The Economy

Nadhim Zahawi Excerpts

Tuesday 6th December 2011 Commons Chamber

[Mr Osborne]

On the same measure that the hon. Lady uses, child poverty rose by 200,000 in the last Parliament. [Interruption.] She says, “We took those children out.” Child poverty in the last Parliament rose by 200,000 on the exact same measure that she is using. What we are doing is investing in nursery education provision for the poorest children, which never existed before, in a pupil premium, in free schools and in new school places—that is exactly what we are doing to tackle the causes of poverty as well as the symptoms.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

On the question of whom the nation blames, why does the Chancellor think that a recent ICM poll showed that people thought that the debt inherited from the Labour Government was the biggest single cause of the current slow-down?

[Mr Osborne]

The reason they think that is because it is true. This, again, is the absolutely hopeless position that Labour under the shadow Chancellor have put themselves in, but frankly, that is for them to work out. If I may declare an interest, we very much want him to stay in his post for the next three and a half years: he is the best recruiting sergeant we have.

The Governor of the Bank of England—appointed by the right hon. Gentleman, no doubt, when he was the chief economic adviser—said this last week:

“This is exactly the right macro-economic response to the position in which we find ourselves”.

And who is left opposing this credible action, this macro-economic response? The Labour party, which is now advancing this new theory that Britain’s low interest rates in this debt crisis are a sign of policy failure, not policy success. That was the argument we heard last week. The shadow Chancellor talked in his response to my statement of

“the illiterate fantasy that low long-term interest rates in Britain are a sign of enhanced credibility”—[Official Report, 29 November 2011; Vol. 536, c. 812.]

I pointed out that, on that basis, Italy’s rates of 7% were a policy triumph and Greece’s 30% rates were an economic miracle.

In the intervening week, I looked for evidence to support the argument that the shadow Chancellor has been advancing. I have not found it, but I did come across the very interesting “Ken Dixon lecture” to the department of economics at the university of York. It was given in 2004 by the chief economic adviser to the Treasury—Mr Edward Balls. He told a no doubt gripped audience of students about the importance of lower debt, of running surpluses in good times, of keeping deficits under control. He then cited the market interest rates that Britain was paying on its debt, versus neighbouring countries’, as the fruits of economic success. He boasted that the UK was borrowing money more cheaply than Germany and he hailed low interest rates as

“the simplest measure of monetary and fiscal policy credibility”.

Does he still believe that?

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[Ed Balls (Morley and Outwood) (Lab/Co-op)]

A year ago this week, the Chancellor of the Exchequer told the American news channel CNBC:

“We’ve already begun the reductions in public expenditure, and it has not had the impact on demand, not had the impact on economic growth that the critics said it would. So there are plenty of people who said what we were doing was wrong, but at the moment they’re being confounded by the figures.”

Twelve months later, on growth, on jobs and on borrowing, it is the Chancellor who is completely confounded by the figures. Let me remind him of what he boasted a year ago on 29 November in a Conservative party press release:

“Now the independent OBR have confirmed that the British recovery is on track, our public finances are on the mend, our debt is under control, employment is growing and our economy is rebalancing.”

Twelve months to the day, what did the independent Office for Budget Responsibility report? A recovery on track? No. Growth is flatlining—downgraded this year, next year, the year after, the year after and the year after that. Is employment growing? No. Employment is falling, and unemployment is now expected to be 500,000 higher than the previous forecast. Are public finances on the mend? No. Borrowing is disastrously off track: £158 billion more than the Chancellor told the House exactly a year ago.

The boasts of the Prime Minister and the Chancellor that they would eliminate the current structural budget deficit within five years are in complete tatters—in complete disarray. In his March Budget, the Chancellor claimed:

“We have put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 965.]

It must have been the wrong kind of fuel.

It is not as though the Chancellor was not warned. In his Bloomberg speech in August 2010, he claimed:

“There are some political opponents who claim that in setting out our decisive plans to deal with the deficit we have taken a gamble with Britain’s economy. In fact, the reverse is true.”

The Chancellor has taken an enormous gamble with the economy, with jobs and with people’s lives. The reality is that his gamble has completely backfired. Let me quote from an editorial in The New York Times at the weekend:

“A year and a half ago, Prime Minister David Cameron of Britain came to office promising to slash deficits and energise economic growth through radical fiscal austerity. It failed dismally.”

Before the election, we said that, like every country, after the global financial crisis we had to get the deficit down and we needed a tough plan. We needed spending cuts and tax rises. The question was not if we did it but how we did it. That is why the Opposition warned the Chancellor that he was reckless, that he was ripping out the foundations of the house, leaving our economy not safe but deeply exposed, and that is exactly what has happened over the last year.

Even judging by the one objective the Chancellor set himself for getting the deficit down, he is failing. In that CNBC interview a year ago, the Chancellor said:

“We have taken a series of steps, increased some taxes, consumption taxes, had some cuts in public expenditure, which have put us on a path to eliminate the deficit in a period of four years.”

Not only is the Chancellor now emphatically not going to eliminate the deficit in four years, but according to the OBR, he is set to borrow £37 billion more than under the plan he inherited from Labour at the last general election—a plan he called “deeply irresponsible.”

The Business Secretary told The Guardian in May that it was realistic for the coalition to eradicate the structural deficit by the end of this Parliament:

“Our credibility hinges on it.”

He was right, which is why the Government’s credibility is now badly undermined. The Chancellor should have listened to the warning from the Business Secretary before the election. This is what the Business Secretary said when he was a Liberal Democrat MP outside the coalition—the old kind of Liberal Democrat:

“We must not cut Government spending too soon and risk plunging a fragile recovery back into recession. Cuts without economic growth will not deal with the deficit.”

The Business Secretary was right before the election. It was only after the election, when he took his Cabinet seat, that he changed his mind.

Unemployment is up. Borrowing is up. Going further and faster has proved to be utterly counter-productive and self-defeating. All this pain for no gain. Eighteen months in, plan A has failed, and it has failed decisively.

[Nadhim Zahawi]

In The Times today the shadow Chancellor wrote:

“Credibility is based on trust and trust is based on honesty, so we must be clear with the British people that under Labour there will have to be cuts.”

In the spirit of honesty, will he tell the House what he would cut?

[Ed Balls]

Of course I will. When I was the Education Secretary we said that there would be over £1 billion of cuts in the schools budget at that time. We said, for example, that we would cut the police budget by 12%, but not by 20% with the loss of 16,000 police officers throughout the country. We would have raised national insurance. We raised the top rate of tax, but we would not have raised VAT to 20%, precisely because it would have choked off the recovery, as it has done this year.

I can tell the hon. Gentleman and his colleagues, the friends of the Chancellor, that I was reading a profile of the Chancellor a week ago, a few days before the autumn statement, in which one ally said:

“‘The autumn statement will correct the idea that we are off course’”.

Whatever were they on? One only needs to read the rest of the article to understand what is really going on. It goes on to say that the Chancellor

“has started taking discreet steps towards the Tory leadership. . . Members of the 2010 intake of MPs . . . are invited to discreet drinks at No. 11. The favourites”—

I do not know whether the hon. Member for Stratford-on-Avon (Nadhim Zahawi) is one of the favourites; perhaps he could tell us in another intervention—

“The favourites are invited to bibulous soirees at Dorneywood.”

If you ask me, it sounds as if they have been drinking rather too much.

Let me give the House another quote from one of those allies, because it was so revealing:

“Nobody in the Osborne circle is vulgar enough to talk openly enough about his leadership ambitions. . . ‘George has no agenda. I have never heard any talk of a timetable,’”

said an ally,

‘“But the unspoken assumption is that the party would be a lot safer in George’s hands than with bonking Boris.’”

--- Later in debate ---

[Ed Balls]

Government Members may laugh at an 80% rise in youth unemployment, but that is not a laughing matter for the young people concerned, or for our economy. [Interruption.] I am going to make this point because it is very important. It goes to the heart of the argument.

[Nadhim Zahawi]

Will the hon. Gentleman give way?

[Ed Balls]

In a second. Any Government would be borrowing at the moment. The question is whether it is better to borrow billions more to keep people out of work on benefits, or to act to get people back into work and paying tax, which would get the deficit down. If we let a year of stagnating growth and rising youth unemployment become a lost decade of stagnant growth and high youth unemployment, we will pay a long-term price. It makes much more sense to act now, as the International Monetary Fund has recommended, with temporary tax cuts and investment in jobs and growth. That is the best way to reduce the bills of failure for the long term. It is the only way to get our deficit down sustainably in the long term.

--- Later in debate ---

[Ed Balls]

Not for the first time, the Chancellor’s whipping operation is clearly in place. As I said last time, he knows all about a good whipping. I give way to the hon. Member for Stratford-on-Avon.

[Nadhim Zahawi]

The shadow Chancellor is obviously passionate about the subject of youth unemployment, so will he admit to the House that in the last Parliament, youth unemployment in his own constituency went up by 151%?

[Ed Balls]

Before the crisis, youth unemployment was lower than what we inherited in 1997. It then went up during the recession, but was falling a year and a half ago. It is now rising again. Unemployment was falling in our economy, but now there has been an 80% rise in long-term youth unemployment.