the hon. Gentleman’s point. Of course we need a pro-growth policy, and of course the private sector has to be the engine of that. However, he suggests that the Government somehow have no role to play in encouraging and fostering growth, and that is where we differ. The Opposition believe in supporting firms in moving forward into prosperity. The laissez-faire attitude of the Conservative-Liberal alliance has moved us into wholly different terrain and proves that it does not have a credible fiscal stance.

Unfortunately, the convergence programme is a hollow document that is already out of date. Its predictions are not probable or plausible, and for those reasons I urge Members to reject the motion.