The Economy

Rachel Reeves Excerpts

Tuesday 11th December 2012 Commons Chamber

[Danny Alexander]

As always, my hon. Friend makes a good point. We need people with experience in compliance and enforcement, and we are expanding employment in those areas. That is the right thing to do and it should have been done a long time ago.

The previous Government set out plans to increase fuel duty above inflation last year, this year and again in 2013 and 2014. However, as a result of repeated action by this Government, pump prices will remain at least 10p per litre lower for the remainder of this Parliament than they would have been had the Labour party remained in government.

[Rachel Reeves (Leeds West) (Lab)]

Slide 24 of the report by the Institute for Fiscal Studies shows that, including fuel duty changes and the changes to the personal allowance and tax credits, a one-earner couple with two children will be £534 worse off on average as a result of the changes in the autumn statement. Will the right hon. Gentleman confirm that?

[Danny Alexander]

No, I cannot confirm that. I do not recognise those figures—[Interruption.] Labour Members are waving bits of paper—

--- Later in debate ---

[Rachel Reeves (Leeds West) (Lab)]

The Opposition welcome this opportunity to debate the state of the economy, the Chancellor’s record over the past two and a half years and the measures he has introduced in the autumn statement. Last Wednesday he came to the House and admitted that he had failed—failed to get the economy moving, failed to meet his borrowing targets and failed to listen to our advice and change course.

First, though, let us go back to the heady first months of this coalition Government—when they were still getting on, when they were fraternising in the rose garden. In the 2010 spending review, the Chancellor decided to implement a programme of unprecedented fiscal contraction. We said it was not the right time to cut demand, given that the economy was only just recovering from the global financial crisis, and that the cuts went too far and were being implemented too fast.

[Kwasi Kwarteng (Spelthorne) (Con)]

Is it not true that we are actually spending more than we were two years ago and that no real cuts have been made? What would the hon. Lady like to say about that?

[Rachel Reeves]

There is one particular area where the Government are spending more money, and that is welfare, on which they are spending £13.6 billion more during this Parliament, because more people are out of work or in part-time work and so receiving more tax credits. That is a sign of the Government’s failure, not of their success.

In the 24 months since the spending review, where have we got to? How much progress has been made? Is the Chancellor’s plan working? The verdict is in. We now know that borrowing and debt figures have been revised up for this year, for next year and for every year of this Parliament. The Government are borrowing £212 billion more than they planned. They said that five years of austerity would be difficult, but that it was necessary to support our economy, and they said that it might hurt, but that it would work. Well, it has not worked, but it has hurt, and we are no closer to clearing our deficit than we were two years ago. [Interruption.]

[Hon. Members]

Bye, bye!

--- Later in debate ---

[Rachel Reeves]

Thank you, Madam Deputy Speaker. Perhaps the hon. Gentleman did not like the answer to his intervention. Fair enough—I would not be pleased to hear that my Government were spending an extra £14 billion on welfare because of their failure.

This year the economy will shrink by 0.1%. The Chancellor’s two gap years—two years of painful cuts, more borrowing and no growth—are a shocking indictment of a failed plan. He stands up and tells the nation that the British economy is healing and that he is equipping Britain to win in the global race, yet over the 24 months since the spending review the UK economy has grown by just 0.6%. In the same period, the US economy grew by 4.1% and the German economy by 3.6%. Helpfully, the International Monetary Fund’s world economic outlook data allow us to put together a league table of 184 countries based on total growth between 2010 and 2012, so we can now analyse our performance in the global race that he describes with this Government at the helm. Of those 184 countries, where do Members think Britain comes? We are 158th. It is a relegation battle. We are behind Togo and Namibia, Albania and Macedonia, but there is no need to worry—apparently we are hot on the heels of Mali, Samoa and Fiji! We are the worst performing G7 country, apart from Italy. In the global race, Britain is well and truly in the slow lane with this Chancellor at the helm.

[Mr MacNeil]

Does the hon. Lady agree that the context she has rightly given the House is the reason the Scottish referendum on independence will be won in 2014?

[Rachel Reeves]

I will let the good people of Scotland make their decision when the time comes, but I believe that we are stronger together—stronger united than divided.

The worst aspect of the Chancellor’s two wasted years is the long-term damage being done to our economy. Every month of inaction, every failed initiative and every growth forecast downgraded is another hammer blow to the work force, our businesses and our national infrastructure. The skills and motivation of British workers are going to waste, with one in three of our 2.5 million unemployed out of work for more than a year and 3 million of those with jobs wanting to work more hours, but unable to find the work. In reality, we are falling behind, and the Chancellor has nobody to blame—not the snow, not the royal wedding, not the eurozone.

I agree with the chief economist of UBS, George Magnus—[Interruption.] [Hon. Members: “He’s gone!”] Obviously the hon. Member for Spelthorne (Kwasi Kwarteng) does not want to hear what the chief economist of UBS has to say. I will send him a copy of Hansard. George Magnus said that the Chancellor’s excuse

“falls under the category of ‘Sorry Miss, the dog ate my homework’”.

He also said that

“the problem I think that the Chancellor has with the eurozone is that we are just like them. We have this single-minded focus on austerity and the lack of growth is basically crippling our ability to meet our fiscal targets.”

I agree that the Chancellor and his economic plan are to blame. Two and a half years of austerity, two and a half years of this Chancellor, and what do we have to show for it? We have no growth, more borrowing and a tragic waste of time. [Interruption.] It is good to see the hon. Member for Spelthorne in his place again.

A year ago the IMF warned:

“If activity were to undershoot current expectations and risk a period of stagnation or contraction, countries that face historically low yields (for example…the United Kingdom) should also consider delaying some of their planned consolidation.”

At that time the IMF was predicting 1.6% growth this year; now the OBR tells us that the economy is more likely to shrink by 1.6% this year.

[Gordon Birtwistle (Burnley) (LD)]

Would the hon. Lady like to comment on the 6.4% collapse in GDP in 2008, and at the end of her speech will she enlighten us all on what her economic policy will be?

[Rachel Reeves]

Like other countries around the world, our GDP contracted during the global financial crisis. Germany and the United States have managed to recover that growth; we have not, because our Chancellor chose a different course—austerity—when jobs and growth are needed to get the economy moving and the deficit down. Unlike this Government, we recognise that we need to take action to stimulate jobs and growth. That is why we have said there should be a national insurance holiday for small businesses taking on new workers and a bank bonus tax to fund a programme of youth jobs, and that we should genuinely bring forward infrastructure investment and temporarily cut VAT to 17.5%. Those are the policies that would get the economy moving, get jobs back in our economy and help to bring the deficit down in a sustainable way.

[Andrew Gwynne]

The Government have placed great emphasis on the views of the Office for Budget Responsibility. My hon. Friend will be aware from reports in today’s media that Robert Chote of the OBR has suggested that the UK need not fear losing its triple A rating. Does she see us losing our triple A rating as a ringing endorsement of this Government’s economic policies?

[Rachel Reeves]

Let us see what the rating agencies have to say in the new year. Of course we are on negative watch, but it was not we who said the rating agencies should be the be-all and end-all. Indeed, they were giving Lehman Brothers a triple A rating until that company crashed and almost took the global economy with it. It was the Chancellor who said that a triple A rating would be the watchword of his chancellorship, so if it were to go, it would be a damning indictment of what this Government have presided over.

What was the Government’s response to all the bad economic news last Wednesday? Let us give credit where it is due. The Chancellor now agrees with us that we should not go ahead with the fuel duty increase in January; he agrees with us that introducing regional pay in our public services would be costly and impractical; he agreed with us that we should reverse the relaxation of restrictions on pension tax relief for the very rich; he agreed with us that it was a mistake to implement deep cuts to capital programmes such as Building Schools for the Future; and he agreed with us that cutting investment allowances risked damaging incentives for long-term wealth creation. We propose the creation of a British investment bank to support small businesses, and the Chancellor has produced a pale imitation of that, but I am afraid that all these measures are too little, too late—robbing Peter to pay Paul. Smoke and mirrors will not hide the lack of a real, purposeful growth strategy.

The chief executive of British Airways summed it up yesterday when he said:

“I don’t see an agenda for growth.”

I agree, and so does the Office for Budget Responsibility. Taking into account all the Government’s measures from the autumn statement, the OBR has concluded that they will add just 0.1% to UK GDP over the next five years. The economy is shrinking this year. Growth next year—forecast at 2.9% just two years ago—is now forecast at just 1.2%. Indeed, we have seen downgrades not just this year and next, but the year after.

[Charlie Elphicke (Dover) (Con)]

Why does the Institute for Fiscal Studies say that there would be £200 billion more borrowing under Labour’s plans?

[Rachel Reeves]

There is £212 billion more borrowing under this Government’s plans.

Families will continue to feel the Chancellor’s failure in their wallets and their homes. Average earnings will not outpace inflation until the second quarter of 2014. It will take even longer for families to recover the loss to their living standards that this Government’s economic failure has cost them.

The lack of growth and the increase in borrowing under this Chancellor have meant that he has had to come back and ask the country for more. And who are the Government asking to bear the brunt of the past two and a half years of failure? Luckily, Andrew Neil asked the Chief Secretary to the Treasury that question on BBC1 last Wednesday. He asked him whether

“those who are on ordinary incomes are suffering a lot more than most”.

The Chief Secretary to the Treasury replied: “That is absolutely right.” That was the only sense he spoke all day. It is no surprise that he is increasingly described as the Conservatives’ favourite Liberal Democrat in the Cabinet. Apparently, they regard him as easier to deal with and more persuadable. The Chancellor’s favourite Liberal Democrat has finally told the country what we have known for a long time: that this Government are asking ordinary families to foot the bill for their economic mess.

The facts speak for themselves. Analysis by the House of Commons Library shows that a one-earner family on £20,000 with two children will lose £279 a year from next April. Slide 24 of the Institute for Fiscal Studies report shows that a two-income family with children will lose £534 as a result of the changes, including all the measures in the autumn statement. Slide 17 of the IFS assessment shows that middle and lower earners will lose most as a result of the autumn statement, with the poorest 40% losing more than the richest 10%. How can that be fair? And this is all to pay for the Government’s £212 billion of extra borrowing. They are hurting those who are trying to get on and do the best for themselves and their families. That cannot be fair.

Mothers across the country will be worried about the real-terms cut in maternity pay, worth £180, that the Chancellor announced last Wednesday. That comes on top of other deep cuts that will hit pregnant women on low incomes, such as the abolished Sure Start maternity allowance and the health in pregnancy grant. This is further proof that the Government are out of touch and simply do not understand the pressures families are facing, day in, day out.

[Gavin Shuker]

What assessment has my hon. Friend made of the impact of the changes, particularly those relating to people on low incomes, on the overall growth of the economy? It strikes me that they are exactly the people we ought to be encouraging to spend right now.

[Rachel Reeves]

My hon. Friend is right. It is a false economy to cut the incomes of the lowest paid, because they will have less money to spend in their communities. What really matters, however, is the real impact that the changes will have on their living standards and those of their children.

The Resolution Foundation has said that 60% of the cuts to benefits and tax credits will hit working households—that is, those who are trying to get on in life. Given that the welfare bill is forecast to be £13.6 billion higher in this Parliament than the Chancellor thought it would be—another target tossed aside—perhaps it is time for the Government to concentrate on getting people back to work in order to reduce the welfare bill. In February this year, the former employment Minister, now the Secretary of State for Justice, said:

“The Work Programme is doing a good job and is on track. It is helping long-term unemployed people into work.”

And only today the Chief Secretary to the Treasury said that the scheme was going well, but we now know that for every 100 people who are unemployed, the programme has seen only two people back into work. If that is the Government’s idea of a programme that is on track, I would hate to see one that is not.

It is not surprising that OBR documents released last week showed that the number of people claiming jobseeker’s allowance was set to rise from 1.58 million this year to 1.69 million in 2014, and that the number forecast for 2016 had been revised up by 340,000. That will be a third of a million more people receiving JSA compared with the number forecast in March this year.

Let us not forget that the Prime Minister dismissed the last Labour Government’s future jobs fund, which helped 120,000 young people back into work, yet an impact analysis for the Department for Work and Pensions found that we all gained £7,750 per participant through wages, increased tax receipts and reduced benefit payments. This Government ditched a plan that worked for one that has failed, so we will not be lectured by them on welfare or on job creation.

At the same time, one group of people continue to gain from the Chancellor and the Chief Secretary’s policies. If someone earns more than £1 million a year, next year they will receive an average tax cut worth £107,000. It beggars belief that while taking from families on low incomes with one hand, the Chancellor gives to millionaires with the other—there is one rule for the very richest, another for everyone else.

[Charlie Elphicke]

The hon. Lady talks about the Government favouring the richest, but if we look at the distributional impact of tax and benefit reforms on the IFS slides to which she has referred, we can see very clearly that the richest 10% lose £260 in net income whereas everyone else is far less disadvantaged. Does she not agree that the richest are shouldering more of the burden?

[Rachel Reeves]

If the hon. Gentleman thinks that those on average incomes being worse off by £534 year is not very much, it is up to him to justify that to the people of Dover and Deal. Page 17 of the IFS analysis shows that the poorest 10% are 1.6% worse off, the second decile are 1.7% worse off, the third 1.3%, the fourth 0.6% and the top only 0.5%. The four lowest deciles—those on the lowest and modest incomes—are being hit hardest by the changes in the autumn statement, while those at the top get off relatively unscathed. That is the reality and if he wants to put that slide in his leaflets in Dover and explain it to his constituents, I am sure that they would appreciate it.

As I have said, it is one rule for the richest and another for everyone else. The poor are expected to work harder or else they will be made poorer, but apparently the rich will work harder only if they are made richer. It is the same old out-of-touch Tories and their Liberal Democrat accomplices.

There are some who think that the Chancellor is a master of political strategy; his autumn statement was clearly delicately put together. He said that borrowing was down this year, but that is only by using money from the sale of 4G contracts, which has yet to happen. He said that his cuts were targeting the workshy, when in reality they hit working people. He said that austerity was necessary for us to compete with our global competitors when, after two years of austerity, we have fallen further behind. He lived up to his reputation as a part-time Chancellor, because it was a statement that worried more about tomorrow’s headlines than the economic reality. For all of the Chancellor’s cynical political games and for all the smoke and mirrors, the real story is being felt across the country. Living standards are being squeezed, long-term unemployment is rising, borrowing is up, growth is flatlining: it is a story of a failed Chancellor and his Lib Dem accomplice desperately trying to find a way out of the mess their economic failure has got them into.

[Several hon. Members]

rose—