Owen Smith
Main Page: Owen Smith (Labour - Pontypridd)
Mr Brian Binley (Northampton South) (Con)
I congratulate the hon. Member for Glasgow North East (Mr Bain) on his speech, and I refer him to the same speech that was made in this place in 1990. He can look at the record thereafter, because the Thatcher Government did exactly what he said this Government will not do, so there are some examples of that.
I thank my right hon. Friend the Member for Wokingham (Mr Redwood) for initiating the debate. It was good to work with him on obtaining it. The number of people who are speaking in it are clearly a vital part of the process—[Interruption.] I am sorry that I got the year wrong, but if the hon. Gentleman goes back a further 10 years, it will be about right.
I welcome the Minister to the debate. I am delighted to say that Conservative Members have confidence in the work that he will do, simply because he knows business. The previous Government’s failing was that they did not. That simple difference must be taken into account.
The truth of the matter is that the Budget strategy is dependent on growth, and that small and medium-sized enterprises are vital to the success of that strategy. It is that simple. The Government are saying the right things, and have had some success, but money is not getting through to SMEs, and we must ensure that it does. I urge the Minister to give us some answers on how that might happen.
There is no doubt that the Government’s approach has been successful to date. Our international credit rating is much more secure than it ever was, and that is vital. The third quarter growth in gross domestic product was 0.8%, and in the previous quarter it was 1.2%. Bearing in mind that the average over the past 25 years has been 2.5%, that is pretty startling, and a good start for the Government.
Owen Smith (Pontypridd) (Lab)
Does the hon. Gentleman agree that the principal component of that growth figure of 0.8% was in the construction industry, and was entirely driven by the stimulus that the Labour Government put in place? We have already heard that it is drying up.
Mr Binley
That is absolutely incorrect. Construction has played its part, but not house building. If the hon. Gentleman looks at the size of growth in the manufacturing sector, he will see that it has been a major element of our growth.
I had intended to talk about manufacturing exports, but time forbids that now. I will say, however, that all of that is good, but the sector is not getting the money it needs, and we must pay attention to that. The banks say that lending to business is increasing, and that it rose by 0.9% this August, compared with the previous August. That sounds pretty good, but when we look beneath the surface, we find that most of that money was lent in foreign currency to foreign businesses outside this country. The truth is that lending to British businesses dropped by £400 million.
Owen Smith (Pontypridd) (Lab)
I, too, thank the right hon. Member for Wokingham (Mr Redwood) for securing today’s debate. I always admire the ingenuity with which he manages to weave into most of his speeches his perennial faith in the fallacy of the Laffer curve and his plea that we go easy on the banks. Today, he did so in respect of the capital holding legislation that is meant to protect us from the next recession that the banks might cause, as they caused the last one.
I should like, however, to make a plea for more evidence than Laffer uses in order to support our economic policy, because we do not have one that is based on evidence. We have a hit-and-hope policy that is based on faith. We know—the Government have told us endlessly—that the deficit was too high; investor confidence was diving; we could not afford to pay back our debt; we looked very much like Greece; the only answer was to cut 8% or thereabouts of GDP, which would restore confidence and we would see heroic growth, such as we had never seen, of 2.5% per year and an enormous explosion in the private jobs market.
The trouble is that neither economic theory nor the evidence supports that argument. I cannot really address the economic theory in too much detail given the time, but history and most economists would agree that when we contract growth by about 1%, that leads to a 0.5% contraction in GDP. That is what history has shown, and that could leave us with a 4% contraction in GDP due to the 8% effective reduction in spending over the next four to five years.
Instead, I shall consider the current evidence that we have to support the Government’s theory, because that is all it is—a theory. In order to have growth, we must have investor confidence, and we must, as the hon. Member for Stafford (Jeremy Lefroy) said, have an export-led recovery. Investor confidence is not present in the economy: that much is clear to us. The private sector is holding surpluses, not investing. I worked as a director of a biotech company for a long while before I came here, and I know that the biotech and pharmaceutical industries are not investing—they are laying people off, not taking them on.
Next, we need confidence that we are going to see some growth in the economy. Much has been made of the fact that we had 0.8% growth in the last quarter and 1.2% previously. As I said, the construction industry is what has driven much of that, but last week’s purchasing managers index for construction managers shows that the order book is drying up; they are looking at 1% growth in the last month. The construction industry is laying people off, not taking them on.
The markets are telling the Government that they do not have confidence in the economy. The yield on five-year bonds is down at -0.44%, which differs from the 3.5% rates that we were seeing in 2008. That is the market giving its view, in pricing terms, that there will be no or low growth in the economy. Merrill Lynch said this week:
“There are worries over the health of the economy and the danger that the government’s austerity measures are going too far.”
HSBC said:
“The market…is sceptical about growth prospects”.
That is the reality of the situation that we face right now.
The International Monetary Fund has said that the Government need to develop a plan B. Olivier Blanchard, its chief economist, has said that he fears that the way in which the contraction is being front-loaded is going to damage our economy. It is places such as Wales, and my constituency of Pontypridd, that will see the worst impact of a further recession. The Government must come up with a plan B, and quickly.