Queen’s Speech — House of Lords, 2019-10-17
Topic: Macroeconomics
Peter Hain (Labour, Centre-left): My Lords, I too welcome the speech of the right reverend Prelate the Bishop of Bristol, especially what she said on climate change. I also honour her mother as one of the suffragettes of the Church of England On the same morning that the UK Supreme Court judged the Prime Minister to have tried unlawfully to prorogue Parliament, Boris Johnson outlined to a New York business audience his vision of a post-Brexit Britain. It was one of the UK undercutting European tax rates and adopting lower regulatory standards than those set by the EU: a low-tax, lightly regulated haven on the EU’s doorstep, uninterested in competing on a level playing field and intent on provoking and winning a race to the bottom to create a Singapore-upon-Thames. It was difficult to discern that dismal vision in the Queen’s Speech, with rumours of a rift between the Chancellor and the Prime Minister over who gets to announce which tax cuts and spending plans, and when. The Chancellor wears his humble origins on his sleeve while the Prime Minister sees himself as the Incredible Hulk: the madder he gets, the stronger he gets. What a pair they are: Javid and Goliath The Government want us to believe that they are turning the page on austerity, abandoning the ideological approach that has driven Tory party policy for the past 10 years. Instead of "Keep Calm and Carry on Cutting" they have adopted the Vera Lynn wartime song, "It’s a Lovely Day Tomorrow": you just wait and see. There is to be nearly £14 billion in extra public spending next year, with the priority going to health and social care, policing and prisons, and schools. That is in complete contrast with both David Cameron’s recent verdict that his Government did not cut enough and George Osborne’s boast that Britain had been squeezed more tightly than any of the advanced western economies. But on closer inspection, the Prime Minister’s brave new world bears a striking family resemblance to the cruel real world that Britain has been enduring for the past decade. Next year’s rise in public spending restores barely 10% of the £140 billion of public spending cuts and tax rises that 10 years of Tory austerity add up to. This decade of savage cuts puts next year’s puny spending rises into perspective The Institute for Fiscal Studies reckons that next year’s extra public spending will reverse only 15% of the per capita cuts to non-health areas since 2010. It falls well short of the amount needed to return all departments’ budgets to their pre-austerity levels. The new Tory stance on austerity does not take us back to 2010 and it does not undo a decade of carnage. Public services that have struggled by on starvation rations are not suddenly being fully funded. The Tory squeeze may be less severe in the future, but the economy is still in a fiscal straitjacket, so that even if, improbably, all goes swimmingly well over the next few years, Britain will not recover from past cuts for many years to come Since 2010, Tory austerity measures have over- whelmingly been public spending cuts, so the best way of ending austerity is surely to give top priority to boosting public spending to repair the damage done to public services. Tax cuts should take second place. However, in the Tory leadership election, the Prime Minister proposed to increase the higher rate threshold for income tax and to raise the point at which people start paying national insurance contributions. The former would cost some £9 billion a year, with most of the giveaway going to those on high incomes. The latter could cost up to £17 billion, depending on how high the national insurance threshold is raised. The Prime Minister clearly wants to include £10 billion to £20 billion of tax cuts in the Autumn Budget, plus the already announced £14 billion public spending increases. However, according to the Institute for Fiscal Studies, the last 10 years of austerity consisted of 80% public spending cuts and 20% tax rises. Nevertheless, the government-proclaimed way of ending austerity is to make tax cuts at least 50% of the package. Those are absolutely the wrong priorities. The compelling need now is surely to focus extra resources on rebuilding our public services, not on tax cuts, especially not for those on the highest incomes Boosting public spending also means expanding current public spending on staff and services, not just on extra capital spending on infrastructure. Both are needed. The Economist expects that UK growth this year will be only 1.1%. Even that looks optimistic. This is the fifth year in a row that growth has been slower than the year before. The economy has been falling further and further behind the Chancellor’s new growth target, held back by Tory austerity and the 2016 Brexit vote. Britain is already back at the bottom of the G7 growth league table. We are uncomfortably close to recession and the budget deficit has stopped falling. The reason it is right to borrow and invest now is that the economy is running out of steam Monetary policy has lost its potency. Record lows leave minimal scope for further interest rates cuts. Quantitative easing by the Bank of England has flooded the economy with money that has been spent largely on existing assets, boosting property values and share prices, rather than on newly produced output. But these historically very low interest rates make extra public investment financed by borrowing both affordable and very attractive. Government should be using this opportunity to raise public investment to a new, prolonged plateau of higher spending, such as a green new deal to tackle the climate change emergency and building hundreds of thousands more homes. Instead, the Government have produced Britain’s Brexit calamity, with disastrous results: business investment has stalled, last month’s retail sales were the worst for 25 years, and productivity is poor and falling. Things could get still worse with Brexit—especially a still-possible no-deal Brexit—on the horizon. This is a disastrous picture with which to produce the Queen’s Speech.