Budget Resolutions and Economic Situation

Lucy Frazer Excerpts

Thursday 17th March 2016 Commons Chamber

[John McDonnell]

The present Chancellor has borrowed £200 billion more than what he promised. Let us be absolutely clear that like any company, UK plc under us will invest—it will invest in plant and machinery to create the growth that we need if we are to afford our public services.

Let me go back. The Chancellor promised us a “march of the makers”, but manufacturing still lags behind its 2008 levels. He said he would build his way out of our housing crisis, but we have seen new house building fall to its lowest level since the 1920s. He said that he had moved the economy away from reliance on household debt, but, yesterday, the Office for Budget Responsibility said that his entire plan relied on household debt rising “to unprecedented levels.” He said that he would aim for £1 trillion of exports by 2020. Yesterday’s figures suggest that he will miss that target by the small matter of £357 billion.

When it comes to the Chancellor’s failures, he is barely off the starting blocks. The fiscal rule he brought before Parliament last year had three tests. We already knew that he was likely to fail one of them, with the welfare cap forecast to be breached. Yesterday, it emerged that he will fail the second of his tests. Having already raised the debt burden to 83.3% of GDP, it is set to rise now to 83.7% this year. Therefore, since the new fiscal rule was introduced, it is nought out of two for the Chancellor’s targets.

[Lucy Frazer (South East Cambridgeshire) (Con)]

The hon. Gentleman started by saying that we needed some straight talking. In order to be fiscally credible, one needs to have concrete figures. The Chancellor has said in his Budget that he will borrow £1 in every £14 in 2016-17. Will the shadow Chancellor tell us what his borrowing figure will be?

[John McDonnell]

Unlike the current Chancellor, we will not set ourselves targets that can never be realised, and we will create an economy based on consultation with the wealth creators themselves—the businesses, the entrepreneurs and the workers. In that way, we will have a credible fiscal responsibility rule.

Yesterday, the OBR revised down its forecast for growth for this year, and for every year in this Parliament—in some cases by significant margins. That is reflected in lower forecasts for earnings growth. The Resolution Foundation says that typical wages will not recover to their pre-crash levels before the end of this decade. It is not just forecasts for economic growth and wages that are down. Those are driven by productivity, which has also been revised down for every year of this Parliament. Any productivity improvements last year have disappeared. As the OBR said, it was, “Another false dawn”. Perhaps that is not surprising. After all, productivity is linked to business investment, which should be driving the recovery, but which plunged sharply last quarter.

--- Later in debate ---

[John McDonnell]

Regrettably I do not think it has been sugar-coated for many of those who will be suffering the cuts included in this Budget.

On productivity, it is the Chancellor’s failure to boost Britain’s productivity that is at issue. The Office for Budget Responsibility is very clear on this point. British productivity, not global factors, is the reason the Chancellor is in trouble. Robert Chote, the head of the OBR, confirmed in an interview last night that “most of the downward growth revisions were not driven by global uncertainty, but by weaker than thought domestic productivity.” As a result of that, we now see drastically reduced economic forecasts and disappointing tax revenues.

The Chancellor has been in the job six years now. It is about time he took some responsibility for what has happened on his watch. It is not just on basic economic competence that the Chancellor has let this country down. Unfairness is at the very core of this Budget and of his whole approach.

[Lucy Frazer]

Will the hon. Gentleman give way?

[John McDonnell]

I will press on, if the hon. and learned Lady does not mind.

The Chancellor said in 2010 that this country would not make the mistakes of the past in making the poor carry the burden of fiscal consolidation. The facts prove that that is just not accurate. According to the Institute for Fiscal Studies, the long-run effect of all tax and benefit changes in last year’s autumn statement would mean percentage losses around 25 times larger for those in the bottom decile than for those in the top decile.

--- Later in debate ---

[John McDonnell]

I fully concur with my hon. Friend. I will come back to that point.

The distributional analysis by the Women’s Budget Group shows that by 2020 female lone parents and single female pensioners will experience the greatest drop in living standards—by 20% on average. In the case of older ladies, the single female pensioners, the cuts in care are falling upon their shoulders. I find that scandalous in this society.

It is disappointing, too, that the Budget offered no progress on scrapping the tampon tax. The Chancellor is hoping for a deal from the EU on the tax. If there is no deal, we will continue to fight for it to be scrapped.

[Lucy Frazer]

The hon. Gentleman mentioned that productivity was down for domestic reasons, not for international reasons. Can he therefore explain to me why the Congressional Budget Office in the US has reduced its forecast for potential productivity growth by 8.9 percentage points, which is lower than that for this country?

[John McDonnell]

That relates to the US economy. The figures that I quoted were not mine. They were from the Office for Budget Responsibility, which referred to domestic productivity falls.

Young people have also paid a heavy price during the Chancellor’s tenure. It is not just the education maintenance cuts in the last Parliament, or the enormous hikes in tuition fees; it is the dream of home ownership receding into the distance for young people on average incomes. The new Lifetime ISA will not resolve that. With pay falling so sharply for the young, there can be very few who can afford to save £4,000 a year.

We know that so far on the Chancellor’s watch, people with severe disabilities have been hit 19 times harder than those without disabilities. If that were not enough, the Government are now taking over £100 a week out of the pockets of disabled people. Even for a Chancellor who has repeatedly cut public spending on the backs of those least likely or least able to fight back, this represents a new low. I believe it is morally reprehensible.