Budget Resolutions and Economic Situation — House of Commons, 2015-07-09
Topic: Macroeconomics
Kelvin Peter Hopkins (Labour, Centre-left): First, may I congratulate all the Members who have made their maiden speeches today? It has been fascinating to hear what they had to say and about their constituencies, which are very different from my constituency of Luton North. The Budget has given me a tax cut that I do not need, which has been paid for by young people, students, the poor and public sector workers. Social justice would require the opposite of that, so I do not buy the idea that the Chancellor has somehow inched towards the centre ground of politics. He is still a right winger, concerned primarily with helping and protecting the wealthy. As my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) has recorded today, the IFS calculates that 13 million UK families will lose an average of £260 a year, while those with estates of £1 million will not have to pay any inheritance tax, so we know where the Chancellor’s heart really lies Much more interesting than the Budget, which is a typical Tory Budget really, is the OBR’s report "Economic and fiscal outlook", published at the same time. There are indeed myths about the economy that have to be dispelled. Britain’s economy is not healthy; indeed, the opposite is the case. Britain is a low-wage, low-investment, low-productivity economy. Indeed, the productivity of Germany and France are 25% greater than Britain’s and we are sixth in the G7, with only the ailing Japan behind us—so there are problems, and the Budget will not make much difference to that fact Over several decades, Britain’s manufacturing sector has shrunk drastically, and it is now far too small to sustain what we need ourselves. As a result, our trade balance, especially with the rest of the EU, is in enormous and chronic deficit. In his Budget statement, the Chancellor made very little reference to the wider macroeconomic environment—which the hon. Member for Horsham (Jeremy Quin) touched on—and that is very worrying indeed The Government chant their mantras about the Government deficit and public finances while private debt is surging once again. An asset price bubble continues to grow that will inevitably burst, with drastic consequences for households and the economy as a whole. One million of our people are now dependent on food banks—a number that will be dwarfed when the crash comes. I use the word "crash" because that is what we face, with inept and misguided economic policies at home and global factors again driving us towards recession. China’s economy is decelerating and is now in a share price crisis; Japan’s economic weakness continues, with no end in sight; the eurozone is a basket case; and the USA has seen a false economic dawn, with another asset price bubble driven by corrupt share buy-back schemes, among other factors "Demand is slowing, share prices will be devastated, and recession is coming, with downturns that will be remembered in 100 years." Those are not my predictions but the words of Crispin Odey, one of London’s leading hedge fund managers, who tends to get his predictions right, including on the 2008 crisis. My own conclusion is simply that globalisation—neo-liberalism—does not work and that leaving the financial markets and the global corporations free to do what they like, with no effective economic borders to constrain them, has caused one disaster and another is coming The Government’s claimed economic success since 2010 is a mirage. After 2010, they first tried savage cuts in public spending, in theory to reduce the public finance deficit, but by 2012 they realised that this was simply driving the country into recession, so they reduced their pressure on the economic brake and tried a bit of quantitative easing. Asset prices began to rise, notably in housing, and consumer spending edged upwards, producing a modest rise in economic growth. However, we still have low productivity—a chronic disease in Britain’s economy—and we still bump along, sustained only by low wages and income from asset sales to foreigners: another version of selling the family silver, as Harold Macmillan so famously put it The one advantage that Britain does have is its own currency, able to flex to appropriate parities with other currencies. After the 2008 crisis, sterling depreciated against the euro by 27% and against the dollar by 31%, offering a degree of protection against the worst ravages of the crisis. But even that example has been wasted, with sterling surging against the euro from €1.02 to €1.40, increasing our export prices and decreasing import prices by over a third, and driving Britain’s ongoing and gigantic trade deficit with the rest of the EU. That deficit—over £1 billion a week—is equivalent to exporting at least 1 million jobs to the continent. Page 71 of the OBR report shows a gigantic current account deficit of some 6% of GDP—about £100 billion, or £1,600 for every person in Britain There are sensible alternatives to all this economic nonsense, and with much more time I would have been pleased to spell them out. In the short term, however, we must not be fooled into believing that the Government and their predecessor coalition have got things right when all the elements are present for another economic crisis. The Government are doing nothing to protect our economy from the next crisis, and they must not be allowed to escape the blame when it comes Before I conclude, I must again emphasise my concern about the sterling exchange rate. Some Members may remember that I raised my concerns about sterling’s over-valuation with Gordon Brown during his time as Chancellor. He responded sotto voce that it was not Government policy to target the exchange rate. In more recent times, I have raised the same issue in this Chamber with the Prime Minister and this Chancellor, with similar measured, if negative, responses. In my very last oral question before Dissolution, I again asked the same question of the now-departed Business Secretary, Vince Cable. He responded, astonishingly, by suggesting that there was no evidence that the exchange rate was a significant factor in the economy’s performance. Only a few days later, it was reported that manufacturing was suffering from the high euro exchange rate and that the economy was being sustained only by domestic consumer demand, with the main risks coming from the eurozone Much has been made of Britain’s greatly improved automotive sector, which I applaud. It is true that we make excellent-quality vehicles, including the Vauxhall Vivaro, made in Luton, but it remains the case that we import twice as many cars from the rest of the EU as we export to it. Had I had an opportunity to do so, I would have reminded Vince Cable of the big depreciation after 2008; the rapid recovery from the 1992 exchange rate mechanism debacle, driven by a large exchange rate reduction; and even the 1931 departure from the gold standard, which laid the foundation for the economic recovery from the inter-war depression An appropriate exchange rate is not a sufficient condition for economic success, but it is a vital one. Had Britain been stuck in the euro, at a parity perhaps as high as €1.50 to the pound, the economy would have been utterly wrecked, with Britain almost certainly crashing out of the euro, probably bringing down the whole euro edifice in the process The Government are riding for a fall if nothing is done to bring down Britain’s bloated exchange rate, and soon. Writing recently in The Guardian, Larry Elliott said that the Government were sitting on an economic time bomb. That is surely the case, and the priority must be to bring down sterling’s exchange rate with the euro. The Budget must be seen in that wider context and the Chancellor’s mind should be focused on those wider international dangers, or we will all be in trouble.