Policy for Growth

Lord Johnson of Marylebone Excerpts

Thursday 11th November 2010 Commons Chamber

[Mr Sharma]

Let me make some progress and the hon. Gentleman can try again.

Secondly, having been caused by international factors, the current economic uncertainty and any prospects of growth are still going to be greatly determined by what happens in the international economic arena. Let me begin, then, with the international dimension.

Only yesterday, the Governor of the Bank of England warned:

“The outlook for growth is highly uncertain”,

explaining:

“The contribution of net trade to growth has so far been weaker than the Bank of England Monetary Committee had expected, and it is unclear how persistent that weakness will prove to be.”

In other words, Britain’s exports and trade with the world are not boosting our hopes for economic growth, despite a 25% reduction in sterling over the last three years.

[Joseph Johnson (Orpington) (Con)]

On a point of fact, the Governor of the Bank of England did not say that the growth outlook was tremendously uncertain, but that the inflation outlook was very uncertain. He said that, in his estimation, the UK’s economic recovery was likely to continue.

[Mr Sharma]

I have the facts here and we must agree to differ on their interpretation.

The Governor of the Bank of England added that unless the G20 nations at the current summit in South Korea work together on trade and tackle imbalances between creditor and debtor nations, the world economy is likely to be damaged. He said:

“What is most important at present, given the difficult and dangerous times that the world economy faces, is that the world leaders at the G20 have a constructive approach… We are in a position where the world economy can be a win-win outcome, but I’m afraid we’re also in a position where it can be a lose-lose.”

These are indeed difficult and dangerous times for the world economy and for UK growth prospects. Britain is particularly vulnerable to economic shocks in the eurozone. UK banks are exposed, with many loans to Ireland, Greece and Spain. Rumours of an EU bail-out of Ireland were rife in the financial markets only this week.

Equally, in the wider international economy, China, Brazil and India have all seen economic growth reducing. This all means more uncertainty as Britain tries to rebalance its economy away from being reliant on financial services and consumer spending on domestic service industries and more towards export-driven sales of our manufactured goods. My right hon. Friend the shadow Chancellor is right to say that the previous Government became over-reliant on tax receipts from the financial services sector, so it is right that, as we go forward, we try to build our manufacturing base back up and sell more of our goods in the world market, but it will not be easy.

I shall now deal with the domestic economy and growth—or, given the Chancellor’s reckless plans as laid out in the spending review, perhaps I should say the lack of prospects for such growth. The growth figures of 1.2% and 0.8% for the last two quarters have indeed been welcome news, but have nothing to do with the Government’s decisions since coming into office. The truth is, in fact, quite the opposite. Those two growth figures show the positive effects of the previous Government’s fiscal stimulus. When carefully analysed, the figures also show that much of the growth was due to a temporary and seasonal upturn in the construction industry.

If Members care to look at the predictions for the UK construction industry going forward into 2011, they will find talk of recession. This is not surprising, given the Government’s decisions in the emergency Budget and the spending review. If the housing capital budget is slashed by more than 50%, it does not take an economic genius to work out that the construction industry is going to take a hit. Equally, the cancellation of the Building Schools for the Future scheme, and the 60% reduction in the capital budget for schools, will also have a severe recessionary impact on the construction industry.

Let me illustrate that point with examples from my constituency and local borough. Ealing was due to have 18 schools either completely rebuilt or significantly rebuilt or refurbished. Some £305 million was to have been spent on those projects, representing a substantial boost to the local and regional economy, in addition to meeting the need for extra school building due to a rising demand for school places in the borough. Those plans were brutally cut in the emergency Budget, and in the end we managed to rescue projects for two sample schools, one of which is Dormers Wells high school in my constituency. However, we still face the withdrawal of almost £250 million of public money—

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[Michael Dugher (Barnsley East) (Lab)]

Thank you, Mr Deputy Speaker, for the opportunity to speak briefly in this debate.

For the past six months, Labour Members have had to endure speeches from Government Members based on the Andy Coulson script. I am allowed to criticise the No. 10 scripts because I used to write them, which is probably just one of the reasons we lost the election. The script basically says that the deficit is the only thing that matters, and that the deficit was caused entirely by the profligacy, over a decade, of the Labour Government. [Hon. Members: “Hear, hear!”] My version was beautifully delivered, one might say.

Let me trouble the House with a couple of facts that run slightly counter to that script. Figures from the Institute for Fiscal Studies show that in the period from 1997 to 2007, public sector net debt fell from 42.5% of national income to 36.5%. That was caused—I know that this will come as a tremendous shock and disappointment to Government Members—by the economy growing and revenues increasing. Before the financial crisis hit this country—the biggest economic shock that we have had for nearly a century—our debt was down to the second lowest in the G7, despite our increasing public spending by the second largest amount among all the OECD countries. The size of the budget deficit was caused by the decisions that Labour Members took in response to that global financial crisis. I know that Government Members will disagree, but the truth is that there are people in my constituency who are in work, have managed to keep their home, and still have world-class public services because of the decisions that we took. We should not apologise for that.

The deficit does need to be reduced, but one of the ways of doing that is through economic growth—the subject of this debate. When I watched the Budget several months ago, I found it perverse when the Chancellor said in effect, almost as a matter of pride, “Because of the decisions we are taking as a Government, growth will be less than it was going to be, unemployment will be higher, tax revenues will be lower, and the payments we will make in benefits will be higher.” About 490,000 public sector jobs will go over the spending review period according to the Chancellor, and PricewaterhouseCoopers estimates that another 500,000 jobs are at risk in the private sector because of the measures that the Government are taking.

[Joseph Johnson]

Will the hon. Gentleman give way?

[Michael Dugher]

I will not; Yorkshire men are normally very generous, as the hon. Gentleman knows, but we are short of time today.

Even the director general of the CBI has voiced concerns about where the jobs will come from. Next week, Professor Steve Fothergill of the centre for regional economic and social research at Sheffield Hallam university will launch a report, which I urge all right hon. and hon. Members to read, called “Tackling worklessness in Britain’s weaker local economies”. It has an important foreword by the leader of Barnsley council, Steve Houghton, and makes it absolutely clear that, under the Government’s current framework, job demand in Britain’s weaker local economies, particularly in post-industrial areas such as Barnsley, is low and unlikely to grow significantly in the coming period.

The situation is made worse by the cuts that the Government are making to local authorities, which will be particularly bad in areas such as my own, where the council tax receipts are lower and there is greater reliance on central Government funding. In such areas, the local authority is critical not just as a direct provider of employment but in generating private sector economic activity and employment. The “public sector bad, private sector good” view that Conservative Members put forward completely fails to understand that there is often a greatly complementary relationship between the two. Government support for a strong public sector is critical.

I ask Members also to examine the coalfields review produced by the former Member for Barnsley, West and Penistone, Michael Clapham. It made it clear that areas such as my own are more isolated than others and have a higher mortality rate, greater health difficulties, greater overall deprivation, fewer businesses per head of population and 25% fewer jobs per resident, and there are more young people not in education, work or training. Such areas are very different from others, and because of the Government’s proposals, I, like other hon. Members, am very worried about their future.