Budget Resolutions and Economic Situation — House of Commons, 2015-03-18
Topic: Macroeconomics
Helen Catherine Goodman (Labour, Centre-left): We heard a characteristically self-congratulatory speech from the Chancellor earlier today. According to him, his strategy is working and his early austerity is paying off, with a growing economy, rising employment, a falling deficit and even enough room for manoeuvre for a few more tax cuts. Let us take each claim in turn. This has been the slowest recovery from a recession ever recorded. The economy was growing when Labour left office in 2010. The Chancellor slammed on the brakes. The OBR estimates that the economic loss was 2% of GDP in the first two years; a professor of economics at Oxford university estimates it at 5%. That is £1,500 for every man, woman and child It is true, of course, that employment is now rising, but not as much as Government Members claim. The JSA claimant count is down to 800,000 but the figure on the International Labour Organisation’s unemployment measure is 1.8 million and the rate varies among particular groups. In the north-east it is 8%, while for young people it is 16%, and, as other colleagues have said, many jobs are zero hours and low paid. Average earnings have fallen. They are not forecast to reach pre-recession levels until 2020, fully 12 years later Poverty is up and earnings are down, the consequence of which is that tax revenues have been weak, so the Chancellor of the Exchequer’s deficit and debt reduction targets have both been missed. The deficit is down by a third, not eradicated as planned. Debt is up by a third and £200 billion more has been borrowed than was planned. Living standards have fallen and inflation is below target, verging on the negative, while interest rates have never been lower and are negative in real terms None of that suggests that the economy needs to be reined in or that there is spare capacity, yet the Chancellor is planning to go into the next general election with a plan to cut both tax and spending. The Red Book shows a 5% reduction in GDP—between £60 billion and £70 billion of cuts. The OBR analysis also shows huge reductions in the first two years—indeed, bigger than those we have seen in the last five. Obviously that will further deflate the economy. Even the Financial Times this week was describing it as "unnecessarily extreme" What the economy needs is continued growth and measures to boost productivity, which fell last year and has stalled in the last six. Productivity in Britain is now lower than it is in the United States, Germany, France and Italy. Higher productivity would mean higher wages and make our exports more competitive, which would be especially useful at the moment, when the pound is rising against the euro. According to the OBR, higher productivity would also mean higher growth and lower debt. Indeed, the OBR’s scenarios show a massive difference in the debt-to-GDP ratio, of 50% to 57%, compared with 87%. The OBR describes the productivity performance in this country over the last five years as disappointing In other words, what this Budget should have contained was measures to boost productivity, which would have improved the public finances—measures such as better access to finance for SMEs, through a British investment bank; maintaining and improving the skills of the labour force, through a young person’s job guarantee, better vocational education and cuts to tuition fees; substantial improvements to the nation’s infrastructure; and devolving economic power and funding to city and county regions.