John’s Budget speech
It is a pleasure to follow the hon. Member for Fareham (Mr Hoban) in his last speech to the House.
Like you, Madam Deputy Speaker, I faced him through the long hours of many long Finance Bills when he was on the shadow Treasury Front Bench. His reflective and loyal speech this afternoon was characteristic of the way he has served his party and Government. It is a shame he is not on the Front Bench this afternoon, because perhaps then he would not be leaving the House come Dissolution.
However, the hon. Gentleman has a problem, because, as the Leader of the Opposition said, this is a Budget that cannot be believed. I shall pick just two things that the Chancellor said during his Budget statement. He said that living standards were higher than when they entered office and that our economy was fundamentally stronger than it was five years ago. The gap has never been greater between their rhetoric and the everyday reality of people’s lives.
I want to pursue two arguments that expose some of the rhetoric we heard from the Chancellor and some of the reasons why their long-term economic plan is failing and why the structural and cyclical weakness of our economy remains five years after they entered office. There are two principal arguments.
First, the Government’s economic policy directly choked off the recovery under way at the last election in May 2010, leading to the slowest economic recovery from recession in this country for 100 years.
Secondly, the economic recovery is unbalanced, unequal and unsustainable. The structural weaknesses are still there, despite the rhetoric from the Chancellor—the rabbits coming out of the hat—and the underlying failures of the long-term economic plan are unchanged by this Budget.
After 10 years of the last Labour Government, before the global financial crisis and recession hit, borrowing and debt were lower than when we entered office. We have a deficit to deal with because of how the Government intervened to pull the country through that deep recession, to keep people in their homes and jobs and to keep firms in business. Of course there is a deficit, and of course it needs to be dealt with. The difference between the parties is that we will deal with it in a more balanced way. There is a choice. We can do it with tax rises that are fair, spending cuts and efficiencies. We will do what we need to do in a more balanced way.
When the Government took office, the economy was growing quarter on quarter at a 4% annualised rate. The combination of policies introduced in the emergency Budget in 2010, which the Chancellor reminded us of, meant that by the end of 2010 growth was zero and that over the years 2011 to 2014 the annual rate was just 1.7%, not the 2.4% we were told we would get when he made his Budget statement. They choked off growth because of the policies and cuts they introduced. This has been the slowest recovery from a recession in this country in 100 years.
On public finances, I remind the Government Front-Bench team of that 2010 Budget speech. The Chancellor claimed that
“fear about the sustainability of sovereign debt is the greatest risk to the recovery”.—[Official Report, 22 June 2010; Vol. 512, c. 166.]
National debt then stood at 62% of GDP. Today’s figures confirm that it will be about 80% next year. On the deficit, the Chancellor issued his binding formal mandate in 2010 that the books
“should be in balance in the final year of the five-year forecast period, which is 2015-16”.—[Official Report, 22 June 2010; Vol. 512, c. 167.]
The failure here is astonishing. Far from balance, the Budget figures tell us that we will be in deficit by £75.3 billion. The point of balance is not next year; it is at least three years later than that. It is a comprehensive failure of long-term fiscal and economic planning.
What has gone wrong? The OBR says that the severe cuts and the significant VAT hike—let us not forget that—resulted in a loss to GDP of 2% in those first two years. Other estimates put the figure at 3% to 5%, at least, over the Parliament. The most productive spending in a downturn is capital spending. That is why organisations from the International Monetary Fund to the OECD and the OBR itself have all said that reducing investment spending has the most serious effect on negative economic growth, yet that is exactly what the Chancellor did, as my hon. Friend the Member for Edmonton (Mr Love) has just said. Over the Parliament, public capital investment has almost halved. When the Chancellor was faced with the choice either to spend money on, for example, short-term income tax cuts for millionaires or to invest in the infrastructure this country needs for the long-term future, he chose the tax cuts for the millionaires.
The unprecedented wage squeeze has come partly from the cuts in services, tax credits and benefits. It has come, too, because of the inherently weak demand for labour in this country. Before a Government Member jumps to their feet and asks, “What about the headline unemployment rate?” I would say that it is good that it is down, but the weak demand for labour has meant that people cannot get the hours or the wages to meet the bills that they are struggling to pay. Weak growth has been reflected in real declining wages. The area of South Yorkshire that I represent has seen the average full-time worker take home £2,500 less than in 2010.
Back in 2010, the Chancellor said he had a long-term economic plan. He said in that Budget statement:
“Our policy is to raise from the ruins of an economy built on debt a new, balanced economy, where we save, invest and export”.—[Official Report, 22 June 2010; Vol. 512, c. 167.]
Household debts increased over this Parliament and are set to rocket over the next five years. Ministers have halved public investment over this Parliament, despite a pledge to protect it; and on exports, the balance of payments gap at the end of 2014 stood at 6% of GDP—the biggest since records began in 1955.
At the same time, our country has grown further apart. After 10 years with Labour’s regional development agencies in England, when the poorer English regions were able to achieve almost the same rate of gross value added growth as the richest regions, the gap has grown every year since 2010. The income of the UK’s richest region is now over 10 times that of the poorest, and real output per head has shrunk since 2010 in the north-west, Yorkshire and the east of England.
Let me remind my Front-Bench team of what the Chancellor tried to claim. He tried to claim that the north had grown faster than the south and he was talking about last year, but if we talk about the five-year period of the Parliament, the north has grown by 6% on his watch, while the south has grown by 10%. This is a Budget that cannot be believed.
Finally, at the heart of the Government’s failure is the dogma of pursuing a small state. We have seen less investment despite the consequences for productivity and growth; cuts to benefits and tax credits to fund millionaires’ tax cuts, despite the consequences for living standards; no serious export or industrial strategy, despite the consequences for our balance of payments; and no serious plan for balanced regional growth, despite the consequences for the inequalities in our country.
This Budget provides a warning to people about what is to come in the next Parliament. This Budget tells us that if the Conservative party is re-elected on 7 May, we will have a continuation of an economy and country for the few from a Government of the few.