The Economy

Claire Perry Excerpts

Wednesday 22nd June 2011 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

The hon. Member for Thurrock (Jackie Doyle-Price) mentioned last week’s speech by the Chancellor at the Mansion house, which came at the end of his first year at the Treasury. He concluded his speech by saying:

“I believe that sentiment of cautious optimism has been borne out by events in the twelve months…The British economy is recovering.”

If current economic performance is cause for cautious optimism, I dread to think what deteriorating performance and cause for pessimism would look like.

The fact of the matter is that the Chancellor has failed even on his narrow policy on growth and investment. In his Budget a year ago today, the Chancellor stated:

“The Government has set out a credible deficit reduction plan that should provide businesses with the confidence they need to plan and invest, supporting the necessary recovery in business investment.”

That simply has not happened. Business confidence is almost 12 percentage points lower than it was a year ago, according to the confidence monitor report by the Institute of Chartered Accountants in England and Wales, of which I am a member, and Grant Thornton. Business investment in the first quarter of this year, according to the Office for National Statistics, was 7.1% lower than the previous quarter and 3.2% lower than a year ago. As the hon. Member for Thurrock said, bank lending to small and medium-sized enterprises—a necessary precondition for growth—is behind schedule, as set out in Project Merlin by the Business, Innovation and Skills Secretary.

Retail sales––an important barometer of the health and confidence of the economy, because the retail sector constitutes one tenth of the economy and employs 11% of our work force—fell sharply by 1.6% last month, which was much worse than commentators’ estimates. That reflects consumers’ lack of confidence for the future.

Ministers often cite growth in manufacturing, but the purchasing managers index for manufacturing fell to a 20-month low of 52.1 last month. Since a welcome boost in January, the purchasing managers index figure has fallen every month this year, indicating a worrying and slowing pace of growth in the manufacturing sector. After a relatively robust growth spurt immediately after the recession—largely the result of the Labour Government’s actions—growth has effectively stalled and stagnated for the past six months. I am pleased that my hon. Friend—my good friend—the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) is here because I have to conclude that growth predictions are being revised down faster than Middlesbrough’s chances in the championship next season.

In the Budget a year ago today, the Chancellor forecast that growth would be 2.3% this year, 2.8% in 2012 and 2.9% in 2013. No credible economic forecast predicts that, and nor does the Chancellor. In November, he predicted that growth this year would be 2.1%, and then, in his March Budget, he forecast that growth in 2011 would be 1.7%. The OECD has recently forecast that growth will be 1.4% this year, not 2.3% as forecast one year ago, and 1.8% in 2012, not 2.8%. Every time the Chancellor stands at the Dispatch Box, confidence in the economy falls. He should stay out of the House more often.

This comes at a time when public service cuts and public sector redundancies have not necessarily started to gain pace, so the problem of no growth is only likely to get worse. The economic growth forecasts are below those for France, Germany, the US and even Japan after its natural disasters and the eurozone after its economic difficulties. Why on earth is this the case? Why is the British economy not bouncing back in the way that our competitors seem to be doing? In his opening remarks in announcing last month’s inflation report, the Governor of the Bank of England stated:

“the recent pattern of revisions to the projections over the next year—downward to growth and upward to inflation—has continued”.

The Governor went on to state that risks and negative factors within our economy—high levels of inflation, squeezes on wages and household incomes, weak levels of activity in the economy and uncertainty about the speed at which net exports will pick up—are persisting.

These factors are persisting for far longer than the Treasury and the Bank of England foresaw. Inflation has been much, much higher for a longer period than was anticipated, exports are not as buoyant as they were forecast to be at this stage, especially given the weakness in sterling, and economic activity is weaker than was expected. The Governor concluded:

“the outlook for growth and inflation is likely to remain unusually uncertain. No one knows how the economy will evolve over the next few years; nor how policy will need to respond.”

Given those comments and the huge and persistent uncertainties that exist, is it not ridiculous for the Chancellor not to concede that an alternative economic approach might be necessary?

Let us contrast what is happening in the UK with what is happening elsewhere in comparable economies. In Germany, the export-led recovery is leaping ahead, despite a slow-down in global economic growth. Domestic demand and private consumption are increasing, contributing to growth, wage increases are taking place as well as rises in employment levels, and Government finances have benefited from strong economic growth, to help offset the fact that Government debt in Germany rose significantly in 2010 to stabilise the banking sector. Despite all the deep-seated problems that it is facing, even Europe is expected to grow significantly faster than us, at 2.5% this year and 2.5% again the following year.

These economies will grow faster than ours and put themselves in a better position to take advantage of a growing global economy in the years to come, because they realise that a single-minded focus on deficit reduction, to the exclusion of everything else, particularly a disregard for the long-term social and economic consequences of such a move, is detrimental to the long-term interests of their economies. In his remarks today, the Chancellor mentioned PIMCO. Only yesterday, Bill Gross, the manager of PIMCO, which is the world’s largest bond fund company, said that to remain on the road to economic recovery, the US needed to focus on job creation instead of fiscal tightening and budget reforms. The conclusion he came to is pertinent to the British experience.

[Claire Perry (Devizes) (Con)]

I am grateful to the hon. Gentleman for giving way because I have just joined the debate—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I know that the hon. Lady is an enthusiastic Member, but she should not just walk into the Chamber, give it about five seconds and then intervene. It is not fair. It is up to the hon. Gentleman whether he gives way, but it is discourteous to everyone else who wishes to speak.

[Claire Perry]

I apologise, Mr Deputy Speaker, but I have been tied up with constituency business. I just wanted to say that I welcomed the reference to Bill Gross, who, as the hon. Gentleman will be aware, also described the UK’s economy as sitting on a bed of nitroglycerine ahead of the election.

[Mr Wright]

I hope that the hon. Lady, who has not listened to the rest of the debate, will take into account the conclusion drawn by the manager of the largest bond fund company in the world. He stated that the budget reforms

“are long-term requirements for a stable and healthy economy, but the move towards it, in fact, if implemented too quickly, could stultify economic growth.”

That seems an eminently sensible conclusion.

--- Later in debate ---

[Catherine McKinnell]

This is not the opportunity for me to set out what the shadow Chancellor has already set out—the way in which we would tackle the deficit. I do not want to take up precious time that my colleagues want to spend giving speeches in this very important debate.

Women are particularly affected in the north-east, where about 46% of all working women are employed in the public sector. Those women face being one of the 30,000 public sector workers anticipated to lose their jobs in the region; most of those job losses will affect low-paid female workers. They also face pay freezes and the ever-increasing costs of balancing work with family life.

[Claire Perry]

Will the hon. Lady give way?

[Catherine McKinnell]

No, I will not, because I want to leave time for other Members.

It is not just women who are bearing the brunt of the cuts and stalled economic growth. One year on, after the Chancellor’s first Budget, a key concern in the north-east remains youth unemployment, with about 19% of 16 to 24-year-olds in the region not in education, employment or training, compared with 15% nationally. Of particular concern is the fact that, over the past 12 months, the number of 18 to 24-year-olds claiming jobseeker’s allowance has increased by 10% in the north-east.

Since being elected to the House, I have been a passionate advocate of the important role that apprenticeships can play in supporting young people into the workplace, thereby helping to prevent a lost generation of young people as a result of the Government’s policies. However, Ministers need to recognise that there is a real difference between making limited funding available for apprenticeships—I welcome that and it has been promised—and ensuring that good-quality apprenticeships are offered by businesses in the areas of our economy where we require those skills.

I implore the Government to consider some serious and genuine risks today. We should not allow the number of apprenticeships offered to override the importance of their quality, thus ticking the box but failing to provide young people with a decent start to their working lives. To reach such targets, we risk simply converting existing jobs into apprenticeships, when in reality no genuine new employment opportunities are created.

Following the abolition of the regional development agencies—today, we mark the anniversary of that dreadful decision—we have lost the joined-up thinking of bringing the business community, educational providers and RDAs together in a working partnership to ensure that we prevent the over-supply of certain skills and the under-supply of the skills that we need in the areas that we rely on for future growth. The result will be a failure to stimulate growth to ensure that we have the skilled work force of the future and to reach out to those young people who are most in need of the best start to their working lives.

While we are focusing on the impact of the Chancellor’s first Budget in June last year, I should like to turn briefly to two policies that he announced that are particularly relevant to Newcastle. In his Budget speech, the Chancellor announced the creation of 21 new urban enterprise zones, one of which will be located on Tyneside. I should like him to clarify today what progress has been made on this issue. Will he explain, as I did not receive an answer to the question that I asked during the Budget debate, what steps he is taking to ensure that the zone does not simply lead to jobs being transferred from one part of Tyneside to another?

A further issue is that of tax incremental financing, which the Chancellor promised to rollout in his Budget this year, to give cities such as Newcastle borrowing powers to finance much needed job-creation schemes and regeneration projects. In Newcastle alone, it is thought that about 5,000 jobs could be created over the next two decades if the council—now safely back in Labour hands—could borrow about £13 million for important projects such as Science Central and the redevelopment of the East Pilgrim street area. That is particularly important at time when we have lost the investment of our RDA, One North East, and when private sector investment for many major projects has dried up. Yet it appears that cities will not be given those powers until 2014, thus risking three years of wasted growth opportunities and lost jobs. Why are the Government dragging their feet on this important issue, when we need such support more than ever?

As we are marking one-year anniversaries, I point out that the Prime Minister promised last May to create Ministers for big cities such as Newcastle to breathe economic life into the towns and cities outside the M25, by ensuring that Whitehall blockages to economic development were dealt with. Thirteen months on, we are still waiting for further details or confirmation of that announcement. Unlike the previous Administration, no one in the Government is championing the needs of Newcastle and the north-east—a task that was so ably undertaken by my right hon. Friend and colleague the Member for Newcastle upon Tyne East (Mr Brown), during his time as the Regional Minister. Indeed, the vacuum has recently been criticised by the North East chamber of commerce, which said:

“We’d be really keen to see the Coalition appoint City Ministers. We don’t have any Cabinet or Ministerial-level representation from the North East. And having senior Government Ministers not only aware of the issues, but actively resolving them is absolutely the right thing to do.”

I realise that the Conservatives are fairly limited in their knowledge and experience of the north-east and might find it difficult to find a candidate for my city and region, but will the Minister say when that policy will materialise, or will it be another example of a broken promise?

One year on, this Government’s policies are hitting women, children and families, as well as young people, in places such as Newcastle that can least withstand it. I hope the Chancellor will listen to the concerns expressed today, stem the damage and help to return our north-east economy to its trajectory of growth.

--- Later in debate ---

[Toby Perkins]

Each country was in a different situation. Our ratio was much lower than Japan’s. There are a number of reasons why the German economy was different from ours. We over-relied on financial services and our manufacturing sector was reduced. We had high increases in housing prices. I do not remember any point in the past 13 years when Conservatives jumped up and down saying that they wanted the Government to engineer a house price crash.

[Claire Perry]

Will the hon. Gentleman give way?

[Toby Perkins]

I think I have given way enough. I am grateful for the fact that the hon. Lady has turned up for the debate, but I shall carry on.

As someone who for the five years prior to coming to this place ran a business that relied on people having money in their pockets to buy non-essential items, I know very well how important it is that decisions on our economy are balanced between the need to support growth and the need to reduce the nation’s borrowing. However, we are debating the economy today because since the Chancellor’s Budget a year ago, the OBR’s initial predictions get worse at every stage. The OBR now predicts £46 billion more borrowing than it predicted a year ago. The Government have discovered that the policies that they are pursuing are not working, so why do they not listen to the advice, change course and ensure that we protect not only the growth that we need in our economy to reduce the budget deficit, but the people on the ground in our constituencies—that includes the constituencies of Conservative Members—who are struggling to get by, whose houses are being repossessed? Repossessions are increasing.

--- Later in debate ---

[Geraint Davies (Swansea West) (Lab/Co-op)]

I know that the parliamentary soul from Dover hoped that the Back-Bench speeches would end at half past six, and I am sorry to disappoint him. It is a great pleasure to be able to speak in such an important debate, which draws a line under the time when the Conservatives were playing their cracked record which consisted of two false messages: that the deficit had been caused by Labour, and that the only way to sort it out was to clear it all in four years and in one way, by destroying jobs and services and punishing the benefits that go to the weakest in society.

Both those messages are false. The reality is that the last Labour Government were very successful economically. We created 2 million more jobs, and the tax from those jobs has funded much bigger health and education services and more opportunity throughout Britain. The deficit was the price paid to avoid a depression sparked by the bankers. Figures from the Institute for Fiscal Studies clearly show that two thirds of the deficit was the banking crisis, while the remaining third, yes, was excess investment over income, which was investment in the future. A fiscal stimulus, generated by the previous Prime Minister and supported by Obama and the world community, was required to keep the banks going and to keep growth moving. In the latter months of the previous Administration we saw growth rising, but now we have seen it stagnating.

The choice now is whether to halve the deficit in four years, as Labour intended—the European Community agreed with that, and, as we heard, the Chancellor signed up to it, although he was embarrassed when that was pointed out earlier in the debate—or whether to go at it and get rid of it all in just four years, even though it is three times the level it was planned to be. Is that sensible for growth? No. The second choice is how we do it. Should we focus solely on cuts in benefits, jobs and services, or should we adopt a balanced approach that focuses primarily on economic growth but also ensures that the bankers pay their fair share and involves savings, yes, but shallower savings over time. For example, the 8% difference between 20% and 12% represents the difference between getting rid of front-line police and not getting rid of them.

Those are the choices that face us. What does the evidence show? It shows that a year ago the deficit was £21 billion less than had been forecast in the pre-Budget report. Why? Because economic growth was faster. Now it is £6 billion higher than forecast. Why? Because the growth is lower than forecast.

[Claire Perry]

The facts also show that interest rates, and particularly the spread over German interest rates—the risk in the British economy—has dropped by 80% since the election, and that the pound has risen by 9%. There is lots of confidence in the British economy that the hon. Gentleman is not referencing.

[Geraint Davies]

The hon. Lady will know that long-term interest rates hit an all-time low shortly after we made the Bank of England independent. We experienced the biggest period of ongoing growth ever seen under the Labour Government, despite a number of crises in the world economy. Now the world economy is growing healthily, but in Britain we are stagnating. We have seen no net growth for the last six months. The evidence shows that there was growth and deficit reduction under Labour, and that we are now at a standstill.