The Economy

Lord Darling of Roulanish Excerpts

Tuesday 6th December 2011 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I hope that the hon. Member for Skipton and Ripon (Julian Smith) will forgive me for not following him, given the short time I have available.

The real problem we face in this country, in Europe and, to a large extent, in America too, is the lack of growth. The Chancellor opened his remarks by saying that the previous Government had been too optimistic about some of their forecasts. He gave—how shall I put it?—a somewhat incomplete précis of my book. In that connection, I refer the House to my entry in the Register of Members’ Financial Interests. Surely the Chancellor would accept that forecasting is extremely difficult at a time like this. Perhaps when he goes back to No. 11 at night, he will reflect on the fact that he was wildly optimistic about both growth and borrowing. I do not imagine for one minute that he expected to be standing up a week ago to announce that he was borrowing £158 billion more than he thought he would be borrowing in the summer of last year. The reason for that, substantially, is that we have less growth, with fewer people paying tax, more people dependent on benefits and, as the Office for Budget Responsibility set out, incomes being squeezed.

All that was perfectly foreseeable. Many people—Labour Members and many others—said that this would happen. The problem was not just the rate at which public expenditure was being cut, but the fact that the mood music that the Government deliberately set out to orchestrate last year was that everything was full of gloom and doom, so it is not surprising that businesses did not invest and that individuals decided to hold back on their expenditure. That is precisely what is happening in this country and in Europe, to which I shall return shortly. All this was foreseeable.

[Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)]

Following on from my right hon. Friend’s point about cuts, is he particularly worried about the construction industry, not least because so many small businesses are dependent on it?

[Mr Darling]

I am, and I shall come on to that in a minute, but I want to make a further point. If the OBR comes out with another downward revision of its figures at the time of the Budget next March, does it mean that we are going to embark on yet another round of reducing expenditure? It this not the same sort of argument that we had in the 1930s? The prevailing orthodoxy did not work then, and it will not work now. My guess is that this argument is going to dominate politics and economics over the next few months—not just here, as I said, but in Europe.

My right hon. Friend mentioned the construction industry. I welcome some of the measures the Chancellor announced on infrastructure, but with this big caveat. First, if he looks at some of them, particularly the road announcements, he will see that they have been announced by successive Governments over many years. He will no doubt have been told by the Treasury that the problem with these big plans is the huge lag between the time they are announced and the time we see them. I remember opening the M6 expressway and a reporter said, “This must be a great triumph for the Labour Government.” I said, “Indeed, it was. Harold Wilson would have been absolutely delighted to see it built.” That illustrates the point.

Although this is not a transport debate, I am glad that the Government are looking at the issue of aviation, but they cannot escape from the consequences of the decision not to proceed with the expansion at Heathrow. I know this is no longer my party’s policy, but I believe that issue needs to be looked at again for the future prosperity of the country. The High Speed 2 line is no substitute for it.

The Chancellor has, of course, had to change course. He was very much against quantitative easing. When I introduced it, he said it was the last act of a desperate Government, but it now turns out that it is a jolly good thing and we can expect to get even more of it. I suspect we will need more as the economy slows down. As I said, he has also had to introduce the infrastructure projects to try to help—although not enough, in my view. I think he will have to do more, particularly about jobs for young people facing unemployment, which is going to be a real economic problem as well as a real social problem. Many of us here remember the lost generation in the 1980s. Many of those individuals never got over the experience of having no job when they left school, college or university. The Government are going to have to come back to this, no matter what the Chancellor says, because the outlook is such that the Government are going to have to at some stage accept that at a time like this only the Government can take the action necessary to stimulate the economy and restore confidence. That brings me to Europe.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

My right hon. Friend talks about the effect of the Office for Budget Responsibility and the forward outlook. How does he view its projections for returning to the trend rate of growth in two or three years’ time, given the drastic revision that has taken place between the forecast in March and the forecast last week?

[Mr Darling]

As it happens, there is a passage in my book about the trend rate of growth. I believe that economists find it terribly difficult to work out what the right trend rate of growth is. On the point raised in the Select Committee this morning, I am surprised that the OBR has said that the productive capacity of the economy has been so reduced, partly because of lack of productivity. Part of the OBR’s problem is that it fails to recognise that businesses have retained labour through this recession in the hope that they will need it when recovery comes. One worry is that if businesses think there will not be a recovery, the people they have held on to will then lose their jobs. No doubt the Select Committee will look into that.

Let me touch on what is happening in Europe. I appreciate that it is a risky business because what is happening today might not be what is happening tomorrow or the day after that. The Chancellor touched on it and I hoped he would say rather more about what is being proposed—if, indeed, he knows.

As far as I can see, the agreement reached between President Sarkozy and Chancellor Merkel on Monday seems to be a re-creation of the stability and growth pact—and we know which were the first two countries that actually broke it. I have a feeling that they are trying to reach a sufficient political agreement to give Mario Draghi of the European Central Bank sufficient cover to do what we all know the ECB has to do in terms of intervening in the market. It does not go any further than that. Mario Draghi made a good speech last week, in which he said, “Look, we’re ready to intervene, but you lot have got to show willing.” Interestingly, that is exactly the same position that Jean-Claude Trichet took in the ECB at the last ECOFIN meeting I attended in May 2010, to which the Chancellor is fond of referring, when it was necessary for Ministers in the European Union and the eurozone to decide on sufficient action to allow the ECB to intervene.

I am glad that the ECB is going to intervene, but the agreement reached on Monday does not go far enough because it does not address the fundamental questions and fundamental problems of having a single currency without something approaching fiscal or economic union. That was not addressed and neither was the Greek problem, which will not go away because that fix will not work. The rescue fund is still a virtual one and, of course, there is the whole question of the recapitalisation of European banks, which remains for next summer.

[Matthew Hancock]

Will the right hon. Gentleman give way?

--- Later in debate ---

[Mr Darling]

I would love to, but if think that if I do it counts against me, so I shall carry on speaking for a minute and 22 seconds, if I may.

I know we will be represented in the Council at the end of this week. This is a debate that we cannot afford to stay out of. No one is advocating that we should join the euro, and it is simply not going to happen in anything like the foreseeable future, but what happens to the eurozone, who is in it, the implications of a breakdown whether it be orderly or disorderly—all that matters very much. I hope that the British Government will make it clear to our European partners that we really are partners and in that spirit try to bring about a resolution. As far as I can see, the present arrangements struck between the French and the Germans seem to be yet another fix. They will buy time, but they will not sort out the fundamental problems. Until those fundamental problems are sorted out, we will still have that dark cloud of uncertainty in Europe, which would be bad for Europe, bad for this country and therefore bad for growth and for jobs. For that reason, we have a real interest in helping to bring about a resolution to that problem if we possibly can.