The Economy

Margot James Excerpts

Wednesday 22nd June 2011 Commons Chamber

[Ed Balls]

I have taken lots of interventions and I am coming to my conclusion.

That is why we have consistently said that the Chancellor should have a plan B. At the end of August 1992, three weeks before Black Wednesday, the then Prime Minister and his then special adviser stood in front of the Treasury at 8 am and said:

“There are going to be no devaluations, no leaving the ERM. We are absolutely committed to the ERM. It is at the centre of our policy. We are going to maintain sterling’s parity and we will do whatever is necessary, and I hope there is no doubt about that at all.”

That was almost certainly written by the current Prime Minister. Hon. Members have to learn these lessons. It is true, as my hon. Friend the Member for Luton North (Kelvin Hopkins) said a moment ago, that back then the pound was constrained by a fixed exchange rate. It was very hard for the Prime Minister and the Chancellor of the day to change course, even though they could see that their policy was not working. Had we joined the euro—and as we have all said, thank goodness we did not—that would have been an even greater constraint on UK economic policy, but neither constraint exists now. The objectives for monetary and fiscal policy have lain squarely in the Chancellor’s gift and this is the fundamental problem: he has made a political decision to set a political timetable for a political goal that defies economic logic, and the evidence is growing week by week that he has got this wrong. The lesson of monetary and fiscal policy too, over the past 20 years, is that changing course when things are not working is not a knee-jerk reaction and does not damage credibility. It is the only way of being in control of our destiny and averting the crisis being forced on us.

Let me quote some wise words:

“The weak thing to do is just to keep ploughing on and say, ‘I can’t possibly change, because I might have a difficult time at a press conference.’ The tough, strong thing to do is say, ‘Yes, we can make these plans better’.”

That is what the Prime Minister said yesterday, explaining the U-turns on sentencing and the NHS. He has obviously learned some lessons from his time as special adviser to Norman Lamont. My only plea today is that the Chancellor starts learning the lessons of history too. The cautious thing to do is not to plough on and hope for the best, but to act now before we lose more ground. Unlike Norman Lamont, who was tied to the exchange rate mechanism, the Chancellor can choose. He does not have to box himself in this way, so stubbornly. He does not need to make the Major-Lamont ERM mistake all over again.

[Margot James (Stourbridge) (Con)]

The right hon. Gentleman referred to the previous Government’s policies when they embarked on a very timid programme of tax increases and public expenditure cuts a year and a half ago. Does he not accept that that was completely inadequate then and that the only reason it was accepted was because the international markets knew that there was a general election coming and that his party was way down in the polls? They lived for a better day.

[Ed Balls]

I have been, in a friendly way, critical of the Chancellor’s engagement and participation in international affairs and matters of global economic management, but he does go to the meetings and sign up to the communiqués. As the Chancellor in June 2010, after the general election, he went to the G20 and signed up to the communiqué that said that Governments should halve the deficit in the next four years, which was precisely the plan we had, which they tore up. We are not going to take lectures from the Conservatives on credibility. As I have said, the credible approach is not to plough on regardless when things are not working but to change course before it is too late.

This is my conclusion.

--- Later in debate ---

[Mr Osborne]

What I understand is that the system the right hon. Gentleman put in place to ensure financial stability completely failed, and the scales have fallen—

[Margot James]

rose—

[Andrea Leadsom]

rose—

--- Later in debate ---

[Pamela Nash (Airdrie and Shotts) (Lab)]

It is said that there are three stages of a Government’s life. First, they blame their predecessors for all the wrongs of the world, including the decisions that they are making themselves. They then get into their stride and take responsibility for their own policies. Eventually, they make decisions that make the public unhappy, and things go downhill from there. I suspect that this Government may get through all three stages rather quickly.

As we have heard, today marks a year since the Government gave their first Budget. I hope that this anniversary marks the beginning of the Government entering the second stage and taking responsibility for the pain that they have inflicted on families in my constituency and throughout the country over the past 12 months.

We have heard repeatedly from Government Members that the previous Labour Government were wasteful with taxpayers’ money. That is simply not true. The Government should stop patronising the electorate and stop using the unhelpful credit card analogy. The national debt is in no way analogous to a credit card. The balance sheet contains both assets and liabilities. The Labour Government paid for additional infrastructure, roads, schools and hospitals. Even so, until the collapse of Northern Rock, we had a lower national debt than we had inherited from the previous Tory Government in 1997. We should ask how much our assets are worth compared with our liabilities, as one would if one inherited a home worth £200,000 with a £20,000 mortgage on it. The next generation will receive not only the debt, but the assets. One example is Building Schools for the Future.

Government borrowing was invested in production, such as the planned loan to Sheffield Forgemasters, which would have aided an export-led recovery. The country would have seen a return on that investment. Instead, this Government took yet another decision that led to the stagnation of growth and the rotting of assets, which will be passed on to the next generation. That is typical of Government policy over the past year. They have made quick, deep cuts that have saved a little money in the short term, but they have had no adequate plan for the future and blame the Labour party for the consequences.

Labour’s bail-out of the banks was universally seen as essential to combat the effect of the global financial crisis on Britain. I will concede that mistakes were made on our part in banking regulation, but the Tories in no way opposed our measures at the time. In fact, until recently deregulation has been central to Tory policy. For months after the collapse of Northern Rock, the Prime Minister continued to promote bank deregulation. He stated that plainly in a speech to the Institute of Directors in April 2008.

It is, of course, more comfortable for the Government to blame everyone else, but it is time they took stock of the effect that they are having on the people of this country. For example, since last year’s Budget consumer confidence has clearly collapsed, with the figures consistently showing consumer spending dropping. That drop in personal spending power is the first since the 1980s.

[Margot James]

Does the hon. Lady not accept that there is bound to be restraint on the part of consumers considering the enormous level of household debt? Should not the Government learn from the public? The public are holding back, and the Government need to hold back.

[Pamela Nash]

I would argue that the Government’s policies in the past year have done nothing to increase the confidence of this country’s consumers. The British Retail Consortium and KPMG’s retail sales monitor shows that the total value of retail sales last month represented

“the worst drop in total sales since we first collected these figures in 1995…high inflation and low wage growth have produced the first year-on-year fall in disposable incomes for thirty years.”

Worse still, according to the BRC the main cause of inflation is not just wages or consumer-driven increases but external shocks such as the VAT increase.

--- Later in debate ---

[Stephen Williams]

I specifically mentioned Greece, and those who have been following events in Greece from afar will know that the reason why the international community is so concerned about Greece is that it has felt until recently that the Greek Government have simply not got to grips with the plan, or have announced a plan but not adhered to it. That is the key difference. This Government have announced plans—difficult plans—to deal with deficit reduction and we are sticking with them, no matter how painful they might be.

[Margot James]

My hon. Friend mentions the views of the bond market, and the previous speaker talked about what PIMCO thinks. Is he aware that PIMCO said just days ago,

“we think the U.K. is implementing what is probably the best combination of fiscal and monetary policies”?

[Stephen Williams]

I thank my hon. coalition colleague for her intervention, which reinforces my points.

The Government response to the stark situation that we inherited in May 2010 has been to tackle the deficit—the yawning gap—in our public finances, but also to build a business climate that is conducive to growth, because as several hon. Members have said, it is through growth that the economy will provide the resources to get our finances back on track.

--- Later in debate ---

[Margot James (Stourbridge) (Con)]

“The economy one year on”: I admire the Opposition’s gall in inviting us to recollect the state of the economy just one year ago. Let me remind hon. Members, if I may, of a few facts. This country this time last year had the worst budget deficit in the G20. We were paying interest of £120 million a day on our borrowings, and there was rising unemployment. There was also massive household debt, which at the end of 2009 was 171% of disposable income, yet Opposition Members are surprised that consumers show a little reticence about spending their depleted moneys.

There was also a massively unbalanced economy. My hon. Friend the Member for Halesowen and Rowley Regis (James Morris), in an excellent speech, reminded us of the situation in the west midlands and, in particular, our black country under the previous Government. Over the five years to 2008, private sector employment grew by 5.3% across the nation generally, but in the black country it grew by a measly 1.1%. Of course, that is due largely to the decline in manufacturing. That began several decades ago, tragically, and accelerated under the last Labour Government, when, in just over a decade, manufacturing declined from 21% of our economy to 12%.

The legacy was not just one of irresponsible borrowing and irresponsible public spending in every year since 2001; in addition, so much of the money was spent so unwisely. Let me remind my hon. Friends of the unsustainable property boom, almost as bad as Ireland’s, with PFI-built hospitals and schools that have loaded impossible burdens of debt on to those institutions for the next two decades. Our own local hospital in Dudley, Russells Hall, has to pay out 16% of its revenues to service the PFI debt with which it is saddled. I suggest that Labour Members try to attend tomorrow’s Westminster Hall debate on PFI called by my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman). They will find it very uncomfortable listening.

[Alec Shelbrooke]

To expand my hon. Friend’s point about wasted money, does she agree that it was an absolute disgrace to spend £5 million a year of taxpayers’ money on sponsoring British superbikes for 10 years?

[Margot James]

My hon. Friend makes an extremely good point and I thank him for his intervention.

[Mr Bailey]

rose—

[Margot James]

I will certainly give way to the Chairman of the Business, Innovation and Skills Committee, of which I am a member.

[Mr Bailey]

I thank the hon. Lady, as a fellow black country Member of Parliament, for giving way, particularly as the other black country Member on the Conservative Benches, the hon. Member for Halesowen and Rowley Regis (James Morris), refused to take an intervention from me.

We can talk for a long time about the unemployment statistics in the black country over the past decades. I recognise that the hon. Lady is prepared to acknowledge that this problem started long before the previous Labour Government. She is correct that the local hospital was financed by PFI. Would she prefer not to have had that hospital built or to have had it built out of public expenditure, thereby increasing the national debt?

[Margot James]

I thank the hon. Gentleman for his intervention. Clearly, I would not have wanted the hospital not to be built. However, I think that Labour took a good idea, PFI, which was started by a previous Conservative Government, and ran amok with it, accepting deals on far too generous terms so that our hospitals are stuck with being forced to pay absurd, non-competitive rates for all sorts of services from their PFI partners.

[Mr Love]

Will the hon. Lady give way?

[Margot James]

I would like to make progress and bring my remarks to a conclusion.

Throughout the boom years, nearly 2 million people were living off benefits, at huge expense to the economy, while three quarters of the new jobs went to people from abroad. That was a scandal. It is ironic that the Opposition motion calls for the Government to spend all sorts of money that we do not have on 100,000 jobs for young people. I remind Labour Members that the unemployment figures for people between 16 and 24 started out at 650,000 in 1997 and ended up at 930,000 in 2010, at the end of their Government’s tenure. That is an unacceptable increase.

[Owen Smith]

rose—

[Alison McGovern]

rose—

[Margot James]

I will take an intervention from the hon. Gentleman, who was a member of the Health and Social Care Public Bill Committee.

[Owen Smith]

The hon. Lady cites a number that we have heard many times from Conservative Members. If she cares to look at what the number was at the end of 2008, just before Lehman Brothers collapsed and the financial crisis ensued, she will find that it was significantly lower than it was in 1997—and we all know it.

--- Later in debate ---

[Margot James]

If the hon. Gentleman has those statistics at his disposal, I am sure that he will enlighten the House later. I cannot precisely recall that figure from 2008. Suffice it to say that youth unemployment went up by more than 250,000 during Labour’s period in office.

We now see signs of recovery, thanks to this Government’s grasp on the deficit, which is the root of the problem that we have to confront. I commend the Government and the Chancellor for at last getting a grip. There are people in my constituency who voted for the previous Government three times in a row and turned on them because they knew that this country was living way beyond its means, which the previous Government just could not accept. One year on, those people are saying to me on the doorstep, “We elected you to sort out the public finances. You are doing what needs to be done. Get on with it.” They are right. We now have a credible plan that has the backing of the OECD, the IMF, the European Central Bank, the Bank of England and PIMCO, which is probably the most crucial of all. It would be utterly absurd and extremely dangerous to abandon that plan just because for one quarter manufacturing did not do quite as well as it was doing a few months before. We have plans to stimulate growth and get that back on track.

Opposition Members were clinging to the fact that the US was continuing with its highly risky spending policies. However, as the consequences of those policies have come home to roost, with unemployment in the US now standing at more than 9%, they have accepted that even the mighty USA is not exempt from the basic rules of economics. In the end, one has to live within one’s means. As the great lady once said, “You can’t buck the market.”

This was the first recession in my lifetime when low interest rates prevailed. That is crucial to the recovery of exports and manufacturing, and to the stability that the economy needs to lean on. Unemployment went down by 80,000 last month and the predictions that it would reach 3 million have not come to pass. Although I sympathise greatly with public sector workers in my constituency who have lost their jobs, we can celebrate the fact that private sector jobs have increased by 520,000 over the last 12 months. That is a record of which we can be proud. The Government have a growth agenda, to which I am wholeheartedly committed, including the lowering of corporation tax, research and development tax credits, a record number of apprenticeships, entrepreneurs’ capital gains tax relief, the protection of the science budget, the exemption of micro-businesses from onerous employment regulations, of which I hope to hear more, the regional growth fund, and enterprise zones, of which there will be one in my area of the black country.

The main challenge for the Government is now deregulation. It is a big problem that we are not getting on top of quickly enough, although I understand the difficulties. I echo the intervention of my hon. Friend the Member for Stone (Mr Cash), who challenged the Government on European regulation. We need to have a strategy to fight back on that, because it will be the death knell if we do not. I will not give an example, because time is running out.

In conclusion, it would be irresponsible to start proposing spending increases and tax cuts, as the Labour party is doing. That is the way back to instability, the loss of confidence and escalating interest rates, which would do for my constituents who face mortgages and other difficulties. An escalation in interest rates would be catastrophic at this time, and that is where Labour’s policies would inexorably lead.