Living Standards

Geraint Davies Excerpts

Wednesday 4th September 2013 Commons Chamber

[Rachel Reeves]

She has done fantastic campaigning work on that issue. Labour has said that we would cap the cost of credit, as she has called for.

A one nation Labour Government would be taking action now to secure the recovery and to build a more balanced economy that boosts the living standards not just for the few at the top but for the many. We would act on the recommendations of the IMF to support and secure the recovery by bringing forward £10 billion of infrastructure investment. We would build 400,000 affordable homes, creating more than half a million jobs and making our economy stronger for the long term. We would support house building, encourage private sector investment, and create apprenticeships. A one nation Labour Government would be confronting the scandal of youth and long-term unemployment by introducing a compulsory jobs guarantee.

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

I am sure that my hon. Friend knows that household lending from banks is at the same sort of level—3% lower than in 2008—but lending to businesses is 30% lower. Is not the real problem that three quarters of new jobs are low-paid because businesses are not being given support by the banks and the Government are not forcing them to act in the interests of high-paid jobs and growth for the future?

[Rachel Reeves]

We have had Project Merlin and the funding for lending scheme, and yet lending to small businesses falls and falls.

A one nation Labour Government would offer guaranteed work for young people and those who have been unemployed for over two years—work that they would have to take. We would cut the welfare bill and help people to gain the skills and experience they need to join the work force for the long term. A one nation Labour Government would reform our banking and energy sectors, improving our infrastructure planning and building a skills system that ensures that everyone can play their part. A one nation Labour Government would make fairer choices to ensure that the benefits of growth are fairly shared. We would reintroduce the 10p tax rate, helping 25 million basic-rate taxpayers; and we would not be cutting income tax or increasing pension tax relief for the very wealthiest while cutting tax credits for hard-pressed families. Different choices, different priorities: this Government and this Prime Minister do not get it.

As the LSE growth commission said earlier this year:

“prosperity is strengthened when everyone has the capacity to participate effectively in the economy and the benefits of growth are widely shared”.

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[Greg Clark]

As the hon. Lady knows, I spend a lot of time in Merseyside; we met on the other side of the water in Liverpool recently. I would be very happy on one of my visits to Merseyside to meet her and make the point that making the economy competitive, including in the north-west and her constituency, and getting people into jobs and bringing unemployment down is the best way that people can build living standards that are sustainably high. I will come on to say a bit more about that.

There have been 1.3 million jobs created in the private sector, but what has been the Labour party’s reaction, including today, to that news? The first reaction was silence. The entire Labour Front-Bench team went to ground for the summer, although the hon. Member for Leeds West had an excuse. However, three years have passed since she stated in her excellent maiden speech:

“It would not be responsible or sensible to oppose every spending cut or tax increase.”

It was in that same maiden speech that she told the Chamber that she would

“encourage this Government when they get it right”.—[Official Report, 8 June 2010; Vol. 511, c. 239.]

Now would be a good time for her to do what she promised. I would be more than happy to give way to her if she acknowledges that the hard work of the British people is showing success that she did not predict. No answer.

[Geraint Davies]

Does the right hon. Gentleman accept that since his Government took office, GDP per person—productivity per person—and average wages have fallen? We are seeing a glimmer of hope, but the reality is that the 1 million extra jobs are on the same baseline. In other words, that is not success; it is failure. There would have been growth under Labour, as was the case up to 2010.

[Greg Clark]

The hon. Gentleman parts from his Front-Bench colleagues and at least acknowledges that there is progress. He calls it a glimmer of hope, but I think the 1.3 million people employed in new private sector jobs regard it as much more than that. The hon. Gentleman will know that the first step to creating sustainably high living standards is to get people into work and into good jobs. I will say more about that in a moment.

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[Gavin Barwell]

There are certainly some commodity prices that Government can influence—my hon. Friend is quite right to pick me up on that—but there are others, such as the prices of basic foodstuffs, that are beyond national domestic control.

How do we solve the problem? I would like to suggest five possible solutions. The first is economic growth. It is not a solution on its own, because part of the deficit is structural.

[Geraint Davies]

Will the hon. Gentleman give way?

[Gavin Barwell]

I will give way once more, to the hon. Member for Gateshead (Ian Mearns), because I promised I would.

The OECD forecast shows that our economy is projected to grow in quarter 3 by 0.9%, which is more than any other country in the G7 other than Canada, and in quarter 4 by 0.8%, which is the best projected rate in the G7. Unemployment in my constituency of Croydon Central is 6% lower today than it was when Labour left office, while youth unemployment—which the hon. Member for Wigan (Lisa Nandy), who spoke before me, rightly spoke so passionately about—is nearly a quarter lower today than when Labour was in office.

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[Gavin Barwell]

I am afraid I cannot give way again.

That change has taken 2.7 million low-paid people out of income tax altogether and cut the income tax bill for someone on the minimum wage by a half. The shadow Chief Secretary talked about priorities. It is true that this Government have made a change to the tax rates for some of the wealthiest in our country, but if we want to talk about priorities, we have to say that the Treasury has spent 50 times more cutting tax rates for people in ordinary low-paid work than it has paid in reducing the top rate. That shows this Government’s priorities.

As other hon. Members have said, we have ensured that petrol duty is 13p a litre cheaper today than it would have been if we had followed Labour’s policies. We have cancelled the beer duty escalator. We have helped local councils across the country to keep council tax bills down. We have a scheme that we will introduce for tax-free child care, which will help with the cost of child care for people with children under the age of 12. We are ensuring that energy customers are placed on the lowest tariff. We have introduced the triple lock for the state pension, to ensure that we never again have the national scandal of our pensioners being given a derisory pension increase each year. We are also introducing the Help to Buy scheme, to try to help my constituents who want to own a home of their own and take that vital first step to get on the housing ladder, so there is much that this Government are doing.

[Geraint Davies]

rose—

[Gavin Barwell]

I cannot give way again.

There is also the crucial issue of wages. I have talked about the national minimum wage already, and there were some interesting reports in the media recently about the Government perhaps looking at what they can do on the minimum wage. As a Conservative, I would worry very much about a uniform increase, which might price some people out of the labour market. However, there is a case for asking whether larger companies or those that are making healthy profits should not be paying their staff more, because at the moment we are subsidising some employers to pay low wages, through the tax credit system that the previous Government introduced. I very much hope that the Government will look at how we tackle the issue of quality of life for people on low pay from both ends, by raising the personal allowance, so that we do not tax them so much, but also seeing whether we can ensure that they are paid a fair wage for the hard work they do.

One Opposition Member who talked about this issue implied that it was just Labour councils that are passionate about a living wage. My local authority, Conservative-controlled Croydon council, pays all its staff the London living wage, while the Mayor of London has guaranteed that that will apply to all staff working for the Greater London authority as well.

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

Again, we heard a ragbag of rubbish from the Financial Secretary, who gave us the Laurel and Hardy story about another fine mess from Labour. In fact, between 1997 and 2008 the economy grew by some 40%. It was only when the financial tsunami came that we saw difficulties, but with the fiscal stimulus from Obama and my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), bang, we were back to shallow growth, albeit with a deficit two thirds of which was caused by the bankers and a third of which was caused by spending beyond earnings to pump-prime the economy. That was the right thing to do at the time.

[Ben Gummer]

Let us try to get the facts right. First, the Government were running a structural deficit between 2002 and 2010. Secondly, the private sector in Britain did not grow after 2003. All growth was down to credit and public sector increases. The hon. Gentleman’s contention that somehow the economy grew by 40% is therefore incorrect.

[Geraint Davies]

That is certainly not the case. GDP was up by 40%, and the history of the last three years is one of zero GDP growth. I admit that we have seen growth of 0.6% in the last quarter. However, according to the TUC, 80% of the new jobs that have been created—it has been claimed that there are 1.3 million, but that figure is contested by the director of the Office for National Statistics—are low-wage jobs. What we actually have is a low-wage, low-investment, falling-productivity economy, with living standards falling through the floor and prices rising at the same time. It is a complete disaster.

Government Members such as the hon. Members for Dover (Charlie Elphicke) and for Croydon Central (Gavin Barwell) and other economic illiterates have said that interest rates might rise under Labour, but anyone who reads the financial press will know that the new Governor of the Bank of England, Mark Carney, has given undertakings that they will not rise until unemployment has fallen by 750,000, from 7.8% to 7%. So that argument too is a complete load of rubbish.

[Ben Gummer]

If the hon. Gentleman does not mind my saying so, he is confusing market rates with bank rates. Market rates will rise, because the cost of borrowing for the British Government on the international markets will rise under a Labour Government. That was shown at the time of the general election. The hon. Gentleman is right in saying that bank rates will be fixed, but the two are not connected to the extent that he claims.

[Geraint Davies]

I am grateful to the hon. Gentleman for making that point. The point that I was making was that the Bank of England rate would be secure in the way that I described. The other rates depend on confidence. Whatever happened to the triple-A rating? Government Members said “Oh dear, it will be all over. We will lose the triple-A rating if Labour gets in.” Well, we have lost it, and why has that happened? It has happened because objective observers have seen that productivity is falling, not rising, that the jobs that are being created are low-grade jobs, and that the distribution of investment is skewed towards the next general election, with 80% of all infrastructure investment being made in London and the south-east—which needs the least investment—and most of the cuts being made in the north and in Wales: in places such as my constituency in Swansea, where 40% of people work in the public sector. Yes, we want investment in the private sector, but the way to boost local economies is not to cut people’s wages, jobs and services, which is the current prescription.

What is happening is not sustainable, and given the current economic capacity—the manufacturing and construction sectors are 10% smaller than they were in 2008—there is clearly some way to go before unemployment reaches the level at which interest rates will fall, so that point was a complete red herring.

In fact, mortgage rates are low now—as low as 1.5% for safe bets. The Government, alongside the Bank of England, should be thinking about providing more funding for firms so they have more cash flow and can invest in higher-value jobs and products. Household lending from the banks is about the same as it was—it is 0.3% less than in 2008—but lending to business is 32% down. It is massively down in all the major sectors. In January lending to business was 3% lower than a year ago. By June that figure had doubled; it was down 7%. So the Chancellor is a man looking to the future who is walking backwards. The reality is that Britain is 159th in terms of the ratio of investment to GDP, and is lagging around the bottom in terms of research and development.

One might ask why the banks are lending all this money for houses. Part of the reason is because we have a bubble, artificially generated by the Chancellor to get his votes in the south, through what The Economist calls the “daft policy” of subsidising new deposits on mortgages, which will inflate house prices and lead to sub-prime debt downstream.

The banks also now require four times more capital cover to lend to a business than to provide a mortgage. Turning to the question of the complexity of all this, I have run my own businesses and been involved in others, and have therefore looked at business plans. The banks need to look at the business plans too, as opposed to just having somebody in a call centre saying, “All right, fill in the box. You’re all right mate, you can have a mortgage.” The Government should be telling the banks that the funding for lending scheme should be specifically directed at firms to cover new and existing loans. In other words, they should be doing something positive to get the level of business investment up and create real jobs and get wages moving in the right direction. That is what is needed.

The current situation is that house prices are rising and household debt is growing, partly because the cost of housing is going up both in terms of rents and house prices. That is only sustainable if we have real wage growth. [Interruption.] The Exchequer Secretary is mumbling to his mates, but what are the policies for sustainable wage growth? How are we going to move away from this low-investment, low-wages, low-productivity trajectory that we have got? There is no point in blustering and denying it all; we have got this problem across Britain. We have also got inequality between north and south, and obviously between Wales and the south.

I am talking about SME support, but in contrast we have the corporate world, where Vodafone has just done the biggest share transaction of this century. It has taken £54 billion in cash, and it is not paying a penny in tax. What is the Exchequer Secretary doing about that? Nothing. Why does he not do something about procurement, too? We could use our muscle to buy from SMEs locally—companies that pay tax rather than avoid tax—so they can provide jobs locally. This is a complete disgrace. We should be doing something positive with the powers at our disposal, to create higher wages, higher business investment, more security and more focus on emerging markets.

That is not happening, however. This is a complete farce. It is a mess and I hope the hon. Member for Croydon Central (Gavin Barwell) will join the Labour party like his predecessor, Andrew Pelling, did, and stand up for what is right and what makes sense.

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[Mr Gauke]

What is striking about the data we have seen is the encouraging, broad-based signs. The manufacturing numbers are very encouraging. Let us not say that the situation is about consumer spending only. There are encouraging signs in the economy, which was not reflected in the remarks of Labour Members.

[Geraint Davies]

The Minister will have heard my speech, so I will not recite it, but will he accept that there is a problem with the amount of lending to business by banks? Can he give any undertaking that the Bank of England will put pressure on banks to redirect the funds they have been given under the funding for lending scheme towards business rather than to household mortgages that are now out of the woods?

[Mr Gauke]

The fact that we have credibility in our fiscal policy means that the Governor of the Bank of England has been able to say what he has said about the greater certainty for interest rates, which is helpful for businesses. If we throw away that fiscal credibility, we will make life more difficult for businesses wanting to get credit.

We have talked about what the motion contains. It says that we should get more people into work: we agree with that. Over the year, employment has increased by 301,000, and unemployment has fallen by 49,000. In July, the claimant count fell, for the ninth consecutive month, to 1.44 million, the lowest level since February 2009. This is the result of a Government who have created the right tax and regulatory environment for businesses to flourish. The proposals from the Opposition would put all of that at risk.

We hear about bringing forward capital investment. We also recognise the need for infrastructure investment to spur the jobs and growth of the future, and that is why in June the Chief Secretary unveiled the biggest public housing programme for more than 20 years; the largest programme of rail investment since Victorian times; the greatest investment in our roads since the 1970s; fast online access for the whole country; and the unlocking of massive investment in cleaner energy to power our economy forward. We have increased expertise in Whitehall and we are working hard to deliver those projects as soon as possible.

The cost of living is an important issue, and we recognise that times are tough for many people. But let us look at the difference between the parties. Whereas we have reduced income tax for 25 million people—we have increased the personal allowance—the previous Government doubled the rate of income tax on low-paid workers. This Government have ensured that we have credibility so that we have been able to keep mortgage rates low: the Opposition would lose our credibility. Council tax doubled under the previous Government: it has been frozen under us.

The previous Government raised fuel duty 12 times while in office and had plans to raise it six more times subsequently—the equivalent of 13p per litre—and we have frozen fuel duty. When we came to office, the UK had almost the highest child care costs in the world, and we will help families with child care. Energy bills soared under Labour. Between 1997 and 2010, the average domestic gas bill more than doubled. Electricity bills went up by more than 50% and Labour remains committed to an expensive 2030 decarbonisation target that will only add to energy bills, whereas this Government are forcing energy companies to put customers on the lowest tariff. When it comes to beer duty, Labour planned to raise the tax: we not only froze it, we cut it.

My hon. Friend the Member for West Worcestershire (Harriett Baldwin), in an excellent speech, asked how we ensure that we have the sustainable growth that we need. We need sustainable public finances—an argument that we have made consistently and that has been consistently opposed by the Opposition. We need a highly skilled work force, and that is why 500,000 apprenticeships have been undertaken under this Government. It is why we are undertaking ambitious educational reform. We need welfare reform, with a system that makes sure that work is rewarded—not something that we inherited from Labour. We need a competitive tax system that encourages investment in the United Kingdom, not one that drives it away. We need to deal with the regulatory burdens that prevent growth—we have undertaken planning reform, which will help to increase housing supply.

What do we get from the Opposition? We get a Labour party that presided over a squeeze in living standards from 2003; a Labour party that must accept some responsibility for the deepest recession in a century; a Labour party that doubled the rate of income tax on low-paid workers; a Labour party that planned for increase after increase in fuel duty; a Labour party that remains signed up to decarbonisation targets that would increase energy prices; a Labour party that has consistently set out an economic policy that would consist of more borrowing, an approach that would lead to higher mortgage rates and ultimately higher taxes; and a Labour party that has opposed our council tax freeze. For Opposition Members to lecture us on living standards is extraordinary. As President Obama might have said, it is the audacity of the hopeless.

If we want to help hard-working people—I think we all do—it is vital that we stick to the task. [Interruption.]