The Economy

Debate between Gordon Birtwistle and Michael Meacher

Tuesday 11th December 2012 Commons Chamber

[Mr Meacher]

Of course I believe that there is a problem with the level of debt and the level of the public sector deficit; everyone accepts that. The issue is how it should be dealt with. I believe that the way this Government are dealing with it is profoundly self-defeating.

The Chancellor has failed in the sense that, according to the OBR, despite an output gap that remains incredibly high at 3.7%, the net effect of all his measures in the autumn statement will be to raise the general growth rate by a footling 0.1%. That is an extraordinary judgment on the Chancellor.

The Chancellor also failed his second test, which was to shift the economy on to a more sustainable long-term footing, moving away from his over-dependence on finance—a move we all agree with—and towards a much stronger industrial and manufacturing base. Eighteen months ago, he announced with great fanfare the march of the makers. That never happened, however. He has now promised a £40 billion guarantee for private infrastructure investment, but the problem is not one of too little credit; it is one of too little demand for credit. The latest figures show construction plummeting ominously, largely because of its great dependence on the public sector, which the Chancellor is shrinking. Moreover, UK manufacturing will this year suffer the biggest deficit in traded goods in its entire history—a deficit of roughly £110 billion, or 7.5% of gross domestic product. That is utterly unsustainable, and if that trend is not reversed, it will inevitably lead to an almighty crash in British living standards before long.

[Gordon Birtwistle]

rose—

[Mr Meacher]

I will not give way again, as I do not have much time left.

Why is the Chancellor not meeting his own tests? It is because he is obsessed with a neo-liberal ideology that forbids any public sector lead role in the economy. In fact, the Chancellor is crucifying Britain today on a cross of dogma. What should a sensible steward of the British economy do now? He should do two things: reinstate the capital spending programmes cancelled in the great drive towards deficit reduction, with special priority given to house building, energy and transport renewal and green technology; and set up a national investment bank with its own portfolio of investment projects, focused on key infrastructure and cutting-edge technology.

How will that be paid for? There are three options. Instead of any further £50 billion tranche of quantitative easing being used to consolidate bank balance sheets, as has happened every time up till now, the Chancellor should divert at least a portion of it towards generating 1 million or more jobs by investing it directly in industrial and manufacturing projects. Or he could levy a capital gains tax charge—I know that this would not be welcome on the Government Benches—on the colossal gains made by a minuscule proportion of the mega-rich, which The Sunday Times, a Murdoch paper, believes to have been in the order of £155 billion in the past three years. Or he could justify—yes, I think he could—a temporary increase in borrowing, of, say, £150 million to raise £30 billion at an interest rate of 0.5% on the reasonable grounds that with such a weak economy but cyclically adjusted net borrowing forecast at only 3% this year, he has given himself enough leeway to delay tightening. Those are the three options, and not to do any of them is a culpable negligence for which he will not be forgiven.

On the Chancellor’s second objective of rebalancing the economy, several measures need to be taken urgently. First, British manufacturing clearly needs a larger flow of qualified skilled workers. The academic underpinning of the STEM subjects—science, technology, engineering and maths—should be steadily increased; a viable and effective post-14 vocational route, with a much stronger work component, should be established in schools; and employers should be made to take responsibility for on-site training. Secondly, the bane of short-termist bank lending to British manufacturing must be tackled by giving incentives to develop a long-term ongoing relationship between banks and their customers, as is done very successfully in the German Mittelstand. Thirdly, the supply chains, which are crucial to any successful manufacturing economy but which have been broken up by privatisation and foreign sell-offs over the past 30 years, urgently need to be restored to achieve a secure base for SMEs. Fourthly, the sacrifice of key industrial sectors and companies to uninhibited acquisition in the international markets—Pilkington, P&O, Corus, BT, O2, Smith Electronics, Cadbury and BA; it is a very long list and a laissez-faire policy that no other major country in the west would ever allow—should be reversed if Britain’s economy and its survival are to be secured.

All those things need to be done, because the alternative under present policy is semi-permanent continuation of a condition of semi-slump.