amendment of the law

Michael Meacher Excerpts

Tuesday 25th March 2014 Commons Chamber

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

Listening to the Chancellor and then turning to the Office for Budget Responsibility’s analysis of the Budget is like being seduced by “Fifty Shades of Grey” only to be brought down to earth by a harsh and unrelenting textbook on morality and sexual ethics. Leaving aside all the election giveaways, the truth is that the underlying economics of the Budget are truly awful.

The economy is still, after four years of austerity, 1.5% smaller than it was in 2008, while the US economy is 5% larger. To put it another way, the UK economy is today 14% smaller than it would have been if growth had continued in the way already being achieved in 2010, when the then Labour Chancellor’s economic stimulus produced 2.4% growth over 12 months up to the third quarter of 2010. As a result of this Chancellor’s about-turn, in favour of fiscal consolidation and austerity, the UK has lost output totalling £210 billion. That is completely gone for ever, down the drain and irrecoverable, and it is equal to one-seventh of Britain’s entire GDP.

Even the deficit reduction, which was supposed to be the aim of the exercise, has worked disastrously. The Chancellor inherited a deficit of £149 billion and pledged to reduce it by £60 billion now and £20 billion next year. In fact, the deficit is projected to be £108 billion this year—nearly double what he promised.

Even more serious is that the Chancellor predicts a strong and lasting recovery, but the OBR believes that this so-called recovery is built on sand. Unemployment and spare capacity have fallen so quickly that the OBR thinks there is very little scope for rapid growth beyond this current year. Hence, it has cut its growth forecast for next year from 2.7% to 2.3%. That is a very ominous forecast. If the economy is still below the output level of 2008 and unemployment is still 2.4 million, the premature petering out of growth will speak volumes. The OBR also says that, given the current policies, Britain will continue to lose export share steadily over the next five years, although it already has the biggest deficit in traded manufactured goods in its history, at £110 billion 7% of GDP—and rising.

The whole honest OBR scenario is grim. The public finances are still terrible, none of the components for sustainable growth is present, the upswing is largely dependent on excessive consumer borrowing and yet another asset-price bubble boom and bust, and the recovery—such as it is—is expected to fade when it has hardly begun. One has to ask, almost unbelievingly, how the Chancellor could have got it so unutterably wrong.

Part of the answer, I think, is that the Chancellor seems to have genuinely believed, at least for the first two years, the dogma of expansionary fiscal contraction. That is the idea that the less a Government spend, the faster the economy will grow, because the public sector will no longer crowd out the private sector, which will then have the space in which to grow. Well, it is all right to believe that if you are a first-year economic student, but to believe it when you have the power to trash the British economy for three years—as the Chancellor has, in fact, done—is quite another thing. The theory is economic illiteracy, and we have suffered that for two to three years.

What prompts the private sector to invest is obviously the prospect of future demand, and hence the prospect of future profits. When the economy is stagnant or contracting, what incentive have private companies to invest at all? That, of course, is precisely why business investment today is completely flat—20% below the pre-crash level—and what does that tell us? What it tells us is that business itself does not actually believe in this recovery either.

But there is another explanation for all this folly, namely that the Chancellor and the Prime Minister are first and foremost ideologues, obsessed with the idea of shrinking the state to the smallest size they can get away with via the privatisation and outsourcing of everything that moves. For them—as opposed to all the people about whom Opposition Members have been talking—austerity was not a painful instrument of reform so much as a heaven-sent gift enabling them to realise their deepest prejudices. That is why, although the policy clearly is not working, the Chancellor is committed to continuing it, and indeed intensifying it, into the next Parliament.

So what should be done? I think it is obvious that what Britain urgently needs is a big and sustained increase in investment, which can only come—at least in the first instance—from the public sector, as the private sector, like the OBR, regards the recovery as far too fragile and risky. At today’s interest rates, the Chancellor could launch, at a cost of only £150 million a year, a major £30 billion drive of investment in manufacturing, public services and job creation which would bring the deficit down much faster, would shrink the dole queues—which are currently costing £19 billion a year—and would be sustainable. He could even finance it at no cost in public borrowing at all—by targeting a tranche of quantitative easing directly at manufacturing rather than the banks, by instructing the publicly owned banks, Royal Bank of Scotland and Lloyds, to prioritise their lending on British industry and not on overseas speculation, or by taxing the super-rich, who have monopolised more than 70% of the income gained since 2008, and, over the same period, increased their wealth by some—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. The right hon. Gentleman’s time is up.