Autumn Statement

Lord Whitty Excerpts

Thursday 4th December 2014 Lords Chamber

[Lord Whitty (Lab)]

My Lords, I begin by apologising to the noble Viscount that my Select Committee duties kept me from being in the Chamber at the beginning of this debate. My thanks to the Whips for letting me in.

The problem with this economic debate is that it is defined almost entirely in terms of the deficit. Indeed, we have become obsessed with the figures for the deficit in the same way as we were obsessed in the 1970s with the trade gap, which nowadays is largely ignored. I recognise that the deficit is important both in absolute terms and in terms of the way in which we finance it. But focusing on it takes away from focusing on the two sides that create the gap—income and expenditure. I want to focus largely on one reason why both public income and expenditure are affected by the very serious reduction in real wages. I follow the noble Lord, Lord Skidelsky, and my noble friend Lord Desai in focusing on real wages.

Low real wages both reflect and cause one of our underlying problems: low productivity. Indeed, as others have said, low productivity is one of the main constraints on our recovery. There are many reasons for real wages having declined in recent years, some directly and some indirectly to do with the Government. They relate to the public sector wage freeze, the absence of collective bargaining in large parts of the private sector, the increase in part-time work for many people who would prefer to work much longer hours, down to those on zero-hours contracts, and so forth, and the increase in what is termed self-employment, which often is not by choice either. Indeed, the real incomes of the self-employed have fallen faster than for anybody else since the financial crisis, although the numbers of self-employed have increased.

The effects of low income have been felt on both sides of the equation. They have clearly lowered the actual receipt of taxes to below what the Chancellor expected and they have increased the level of expenditure through tax credits and housing benefit, which has been aggravated by the complete failure to deal with the underlying housing crisis. Housing costs are going up at the same time as real incomes are going down. Also, we should not ignore the fact that low real wages have toxified other aspects of the body politic. We have intergenerational conflict. As someone said, the young are most hard hit by the decline in wages. We also see it in sensitive debates around immigration, the EU and the whole future of welfare.

The Chancellor and the OBR seem to expect real wages to recover, but there is no obvious reason why they should—particularly if we reduce the role of the state to that in the 1930s. If we are going back to that, we should remember quite what the 1930s brought us in terms of both economics and politics. We need instead to introduce structural and legal changes that raise the level of incomes of the poorest in our workforce. If we do that, we will begin to increase income to the Exchequer on the one hand and to reduce expenditure on benefits on the other. We will also help to remove some of the dangerous tendencies in our society and in the body politic.

Let me be fair; there are aspects of the Statement to which I can give a qualified welcome. I agree with most of the infrastructure commitments—but, like my noble friend Lord Hunt, I regret that they also reflect those areas which the Government cut five years ago. Nevertheless, they are back, although I regret the absence of any commitment to a housebuilding programme. I welcome the more progressive moves in relation to the structure of stamp duty, although while it may help on the one hand, on the other it may aggravate the housing market in the short term. But the overall message I want to send is that unless we as a society and as a Government or alternative Government address the issue of declining real pay, we will end up remaining in this situation for many years to come.