Budget Resolutions and Economic Situation

Gregg McClymont Excerpts

Friday 23rd March 2012 Commons Chamber

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

We have heard quite a lot already about the economic situation. The context for the Budget is one of economic stagnation. The growth forecast produced last year for this year was for growth of 2.5% in 2012. The OBR’s estimate now of growth in 2012 is just 0.8%. The growth forecast for 2013 is also 0.8%. That is close to stagnation.

Unemployment is rising, the cost of living is rising, and it is particularly worrying that business investment appears to be collapsing. The OBR forecasts that business investment this year will drop 7%, from an estimate of 7.7% to 0.7%. That is connected with the OBR’s forecast for such meagre growth as there is to be, according to its estimate. A much larger share of this growth—three times larger—is to come from private consumption rather than from export-led growth. We have a demand crisis in the economy. I worry that the Chancellor is putting all his eggs in one basket, rather like Japan did in the 1990s, gambling everything on low interest rates as a way to stimulate the economy.

[Richard Fuller (Bedford) (Con)]

The hon. Gentleman talks about a demand crisis, but does he accept that some of the responsibility for that comes from the policies of the previous Government, which so substantially over-leveraged not just the Government, but the entire economy?

[Gregg McClymont]

There is no doubt, and the hon. Gentleman is right to say, that not everything in the garden was rosy by 2010. That does not take away from the current Government their responsibility to stimulate the economy. On any metric, growth of 0.8% this year and next year is only very limited growth. On current estimates we will not return to 2007 GPD levels till 2013. That slump will be the longest since the 19th century—six years to get back to a previous level of GDP. That is indeed a slump, and this is a stagnation Budget.

[Mark Garnier]

Does that not illustrate the fact that such an appalling mess was made by the previous Government that it resulted in such a long and deep recession?

[Gregg McClymont]

As the hon. Gentleman knows, whatever the situation when this Government took office, they are now, by their own estimates, going to borrow £150 billion more than they estimated, so they are adding debt upon debt, with no growth to show for it.

[Tom Blenkinsop]

If it was such a bad period, why are corporates storing £750 billion under the mattress and not investing? Is that not a demand issue?

--- Later in debate ---

[Gregg McClymont]

As usual, my hon. Friend hits on the apposite point. Corporates do have an enormous cash pile, and we have to ask, why are they not investing? It is because they do not think there is anyone to buy their products; it is as simple as that.

Of course, no one is suggesting that this issue is all about one side, because it is not all about stimulating demand at the expense of cutting the deficit, but my and the Opposition’s view is that the Government have got the balance wrong. Confidence will not be restored if there is no growth in the economy.

[Richard Harrington]

I appreciate the hon. Gentleman giving way, but does he not agree that, actually, it is hard to say which comes first? He says that confidence comes from growth, but I say that growth comes from confidence. I think he has got it the wrong way around.

[Gregg McClymont]

I thank the hon. Gentleman for his intervention, which will be the last one I take, given the time constraints. The lessons of history are that, unless we can make people feel that they have money in their pockets to spend and to stimulate growth and the economy, the chances are—the Japanese example is a perfect illustration of this—that we are unlikely to recover to pre-trend levels.

At this time of stagnation and austerity, what is the Government’s priority? Is it growth, jobs and helping the hard-pressed squeezed middle? No, it is a tax cut for millionaires. Some 14,000 millionaires will get a tax cut of £40,000 per year. The 300,000 payers of the 50%—[Interruption.]

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Hon. Gentlemen will not shout across the Chamber. The point being made is a matter for debate, and that is what is happening now. They can intervene if the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) wants to give way.

[Gregg McClymont]

Thank you, Madam Deputy Speaker. Hon. Gentlemen on the Conservative Benches are becoming rather vexed, and one does not have to wonder why, given the message that they are sending out to the electorate with this tax cut, which will cost more than £3 billion at a time, as the Government emphasise, of austerity.

The hon. Member for Watford (Richard Harrington) suggests that empirical evidence shows that the 50p tax does not raise any money, but there is no empirical evidence in the document presented by the Government. There is a series of estimates, based on a view of behavioural change, itself based on a view of human behaviour, which one would have thought would have at least been challenged by the financial crisis and all that it brought.

This Government are taking a gamble that the £3 billion that they would have had in the bank—in their coffers—will be almost cancelled out by millionaires from Monte Carlo and Caribbean boltholes rushing back to show their patriotism to this country by paying a slightly lower rate of tax. Those are not my words, but the words of the Business Secretary in a previous incarnation. This tax cut for millionaires is the wrong priority for this country at this time.

We have a crisis of employment—a crisis of youth unemployment, with 1 million in the UK and one in four in Scotland now unemployed. What we need are measures to get young people back into work, but how long are they meant to wait, to take the argument of Government Members? A national insurance holiday for small and medium-sized enterprises—that is what we need. A bank bonus tax to create 150,000 jobs for young people—that is what we need. A temporary VAT cut to stimulate the economy and help out hard-pressed motorists—that is what we need. And a VAT cut for home repairs and maintenance to stimulate that important sector of the economy—that is what we need.

Then we have the granny tax. Under the guise of simplification the Government have brought in a stealth tax on more than 4 million pensioners. Some 700,000 people turning 65 years old will lose more than £300 per year—[Interruption.] Someone shouts, “No one will pay more,” and there is a debate to be had about sharing burdens.

[Dr Thérèse Coffey]

Will the hon. Gentleman give way?

[Gregg McClymont]

I am afraid that I have no more time to do so.

There is a debate to be had about sharing burdens across the generations, but to begin it with a stealth tax described as a “simplification” is surely not the way to encourage a healthy, long-term debate about that kind of distribution.

I finish on this point: wrong priorities, wrong values, wrong Government.

--- Later in debate ---

[Richard Fuller]

No, I am not calling for an increase in interest rates. I am calling for the Government to be clear, which I think they are, about the use of the quantitative easing policy. The results of that policy will, in a few years, have to be unwound. The level of their own gilts that the Government hold will have to be reduced. When that happens, interest rates will go up. We need to caution the Government to be aware, in setting the level of public expenditure, of what that level will mean. People will need an increase in pay owing to the increase in the Government’s cost of borrowing. Foreign holdings have also increased, and are now at 31%. We now have the highest spread between five-year and 30-year gilts in terms of the risk premium. All those points should caution us about our deficit.

Those facts come on the back of a significant level of debt in our economy. Opposition Members fail to realise that ours is the most indebted major economy in the world. That is the legacy of the previous Government and the previous Chancellor. Those who were here yesterday would have seen the shadow Chancellor give an uncharacteristically short speech. He sat down and people were surprised, because there was more that he could have said. However, I think that his speech could have been shorter. It could have gone thus: “I am sorry. I am really sorry. I am sorry for my hubris in thinking that I could end boom and bust. I know now that that was achievable only by leveraging up the entire British economy and dumping the debts on our children and grandchildren.” That is the speech that the shadow Chancellor could have given yesterday. He could then have sat down, because that sums up what he left us to sort out.

The shadow Chancellor did not give that speech yesterday, so perhaps I can give him some advice. The next time he goes to a school, instead of looking for a photo opportunity of him playing football, he could go up to one of the schoolchildren and say, “Hey, I’m sorry. I’m sorry that I shackled your potential with the debts that my monumentally short-sighted economic strategy created.” That is the truth of what he left behind.

[Gregg McClymont]

Does the hon. Gentleman accept that that is rather a caricature of what happened during the global financial crisis? It was a global crisis. Surely the financial sector, and the banks in particular, have to take some responsibility for the debt that we face.

[Richard Fuller]

As always, I have a lot in common with the hon. Gentleman, but that is not the point. The point is that the damage was already being done in our national economy. It was the strategy of the previous Government not to be content with leveraging up their own debt; they required the leveraging up of household debt and corporate debt, as well as financial sector debt and Government debt. Debt was the answer in the period when they came up with the statement that they had ended boom and bust. That debt has to be paid for. It is two years since the Labour Government left office and there is not enough time to pay for the 10 years of the growth of debt in our economy. It will take a significant amount of time for us to de-leverage the economy in every sector. This Budget is part of that process.