The Economy

Michael Meacher Excerpts

Tuesday 11th December 2012 Commons Chamber

[Kwasi Kwarteng]

I appreciate the hon. Gentleman’s intervention, but if he looks at the deficit and the direction of travel and what happened in the 1980s, he will see that the deficit came down, again after a period of Labour mismanagement, every single year from 1979 to 1989, and that the budget was balanced in 1989. It was only as a consequence of the recession that we went back into deficit, as a Keynesian economist would tell him.

Let us look at what has happened over the past three years. The Government came into office when the eurozone was in crisis and there was a massive run on Greek sovereign bonds. The Chancellor’s approach, quite rightly, was to make the deficit our No. 1 priority. That, in effect, calmed the markets. Opposition Members might scoff at the bond markets, but they are very powerful. It was particularly interesting to note that in the six weeks before the general election British gilts were actually rising in value and yields were falling, because the markets rightly believed that Labour would be turfed out of office. In anticipation of that happy event, and before the quantitative easing, people started buying British gilts.

The Chancellor’s approach to dealing with the deficit is exactly the right one, because it followed the insight that we have to deal with spending. All countries in the western world have to do that. That is what the fiscal cliff debate in America is about, because it understands that spending has to be on the table; the issue is the degree to which revenue should be on the table. It has a mature approach to public spending. It is only the Labour party that lives in this Shangri-La world in which we can carry on spending and borrowing money with abandon and making the crisis even worse.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

I think this is the most extraordinary rewriting of economic history I have ever heard in the Chamber. The hon. Gentleman has not once mentioned the banks and the financial crash. Does he not realise that the public sector deficit in 2007, just before the crash, was about 3%? It only rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. The hon. Gentleman will have no time to answer you, Mr Meacher, and I am sure that you want an answer.

--- Later in debate ---

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

I cannot help but begin by noting that, with nearly two hours to go, there is not a single Tory MP rising to defend the Chancellor’s policies. That speaks for itself—I cannot remember the last time it happened.

[George Freeman (Mid Norfolk) (Con)]

rose—

[Mr Meacher]

No, I am not going to give way; I have not even started. I am just observing what has happened.

I congratulate my three new hon. Friends the Members for Middlesbrough (Andy McDonald), for Rotherham (Sarah Champion) and for Croydon North (Steve Reed) on what I thought were quite remarkable speeches—confident, informed, quite amusing in places and committed. When I first came to this House—a long time ago—new Members took their listeners on a tour of their constituencies, touching on the buildings, the people and the history, but saying nothing about politics. That was not the protocol. I am glad that that rule has gone. We heard passionate speeches today that were all about politics, including the national health service, child care services and the defence of the unemployed. I think that all three of my new hon. Friends will make a big contribution to this House.

[Richard Drax]

I do not want to touch on the economy, but may I just say that if what the right hon. Gentleman has just described was indeed the case, is it not rather sad that that protocol was not observed?

[Mr Meacher]

I obviously made a mistake in giving way to the hon. Gentleman.

As the Chancellor acknowledged, he had two main objectives in his autumn statement/mini-Budget. One was to generate the growth that has certainly eluded him for the past two and a half years; the other was to rebalance the economy and lay the foundations for genuine, sustainable, long-term growth. He failed miserably on both counts. On the first test, the International Monetary Fund, the OECD, the Federation of European Employers, the CBI, the British Chambers of Commerce and the Federation of Small Businesses have all been telling him that he simply must inject growth into the economy and stop endlessly hacking away at public expenditure. Just how desperately such actions are needed is shown by the fact that the Chancellor’s own forecast in his 2010 Budget that cumulative public sector net borrowing over the next four years would be £322 billion has now been increased to a staggering £539 billion. That is an increase of £217 billion. The key point is that that increase is almost wholly attributable to the failure of the economy to grow. That is the significant point behind this debate.

[Kwasi Kwarteng]

Will the right hon. Gentleman give way?

[Mr Meacher]

I will give way to the hon. Gentleman, because he was kind enough to give way to me at the end of his speech.

[Kwasi Kwarteng]

I am glad to see that some courtesies are still observed in the House. Does the right hon. Gentleman accept that this country and this Government have a problem with current spending levels, or does he believe that we can carry on increasing spending indefinitely?

[Mr Meacher]

Of course I believe that there is a problem with the level of debt and the level of the public sector deficit; everyone accepts that. The issue is how it should be dealt with. I believe that the way this Government are dealing with it is profoundly self-defeating.

The Chancellor has failed in the sense that, according to the OBR, despite an output gap that remains incredibly high at 3.7%, the net effect of all his measures in the autumn statement will be to raise the general growth rate by a footling 0.1%. That is an extraordinary judgment on the Chancellor.

The Chancellor also failed his second test, which was to shift the economy on to a more sustainable long-term footing, moving away from his over-dependence on finance—a move we all agree with—and towards a much stronger industrial and manufacturing base. Eighteen months ago, he announced with great fanfare the march of the makers. That never happened, however. He has now promised a £40 billion guarantee for private infrastructure investment, but the problem is not one of too little credit; it is one of too little demand for credit. The latest figures show construction plummeting ominously, largely because of its great dependence on the public sector, which the Chancellor is shrinking. Moreover, UK manufacturing will this year suffer the biggest deficit in traded goods in its entire history—a deficit of roughly £110 billion, or 7.5% of gross domestic product. That is utterly unsustainable, and if that trend is not reversed, it will inevitably lead to an almighty crash in British living standards before long.

[Gordon Birtwistle]

rose—

[Mr Meacher]

I will not give way again, as I do not have much time left.

Why is the Chancellor not meeting his own tests? It is because he is obsessed with a neo-liberal ideology that forbids any public sector lead role in the economy. In fact, the Chancellor is crucifying Britain today on a cross of dogma. What should a sensible steward of the British economy do now? He should do two things: reinstate the capital spending programmes cancelled in the great drive towards deficit reduction, with special priority given to house building, energy and transport renewal and green technology; and set up a national investment bank with its own portfolio of investment projects, focused on key infrastructure and cutting-edge technology.

How will that be paid for? There are three options. Instead of any further £50 billion tranche of quantitative easing being used to consolidate bank balance sheets, as has happened every time up till now, the Chancellor should divert at least a portion of it towards generating 1 million or more jobs by investing it directly in industrial and manufacturing projects. Or he could levy a capital gains tax charge—I know that this would not be welcome on the Government Benches—on the colossal gains made by a minuscule proportion of the mega-rich, which The Sunday Times, a Murdoch paper, believes to have been in the order of £155 billion in the past three years. Or he could justify—yes, I think he could—a temporary increase in borrowing, of, say, £150 million to raise £30 billion at an interest rate of 0.5% on the reasonable grounds that with such a weak economy but cyclically adjusted net borrowing forecast at only 3% this year, he has given himself enough leeway to delay tightening. Those are the three options, and not to do any of them is a culpable negligence for which he will not be forgiven.

On the Chancellor’s second objective of rebalancing the economy, several measures need to be taken urgently. First, British manufacturing clearly needs a larger flow of qualified skilled workers. The academic underpinning of the STEM subjects—science, technology, engineering and maths—should be steadily increased; a viable and effective post-14 vocational route, with a much stronger work component, should be established in schools; and employers should be made to take responsibility for on-site training. Secondly, the bane of short-termist bank lending to British manufacturing must be tackled by giving incentives to develop a long-term ongoing relationship between banks and their customers, as is done very successfully in the German Mittelstand. Thirdly, the supply chains, which are crucial to any successful manufacturing economy but which have been broken up by privatisation and foreign sell-offs over the past 30 years, urgently need to be restored to achieve a secure base for SMEs. Fourthly, the sacrifice of key industrial sectors and companies to uninhibited acquisition in the international markets—Pilkington, P&O, Corus, BT, O2, Smith Electronics, Cadbury and BA; it is a very long list and a laissez-faire policy that no other major country in the west would ever allow—should be reversed if Britain’s economy and its survival are to be secured.

All those things need to be done, because the alternative under present policy is semi-permanent continuation of a condition of semi-slump.