Economy: Budget Statement

Lord Hain Excerpts

Tuesday 13th November 2018 Lords Chamber

[Lord Hain (Lab)]

My Lords, in September the International Monetary Fund concluded this year’s review of the UK economy by noting that Britain had moved,

“from the top to near the bottom of the G7 growth tables”.

We are now vying with Italy and Japan for the G7’s “Bringing Up the Rear of the Year” award. The UK growth trend is downwards. The British economy is still growing, but it is also slowing: it has grown slower every year for four years in a row. Growth this year is expected to be under half what it was in 2014. The British Chambers of Commerce has warned that growth will slow to “a snail’s pace” this year—barely 1.1%. Surely we should all know why. Years of austerity have stymied UK growth, leaving most people no better off now than they were a decade ago, when the global financial crisis pitched the real economy into the great recession.

Despite this dismal record, the Chancellor would have us believe that he is the bearer of good news about public finances, that the Budget deficit is shrinking fast and that things are looking up. But good news can indeed be relative. Back in December 2014, the Chancellor’s predecessor promised that this year, 2018-19, would be the breakthrough year—the year when the Budget would finally move out of the red and into the black, from deficit to an overall £4 billion surplus. Today the OBR expects this year’s Budget still to be in deficit to the tune of £25 billion. I repeat: not the predicted £4 billion surplus but a £25 billion deficit. The slippage has not stopped. The Government are still behind schedule with their deficit-reduction plans, and still overpromising and underdelivering, despite the misery, despair and economic vandalism of never-ending austerity.

Earlier this year the Chancellor’s Spring Statement envisaged a £37 billion deficit for the current year, 2018-19. That figure was the very target that George Osborne set for 2014-15 in his infamous June 2010 emergency Budget—by the way, exactly half the target set for that year by Alistair Darling in his final March 2010 Budget. It has taken the Tories eight years to hit their four-year target. All their 2010 talk about Britain being on the brink of bankruptcy and needing urgently to close the budget deficit before we sunk into the Greek abyss—all that nonsense has been exposed as the hogwash some of us always said it was.

Many Members of this House will have noticed a new study of the financial crisis that appeared during the Summer Recess—Crashed, by Professor Adam Tooze of Columbia University, New York. On page 350 he notes George Osborne’s claim that by 2015 he had slashed £98 billion in annual spending from the UK budget, and OECD evidence that only Greece, Ireland and Spain endured worse contractions than those inflicted on the British people—which is why it took GDP two years longer to recover to pre-crisis levels in the UK than in the United States, where President Obama did the very opposite: rather than cutting spending, he invested and expanded, and US growth picked up where ours went down.

For all the talk of a giveaway Budget and the Tory fiscal squeeze coming to an end, the reality is that Philip Hammond is pressing on with austerity. Office for Budget Responsibility figures show that between 2010 and March 2018, the Tories squeezed £130 billion of spending out of the economy in tax rises and public spending cuts. This latest Budget does not mark the end of austerity—it prolongs it. By 2020, 10 years of Tory austerity will have squeezed over £150 billion of spending out of the economy, 80% of which will have come from public spending cuts.

That £150 billion is 30% bigger than the whole of this year’s budget for NHS England. Figures from the House of Commons Library show that a quarter of that £150 billion in lost spending will be due to cuts in working age social security. Some of the greatest falls in living standards are being experienced by the worst off. So much for the Tory slogan, “We’re all in this together”. This is not a new chapter as the Chancellor claims: it is the same old story, and the Government plan to make it last into the mid-2020s.

Austerity is the reason why care homes are closing, why police numbers are down and why prisons are short of staff. Austerity is the reason why we hear cries of anguish over the lack of elderly care places and cries of desperation over the lack of housing for our young people. Instead of responding to Britain’s urgent social needs, the Chancellor committed nearly £10 billion to income tax cuts over the next five years, which will benefit the better off and the richest the most. Utterly wrong priorities, surely.

A disturbing new chapter in UK economic policy has now opened. The balance of fiscal and monetary policy is shifting towards monetary restraint, even before the austerity-induced slowdown has ended and before the full effects of Brexit uncertainty have become clear. Premature rises in interest rates can only hinder rather than help Britain’s recovery. Yet the fact that the Bank of England has begun to raise interest rates seems to have passed the Chancellor by. He is sticking to his tight fiscal grip when he should be offsetting the drag of higher interest rates by giving the economy a substantial Budget boost. Worse still, instead of encouraging growth he is preparing further cuts in the event of a no-deal exit from the European Union.

The economy really needs a Budget boost in infrastructure investment, skills and training, and low-carbon, greener growth. I welcome the recent call from the Institute for Public Policy Research commission on economic justice for a £15 billion increase in annual public investment spending over and above current plans, taking it to 3.5% of GDP, the average for the G7 countries. That would be double the current rate. It would help to correct decades of underinvestment in UK infrastructure and consequently generate greater growth which will in turn reduce borrowing and debt.

To those who say it cannot be done, I say this: we did it. It is exactly what the last Labour Government did at the height of the global financial crisis. We increased public investment by £14 billion in 2008 and by £15 billion in 2009, over and above previously planned levels, taking it to a 40-year high, and growth began picking up—until the Tories won in 2010 and it collapsed under the weight of savage austerity.

Maintaining infrastructure investment on a permanently higher plateau would encourage faster economic growth, deliver higher living standards and provide a better quality of life for all of our people. The Chancellor’s Budget falls short on all those criteria. He has dismally failed to provide the kind of fillip that is desperately needed for our economy—especially as the Government drives forward, lemming-like, towards an economically suicidal Brexit.

--- Later in debate ---

[Baroness Kramer]

I think that we will have to debate this off-piste or I will talk for too long.

[Lord Hain]

I am sorry to intervene. I was agreeing with everything that the noble Baroness was saying until she embarked upon a disastrous defence of her party’s complicity in Tory austerity for five years. If she looks at the record until the banking crisis blew everything out of the water, she will find that borrowing was lower than we inherited from the Tories, the deficit was lower than we inherited from the Tories and debt was lower than we inherited from the Tories. Those three indices were much lower than the average of comparable countries.

[Baroness Kramer]

And Liam Byrne left us with the message that there was no money left. I shall try to move on quickly.

Much more could have been done for small businesses. It is time to deal with the underlying problem of business rates, which is a defunct way of taxing. I very much recommend that the Government look at our call for a land value tax—the commercial landowner levy—which would reward people for investing much more in both machinery and equipment.

Much of this debate has been about growth. I say to both the noble Lord, Lord Bates, and the noble Baroness, Lady Noakes, that I join others who are stunned that the Government are satisfied with the growth rate forecast that we face. Over the next five years, the best number is 1.6%, and it looks as though it will be 1.3% this year. That is awful and completely unacceptable. I am very worried that the Government are complacent about a number like that, and the noble Lord, Lord Livermore, highlighted that issue as well. Productivity is forecast to be at a trend rate of 1.2%, which will produce no future for any of our children. This year, I think that it is running at 0.8%.

On growth and investment, this year private investment has fallen from 3.3% growth, which is much closer to its norm, to 1%. The Bank of England has said that business investment growth has been 3% to 4% lower over the past two years as a result of the referendum. Those investment numbers are absolutely devastating. When people point to full employment, I ask them to look at the demographics. We have a demographic shortage of working-age people. It is not hard, in those circumstances, to have full employment. I ask the Minister to check the dependency ratio, because—although my calculation may not be right—I believe it is currently 1.7:1. So one person supports themselves plus 0.7 of another person, rising rapidly to 1.9:1, which is completely unsustainable.

We have to face up to the issues of productivity, our rising pensioner tail and our falling working-age population. With our migration policies, we are about to make that situation significantly worse. We are certainly not going to achieve economic recovery in a Budget like this.

I have not even touched on Brexit; many people raised it and it is absolutely pertinent, as it sets the framework. We know now that there is a technical agreement between the EU and the UK. It will be fascinating to see whether tomorrow, by the time the Conservative Party has worked through it, there is anything more substantial than that.

No matter what we do, by the Government’s own figures there is no scenario for Brexit that does not harm prosperity—a point made by the noble Lord, Lord Livermore, in great detail, and by the noble Lord, Lord Kerslake. From talking to City players today, I understand that the financial services industry has either paid, or is committed to pay, something in the range of £15 billion to cover the cost of adapting to Brexit—this assumes not that there will be a no-deal Brexit but a Brexit more in the Chequers mould. I have no idea what is falling on manufacturing, but those numbers are quite damaging to any kind of economic future.

This was a sticking-plaster Budget. In this atmosphere of uncertainty, without knowing where Brexit goes, the Chancellor has chosen—perhaps rationally—to do only the few things that impact on this year. Let us not overstate what he has done. We still face huge cuts to public services on every front. We have not dealt with the challenge of putting our taxes on a long-term and sustainable basis and we have not dealt with the underlying challenges of growth and productivity.