Budget Resolutions and Economic Situation — House of Commons, 2015-07-14
Topic: Macroeconomics
Michael Hugh Meacher (Labour, Centre-left): My hon. Friend makes a good point, and I will come on to comparing what the Government have achieved with what the Chancellor said in 2010 Bearing in mind that it takes between 12 and 18 months for Budget measures to work their way through the economy fully, we should remember that Alistair Darling cut the deficit from its peak of £154 billion to just £114 billion by the fourth quarter of 2011—a cut of £40 billion in fewer than two years at a rate of £20 billion a year. The current Chancellor, however, through his successive austerity Budgets, slowed that deficit reduction to a trickle. Today it is still £90 billion, which represents a reduction of £24 billion in three years at a rate of £8 billion a year. If he wanted to reduce the deficit as efficiently and as fast as possible, he has clearly failed. But of course, his real aim all along has been to shrink the state and squeeze the public sector. The deficit has merely been a convenient pretext to enable him to do so Now the Chancellor is telling us that he will eliminate the structural deficit by 2019-20. Judging by the fact that he boasted that he would achieve that by this year, when it is still a whopping £90 billion, we can take that with a fair pinch of salt. His Budget forecasts assume a 2.5% a year growth rate all the way to 2020, but with the £25 billion of further expenditure and benefit cuts now being imposed on the economy, we are likely to see a reprise of what has happened in the past five years. The reimposed austerity will flatten growth, exactly as it did from 2010 to 2012, when it was relieved only by postponing austerity to generate a short 18-month economic surge in 2013-14. As I have explained, that surge has now deflated. That pattern is likely to be reproduced in the next five years. I fear that we will have the worst of both worlds—a short-lived growth spurt that fizzles out and is achieved only through a further postponement of deficit reduction extending well into the medium-term future The most fundamental question is: what is the right way to deal with a large deficit? We all agree that it is far too large and has to be reduced. It is a statement of the blindingly obvious, but one that is not publicly stated, that there are two ways of doing that—either by cutting expenditure or by increasing income. An individual does not have that option, of course, but the state does, because it controls the momentum of the economy through either expanding or contracting it. The Chancellor chose exclusively to pursue the latter because it suited his political ends of shrinking the state, but economically, it has been dire—the impoverishment of a quarter of the population and the generation of 350 food banks, rather like a third world country, while cutting the deficit by only a marginal amount Historically, all the evidence is against the Chancellor. The reduction of large deficits by both the US and Sweden in the 1990s occurred as a result of sustained growth policies. Above all, we have the precedent of Britain in 1945, when the debt was 260% of GDP—three times higher than the 80% it is today. That did not prevent the Attlee Government from introducing the NHS and the welfare state, building 300,000 houses a year, reconstructing the country’s broken infrastructure and, above all, restoring full employment, with the deficit steadily decreasing to 60% over the next 30 years The Chancellor has not only failed to cut the deficit by much, but his legacy will be that he fundamentally chose the wrong way to do it, for the wrong reasons, with huge, irrecoverable losses to UK growth and output.