Spring Statement — House of Lords, 2019-03-20
Topic: Macroeconomics
Peter Hain (Labour, Centre-left): My Lords, compared with the noble Lord, Lord Macpherson of Earl’s Court, I am an innumerate amateur. But I am aware that economists work in a statistical minefield, in which they must take care to distinguish between provisional and revised figures, between raw and seasonally adjusted data, and between nominal and real values. The Chancellor’s Spring Statement really did take us from the real to the surreal In the real world, the UK economy grew at its slowest rate for six years in 2018, and growth is expected by the Bank of England, by the OECD and by the Office for Budget Responsibility to slow even further this year. Business investment has gone down and productivity improvements have dried up. The risk of recession has increased at the very time that the potency of monetary policy has diminished. Additionally, there are worries from a possible looming global debt crisis, global trade wars sparked in part by President Trump’s stand-off with China, and the Chinese slowdown But in the surreal world of the Chancellor’s fertile imagination the economy is "fundamentally strong" and "remarkably robust". Twice in 2017, again in 2018, once more in February this year and again in the Spring Statement, the Chancellor peddled the same line: the economy is confounding his critics by continuing to grow. That remains his stance today. He wants to sound on top of his brief while saying nothing of substance and denying any need to give a sluggish economy a fiscal boost. As Bing Crosby sang: "We’re busy doin’ nothin’, Workin’ the whole day through, Tryin’ to find lots of things not to do" Britain is vying with Italy and Japan at the foot of the G7 growth league. We are not alone in facing worsening prospects. Germany, France, Italy and China are all experiencing a growth slowdown. They are all responding by planning a fiscal stimulus but in Britain, the Chancellor has chosen to play a waiting game. Like a cricketing nightwatchman, he is intent only on staying at the crease by meeting every delivery with a dead bat. He is waiting for whatever dawn and the outcome of the Brexit votes might bring: perhaps a revival of business investment and consumer confidence as the fog of Brexit uncertainty lifts—if it ever lifts, given the Government’s latest Brexit shenanigans and the national crisis upon us. There is no sign of that fog lifting soon. The Spring Statement put off taking action until an Autumn Budget, assuming an orderly Brexit—some chance of that. The Chancellor’s fiscal stance simply echoed Scarlett O’Hara’s response to discouraging news: "Tomorrow is another day" This is an Alice Through the Looking-Glass world, in which we were led to expect a Spring Statement with no new tax or spending measures but in which, days before the Chancellor’s Statement, the Prime Minister could announce an insulting seven-year, £1.6 billion investment fund, ostensibly to boost growth in Britain’s "left behind" towns, which have been ravaged by tens of billions of pounds of public spending cuts and never-ending austerity. It is a world in which in-work benefits remain frozen and public spending plans face further brutal cuts unless the Treasury eases its grip. It is a world in which the Chancellor’s claims that austerity is coming to an end are contradicted by the Office for Budget Responsibility’s reports confirming that the 10-year Tory budget squeeze remains in place—a squeeze that, by 2020, will have taken more than £150 billion of spending out of the economy in tax rises and public spending cuts. It is little comfort to know that under his predecessor’s plans, the squeeze on national spending would have been closer to £200 billion The Chancellor and some commentators have pointed to lower government borrowing over the past year as a portent of a brighter future. Sky’s Ed Conway recently noted that annual public borrowing is now lower than it was before the financial crisis, which is true. As a proportion of GDP, it is now about half what it was in 2007—but in 2007, GDP grew by 3%, more than twice as fast as in 2018, and business investment was increasing, not falling like last year. Faster growth makes higher public spending and higher borrowing more affordable There was a time when the leader of the Conservative Party embraced the idea of sharing the proceeds of growth between the public and private sectors to build a civilised society. Today’s Tories remain intent on starving public services of funds, sacrificing economic growth in the process. In the real world, the UK economy is crying out for a fiscal boost from the Chancellor to promote faster expansion and put an end to austerity once and for all. That boost should focus on infrastructure investment, social housing, skills and training, care for the elderly and low-carbon, greener growth. Decades of underinvestment in UK infrastructure, in our people and in fighting global warming need to be corrected. There is no time to lose The right reverend Prelate the Bishop of Chester said, absolutely correctly, that there was no mention of social care in the Chancellor’s Statement. That should be a crying priority for any Government. The noble Lord, Lord Macpherson of Earl’s Court, spoke of a social care tax. He is right: I do not think that the incredible crisis in elderly care can be solved by dumping it on families in a lottery of burden. Virtually every family in the country now faces this problem, which needs to be dealt with through extra taxation, possibly compiled with some sort of insurance as well The Chancellor says that he is holding £26 billion of fiscal headroom in reserve. If he has such a trump card, as he implies, keeping it up his sleeve is doing no one any good. Britain has already endured the slowest recovery from recession in the post-war period, all under this Government since 2010. Now the Chancellor is prolonging the pain of lacklustre growth. He talks a good game about ending austerity but cannot bring himself to take the decisions needed to match his words. His Spring Statement has been another missed opportunity, another squandered chance, to give the green light to the faster growth this country desperately needs.