Amendment of the Law

William Bain Excerpts

Monday 28th March 2011 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

I am pleased to be called to speak in the debate on the Budget resolutions. In January, the Chancellor was fiercely critical of what he called the forces of stagnation holding back economic recovery. With last week’s Budget, which fails the test of growth, strips demand from our economy, and hardwires unfairness and higher living costs into our society, he has joined those forces. Rather than being a Budget for growth, it is a Budget that now depends on growth.

If the OBR’s growth forecast proves overly optimistic, and the resulting lower tax receipts further impede the Government’s ability to encourage growth, what will drive the economy? Before the Budget statement, the OBR was expecting total receipts to exceed non-investment spending by 0.3% of national income by 2015-16. It now expects instead a deficit of 0.2% of national income by then. On Thursday afternoon, the Institute for Fiscal Studies at its post-Budget seminar gave its verdict on the Chancellor’s failure—his spending cuts will now be even more dramatic than planned in last June’s emergency Budget because of surging inflation, cutting 1% deeper over the next four years.

The Chancellor says that only his programme of fiscal consolidation and no other can save the economy from collapse. He talks of the need for confidence in the markets. Emulating Lady Thatcher and Lord Lawson, he tells us that there can be no alternative. But on Thursday morning, the ratings agency Moody’s said that a combination of slower growth and lower than forecast tax receipts could endanger the UK’s triple A credit rating.

This Budget sees growth downgraded for last year, for this year, and for next year, with the price of the Chancellor’s failure on growth being £43.4 billion in extra borrowing, higher debt interest payments to the tune of £17.6 billion between 2010 and 2016, and higher benefit costs of £12.6 billion by the end of this Parliament. The Chancellor’s headline measures, such as the 1p cut in fuel duty, were described by the OBR last week as having at best a minimal effect on the stagnant level of growth that his policies are set to deliver.

Given the appalling UK trade deficit recorded in the last quarter, it becomes even clearer what an error the Chancellor committed in slashing investment and capital allowances inherited from the previous Government. Although the Budget contains some small-scale measures such as on the research and development tax credit for small and medium-sized business, and on the enterprise investment scheme, they are no substitute for a comprehensive strategy on supply-side reform.

Many credible voices, both national and international, have warned the Government that taking £81 billion out of public spending, as they propose, is cutting too far and too fast. Higher unemployment, a slump in consumer confidence and lower growth are the likely results. As Paul Krugman, the Nobel prize-winning economist said in The New York Times last week, after the Budget the downgrading of the economic forecast plus the upgrading of the deficit forecast is evidence that

“slashing spending in the face of high unemployment is a mistake”.

Whereas we should have had a Budget for jobs to reverse soaring youth unemployment now approaching 1 million, we instead had a Budget which directly increases unemployment in each of the next two years by 130,000, and will increase the International Labour Organisation measure of unemployment by 0.5%. The IFS, in its green budget last month, found that Labour’s plan to halve the deficit by 2015 would have restored the public finances to sustainable levels. There is an alternative to the Chancellor’s raid on the winter fuel payments of pensioners from next winter, when the bonuses of the bankers who exacerbated the economic crisis have been left so feebly undertaxed.

Most feeble of all was how the self-proclaimed greenest Government ever completely failed to fulfil the green economy’s potential to generate growth. As the UN environment programme’s report “Towards a Green Economy” concluded recently, green investment

“will result in the long run in faster economic growth.”

On the green investment bank, there will be no independent borrowing powers until 2015 at the earliest, and again that is dependent on growth not being further downgraded and the national debt falling. There are no green ISAs or green bonds underpinned by the Government to promote small investor participation in the renewables sector.

The Chancellor said that his Budget would put fuel in the tank of the economy, but instead he has put the engine into reverse. He has fired up the Quattro and is taking Britain back all the way to the 1980s. There is inadequate help for the construction sector and no plan for jobs for young people. Our country deserves better than this reckless, deflationary gamble, which is hurting but not working. This is the no-growth Budget from the out-of-touch Chancellor.