The Economy

Lord Darling of Roulanish Excerpts

Tuesday 11th December 2012 Commons Chamber

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

I hope that the hon. Member for Macclesfield (David Rutley) will forgive me if, in the time available to me, I do not follow him down the road of bulldozers or anything else. I should begin by drawing the House’s attention to my entry in the Register of Members’ Financial Interests.

I am sorry that the Chancellor is not present, partly because he used to kick up a real fuss whenever I did not appear in the House or was slightly delayed. It would have been nice if he had been here: I am sure that plenty of us would have liked to press him on the question of how on earth he can claim abject failure as success, which is what he was trying to do last week.

Two years ago, it was not meant to be like this. Two years ago, the new Government said that they would be able to balance the books by the end of the current Parliament, and that debt would be falling as a proportion of national income. In 2010, they said that all the problems we faced were entirely home-grown. They compared this country mendaciously with Greece, and said that we would lose our credit rating, which they may yet regret. In other words, they set about trashing confidence and blaming the last Government for everything. That is despite the fact that the Conservatives supported every single penny of our spending until December 2008, and the Liberals were doing exactly the same until the evening of 10 May 2010, when they changed their minds.

The new Government’s position was that it was all the fault of the previous Government. How much has that changed? Last week, they began saying that this was an international crisis. They said that it had been caused by the eurozone; by the United States fiscal cliff; by inflation. However, all three of those things were around in 2010, and were known about. The problem that we have at present is that we simply do not have the growth that we were expecting, with the result that the Government have missed their debt reduction target and are experiencing serious difficulties in relation to borrowing. I shall say more about that shortly.

The Chancellor’s problem is that the growth profile that is presented in the report from the Office for Budget Responsibility, which was published last week, is remarkably similar to the profile that was published two years ago, but it is now running at least between two and four years late. If we do not achieve the growth profile that is set out in the report, both our borrowing and our debt will be higher, because the two are completely interlinked. I see no evidence for believing that the figures will be any more right this time than they were two years ago.

It is interesting to note that the OBR assumes, just as the Treasury modelling used to assume, that somehow we will always return to a 2.5% trend rate of growth. That theology was being questioned when I was in the Treasury, and I think that we will have to look at it again now. The Japanese are apparently contemplating what would be the fifth recession in 15 years. I honestly do not think that those of us in the western world—and Japan is, economically, in the same position—can assume that everything will bounce back as if nothing had happened. This will have a profound implication for all the political parties in the House, as well as further afield.

However, it is in relation to borrowing that I would have taken the Chancellor to task had he been here. During his speech last week, he made great play of how transparent he was being in taking into account the money that he had managed to find as a result of quantitative easing at the Bank of England and from the Royal Mail’s pension funds. What he did not say was that he could claim that borrowing was falling this year only because he had banked the sale of the 4G auction, which will bring in a very handy £3.5 billion—and, furthermore, will have to bring it in before the end of March if it is to score properly. That is the only reason why he could claim that, because the figures show that although borrowing has a downward profile, we are in fact borrowing £212 billion more than the Chancellor intended to borrow. We are borrowing much more, therefore.

The OBR report contains a number of findings that ought to worry those on the Treasury Bench as well as the rest of us. For example, over the next few years a very handy cumulative total of £73 billion will come in from the asset purchase facility—quantitative easing by the Bank of England. That money is not being created because of increased revenues or increased economic activity, however. It is basically a financial transaction that the OBR has said is okay to put in the books in this way, as opposed to scoring things differently which would have left a large hole in the economic figures.

[Charlie Elphicke]

The right hon. Gentleman is making a typically thoughtful speech. If he were the Chancellor, would he pursue the five-point plan the shadow Chancellor has proposed, given that it would cost £20 billion? Does he think there is the capacity to do that, and does he think it would be a sensible policy to pursue?

[Mr Darling]

I will address that point later. It is an important point, and I do not believe we should just sit back and hope that growth returns. The shadow Chancellor and many others both inside and outside the House also do not believe that the Government’s approach is right.

We are heavily dependent on money that is coming in from a financial transaction. In addition, the OBR has now found that by 2016-17 our revenues will be £30 billion less than it forecast in March. That is a huge gap, which will have to be filled.

What should we do? Whenever the Opposition suggest that perhaps the Government could do a little more, the Government parties—the Conservatives and Liberal Democrats—always say, “That’s all about borrowing more.” This Government are borrowing £212 billion more than they said they would not because we are spending money on projects and so forth, but because of failure—because our revenues are down. That is why we have got this gap.

When we eventually have a recovery, this country will need infrastructure. Over many years, we spent a lot of money on transport and energy. That was the sort of spending the Government say should not have been made, but we now know it was desperately needed, and we need to invest more in infrastructure, as well as get debt and borrowing down. We must invest in education, too.

On energy, the Government’s policy is completely contradictory. We are getting different signals every day of the week. On transport, I say again that it is not good enough to have no airport policy until halfway through the next Parliament, when we will not be able to do anything as another election will be coming up. That is not the right signal to send to our country, let alone the outside world.

Investing more in infrastructure projects would be one way to get confidence back. Confidence was trashed two years ago. If anyone were running a business now, would they hire more people or open a new production facility? No, they would not, because it appears that the economy will be bumping along the ground for another five years or so. I again remind Members of what has happened to Japan. People say, “We would never be like that,” but Japan has had non-existent growth for 15 years.

[Mr MacNeil]

Some commentators—at one time Ben Bernanke, and lately notably Paul Krugman—have talked about higher inflation targets for Japan, and also for the UK and other countries that are suffering a downturn. What is the right hon. Gentleman’s opinion on that? Does he, too, support higher inflation targets as a way of stimulating recovery?

[Mr Darling]

There is a lot of debate about that issue. I do not have the time to address it in detail, but I have said—including in a programme that will be broadcast tonight—that I think the Bank of England needs to examine its role, because for a long time we have said its job is purely to target inflation, yet central banks across the world are now also targeting growth, and perhaps we should consider whether we should formalise that role. Mark Carney was an excellent choice as the next Governor, and I hope he will think about that.

Talking about Governors, the current Governor, Sir Mervyn King, made an important point in New York last night when he talked about the G20, which had done so much at the height of the crisis in 2009, showing the determination that people expected in order to prevent the entire world economy from going over a precipice, and said that that spirit was now dead. He is absolutely right about that. It is important that we in this country, along with President Obama, now that he has been re-elected, look again at what we can do collectively as part of the global community to try to get the world economy not only to resolve some of the problems we face, but get growth going again.

That inevitably takes me on to Europe and the eurozone, because it is a tragedy that a legal structure and an economic structure that could do something about getting growth going again is simply failing to do so. Greece is not sorted out yet; another attempt was made a couple of weeks ago, but as far as I can see it leaves Greece with even more debt than it had. Until the Spanish banks are bailed out, they will simply hold back the whole of the eurozone, and the sooner Spain goes to get the bail-out it needs, the better it will be. Then we need to deal with the question of austerity. Austerity on its own does not work. Those who are interested may wish to know that there is an interesting article by Olli Rehn, the economic Commissioner, in today’s Financial Times, in which he just asserts that it is going to work, in the same way as this Government assert that austerity is going to work—frankly, I do not see it. We need to use our engagement in relation to the eurozone and to the European Union to try to persuade countries that unless they act together, in the same way as we did three or four years ago, although in a slightly different context, we and the eurozone countries are simply going to bump along on the bottom for years. If that is the case, the human cost is that we are condemning tens of thousands, if not hundreds of thousands, of people in this country, and perhaps millions of people in the European Union, to unemployment and low standards of living. If we do that, future generations will never forgive us.

[Several hon. Members]

rose—