Owen Smith
Main Page: Owen Smith (Labour - Pontypridd)Department Debates - View all Owen Smith's debates with the HM Treasury
(14 years, 5 months ago)
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Danny Alexander
I am not sure that the right hon. Gentleman can do anything to help me, given that he left the note saying that there was no money left, and that his decisions led the country to that position. I hope that in response to this debate he chooses to apologise for the mess in which his Government left the country.
Owen Smith
Precisely further to my right hon. Friend’s point, can the Chief Secretary point to any five-year period in the past 40 years when 2.5 million private sector jobs have been created—any one period?
Danny Alexander
My point is that that forecast was made by the independent Office for Budget Responsibility. In the previous Government’s March Budget, their growth forecasts, which were not independent in that sense, were over-optimistic, and I am prepared to accept the forecasts of the independent Office for Budget Responsibility.
Mr Redwood
The hon. Gentleman is making my case for me; I am saying that the 1.3 million forecast figure was an error, and that it will be seen as such. He rightly says that the Treasury can make mistakes. On this occasion, we are pleased to say that an independent judge outside is reviewing all the facts and figures and the working papers and coming up with a forecast that reflects the views of many more people outside the Treasury.
Owen Smith
Given the right hon. Gentleman’s admission that the OBR’s forecast on job losses may be wrong—[Interruption.] Well, if he was not implying that, that is what I took him to be implying. Irrespective of that, I want to ask about the OBR forecast’s and the leaked Treasury document’s anticipation of increases in private sector jobs over the next five years. Given the right hon. Gentleman’s long experience of economic matters, will he comment on the plausibility of that suggestion, given that during no period in the past 40 years has that volume of private sector jobs been created, apart from in the early 1980s—and then only through the fiction of the privatisations.
Mr Redwood
As the hon. Gentleman should be aware, the outgoing Government’s capital spending plans have not been changed by this Government. We have to accept the previous Government’s plans for a modest increase in the capital stock of the state over a period of great stress in the budgets. But the cancellation of the Building Schools for the Future programme and its replacement with a programme that gives better value for money is exactly what we want. The trouble with Building Schools for the Future was that there were three years of delay and £10 million of consultancy costs before bricks and mortar or steel and glass could even start to be laid.
What my right hon. and hon. Friends rightly want to do is cut out all that nonsense, stop wasting all the money on the documentation, delays, consultancies and all the rest of it, and have a more straightforward approach, so that a bigger proportion of the inherited capital expenditure budget can be spent on bricks and mortar and bricklayers’ wages, as the hon. Gentleman wants.
Owen Smith
Is the right hon. Gentleman worried in any way by the remarks, made during the radio discussion that he took part in this morning, about the £50 billion of contracts that would be taken out of the construction industry as a result of the cancellation of the Building Schools for the Future programme? Will that not have a detrimental impact on the economy—specifically, on jobs in construction?
Mr Redwood
Once again, the hon. Gentleman is not listening. I was explaining that the coalition Government have made no change to the capital expenditure line that they inherited from the outgoing Government. What they will do is get more bang for the buck—to get more spending on construction, relative to the total investment line in the Budget. On the radio this morning, I was able to satisfy the other people in the discussion; the independent forecaster’s overall forecasts for the economy say that investment is going to rise. There will be an overall increase in investment because more homes will be built over the next five years than the pathetically low figure that was reached under Labour. There will be more investment in housing improvement, and more investment by the private sector. That more than offsets the decline in the investment programme in the public sector inherited from Labour.
Mr Redwood
That is what I have been explaining to the right hon. Gentleman. We are in this position because everything has been so awful. The private sector has just been through a couple of years when it has invested practically nothing because companies could not get any money and were not making much profit. Now, profit margins are growing, there is a bit more money around and they are getting more confident for the future.
It would be much better if Labour Members got behind their voters and constituents, who want the jobs that we wish to see created, got behind the recovery that everybody else is forecasting, and started to live in the real world. They presided over the collapse. Throughout their years in office, manufacturing fell, whereas in the Tory years before that, manufacturing rose. We want to get manufacturing rising again. From that point of view, the one good thing that they did was to preside over a collapse in the value of the pound. They probably allowed it to collapse a bit too much, and it is beginning to rise again under the new Government. That gives those in manufacturing a huge opportunity to make better profit margins, to invest more money, and to produce more. That is exactly what they are beginning to do, and there will be a beneficial effect.
Owen Smith
In the light of what the right hon. Gentleman suggests about manufacturing, is he not worried when he sees the prediction in the Deloitte manufacturing index that over the next five years our manufacturing will decline, not grow, and that we will shift from our admittedly low position of 17th on that index to 20th?
Mr Redwood
A shift in the relative position predicted by someone else does not necessarily mean that manufacturing is going to decline. The figures in the official forecast, and I think in most sensible forecasts outside, show that manufacturing will recover from the very low base that it reached in 2009-10. That is what is needed, and we need to have policies that do just that.
Jacob Rees-Mogg
The hon. Gentleman is absolutely right. That is why, as I was saying, it is right to address the problem now, when we are in a strong enough position to do it and take the pain. Nobody denies that cutting is painful. It is always difficult.
Having, I hope, established the seriousness of the situation, I want to move on to the balance between tax rises and spending cuts and why I think, once again, that Her Majesty’s Government have exactly the right balance. One figure has not been drawn out in these debates, but it is noteworthy. If we take net tax receipts and national insurance contributions as a percentage of GDP, we see that they will reach 36.4% in 2013-14. That level has not been achieved in any single year of socialist government from 1970-71 onwards. We are having the highest level of taxation as a percentage of GDP because of a Conservative Budget, of all things. Incidentally, the same figure was reached under the chancellorships of Lords Howe and Lawson. So the Conservatives are willing to tax when it is necessary to ensure the financial stability of the country.
Owen Smith
Given the manifest command of economic history that the hon. Gentleman is showing, will he answer a question that the Chief Secretary to the Treasury could not answer when I asked him earlier today? It was about growth. Can the hon. Gentleman name one five-year period during any of the past 40 years when we have seen the level of growth projected by the OBR—in particular, the level of job creation in the private sector?
Jacob Rees-Mogg
The hon. Gentleman asks the wrong question, for a very straightforward reason. I would happily ask a question back. Can he point to a deeper recession in the history of the United Kingdom? The fact is that recovery rates from very deep recessions are much faster than those from shallower recessions. That is the point that my right hon. Friend the Member for Wokingham (Mr Redwood) made earlier. We get very strong recoveries after a very serious downturn, and the seriousness of the recent downturn goes back to the 1930s, as the right hon. Member for Edinburgh South West (Mr Darling) so rightly pointed out.
Owen Smith (Pontypridd) (Lab)
It is
“A coalition of the heartless, the clueless and the confused”.
Those are not my words—as a Member new to the House I would not be so bold—but those of the Nobel laureate economist, Paul Krugman, when describing another right-wing cabal, in the US, and its attempt to slash welfare spending instead of increasing growth. His description might serve well to describe and characterise the callous collaborators on the Government Benches, and the war on welfare that they are launching tonight with the Finance Bill.
The coalition is heartless in its disregard for how VAT and the unprecedented spending cuts that we anticipate will hit the poorest in our society; it is clueless in the wrong-headed belief that we have heard repeated so often tonight that these savage public sector cuts will somehow liberate private sector surpluses, entrepreneurialism and growth in the economy; and it is confused. There is confusion at least on the part of the Liberal Democrats as to how they managed to enter the political fray at last, only to find themselves, as an old soldier in my constituency described it last week, on the side of the Axis powers. [Interruption.] I thought that it was pretty funny.
I do not, however, want to dwell on the heartlessness of the measures included in the Finance Bill, because so many people have done so with such eloquence this evening. I think that the public will be able to judge that heartlessness for themselves when they see the raising of VAT on essential goods for the poor, and Government Members cheering, as they did during the Budget speech, measures such as the decision to scrap the health in pregnancy grant designed to tackle malnourishment in pregnant mothers in the poorer sectors of our society. Opposition Members consider such provisions the hallmark of a civilised society, but Government Members clearly think they are a burden on economic efficiency.
I do not really want to talk about the heartlessness. I would rather talk about the cluelessness. [Hon. Members: “ You already have.] Yes I have, and I am going to do it again in a minute. We have heard lots of cluelessness this evening, mostly inspired by the primer on Milton Friedman that Government Members have all obviously read recently, and we have heard reiterated by the hon. Member for Woking (Jonathan Lord) and various others. The idea is that if we cut the public sector, which allegedly squeezes out private sector entrepreneurialism and growth, we somehow stimulate the private sector, and that leads to a flourishing of entrepreneurialism.
Stephen Pound (Ealing North) (Lab)
Does my hon. Friend agree that implicit within the Budget, the decapitation of Building Schools for the Future has resulted in the private sector not being able to mop up a pool of labour? That private sector has in fact been shot in the back of the head, driven out into the country and dumped in a lay-by.
Mr Speaker
Order. I would not want the hon. Member for Pontypridd (Owen Smith), who has made an auspicious start, to stray from the path of virtue. May I just say to him that it is a good rule of thumb to listen with great interest and enthusiasm to the hon. Member for Ealing North (Stephen Pound), but to recognise that sometimes his interventions have absolutely nothing to do with the matter under discussion?
Owen Smith
In this instance, I beg to differ. My hon. Friend’s intervention absolutely speaks to the case, because the philosophical underpinnings of what we hear from Government Members is that somehow we have a great dichotomy in our economy. The public sector is bad, of course—non-jobs, as I heard one Local Government Minister describe them recently. Well, many people in my constituency and elsewhere across the country rely on such jobs to feed their families. Private sector is, of course, good, and the thing that we all want to encourage. The construction industry is a wonderful example of the symbiosis between the two parts of our economy. If you cut one the other will bleed, and we will see £50 billion cut from the construction industry. The construction industry accounts for 10% of GDP, and that £50 billion will have a big impact right across the economy. So I think that private and public are linked.
The theory that we are testing now is the one that we have allegedly seen work in Canada and Sweden, whereby the Government make cuts and the economy flourishes. In those countries we saw a long-term reduction in spending on public sector vital services.
The other key lesson from those other examples of deficit reductions is that the conditions need to be right. Investor and consumer confidence have to be growing, and there has to be evidence of underemployed private sector capital. Exporters must be ready to grow and foreign markets must be ready to buy. Get it wrong and cut too deep when the conditions are unfavourable, and we have on our hands not a success story, but depression and bankruptcy. The historical examples of such failed experiments form a long and ignoble list, and Government Members would do well to read the history books and learn from them.
Stephen Pound
On that exact point about the Canadian experiment, does my hon. Friend agree that the conditions that prevailed in Canada—a massively economically expanding neighbour, in the same free trade association, to the south—are not remotely met here. Any comparison between this country and Canada, or even the Swedish model, are specious and possibly even mendacious.
Mr Speaker
Order. I have set the hon. Gentleman a bit of a test, and I want to hear him.
Owen Smith
I welcome your guidance, Mr Speaker. Many Labour Members have tried to say this key thing today, but I will try to encapsulate it. There are various items and taxation measures listed in the Bill.
Mr Kevan Jones
Pontypridd is not dissimilar to North Durham, both being ex-mining communities with rural areas and, very importantly, a Labour MP. Does my hon. Friend agree that the changes to VAT in the Bill will have a disproportionate effect on many of his constituents who are on low incomes or benefits, and that that is not fair, when some of the wealthier parts of the country, such as Uxbridge, have been let off and will not be affected?
Owen Smith
I thank my hon. Friend for that intervention. He is entirely correct that my Pontypridd constituency will be badly affected—[Interruption.] Sorry, I cannot make out the mumblings coming from those on the Government Benches. Equally, however, if the growth projections from the OBR and the Treasury leak were likely to offset the impact of those VAT increases, and if people were more likely to be in work in my constituency as a result of the measures in the Bill and the Budget more generally, I would be less concerned about the VAT rises.
Some specific comments have been made about the VAT rises and other measures in the Bill. Only this week, 125 chief finance officers of some of Britain’s biggest companies reported that their confidence in growth was at a 12-month low, with two thirds of them warning explicitly that the measures in the Bill would damage their companies and risk a double dip recession—hardly creating the conditions for them to employ more people. In manufacturing, Deloitte’s global manufacturing competitiveness index also anticipates decline, and in the service sector, the purchasing managers index—an established barometer of health in that sector, as the right hon. Member for Uxbridge and South Ruislip (Mr Randall) will know—reported last month the largest drop in business confidence in the last 14 years of its history.
Where are we going to grow, and how are we going to export? Government Members have cited other parts of the world where we should look for our examples. The US has sometimes been mentioned, and it was an engine of growth in the last century, but the statistics there offer us no comfort, with non-farm payroll reporting last week just 83,000 private sector jobs created. That is important because the Government expect us to believe that through the measures in the Finance Bill they will create 2.5 million jobs in the five-year period following the Budget. I have been researching that important and bold claim, and I received an answer from the House of Commons Library suggesting that only once in any five-year period since 1970 has the British economy created more than 2.5 million private sector jobs, the period in question being 1980-85. That was a statistical anomaly, however—the result of wholesale privatisation. Perhaps that points us to a secret or hidden agenda in the Government’s plans—another major round of privatisations.
My suspicions about that may be shared by someone who was, until recently, one of the Government’s allies— Sir Alan Budd, formerly of the Office for Budget Responsibility. I have no idea whether his hasty exit from the OBR is prompted by unhappiness about the new office perhaps having its integrity compromised, but I point Members to an interview that he gave a couple of years ago, which is of relevance to the Bill. He was asked whether he felt any discomfort when he was advising the Thatcher Government that perhaps some of the decisions he was making as an economist—[Interruption.]
Mr Speaker
Order. I am sorry to have to interrupt the hon. Gentleman. I know that the hour is relatively late—not exceptionally late, but relatively so—but far too many private conversations are taking place in the Chamber, which is very discourteous to the Member addressing the House. If people do not want to listen to the speeches—I address this to all Members—they are under absolutely no obligation whatever to stay in the Chamber, and we will manage without them. But if they are going to stay in the Chamber, they will show some basic courtesy and respect.
Stephen Pound
On the exact point that my hon. Friend was so tellingly making, he will be aware that in clause 4 we see an increase in insurance premium tax from 5% to 6%. Does he agree, particularly as an MP from a constituency that has given so much to energise the nation and keep us warm over the years, that that could have an appalling effect on pensioners who have standard gas central heating contracts? Is there not, in clause 4, an extremely unpleasant sting in the tail of the Bill?
Owen Smith
I cannot but agree wholeheartedly. I am sure that that is an apposite intervention. Throughout the Bill and the wider Budget, there are measures about which all the most vulnerable people in our society should be concerned. My constituents are deeply worried about the measures affecting not just pensions, but, equally, housing benefit, the most pernicious effects of which we will not see until much later in this Parliament, and VAT. The VAT increase will not be introduced until next year, but when it is, it will bite on ordinary working people throughout my constituency and throughout the country.
Jim Fitzpatrick
I am very grateful to my hon. Friend for giving way. He is being most generous to Opposition colleagues—and perhaps some Government Members will want to engage in debate, too. Does he agree that the changes to housing benefit in constituencies such as mine—Poplar and Limehouse—will have a very damaging effect and could ultimately lead to poorer people being driven out of the centres of our great cities and banished to the suburbs? Surely that will not result in a cohesive society involving all parts of our community.
Owen Smith
Again, I wholeheartedly agree. I am not sure what is worse, that measure or the suggestion—the rehash that we heard only last week—that people should get on their bikes, get out of places such as Pontypridd and go to other parts of Britain where, allegedly, work will be created through the magical 2.5 million jobs that we are going to see each year.
I am about to finish, and I shall do so on a highly topical note, by returning to my quotation from Sir Alan Budd’s interview for a documentary programme some 10 years ago. He was asked whether he was worried that economists such as himself were being used to cover the political motives of the previous Tory Administration, and in response he said:
“The nightmare I sometimes have, about this whole experience, runs as follows. I was involved in making a number of proposals which were partly at least adopted by the government”—
the Thatcher Government—
“and put in play by the government. Now my worry is…that there may have been people making the actual policy decisions…who never believed for a moment that this was the correct way to bring down inflation.
They did, however, see that it would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes—if you like, that what was engineered there in Marxist terms was a crisis of capitalism which re-created a reserve army of labour and has allowed the capitalists to make profits ever since.”
I wonder whether that might be why Sir Alan Budd has decided to leave the service of the current vintage of Tories.