Budget Resolutions and Economic Situation

Chuka Umunna Excerpts

Thursday 24th June 2010 Commons Chamber

[Mr Chuka Umunna (Streatham) (Lab)]

I have listened with interest to the various speeches made today and I do not think anybody denies the need to reduce the deficit. Neither do I think that my fellow Labour Members think that the answers all lie with government, but the big decisions that we are taking at the moment are about judgment and the direction in which we think economic strategy should go.

I want to pose some questions on those issues, because it is clear, on any analysis, that this Budget is going to hit everybody. My own view, which is obviously not shared on the other side of the House, is that it will hit the poorest and most vulnerable people in society hardest. How can it not, given the figures that we are looking at? The IFS data for 2012-13 leave no doubt of the Budget’s regressive nature. They make it clear for all to see: indeed, the Financial Times said yesterday that

“the result of cuts in government services will be felt more on Nottingham's estates than by the Notting Hill set.”

There has been a lot of talk in the Chamber today about comparisons with the situations in Greece and Canada, but in my view they are false. I think that the most appropriate comparison in many respects is a domestic one, and it was touched on by the hon. Member for Cities of London and Westminster (Mr Field). He is no longer in his place but he made a very interesting speech, in which he compared the present situation with the approach adopted by Geoffrey Howe and Margaret Thatcher. In fact, the Culture Secretary has been talking up the appropriateness of making comparisons with the Thatcher Budget of 1981 and the general economic strategy of that Conservative Government.

There are differences—we are in a different time, and the economic circumstances are not the same—but what is being done with this Budget has strong parallels with what was done in the early 1980s. Geoffrey Howe raised VAT from 8% to 15% in 1979, following an election campaign in which he said that his party had absolutely no intention of hiking up the tax. Today, of course, the Chancellor has raised VAT from 17.5% to 20%, following an election campaign in which he—and his coalition partners in particular—said that they had no plans to increase VAT.

Geoffrey Howe slashed benefits in the 1980s: the 1981 Budget made sickness benefits and unemployment benefits taxable, and unemployment benefit for the over-60s was reduced. The Chancellor today has done similar things today: among many other things, he has cut child benefit and disability living allowance, and reduced tax credits for young parents earning just £15,000 each.

The reactions from the national commentariat are similar too. In 1981, 364 economists signed a letter to The Times warning that the Thatcher Government’s policies would deepen recession and threaten social and political stability. In April this year, 80 economists signed a letter to The Times warning that the current Tory Government’s approach would lead to job losses that would affect spending and confidence and tip us back into recession.

Surprisingly, Washington in some respects took a more cautious approach, then as now. In 1981, just after Geoffrey Howe’s Budget, President Reagan signed the Economic Recovery Tax Act to stimulate US consumption. This month, President Obama wrote to the Prime Minister and other G20 leaders to remind them of the dangers of withdrawing stimulus and engaging in fiscal consolidation too quickly.

What were the effects of the approach adopted by Geoffrey Howe in the 1980s? I can describe what they were in my constituency, in which I am proud to say that I have lived all my life. In April 1981 my mother was out shopping with my sister and me in the middle of Brixton when the riots broke out. I was too young—just two and half—to be able to remember what happened, but my mother remembers it well, and it was terrifying.

Soon after those riots, Lord Scarman was appointed to hold an inquiry into what caused them. It is well known that racism in the police at the time was a major factor, and the rioting was attributed to a loss of confidence in the police among significant sections of the population in my constituency and the other two constituencies in the Brixton area. However, although the report said that

“the social conditions in Brixton do not provide an excuse for disorder”

it added that

“the disorders cannot be fully understood unless they are seen in the context of complex political, social and economic factors”.

The report continued:

“There can be no doubt that”

unemployment

“was a major factor in the complex pattern of conditions which lies at the root of the disorders in Brixton and elsewhere. In a materialistic society, the relative deprivation it entails is keenly felt, and idleness gives time for resentment and envy to grow.”

With regard to the Tulse Hill estate—I have just come from that estate to the House today—it was pointed out that high unemployment, coupled with society’s emphasis on material acquisition, led to both material deprivation and a sense of hopelessness, particularly among the youth. Of course we know what happened after that: unemployment rocketed beyond the 3 million barrier and stayed there until 1987.

[Kwasi Kwarteng]

Is the hon. Gentleman seriously suggesting that riots on the scale witnessed in Brixton in 1981 will come as a result of the Budget?

[Mr Umunna]

No, I am not, but I am seeking to point out what happens when people take a cold, dispassionate and inhuman approach to economics and neglect to consider the consequences of their actions.

[Mr Tom Harris]

I rise in part to respond to the hon. Member for Spelthorne (Kwasi Kwarteng), because it was not my hon. Friend the Member for Streatham (Mr Umunna) who suggested that riots would return to the streets of Britain; it was the Deputy Prime Minister, who said just a few weeks before the general election that the scale of cuts foreseen at the time would result in civic society breaking down in this country. Is the hon. Gentleman suggesting that the Deputy Prime Minister is mistaken?

[Mr Umunna]

Silence.

There has been a lot of talk about IFS and Institute of Directors reports, various statistics, the extent to which we need to reduce the structural deficit and the extent to which it is cyclical—but we are talking about people’s lives, and I am deeply worried about what the approach adopted by the Government means for my constituents and those who live in similar areas. There was talk of contrived anger. My worry is not contrived; it is very real. As has been said, the Office for Budget Responsibility has revised up the unemployment forecast by 100,000 people. The Chartered Institute of Personnel and Development is saying that it is absolutely certain that unemployment will go beyond the 3 million barrier again.

I took the trouble to look into some of the cuts that Geoffrey Howe imposed on the country, and what worries me most is that they pale into insignificance compared with the cuts envisaged by the Government now. Howe cut spending by 4% between 1981 and 1984. The Chancellor is planning 25% cuts over four years.

[Matthew Hancock]

I thank the hon. Gentleman for giving way in his an extremely thoughtful speech. Does he not agree that we have to deal with these huge problems because of the structural deficit that we had going into the recession? Does he agree with this quotation:

“Public finances must be sustainable over the long term…If they are not, the poor, the elderly, and those on fixed incomes who depend most on public services will suffer most.”?—[Official Report, 2 July 1997; Vol. 315, c. 303.]

They are not my words but those of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown).

[Mr Umunna]

First, the deficit pre-November 2008 was primarily in some respects caused by increased spending to which those who are now in the Conservative Government were then committed. Conservative Members are continuing to promote the view that somehow there was no global credit crunch, and that the bankers, many of whom they are very friendly with, had nothing to do with it—but the general public do not buy that.

Conservative Members will have to accept that, but the real question that I want answered—I note that a Minister is still here—is: what comfort can he give to the people who live in places such as the Tulse Hill estate in my constituency that they will not have to pay the price? What measures will he take to help them to get back into work? What will he do to give them extra training and experience? Why on earth is he cutting programmes such as the future jobs fund, which I have seen working in my constituency, helping to get people back into work? The Government say that the future jobs fund is ineffective and a waste of money, but they do not have figures on which to base that assertion. The Red Book makes no provision for funding any programme to get young people back into work or into training that will replace what the Government are abolishing.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

Perhaps the hon. Gentleman will think back to the package of cuts that was announced last month. Some £500 million of the £6.2 billion of cuts was recycled into extra training and more apprenticeships; that is where this party’s commitment to growth comes from.

[Mr Umunna]

I am not going to say that I do not welcome things such as apprenticeships, because we need those programmes, but at the same time as the Government are putting in place 10,000 apprenticeships, they are slashing a programme that could place hundreds of thousands of people in work. I do not understand their approach; ultimately, my constituents want to know what is happening.