Indeed. We have to use all the weapons and measures of macro-economic policy to make sure that we recover. Fiddling around with supply-side measures is no doubt the sort of thing that the London Business School talked about in 1990, but it will not solve our problems.
The macro-economic measures that we must take include, first, tackling the exchange rate. Secondly, we must inject demand through additional public spending, and we can pay for that in various ways without necessarily increasing the deficit. We could raise taxes on the rich very substantially. For example, we could begin seriously
to close the tax gap and collect the tax that has been avoided or evaded, perhaps sending a few corrupt bankers to prison in the process. That would concentrate their minds, as I said earlier.
We need to begin to spend in areas of high labour intensity. If we can get people back to work quickly by spending in those sectors—construction and the public services, which have been cut by the Government—we can bring down unemployment. People pay tax when they are in jobs, they do not claim benefits, and the economy begins to recover. At the same time, we can build millions of houses that we need, particularly local authority houses, and we can provide all the nurses we need in hospitals. Hospitals are under stress because of a lack of staff on the wards. We can develop other areas too: local authority services, children’s services, and social services for the elderly, all of which are under stress and are things on which we should spend to generate more employment. We generate employment directly by spending money on areas with high labour intensity.
There is another great advantage of spending money in such areas. As my hon. Friend the Member for Swansea West (Geraint Davies), who has left the Chamber, said, the rich do not spend money: they put it in banks and tax havens. But ordinary people, especially if they have been unemployed, spend every single penny of their money on supporting their families, dealing with their debts and so on. They spend their money. They have what the economists call a high marginal propensity to consume. We should give as much money as possible to those who have that high marginal propensity to consume, not to those who stuff it in banks and foreign tax havens. That would help to regenerate the economy.
Another great thing about public services and construction is that they put demand into the domestic economy, not into the foreign economy. If I were given extra cash, which I do not need—I think I should pay a bit more tax—what would I do? I would have another foreign holiday. I might buy another case of French wine. That does not help our economy at all. But if construction workers have extra cash, they go out and spend it in the shops on food, their homes and their family. They spend it in the domestic economy. They do not, as far as I know, buy large quantities of French wine or have fancy foreign holidays, especially when they are just coming out of unemployment. They would spend their money in the domestic economy.
The great thing about construction is that it has a low import content. Most of what is used in construction comes from the domestic economy. Again, the demand goes into the domestic economy so the spending by construction workers in their new jobs becomes someone else’s income within the domestic economy. We get the multiplier effect of one person’s spending becoming another person’s income going around in a big circle and the economy is regenerated.
That is what we need—pure Keynesian reflation, but we have other measures to deal with that. If it necessitates some serious tax increases, so be it. The majority of the population have said in opinion polls, I understand, that they would prefer tax hikes to spending cuts. That is absolutely right. We are frightened of saying that we should have higher taxes. Francois Hollande in France decided to introduce a significantly higher tax rate for a substantial proportion of the population. Some people
will squeal about it and no doubt the right-wing media in Britain would squeal about it, but there should be a bit more tax, even on MPs such as myself. I have suggested that the first tax rise should be the 50% rate not at £150,000, but at £60,000, so that I would pay a little more tax. I am talking about me as well as about other people. It is easy for us to make changes that affect other people, not ourselves.
Such a change could be made, if need be, but in the short term we do not need to do that. We need to collect the taxes that should be paid and which are the subject of tax avoidance and tax evasion. We need a radical economic strategy, including all the components that I have suggested, to get us out of the mess we are in—and we are in a mess. In his Budget speech, the Chancellor looked like a frightened man. He looked very worried. Clearly, his strategy is not working. He does not know what to do without doing a complete U-turn and adopting a completely different strategy—the kind of strategy that I am talking about—which would mean political humiliation for him. He should worry less about political humiliation than about doing the right thing by the country.
8.37 pm