The Economy — House of Commons, 2015-06-04
Topic: Macroeconomics
Michael Hugh Meacher (Labour, Centre-left): I pay tribute to the speech by my right hon. Friend the Member for Doncaster North (Edward Miliband), in terms of both content and statesmanship. He was a fine leader who was largely misrepresented and misunderstood, and I think he had admirable vision and conviction. He will be sorely missed, but I hope that many of his principles, convictions and values will be incorporated not only into the Labour party leadership contest but into the political debate over the next years I have a rather different message for the Chancellor. Underpinning the whole of the Government’s programme, which he set out today, is the theme that the Tories inherited a recession caused by Labour overspending, that they set in place a strong economic recovery, that they are within sight of dealing with the deficit and that austerity has been vindicated. All those are false. First, the recession was caused by the international recession triggered by the banks’ financial crisis; it was not caused by Labour profligacy. In truth, the Blair-Brown Government, in the 11 years before the crash—1997 to 2008—never ran a budget deficit larger than 3.3% of GDP, which was roughly the same as Germany’s, whereas the Thatcher-Major Governments racked up deficits larger than this in 10 out of their 18 years Secondly, we have seen the slowest and feeblest recovery for more than a century. The economy was recovering in 2010, but it was brought to a juddering halt by the Chancellor’s successive austerity Budgets—so much so that after two and a half years of stagnation, he was forced to reverse engines, to go easy on austerity and generate an artificial recovery based on a housing asset bubble, via Help to Buy. That artificial recovery lasted just 18 months until the middle of last year, and has now been punctured like a deflating balloon. In the last nine months, growth has nosedived by two thirds, from 0.9% in the third quarter of last year to just 0.3% in the first quarter of this year. If that continues, we will have an annual growth rate of just 1.25%—lower than in the eurozone Then there is the deficit. The Chancellor likes to claim he has halved the deficit since 2009-10. He has not. The deficit peaked that year at £157 billion. Given that the Budget measures take 12 to 18 months to work their way through the economy, Alistair Darling, in his last two expansionary Budgets, had reduced the deficit to about £118 billion by 2011—a cut of nearly £20 billion a year. The present Chancellor, by contrast, has reduced it over the last three years to its current level, which I remind the House is over £90 billion—a cut of only about £9 billion a year, which is less than half the rate of reduction of the previous Labour Chancellor Now we are being told that the Chancellor will eliminate the structural deficit altogether by 2018, at an average rate of reduction, according to the Red Book, of some £25 billion a year. I ask hon. Members: is that remotely credible? He promised in 2010 that he would eliminate the deficit by 2015; in the event, it has ended up at over £90 billion. The Chancellor is achieving form in his fantasy projections, or is it that the real Tory primary aim is not to shrink the budget deficit, but rather to shrink the state, shrink the public sector and transfer all public services to the private market—back to the dimensions of the 1930s Has austerity been vindicated? Since, according to the Office for Budget Responsibility, austerity reduced GDP growth by 1% in both of the first two years of the coalition Government, that indicates, at the very least, that austerity led to a cumulative output loss, which will never be recovered, of 5% of GDP or about £75 billion—some little short of the whole of the deficit What else has austerity brought about? Wages are still nearly 8% below their pre-crash level, while productivity, on which all agree our future living standards depend, is slack. Private investment is anaemic, which shows that even business itself does not believe that the Chancellor’s recovery is sustainable. The trade deficit in manufactured goods at over £100 billion a year is the worst in British history, unemployment is still nearly 2 million and household debt is now tipping £2 trillion It against that background that the Chancellor now forces through his cuts target, as he set it out. Growth will collapse as even the IMF today is warning. Without, this time, the adventitious halving of the international oil price, Britain will soon be at serious risk of a third recession. So much for the Government’s ludicrous "long-term plan"!