Jobs and Growth

Richard Graham Excerpts

Wednesday 12th October 2011 Commons Chamber

[Mr Darling]

I have always made my position clear. One of the big achievements of April’s G20 meeting, led by the then Prime Minister my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), was to get countries to sign up to an increase in IMF funding. That has always been my position, and I am not going to depart from it because I believe that the IMF has a central role to play. With respect to the hon. Gentleman, his intervention does not get him off the central point of this debate, which is what is different now from the position when we left office. My deficit reduction plan was on the back of an economy that had started to grow, so my right hon. Friend the shadow Chancellor is quite right to ask himself what we need to do now, 16 months later, when economic growth has stalled, and what other measures are necessary to get the economy going.

My right hon. Friend is also quite right to say that, although a few months ago very few people were talking about the need to reduce taxes, bring forward capital spending or take measures to help businesses, that has now become common currency among many commentators. It is only the present Government who simply do not accept that the plan they announced 16 months ago is not working. As my right hon. Friend said, the Chancellor has had to downgrade his growth forecast four times. I remember his having great fun at my expense when saying that my growth forecasts were wrong. Actually, mine lasted a lot longer than his. He should reflect on that and on the fact that he is having to borrow more.

I raised another point about quantitative easing with the Chancellor on Monday and I hope we will hear more about it. If that money does not leave the vaults of the banks and get out on to the high streets, it will have failed. I know that the Chancellor has had exactly the same trouble with the Bank of England as I had. I could not persuade it to buy corporate assets; he has obviously failed as well, which is why he has had to think up his own scheme. We really need to get that money out on to the high streets; if it is not manifested in the form of loans to businesses, it will simply not work.

I note that the hon. Member for West Suffolk (Matthew Hancock) is no longer in his place. He said that quantitative easing works only when there is a credible policy. Given that the Bank of England has said that it worked, we must have had a credible policy at the time. I am sorry that the hon. Gentleman is not here to hear that; he might want to ponder it when he reads Hansard tomorrow morning, as I am sure he will. The Chancellor needs to ensure that the money gets out on to the high street; otherwise, it will fail. It is remarkable that the Bank of England is almost now doing what the Government should be doing. It recognises that the policy is not working, which is why it has embarked on another round of quantitative easing.

The Chancellor is fond of saying that all our problems are on account of the eurozone. That, too, is remarkable. When he came into office, the Tory story, backed by the Liberal Democrats, was that it was all the fault of the last Labour Government. All was fine with the rest of the world, so it was just Labour’s overspending that was responsible. Incidentally, the Chancellor supported it right up to the end of 2008 and the Liberal Democrats supported it until the day after the general election, so it could not have all have been wrong at that stage. Now they are saying that the problem is not domestic at all; that it is all to do with what is happening in the eurozone.

Of course the eurozone is a major problem and it is becoming a bigger one by the day. I hope the Chancellor was right when he said at the beginning of the week that wiser counsels are prevailing in Europe, but I am not so sure. We should remember this: although people talk about the fact that the German Parliament ratified the deal a couple of weeks ago—and Slovakia will probably put it through later this week—it was in fact agreed in July, and it is blindingly obvious that it is now out of date. At that time no one would talk about Greek default, whereas now everyone knows that Greece will default, and the only question is whether it will be done in a managed way or become a disorderly breakdown.

Another thing that is obvious—the Chancellor acknowledged this on Monday—is that the austerity measures being imposed on Greece simply are not working. Greece is reaching a point at which it is unlikely to be able to repay the interest on its borrowing, let alone reduce its borrowing and debt. The policy of austerity endorsed by far too many European countries over the last 16 months or so worked at first, but it is not working now, and Greece is living proof of that.

I hope that something compelling and convincing will be agreed at the G20 in a couple of weeks’ time, but I have my doubts. The trouble with the eurozone countries is that they are still fighting as though nothing has changed since the early summer, which has been their position since the early part of 2009. If we have any influence I hope that we will bring it to bear. If we do not, there is a risk, as the Chancellor himself recognises, that if things go wrong in the eurozone they will affect this country. While I agree with the Chancellor that we should certainly should not contribute to the bailing out of the eurozone, he is also right to say that a break-up of the euro at the present time is the last thing that the world economy needs, ourselves included.

That brings me to our policies back at home. I have always believed that reducing public expenditure at such a rate, in a climate in which the private sector is not taking its place, risks crashing the economy. I reached that view when my party was in office, and I still hold it today. The evidence seems to suggest that that is precisely what is happening now, and that is why it is so damaging.

[Richard Graham (Gloucester) (Con)]

Will the right hon. Gentleman give way?

[Mr Darling]

I will not, because it will count against me if I give way again.

I hope that the Chancellor will produce measures to deal with the situation. He may wish to embark on infrastructure projects, although in my experience that is much easier said than done, and the interval between making a plan and putting a shovel into the ground can be a long one. Some of the road schemes that the Chancellor mentioned were planned by the Labour Government—one of them back in the 1970s—so we should not get too carried away about them. However, he should certainly introduce the tax reductions and other measures to help businesses to which my right hon. Friend the Member for Morley and Outwood (Ed Balls) ascribed such importance.

It is clear to me that we cannot resign ourselves to circumstances in which people feel that nothing can be done, that it is all inevitable, and that nature must take its course. Governments can make a difference—they made a difference two years ago at the G20 in 2009—but we currently have no international leadership, and we have precious little leadership from our own Government when it comes to what we should be doing in this country. There is, and there must be, an urgency attached to getting these things right, but that means a change of policy here at home as well.

--- Later in debate ---

[Stewart Hosie (Dundee East) (SNP)]

This Government’s refusal thus far to countenance a plan B will come back to haunt the Chancellor, the Chief Secretary and the Prime Minister. The current plan to remove the entire structural deficit in the fixed time scale of a single Parliament was incredibly risky to start with, and now appears almost impossible. It was dependent on export growth from a strong eurozone, which is not there. To be fair, the overall trade figures are a little better this year: the balance of trade is £9 billion in the red for the first quarter, but in the second quarter it stood at £24 billion in the red, and the aggregate for the first two quarters is almost as much as last year’s catastrophic £99 billion deficit in the trade in goods out-turn.

The Government’s plan depended on business investment growth of a rather heroic 8% to 11% each and every year, but that is not there either. Indeed, the gross fixed capital investment figures for this year show that investment fell by 2% in the first quarter and is lower than in the same quarter in 2010. Growth is now effectively flatlining, and although borrowing was down between April and August, it is up between August this year and August last year and is forecast to be as much as £46 billion greater. Therefore, something needs to change, not least because according to the National Institute of Economic and Social Research it is likely that the entire consolidation plan will cut almost an entire percentage point off GDP growth this year. It has said that

“it remains our view that in the short term fiscal policy is too tight, and a modest loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility.”

If the Government are concerned, as they would be right to be, about the credibility of their plan and if others are saying that a modest loosening, which would help growth, would have no impact on the credibility of the plan, they should listen, not least because if they do not, the entire deficit reduction strategy is at risk, as the NIESR suggests.

On 2 August, the NIESR said that if things go on as they are:

“The Chancellor will miss his primary target of balancing the cyclically adjusted current budget by…around 1 per cent of GDP.”

Perhaps the Chancellor has listened and perhaps that is what he was alluding to in his statement on 11 August when he said that we should be “realistic” about the dangers in the global economy and “set our expectations accordingly.” I pressed him at the time on that and he was not very forthcoming. If he is to change his expectations, he is, as the previous Chancellor said, going to have to change his policy as well.

[Richard Graham]

The Opposition motion, which the hon. Gentleman presumably supports, focuses very much on a plan for jobs and growth. I would like to share with him some statistics that I found with the help of the Library. They show that between 1997 and 2010, when the shadow Chancellor was the previous Government’s chief economic adviser, the number of jobs in business in my constituency shrank by 5,600, or by 13% of the employment work force in the entire constituency. From what I have heard today, plan B really amounts to adding more mortgage costs for families and doing nothing for growth of jobs in the business sector. This Government are doing a lot to help that with structural change. Does he agree?

[Stewart Hosie]

We believe that there has to be a change because this plan is not working. That will involve: direct capital investment, which we know does work, and I shall come on to that; consumer confidence, which is vital; and access to bank finance. The Labour Opposition’s motion is a good tactic to debate this matter and we will back it, because in principle we want to see something done. However, if the hon. Gentleman does not mind, I will concentrate on my proposals.

I have said that there are problems with the Government’s plans. This has not just been about the absence of a strong eurozone to export to or of heroic rates of business investment; it has been about the fact that the forecast rates of growth for this and the next years of 2.3%, 2.8%, 2.9%, 2.7% and 2.7%, as set out in the 2010 Budget, will not be achieved. Indeed, Robert Chote, the head of the independent Office for Budget Responsibility, said that even to achieve a 1.7% growth rate now would require

“quarter-on-quarter growth rates of 1%...and there aren’t many people out there expecting that.”

I suspect that there are no people in here expecting that.

So the Chancellor needs to stimulate now, and the best way of doing so is through direct capital investment. As we know, the OBR has said that the impact multiplier for this is 1:1. It is the most effective form of stimulus that the Government have and they should use it. It is also the area where the Government can make the most damaging cut. I know that he wants to tell me that they are keeping £2 billion more in direct capital investment than Labour planned, but very large cuts are still being made. It was not just the OBR saying this, as the British Private Equity and Venture Capital Association was doing so too. On 23 September, it cited the OBR’s view that

“boosting capital spending is a far more effective way of boosting GDP than cutting VAT, tweaking welfare entitlements or increasing current spending. In fact, the OBR’s multiplier on capital spending is one-for-one…This means that the Government could increase capital spending and still deliver the planned reduction in net debt as a share of GDP.”

So again, there is no lack of credibility in changing policy and there is no impact in the planned reduction of net debt as a share of GDP in changing the policy.

The BVCA goes on to say:

“There are other good reasons for targeting infrastructure. The dramatic cuts to the investment budget that were pushed through last year will weigh substantially on private sector productivity in the years ahead. Capital spending is due to be cut by about a third in cash terms between FY09/10 and FY15/16, implying an even larger real decline.”

So if the UK Government really are serious about private sector growth in the medium and long term, they should be very concerned that a body such as the BVCA is prepared to say that cuts now will weigh substantially on private sector productivity in the years ahead. Of course, its key point is not even that. It states that

“in order to have an immediate impact on activity, the Government would need to start spending money straight away. That could mean dusting off some previously shelved plans, as there is no point in waiting 12 months”—

I think it is right—

“for any boost to be felt.”

That is good advice and I hope the Chancellor is listening.

The Chancellor does not need to focus only on capital investment. He needs to ensure proper access to business finance and that the £75 billion of quantitative and credit easing hits the real economy. Evidence from Japan suggests that bank lending fell during the whole quantitative easing exercise, and evidence here shows that between February 2009 and January 2010, when £200 billion of QE was issued, bank lending fell month on month and has remained below the starting point in every month since. That is extremely damaging. This time, the Chancellor must ensure that that money does not go through a pipe to the banks to pack balance sheets but touches the edges and hits the real economy.