The Economy

Debate between Kwasi Kwarteng and Michael Meacher

Tuesday 11th December 2012 Commons Chamber

[Kwasi Kwarteng]

I appreciate the hon. Gentleman’s intervention, but if he looks at the deficit and the direction of travel and what happened in the 1980s, he will see that the deficit came down, again after a period of Labour mismanagement, every single year from 1979 to 1989, and that the budget was balanced in 1989. It was only as a consequence of the recession that we went back into deficit, as a Keynesian economist would tell him.

Let us look at what has happened over the past three years. The Government came into office when the eurozone was in crisis and there was a massive run on Greek sovereign bonds. The Chancellor’s approach, quite rightly, was to make the deficit our No. 1 priority. That, in effect, calmed the markets. Opposition Members might scoff at the bond markets, but they are very powerful. It was particularly interesting to note that in the six weeks before the general election British gilts were actually rising in value and yields were falling, because the markets rightly believed that Labour would be turfed out of office. In anticipation of that happy event, and before the quantitative easing, people started buying British gilts.

The Chancellor’s approach to dealing with the deficit is exactly the right one, because it followed the insight that we have to deal with spending. All countries in the western world have to do that. That is what the fiscal cliff debate in America is about, because it understands that spending has to be on the table; the issue is the degree to which revenue should be on the table. It has a mature approach to public spending. It is only the Labour party that lives in this Shangri-La world in which we can carry on spending and borrowing money with abandon and making the crisis even worse.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

I think this is the most extraordinary rewriting of economic history I have ever heard in the Chamber. The hon. Gentleman has not once mentioned the banks and the financial crash. Does he not realise that the public sector deficit in 2007, just before the crash, was about 3%? It only rose—

--- Later in debate ---

[Mr Meacher]

I obviously made a mistake in giving way to the hon. Gentleman.

As the Chancellor acknowledged, he had two main objectives in his autumn statement/mini-Budget. One was to generate the growth that has certainly eluded him for the past two and a half years; the other was to rebalance the economy and lay the foundations for genuine, sustainable, long-term growth. He failed miserably on both counts. On the first test, the International Monetary Fund, the OECD, the Federation of European Employers, the CBI, the British Chambers of Commerce and the Federation of Small Businesses have all been telling him that he simply must inject growth into the economy and stop endlessly hacking away at public expenditure. Just how desperately such actions are needed is shown by the fact that the Chancellor’s own forecast in his 2010 Budget that cumulative public sector net borrowing over the next four years would be £322 billion has now been increased to a staggering £539 billion. That is an increase of £217 billion. The key point is that that increase is almost wholly attributable to the failure of the economy to grow. That is the significant point behind this debate.

[Kwasi Kwarteng]

Will the right hon. Gentleman give way?

[Mr Meacher]

I will give way to the hon. Gentleman, because he was kind enough to give way to me at the end of his speech.

[Kwasi Kwarteng]

I am glad to see that some courtesies are still observed in the House. Does the right hon. Gentleman accept that this country and this Government have a problem with current spending levels, or does he believe that we can carry on increasing spending indefinitely?

[Mr Meacher]

Of course I believe that there is a problem with the level of debt and the level of the public sector deficit; everyone accepts that. The issue is how it should be dealt with. I believe that the way this Government are dealing with it is profoundly self-defeating.

The Chancellor has failed in the sense that, according to the OBR, despite an output gap that remains incredibly high at 3.7%, the net effect of all his measures in the autumn statement will be to raise the general growth rate by a footling 0.1%. That is an extraordinary judgment on the Chancellor.

The Chancellor also failed his second test, which was to shift the economy on to a more sustainable long-term footing, moving away from his over-dependence on finance—a move we all agree with—and towards a much stronger industrial and manufacturing base. Eighteen months ago, he announced with great fanfare the march of the makers. That never happened, however. He has now promised a £40 billion guarantee for private infrastructure investment, but the problem is not one of too little credit; it is one of too little demand for credit. The latest figures show construction plummeting ominously, largely because of its great dependence on the public sector, which the Chancellor is shrinking. Moreover, UK manufacturing will this year suffer the biggest deficit in traded goods in its entire history—a deficit of roughly £110 billion, or 7.5% of gross domestic product. That is utterly unsustainable, and if that trend is not reversed, it will inevitably lead to an almighty crash in British living standards before long.