The Economy

Debate between Stephen Timms and Jessica Morden

Tuesday 6th December 2011 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

The number of young people out of work has topped 1 million for the first time. If nothing else, that must be a wake-up call for urgent action on the economy. Last June, the Prime Minister told the House that cutting the deficit faster would revive private sector confidence. That was the rationale for the strategy that was set out to us. There would be pain but it would be worth it. Private sector investment and jobs would surge. The increase in confidence would mean that growth in the number of private sector jobs would more than match public sector job cuts. We were told that employment would rise every year. In fact, in the past year, employment has fallen by more than 100,000. One thing we can say for sure, with no fear of contradiction, is that that key assumption about confidence underpinning the Government’s entire strategy was mistaken.

The Institute of Chartered Accountants’ latest business confidence monitor is headlined “UK business confidence has collapsed”. That is its assessment of confidence. The latest of its regular surveys states:

“Confidence has declined across all sectors and all regions.”

There will be different views across the Chamber about the reasons that the Prime Minister’s hope has proved ill-founded. The Chancellor took the view and his party seems to take the view that all the problems before the election were the fault of the UK Government and that all the problems since the election have been the fault of someone else. Whatever view we take of the reasons that the Prime Minister’s expectation was ill-founded, the fact that it was ill-founded is, after the autumn statement, not in dispute.

The Prime Minister told us that unemployment would not be too much of a problem because private sector job creation would exceed public sector job cuts. In fact, public sector job cuts are exceeding new private sector jobs on a ratio of about 2:1. The Office for Budget Responsibility has told us that more than 700,000 public sector jobs will be lost. The cuts are going too far and too fast. Young people and women are bearing the brunt. Moreover, the plan is not delivering, as far as we can see, the central goal of swiftly eliminating the deficit. That is now clear. Borrowing will be higher than it was under the previous Government’s plans.

When a plan goes so badly wrong and when the expectations underpinning it are shown to have been so mistaken, surely it is time to revisit the plan. Surely, when things have turned out so different from what the Government told us would happen, the case for a fundamental rethink is extremely strong.

[Jessica Morden (Newport East) (Lab)]

Last week, Tata steel in my constituency mothballed a hot strip mill because of low demand for steel, which means that in the past month 185 job losses have been announced at Llanwern. Is that not further evidence that the Government’s economic plan is not working. We have heard nothing today that will do anything to save those much-needed steel jobs?

[Stephen Timms]

Unfortunately, nothing at all. This lack of confidence is one of the problems in the economy.

Another problem is that the Chancellor cannot change course because he has boxed himself in and cannot budge for fear of admitting that his judgment was wrong. That problem was well expressed by Martin Wolf, the chief economics commentator for the Financial Times—the Chancellor quoted the Financial Times in his support—who warned after the autumn statement last week of the danger of a lost decade. He wrote that the Chancellor

“is wrong to ignore his errors. He is trapped by his own rigid fiscal framework. He might indeed shatter confidence if he were more flexible. But that is partly his own fault.”

It seems that we will all be trapped because the Chancellor cannot acknowledge that he got the fundamental judgment wrong at the start.

We need to build growth in the economy and to create jobs for young people. That is the rationale for the five-point plan for jobs and growth advanced by the Labour party. We should repeat the tax on bankers’ bonuses to bring in another £2 billion and we should use that to fund 100,000 jobs for young people, getting them off the dole and building on the future jobs fund introduced before the election. I welcome the announcement of the young people’s contract—a watered-down version of the future jobs fund—and I look forward to seeing the details but it simply underlines what a misjudgment it was to shut down the future jobs fund in the first place.

We should introduce another temporary cut in VAT to rebuild momentum in the economy—that is what the temporary cut did last time—and we should introduce further investment in infrastructure, including in schools and other areas. We should also cut the increase in university fees. At a time when youth unemployment is at such a catastrophic level, the last thing that we should be doing is forcing young people out of education—we should be encouraging them to stay in. Yet, I am hearing reports from colleges that significant numbers of young people have concluded that, with fees at the level announced by the coalition, they have no chance of ever making it to university and that therefore they should not even bother staying on to study, including for A-levels.

We should also listen to the Federation of Small Businesses and give small firms hiring new staff a break from national insurance to encourage them to do so. The Government should heed that call. We need a strategy for growth but as yet we have no sign of one. I am pleased that the Government have retained the previous Government’s proposals for a patent box to improve the research-and-development environment. That was the right decision and it allowed the Prime Minister yesterday to make his welcome announcement about support for life sciences.

In closing, I want to draw attention to one seemingly minor measure announced by the previous Government. Its significance is much greater than the initial view suggested. I am referring to the tax break from computer games announced in the last Budget by my right hon. Friend the Member for Edinburgh South West (Mr Darling). We have some of the most creative computer design businesses and talent in the world and we should make better use of it.