The Economy

Jeremy Quin Excerpts

Wednesday 18th November 2015 Commons Chamber

[John McDonnell]

At a time when we are seeking to grow the economy, it seems bizarre to do so by reducing aggregate demand within a local area, which could in many respects bring about a localised recession.

[Jeremy Quin (Horsham) (Con)]

The hon. Gentleman has just agreed with the argument made by the right hon. Member for Delyn (Mr Hanson), so does he not accept that the same argument could be deployed for never cutting the deficit under any circumstances ever?

[John McDonnell]

The whole point of this debate is about political choices. To be frank, we have said to the Chancellor on a cross-party basis in debate after debate that this was the wrong political choice and that he should therefore look elsewhere. I am not asking for the detail of how he is resolving it—we will wait to hear that next week—but I am urging Ministers at least to give us the assurance that nobody will lose out. Families want that assurance now, because of the insecurity that they face.

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[John McDonnell]

Of course we welcome any increase in employment or reduction in unemployment. The problem is that the economy is unsustainable because it is based on rising house prices, borrowing and debt. My fear is that the jobs that have been gained in the past year may be lost in the forthcoming crisis, if we do not take avoidance action.

Andrew Haldane, the chief economist at the Bank of England, has warned that the third wave of the financial crisis, which is breaking out in the emerging markets, centred on China, could have an impact on Britain. Why? Because Britain is the country with the largest exposure to Chinese debt, at $500 billion. Any upset in the rest of the world will, thanks to our extraordinarily large financial system, rapidly make its way here. That is exactly how the last crisis happened, when failures to repay mis-sold mortgages by some people in American society turned into the failure of the entire banking system in this country.

We cannot know what will happen over the next few years. The Chancellor has warned repeatedly of trouble ahead, but surely these challenges are better faced if we have a more balanced and resilient economy that provides real security for all of us. Instead, we have a single-minded fixation on a single target: the 2020 surplus, which no credible economist supports. By clinging on to that so tenaciously, it appears that the Chancellor is putting the needs of his political career ahead of the prosperity of the country.

[Jeremy Quin]

The hon. Gentleman refers to the balance of trade. Part of the impact of that is that our country has been growing. Dividends have gone up 30%. Those who are investing in the UK are taking more money out of the UK because it is growing. We could be investing in places such as China, which are growing faster. Would he ban investment in China? Is that what he is saying? Should that be the result of his concerns?

[John McDonnell]

Part of the problem is that growth has not been high enough. In addition, we have sold off so many of our assets that money is pumping out of this country, rather than being invested in it. We are not making home-grown investments in our own economy, so the money is flowing abroad. That is causing our balance of payments deficit. In addition, our trade, particularly in manufacturing, has unfortunately not picked up on the scale it should have done.

Let me press on, because a large number of Members want to speak. We know, from the drip-feed of announcements, that the Chancellor intends to make swingeing and potentially devastating cuts to Government Departments and welfare spending. Let me make it clear that austerity is a political choice, not an economic necessity. The record of this Government shows that the Chancellor’s political choices are having a devastating impact on people across the United Kingdom. In many cases, his cuts are falling on the heads of those who are least able to afford them. [Interruption.] The Exchequer Secretary is asking for examples, so let us look at local government.

Since 2010, councils have dealt with a 40% real-terms cut in their core Government grant. In adult social care alone, funding reductions and demographic pressures have resulted in a £5 billion funding gap. Where are the cuts falling? According to the Institute for Fiscal Studies, the 10 most deprived local authority areas have lost £782 per household, while the 10 wealthiest areas have lost just £48 per household. Choices have consequences for people’s incomes and lives and the services upon which they rely. As a consequence of the Chancellor’s choices, ordinary people are being left worse off. He has made those choices and still failed to meet his self-imposed fiscal targets, so I pose this question: are the choices that are being made right, moral and fair? If the answer to any of these questions is no, it is self-evident he needs to rethink, and rethink fast.

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[Stewart Hosie (Dundee East) (SNP)]

I start by agreeing with what the shadow Chancellor said in opening his remarks—that cost should be no obstacle to providing the necessary security and intelligence to protect the people from the kind of threats that we are now seeing and that we saw in Paris. I therefore say to the Economic Secretary that if the Government wish to increase spending in those areas, there will certainly be no resistance from the SNP. I agreed with her, too, when she said that we need to cut out unnecessary and wasteful spending. I think that is absolutely right, and no one with any common sense would say that we should spend money on things that we do not need. So we will offer up a starter for 10, which is £167 billion on Trident and its replacement.

We will back the Opposition motion today. There is no doubt at all that this Tory Government and their coalition predecessor have failed, and we have seen the evidence of that failure, which I shall come on to develop. We essentially have an austerity programme from an austerity Government who have failed to deliver the growth the economy needs and are instead committed to making precisely the same mistakes all over again.

When I say that this Government have failed, we should remember precisely what the Chancellor promised when he became Chancellor in 2010. He said that debt would begin to fall as a share of GDP by 2014-15; that the current account would be in balance this year; and that public sector net borrowing would be £20 billion. We know now—many of us warned of it in the last Parliament—that debt did not fall as a share of GDP as planned; that the current account will not be back in the black until 2017-18 at the earliest; and that public sector net borrowing is not the £20 billion promised, but over three times that, at £70 billion. The key point is that the Chancellor failed to meet every single one of the targets he set for himself. In the eyes of any reasonable man or woman in the street, that is failure.

[Jeremy Quin]

The man in the street and the woman in the street have already spoken; they spoke five months ago, and they want more of the same. They want the deficit to continue to be brought down. We have halved the deficit and done so while maintaining one of the best levels of growth of any country in the G7.

[Stewart Hosie]

Growth was strangled throughout the early part of the recovery in the last Parliament. If it has picked up since, that might say more about the weakness of our major competitors than any inherent goodness or sense in the Tory plan, which, as I say, has actually failed. This is an austerity programme that saw £121 billion-worth of cuts, tax rises and discretionary consolidation in the last Parliament that strangled the recovery. With an extra £37 billion to come, we are now on track for a full decade of austerity.

It is worse than that, however. With the Government changing the ratio of tax rises to cuts from 4:1 to 9:1 during the last Parliament, we have the clearest indication not simply of failure, but of failure delivered by trying to balance the books in a way that was never going to succeed and on the backs of the poor. That is a situation that will only get worse, as the motion mentions, through changes to tax credits.

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[Bill Esterson (Sefton Central) (Lab)]

Let me begin by responding to what was said about the deficit by the hon. Member for Cheltenham (Alex Chalk). We should judge the Conservatives by their own record. In 2010, the Chancellor said that he would get rid of the deficit in one term; that target rapidly disappeared. He then said that he would halve the deficit in one term, a plan that was clearly shown to have failed when it was down by only a third at the time of the election. He then moved the target to 2019, and then to 2020. When it suits him, the Chancellor changes his mind and his measure as much as he can on the deficit, so it is clearly not as important as Conservative Members claim.

[Jeremy Quin]

Surely the hon. Gentleman welcomes the flexibility shown by my right hon. Friend the Chancellor. After all, Opposition Members are always asking him to show flexibility. He makes certain that he stays on course and we get to the right place. The deficit has been halved to date, and that will continue, but it is happening in a measured and effective way.

[Bill Esterson]

Of course we need to get rid of the deficit so that we can start reducing the debt, but it must be done in a way that is sustainable, and that can only happen if we grow the economy.

The Government have presided over the slowest recovery on record. Tax receipts are an indicator of the health and productivity—[Interruption.]

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[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The Chancellor is known for being a very political operator. Economic historians will pay tribute to the manner in which, following the 2010 election, he successfully framed the economic debate by focusing on the deficit. This enabled the Conservative party to challenge the economic competence of its predecessors while also allowing it the political space to pursue its ideological obsession with reducing the size of the state. The Chancellor has endeavoured to portray the economic recovery as one made in No. 11 Downing street. This ignores the fact that the last recession was the longest in economic history and was most certainly exacerbated by the deep contraction in public spending at the beginning of the last Parliament.

What is often conveniently ignored in debates such as this is the role of monetary policy. As I have said in the past, the UK economy continues to be on the life support of ultra-loose monetary policy. Central bank interest rates continue to be at an historically low level of 0.5% and the economy has been kept afloat with £375 billion-worth of quantitative easing. One of the perverse side-effects of QE has been to increase wealth inequalities as assets increase in value, a theme I will return to later. Monetary policy by the central bank filled the void left by the Treasury’s fiscal cuts, but it has led to a greater imbalance in the UK economy, where economic performance is now even more reliant on consumer spending, as opposed to public investment, exports and business investment. According to the House of Commons Library, household consumption now accounts for over 60% of the UK economy, and it should be an urgent Treasury priority to rebalance and boost business investment and exports.

The Bank for International Settlements—or, to give it its other name, the central bank of central banks—has warned that the danger with the current ultra-loose monetary policy is that the western economies will become hooked on low interest rates and that any normalisation will lead to significant economic headwinds. In other words, there is a danger that the abnormal in monetary policy will become the new norm. The obvious consequence, if there is no normalisation of monetary policy, is that the central bank will be impotent when the next downturn comes. Let us remember that, since the second world war, the average economic cycle has lasted between seven and 10 years, which means that we might be due another downturn very soon.

[Jeremy Quin]

I am not certain what the hon. Gentleman is asking for. Is he suggesting that we should be hiking interest rates now? No one likes the extent of unconventional monetary policy, but hiking interest rates would come as a shock to many.

[Jonathan Edwards]

I am grateful to the hon. Gentleman for that intervention, because I was about to make the point that the Treasury needs to be very careful with our fiscal policy.

A study by Credit Suisse shows that since the turn of the century the UK has been alone among the G7 members in seeing its wealth inequality grow. Even the International Monetary Fund argues that reducing wealth inequalities is a key economic growth strategy. Unfortunately, the recent Budget, with its assault on tax credits, is likely to lead to an increase in income inequalities and wealth inequalities. Considering the pressure faced by the public finances and the cuts being imposed on support for the poorest in society, we oppose the intention to end inheritance tax on family homes worth up to £1 million. Inheritance tax raised more than £4 billion in 2015-16 and it should be an important element of a more balanced approach to fiscal consolidation, as opposed to the Tory obsession with cuts. The decision to scrap maintenance grants for the poorest students at the same time as introducing the regressive changes to inheritance tax will not solve the major social mobility problems in the UK.

The Chancellor has eased what the Office for Budget Responsibility had described as a “rollercoaster” fiscal policy, whereby cuts would be front-loaded, with a spending splurge at the end of the political cycle. However, spending on public services by the end of this Parliament as a percentage of GDP will be at its lowest level since 1964-65, according to the OBR.

The economy faces several major challenges. The first involves the grotesque geographical wealth inequalities within the British state and the over-reliance on London and the south-east of England. This problem has built up under successive Governments, to the degree that the UK is now by far the most unequal state in the European Union. Regrettably, the communities I represent are at the bottom of the pile. To be fair, the current UK Government at least acknowledge that there is an issue. Their response has been to devolve significant taxation powers to Northern Ireland and Scotland, which have received powers over corporation tax and full income tax powers respectively. Significant powers are also being devolved to English city regions.

In the case of Wales, however, we are getting minor taxes and an income tax sharing arrangement pending a referendum many years down the line. The key question that the UK Government need to answer is this: what economic disadvantage do they envisage Wales facing as a result of our second-class settlement? Direct economic control from Westminster is clearly failing my country. We deserve equal respect with the other constituent parts of the UK and we need the same job creation levers that are being devolved elsewhere.

Secondly, the UK faces major challenges in relation to chronic levels of business investment and productivity. The Treasury Budget briefing note itself acknowledges that business investment levels in the UK are the worst of all major economies apart from Italy. To address this, the Treasury needs to return infrastructure investment to pre-recession levels, as advocated by the IMF. That would equate to around an extra 1% of GDP—£19 billion of extra investment across the UK with a share for Wales of around £1 billion. That is what we will be looking for when the Chancellor stands up next week to deliver his comprehensive spending review in his autumn statement.

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[Jeremy Quin (Horsham) (Con)]

It is a pleasure to follow the thoughtful speech of the hon. Member for East Antrim (Sammy Wilson). He referred at the outset to the growth that we are currently achieving and I take his comments about that. The Office for Budget Responsibility suggests that we will have growth higher than 2.4% for each year in this Parliament. As has been said by many hon. Members, that puts us in the best cohort among all those in the G7. It is not a jobless recovery. We have 2 million more people in employment—that is, 1,000 extra per day. As the Minister said from the Dispatch Box, finally average wages are increasing in real terms, a trend that is extended by the national living wage introduced by my right hon. Friend the Chancellor.

That is a remarkable performance for any Government, but it is particularly remarkable in the context of what we inherited back in 2010. Here I respectfully draw a distinction between myself and the remarks of the hon. Member for Hayes and Harlington (John McDonnell). We can all remember wise people saying back in 2010 that if anybody came in to take the actions required to sort out our economy, they would be out in opposition for a generation; that if people came in to tackle the problems that our country faced back in 2010—the legacy that we were taking on—that would be politically impossible. Those wise people underestimated the British people and the Government. They did not underestimate the hon. Member for Hayes and Harlington, whose comments suggested that austerity was a political choice to sort out the deficit. It was not a political choice; at the time it was economic necessity.

[Imran Hussain (Bradford East) (Lab)]

I have heard from the hon. Gentleman and many others on the Government Benches today about the hundreds of thousands of new jobs, the increase in wages, and this road that leads to economic prosperity. Can he answer one simple question? Why is it, then, that under this Government half a million more children have been pushed into absolute poverty?

[Jeremy Quin]

In relative terms, there are fewer children in poverty than ever before, and I am delighted that half a million children have adults in their families who are working. That is the route to success and long-term prosperity.

I take issue with the suggestion made by the hon. Members for Swansea West (Geraint Davies) and for Hayes and Harlington that our fiscal problems resulted solely from the recession. It is easy to forget the golden legacy bequeathed by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke). When the Labour party came into government, it had the third best structural position of any country in the OECD. When it left government—in fact, before that, on the eve of the financial crisis—it had the fourth worst. The hon. Member for Hayes and Harlington cited Gordon Brown. I have no confidence that the same sort of pattern would not emerge if Labour Members were ever again to grace the Treasury Bench. Despite the huge work being done and the pressure that is being exerted by the Government, we are still increasing our deficit by £3,300 a year per household, and still spending £1 billion a week to service that debt. That is why we need a Government who are going to continue to get this under control.

The motion before the House is very long—I counted nearly 300 words—but it does not seem to contain any ideas as to how we should be cutting the deficit. It does, though, contain a couple of aspects that I would like to mention, one of which was referred to by the hon. Member for East Antrim: spend on research and development. It is a pleasure to be able to remind the House that with 1% of the world’s population, we are responsible for 3% of R and D spend and 16% of the most important research; he was absolutely right about that. My hon. and learned Friend the Member for South East Cambridgeshire (Lucy Frazer) mentioned the report by the Royal Society, and the hon. Member for Islwyn (Chris Evans) raised the old bugbear of the inability to get our universities and our businesses working together. We seem to be getting on top of that. We are supposedly now fourth best in the world at getting that linkage, as well as being the second-best economy in the world in terms of global innovation. I welcome what the Government are doing through the global challenge fund in preserving the capital budget for R and D spending at, for example, the International Centre for Advanced Materials in Manchester.

[James Cartlidge]

Ultimately, my hon. Friend is talking about the importance of investment. It is necessary to reduce the deficit, and therefore eventually the long-term debt, in order to build an economic policy that is credible to outside investors and gives them the confidence to invest in this country. That is the key reason.

[Jeremy Quin]

I thank my hon. Friend, who is absolutely right. He is not the only wise person to make such remarks; the head of the CBI did so only recently. That fiscal rule gives companies the confidence they need that they can invest in this country and will continue to see long-term progress being delivered by this country.

The hon. Member for Dundee East (Stewart Hosie) talked about the need to have export-led growth. One of the problems we have with our balance of trade—I mentioned it in an intervention on the hon. Member for Hayes and Harlington—is that we are growing while our major markets are shrinking or teetering on the edge of recession. That is the sad aspect of the position we are in. While I am delighted that we have one of the best rates of growth of any country in the G7, it would be a lot easier if the whole of Europe were growing at the same pace. Whereas other countries are taking strong dividends out of this country from the investments they have made—dividends have gone up by 30% in the UK economy since 2010—we are not getting the same capital returns from the investments that we are making overseas. Nor are they in a position to buy the goods that we are manufacturing. There are many good stories to be told about our export business, particularly in the automotive sector, but if our customers cannot afford to buy our goods, that will inevitably come through in the statistics.

The answer is that we should be investing more and expending more effort on the growth markets of the world. I have to say to the hon. Member for Dundee East, and to other hon. Members, that we see the growth in China and in India, and we know how important they are. One would have needed the sleeping prowess of a Rip Van Winkle not to have noticed the efforts that the Government are making in India and in China to ensure that we are opening up those markets for our exports in future. I oppose the motion.

[Several hon. Members rose—]