Section 5 of the European Communities (Amendment) Act 1993

Stewart Hosie Excerpts

Tuesday 24th April 2012 Commons Chamber

[Mr Hoban]

I remind the hon. Gentleman that as a consequence of the actions taken in the Budget one of the rating agencies, Standard & Poor’s, reaffirmed the UK’s triple A rating—[Interruption.] If the hon. Member for Nottingham East paid attention and read the newspapers—he accused me of not doing so—he would have seen that post-Budget one of the big rating agencies reaffirmed our credit rating with a stable outlook. Actions have been taken to stabilise the UK economy, and that is important.

This is not a debate about the future of the eurozone and whether individual members should be in or out, because that is a matter for the national Governments of those member states, not for us. What we cannot ignore is that the stability of the European economy is a vital factor in determining the level of economic growth in the UK. As I said, 40% of our trade is with Europe. We still export significant amounts to places such as Ireland and, historically, we have exported more to Ireland than we have to Brazil, Russia, India or China combined. It is important to recognise that jobs in all our constituencies are dependent on trade with the European Union and the strength of European economies.

[Stewart Hosie (Dundee East) (SNP)]

I agree entirely with what the Minister has said about the need for stability, not least for UK recovery. I also welcome what he said about the fiscal compact and the other measures being taken. Does he agree that if there is a legitimate debate in any country about growth versus austerity, it is not—as some more excitable colleagues suggest—any indication of political instability in the eurozone, but merely a debate about the direction of travel that a country’s economy might take?

[Mr Hoban]

The hon. Gentleman makes an important point. In any economy where there is economic change, there will be a political debate, and that political debate is helpful.

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[Chris Leslie]

I obviously disagree with the hon. Gentleman’s assessment, but he made an important point earlier about the plight of those who are suffering as a result of the austerity approach being applied in southern European countries in particular. I worry greatly about that; it is a matter of concern. It is also a concern, however, for our constituents here in the UK. We take a different approach on principle about the right ways to repair our economy. We believe that a stronger emphasis on growth is necessary to generate revenues; it is not just about public expenditure cuts, which do not provide the way out of the situation. I also disagree that the motion is a general debate about the state of the European economies. We are debating whether the Red Book provides a right, accurate, fair and good assessment of the state of the British economy such that we can submit it, as we are required to do by the treaties, to the European Commission. I am simply following the strictures placed on us by the Maastricht treaty.

[Stewart Hosie]

That is the key point. The hon. Gentleman quoted from the 1993 Act—a Tory Act, of course—about the need to submit information to the European Commission, including information on industrial investment. We have seen forecasts of 6.7% business investment growth ending up being a negative 0.8% out-turn. He is thus absolutely right that the Red Book is not credible in terms of the objective set out in the 1993 Act.

[Chris Leslie]

It is that lack of credibility that makes me want to oppose the motion. The hon. Gentleman picked up on the point about business investment. I encourage hon. Members to turn to page 16 of the Red Book, which says:

“business investment will pick up and make an increasingly strong contribution to growth in each year of the forecast as confidence builds and credit conditions ease”.

Just yesterday, the trends in lending data came out from the Bank of England. Year on year, net lending to all businesses—small and medium-sized enterprises in particular—has fallen in every single month since the Government took office. That is despite Project Merlin and all the attempts at credit easing, which have still not come into effect and will do nothing to help credit availability. Last year, they said in their document that

“Credit conditions have shown signs of stabilisation.”

That has not come to pass, so I have no confidence that their current propositions will come to pass either.

On borrowing, page 12 of the Red Book claims that we are heading for

“£11 billion lower over the forecast period than was projected at Autumn Statement 2011”,

which is sophistry because we know that in the spending review figures from October 2010, the Government projected a set of borrowing statistics that have had to be ripped up, because we are on a trend that takes us into £150 billion of further borrowing over the lifetime of this Parliament. The new borrowing figures out this morning confirm that particular trend. That is where things are going.

The Chancellor keeps restating that the UK is “a safe haven”, although he slipped a little bit today in saying that it was “a safer haven”. There he was in Washington this weekend, saying that the UK has “solved our problems”. That is our Chancellor’s assessment of our economy. Such dangerous complacency beggars belief, and I think that it is a sign of arrogance.

[Stewart Hosie]

The hon. Gentleman picks up on our Chancellor’s reference to “a safer haven”. Does he think that could be because the debt figures on the treaty calculation are no longer expected to peak at 87% of gross domestic product as was forecast a year ago, but at 93% of GDP—a catastrophically high figure?

[Chris Leslie]

Of course, that is because of the Government’s record of high unemployment, with statistics showing not much improvement, an increase in welfare costs and so forth. All those things are a drag on public expenditure; they are making things no better. That is the result of the Government’s misguided strategy. On the wider issue of employment and unemployment, I challenge hon. Members to find much in the Red Book that provides an assessment of what is going to happen to them. We know that we have the highest unemployment in 17 years, with 2.67 million people on the dole. We know the story that long-term unemployment doubled in the last year and that youth unemployment is at a record high. My hon. Friends do not need me to repeat these figures.

On inflation, the Red Book says that

“inflationary pressures, which the OBR considers to have been the main drag on UK growth over the past 18 months, have started to abate, easing the pressures on household incomes and improving the outlook for consumers.”

Well, consumer prices index inflation rose, I think, in the last month. We are at around 3.25%. We should not forget that the Chancellor’s target for the Governor of the Bank of England is 2% inflation. Indeed, Paul Tucker, the deputy governor of the Bank of England, warned this week that inflation is likely to stay above 3% for much of 2012. Again, even on inflation, the Government’s assessment of the economy is just not correct. There is no mention of consumer confidence in the analysis. Although there is a section on “Investment and confidence” on page 14, it does not mention consumer confidence at all. The consumer confidence indices have been down and are worsening at minus 31%.

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[Mr Redwood]

As I shall make clear shortly, our policies are rather different. For one thing, the coalition Government decided to increase current public spending, which is running at £64 billion a year more this year than in the last year of Labour government. The Red Book shows that real current public spending has risen in each of the two years of the coalition Government, although not by very much. The Government are clearly not trying to deflate the economy by introducing massive current spending cuts, given that overall current spending has been rising.

[Stewart Hosie]

The right hon. Gentleman, who knows the Red Book inside out, will recall that it makes it clear that the Government’s projected discretionary consolidation by 2016-17 amounts to £155 billion a year, of which 81% will be delivered by cuts in services and the remainder by tax increases. The hon. Member for Preston (Mark Hendrick) was right: the Government are embarking on precisely the policies for which the right hon. Gentleman is criticising others.

[Mr Redwood]

I am afraid that the hon. Gentleman has not read the Red Book intelligently. The 80:20 statistic on which Members seem to rely relates to changes compared with much bigger growth in public spending that was in inherited programmes. It is not the reality. The reality of the Government’s strategy is a massive increase in taxes over the planned five years of the present Parliament to pay for rather modest increases in current public spending over the life of the Parliament, and to get the deficit down. The 2010 strategy suggested that tax revenues would be £171 billion a year more in year 5 than they had been in the last Labour year. The Government have now had to reduce that figure a bit because—as other Members have pointed out—the expected growth has not been forthcoming, for a variety of reasons.

We need to promote growth vigorously and actively, which is common ground between the Government, coalition Back Benchers and many Opposition Members. The argument, surely, concerns what measures are most likely to bring that about. It appears that over the last four years both Governments have operated policies involving actively increasing public spending, with the exception of capital spend—certainly overall spending has risen—and actively promoting massive borrowing, while at the same time the economy has bombed very badly. I am not suggesting that that is causal, but it should lead Opposition Members to ask why that fiscal injection—massive borrowing and an increase in current public spending—has not done the job. There seems to be some disconnection between the remedy that they recommend and the reality of what is happening.

When we look at the way in which other countries have pulled out of crises of this kind, and, indeed, the way in which Britain has pulled out of similar but, perhaps, less aggressively damaging crises than the one that we inherited, we see that there is nearly always a period during which public spending must be reduced or controlled quite strongly to make room for a private sector recovery, and that a series of measures to promote that recovery will then be necessary. As I have explained at length in the past, banking reform and competitive banking are crucial. The Government’s theory favours a tight fiscal policy and a loose monetary policy. They want to allow more money to circulate through the private sector through credit and through the banking system, and they want to lower the deficit gradually in the public sector so that the fiscal policy becomes a bit tighter.