Budget Resolutions and Economic Situation

Adrian Bailey Excerpts

Wednesday 8th July 2015 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

May I start with an unusual and perhaps uncharacteristic thank you to the Chancellor, on one issue only? I thank him for his commitment to a memorial to the victims of the Tunisia bombing. Three of the victims—Adrian and Patrick Evans and Joel Richards—are constituents of mine, not, as the Prime Minister said earlier, of my hon. Friend the Member for Walsall South (Valerie Vaz).

I congratulate the two maiden speakers, the hon. Member for Louth and Horncastle (Victoria Atkins) and the hon. Member for Coatbridge, Chryston and Bellshill (Philip Boswell); I hope my pronunciation is correct. The quality of their speeches demonstrated that they will be very valuable additions to the House, and I look forward to listening to them on many occasions.

On the substance of the Budget statement, I could not help but remember the last one we had in March, less than four months ago. The Chancellor told us in his introduction that

“Britain is walking tall again”,

and he concluded that it was

“the Budget for Britain, the come-back country.”—[Official Report, 18 March 2015; Vol. 594, c. 765, 779.]

I did not realise at the time that the March Budget was designed just to win the election, and that he would be coming back to deal with the unpopular decisions that it had so obviously evaded. I know that many Members will want to analyse and discuss the impact of this Budget in this and subsequent debates, but I want to concentrate on the central economic issues that it has failed to address.

After five years under his supervision, the economy that the Chancellor has produced is one in which productivity has been reduced, our trade deficit with the rest of the world has grown, our investment has been far lower than what is necessary to sustain the level of growth needed to eliminate the public sector deficit, our living standards have dropped and tax receipts have fallen as a result. That is why we are in a pickle today, and why this Budget is in this form. Our regret is that, in dealing with that, we have more of the same: an attack on the living standards of some of the most vulnerable in our country.

The greatest failure has been in productivity. Amazingly, that issue was not even mentioned in the March Budget. The level of output per worker is the key to expanding our economy, delivering growth rates, and providing increasing standards of living and the tax receipts necessary to eliminate the public sector deficit.

[James Cleverly (Braintree) (Con)]

Does the hon. Gentleman concede that the education and training of the workers whom he describes as underperforming in relation to productivity happened almost exclusively when the party that he supports was in government?

[Mr Bailey]

No, I do not. I will address that issue in a moment.

Before the recession, productivity averaged 2% per annum. It fell in the immediate aftermath of the recession, as it does after all recessions. Most significantly, as the economy has seemed to grow out of recession, productivity has not improved. That is virtually unique in our economic history. If productivity had continued to grow at the average level of the 10 years before the recession, we would not have had to introduce this Budget today, with all the restrictions and cuts that underpin it.

What the Chancellor has done—again, this is almost unique in our economic history—is to initiate an economic recovery that has failed to drive up living standards, failed to generate tax revenues and failed to pay off the public sector deficit. In its March assessment, the Office for Budget Responsibility forecast that productivity would return to normal and estimated that, if it did so, the public sector deficit would be eliminated by 2018-19. Unfortunately, its forecast on productivity has, even as of this moment, been proved incorrect and has been downgraded by the Bank of England. If productivity stayed at its current weak rate, the deficit would increase as a proportion of GDP by 2019-20.

To achieve all the objectives the Chancellor says this Budget will achieve, there has to be a significant increase in productivity. It is therefore perfectly valid to measure the policy initiatives in the Budget against the likelihood that they will deliver that increase in productivity. Will they strengthen the sinews of the economy in the way that is necessary to enable the increased number of people in work to increase their output in order to sustain the level of economic growth that would eliminate the deficit? Those sinews are research and development—I welcome the comments of the hon. Member for North West Norfolk (Mr Bellingham) on that—as well as investment, skills and infrastructure. The hon. Gentleman spoke about how we lag behind. If we are to compete against other countries that are investing far more than us, we will have to raise our level of performance. Nothing in the Budget demonstrated that we would do so.

On private sector investment and business investment, I do not see any improvement in the availability of the much-needed funding for small businesses to expand production. The focus on corporation tax, while not unwelcome, overlooks the fact that for many businesses, things such as capital allowances are far more important in encouraging them to invest than a reduced headline figure of corporation tax.

A number of comments have been made about infrastructure. The Chancellor announced a whole series of measures, just as he has done for as long as I can remember. In the end, we must judge him on performance. What we want is a lot fewer launches and far more starts of infrastructure investment. Government investment in infrastructure is 1.5% of GDP. That is less than the 3.5% that is recommended by the OECD, and it is even scheduled to fall to 1.4%. Private and Government investment in infrastructure is still considerably lower than the pre-recession level. The cancellation of the projects on the midland main line and the trans-Pennine line demonstrate that this is a Government who talk the talk, but do not walk the walk.

[Jonathan Ashworth (Leicester South) (Lab)]

The Red Book describes the midlands as the “engine for growth”. When the Chancellor visited the midlands before the election, he gave a cast-iron commitment to the electrification of the midland main line. Is it not hugely disappointing that there was no progress on that electrification in today’s statement?

--- Later in debate ---

[Mr Bailey]

Absolutely, and what the Chancellor said before the election, and what he does afterwards, is always revealing. For all the announcements, there is no indication of what the Chancellor will spend through this Government on investment in public sector infrastructure.

My hon. Friend the Member for Birmingham, Perry Barr (Mr Mahmood) mentioned most of the issues that I wish to raise, so I will make only brief remarks on those topics. The Government have increased the number of apprenticeships, but often they have been poorly focused. After all the investment, companies are still complaining that they cannot get the sorts of apprentices they want. The measures that the Chancellor announced may or may not improve that, but to attack funding for further education colleges, which are the most strategically placed to address the skills problem that the Chancellor says he is trying to solve, is counterproductive and likely to be self-destructive.

In conclusion, productivity is key to eliminating the deficit, raising standards and getting the sort of economy that we need to compete in the world. It is reasonable to judge this Budget on its ability to do something about that, and on that basis and measurement I think it fails miserably.