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Osborne’s Pyrrhic ‘recovery’

The Tories suffered a miserable debate yesterday, and I hope my remarks contributed to it:

The cost of living crisis has had a fairly good airing in this debate and has been poignantly described in some detail, so I intend to concentrate on the second part of the motion, which concerns the Government’s economic policy and, on the cost of living crisis, to ask the obvious question: was it all necessary? The Government’s answer, as provided by the Financial Secretary in a rather frivolous and provocatively partisan knockabout, was, predictably, yes. He simply repeated the well-worn Tory mantra that we all know: Labour left behind a huge economic mess; there was no other way to deal with it other than through massive cuts in public expenditure; we were “all in it together”; and now the Chancellor’s policies have been vindicated as it has all come right. All four of those statements are flat wrong.

First, Labour did not leave an economic mess. The budget deficit in 2007-08, just before the crash, was 2.6% of gross domestic product—one of the lowest in the OECD and about the same as Germany’s. It rose to 11.6% in 2010 only as a result of the bankers’ bail-out. I noted that the Financial Secretary did not even mention the banks today, so I was beginning to wonder whether he had even heard of the bankers’ bail-out. [Interruption.]I am prepared to give wayat this point, before going on to answer in some detail

Perhaps the Financial Secretary did not mention the bail-out because he was working in financial services as a banker himself? Graham Jones (Hyndburn, Labour

That may well have had something to do with it, but it happened also because the Tories decided to blank out the bankers’ bail-out and put the whole blame on the Labour party. For any objective economist or objective observer of any kind, that is obviously absurd.Michael Meacher (Oldham West and Royton, Labour)

Secondly, there was another and much better way to deal with the budget deficit than through semi-permanent austerity. It is costing the country £19 billion a year to keep 2.5 million people unemployed. I simply say that it would have been far better to get these people off benefit and into work through public investment, so that they could earn and contribute to the Exchequer through taxes and national insurance contributions. I well know that the question will come, “How do we pay for that?”, so I shall answer it. This can still be done—and it could have been done three years ago—without any increase in public borrowing at all, despite the Chancellor’s continuous jibes to the contrary, by a further tranche of quantitative easing targeted not on the banks but directly on industry, or by instructing the publicly owned banks RBS and Lloyds to prioritise lending to industry, or by taxing the ultra-rich.

Let me remind the right hon. Gentleman of the fact that it was his Government who did the deals with RBS, yet they did absolutely nothing in those deals to force the banks to do things that they had decided they did not want to do.Alec Shelbrooke (Elmet and Rothwell, Conservative)

There has been a great deal of partisanship in this debate, and I am prepared to recognise that the problems did not start with the present Government. I agree that we should have taken a much tougher line with the banks before 2010, but let us concentrate on where we are now, because the country is in a very serious position.Michael Meacher (Oldham West and Royton, Labour)

That brings me to the third point. We never were “all in it together”—quite the opposite, and to a stunning degree. In The Sunday Times rich list, the richest 1,000 of the UK’s citizens—a tiny 0.003% of the population—increased their wealth in the five years since the crash by a staggering £190 billion, while 90% of the population over exactly the same period have had to take a real-terms cut of about 9%, and their wages are still falling. So much for social solidarity! If that £190 billion were charged to capital gains tax, it could technically raise £53 billion. I do not think it would for a moment, but it could realistically raise roughly £30 billion to £35 billion—quite enough to generate 1 million to 1.5 million jobs within two or three years. That would be a far quicker way of reducing the budget deficit—which is supposed to be the aim of the exercise—than spending cuts could ever be.

The Government’s fourth point is that we have a recovery. Well, we do have a recovery of sorts, but one that has been generated in exactly the wrong way. It has been generated by consumer borrowing and an incipient bubble, and it is not—I repeat, not—a real, sustainable recovery. As my hon. Friend Geraint Davies pointed out, such a recovery can come about only as a result of rising investment, increasing productivity, growing wages and healthy exports, and none of those is present now.

Over the last five years, Britain’s business investment has dropped in real terms by a devastating 25%, well below the global average. UK productivity is now almost the lowest among the OECD countries. As we were told by my hon. Friend Chris Leslie, UK wages are undergoing the biggest fall since the 1870s, and are still falling. As for exports, Britain’s deficit on traded goods is still running at a

mountainous rate of over £100 billion a year. If that is a recovery, then God help us if we ever experience a downturn.

So has the Government’s economic policy failed? Not necessarily. It all depends on what we think the Government’s objectives really were. If the objective was to cut the budget deficit, as they claim, then yes: I think that the last three years of unending misery and austerity have involved a momentous waste of resources in return for almost nothing. According to the Government’s own figures, the budget deficit was £118 billion in 2011 and £115 billion in 2012. Like those who engaged in trench warfare during the first world war, we have advanced a few dozen yards, and have taken enormous casualties in order to do so. No sane person would continue with such a policy at such expense in blood and treasure, yet here we have a Government who are determined to slog on with exactly the same policies, and—as with the generals in the first world war—the cost is not to them, but only to the poor squaddies who are sent over the top.

My last point relates to a recent speech by the Prime Minister, which I am amazed he gave, and which I think will come back to haunt him. He said that even when the deficit was paid off—and I think that that time could be nearer to 2030 than 2020, given the direction in which we are going—there would be no restoration of spending that had been cut. The Tories, he proclaimed, believed in

“a leaner, more efficient state”.

What he really meant, of course, was a fully privatised state in which you had better succeed in the market, because otherwise there will be precious little help from public sources when you need it.

As for “efficient”, was that G4S at the Olympics? Was it Serco charging for tagging prisoners who had already died or left prison? Was it the big six energy companies ruthlessly profiteering at customers’ expense? Was it the water companies indulging in a profit bonanza for top executives and shareholders, but trying still to charge taxpayers? Was it outsourcing in theNHS, which has led to longer waiting lists and an inability to cope? Was it the free schools that have been set up in areas where there is an abundance of places, while other areas where there is a shortage of places are abandoned? Lean and efficient? Come on!

I really do not believe that the Tory leadership sees the prolonged austerity and the economic disaster that have been visited on the country over the last five years as a failure at all. The Tories see that as merely the price to be paid—although not, of course, by them—for attaining the real objective, which is a permanent squeezing of the public sector and a shrinking of the state. That is what they want to do if they win the next election, and that is why I believe they will not win it.

One Comment

  1. ShirleyKnott says:

    And today on the news, we learned that the banksters have increased their ‘compensation’ – for doing such a gruelling, dirty job – by a third. Shoulda been a turd.

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