Autumn Statement: Economy — House of Lords, 2016-11-29
Topic: Macroeconomics
Spencer Livermore (Labour, Centre-left): My Lords, this Autumn Statement was a turning point for the Government. It downgraded forecasts, abandoned targets, revealed an economy in decline and, of course, was the first instalment of the bill we will all have to pay for leaving the European Union. Just two months ago, the Chancellor of the Exchequer told the Conservative Party conference that the British people did not vote on 23 June to make themselves poorer, yet last week in his Autumn Statement he set out how Britain and its people will indeed be poorer as a direct result of the outcome of the referendum. Growth and productivity will be lower. Borrowing and inflation will be higher. Wages will stagnate and living standards will fall The independent Office for Budget Responsibility set it out in detail. The forecast for growth next year has been cut from 2.2% to 1.4%. Over the next five years, borrowing will rise by £58.7 billion as a direct result of Brexit—a cost of £226 million a week—and total extra borrowing will be even higher at £122 billion. Debt as a proportion of GDP will climb to over 90% in 2017, reaching almost £2 trillion in 2020. By that time, the economy will be 2.4 percentage points—or £26 billion—smaller than it would have been were we not leaving the European Union This is not even short-term pain for long-term gain. Our economy will be weaker in the long term as well. The OBR states that, "the referendum result and forthcoming … negotiations have generated uncertainty for firms that will lead to some investment being postponed or cancelled" As a result, the business investment forecast has been revised down by 5% this year and 6% next year. The OBR goes on to warn that the level of investment is expected to remain permanently lower, slowing the productive potential of the economy. It yet again revised down Britain’s productivity growth to just 1.6% At this time of huge challenge and change for the British economy, the question for the Government in the Autumn Statement and in the months to come is whether they are able to respond in the national interest. It is the most important question any Government have faced for a generation and as they address it, I would set the Government three tests. First, are they doing all that they can to minimise any further harm to growth and jobs? Secondly, are they advancing the interests of the whole of society, promoting fairness and protecting the living standards of all? Thirdly, do they begin to restore faith in our politics after the shock of the referendum by honouring the promises made to the British people To meet the first test—to minimise further harm to our economy—a Government acting in the national interest would immediately make a firm commitment to remaining a member of the single market. Ensuring that businesses are able to continue to trade on the same terms as they do now has consistently been shown to be the least damaging future arrangement, offering the greatest opportunities for growth. Already, the Autumn Statement sees lower import and export growth for the next 10 years. Failure to remain in the single market would therefore be devastating to Britain’s future prosperity. Yet when the OBR asked the Government to provide details of their preferred post-Brexit trading relationship, they were unable to do so. Like the rest of us, the OBR has been left in the dark, given no reason to believe that a future strategy even exists. In failing to commit to membership of the single market and signalling that they favour instead an extreme hard Brexit, the Government are failing this first crucial test. The perception arises that they are acting not in the national interest but in a narrow party interest, more concerned with the needs of their parliamentary majority than the economic needs of the nation This same narrow interest seems to be driving the Government’s determination to cut immigration even at the expense of future growth, jobs and living standards, so it is welcome that the Chancellor, in the Autumn Statement, put into the public domain for the first time the cost to the economy of doing so. He revealed that the UK would need to borrow an additional £16 billion by 2020 to make up for the reduced tax take caused by falling migration, with a further cost of £8 billion every year thereafter. Perhaps having these costs in the public domain might begin to raise the standard of debate in this country about immigration, which has become increasingly ill-informed and ugly. Perhaps it might cause those who are pushing us relentlessly towards an ever more anti-immigration position to reconsider. Perhaps it might even halt the spread of the self-harming and increasingly poisonous anti-immigration rhetoric which, having once been confined to the far right of politics, is now spreading across the political spectrum—including, regrettably, into elements of my own party. But perhaps I say this more in hope than in expectation As I said earlier, a Government acting in the national interest would advance the interests of the whole of society, promoting fairness and protecting the living standards of all. This is my second test for the Brexit economy. We should have been heartened to hear so much from the Government and the Prime Minister about their concern for working people who are struggling to make ends meet but the Autumn Statement shows us the true reality: household real incomes will fall next year, as inflation rises. Unemployment will rise and the fall in the value of sterling will increase the bills that British families have to pay. However, they will not have much to pay them with. According to the Resolution Foundation, average incomes will now rise over the next five years at less than half the rate that they did in the last Parliament. Average earnings will now be £830 a year lower than expected by 2020 The Institute for Fiscal Studies has calculated that real wages will still be below their 2008 levels in 2021. To quote its director: "One cannot stress enough how dreadful that is. More than a decade without real earnings growth. We have … not seen a period remotely like it in the last 70 years" The Government are failing the second test too. By their actions and because of their values, they have shown that they cannot govern for all in society. For all their words, their chief concern can never be for the working people of this country. We see that once again in this Autumn Statement, for who will pay the price of the deteriorating Brexit economy? Once again, as the Government’s own distributional analysis shows, the poorest will pay the heaviest price, with the entire bottom third of the income distribution seeing their incomes fall. My third test asks whether the Autumn Statement honours the promises made to the British people and, in so doing, begins to restore faith in our democracy. The previous Chancellor of the Exchequer argued, convincingly, that a fiscal straitjacket was necessary to maintain economic and financial confidence. His decision was that public services and struggling families should wear the tightest of straitjackets. This argument secured victory at the past two general elections, when we were told that reducing debt and eliminating the deficit were the most important challenges facing our nation, but not anymore. In this Autumn Statement we have discovered that all these promises were for nothing and that all the sacrifices made by working people in their living standards and their public services were in vain. After six wasted years, people are poorer and our public services are underfunded, but debt levels are even higher than where they began. All the hard-won gains in the public finances have been thrown away, together with the Government’s old fiscal rules. The mandate won by this Government scarcely 18 months ago has been trumped by Brexit. All three of the fiscal rules they set since 2015 have already been either missed or abandoned and, conveniently, it will be impossible to assess whether the new, far looser rules have been met until after the next general election What, then, of the extra £350 million a week we were promised for the NHS? All too predictably, the Autumn Statement found not a single extra penny of investment for the NHS or social care, despite every single independent health organisation saying that more investment is needed. The Government will not restore faith in politics if they claim to care about working families while cutting their living standards, if they elevate cutting debt to a moral crusade and then increase debt, or if they promise more money for the NHS and then fail even to mention it at the first opportunity they have to keep that promise This Autumn Statement has revealed that the price of Brexit is a downgraded economy, a devalued currency, falling living standards and a poorer country. It shows a Government without a plan, a Government who cannot act in the national interest to protect our economy, govern for all in our nation or restore faith in our democracy. This is a Government who are unable to offer any hope that they can overcome the enormous challenges that now lie ahead.