Budget Resolutions and Economic Situation

Michael Meacher Excerpts

Tuesday 14th July 2015 Commons Chamber

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

It falls to me to comment on the excellent maiden speeches that we have just listened to. The hon. Member for Kensington (Victoria Borwick) made a lovely, warm and engaging speech, with some generous recollections of her predecessor. She need not feel trepidation in following him. We will all remember the emotional and feeling way in which she talked about carers and the disabled. She will make a clear contribution to the House in that regard.

The hon. Member for Paisley and Renfrewshire South (Mhairi Black) made a remarkably confident, relaxed, witty and effective speech. It is not often that a maiden speech in this House makes a strong political case, but she certainly got away with it. I liked her distinction between weathercocks and signposts, with which I wholeheartedly agreed. I think that we will hear a great deal more from the hon. Lady in future debates in this House.

I congratulate the hon. Member for Brecon and Radnorshire (Chris Davies), who again made a warm and generous speech about his first recollections in this place. I am not sure whether his speeches will remain so generous, not least given his early contact with the Whip. It is nice that in some ways, this place reminds him of Wales, his constituency and his roots. I very much hope that he will continue to reflect those things, and I wish him well.

Turning to the debate, all the hoo-hah about the Budget has centred on the £9 so-called living wage in 2020, even though the living wage in London is already £9.35. It is therefore not a living wage at all, but a slightly revamped minimum wage. Nevertheless, it is the macroeconomics of the Budget that really matter—and they are unreservedly depressing. If this is such a wonderful economic recovery, as we are constantly being told, why are average wages still 6% below their pre-crash level seven years ago? Why was the growth rate in the last quarter—the first of this year—just 0.4%, with an annual rate of just 1.5%? Why has productivity been flat for the past five years?

[David T. C. Davies (Monmouth) (Con)]

Clearly we would all like to see even higher growth rates, but does the right hon. Gentleman not acknowledge that we currently have the highest growth rate in the G7 and that that is a good thing?

[Mr Meacher]

I would like to ask the hon. Gentleman—although I am not inviting him to come back in—how he would explain the fact that in the latest quarter the growth rate was 0.4%, up from 0.3%. In the last three quarters it has gone down from 0.9% to 0.6%, and then to 0.3% or 0.4%. It was clearly a short-term growth surge, which is now fading.

We all regard productivity as crucial, but the UK’s investment as a percentage of GDP is now among the lowest in the world at barely 14%. By the time depreciation is netted off the growth figure, we are actually down at just 2.5%, which hardly even keeps up with our rising population.

Why does the OBR’s Budget report forecast a never-ending decline in Britain’s share of world exports, even compared with 2014, when this country experienced the biggest proportionate balance of payments current account decline since 1830? Why have the Government squeezed the economy so hard that they are now looking to a steep rise in household borrowing as the main source of future demand? Dangerously, the borrowing level already exceeds £2 trillion and may well be the source of the next economic crisis.

For all those reasons, the Chancellor’s boasts about the state of the economy do not bear even superficial scrutiny. Nor is his explanation of the cause of the economic crisis any more truthful. He continually lambasts the last Labour Government for overspending, but their economic record actually shows the opposite. The largest budget deficit under the Blair and Brown Governments in the 11 years from 1997 to 2008, before the crash, was 3.3% of GDP. The Thatcher and Major Governments ratcheted up budget deficits in excess of that in 10 of their 18 years. Who were the profligate ones? It was not Labour.

Then there is the question of which party has handled better the enormous rise in the deficit, caused by the bankers and the international recession. Again, it is valuable to look at the economic record. Alistair Darling, the last Labour Chancellor, gave the economy a big fiscal stimulus worth nearly 5% of GDP, allowing the automatic stabilisers to work and bringing forward public investment projects worth more than £30 billion.

[Robert Flello]

Would that be the same Alistair Darling who said that we should halve the deficit between 2010 and 2015, and who was lambasted by the Conservative party for proposing such a measure?

[Mr Meacher]

My hon. Friend makes a good point, and I will come on to comparing what the Government have achieved with what the Chancellor said in 2010.

Bearing in mind that it takes between 12 and 18 months for Budget measures to work their way through the economy fully, we should remember that Alistair Darling cut the deficit from its peak of £154 billion to just £114 billion by the fourth quarter of 2011—a cut of £40 billion in fewer than two years at a rate of £20 billion a year. The current Chancellor, however, through his successive austerity Budgets, slowed that deficit reduction to a trickle. Today it is still £90 billion, which represents a reduction of £24 billion in three years at a rate of £8 billion a year. If he wanted to reduce the deficit as efficiently and as fast as possible, he has clearly failed. But of course, his real aim all along has been to shrink the state and squeeze the public sector. The deficit has merely been a convenient pretext to enable him to do so.

Now the Chancellor is telling us that he will eliminate the structural deficit by 2019-20. Judging by the fact that he boasted that he would achieve that by this year, when it is still a whopping £90 billion, we can take that with a fair pinch of salt. His Budget forecasts assume a 2.5% a year growth rate all the way to 2020, but with the £25 billion of further expenditure and benefit cuts now being imposed on the economy, we are likely to see a reprise of what has happened in the past five years. The reimposed austerity will flatten growth, exactly as it did from 2010 to 2012, when it was relieved only by postponing austerity to generate a short 18-month economic surge in 2013-14. As I have explained, that surge has now deflated. That pattern is likely to be reproduced in the next five years. I fear that we will have the worst of both worlds—a short-lived growth spurt that fizzles out and is achieved only through a further postponement of deficit reduction extending well into the medium-term future.

The most fundamental question is: what is the right way to deal with a large deficit? We all agree that it is far too large and has to be reduced. It is a statement of the blindingly obvious, but one that is not publicly stated, that there are two ways of doing that—either by cutting expenditure or by increasing income. An individual does not have that option, of course, but the state does, because it controls the momentum of the economy through either expanding or contracting it. The Chancellor chose exclusively to pursue the latter because it suited his political ends of shrinking the state, but economically, it has been dire—the impoverishment of a quarter of the population and the generation of 350 food banks, rather like a third world country, while cutting the deficit by only a marginal amount.

Historically, all the evidence is against the Chancellor. The reduction of large deficits by both the US and Sweden in the 1990s occurred as a result of sustained growth policies. Above all, we have the precedent of Britain in 1945, when the debt was 260% of GDP—three times higher than the 80% it is today. That did not prevent the Attlee Government from introducing the NHS and the welfare state, building 300,000 houses a year, reconstructing the country’s broken infrastructure and, above all, restoring full employment, with the deficit steadily decreasing to 60% over the next 30 years.

The Chancellor has not only failed to cut the deficit by much, but his legacy will be that he fundamentally chose the wrong way to do it, for the wrong reasons, with huge, irrecoverable losses to UK growth and output.

[Several hon. Members]

rose—

The Economy

Michael Meacher Excerpts

Thursday 4th June 2015 Commons Chamber

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

I pay tribute to the speech by my right hon. Friend the Member for Doncaster North (Edward Miliband), in terms of both content and statesmanship. He was a fine leader who was largely misrepresented and misunderstood, and I think he had admirable vision and conviction. He will be sorely missed, but I hope that many of his principles, convictions and values will be incorporated not only into the Labour party leadership contest but into the political debate over the next years.

I have a rather different message for the Chancellor. Underpinning the whole of the Government’s programme, which he set out today, is the theme that the Tories inherited a recession caused by Labour overspending, that they set in place a strong economic recovery, that they are within sight of dealing with the deficit and that austerity has been vindicated. All those are false. First, the recession was caused by the international recession triggered by the banks’ financial crisis; it was not caused by Labour profligacy. In truth, the Blair-Brown Government, in the 11 years before the crash—1997 to 2008—never ran a budget deficit larger than 3.3% of GDP, which was roughly the same as Germany’s, whereas the Thatcher-Major Governments racked up deficits larger than this in 10 out of their 18 years.

Secondly, we have seen the slowest and feeblest recovery for more than a century. The economy was recovering in 2010, but it was brought to a juddering halt by the Chancellor’s successive austerity Budgets—so much so that after two and a half years of stagnation, he was forced to reverse engines, to go easy on austerity and generate an artificial recovery based on a housing asset bubble, via Help to Buy. That artificial recovery lasted just 18 months until the middle of last year, and has now been punctured like a deflating balloon. In the last nine months, growth has nosedived by two thirds, from 0.9% in the third quarter of last year to just 0.3% in the first quarter of this year. If that continues, we will have an annual growth rate of just 1.25%—lower than in the eurozone.

Then there is the deficit. The Chancellor likes to claim he has halved the deficit since 2009-10. He has not. The deficit peaked that year at £157 billion. Given that the Budget measures take 12 to 18 months to work their way through the economy, Alistair Darling, in his last two expansionary Budgets, had reduced the deficit to about £118 billion by 2011—a cut of nearly £20 billion a year. The present Chancellor, by contrast, has reduced it over the last three years to its current level, which I remind the House is over £90 billion—a cut of only about £9 billion a year, which is less than half the rate of reduction of the previous Labour Chancellor.

Now we are being told that the Chancellor will eliminate the structural deficit altogether by 2018, at an average rate of reduction, according to the Red Book, of some £25 billion a year. I ask hon. Members: is that remotely credible? He promised in 2010 that he would eliminate the deficit by 2015; in the event, it has ended up at over £90 billion. The Chancellor is achieving form in his fantasy projections, or is it that the real Tory primary aim is not to shrink the budget deficit, but rather to shrink the state, shrink the public sector and transfer all public services to the private market—back to the dimensions of the 1930s?

Has austerity been vindicated? Since, according to the Office for Budget Responsibility, austerity reduced GDP growth by 1% in both of the first two years of the coalition Government, that indicates, at the very least, that austerity led to a cumulative output loss, which will never be recovered, of 5% of GDP or about £75 billion—some little short of the whole of the deficit.

What else has austerity brought about? Wages are still nearly 8% below their pre-crash level, while productivity, on which all agree our future living standards depend, is slack. Private investment is anaemic, which shows that even business itself does not believe that the Chancellor’s recovery is sustainable. The trade deficit in manufactured goods at over £100 billion a year is the worst in British history, unemployment is still nearly 2 million and household debt is now tipping £2 trillion.

It against that background that the Chancellor now forces through his cuts target, as he set it out. Growth will collapse as even the IMF today is warning. Without, this time, the adventitious halving of the international oil price, Britain will soon be at serious risk of a third recession. So much for the Government’s ludicrous “long-term plan”!

Autumn Statement

Michael Meacher Excerpts

Wednesday 3rd December 2014 Commons Chamber

[Mr Osborne]

My hon. Friend makes a good point. Of course, what is very striking, if one looks at the receipts revenue forecasts from the OBR, is that they are wildly different from those produced by the Scottish Government before the recent referendum. As he will see tomorrow, when his colleague the Chief Secretary to the Treasury sets out in Aberdeen what we are doing, the tax cuts we announced today, which will come into effect in the coming weeks, will have an immediate effect, but we are also going to try to set out a longer road map for the direction we want to head in. As he well knows, industry investment decisions are made over long cycles and people need predictability about the future of the British oil and gas tax regimes so that we get the maximum amount of oil out of the basin.

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

With average wages still suffering the longest and biggest fall since Victorian times, productivity still one of the lowest in the OECD, business investment still flat and below pre-crisis levels, the deficit on traded goods now the biggest in British history and, to cap it all, the budget deficit is clearly beginning to rise because of the fall in tax receipts, how can the Chancellor, against that background, continue with austerity when its consequences are clearly now causing the deficit to rise?

[Mr Osborne]

I am afraid that the right hon. Gentleman is just wrong. Business investment is not flat; it is up 27% and is rising faster in the UK than in any other major advanced economy in the world. The deficit, according to the OBR document, was 10.2% under the previous Labour Government; it is now 5%. The idea that that is an increase is obviously nonsense. Indeed, it falls in every future year, just as it has fallen this year.

The Economy

Michael Meacher Excerpts

Wednesday 26th November 2014 Commons Chamber

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

On 3 December, the Chancellor will be confronted with a whole array of facts and statistics that he never intended or expected to see. Like an echolaliac obsessive, he has constantly repeated on every available occasion—it has been the same today—that the Government have a long-term economic plan.

So was it the Government’s long-term economic plan that average wages should fall by an average of 9% in real terms—the biggest fall since the depression of Victorian times in the 1870s—and that in the past year the rise in the average wage should be a pitiful £1 a year, which, after adjusting for inflation, is a chunky fall of 1.6%? Was it the Government’s long-term economic plan that UK productivity should now be the worst in the G7 leading high-income countries, and that while output per hour between 2007 and 2013 rose by 8% in the United States, by 5% in Japan, by 3% in Canada, by 2% in Germany, and by 1% in France, in the UK, uniquely, it fell by 3% and shows no sign of improving in the future?

Was it the Government’s long-term economic plan—this really is important—that six years after the crash, business investment should still be flat, at a level 10% below pre-crash, or that the FTSE 100 companies should still now be sitting on cash stockpiles of over £500 billion and not investing because they do not believe the Chancellor’s so-called recovery is sustainable? Was it the Government’s long-term economic plan that net exports in traded goods—that is, manufactured imports less exports—should now be chalking up the biggest deficit in British history, perhaps as much as £110 billion this year? To cap it all, was it the Government’s long-term economic plan that after nearly five years of austerity, the budget deficit should not be falling at all but rising again this year, when it is still a whopping £100 billion?

That then leads to the central question in this debate: what is the rationale for continuing with austerity when the consequences of austerity—the draining of demand out of the economy, as I have explained—are actually increasing the deficit, not reducing it? What is the answer to that central question? The Minister, in an exceedingly shrill, partisan and strident speech, made no attempt at all to answer it.

Nor is the situation just a glitch this year. With economic growth now slipping from 0.9% in the second quarter to 0.7% in the third quarter, and predicted to be 0.5% in the current quarter, and with household incomes continuing to fall—indeed, the 1.6% real-terms fall in the past year is the largest since records began—the Government’s tax take, which is crucial to the deficit, is likely to drop still further in future years. The only way the Chancellor can then start to get the budget deficit down again is by even more draconian cuts in public expenditure and benefits than in his first five years—perhaps by even double the £25 billion that he has already announced, as the Financial Times is predicting. Even if that were politically possible—that is highly doubtful, as polling evidence is clearly showing a public rapidly cooling towards any further austerity ravaging their livelihoods—it would only worsen the basic problem for the Government of making even deeper inroads into their tax income. The Government are finally ending up eating their own tail.

The truth is that the Government have only ever been able to point to two positive elements in their economic policy. One is the much-vaunted recovery, but that has always been over-dependent on a housing asset bubble. It has never rebalanced the economy from finance to manufacturing. It has never gained any legs because, as I have explained, all the potential sources of demand are now pointing firmly south and all the economic indicators show that it is beginning to fizzle out. The other is the unexpected increase in employment, which has been regularly mentioned in this debate, but there too the surface picture is very deceptive. Overwhelmingly, the jobs have come from self-employment, where the average wage has fallen by a massive 13%, or from part-time work.

But those are the details: what really matters about this awful episode of the past five years is that the Government have been pursuing a slash-and-burn policy that is ultimately self-destructive, as we are now seeing all too clearly. They are doing this because their primary motive is not to eliminate the structural deficit but to use the deficit as once-in-a-lifetime leverage to overthrow the post-war social democratic settlement and to shrink the state so that the public sector is transformed into a fully privatised market system.

It need not be like this. The Chancellor has handled the deficit appallingly badly, with maximum pain and minimum benefit, and it could have been so different. By comparison, the previous Labour Chancellor brought in two expansionary Budgets in 2009 and 2010 to counter the monetary collapse caused by the bankers. That cut the deficit from the peak of £157 billion to £118 billion—a reduction of nearly £40 billion in two years. The current Chancellor’s austerity Budgets then kicked in, and the rate of deficit reduction halved over the next three years. He had said that by this year the deficit would be £40 billion, yet it is actually about £100 billion.

What does the record show is the best way to cut the deficit? Is it by stimulating the economy to produce real jobs and boost incomes, as Labour did, or by slashing expenditure, degrading the foundations of our society, and delivering the biggest fall in average real incomes since Victorian times, as this Government have done? Frankly, it is a no-brainer. Continuing with austerity when it has ravaged the livelihoods of millions, destroyed so much of the social fabric of our society and is not now even cutting the deficit, which is supposed to be the whole object of the exercise, can only be described as a certifiable condition.

There is a better way of doing this. It can be funded, with no increase at all in public borrowing, by instructing the publicly owned banks—the Royal Bank of Scotland and Lloyds—to prioritise lending to British industry rather than financial speculation overseas, by having a modest further tranche of quantitative easing targeted directly on key industrial projects rather than wasted on the banks as hitherto, or by taxing the ultra-rich. That is the way we should go.

[Several hon. Members]

rose—

Money Creation and Society

Michael Meacher Excerpts

Thursday 20th November 2014 Commons Chamber

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

I, too, strongly congratulate the hon. Member for Wycombe (Steve Baker) on securing this debate, which everyone recognises is vital and which has not been debated in this House for 170 years, since Sir Robert Peel’s Bank Charter Act 1844. The hon. Gentleman drew that fact to my attention when we were last speaking in a similar debate. That Act prohibited the private banks from printing paper money. In light of the financial crash of 2008-09 and the colossal expansion of money supply that underpinned it—no less than a twenty-two-fold increase in the 30 neo-liberal years between 1980 and 2010—the issue is whether that prohibition should be extended to include electronic money.

It is unfortunate that it is so little understood by the public that money is created by the banks every time they make a loan. In effect, the banks have a virtual monopoly—about 97%—over domestic credit creation, so they determine how money is allocated across the economy. That has led to the vast majority of money being channelled into property markets and the financial sector. According to Bank of England figures for the decade to 2007, 31% of additional money created by bank lending went to mortgage lending, 20% to commercial property, and 32% to the financial sector, including to mergers and acquisitions and trading and financial markets. Those are extraordinary figures.

[Mr Jim Cunningham]

Given what my right hon. Friend has just said, is there not an argument, in this situation of unlimited credit from banks, for the Bank of England to intervene?

[Mr Meacher]

My hon. Friend anticipates the main line of my argument, so if he is patient I think I will be able to satisfy him. Crucially, only 8% of the money referred to went to businesses outside the financial sector, with a further 8% funding credit cards and personal loans.

[Mr MacNeil]

I hear what the right hon. Gentleman says about money going into building, housing and mortgages, but is that not because the holders of money reckon that they can get a decent return from that sector? They would invest elsewhere if they thought that they could get a better return. One reason why the UK gets a better return from that area than, say, Germany is that we have no rent controls. As a result, money is more likely to go into property than into developing industry, which is more likely to happen in Germany.

--- Later in debate ---

[Mr Meacher]

I very much agree with that argument. Again, I assure the hon. Gentleman that I will return to that matter later in my speech. He is absolutely right that the reason is the greater returns that the banks can get from the housing and rental sector. Our rental sector, which is different from that in Germany and other countries, is the cause of that.

It is only this last 16%—the 8% lent to businesses and the 8% to consumer credit—that has a real impact on GDP and economic growth. The conclusion is unavoidable: we cannot continue with a system in which so little of the money created by banks is used for the purposes of economic growth and value creation and in which, instead, to pick up on the point made by the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), the overwhelming majority of the money created inflates property prices, pushing up the cost of living.

In a nutshell, the banks have too much power and they have greatly abused it. First, they have been granted enormous privileges since they can create wealth simply by writing an accounting entry on a register. They decide who uses that wealth and for what purpose and they have used their power of credit creation hugely to favour property and consumption lending over business investment because the returns are higher and more secure. Thus the banks maximise their own interests but not the national interest.

Secondly, if they fail to meet their liabilities, the banks are not penalised. Someone else pays up for them. The first £85,000 of deposits are covered by a guarantee underwritten by the state and in the event of a major financial crash they are bailed out by the implicit taxpayer guarantee—

[Steve Baker]

rose—

[Mr Meacher]

Let me finish, and I will of course give way.

The banks have been encouraged by that provision into much more risky, even reckless, investment, especially in the case of exotic financial derivatives—

[Mr Jim Cunningham]

rose—

[Mr Meacher]

Members are beginning to queue up to intervene, but let me finish my point first.

The banks have been encouraged even to the point at which after the financial crash of 2008-09 the state was obliged to undertake the direct bail-out costs of nearly £70 billion as well as to provide a mere £1 trillion in support of loan guarantees, liquidity schemes and asset protection arrangements.

[Steve Baker]

I wholly agree with the right hon. Gentleman. The moral hazard problem is absolutely enormous and one of the most fundamental problems. However, the British Bankers Association picked me up when I said it was a state-funded deposit insurance scheme and told me it was industry-funded. I think the issue now is that nobody really believes for a moment that the scheme will not be back-stopped by the taxpayer.

[Mr Meacher]

As always, I am grateful for the intervention from the hon. Gentleman—let me call him my hon. Friend, as I think that on this issue he probably is.

[Mr Jim Cunningham]

On the question of banks investing in the property market, does my right hon. Friend think we could learn anything from the United States and the collapse of Fannie Mae? Are we in a similar situation?

[Mr Meacher]

Again, that takes me down a different path, but there is considerable read-across.

[Douglas Carswell]

The right hon. Gentleman has been absolutely magnificent in diagnosing the problem, but when it comes to the solution and passing power away from banks, rather than passing the power upwards to a regulator or to the state, would he entertain the idea of empowering the consumer who deposits money with the bank? Surely the real failure is that the Bank Charter Act 1844 does not give legal ownership of deposits to the person paying money into the bank. The basis of fractional-reserve banking is the legal ownership the bank has when money is paid in. If we tackle that, the power will pass from the big state-subsidised corporations and banks outwards to the wider economy.

[Mr Meacher]

I have great sympathy with what the hon. Gentleman is saying—

[Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)]

rose—

[Mr Meacher]

One at a time, please. I was going to say a little bit more than that I had sympathy with what the hon. Member for Clacton (Douglas Carswell) said.

I will argue that the capacity to regulate an increasingly and exceedingly complex financial sector is not the proper way, and I will propose an alternative solution. I am strongly in favour of structural changes that enable people to achieve greater control over the money that they have contributed.

[Ms Abbott]

I was intrigued to hear my right hon. Friend mention depositor protection. Is he saying that he is against any form of depositor protection?

[Mr Meacher]

The protection of deposits is up to £85,000 and is underwritten by the state.

[Ms Abbott]

Is my right hon. Friend against?

[Mr Meacher]

I am neither for nor against. I am making the point that the arrangement encourages the banks to increase their risk taking. If they are caught out, for each depositor £85,000 is guaranteed by the state. I agree with the hon. Member for Wycombe that we need much wider structural change. It is not a question of tweaking one thing here or there.

The question at the heart of the debate is who should create the money? Would Parliament ever have voted to delegate power to create money to those same banks that caused the horrendous financial crisis that the world is still suffering? I think the answer is unambiguously no. The question that needs to be put is how we should achieve the switch from unbridled consumerism to a framework of productive investment capable of generating a successful and sustainable manufacturing and industrial base that can securely underpin UK living standards.

Two models have hitherto been used to operate such a system. One was the centralised direction of finance, which was used extremely successfully by several Asian countries, especially the south-east Asian so-called tiger economies, after the second world war, to achieve take-off. I am not suggesting that that method is appropriate for us today. It is not suited to advanced industrial democracies. The other method was to bring about through official “guidance” the rationing of bank credit in accordance with national targets and, where necessary, through quantitative direct controls. In the post-war period, that policy worked well in the UK for a quarter of a century, until the 1970s when it was steadily replaced by the purely market system of competition and credit control based exclusively on interest rates. In our experience of the past 30 or 40 years, that has proved deeply unstable, dysfunctional and profoundly costly.

Since then there have been sporadic attempts to create a safer banking system, but these have been deeply flawed. Regulation under the dictates of the neo-liberal ideology has been so light-touch—by new Labour just as much as by the other Government—that it has been entirely ineffective. Regulation has been too detailed. I remind the House that Basel III has more than 400 pages, and the US Dodd-Frank Bill has a staggering 8,000 pages or more. It is impossibly bureaucratic and almost certainly full of loopholes. Other regulation has been so cautious—for example, the Vickers commission proposal for Chinese walls between the investment and retail arms of a bank—that it missed the main point. Whatever regulatory safeguards the authorities put in place faced regulatory arbitrage from the phalanx of lawyers and accountants in the City earning their ill-gotten bonuses by unpicking or circumventing them.

[Mr Ronnie Campbell]

My right hon. Friend is always very good on these subjects. Would I be going too far if I were to suggest that we should nationalise the City, nationalise the banks and run ourselves a Government on behalf of the people?

[Mr Meacher]

Public ownership of the banks is a significant issue, but I am not going to propose it in my speech. It would be a mistake to return RBS and Lloyds to the private sector, and the arguments about Barclays and HSBC need to be made, but not in this debate. I shall suggest an alternative solution that removes the power of money creation from the banks and puts it in different hands to ensure better results in the national interest.

Against that background, there are solid grounds for examining—this is where I come to my proposal—the creation of a sovereign monetary system, as recommended by several expert commentators recently. Martin Wolf, who, as everyone in this House will know, is an influential chief economics commentator for the Financial Times, wrote an article a few months ago—on 24 April, to be precise—entitled “Strip private banks of their power to create money”. He recommends switching from bank-created debt to a nationalised money supply.

Lord Adair Turner, the former chair of the Financial Services Authority, delivered a speech about 18 months ago, in February 2013, discussing an alternative to quantitative easing that he termed “overt money finance,” which is also known as a from of sovereign money. Such a system—I will describe its main outline—would restrict the power to create all money to the state via the central bank. Changes to the rules governing how banks operate would still permit them to make loans, but would make it impossible for them to create new money in the process. The central bank would continue to follow the remit set by the Chancellor of the Exchequer, which is currently to deliver price stability, which is defined at the present time as an inflation target of 2%. The central bank would be exclusively responsible for creating as much new money as was necessary to support non-inflationary growth. Decisions on money creation would be taken independently of Government by a newly formed money creation committee or by the existing Monetary Policy Committee, either of which would be accountable to the Treasury Committee. Accountability to the House is crucial to the whole process.

[Mr Jim Cunningham]

Going back to the question I asked my right hon. Friend earlier, what would be the role of the Bank of England?

[Mr Meacher]

I will come on to explain that. The Bank of England has an absolutely crucial role to play. If my hon. Friend listens to the last bit of my speech, he will get a full answer to that question.

A sovereign money system thus offers—if I may say this—a clear thermostat to balance the economy, which is notoriously lacking at present. In times when the economy is in recession or growth is slow, the money creation committee would be able to increase the rate of money creation, to boost aggregate demand. If growth is very high and inflationary pressures are increasing, it could slow down the rate of money creation. That would be a crucial improvement over the current system, whereby the banks either produce too much mortgage credit in a boom because of the high profit prospects, which produces a housing bubble and raises house prices, or produce too little credit in a recession, which exacerbates the lack of demand.

Lending to businesses is central to this whole debate.

[Derek Twigg (Halton) (Lab)]

I want to take my right hon. Friend back to when he mentioned accountability to Parliament and the Select Committee. Could he enlarge on that point? On accountability, what powers would Parliament have to ensure that his proposal was being followed through properly and the rules were being laid down?

[Mr Meacher]

The purpose of accountability to the Treasury Committee would be to enable Parliament fully to explore the manner in which the money creation committee or the Monetary Policy Committee was working. I would anticipate a full three-hour discussion with the leading officials of those committees before the Treasury Committee, and if necessary they could be given a hard time. Certainly, the persons in this House who are most competent to deal with the matter would make clear their priorities, and where they thought the money creation committee was not paying sufficient attention to the way in which it was operating, and they would suggest changes. They would not have the power formally to compel the money creation committee to change, but I think the whole point about Select Committees, which are televised and discussed in the media, is that they have a very big effect. That would be a major change compared with what we have at present. Like all systems, if it is inadequate it can be modified, changed and increasingly enforced.

[Sir William Cash]

With reference to the Treasury Committee, does the right hon. Gentleman see a potential role for some form of joint Committee, perhaps with the Public Accounts Committee, whose origins are to do with taxation and spending? Does he think that broadening scrutiny a little in that direction might be helpful so that we get the full benefit of the all-party agreement of both Committees?

[Mr Meacher]

That is a helpful intervention. Although it is a relatively big part of what I am proposing, it is not for me to suggest exactly what the structure of accountability should be. I would be strongly in favour of increasing it as the hon. Gentleman proposes. Until this House is content that it has a proper channel of accountability which is effective in terms of the way our financial system is run, we should bring in further changes to the structure of accountability as may be necessary, such as along the lines that he suggests.

On lending to businesses, the experience that we have had in the past half-decade has been very unsatisfactory. Under a sovereign monetary system, the central bank would be empowered to create money for the express purpose of that funding role. The money would be lent to banks with the requirement that the funds were used for productive purposes, whereas lending for speculative purposes—for example, to purchase pre-existing assets, either financial or property—would not be allowed. The central bank could also create and lend funds to other intermediaries—the hon. Member for Wycombe referred to this—such as regional or publicly owned business banks, which would ensure that a floor could be placed under the level of lending to businesses, which would be a great relief to British business, guaranteeing support for the real economy.

To avoid misunderstanding, I should add that within the limits imposed by the central bank on the broad purposes for which money may be lent, lending decisions would be entirely at the discretion of the lending institutions, not of the Government or the central bank.

I believe that a sovereign monetary system offers very considerable advantages over the current system. First, it would create a better and safer banking system because banks would have an incentive to take lower levels of risk, as there would be no option of a bail-out or rescue from taxpayers and thus moral hazard would be reduced. Secondly, it would increase economic stability because money creation by banks tends to be pro-cyclical, as I explained, whereas money creation by the central bank would be counter-cyclical. Thirdly, sovereign money crucially supports the real economy, whereas under the current system 83% of lending does not at present go into productive investment. I underline that three times.

[Ann McKechin]

My right hon. Friend said that the aim would be to reduce risk and for banks to be more cautious, but if we are to encourage innovation in manufacturing, would we not require an investment bank at state level that could fund the riskier levels of innovation to ensure that they get to market, because they are not at the point where they would be commercially viable?

[Mr Meacher]

That is an extremely important point and, again, I strongly support it. The current Secretary of State for Business, Innovation and Skills has been struggling to introduce a Government-supported business investment bank and has recently announced something along those lines. I think that should be greatly expanded. The book by Mariana Mazzucato, which I hope most of us have read, “The Entrepreneurial State”, shows the degree to which funding for major innovation, not just in this country but in many other countries which she cites, has been financed through the state because the private sector was not willing to take on board the risk involved. One understands that, but one does need to recognise that the role of the state is extremely important, and under a Labour Government I would like to see something like this being brought in.

[Ian Murray (Edinburgh South) (Lab)]

My right hon. Friend makes a tremendous case for money creation and what we should be considering in this House, but I wonder whether there is also a cultural issue. Many businesses and lenders tell me that there is a cultural problem in the United Kingdom for businesses, particularly entrepreneurial businesses that we have heard about from my hon. Friend the Member for Glasgow North (Ann McKechin), with regard to giving away equity rather than creating debt—funding businesses through equity rather than debt. Other countries throughout Europe that are incredibly successful at giving away equity rather than creating debt have much more growth in their entrepreneurial economy.

[Mr Meacher]

That is perfectly true, and my hon. Friend makes an important point. The proposals that I am making would support that. There is a very different climate in this country, largely brought about by the churning in the City of London where profits have to be increased or reach a relevant size within a very short period, such as three or six months. Most entrepreneurial businesses cannot possibly produce a decent profit within that period, so the current financial system does not encourage what my hon. Friend wants. These proposals would make money creation available to those we really want to support much more fully than at present.

Fourthly, under the current system, house price bubbles transfer wealth, as we all know, from the young to the old and from those who cannot get on the property ladder to existing house owners, which increases wealth inequality, while removing the ability of banks to create money should dampen house price rises and thus reduce the rate of wealth inequality.

My fifth and last point, which I think is very important, is that sovereign money redresses a major democratic deficit. Under the current system, around just 80 board members across the largest five banks make decisions that shape the entire UK economy, even though these individuals have no obligation or mandate to consider the needs of society or the economy as a whole, and are not accountable in any way to the public: it is for the maximisation of their own interests, not the national interest. Under sovereign money, the money creation committee would be highly transparent—we have discussed this already—and accountable to Parliament.

For all those reasons, the examination of the merits of a sovereign monetary system is now urgently needed, and I call on the Government to set up a commission on money and credit, with particular reference to the potential benefits of sovereign money, which offers a way out of the continuing and worsening financial crises that have blighted this country and the whole international economy for decades.

--- Later in debate ---

[Andrea Leadsom]

I am grateful to my hon. Friend for pointing that out. I must confess that before the debate I was puzzled that such an intelligent and extremely sensible person should be making the case for a sovereign monetary system, which I would consider to be an extraordinarily state-interventionist proposal. I am glad to hear that is not the case. In addition, of course, bearing in mind our current set of regulators, presumably we would then be looking at a committee of middle-aged, white men deciding what the economy needs, which would also be of significant concern to me.

[Mr Meacher]

Before the Minister leaves the question of a sovereign monetary system, which she obviously totally opposes and to which she raised several objections that I cannot answer in an intervention, does she not believe that the system of bank money creation is highly pro-cyclical and has enormously benefited property and financial sectors to the disadvantage of the vast range of industries outside the financial sector?

[Andrea Leadsom]

As I said, I sincerely congratulate the right hon. Gentleman on raising this matter; it is certainly worthy of discussion, and I look forward to him responding to some of my arguments. I agree that where we were in the run-up to the financial crisis was entirely inappropriate, and I will come to some of the steps we have taken to improve—not throw away the baby with the bathwater—what we have now, rather than throwing it away and starting again.

I know that some of my hon. Friends and Opposition Members have a particular concern about quantitative easing—I have made it clear that I do too—specifically about how we might unwind it. However, they must agree that at least it can be unwound, unlike the proposal for “helicopter money”, which would seem to be a giant step beyond QE—a step where money would be created by the state with no obvious way to rein it back if necessary.

If the tap in my bathroom breaks, rather than wrenching the sink off the wall, I would prefer to fix the tap. As Martin Wolf said last week,

“nobody can say with confidence”

how a monetary system should be structured and what laws and regulations it should have. Given that and the economic tumult across the world, we should be devoting our energies to fixing the system we have—mending the problems but keeping what works. For that reason, the Government have taken significant steps to improve the banking sector, making sure it fulfils its core purpose of keeping the wheels of the economy well oiled.

We are creating a better, safer financial system, with the Financial Policy Committee, created in this Parliament, focused on macro-prudential analysis and action. As the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) pointed out, the FPC has been given counter-cyclical tools to require more capital to be held and to increase the leverage ratio and the counter-cyclical capital buffers when the economy is over-exuberant in order to push back against it—as the previous Governor of the Bank of England said, to remove the punch bowl while the party is still in full flow. That is incredibly important. We are also reducing dependence on debt. Since the financial crisis, the UK banking system has been forced significantly to strengthen its capital and liquidity position, and it is continuing to do so.

I must stress, however, that regulation alone will never be enough, which is why the Government are promoting choice, competition and diversity. I am delighted that 25 new banks are talking to the Prudential Regulatory Authority about getting a bank licence. We are also making strong efforts to promote the mutual sector; to enhance the capacity of credit unions to serve the real economy better; to enable booster funding for small businesses; to help families; and to improve customer service. We have put in place schemes to help the transmission of money from banks to customers, including the funding for lending scheme, which has lowered the price and increased the availability of credit for small and medium-sized businesses. As I think the hon. Member for Newcastle upon Tyne North said, we have also created the British business bank, which is helping finance markets work better for small firms, and are investing much resource and effort to build that up and help businesses in our economy.

We also have a programme of measures to increase competition in the SME lending market, including flagship proposals to open up access to SME credit information, which will help challengers to get in on the act, and to have banks pass on declined applications for finance to challenger banks. In addition, we now have an appeals process whereby small businesses turned down for funding can get a second chance, which has secured an additional £42 million of lending since its launch. These are all measures to help small businesses access finance. Then, to mitigate the problem of house price bubbles, we are putting in place supply-side reforms to promote home building and home owning, as well as measures enabling the PRA to limit the amount of lending that households can take on.

I agree with Members on both sides of the House, however, that we should not be content with the system as it stands. We must seek to improve it and make it function better. In Mark Carney, we have an excellent central banker who has the experience and knowledge to put the right reforms in place and see them through. As he says:

“Reform should stop only when industry and society are content, and finance justifiably proud.”

In the medium to long term, we need to create a culture where research and analysis do not shy away from going against the orthodoxy. As hon. Members across the House have said, we need to consider alternatives, and we should be having that discussion; it is healthy to do so, because that is how to make progress. For that reason, the call from Andy Haldane, the Deputy Governor of the Bank of England, for a broader look at new and existing monetary ideas is exactly right.

[Mr Meacher]

I am pleased the Minister thinks that alternative ways of improving the monetary system should be explored. Will she support the idea of a setting up a commission to examine the alternatives, as recommended by the hon. Member for Richmond Park (Zac Goldsmith), as well as by me—so there is some cross-part support on this? Is that not an idea whose time has come?

[Andrea Leadsom]

I think that an organisation such as the Treasury Committee, of which my hon. Friend the Member for Wycombe is a member, would be entirely the right place to have such a discussion, and of course we also had the Vickers commission, which looked at what went wrong and what measures could be put in place, and the Parliamentary Commission on Banking Standards, which specifically addressed the issue of incentives and motivations in banking. I would not normally advocate the establishment of great new commissions; we already have the bodies to look further at different orthodoxies, and as Andy Haldane has said, the Bank itself will be looking at, and encouraging, the exploration of alternative views.

Of course, we also need to continue embracing innovation, both in the “software” of how payments are made and in the “hardware” of new currencies, such as crypto-currencies and digital currencies—both could open up competition and give customers greater choice and access to funding—but we must do so with caution. In November, we published a call for information inviting views and evidence on the benefits and risks of digital currencies so that digital currency businesses can continue to set up in the UK and people can expect to use them safely.

I am the last person who could be described as statist, but I accept that we must always be ruthless in our determination to regulate new ideas that come to the fore, because as sure as night follows day, as new ideas come in, through shadow banking, new lending ideas and so on, some people will seek to manipulate new schemes and currencies for fraudulent purposes. I am absolutely alive to that fact. It is important, therefore, that the Government carry out the necessary research.

The Government believe that the current system, modified and improved with far greater competition, can service the economy best. However, reform is vital. Again as Andy Haldane puts it:

“Historically, flexing policy frameworks has often been taken as a sign of regime failure. Quite the opposite ought to be the case”.

We need banks to lend—to young families wanting to buy houses and repay out of future labour income rather than relying on the bank of mum and dad, and to businesses wanting to seize opportunities, gain new markets and create jobs and growth. We have an existing system that offers a forward-looking and dynamic framework in which tomorrow’s opportunities are not wholly reliant on yesterday’s savings and which builds on banks’ expertise in assessing risk and making the lending decisions we badly need. During my 25 years at the heart of the industry, I saw the sector at its best, but sometimes sadly also at its worst. We are trying to remedy the worst, but let us also keep the best.

The Economy and Living Standards

Michael Meacher Excerpts

Thursday 12th June 2014 Commons Chamber

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

Listening to the Chancellor, I think the Tory attack lines for the next election are pretty clear. They go like this: “Labour left a dreadful economic mess, which we had to clear up the way we did. It’s been painful, but we were all in it together. We always had a long-term economic plan, and now it’s come good and we have a strong economic recovery.” What unites all of those claims is that every one of them is utterly false.

Labour did not leave an economic mess—the bankers did. In the Labour pre-crash years, the biggest deficit was 3.3% of GDP, whereas the Thatcher and Major Governments ratcheted up bigger deficits in 10 out of their 18 years. Although Thatcher-Major achieved a surplus in two years, Blair-Brown achieved a surplus in four years.

We were not all in it together. Average wages have fallen 7% since the crash, while, according to The Sunday Times rich list published a month ago, the richest thousand persons in the population have increased their wealth in this short period—they have actually doubled it—to just over half a trillion pounds.

In so far as the Chancellor had any long-term plan at all, it was to shrink the public sector in order to enable the private sector to expand into it, but, of course, that did not happen. Of the 1 million jobs that have allegedly been created, two thirds are self-employed on a pittance and almost all the rest are insecure, low paid and on zero-hours contracts. The fact is that virtually none of them are full-time jobs on or near the median income.

As for the present recovery, it is far too dependent on consumer debt to last and it cannot be sustainable. If we look at all the sources of demand—wage levels, productivity, business investment and exports net of imports—we see that they are all dramatically negative.

The biggest fib in the Tory lexicon is that the Tories had to clear the huge deficit by prolonged austerity. They did not. The then Labour Chancellor’s two stimulatory Budgets in 2009 and 2010 brought the deficit down sharply from £157 billion in 2009 to £118 billion in 2011—a reduction of nearly £40 billion in just two years. The present Chancellor’s austerity Budgets have slowed the reduction to a trickle and it has reached £108 billion this year—a reduction of £10 billion over three years. There is not much doubt there about the quickest and best way to cut the deficit.

What should be done? Initially, with private investment flat on its back, we need public investment to promote growth, directed in consultation with industrial leaders at energy, transport and IT infrastructure and at house building and laying the foundations for a low-carbon economy.

How will it be paid for? With interest rates at 0.5%, a hefty investment package of £30 billion could be purchased from the markets at the bargain-basement rate of £150 million a year, which would be enough to generate more than 1 million jobs—proper jobs—within two years.

It could, however, be done without any increase at all in public borrowing. A further £25 billion to £30 billion tranche of quantitative easing could be directed not at the banks, as it has been before, but at agreed industrial projects; or the publicly owned banks, RBS and Lloyds, could be instructed to prioritise their lending to industry, rather than speculation abroad or on property; or the very rich, who have monopolised 90% of the gains since the crash, could be subject to a special super tax to help contribute to tackling the nation’s debt, which some of them helped to create and from which they have benefited the most.

Banking

Michael Meacher Excerpts

Wednesday 15th January 2014 Commons Chamber

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

This has been a timely debate and I say that advisedly, having listened to the complacent, provocative and characteristically tribalistic knockabout from the Financial Secretary, which seemed to me to be almost totally devoid of any new, serious content.

The record of the banks over the past five years has been so riddled with abuse of power, criminal malfeasance, reckless speculation, pervasive mis-selling of financial products, facilitation of contrived tax avoidance on an industrial scale, the rigging of the LIBOR and Euribor interest rate benchmarks, a growing and dangerous development of a shadow banking system, and continued dalliance with the exotic financial derivatives which precipitated the worldwide crash of 2008-9 in the first place that, when combined with the fact that there has been very little fundamental reform so far, there must be a serious risk of another financial cataclysm in the foreseeable future.

The central fact about banking power in Britain today is that 85% of the public’s money in the retail market is controlled by just five big banks, which can—and do—use that money without any accountability to the public interest. The total gross spending of the banking sector reached £7 trillion—five times GDP—in mid-2011. Although it has somewhat reduced today, it still exceeds total Government spending by a factor of almost 10:1. That means that this tiny banking clique commands more spending power to control the UK economy than the entire machinery of Government.

How does it use that power? The most striking fact about the British economy over the past five years—we all know this—is that the banks’ lending to industry has largely been negative for most of that time, while at the same time the banks have continued with their indulgence in property, overseas speculation, tax avoidance and risky derivatives. In the light of that, it surely is the case that the power of this dominant clique of the top UK banks, which has been so badly misused against the public interest, has to be broken up.

[Guy Opperman]

Will the right hon. Gentleman give way?

[Mr Meacher]

I have no time to give way.

By being too big to fail, the banks exacerbate moral hazard, because the knowledge of the explicit taxpayer guarantee encourages excessive risk taking and recklessness. They have failed in their pre-eminent duty to keep adequate funding flowing to UK business, and through their size and weight they choke off competition and new entrants to the market. Initially, that should be brought about by a clean break between retail and investment banking. The Vickers alternative of Chinese walls—separating the two functions within a single, still-integrated structure—is flawed owing to the fact that the City will in no time circumvent it through regulatory arbitrage.

Beyond that initial break, I believe there are strong grounds for further disbandment, which several of my hon. Friends have mentioned, in order to pave the way for what Britain really needs at this time, which is regional banks such as the Sparkassen banks in the German Mittelstand and specialist banks concentrating on infrastructure development, the knowledge and information industries, investment for a low-carbon economy, small businesses and so on.

The fact is that the finance sector is always the most dangerous component in a capitalist economy, particularly in the deregulated version imposed in the 1980s, and it is surely clear that nothing like enough has yet been done to give assurances to the economy and to taxpayers that we are now protected against the depredations of the finance sector.

The truth is that the big banks knowingly gamed the system for so long in order to expand their balance sheets ever faster and with ever lower capital ratios, based on the bogus claim that their lending was then less risky. They even deliberately invented the colossal credit default swaps market as an asset class in order to enable the hedge funds to speculate against collateralised debt obligations, and they gained regulators and investors alike, using their vast lobbying power to create the relaxed regulatory environment which, of course, is at the root of all of this.

That lobbying power—probably the most formidable in Britain—is still being used ferociously to chip away at any, or every, new proposed regulation at both domestic and EU levels. As a result, capital ratios are still too low; the proposal to raise them is wrongly being delayed until 2018-19 to fit in with Basel III; the use of offshoring and tax havens has hardly been reduced at all; lending to UK industry remains deplorably low; the shadow banking system has not been effectively tackled; and managerial oversight will not be enforced until the Tyrie commission proposal, which is a good one, to hold individual directors and executives to account by disqualification or a custodial sentence is implemented.

My last point concerns the control of the money supply. The banks have, in effect, seized control of the money supply. They have become major generators of unsustainable asset bubbles, which is a source of great instability to the economy and of enormous cost to the taxpayer. They control 97% of domestic credit creation and have used their virtual monopoly over it to feed successive property booms and speculative foreign ventures while allocating—this is the key point—just 8% of the nation’s resources to UK productive investment in the form of manufacturing, communications and distribution.

The case for bringing back control of the money supply to public hands—as was always the case in this country until the 1980s—is crucial, partly to prevent the skewed allocation of national funding excessively towards mortgaged property; partly to rebalance the economy from finance to manufacturing when our balance of payments on traded goods is currently running at a deficit of more than £100 billion every year, which is frankly unsustainable; and partly to channel a huge amount more of our resources into real, productive investment, without which Britain will never recover its global competitive position.

The banks have massively let down this country and they continue to do so. The extensive restructuring of the financial sector is critical for the future of this country, and that requires far deeper reform than the present Government are trying to get away with.

[Several hon. Members]

rose—

Autumn Statement

Michael Meacher Excerpts

Thursday 5th December 2013 Commons Chamber

[Mr Osborne]

I absolutely agree with my hon. Friend, and I thank her for what she said. A central part of my Budgets has been to say to the next generation, “We are going to make sure you have the opportunities to succeed. If you have no skills, we will help you to get those skills. If you want vocational work and training, you will get that through apprenticeships. If you want to go on to higher education, you will get support from the lifting of the cap on student numbers, which is a huge reform”—and, as she mentioned, to say—“If you want to get into work, we will help you by abolishing the jobs tax on young people.” Dealing with the debts and deficits is also, of course, a huge part of saying to the next generation, “We will not leave you with the problems we weren’t prepared to tackle ourselves.”

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

How can the Chancellor conceivably claim that this recovery is sustainable when business investment is still 25% below the pre-crash level, when only 0.1% of the 0.8% growth in the last quarter came from business investment, when productivity is one of the lowest in the OECD, when real wages have fallen 7% and are still falling, and when exports have still not taken off, despite the 25% fall in the exchange rate, and the deficit on traded goods is still likely to be in excess of £100 billion this year?

[Mr Osborne]

As I said in my statement, we need productivity to pick up in order to sustain the economic plan. I agree with the right hon. Gentleman that we want exports to increase. Exports were badly hit because our main export markets were in recession for much of last year. I agree with him about such things, but we disagree about the route to achieving them. His proposal is to put up a tax on business. I do not understand how that would possibly help either investment or exports. Tax increases on businesses would be regarded around the world as a bizarre move by the United Kingdom, and we are certainly not going to do that.

Cost of Living

Michael Meacher Excerpts

Wednesday 27th November 2013 Commons Chamber

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

The cost of living crisis has had a fairly good airing in this debate and has been poignantly described in some detail, so I intend to concentrate on the second part of the motion, which concerns the Government’s economic policy and, on the cost of living crisis, to ask the obvious question: was it all necessary? The Government’s answer, as provided by the Financial Secretary in a rather frivolous and distinctly provocative knockabout, was, predictably, yes. He simply repeated the well-worn Tory mantra that we all know: Labour left behind a huge economic mess; there was no other way to deal with it other than through massive cuts in public expenditure; we were “all in it together”; and now the Chancellor’s policies have been vindicated as it has all come right. All four of those statements are flat wrong.

[Graham Jones]

rose—

[Mr Meacher]

I would prefer to respond to those four statements before giving way to my hon. Friend.

First, Labour did not leave an economic mess. The budget deficit in 2007-08, just before the crash, was 2.6% of gross domestic product—one of the lowest in the OECD and about the same as Germany’s. It rose to 11.6% in 2010 only as a result of the bankers’ bail-out. I noted that the Financial Secretary did not even mention the banks today, so I was beginning to wonder whether he had even heard of the bankers’ bail-out. [Interruption.] I am prepared to give way at this point, before going on to answer in some detail.

[Graham Jones]

Perhaps the Financial Secretary did not mention the bail-out because he was working in financial services as a banker himself?

[Mr Meacher]

That may well have had something to do with it, but it happened also because the Tories decided to blank out the bankers’ bail-out and put the whole blame on the Labour party. For any objective economist or objective observer of any kind, that is obviously absurd.

Secondly, there was another and much better way to deal with the budget deficit than through semi-permanent austerity. It is costing the country £19 billion a year to keep 2.5 million people unemployed. I simply say that it would have been far better to get these people off benefit and into work through public investment, so that they could earn and contribute to the Exchequer through taxes and national insurance contributions. I well know that the question will come, “How do we pay for that?”, so I shall answer it. This can still be done—and it could have been done three years ago—without any increase in public borrowing at all, despite the Chancellor’s continuous jibes to the contrary, by a further tranche of quantitative easing targeted not on the banks but directly on industry, or by instructing the publicly owned banks RBS and Lloyds to prioritise lending to industry, or by taxing the ultra-rich.

[Alec Shelbrooke]

Let me remind the right hon. Gentleman of the fact that it was his Government who did the deals with RBS, yet they did absolutely nothing in those deals to force the banks to do things that they had decided they did not want to do.

[Mr Meacher]

There has been a great deal of partisanship in this debate, and I am prepared to recognise that the problems did not start with the present Government. I agree that we should have taken a much tougher line with the banks before 2010, but let us concentrate on where we are now, because the country is in a very serious position.

That brings me to the third point. We never were “all in it together”—quite the opposite, and to a stunning degree. In The Sunday Times rich list, the richest 1,000 of the UK’s citizens—a tiny 0.003% of the population—have increased their wealth in the five years since the crash by a staggering £190 billion, while 90% of the population over exactly the same period have had to take a real-terms cut of about 9%, and their wages are still falling. So much for social solidarity! If that £190 billion were charged to capital gains tax, it could technically raise £53 billion. I do not think it would for a moment, but it could realistically raise roughly £30 billion to £35 billion—quite enough to generate 1 million to 1.5 million jobs within two or three years. That would be a far quicker way of reducing the budget deficit—which is supposed to be the aim of the exercise—than spending cuts could ever be.

The Government’s fourth point is that we have a recovery. Well, we do have a recovery of sorts, but one that has been generated in exactly the wrong way. It has been generated by consumer borrowing and an incipient bubble, and it is not—I repeat, not—a real, sustainable recovery. As my hon. Friend the Member for Swansea West (Geraint Davies) pointed out, such a recovery can come about only as a result of rising investment, increasing productivity, growing wages and healthy exports, and none of those is present now.

Over the last five years, Britain’s business investment has dropped in real terms by a devastating 25%, well below the global average. UK productivity is now almost the lowest among the OECD countries. As we were told by my hon. Friend the Member for Nottingham East (Chris Leslie), UK wages are undergoing the biggest fall since the 1870s, and are still falling. As for exports, Britain’s deficit on traded goods is still running at a mountainous rate of over £100 billion a year. If that is a recovery, God help us if we ever experience a downturn.

So has the Government’s economic policy failed? Not necessarily. It all depends on what we think the Government’s objectives really were. If the objective was to cut the budget deficit, as they claim, then yes: I think that the last three years of unending misery and austerity have involved a momentous waste of resources in return for almost nothing. According to the Government’s own figures, the budget deficit was £118 billion in 2011 and £115 billion in 2012. Like those who engaged in trench warfare during the first world war, we have advanced a few dozen yards, and have taken enormous casualties in order to do so. No sane person would continue with such a policy at such expense in blood and treasure, yet here we have a Government who are determined to slog on with exactly the same policies, and—as with the generals in the first world war—the cost is not to them, but only to the poor squaddies who are sent over the top.

My last point relates to a recent speech by the Prime Minister, which I am amazed he gave, and which I think will come back to haunt him. He said that even when the deficit was paid off—and I think that that time could be nearer to 2030 than 2020, given the direction in which we are going—there would be no restoration of spending that had been cut. The Tories, he proclaimed, believed in

“a leaner, more efficient state”.

What he really meant, of course, was a fully privatised state in which you had better succeed in the market, because otherwise there will be precious little help from public sources when you need it.

As for “efficient”, was that G4S at the Olympics? Was it Serco charging for tagging prisoners who had already died or left prison? Was it the big six energy companies ruthlessly profiteering at customers’ expense? Was it the water companies indulging in a profit bonanza for top executives and shareholders, but trying still to charge taxpayers? Was it outsourcing in the NHS, which has led to longer waiting lists and an inability to cope? Was it the free schools that have been set up in areas where there is an abundance of places, while areas where there is a shortage of places are abandoned? Lean and efficient? Come on!

I really do not believe that the Tory leadership sees the prolonged austerity and the economic disaster that have been visited on the country over the last five years as a failure at all. The Tories see that as merely the price to be paid—although not, of course, by them—for attaining the real objective, which is a permanent squeezing of the public sector and a shrinking of the state. That is what they want to do if they win the next election, and that is why I believe they will not win it.

Corporate Structures and Financial Crime

Michael Meacher Excerpts

Thursday 4th July 2013 Commons Chamber

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

I pay tribute to my hon. Friend the Member for Bassetlaw (John Mann) not only for obtaining the debate and for making another strong speech on the subject, but in particular for his relentless campaigning on the issue of financial crime in all its forms, including money laundering, tax avoidance and evasion. That is what I want to concentrate on.

As the hon. Member for Wells (Tessa Munt) said, at the G8 summit, the Prime Minister made a great media blitz of his supposed crackdown on corporate tax avoidance. He tried to get UK-controlled tax havens to sign up to an OECD agreement on providing tax information. He also tried to secure a worldwide standard on automatic tax information transfer, to get the G8 countries to reveal the identity of shell companies and to help developing countries to get their rightful entitlement to tax. All those are extremely worthy objectives and no one in the House would demur from any of them, but all he achieved—it is achievement, rather than aspiration, that matters when one is Prime Minister—was a bland statement in favour of the principle of tax information transfer, without any actual means of enforcement.

The Prime Minister defended that feeble result by claiming that little can be done without international agreement and that it takes time to build that, but that is not true. Of course the best result would be an internationally agreed set of rules, but even in the absence of that there is a great deal that Britain can and should do. First, as a number of Members have said, the UK controls 10 Crown dependencies and overseas territories, which collectively embrace over one fifth, I think, of all the world’s tax havens. Most of them have signed up in principle—[Interruption.] Well, we shall see, but they have certainly signed up to the proposal for tax information exchange, and it is now within the purview of the British Government to enforce that proposal, if there is any reneging or backsliding, by the simple expedient of refusing to recognise any financial transactions emanating from those areas if there is any failure to secure full compliance.

That will generate a great deal of resistance, not least from the tax havens themselves, but also I suspect particularly from the big UK banks, which are the main users of these tax haven facilities. Since the Tory party continues to get more than half of its income every year from the banks—[Interruption.] There is no need to roll the eyes or shake the head, as that is an important fact, so facing down the banks on this important issue will test the Government’s resolve.

I therefore want to ask the Minister the following question, which I hope he will answer: will he assure the House that the Government will enforce these tax information exchanges with the tax havens they control? I agree he cannot do that without international agreement in the other havens, but he can control these ones. Alternatively, are we simply going to find that the Prime Minister’s fine words, which we all agree about, will just fade away in a puff of smoke after he has had his PR day in the sun?

What makes the Chancellor’s remonstrations about tax avoidance being immoral seem perverse is that he himself has now emerged as the arch proponent of tax avoidance. He is changing the controlled foreign company rules from 1 January next year to allow any multinational company with a subsidiary in a tax haven—and as the Minister knows very well, 98% of those companies do have a subsidiary in a tax haven—to reduce their corporation tax liability from 23% to a mere 5.5%. Given the boast of the Prime Minister and the Chancellor about cracking down hard on corporation tax avoidance, that is breathtaking hypocrisy. The message is, “Don’t worry about artificial tax avoidance. You needn’t do anything about that, because I am going to serve it up to you on a plate.”

Then the Government went even further. They have put forward the pro-tax avoidance proposal of the patent box, a wheeze whereby any patented process applying to any part of an enterprise, however trivial or minor, not only secures a reduction in corporation tax to 10%, but applies to the entire enterprise. Frankly, the more the Government go on in this way, pushing corporation tax almost to zero, the more tax avoidance fiddles become redundant, because the Government are doing it for them. Perhaps that is the Government’s aim.

[Charlie Elphicke]

Will the right hon. Gentleman give way?

--- Later in debate ---

[Mr Meacher]

The hon. Gentleman was a tax lawyer, I think. He is also a very mischievous Member of this House, but I will still give way to him.

[Charlie Elphicke]

I thank the right hon. Gentleman for his kind remarks about me. It is all very well for him to have a go at this Government, but he will recall that under his Government revenues from corporation tax rose by 6% while revenues from income tax, paid by ordinary folk in this country, rose by getting on for 100%. Does he think his own Government did such a great job?

[Mr Meacher]

I do not think that the previous Government did a great job. They did an appalling job on corporation tax, and the hon. Gentleman might be pleased to know that I said so at the time and I have always taken that view. The hon. Member for Bristol West (Stephen Williams) raised the issue of capital gains tax with me when I was last speaking, and I think that that tax should be at the same level as income tax. Corporation tax is another matter, of course, but it should be well above the levels the Government are now proposing.

The Government can and should restructure the whole approach on tax avoidance by switching the onus of proof away from Her Majesty’s Revenue and Customs and on to the potential perpetrators. That is exactly what my General Anti Tax-Avoidance Principle Bill was intended to do. It would have made it clear that any scheme whose primary purpose was to avoid tax, rather than being any genuine economic transaction, would be invalid in law and struck down. In order to discourage perpetrators of this attempt to bend the will of Parliament, there would be a sizeable penalty for attempting to subvert that will. My Bill had only a 10-minute showing on the Floor of the House, thanks to Tory filibustering of the prior Bill on that day, so perhaps I might take this opportunity to ask the Minister: does he accept the general anti-tax-avoidance principle? If he does not, what are his reasons for rejecting it? I think he will say that the Government are putting up their alternative—the so-called GAAR or general anti-abuse rule—but that really does not meet the ticket. I wish to say why, and I hope that he will listen to why the Government’s GAAR is really no alternative.

The GAAR is based on a report by Graham Aaronson, who was always a representative of the tax-avoidance industry and never of the tax-compliance will of Parliament. I accept that the GAAR will have some effect, because it outlaws egregiously aggressive and abusive tax avoidance, but of course the implication of that is that it legitimises rather less extravagant tax avoidance.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

indicated dissent.

[Mr Meacher]

Perhaps we should have some debate about that.

[Mr Gauke]

Let me put the right hon. Gentleman’s mind at rest on this by saying that the GAAR does not do that. We accept that the GAAR is directed at egregious tax avoidance. It is an additional tool, but there will still be targeted anti-avoidance rules and other measures that the Government take. I want to make it very clear that we are not saying that if something falls outside the GAAR, there is no problem with it.

--- Later in debate ---

[Mr Meacher]

I am glad to hear it, but the Minister and his Government will have to prove that in the outcomes that we see over the months ahead. He makes an important point, but there is a perception that if we opt for a rule that is limited to dealing with the worst kind of tax avoidance, it suggests that the rest is rather less important in the Government’s mind; I cannot see the point of having a GAAR if one is also going to “include” other abusive tax procedures, about which there is equal concern. I am sure that debate is coming along, but I am glad that he said what he did and we shall certainly hold him to it. The GAAR could actually make things worse and, even at this late stage, I ask the Government seriously to reconsider whether they should not take over my Bill.

The Government could and should recognise that their strategy to deter tax avoidance, which has been in use for many years, including under the previous Government, via the disclosure of tax avoidance schemes—DOTAS—is of limited value and is inadequate on its own. It requires those who are designing and trying to sell these schemes to inform HMRC in advance about each new scheme they introduce. I understand that something over 100 new schemes have been disclosed in each of the past four years under the DOTAS proposals. That shows the industrial scale—I think that was the word that the hon. Member for Dover (Charlie Elphicke) himself used—of tax avoidance going on in the City.

DOTAS still leaves two problems. First, it can take HMRC many years to defeat any of the schemes if it goes to the courts and, secondly, some of those promoting such schemes will go to great lengths to avoid disclosure. Even if they are detected and taken to court, the penalty is often something derisory like £5,000 or so. Those involved in such schemes have every incentive to fail to comply with what the Government are seeking.

HMRC’s working definition of tax avoidance, which is often seen as a rather nebulous concept, is, rather sensibly,

“using the tax law to get a tax advantage that Parliament never intended”.

I think that is extremely sensible, so why can it not be cast in statute? Why can it not be laid down as the principle by which the Government and HMRC will test such schemes? That would see off the tax avoidance industry far more effectively than the soft touch of DOTAS. We are coming to the same view on tax avoidance as we did on the banks, and unless persons as opposed to organisations are held responsible—if need be, in extreme cases, by criminal sanctions—very little will happen. If a person were subject to a penalty that was a multiple of the tax charge—perhaps two or three times the charge, depending on the blatancy and gravity of the offence—for seeking to pervert the will of Parliament, that would act as a serious deterrent.

[Charlie Elphicke]

Will the right hon. Gentleman give way?

[Mr Meacher]

I think that others might wish to speak, but I am sure that I will carry on the conversation with the hon. Gentleman outside and on other occasions.

Finally, corporation tax is, as everyone recognises, so riddled with loopholes as a result of the evolution of the international economy and corporation structures over the past 30 to 40 years that it urgently needs wholesale restructuring. The drive towards territorial taxation must be abandoned and replaced by unitary taxation by which multinationals are taxed according to where their genuine economic activity occurred and not where they pretend it occurred to collect the huge windfalls of transfer pricing.

Surely the most appropriate corporation tax base is either free cash flow or economic rent—the amount, in other words, a business earns in excess of its cost of capital. There are several ways of doing that: removing interest deductibility, introducing an allowance for the cost of corporate equity or shifting the tax base towards tax flow and away from accounting profit.

I have tried to offer several positive proposals. I realise that it is possible to make a lot of pejorative remarks, which are probably just, about the performance of this Government and the previous Government in tackling the problem, but I have tried to be as positive as I can. Unless the Government adopt at least some of the proposals, their claims to have serious intentions about cracking down on today’s enormous cancer of corporate tax avoidance will be seen as the pretence that, sadly, I sometimes think it is.

[Several hon. Members]

rose—