Jobs and Growth

John Hemming Excerpts

Thursday 17th May 2012 Commons Chamber

[Mr Osborne]

I certainly think that a lack of airport capacity is a challenge for this country, but one of the good things that may emerge from the bmi merger is that more slots may become available at Heathrow to open up routes to those cities in China. My hon. Friend makes the very good observation that we have to do much more to expand our exports and our links with the Chinas and Indias of this world. One of the good things that has happened in the past few years is that our exports to China and India are up by a third, and we need to see more of that.

In his speech, the shadow Chancellor dismissed the Governor of the Bank of England as plain wrong. Who appointed the Governor? Did the recommendation ever come across the desk of the shadow Chancellor when he was the political adviser in the Treasury? [Interruption.] We will find out. Yesterday the Governor said:

“We have been through…the biggest downturn in world output since the 1930s, the biggest banking crisis in this country’s history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart”.

My message to the House today is that addressing those problems is not easy, but nor is it impossible. I will come on to talk about the eurozone, but first we must put our own house in order, and we are making progress on doing so.

[John Hemming (Birmingham, Yardley) (LD)]

Tony Blair says in his memoirs that from 2005 onwards Labour

“was insufficiently vigorous in limiting or eliminating the potential structural deficit”.

Does the Chancellor agree?

[Mr Osborne]

I agree with Tony Blair on that and, indeed, on his views on the shadow Chancellor.

--- Later in debate ---

[Mr Osborne]

I am reminded that the players used to wear “AIG” on their shirts. Perhaps it is a sign of how things are improving that they now wear the name of a major Chicago-based insurer that has chosen to move its headquarters to London. We remember all the stories of companies that moved their international headquarters from Britain a few years ago; now they are coming back.

I want briefly to say something about the eurozone crisis.

[John Hemming]

Will the Chancellor give way?

[Mr Osborne]

Of course I give way to my Liberal Democrat colleague.

[John Hemming]

In 2006, Lord Turnbull, who was at one stage Tony Blair’s Cabinet Secretary, said that borrowing

“crept up on us in 2005, 2006 and 2007, and we were still expanding public spending…You might have thought that we should be giving priority to getting borrowing under better control, putting money aside in the good years—and it didn’t happen.”

Does the Chancellor think the Opposition have learned anything since?

--- Later in debate ---

[John Hemming (Birmingham, Yardley) (LD)]

In a hurricane, even turkeys can fly, and I will come to that later.

Rather than talking about growth, I like to talk about the national cake. The country bakes the national cake. Some shares of the cake are taken by the Government in tax and given to those without any cake. Other people work on baking their own parts of the cake. Then we have the deficit. That is where we make a time machine and snaffle a few slices of the cake baked by our children in years to come to eat today.

When 40% of GDP is being spent on public services, it is about two fifths of the national cake. That, which is the objective at the end of this Parliament, is higher than under the first two Blair Governments. Anyone who wishes to argue that the coalition Government are an extreme right-wing anti-public services Government has to explain why the Blair Government were more anti-public services than the current Government on that measure.

The growth we search for is the first differential with respect to time of the size of the national cake. The question to look at is the one about what the ingredients are. One ingredient that does not get sufficient attention is the energy used to cook the cake. It is possible to compare different countries’ national cakes and the amount of energy required to bake them. Using as the denominator the total energy supply in million tonnes of oil equivalent—not a ton as in a ton of bricks—we see that from 2006 to 2010, the UK’s energy intensity of GDP in 2005 dollars was 1.58, 1.64, 1.62, 1.66 and 1.74. That was a gradual improvement in energy efficiency in terms of bucks for bangs. The OECD average is 1.06, Switzerland has an amazing 4.74 and South Korea a low 0.45, while the US runs at 0.89.

Although the stock market is unreliable at predicting a recession, a spike in oil prices does cause a recession. A recession causes a drop in energy usage: total OECD energy usage dropped from 5,553 through 5,481 to 5,238 between 2007 and 2009, and then went up again to 5,413 in 2010. According to the International Energy Agency oil market report, OECD demand for crude oil peaked in 2007 at 49.09 million barrels of oil a day, then went through 47.5, 45.84, 46.17 to 45.63 in 2011. Brent bottomed out at just over $40 in December 2008 and has increased since. More recently, it peaked at just over $126 and today has come below $110. In the Budget, it was forecast at $110, so it has risen above Budget figures. To that extent, therefore, one would expect to have a constraint on growth in 2011 and early 2012, as oil prices have increased. Lo and behold, we have it: 10 of the 17 eurozone countries contracted in the last quarter of 2011. The lack of certainty does not help, but energy costs are part of this. The USA has the advantage that West Texas Intermediate has been cheaper than Brent.

Politicians are not all-powerful. We are affected by the global energy picture as well as the eurozone crisis. When the business climate is good, it is easier for bad managers to produce a good return—hence the US saying, “In a hurricane, even turkeys fly.” However, in difficult circumstances, such as those that we face today, the outcome can still be disappointing even though the policy choices are the right ones. The time we could have changed policy without paying was between 2005 and 2008, when Government spending was accelerated at exactly the wrong time, as was noted by Tony Blair and Lord Turnbull. It remains the case, however, that if we are to find ways forward we need to increase our energy-intensity of GDP and find more ways of having economic activity that uses less resources. A lot of all this is already being done, but there is a greater need for the future, as the old certainties of continual growth and resource consumption no longer apply.