The Economy

Owen Smith Excerpts

Wednesday 22nd June 2011 Commons Chamber

[Jackie Doyle-Price]

I was just getting to the explanation for that, which is the one that my right hon. Friend the Chancellor of the Exchequer gave at the Mansion House last week. He dissected the growth figures, which showed that although financial services were contracting, in the rest of the economy we were in a period of growth. We need to rebalance our economy, and to take it away from a large financial services sector and more towards manufacturing and other sectors.

I shall continue, because time is brief and many colleagues want to contribute, by bringing the debate to life with some real-life examples, and by drawing the attention of the House to some areas where we are making considerable progress. First, there is a genuine improvement in manufacturing—the Government amendment mentions an increase in activity of 4.2%. I have the privilege to represent a considerable amount of manufacturing industry, which is situated particularly in the west Thurrock area and in Purfleet. Among the large operations in my constituency is a Unilever plant that manufactures, among other things, Hellmann’s mayonnaise, Flora margarine and other spreads. The company very recently relocated its manufacturing operation for jars of Hellmann’s mayonnaise from the Czech Republic to Purfleet. Why? Because it was more cost effective. Do not let it be said that the UK cannot compete internationally for manufacturing presence.

[Owen Smith (Pontypridd) (Lab)]

The latest manufacturing output numbers show a clear decline, not an increase. There was an increase over the last year, but that was largely because people restocked after running their inventories down during the crisis. Does the hon. Lady concede that manufacturing now is going in the wrong direction?

[Jackie Doyle-Price]

The hon. Gentleman wilfully ignores what I just said. I gave one illustration of inward investment and an improvement in manufacturing in this country. That decision was taken by a thriving company because it is cheaper to produce here than in eastern Europe. He should look at the evidence instead of constantly talking the economy down.

Jobs are increasing. My father has lived all his working life in Sheffield, and many hon. Members are familiar with the economic problems in South Yorkshire. He has spent his entire working life as a builder and labourer. For much of the past decade, he struggled to find work, and has been in and out of work on short-term contracts. When he was laid off last year, he did not hold out much hope of finding more work, given the prevalence of eastern European gangs in that area of work, but last week, the day before his 63rd birthday, he re-entered the world of work, in Sheffield, so it is clear that the economy is indeed moving in the right direction.

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[James Morris (Halesowen and Rowley Regis) (Con)]

I shall focus my remarks on the challenges faced by the black country economy and the west midlands to illustrate some of the challenges that the Government face over the next period.

As the Chancellor pointed out, one of the most extraordinary statistics in the west midlands economy is that even in the boom years we saw a 6% decline in private sector jobs in the west midlands, compared with 3.4% growth in private sector jobs nationally. Worse still, after 13 years of Labour, not only was unemployment higher in the west midlands, but productivity was down, the skills gap was widening, the rate of innovation in the west midlands was poor compared with other regions, the rate of new business formation was weak, and the imbalance between the west midlands region and the rest of the country was growing. There was a lack of support for manufacturing businesses and a considerable decline in private sector jobs.

When the coalition Government took over one year ago, that was the picture that we faced in relation to the dynamics of the west midlands economy. It would have been madness to continue to pursue the policies that had comprehensively failed the west midlands region. Recently, I held a manufacturing summit in Cradley Heath with the Sandwell chamber of commerce. Companies such as Westley Plastics reported that they were enjoying strong growth in their order book and seeing considerable growth in export opportunities. Whatever the Opposition say, it is manufacturing that is leading the recovery in the west midlands and in the entire country.

In the west midlands and the black country we still have a vibrant manufacturing and industrial base. Companies in my constituency such as Somers Forge and Thompson Friction Welding are innovative, dynamic and capable of creating the high-quality jobs that we desperately need in the west midlands, but we must do more.

[Owen Smith]

May I point the hon. Gentleman to unemployment figures for the west midlands? We have heard a lot about those 520,000 net private sector jobs. As the hon. Gentleman no doubt knows, the west midlands has not seen any of those jobs. In fact, the last figures showed that minus 6,000 jobs, public and private, had been created in the west midlands.

[James Morris]

As I said, one year in, following the policies being implemented by the coalition Government, we are beginning to see clear signs that private sector jobs are coming back into the west midlands after 13 years in which, despite quarter after quarter of economic growth, we saw substantial declines in private—

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[Margot James]

I would like to make progress and bring my remarks to a conclusion.

Throughout the boom years, nearly 2 million people were living off benefits, at huge expense to the economy, while three quarters of the new jobs went to people from abroad. That was a scandal. It is ironic that the Opposition motion calls for the Government to spend all sorts of money that we do not have on 100,000 jobs for young people. I remind Labour Members that the unemployment figures for people between 16 and 24 started out at 650,000 in 1997 and ended up at 930,000 in 2010, at the end of their Government’s tenure. That is an unacceptable increase.

[Owen Smith]

rose—

[Alison McGovern]

rose—

[Margot James]

I will take an intervention from the hon. Gentleman, who was a member of the Health and Social Care Public Bill Committee.

[Owen Smith]

The hon. Lady cites a number that we have heard many times from Conservative Members. If she cares to look at what the number was at the end of 2008, just before Lehman Brothers collapsed and the financial crisis ensued, she will find that it was significantly lower than it was in 1997—and we all know it.

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[Owen Smith (Pontypridd) (Lab)]

We have heard a lot today about learning the lessons of history, but what we heard from the hon. Member for Stourbridge (Margot James) shows that the Government clearly have not learned the lessons of their own history. In the last years of the Labour Government, we listened to the Conservative party talk about wanting more deregulation and complain that we were over-regulating. We concede now that we were not regulating the banking sector as vigorously as we should have done, yet still we hear calls for further deregulation. That is a lesson that Conservative Members really ought to learn.

Equally, Conservative Members ought to look much closer, and with a far less jaundiced and more objective eye, at the Government’s past year of performance. Any objective reading, any audit of how they have performed economically, must tell them, as it tells us, that it has been a disastrous year. Unemployment is higher by 1.5%, inflation is higher by 1.6%, output is down by 0.7% and manufacturing, which went up for a period as there was restocking and which boomed partly because of big deflation in the value of the pound, has now ground to a halt. We are not seeing a manufacturing-led recovery. Critically, growth, the key driver of our economy, is flat, non-existent, zero.

[Alun Cairns]

The hon. Gentleman focuses on manufacturing, but how does he contrast performance over the past 12 months with that over the previous 12 years, when manufacturing in Wales in particular, and in the west midlands, fell dramatically from representing close to a third of the economy to nearer 20%?

[Owen Smith]

I answer candidly that we have already said that we need a rebalancing of our economy. On both sides of the House, there was far too great an emphasis on the belief that we were in a post-industrial society and manufacturing was not an important part of the mix. We have learned the lessons, as I hope Government Members have. I hope that there will therefore be an active industrial policy from the Government, like the one that the Opposition are talking about. That is the only way in which we will improve manufacturing.

[Gordon Birtwistle]

Will the hon. Gentleman give way?

[Owen Smith]

I cannot resist.

[Gordon Birtwistle]

Does the hon. Gentleman agree that, if the country takes on the debts that the Opposition suggest by cutting VAT and spending vast sums, interest rates will rise? That alone will stifle any economic growth.

[Owen Smith]

No, I do not agree with that for a moment. A VAT holiday right now would stimulate the economy. We saw it work previously and it would work today, and that is why we advocate it. The hon. Gentleman is entirely wrong.

It is clear that the past year has been disastrous, so let us look ahead. Let us not rely on the Opposition or the Government, but instead examine the Office for Budget Responsibility’s projections. It projects lower growth than it did last time, lower in fact than in its last three projections. It projects increased unemployment, with 200,000 more people unemployed by the end of this Parliament. Most critically and damningly of all, it projects ballooning borrowing, with £50 billion extra in borrowing in this Parliament as a result of the dreadful mistakes that the Government are making. [Interruption.] That is the reality—borrowing went down by £20 billion last year as a result of the stimulus, and it is now going up. No amount of shouting can get Members away from that fact.

What do those desiccated numbers mean for ordinary working people in this country? They mean heartache and misery. As one leading economist said last week when reflecting on a market survey that showed household income going down and household debt rising at the fastest rates since the depths of the crisis,

“The grim figures show household finances deteriorating at the fastest pace since”

2008-09, with people

“eroding their savings and taking on more debt to finance strong rises in living costs”

and reductions in their wages. That is the reality, as the Governor of the Bank of England recognised when he said that we were facing the biggest squeeze on living standards and wages since the 1920s. We can lay the blame for that directly at the door of the Conservative party.

In Wales, my part of the country, we are feeling the pinch harder than most. We have already heard the number of people unemployed in the midlands, the area that we hear the Chancellor have the temerity to talk about from the Dispatch Box. Employment there was down by 6,000 in the last period. In Wales it is barely creeping above the positive line, and in the north-east it is down by 14,000. The notion that there is a private sector-led jobs recovery spreading equitably across the country is absolute fantasy, and we must expose it.

Consumer Focus Wales, the body that looks after ordinary working people’s rights, says that some of the most vulnerable people in our society, including older people, those on low incomes and those with long-term conditions, are right now cutting back on essentials such as groceries and energy usage. That is a disgrace in this day and age, and the Conservative party must face up to it.

In my constituency of Pontypridd, three times the number of people are looking for every job this year than last year. That is the reality of employment in my constituency. Three people on jobseeker’s allowance looked for every job in the jobcentre last year, but now nine are looking for it. The citizens advice bureau is in jeopardy as a result of another of the Government’s cuts—the cut to legal aid—but in one single year, there has been a 20% increase in the number of people going to the CAB for advice about debt, family breakdown and job insecurity. That is the largest increase in the history of that CAB. Those are all clear indicators that it is not working but it is hurting. More austerity and pouring misery on misery will not help my constituents, just as it is not helping Greece.

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[Mr Deputy Speaker (Mr Nigel Evans)]

Order. Before the hon. Member for Pontypridd (Owen Smith) answers that intervention, I ask hon. Members please to keep interventions very short, because a lot of hon. Members wish to speak.

[Owen Smith]

Thank you very much, Mr Deputy Speaker.

I completely reject that entirely false characterisation of the Welsh economy. Most importantly, the Labour Government in Wales understand that growth will deliver improvements to our economy, not austerity, cutting or increasing the viciousness of the circle. The hon. Member for Vale of Glamorgan (Alun Cairns) ought to read The Times from this morning, because it is not only Labour Members who are worried that they have got no economic plan for growth from the Chancellor, but the chief executive officers of this country. On page 2, a reflection on the CEO summit states:

“There is...a real fear that a long, slow, feel-bad recovery will leave Britain a helpless bystander as the new economies of Asia, Africa and Latin America storm ahead.”

What does the article go on to say? It says that we need a plan for growth, that plan A is not working, and that we need an industrial strategy that highlights growth sectors, just as the Labour Government in Wales have highlighted life sciences, digital economy and advanced manufacturing.

We need to target and invest in such sectors in a serious, intelligent and structured way, but we are not doing so. As the CEO of Vodafone, which is not exactly a Marxist-led workers’ co-operative, says in The Times today, we in Britain have a “faith” that

“the market will sort it out”—

a misplaced faith that the market is always the answer. That is another lesson that Conservative Members have not learned. The market alone cannot deliver growth in this country. The Government need to intervene and direct intelligently. That is what history teaches us.

Finally, I was not going to talk about banking reform, but the Chancellor ended his speech by saying that Opposition Front Benchers did not talk about it, which admittedly they did not. We will wait and judge Government Members and the Chancellor by what they do on banking reform, but we do not know exactly what will happen on that yet, do we?

We know that the Chancellor has cancelled the bonus tax, and we know that he is talking about looking at banks’ capital-to-asset ratios and trying to ensure that the leveraging they have on their debts is brought into line, but we will see whether the Government make good on those promises, whether they go beyond Basel III and whether they do what the OECD, which has been prayed in aid several times today, is telling them to do and split off high-risk investment banking from commercial banking. These are the tough decisions that have to be taken by a party that likes to listen to its erstwhile colleagues in the banking sector—there are probably a few Conservative Members who used to work there. These are the people who speak and whisper in the Chancellor’s ear. He is not listening to ordinary working people in this country. He needs to start doing that, understand the pain he is causing and move to plan B.

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[Kwasi Kwarteng]

I accept the hon. Gentleman’s point about Ireland, but let us look at what happened last year and the situation that we faced going into the general election in May. The shadow Chancellor quite rightly observed that the market price of gilts was rising and that interest rates on them were coming down in the period before the election. It is true that in the six weeks before the election, interest rates on gilts came down, but that was only because the market realised that there would be an end to the Labour Government. The market anticipated the result of the general election, after it became clear that, as a consequence of Labour’s total irresponsibility, the end of a Labour Government would mean a new Government who were serious about dealing with our financial position. It is true—I remember this—that the rates came down from mid-March, but that was only as a consequence of people in the markets literally rejoicing because Labour was going to leave. The shadow Chancellor was quite right to make that point; I just felt that we needed a bit more context.

[Owen Smith]

Will the hon. Gentleman give way?

[Kwasi Kwarteng]

The hon. Gentleman has had his say, but I will give way to him.

[Owen Smith]

I cannot help but point out that if the markets had been so omniscient and all-seeing, surely they would have spotted that the Tory party was not going to win the election.

[Kwasi Kwarteng]

The only question that the markets were interested in at that point was whether Labour would be re-elected. When it became obvious that Labour would not secure a majority in the House, they started buying lots of British Government debt, and the interest rates in the six weeks before the general election came down quite rapidly. Those are the facts, and one could find them out from the Financial Times, Bloomberg or any other information provider in financial services.