Charter for Budget Responsibility — House of Commons, 2016-07-20
Topic: Macroeconomics
John Martin McDonnell (Labour, Centre-left): I think the argument is sound. Until we obtain a fiscal rule that reflects the reality of our economy and our future, we will not return to the dynamism that is needed to restore growth and to ensure that we have wages and jobs that are beneficial to the community overall rather than the low paid and insecure work that we have at the moment Let me press on, because I do not want to strain your patience, Madam Deputy Speaker. It is not just Members on these Benches who believe that the fiscal rules adopted by the Government are not fit for purpose. The former Secretary of State for Work and Pensions, the right hon. Member for Preseli Pembrokeshire (Stephen Crabb), called for a £100 billion infrastructure fund to invest in schools and housing. The Secretary of State for Communities and Local Government called for tax cuts across the board and spoke about a Growing Britain fund, funded by more borrowing. The new Prime Minister repeated today the need to abandon the surplus target—perhaps to let it slip. The Secretary of State for Environment, Food and Rural Affairs spoke about the need for "prosperity, not austerity". We welcome all those conversions to our line of argument, but none of this can be achieved within the confines of the charter as it now stands until the Office for Budget Responsibility advises otherwise We saw the consequences of the policies based on the old fiscal framework yesterday in a report from the independent Institute for Fiscal Studies. Let me just remind Members what the report said: the incomes of young people are still 7% below where they were before the financial crisis, and the incomes of those in their 30s, 40s and 50s have remained stagnant. Andy Haldane, the chief economist at the Bank of England, has spoken about a "lost decade" for earnings. McKinsey reports that four fifths of households have seen either no improvement or falling earnings. That is what we have to show for the year of fiscal rules from the former Chancellor. There is a consensus now across the country, from the TUC to the CBI, that investment is needed. Earlier this year the IMF told the Government that it had no objections on the grounds of fiscal responsibility to the Government undertaking more investment. The OECD agrees, but until the OBR gives permission to suspend the surplus rule, the Chancellor is constrained by his own rules The Government’s current plans for public sector net investment for the rest of this Parliament are for it to fall in each year, from £36.4 billion this year to £32.1 billion in 2019-20. Of course, we do not expect a full Budget now, but the least we need is a commitment to recognise the changed times that we are living in. The uncertainty about public investment comes on top of uncertainty about the structural funds for regions—which are set to lose up to £10 billion if we leave the EU—and further uncertainty for those reliant on projects funded by the European Investment Bank. I repeat that it is essential that, as a minimum, there is a guarantee from the Government soon to protect these funds in some form on an equivalent level There is an alternative; there has always been an alternative. Members of the Government Front-Bench team now see it, in part. Opposition Members have said so for some time. There is an alternative based upon investing in the future, growing the economy and allowing fiscal policy to work hand in hand with monetary policy. Professor Mariana Mazzucato has argued for the need for long-term, patient investment. We support that. It is true that the sale of ARM Holdings to SoftBank indicates that there is potential for new industries and innovation, but that potential needs long-term financing, which includes Government investment in infrastructure and research After the leave vote, more forecasters have cut their growth forecast. The IMF has joined them. Yesterday it revised down its prognosis for next year from 2.1% to 0.8%. With the current account deficit having hit record highs in the past year—in the most recent figures, it stands at 6.5%—our plan for the future cannot just be to fund that indefinitely with more overseas sales, such as that of ARM. We hope that the Chancellor will heed those who are calling for a much needed and eminently affordable change of direction It is a tragedy for this country that the Conservatives have only noticed that there is an alternative as a result of the leave vote, which I fear they helped to bring about. I announced on Monday that the Labour party supports a large programme of investment and will support the Government in a large programme of investment.