The Economy

William Bain Excerpts

Tuesday 11th December 2012 Commons Chamber

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

Regrettably, the economy is on course for a lost decade under this most paradoxical of Chancellors: reckless on one hand, but complacent on the other; a historian, but with precious little grasp of learning its most obvious lessons; and a tactician, but now pursuing the basest strategy of all in politics—attempting to divide and rule by separating those on middle incomes from low-wage Britain, and the poorly paid from the unemployed. His Conservative predecessors, people such as Winston Churchill, Harold Macmillan and Iain Macleod, would surely recoil in horror if they could they see what this Chancellor is doing to the reputation of the party that once proudly stood for the principle of one nation, but does no longer.

There is no social group that this Chancellor will not exploit for perceived political gain, but he stands exposed in this debate: he has no idea of how to regenerate the missing growth in the UK economy; he has no clue on how to undo the damage he is doing to ordinary families’ living standards and slumping real wages; and he has no concept that his policies on welfare represent no more than a throwback to the worst excesses of harsh Victorian Toryism.

[Mr Jim Cunningham (Coventry South) (Lab)]

Does my hon. Friend not recall that when Government Members were in opposition, in the good years, as we might call them, they took the credit, but they will not take the credit for getting us into this mess in the bad years?

[Mr Bain]

I thank my hon. Friend for that. What I do remember is that when the right hon. Gentleman was shadow Chancellor he backed every single penny of the public spending plans of the Labour Government until the financial crisis hit. Indeed, he had the sauce to call them “eye-wateringly tight” on occasion in this House.

What we see is a Chancellor with a plan aimed at winning marginal seats at the next general election at any cost, but bringing in the cruellest sequence of benefit cuts since those of the national Government in 1931 and aiming his harshest measures at the most vulnerable in our society.

Our economy is suffering from the slowest journey out of recession since the 1870s. As a result of the extreme austerity measures that the Chancellor has introduced, it will now take nearly seven years to repair the lost output from this recession, compared with just four years during the great depression in the 1930s. We were told two and a half years ago that a policy of expansionary fiscal contraction would restore confidence, but instead nearly 4% of output has gone, the Chancellor’s supplementary target on debt falling as a share of GDP by the end of this Parliament has gone, and many economists, including at Citigroup, expect the loss of Britain’s triple A credit rating within the next 18 months, the retention of which the Chancellor made his principal criterion of credibility.

No wonder that on The New Yorker website last week, the Chancellor’s policies were dismissed as an example of what the US should avoid—a commitment to the deflationary economics of the 1930s, with the Reaganite trickle-down economics of the 1980s and the even harsher Benthamite economics of the 1830s. Instead of uniting this country in a crusade against long-term and youth unemployment and what Beveridge called the social evil of idleness, this Chancellor wants to divide society by demonising the unemployed in a way that no Government have done since the time of the Poor Law in 1834.

Despite the Bank of England running the loosest monetary policy in several generations and owning three tenths of our national debt through the use of its asset purchase facility, the OBR predicts that joblessness will rise by as much as 340,000 over its forecast period. So we can see that the US economy, having adopted a different policy from the austerity of this Government, yet described by the Nobel laureate Paul Krugman in The New York Times yesterday as

“still, by most measures, deeply depressed”,

has grown nearly three times as fast as the UK, and according to the Congressional Budget Office, will have a deficit next year of 4%, compared with a deficit of 6.1% in this country, and UK debt will be nearly 18% higher in 2015-16 as a share of GDP than that forecast by the OBR in 2010 on the EUROSTAT measure.

Make no mistake, this Chancellor’s policies on taxation, benefits and spending are cutting the incomes of the poorest tenth of households by 2.7%, at a time when the OECD forecasts that we will see barely half the rise in economic demand that will be seen in America next year, and barely a third of that the year after, despite the looming fiscal cliff. Despite the stream of measures unveiled in the autumn statement, the OBR’s verdict on their usefulness was as unerring as it was deadly for the Chancellor’s reputation—just a 0.1% rise in GDP over the next two years, at the same time as the OBR downgraded growth by 1.7% over the same period.

Increasingly, we see that this Chancellor’s legacy will be to turn the long-term prospects of the UK economy into those of a low-wage, low-skill, low-investment and low-productivity economy. On wages, this Government cannot answer positively the question posed by millions of ordinary people across the country: am I better off now than I was four years ago? The Government cannot answer positively the question: am I better off now than I was eight years ago? The reality is that with the median wage across the UK having fallen by a shocking 7.9% in real terms in this Chancellor’s first two years in office, and by 7.4% in Scotland, people are worse off now than they were 10 years ago. The Resolution Foundation, in evaluating the effects of the autumn statement, predicted that real wages in 2017 will be no higher than they were in 1999. This Government have made the wrong choices on who to help at a time of poor consumer confidence and weak demand. When they could have helped households with the cost of child care, which is rising in Scotland by 6% a year, boosted female employment and cut inequality, they decided to hurt the poorest 40% of the public harder, as a share of their income, than they will hurt the richest 10%. Lone parents who are in work and on tax credits, of whom there are 115,000 in Scotland, will be worse off by an average of £300 a year by 2015, according to the Resolution Foundation. Three quarters of the cuts in tax credits will hurt precisely the strivers the Chancellor purports to back.

The Chancellor’s legacy on investment is equally dire. Business investment is now lower than the Office for Budget Responsibility forecast a year ago, with manufacturing investment having dropped by 6.7% in the last quarter compared with a year ago. Despite funding for lending, there is precious little evidence that demand for lending in the economy is rising. Net lending by the banks to small and medium-sized businesses fell by a further £2.4 billion in the three months to August this year, according to the Bank of England.

The Government could have changed course in the autumn statement and acted to stem the £20 billion rise in the benefits bill during this Parliament by getting more of the 1,320 long-term jobless in my constituency back to work by cutting VAT and adopting more active labour market policies than their failing Work programme. They could have bolstered construction and housing by building as many as 100,000 homes across the UK by allocating the 4G proceeds to productive use rather than simply trying to cook the books with them. They could have done that, but they did not. They have let the country down, and that is the legacy not only of the Chancellor, but, sadly, of the entire Government.