Economic Growth

Kelvin Hopkins Excerpts

Wednesday 15th May 2013 Commons Chamber

[Kelvin Hopkins (Luton North) (Lab)]

First, may I say how much I enjoyed the speeches of the hon. Members for Dover (Charlie Elphicke) and for Redcar (Ian Swales), and their comments on tax evasion and tax avoidance? I have been raising those issues for more than a decade in this House, and we are now starting to take them seriously. If we collected the tax that is owed, we would go a long way towards solving any spending problem we have. The speech made by the hon. Member for East Antrim (Sammy Wilson) was also first class, and I agree with what my hon. Friend the Member for North East Derbyshire (Natascha Engel) said as well.

I want to focus on the economy. Clearly, austerity is failing, and I was among those who predicted its failure. Early in the life of this Government, I quoted Paul Krugman and his view that the Government were going in precisely the wrong direction. What Britain needs is a reflationary programme, not austerity, with a boost to public spending in specific target areas. We have 2.5 million people unemployed, so it is logical that additional spending should be directed to areas of high labour intensity: construction and the public services, which are precisely the areas that have suffered the most savage Government cuts. Construction output has fallen by 12% since 2010 and by 20% since 2008, and thousands of jobs have been cut in the public services. Jobs in construction and the public services have the added advantage of pumping additional economic demand primarily into the domestic economy, so maximising the reflationary multiplier effects to boost growth. Reducing unemployment quickly and substantially will cut the bill for benefits, raise tax revenues and bring down the Government’s spending deficit into the bargain. Moreover, the kind of jobs created by such a programme will go to those whose marginal propensity to consume is high, thus putting their newly increased income straight back into the economy as they spend their new wages. If, indeed, additional borrowing is required—it may not be required if we just collect the taxes we are owed—the kick-start should not be expensive. I do not think reflation will be a problem. Interest rates are in any case very low so the costs of borrowing are also very low.

There is, however, a serious problem with such a reflationary programme. Although construction and the public services have minimal import content, meaning that additional spending goes initially into the domestic economy, the additional spending will quickly begin to suck in imports and Britain already has a massive and growing trade deficit, largely with the rest of the EU. The figures are stunning. We had a deficit on the current account in 2012 of minus £57 billion, up from minus £20 billion the year before. The goods deficit was more than £106 billion in 2012, more than £2 billion a week. The bulk of this deficit is with the EU 27 and rose from £4.8 billion in January this year to £5.1 billion in February, on course for a deficit of more than £60 billion this year and possibly £70 billion, as was said before. This is a massive problem.

There is a goods deficit with the rest of the world too, up to £4.3 billion in February from £3.4 billion in January, so the deficit is not just with the EU, but the EU is the major problem. Britain therefore has a desperate trade problem that can be solved only by rebuilding and expanding the UK manufacturing sector. It is a shocking fact that manufacturing as a proportion of GDP in the UK is half that in Germany, and it is no surprise that we have a gigantic trade deficit specifically with Germany.

This phenomenon is not new, of course. I have with me a copy of a pamphlet published 24 years ago by the Institute for Public Policy Research called “The German Surplus”. Even then, there was a massive problem that had grown quickly over that decade. It was just such trade imbalances that Keynes knew would cause economic damage and, if they were not addressed, would ultimately cause serious economic and political tension between economies and between nations. The 1944 Bretton Woods conference decided to provide for essential devaluations by deficit countries, and Keynes proposed too that countries with large trade surpluses should be required to revalue their currencies. The latter proposal was rejected by the US, but the necessity of appropriate exchange rates was recognised. This is why the euro is such a disaster and is doomed to fail.

Mercifully, Britain avoided the euro trap and is able to flex its exchange rate. However, it is glaringly obvious that we need to depreciate our currency to become competitive again and to maintain an appropriate exchange rate so that we can rebuild our manufacturing industry. We have seen manufacturing deteriorate over several decades and we need to reverse that trend.

--- Later in debate ---

[Pete Wishart]

The hon. Gentleman is not on particularly steady ground when it comes to the debate on Scottish membership of the European Union. To answer his question, we will not be joining the euro but instead will follow Sweden’s example.

The Scottish people are observing two futures. In one future they remain shackled to the United Kingdom, which will become increasingly shackled to an intolerant, right-wing agenda. The hon. Member for Mid Bedfordshire (Nadine Dorries) has already said that she will have a joint UKIP-Conservative candidacy at the next election. I do not know how many more Conservative Members will adopt that stance. What we are seeing is a realignment of the right. All I have heard from the 1922 committee, which has not been very pleasant recently, with all the disagreements about Europe, is that there is a faultline running through the Government. The Scottish people have a choice: they could have that future, or they could have their own future, determined by them and based on their values.

[Kelvin Hopkins]

The hon. Gentleman is making the case that Euroscepticism is an entirely right-wing view. In fact, across Europe the majority of Euroscepticism is on the left, among socialists, trade unionists and working-class people.

[Pete Wishart]

That might be true, but that is not how it is being demonstrated politically.

What we have observed is a total realignment. There are two different countries, and one is emerging south of the border with increasing UKIP results. It is absolutely certain that UKIP will win the next European election, and Conservative Members should be very careful about all that. They are right to be wary, because it could deprive them of office. I do not know what will happen, but Scotland has a choice—thank goodness—to do something different. We can remain shackled to an increasingly right-wing United Kingdom, almost relaxed about its continuing decline, or we can decide to have a future of our own, a future determined by the Scottish people, based on our social values and the type of community we want to develop and grow. We can choose to be a consensual and helpful friend in Europe, rather than one that likes to criticise, is semi-detached, does not really enjoy being there and is on its way out. Thank goodness we have that choice.

I know the type of future that my fellow countrymen and women will choose. They will opt to ensure that their future is in their hands. They will determine the type of Scotland they want: a Scotland standing proud in a coalition of nations around the world. That is the country I want and I am absolutely certain that that is what my fellow Scots will choose next year.