Budget Resolutions and Economic Situation

Rachel Reeves Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Rachel Reeves (Leeds West) (Lab)]

I have great concerns about what the Government have outlined today. First, international evidence shows that hasty cuts will derail growth. Secondly, by failing to set out a vision for the future, the coalition destroys our chances of rebuilding a balanced economy. Thirdly, the Budget’s measures will hit the poorest in society—those who can least afford the pain—hardest. I fear for my constituents in Leeds West and am worried about how they will fare in the months and years ahead.

On growth, it is clear from the Chancellor’s speech that he has chosen to ignore the harsh lessons of history—from Japan in the 1990s and the USA in the 1930s. Despite his talk of a plan for growth, as a result of today, we face the real prospect of a double-dip recession.

I wholeheartedly agree that the deficit needs to be cut, but the issue is whether it should be cut this year or next year, and the method of making those cuts. The surest way to bring down the deficit is to embed strong and sustainable growth, but we heard nothing about that from the Chancellor today. The Office for Budget Responsibility’s forecasts have revised growth downwards—after those presented only a week ago—by 0.1% this year and 0.3% next year, and an additional 100,000 people are due to go on the dole.

[Kwasi Kwarteng (Spelthorne) (Con)]

What does the hon. Lady think about the sovereign debt crisis in Greece, to which my right hon. Friend the Chancellor referred in his Budget statement?

[Rachel Reeves]

I thank the hon. Gentleman for giving me the opportunity to address that issue. The debt-GDP ratio in Greece is two and half times that of the UK, and the maturity on UK debt is, on average, 13 years, compared with an OECD average of two to three years. In addition, the Greek economy remains in recession, while the UK is beginning to recover from a recession. We cannot take that recovery for granted, but our economy grew by 0.3% in the first quarter of this year, and we are beginning to emerge from recession.

The downgrades from the OBR reflect the fact that the cuts will stall the recovery and throw more people into unemployment. There are two ways to reduce the deficit: strong growth, or wielding the axe. The Chancellor has today chosen the latter, and the result will be, as we have seen from those forecasts, weaker growth, higher unemployment, more business failures, more home repossessions and a less competitive British economy. Instead of a strategy for growth, we have been given a strategy for austerity, cuts and pain for working people—the people whom I have been sent to Parliament to represent.

[Christopher Pincher]

When the Governor of the Bank of England, who was of course Governor when Labour was in power, said that the deficit reduction plan is strong and powerful; when José Manuel Barroso says that fiscal consolidation is necessary; and when Lord Myners, who has made an astonishing but none the less welcome conversion to sanity, says that Governments should spend less than they earn, does the hon. Lady agree with them?

[Rachel Reeves]

I will give way less often if interventions last that long. The hon. Gentleman made a long intervention, but missed a couple of points on which I should like to fill him in. In its statement from South Korea a couple of the weeks ago, the G20, as well as calling for countries to address budget deficits, argued for growth-friendly deficit reduction strategies. Today we did not get that. Another of the hon. Gentleman’s omissions is President Barack Obama’s warning. In a letter ahead of the G20 meeting this weekend, he said that we should

“learn from the consequential mistakes of the past, when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession”.

The hon. Gentleman failed to mention those points, but they are extremely relevant to the debate.

[Stewart Hosie]

The hon. Lady is absolutely right on the early withdrawal of the fiscal stimulus—so does she regret the fact that her Government were one of only two Governments fully to withdraw the fiscal stimulus package in 2010?

[Rachel Reeves]

What I regret is that the current Government withdrew the future jobs fund and the extra 20,000 places that Labour introduced to universities, and cut the regional development agencies, which were doing fantastic work in my region of Yorkshire and Humberside. Those are my regrets.

Frankly, there is no vision from the Chancellor and the Government of the sort of economy they want to emerge from the recession. What sort of society and economy do they want when they have reduced the budget deficit? Labour wants a sectorally and regionally diverse economy that is robust enough to face future shocks. None of that is on the Chancellor’s or the Government’s radar—let alone within their grasp—because they are cutting the very measures that would ensure not only growth in the short term but future economic security.

The new Government are portraying their cuts as eliminating waste, when in fact they are risking our future economic prosperity. Eliminating the future jobs fund, which has got almost 200,000 people back to work through the recession, axing the loan to Sheffield Forgemasters—an absolute disgrace that has cost jobs and economic growth in my region—cutting funding to universities, and cutting hospitals, transport and school building programmes across the country, including in my city of Leeds, is certainly not my idea of eliminating waste. Rather, it is cutting the front-line services on which my constituents rely.

[Jim McGovern]

My hon. Friend mentioned her regrets and went on to describe some of the things that are happening in her constituency, but does she agree that the Government’s refusal in today’s Budget to honour the commitment to tax breaks for the computer games industry will have a detrimental effect in my constituency?

[Rachel Reeves]

My hon. Friend is absolutely right, and we could think of countless examples of things that the Government have done today that will risk the future economic prosperity of this country.

Worse than that, ordinary people—those least responsible for the recession—will be hardest hit. In Leeds West, average earnings are £16,000 and unemployment stands at 8.7%. Increasing VAT, reducing access to free school meals, abolishing the health in pregnancy grant, freezing child benefit and cutting tax credits will hurt my constituents. The people who bear no responsibility for the financial crisis and recession will be hardest hit. An extra £13 billion is to be paid in VAT, but there will be only £2 billion extra from the bankers. Is that fair? Is that the way to bring down a budget if we are “all in this together”? I think not. Asking those who already struggle to make ends meet, such as those in Leeds West, to make the same sacrifices as, or more than, those at the top is plain unfair and socially divisive.

I began by urging the Government not to forget the lessons from Japan in the 1990s and the United States in the 1930s. However, I am filled with fear that they want to learn a lesson from Canada, because we are in a totally different position from that of Canada when it approached its fiscal consolidation. At that time, Canada was a partner in the newly formed North American Free Trade Agreement, and was experiencing strong demand for its exports. It was also able to loosen monetary policy, which was integral to getting its economy back on track. Given that UK interest rates are at 0.5%, that rates will be low in the long term, and that quantitative easing has already been undertaken, it is pretty much impossible to see how we can loosen monetary policy further—that is simply not at our discretion. I urge the Government not to manipulate the Canadian experience to justify today’s deep cuts.

I do not dispute that we need a realistic and credible plan for reducing the deficit—[Hon. Members: “Hear, Hear!”] In response to those heckles, as far as I am aware, it is the Government’s responsibility to come up with the plans, but without a credible plan for growth, we risk a double-dip recession, or a British economy that splutters along in the slow lane of the global economic recovery.

The Government are trying to convince the public that there is only one way that Britain will bring down the deficit—pursuing hasty and unjust spending cuts—but that is simply not true. They are using the budget deficit as a cloak for fulfilling their overriding ideological desire for a smaller state. They are set on achieving that by doing the economy down—as the hon. Member for Spelthorne (Kwasi Kwarteng) did when he made the comparison with Greece, which was the most misleading comparison he could have made—and by panicking the public into thinking that there is no other option.

However, there is another option. The surest way to reduce the budget deficit is to ensure strong and sustainable growth and a rebalanced economy. Yes, taxes need to increase and spending to decrease, but not at the expense of the economic future of this country or of a diverse, strong regional and national economy; and not in a way that will plunge more families and children, who played absolutely no role in causing this recession, into poverty, unemployment and despair.