The Economy

Nicholas Dakin Excerpts

Tuesday 6th December 2011 Commons Chamber

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

The plan of the Prime Minister and the Chancellor had been fiscal austerity coupled with an evacuation from the public sector, and it was initially assumed that that plan would by itself provide private sector growth. The plan has clearly failed because of its flawed logic and odd priorities. Under that flawed logic, more spending was planned for Post Office mutualisation than the original English regional growth fund.

Forecast growth has consistently been downgraded, while borrowing has been consistently revised upwards, from £46 billion extra to more than £158 billion extra and rising. While deficit reduction is highlighted by the Prime Minister, private sector growth was assumed, reliant upon foreign consumption at a time of international downturn in all consumption. That international downturn is nowhere more evident than in the eurozone, which the Government are at pains to attack politically at a time when the eurozone needs political union more than ever in order to provide fiscal credibility. Counter-intuitively, however, the Government undermine the required confidence, and in so doing only succeed in bad-mouthing the very export markets we so desperately need to retain in the interim until new market partners are developed.

Not until last week’s autumn statement did we hear an acceptance by the Chancellor that private sector investment requires confidence and a reduction in risk via the injection of public investment. That is either achieved directly by underwriting projects or, as we have seen, by off-balance-sheet lending on an unprecedented scale. That lending is, of course, premised upon Britain’s own position in respect of a now highly likely eurozone bank failure if no political union is established to reinforce fiscal union. The consequences of that will be extraordinarily grave for our financial institutions, given the potential for contagion. What is even more troubling is that the Office for Budget Responsibility believes the effect of the autumn statement’s attempt to rectify this situation is negligible.

The Chancellor will also be aware that the Bank of England has purchased 42% of gilt issuance, owning 30% of total gilt stock. Britain’s interest rates have been made lower as a result. That has been achieved by the independent Bank of England’s purchasing policy, not because of the Chancellor’s fiscal measures. It is interesting to note that this self-given “safe haven status” by the Chancellor has not led to increased international market ownership of British gilts. Indeed, international market ownership of gilts has not changed from 2008 levels.

Quantitative easing is also a reason for that. When the independent Bank of England buys gilts from banks and pension funds, some of the money is re-channelled into the sterling corporate bond market. That is great for the City, sterling and London property investment, but as yet there has been no trickle-down for regional small and medium-sized enterprises or regional high streets despite the much-hailed Project Merlin.

What have been the consequences of the Government’s counter-intuitive policy for manufacturing and industry? I should state that the Government’s aim to address our deteriorating balance of trade in order to create the surpluses we need is admirable. However, our balance of trade has deteriorated in the last 18 months under the Prime Minister’s and Chancellor’s watch. Last month’s Markit and Chartered Institute of Purchasing and Supply index slumped to 47.6, the lowest level since June 2009. Any figure below 50 is usually an early indicator of contraction.

In the EEF’s last quarterly survey of more than 450 manufacturers the growth forecast for 2012 has been cut to 0.9% from 2.5%, a figure it predicted only a few months ago. There is obviously a contraction, and a contraction that prefigures the eurozone crisis. This contraction undermines the Government’s valid ambition to pursue export-led manufacturing growth. There is no manufacturing growth, and also an interim skills mismatch as any private sector manufacturing roles are being supplied with surplus labour from mass public sector redundancies and retail redundancies. In the 1980s there was the cultural phenomenon of mass long-term male unemployment due to a politicised attack upon unionised, largely male, manufacturing sites, and we now face the proposition of mass female unemployment as the public sector and retail sector shed employees, again in the public sector’s case due to a largely anti-trade union, dogmatic narrative mirroring the diatribes from the Conservatives in the 1980s.

[Nic Dakin (Scunthorpe) (Lab)]

My hon. Friend is giving a powerful analysis of the situation the country faces. Does he agree that we desperately need demand in the economy from somewhere, whereas what he is describing is a situation of contraction, rather than demand to fuel economic growth?

[Tom Blenkinsop]

My hon. Friend will know the consequences of the policies so far. We have seen massive job haemorrhages at Scunthorpe steelworks, and there was the recent announcement about Llanwern, where nearly 200 steelworkers face unemployment as a result of the mothballing of that site. Another site in Scunthorpe, next door to the steelworks, has decided to move to a short-time working agreement. Those are the consequences of these economic policies.

Culturally and economically, these policies are counter-intuitive to the needs of the economy. We need not just to rebalance the economy per se, but to rebalance structural unemployment, which requires as large an investment as that proposed for the infrastructure. For example, in the steel industry, becoming a waterman—probably the most important job on a blast furnace, involving as it does ensuring that water does not mix with molten steel—requires a minimum of two years’ training. That is a considerable cost for the industry.

Unemployment is predicted to pass 9% next year, according to the “optimistic” estimate of the Office for Budget Responsibility—and at what cost to the Exchequer? Such estimates actually predate the autumn statement, which increased public sector unemployment by 200,000—from 500,000 to more than 710,000. My major concern, as the son of a British expatriate family that sought a future in Qatar during the early 1980s, when the previous Tory Government ratcheted up unemployment on Teesside, is another diaspora of British skilled manufacturing labour moving to other, far-flung nations. The promise of warmer climes and job certainty will be hard to resist for many, especially as a recent Experian study for BBC’s “Newsnight” showed that Redcar and Cleveland, and Middlesbrough are among the top three areas hardest hit by the Chancellor’s autumn statement.

It is not just the public sector cuts. The proximity of the north-east, which has no regional development agency, to Scotland is having severe consequences for our regional economy, as Scotland, which has its own RDA, is absorbing that manufacturing.

Women are losing their jobs at twice the rate that men are, and the Chancellor’s decision to freeze the working tax credit will hit women hard, especially working single mothers. That move, coupled with his decision to claw back money that would have been spent on the child tax credit, will have a significant impact on the well-being of the 36% of single mothers who claim working tax credit, and their families. What will happen to their incentive to work?

--- Later in debate ---

[Nic Dakin (Scunthorpe) (Lab)]

I thank you, Mr Speaker, for calling me to contribute towards the end of this debate. I have had the privilege of hearing much of the debate. What has struck me is the unanimity on all sides of this Chamber that the Government’s policies are hurting people in the world outside. The question is whether the policies are working. My constituents and constituents across the country want to know whether the policies are right and whether they are working. At the moment, the early indications are that they are certainly not working according to the plans that were set out by the Government 18 months ago. We have youth unemployment above 1 million and women’s unemployment at the highest ever level. The borrowing figures are £158 billion higher than expected to pay for unemployment and benefits, and not to pay for investment or jobs. At this mid-term point of the Government, that does not appear to be a positive step forward.

Businesses across the country are struggling. In my own constituency of Scunthorpe, an agreement was reached between the trade unions and the management at Caparo Merchant Bar to close early for the Christmas period so that the company can better reshape itself for the challenges of 2012. The demand for global steel is very low, which is causing a great challenge for steel companies in my constituency.

One of the arguments that concerns me is that the public and private sectors are somehow different. The public sector carries an element of risk while the private sector provides innovation and drive and those two sectors need each other. A local businessman said to me, “What we need, Nic, is demand in the economy. We need things done that drive demand.” I welcome the infrastructure projects that were outlined in the Chancellor’s autumn statement. Frankly, those projects should have been in place 18 months ago. It is not a matter of too little, too late but that there should be more. Consumer confidence is at an all-time low and dropping, and that is of great concern.

I want to focus on individuals because they are at the heart of this. A police officer in my constituency wrote to me, drawing my attention to the threats to his pay, his conditions of service and his pension. In a heartfelt way, he asked, “How much more pain do we have to suffer and how much more money does my family have to lose before enough is enough?” We should be listening to the words of the people out there. We owe them a stimulus and a direction forward and we should deliver them today.