Policy for Growth

William Bain Excerpts

Thursday 11th November 2010 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

Thank you for giving me the opportunity to contribute to this timely debate, Mr Deputy Speaker. It is a pleasure to follow the hon. Member for Hove (Mike Weatherley).

Recent studies raise real concerns about the likely path of economic growth in the coming years, given the Government’s over-hasty proposals for fiscal consolidation and the lack of sufficient measures on innovation and research and development to amount to a genuine strategy for growth. This morning, the Fraser of Allander institute, the respected Scottish economic forecaster, published its latest economic outlook. Although it points to an upswing in growth in the second quarter of this year, largely caused by improved performance in construction, growth in the Scottish economy is expected to be an anaemic 1.1% next year and only 1.9% in 2012. The report also warns that wider public sector cuts could have a disproportionately greater impact on the Scottish economy when compared with the UK economy as a whole. The institute predicts that the expected reduction of around 11% in the Scottish Government’s budget by 2014-15 could result in the loss of between 49,000 and 113,000 jobs over the next five years. That could mean as many as 60 jobs being lost in Scotland every day for the next five years. It is likely that unemployment in Scotland will continue to increase relative to the UK in the next year, with construction and business services being the hardest hit.

Across the UK, although the National Institute of Economic and Social Research predicts that a renewed recession may be avoided, with a weaker recovery and dampened growth, the public finances are likely to recover far more slowly than the Office for Budget Responsibility and the Government have predicted. The next decade for our economy may turn out to be more like the 1990s were for Japan than they were for Canada. The grave danger is that, far from promoting private investment, the Government’s plans for fiscal consolidation run the risk of crowding out growth. There has not been the surge in exports that the Chancellor predicted, in spite of an exchange rate that is favourable to exporting businesses. The Bank of England’s inflation report this week says that UK exports continue to lose global market share relative to our competitors. With other EU countries also cutting their deficits, the possibility of a strong export-led recovery is far removed from that which Canada experienced from a fast-growing US market in the 1990s.

PricewaterhouseCoopers has produced a sectoral analysis of the likely impact throughout the UK on jobs and businesses of the Government’s fiscal policy, which suggests a 4% loss in output and more than 180,000 job cuts due to reduced public sector demand, and larger relative cuts in the construction sector, with an output loss of around 5% leading to around 100,000 job losses. Scotland, Wales, Northern Ireland and the north-east of England will suffer the biggest relative job losses. For the UK as a whole, total job losses could amount to 3.4% of total employment, or 943,000 jobs in absolute terms by 2014-15.

PricewaterhouseCoopers also questions whether the regional growth fund, and equivalent measures in Scotland, Wales and Northern Ireland, will provide a large enough incentive or access to funds to make a material difference, and whether local authorities or the newly created local enterprise partnerships will have the resources, financial powers and capacity to mitigate the impact of cuts and promote local growth.

The Government are simply not doing enough to invest in the new industries of the future and capital projects. There is a reduction in the number of grants for electric-powered and hybrid-powered vehicles, a lack of detail on the proposals for the green investment bank, and a reduction in capital and investment allowances to help small businesses. Keynes once said that when circumstances change, he changes his mind. We are seeing a change in circumstances for the worse in manufacturing, construction and business services. It is time for the Government to change their mind on their damaging economic policy.