The Economy

Thank you, Madam Deputy Speaker, for calling me to speak in this extremely important debate. The huge error made by the Chancellor on assuming office last year was to mistake a global crisis of demand, growth and jobs for one purely of debt and deficit. He launched a grand experiment of so-called expansionary fiscal contraction, which he must now admit has been the most disastrous episode in British fiscal policy since the 1930s. The Chancellor took an economy recovering at an annualised rate of 2.1% at the end of the previous Government's period in office and turned it into an economy with flatlining growth. This autumn, our rate of growth stands as the fifth lowest in the EU according to the European Commission and is lower than the eurozone average. The National Institute of Economic and Social Research has said that this is the slowest recovery from recession in Britain in a century. In the great recession of the 1930s, it took just 48 months to rebuild the lost output in the economy. Under this Chancellor, it will be 69 months and counting. Even taking into account the measures announced by the Government last week, the OBR has downgraded growth for the fourth time since its initial forecasts last June. Growth is now 0.8% lower this year and a whopping 1.8% lower next year than in the previous March forecasts. The burden is not being shouldered by the Chancellor, nor by the rich and powerful in society. It is being paid by women working part time to help support their families. It is being paid by children facing lower living standards than the generation before them. Above all, it is being paid by the poor, with the number of people in food poverty in this country approaching 4 million, and by the unemployed, with the number of young jobless now more than a million. The respected Fraser of Allander Institute has said in its latest commentary that there is still some scope for fiscal easing without damaging our fiscal credibility in the long term. As Tony Dolphin of the Institute for Public Policy Research wrote last week in relation to the Government's fiscal consolidation plan and its impact on bond yields:"““If it had started with a plan that reduced the deficit more slowly—say over six years rather than four—yields would probably be little different from current levels now.””" What is particularly worrying is that the same austerity medicine is being applied in many other EU countries with similar results. The Chancellor's growth strategy is now predicated on maintaining loose monetary policy indefinitely, with ever higher levels of quantitative easing, a policy he once derided as"““the last resort of desperate governments””" whose other economic policies had failed. As the experience in the 1990s shows, low interest rates in themselves are insufficient to generate new demand. Japan has net debt of more than 200% of GDP, but even lower bond yields than the UK. As the Japanese economist Richard Koo recently said of austerity economics in an interview with the Money magazine in the United States:"““The Japanese made a horrendous mistake in 1997.””" He explained that"““The cutback caused a second recession… The Japanese Government didn't do enough spending in the early 1990s and added another 10 years to the problem.””" It is precisely that thinking that underpins what the Chancellor is doing today. The Government are ignoring four basic realities about our economy. The first is that living standards for families with working-age parents are being squeezed to levels last seen in the 1920s, amid slumping consumer confidence, slumping demand and weak retail sales. The second is that supply-side reforms are needed to stimulate growth in manufacturing and construction. In particular, a national investment bank could produce the borrowing capital needed to kick-start new investment in the green economy. The third is that mass unemployment creates massive social costs and unrest, and devastates lives, which ends up placing a higher burden on future taxpayers. That is the price of economic failure. Finally, we need to build an economy in which those on low and middle incomes share more of the proceeds of growth than they have over the past three decades. The country is crying out for a fair alternative to this failed Tory plan that is sucking demand from our economy, and hope and life from our communities. Our country deserves better leadership and a more optimistic vision of the future than that which has been offered by the downgraded Chancellor of this deflationary Government.