Budget Resolutions and Economic Situation

William Bain Excerpts

Friday 22nd March 2013 Commons Chamber

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

In a previous era of austerity presided over by a Tory-dominated Government, the slogans on Conservative party posters in its failed 1929 general election campaign included “Safety First” and “Trust Baldwin he will steer you to safety”. Having presided over the worst recovery in over 140 years, with an economy that is increasingly plagued by low investment, falling real wages, low productivity, dismal demand, stalled deficit reduction and surging public debt, the one guarantee is that the Conservative party will not be using either of those slogans in the name of the current Chancellor or Prime Minister come 2015.

[Jacob Rees-Mogg (North East Somerset) (Con)]

Will the hon. Gentleman give way?

[Mr Bain]

I will give way in a moment.

With the OBR having confirmed on Wednesday that people will be worse off in 2015 than they were in 2010, the Conservative party will also be unable to revive the 1959 election slogan: “Life’s Better Under the Conservatives”.

I have spoken in pervious Budget debates about the absurd economic theories that have underpinned the Government’s fiscal policies since 2010. As Mark Blyth writes in his recently published work on austerity:

“Austerity is a zombie economic idea because it has been disproven time and again, but it just keeps on coming.”

The central idea behind the Government’s economic policy is that a short-term sacrifice by the British people would produce long-term benefits in growth and a massive reduction in national debt.

There have been plenty of sacrifices demanded by the Chancellor: the average £10.47 a week in reduced support for child care for ordinary families since 2011; the higher VAT, which is costing ordinary families four times more in this Parliament than they will get back through the rise in the personal allowance to £10,000 from next year; the 1% cap on most benefits and tax credits being introduced in weeks, hurting 5.l million working-age households by as much as £5 a week on average; and, most cruelly of all, the vicious bedroom tax. The cumulative loss to ordinary families’ living standards in Scotland resulting from the tax, benefits and wages policies pursued by the Government has been quantified by Landman Economics for the TUC as £28.63 a week, or £1,488 a year, by 2015. What has it all been for? Where is the growth? When will our debts begin to fall during this Parliament? When will living standards begin to rise again for ordinary people?

Since the spending review in 2010, we have seen the third lowest growth in the G20, the fifth worst industrial production in the European Union and the fourth biggest slump in real wages in the EU. The judgment of the Office for Budget Responsibility on the Budget has been brutal—growth downgraded this year and next, by 0.8% of GDP, even since last December’s autumn statement; this Budget adding nothing to growth all the way through to 2018; borrowing £245 billion more than promised in 2010; and the national debt doubled by 2018 if we continue with the Chancellor’s failing plan.

Four years into a recovery, unemployment is stuck at 2.5 million—and is predicted by the OBR to peak at 2.63 million next year—and there are 3.2 million people underemployed in this country, desperate for more hours at work to pay the bills but unable to get them under a flatlining economy.

The Budget should have attempted to secure two aims: first, to boost economic demand to stimulate higher growth in the short term; and, secondly, to begin the process of rebalancing the economy by ending the culture of short-termism and making the fundamental reforms we need in our banking system.

In Scotland, retail sales are falling in a sector that comprises more than three quarters of economic output. Real wages have slumped by 3.2% since autumn 2010. Median wages are more than £3,000 a year lower in real terms since 2009. This week’s OBR projections mean a further loss of £200 a year in wages—four times more than any benefit from the increase in the personal tax allowance next year. The Chancellor should have eased that burden by cutting VAT to 17.5% in the Budget and putting back some of the £480 a year on average that he removed from average families in the June 2010 Budget. He should have done far more on child care costs.

[Jane Ellison]

This is a simple question. The hon. Gentleman has outlined what he would like to have seen in the Budget. Assuming fiscal neutrality, how would he have paid for it?

[Mr Bain]

The shadow Chancellor has said that we would follow a different path. Continuing with the fiscal policy that the Government are pursuing will lead to a doubling of the national debt and a downgrading in growth this year and next. We need to do something different, as I hope the hon. Lady will accept when she makes her contribution.

As I was saying, HMRC has shown that in the year to last December, the amount of additional support, through the tax and benefit system provided to ordinary Scottish families with their child care costs, amounted to a miserly 1p a day extra. For this year, next year and the year after, the message from the Chancellor in the Budget was, “Not a penny more.”

Under the plans unveiled on Tuesday, households require all earners to be working and paying income tax to benefit either from the child care tax relief or the additional resource through universal credit, which will have to be found from elsewhere in the welfare budget. We see the gross unfairness of a two-earner couple with children, working part time on a combined income of £19,000 a year, receiving nothing under the plans, whereas a household with two earners on a combined income of £299,000 a year receives a tax break of £2,400 a year if they have two children. How on earth can that be fair?

The Chancellor should have brought forward more capital investment in the Budget. He should have announced a major social and affordable house building plan to begin this year. All he announced was a plan to reallocate capital spending from 2015, which will be of no help to the struggling construction sector now. He should have taken the opportunity to scrap the bedroom tax affecting nearly 90,000 households in Scotland.

The Chancellor has spent the past few months searching for escape velocity for the UK economy. Wednesday was the day when he finally crashed to earth. He will not change course because he puts his pride before this nation’s economic fall. He would rather that the living standards of millions were diminished than admit the scale of his mistake or take action to put it right. Only with a new policy to promote growth and boost investment will we generate the tax revenues to cut our debt. After this Budget, that can come only with the election of a new Government to replace this disastrous coalition.

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[Jacob Rees-Mogg]

Opposition Members are talking about their new path. There was a Shining Path in one country at one point, but that was not very successful, although the Opposition are probably looking for the Via Dolorosa. We are definitely making progress.

I want to pick the hon. Member for Glasgow North East (Mr Bain) up on his wonderful reference to the 1930s. I was pleased that he reminded us of our splendid slogans, which I will certainly use in my election campaign. I think that this was a “Safety First” Budget, and quite right too. What the country needs is genuine prudence, rather than the prudence of the late ’90s and early 2000s.

[Mr Bain]

I was referring to the 1920s rather than the 1930s, but I think the point applies. The hon. Gentleman refers to growth, but given that the private and public sectors are retrenching, where will demand in the economy come from for there to be growth?

[Jacob Rees-Mogg]

There is a union of people whose seats have “North East” in their names and who make helpful interventions. I am extremely grateful to the hon. Gentleman because he leads me right to my next point, which is about the absolute essence of where growth will come from. I refer right hon. and hon. Members to page 56 of the “Economic and fiscal outlook” produced by the Office for Budget Responsibility, which contains charts on household leverage indicators. That is crucial because about three-quarters of the economy is dependent on private consumption. What we needed, and what has taken time, is for household budgets and balance sheets to rebalance at the same point as the Government balance sheet and budget.

In these charts we see that income leverage—interest payments as a percentage of income—is now at an historic low. That is important because it means that households can now afford to spend. Even more important, asset leverage is back alongside historic averages, so households are no longer over-geared in the way they were in 2007 and 2008. I actually think that the figure on household leverage is overstated because there is still a lot of bad debt in the system that the banks have been reluctant to write off because of concerns over their balance sheets. That is what has happened over the past few years. By following stable and sensible policies, the Government have allowed households to shore up their balance sheets, which means that they will now be in a position to begin to spend again should they wish.

Having looked at the big macro picture of two crucial things—Government expenditure under control, and household balance sheets restored—it is worth considering some of the positive detail within the Budget. The £2,000 cut in national insurance for businesses is fantastic. We know that small businesses are the ones that create new jobs—a series of data from the United States show that, on average, large companies shed 1 million jobs a year, while small companies create just over 1 million jobs a year. The reason for that is straightforward: large companies are always looking to cut costs, but small companies are where new ideas are built up. Anything that helps small businesses is welcome and national insurance is a very bad tax on jobs. I hope that ultimately the Government will look at national insurance in the round, but that will need to be in a time of boom, rather than a time of austerity.

The other policy that is relevant to today’s debate, which was opened by my right hon. Friend the Secretary of State for Work and Pensions, is the £10,000 tax threshold. That is a joy to behold because it gets us away from the taxation and benefits merry-go-round where people on low incomes are taxed and then given back some of their own money, once the Government have taken a cut for administration. We want to get that threshold as high as possible so that we do not tax people and then give them benefits. We want to get people out of that altogether, and out of the dependency culture that exists when we tax people on low incomes.

This measure has a further benefit if it can be extended and if the national insurance threshold can be raised, because that will reduce the administration of employment. If the national insurance threshold can be raised towards the £10,000 tax threshold, employers will be able to pay their employees without having a big administrative burden on top. I hope the Government will look at that as it would be a fantastic boost to employment. I think it could possibly be paid for simply by shifting the band for employees national insurance into line with the increase that would be made from the current level to £10,000. I accept there would be a gap on employers, but that might be minimised by doing it in the way I suggest.

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[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

We have had an interesting debate. There have been 27 Back-Bench speeches, of which 19 have come from Labour Members. There have been passionate speeches. A lot of information has been given about constituencies and constituents’ experience in the real world rather than the world that some on the Government Benches would like to believe exists.

We started off with a typically bullish performance from the Secretary of State for Work and Pensions, who seemed reluctant to accept that, notwithstanding what he tried to claim the Chancellor is doing, in fact the Government will borrow £245 billion more than planned. That borrowing is to deal with failure rather than to invest for future success.

The Government seem to fail to recognise that the situation has happened on their watch. It is not good enough, halfway through a Parliament, for the Government continually to come to the Chamber and harp back to what went on in the past without taking any responsibility whatever for what they are doing and their own actions.

It is interesting that Government Front Benchers seem to have an obsession with the shadow Chancellor. Perhaps it is because he has been proven to be correct. The economy is flatlining, there is no growth, the deficit targets have been missed, the triple A rating is lost and the Office for Budget Responsibility has confirmed that people will be worse off in 2015 than in 2010. There is no plan—it is more of the same from the downgraded Chancellor, and from the downgraded Government Front Benchers here this afternoon.

We have heard consistently from the Labour Benches about how unfair it is that, while millionaires will be laughing all the way to the bank at the beginning of April, very real cuts are coming for ordinary working people and those who are desperately seeking work.

A number of themes have come through the debate and I want briefly to touch on them before coming to some of the points made by my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne). We heard powerful speeches about living standards, not least from my hon. Friend the Member for North Tyneside (Mrs Glindon), who spoke towards the end of the debate, and from my hon. Friend the Member for Easington (Grahame M. Morris). Both talked about the impact of welfare cuts on their constituents’ and general living standards.

Early in the debate, we heard from my hon. Friends the Members for Houghton and Sunderland South (Bridget Phillipson) and for Lewisham East (Heidi Alexander) about the impact of child care costs on families and how what the Government propose is too little, too late. They mentioned the dangers of changing the carer-to-child ratios, downgrading again the service provided as well as giving with one hand and taking away with the other—promising something that will happen in 2015 while cutting tax credits.

Government—[Interruption.] Government Front Benchers may think that the situation is funny, but I assure them that it is not funny for the families who my hon. Friend the Member for Glasgow North East (Mr Bain) mentioned from his constituency. He knows well the impact of the bedroom tax and the problems there.

[Mr Bain]

Does my hon. Friend share the anger of my constituent with cerebral palsy, who I visited last Friday? She has a house that has been adapted and she gets physiotherapy in it. She has been asked to pay a bedroom tax of £9.63 a week, while the Secretary of State was unable today to guarantee that millionaires will not benefit from a spare home subsidy as a result of the Budget.

[Hon. Members]

It is not a tax!

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[Mr Gauke]

If the hon. Lady is concerned about people on waiting lists or living in overcrowded conditions, she might want to think about what we could do about too many people who have got spare rooms.

We heard a number of speeches from the Labour party, and two points about the fiscal situation were consistently raised. First was the concern that borrowing is higher than we had wanted and expected it to be—borrowing is too high and debt is increasing too fast. We then had a number of speeches that called for more spending and said that we should not worry quite so much about borrowing and should be prepared to borrow more. Remarkably, a number of speeches made both points at the same time, but the reality is that the Labour party believes that the right approach to our current difficulties in the economy is to borrow more. The proposals from the shadow Chancellor involved £33 billion more spending.

The most interesting point in the entire debate was when the hon. Member for Glasgow North East (Mr Bain) called for more spending in a particular area, and my hon. Friend the Member for Battersea (Jane Ellison) intervened to ask how he would do that in a fiscally neutral way. At that point the hon. Gentleman paused and said, “Well, we are on a different path.” He is an articulate and eloquent speaker, but rather than say what that path was, he refused to answer. Labour Members are on the path that dare not speak its name. Their path is simply more borrowing.

[Mr Bain]

If the Budget is such a great success, why has the National Institute of Economic and Social Research said this afternoon that the Budget will make no impact whatever on increasing growth for the next two years?

[Mr Gauke]

I will come to the measures on growth in a moment, but let us not ignore the fact that the Labour party’s approach is to spend more and borrow more. How do Labour Members believe that will enable us to get the debt down? It simply is not feasible.