amendment of the law

Lord Hain Excerpts

Monday 25th March 2013 Commons Chamber

[Mr Peter Hain (Neath) (Lab)]

Contrary to the Chancellor’s mantra, Britain’s return to recession was not made in Europe. It was made in Britain by the severe fiscal squeeze that the Chancellor launched nearly three years ago. Problems in the eurozone spell trouble for the UK economy—of course they do—but the Chancellor never mentions the fact that Britain has benefited from the recovery of the USA economy, which accounts for 20% of our trade, and is currently growing four times faster than the eurozone is slowing, because the USA took the route of economic stimulus and stuck to it. Britain set out on the same path under Labour after the banking crisis, and the economy began to pick up. However, the coalition veered off as soon as the Tories and Lib Dems took office, turning the road to recovery under Labour into the road to ruin.

Cutting too far and too fast means that the Chancellor has missed all his key targets. In the year that is ending, his target deficit—the cyclically adjusted current deficit as a share of gross domestic product—is twice what he originally said it would be. Next year, the Office for Budget Responsibility expects it to be four times what he planned. He has also missed his public sector debt target: instead of falling to 67% of GDP in 2015-16, under the Budget it will fall to 85% two years later, in 2017-18. That is a surreal definition of success: debt falling upwards. Salvador Dali would be proud.

Zero growth has forced the Chancellor to accept higher borrowing targets—more than £200 billion higher over five years than he planned in 2010. Most of the cuts that have been announced have yet to hit home. Cuts and austerity will continue Britain’s economic inertia, with more disastrous, scorched earth economics to come. Growth, not cuts, should be the priority. Sadly, there is plenty of spare capacity in the UK economy, which could easily grow quite quickly for a few years by taking up the slack, with borrowing, the deficit and debt falling. Jonathan Portes, former chief economist at the Cabinet Office, said:

“A few years of 3% growth—and given the amount of spare capacity in the UK economy, there is no reason that should be infeasible…—and much of the problem will simply vanish”.

Growth is the magic bullet for overcoming our deficit and debt problems.

[Mr Leigh]

If, as the right hon. Gentleman says, the cuts have not yet hit home, which is quite right, why does he think that they have fuelled the recession?

[Mr Hain]

Cuts have fuelled the recession because they have driven demand out of the economy. Getting the economy growing again, as I said, is the key to cutting the deficit, then stabilising and bringing down the debt burden. Once the economy is growing again, it will be much easier to deliver any remaining tax rises or spending cuts that may still be necessary because, as Jonathan Portes says, jobs will be plentiful, real incomes will rise and companies will invest again.

The Tory charge is that Labour would increase borrowing. The answer is, yes, in the short term, we would, but to reduce borrowing in the long term. Borrowing more today can mean borrowing less tomorrow by getting the economy growing again. President Obama’s 2009 stimulus package added to the US federal deficit in the short term, but as US interest rates fell, spending and output rose, and dole queues shortened. As a proportion of America’s expanding GDP, its overall deficit has shrunk every year since 2009, contrary to what has happened to our deficit. A budget boost that triggered real recovery in Britain could follow the same pattern, speeding up the growth of UK national income, cutting the deficit as a proportion of GDP and causing the debt burden to fall.

That is what the Budget should have been about, but old habits die hard as the coalition partners continue to peddle their big deceit. First, they said that the entire global banking crisis was caused by Labour recruiting far too many nurses, doctors, teachers and police officers, and that the trigger for the world financial collapse—sub-prime mortgage defaults in the USA—was all Labour’s fault. The second big deceit is their claim that today’s public sector deficit was caused by excessive Labour spending. To quote utterances of almost every Conservative MP as if on a dreary looped tape, too much Labour borrowing led to too much national debt, so the cuts are all Labour’s fault. They never admit the truth. They never say why, if spending was “out of control” and wildly excessive, the Chancellor in September 2007 committed a Tory Government to matching Labour’s public spending plans for the next three years, up to 2010.

The Chancellor knew only too well that Labour’s spending was affordable, otherwise he would not have signed up to that. The Tories never acknowledge that, until the global banking crisis, British Government debt was low, below that of France, Germany, the USA and Japan, and lower than when we took over from the Tories in 1997. Ten years of steady economic growth under Labour allowed us to pay down debt by the equivalent of £90 billion today, saving taxpayers some £3 billion a year in interest payments. We did fix the roof while the sun was shining.

Between 1997 and 2007, annual Labour borrowing averaged only one third of annual borrowing by the Thatcher and John Major Governments. This is the fourth dreadful Budget by a dreadful Government. It is the same old story from the same old Tories: Budget day blues for Britain. The Chancellor is playing a peculiar game of leapfrog with himself. Every Budget brings worse news. Every autumn statement confirms that things are worse than expected. The Government are failing on growth, failing to improve living standards, and failing on their debt, borrowing and deficit targets. They have got to make way for Labour.

[Richard Graham (Gloucester) (Con)]

Brushing aside the unhappy attempt by the right hon. Member for Neath (Mr Hain) to rewrite recent history, I shall move on swiftly to discuss the Budget.

Let us begin with the introduction of £10,000 tax-free income.

[Mr Hain]

Will the hon. Gentleman give way?

[Richard Graham]

The right hon. Gentleman has had his chance.

I absolutely relate to my hon. Friend the Member for Reading West (Alok Sharma) and his aspiration that everyone on the minimum wage should in due course pay no income tax. That was a magnificent announcement of Conservative and coalition policy to help those who work hardest on the lowest incomes, and we should all applaud it.

Secondly, the Leader of the Opposition made a great deal recently of apologising for Labour’s axing of the 10p rate, and he now wants to bring it back, but while he is busy executing a second U-turn on 10p tax, my constituents, especially the many thousands who will benefit from the changes in the Budget, prefer the simple Conservative and coalition approach of zero tax for the lowest paid.

The whole House should unite in applauding the Government for announcing an employment allowance of £2,000, which can be used by small businesses for apprentices or new employees who are older, and can help to continue to bring down youth unemployment, which in my constituency of Gloucester, as a result of all the new apprenticeships that started last year, fell by 18% in 2012. Ten days ago, during national apprenticeships week, I visited three new apprentices in Gloucester, in real estate, golf clubs and ski centres, and if ever there was an example of how apprenticeships have spread through previously unknown sectors those three new apprentices proved it. That is why the Government should go on supporting apprenticeships and bringing the young into employment.

Today, housing is at the core of the debate, and I believe that it is the key to growth stimulus, as it was after the recession of the 1930s and the recession of the second world war. The Centre for Cities rightly said in its recent note that

“there is one area where effective interventions have the potential to generate jobs and growth in the short term: housing.”

It went on to say that

“100,000 new houses…could boost Gross Domestic Product by 1% and support up to 150,000 jobs.”

The Centre for Cities, which recently moved Gloucester up the ratings for cities from 49th to 21st, is clearly a research institute to be followed closely, and I agree with its conclusions on the ratings and with its analysis on the importance of housing.

The right hon. Member for Leeds Central (Hilary Benn) said that he believed that the response to the Budget on housing was largely critical. He was right in one respect, as the National Housing Federation said:

“The Government should be focusing on unlocking investment to build more new homes”.

However, we cannot new build new homes unless there is a market for them, which is why the Government’s policy, through help to buy, of providing £3.5 billion for new homes, will make a significant difference to make sure that people can afford to buy those new homes. The National House Building Council said that it is

“great news that housing has been the centre piece of this Budget. This is a positive step for homebuilders and homeowners alike.”

Both Barratt and Persimmon welcomed the development, and Barratt said:

“We are now gearing up to meet the increase in inquiries that we expect to see.”