Economic Growth

Michael Meacher Excerpts

Wednesday 15th May 2013 Commons Chamber

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

The Tory party is obviously going through one of its regular hissy fits over the EU. My experience is that it is best not to intrude in toxic family feuds, so I will confine my remarks to the economy.

Support for the Chancellor’s policy has totally evaporated. His intellectual ballast, provided by Reinhart and Rogoff—namely, that growth rapidly declined once a threshold of debt of 90% had been reached—has been blown out of the water. The International Monetary Fund, the citadel of neo-liberal capitalism, has deserted the Chancellor. The British Chambers of Commerce, the Federation of Small Businesses and even the CBI are now openly criticising from the sidelines. The only austerians who are still full square behind the Chancellor are those in the eurozone. I hope he takes comfort from the fact that that paragon of economic virtue is now his last remaining ally. Contractionary fiscal expansion—his policy—is, to use the words he used today, a totally busted flush. It is an absurd oxymoron, as it always was. Once the rate of growth has slowed below the expansion of debt, the policy is doomed, and that is exactly where we are. Given that, it is so counter-productive now to continue with a policy of semi-permanent stagnation that one has to wonder what the Chancellor’s real motives are—apart, of course, from his own personal survival.

The US has put in place demand-creating measures and is steadily coming out of recession. The UK and the eurozone have not put such measures in place and they are slowly sinking deeper into recession. So why is the Chancellor so obstinately refusing to accept what the evidence is telling him? Why is he refusing to accept what even the IMF is telling him to do? The only plausible explanation is that this is not, in the last analysis, a deficit reduction policy at all; it is ultimately driven by the obsession to shrink the state and squeeze the public sector into the farthest recesses of a fully privatised regime. If that is so, crucifying the UK economy on a cross of ideology is hardly a proper way to proceed.

Of course, the Chancellor likes to defend himself, as he did again today, by saying that any stimulus to the economy will only increase the debt and thus make matters worse, but that is simply not true. First, instead of being kitted out for privatisation, the Royal Bank of Scotland and Lloyds—which taxpayers and the Government own 82% and 39% of respectively—could be instructed to prioritise lending for industry, infrastructure, low-carbon technology and key manufacturing niches in which the UK has a natural advantage.

A second option is the taxation of the hyper-rich, who have so far contributed almost nothing to tackling the recession that they largely caused. The latest rich list published in The Sunday Times a month ago showed that the richest 1,000 people—that is, 0.003% of the adult population—have increased their wealth over the past four years since the crash by a staggering £190 billion. That is considerably more than the total budget deficit, and if it were taxed at the current capital gains tax rate of 28%, it could theoretically raise £53 billion.

[Stephen Williams (Bristol West) (LD)]

I note that the right hon. Gentleman talks about the “current” capital gains tax rate of 28%. Would he like to remind us what the rate was for the last five years of the Government in whom he served?

--- Later in debate ---

[Mr Meacher]

As the hon. Gentleman and everyone else knows, it was 10% less. I strongly opposed that; I think that it was wrong. I do not think that 28% is right either. The rate should be where Nigel Lawson left it—namely, at 40%. But let us stick with 28%. That would easily raise enough money to create between 1 million and 1.5 million jobs in two years, which would kick-start a virtuous spiral of growth.

The third option is another tranche of quantitative easing. The gigantic sum of £375 billion of quantitative easing has already been printed, and it has disappeared into consolidating bank balance sheets. A further, much more modest, tranche of £25 billion, invested directly into the economy, bypassing the banks, could once again kick-start the economy without any increase in borrowing at all.

It is also highly relevant to point out, which the Chancellor never does, that the balance of payments on our traded goods, which has been going up for a long time, reached the staggering level of £106 billion in this last year. That is 7% of gross domestic product. Worse news can be seen when we consider the growth that we like to think occurred in the UK during the best years up to 2007. The National Statistics register shows growth of £300 billion, but that is slightly less than the total for equity withdrawal from housing for the same period. In other words, the inflation of property assets largely accounts for the apparent growth. So, rebalancing the economy, which is now vital, is not going to occur simply with a flourish of the Chancellor’s wand. It will need a hard-won, relentless programme of manufacturing revival, and the restructuring of the banks to ensure that they look after the national interest and not their own.