Campaign news

The debate in Parliament on the Charter for Budget Responsibility

17th October 2015

Some Labour contributions in the debate on the Charter for Budget Responsibility

from Hansard, Wednesday 14th October

John McDonnell: I suppose I should deal straightforwardly with the U-turn. Yes, two weeks ago, I recommended that Labour MPs vote for the charter, and today I shall urge them to vote against it. Is that embarrassing? Yes, of course, but a bit of humility among politicians never goes amiss. When circumstances and judgments change, it is best to admit to it and change as well, so I would like to take this opportunity to welcome the Prime Minister’s change of heart on the bid for the Saudi prisons contract.

Let me clear: I have changed my mind not on the principles of the need to tackle the deficit, but on the parliamentary tactics for dealing with this charter. Labour will tackle the deficit. [Interruption.] The Chancellor has a record of ignoring the targets he sets in these charters and mandates, treating his own charter with contempt, so I recommended two weeks ago that we should do the same. It is difficult to take seriously the charters and mandates when time after time the Chancellor has come to Parliament to revise his own charter. It is difficult to take it seriously when he has consistently failed to meet his own targets.

I remember the promises; I was here. The Chancellor promised to wipe out the deficit in one Parliament, but he did not get through half. In 2010, he promised to reduce borrowing to £37 billion by 2014-15. Last year, it was £87 billion—135% more than forecast. He promised public sector net debt would fall to 69% of gross domestic product in 2014-15. Today, it stands at 80% and above. It is no wonder that the charter has been seen as one of the puerile political traps the Chancellor likes to set.
Voting against the charter m
akes someone a deficit denier; voting for it would lead to the Chancellor claiming for the next five years that we had signed up to support every one of his cuts in public services and benefits.

I regret that the procedure followed today is an unamendable order—a take-it-or-leave-it order. My initial view was to use today’s debate for a bit of traditional parliamentary knockabout to ridicule the Chancellor’s performance against his own charter. I admit it: I was trying to out-Osborne Osborne.

Apart from the economic analysis and professional advice I have received, what really changed my mind was a trip to Redcar last week, where I met steelworkers and their families in tears at losing their jobs, their livelihoods, their futures. The Government’s failure to invest in our manufacturing industry, even if only to mothball the plant until better times arrive, has meant the end of steelmaking in Teesside and immense distress to families. The Government’s refusal to invest will be embedded in this charter as it now moves on to limit all public sector borrowing….

This charter will be used time and again as an excuse for the Government’s refusal to intervene and invest, but the more we know about its potential use, the more my view is strengthened—it has to be vigorously opposed. It will be used to justify cutting services and support to families across the UK, including the cuts to tax credits, which are the working families’ penalty. I cannot support the cuts to tax credits for working families. These are people who have done everything asked of them: they have gone to work and looked after their children, yet because of the policy direction in this charter they are going to be hit with a £1,300 cut. Neither can I support the continuing attack on disabled people, which is inherent in this fiscal mandate.

Disabled people are already harassed—some to death—by the brutal work capability assessment and often by benefit sanctions, yet they are to lose over £30 a week. Disabled people under this Government and under the coalition, have been hit 18 times harder than other citizens by the impact of cuts. I do not want the Labour party to be associated in any way with these policies, and to dissociate ourselves clearly we need to vote against them tonight….
It is increasingly clear that the charter and the fiscal mandate are not economic instruments, but political weapons. This is not an economic debate. It is about the politics of dismantling the welfare state, the closing down of the role of the state, and the redistribution of wealth from the majority to the minority. Austerity is not an economic necessity; it is a political choice…
. Over the last five years, the focus of the economic debate on the deficit has reflected the capture of the economic narrative by the right since the crisis in 2008. Over six years, the Conservatives have managed to convince many people that the economic crisis and the deficit were caused by Labour Government spending. It has been one of the most successful exercises in mass public persuasion and the rewriting of history in recent times. Today I am going to correct the record.

The facts speak for themselves. The Conservatives backed every single penny of Labour’s spending until Northern Rock crashed. The average level of spending under Labour was less than it was under Mrs Thatcher. It was not the teachers, the nurses, the doctors and the police officers whom Labour recruited who caused the economic crisis; it was the recklessness of the bankers speculating in the City, and the failure of successive Governments to ensure effective regulation. In opposition, this Chancellor and his colleagues wanted even less regulation of the banking sector that crashed our economy. The deficit was not the cause of the economic crisis, but the result of the economic crisis….
Focusing on the deficit continues to mask the underlying weaknesses and failures of our unreformed economic system. We are witnessing a recovery based on rising house prices, growing consumer credit, a ballooning current account deficit and still inadequate reform of the finance sector. I worry that some of the warning signs are reappearing. But the Conservatives have adhered to their dictum: never let a crisis go to waste. They have skilfully used their narrative of the deficit to enable them to cut public services, slash benefits, and give tax cuts to the rich and corporations. Successive charters and fiscal mandates brought before this House have been cynically used as a weapon in that cause.
The purpose of the original Fiscal Responsibility Act 2010, brought in by Labour, was to bolster the then Government’s economic credibility. I recall what the current Chancellor said. He described it as little more than a political stunt. But he soon learned what a useful tool charters and mandates can be, and immediately upon the coalition’s election, he introduced his own. The fact that he missed most of his targets was irrelevant to him; what was more valuable was that charters could be picked up whenever needed and prayed in aid to excuse any attack on the welfare state and any cut in benefits, and provide a means to redistribute wealth upwards.

The charter before us today also has little basis in economics. Let me quote Dr Ha-Joon Chang, Professor Thomas Piketty, Professor David Blanchflower, Mariana Mazzucato and Simon Wren-Lewis. Those eminent economists in our society said that it has “no basis in economics. Osborne’s proposals are not fit for the complexity of a modern 21st-century economy and, as such, they risk a liquidity crisis that could also trigger banking problems, a fall in GDP, a crash, or all three.”

They go on to say that if the Government “chooses to try to inflexibly run surpluses…Households, consumers and businesses may have to borrow more overall, and the risk of a personal debt crisis to rival 2008 could be very real indeed.”…

Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): We are getting to the crux of this debate, which is that this fiscal charter is intellectually moronic. It essentially commits this House to never borrowing to invest, even when the cost-benefit analysis of that investment is such that the country would benefit greatly. That is why it has not one serious economist backing it, other than the self-styled experts on the Government Benches.

John McDonnell: I could not have said it better myself. Can we move on?
The Chancellor may not appreciate these economic points, but I believe many of his advisers do. That is why there is a sizeable get-out clause for the charter rules not to apply outside normal times when there is a significant negative shock to the UK economy. Not only are the social consequences of this programme devastating, but the scale of the cuts we are witnessing represents a false economy. They jeopardise the long-term economic prosperity of our country. It is a false economy to cut adult social care when the burden is shifted on to hospitals and accident and emergency departments. It is a false economy to pursue an ideological sell-off of council housing eventually to put up the rents and eventually increase housing benefit. It is a false economy, ironically, that when this Government came to office there were 70,000 people at HMRC and within the next year that is planned to fall to 52,000—a cut of more than 25% in the number of tax-collecting staff, when HMRC says that tax evasion is as high as £10 billion a year….

The worst false economy is the failure to invest. This will be a direct result of Government policy embedded in this charter, with its limits on all public sector borrowing. Economists from across the spectrum have written and commented on the need for investment for the future. The World Economic Forum ranks the UK 10th for the quality of our infrastructure, behind Germany, France, the Netherlands and Spain. This Chancellor’s strategy has given us investment as a share of GDP lower than all the other G7 countries, falling even further behind the G7 average in recent years.

That is why business leaders, trade unions and a host of others are calling for investment. It is incomprehensible for the Chancellor to rule out the Government playing a role in building our future. For him to constrain himself from doing so in the future, no matter what the business case for a project, has no basis in economic theory or experience.
We also face an uncertain medium-term future for the global economy. In recent weeks there has been mounting evidence of a decline in global demand, particularly in the emerging markets….

Economists have warned of the potential for a future slowdown in western economies as a result. Former chief economist at the World Bank, Larry Summers, wrote last week that the dangers facing the global economy are more severe than at any time since the height of the crisis. Faced with these potential challenges, it makes no sense to close down the fiscal options available, especially when there is a possibility that monetary policy options may also be constrained.

I want to break the stranglehold that the focus on deficits has had on the economic debate in this country in recent years. Yes, the deficit is vitally important, but we need a paradigm shift to open up the wider debate on what makes a healthy economy, a prosperous economy, in which everybody shares in that prosperity and in which everybody is secure, not just the wealthy few, where everybody has a decent home in a sustainable environment, is able to develop their talents to the full, has secure, stable, well-paid and rewarding employment, and support when they fall on hard times. We will tackle the deficit, yes, but we will not tackle—[Interruption.] Hon. Members should listen and they will hear.

We will not tackle the deficit on the backs of middle and low earners, and especially not on the backs of the poorest in our society. We will tackle the deficit, but we will do it fairly and to a timescale that does not jeopardise sustainable growth in our economy. We will balance day-to-day spending and invest for future growth, so that the debt to GDP ratio falls, paying down our debts. We will do this, first, by ending this Government’s programme of tax cuts to the wealthiest in our society. This winter, when the letters go through the letterboxes telling working families how much they will lose in tax credits, we will be reminding them that their tax credit cut has paid for a cut of billions of pounds in the inheritance taxes of the richest families in this country.

Secondly, we will give HMRC the resources and powers to tackle tax evasion and avoidance—no more Facebooks paying less than £5,000 in tax despite £35 million in bonuses and total global profits of £1.9 billion—but above all else we will grow our economy. We will use smart Government institutions to strategically invest in the key areas that increase GDP in the future: education, health, research, technology, human capital formation and training—a progressive economic agenda that recognises that wealth creation is a collective process, working in partnership with businesses, workers, public institutions, and civil society organisations that create wealth in this country….
That is why we will establish a national investment bank to invest in innovation across the entire supply chain, from the infrastructure we need to the applied research and early stage financing of companies. To tackle the growing skills shortages we will prioritise education in schools and universities along with a clear strategy for construction, manufacturing, and engineering skills to build and maintain sustainable economic growth. The proceeds of that growth will reach all sections of our society.

So we are launching the debate on the economy we need and the economic instruments and policies needed to achieve that prosperous and sustainable growth. That is why we are reviewing every aspect of economic policy and systematically assessing our economic institutions, the Bank of England, HMRC and the Treasury.

Today I can announce that I have appointed a former member of the Monetary Policy Committee, Professor David Blanchflower, to lead a review into whether the Monetary Policy Committee should be given a broader mandate. He is joined by Lord McFall, the former Chair of the Treasury Committee.

This is Labour’s radical project. It is based upon the sound advice of some of the best economic brains in the country. We will be testing our policies and economic instruments and we will be asking the Chancellor to give us access to the resources of the Office for Budget Responsibility to model our proposals. I am asking the same of the Governor of the Bank of England.

We are seeking the widest public engagement in our economic policy discussions. The dividing lines between us and the Government are not just on how to tackle the deficit and who pays for the crisis. They are more fundamental. It is about for whom the economy works and the role of the strategic state in this process. So today we will oppose this charter as an instrument for imposing austerity on our community unnecessarily. We are bringing to an end the petty game playing and moving on to a more serious debate of how the economy can work for everybody….

John Mann (Bassetlaw) (Lab): There is a saying in literature that normal is as narrow as the street that you live in. The Chancellor lives in a little gated community—a cul-de-sac with perhaps a problem neighbour next door. The constraint on his economic plans is the backdrop to the decision tonight on whether to have this charter. Yet he cannot cite anyone supporting the charter other than those who are sitting behind him. Our friends in the CBI are not supporting his charter. The City of London is not supporting his charter. The Governor of the Bank of England was not prepared, in the Treasury Committee, to support his charter. Indeed, all the economic experts who came before the Treasury Committee when we looked at this in some depth in July did not at any stage choose to support his charter.
Indeed, the Chancellor’s own Conservative colleagues in the Treasury Committee, who are somewhat absent tonight, were reluctant to speak out in favour of his charter. The reason is that it is a political gimmick. It has no necessity other than politics. That is why he has no support anywhere in business or the City for it. Churchill said, “Don’t strive to be ‘normal’.” The Chancellor should heed Churchill’s advice, because “normal times” is the sting in the tail that makes the charter so pernicious. What has happened since Churchill? It is interesting. There has been a bigger percentage of budget surpluses under Labour Governments since Churchill was Prime Minister than under Conservative Governments.
Far be it from me to cite Margaret Thatcher as a source on this, but Margaret Thatcher, in all but one of her years, ran a budget deficit. Conservative Governments have usually run budget deficits more than Labour Governments. The Chancellor, every single year, has run a budget deficit—a record £505 billion since he came in. Yet he wishes to give us this lock-in that is purely a trap to try to entice the Labour party into stupidity.

This is Parliament, and in Parliament we vote on legislation. There is plenty of space for political games and political tricks outside, but not in here when we vote on legislation. That is precisely why everybody in the House should vote against it. There are vital economic debates on what the Budget should be—whether there should be cuts, how cuts should be made and what taxation should be, on all of which there are critical and different views—but this is a trick and a gimmick. It is something that our friends in business, our friends in the City and our friends as economists have refused to back. I therefore look forward to Conservative Members also opposing this political gimmickry….

Helen Goodman (Bishop Auckland) (Lab): I am pleased to follow the hon. Member for Boston and Skegness (Matt Warman). He has clearly not read the columns of his former colleague Martin Wolf, who agrees with the arguments made by Labour Members. If anybody wanted to know whether this was a political gimmick, they only needed to look at the 90 minutes provided on the Order Paper for this debate—a pitiful 90 minutes to discuss something that is meant to be an important economic policy…
. We took evidence on this matter in the Treasury Committee in July. We found nobody who was prepared to endorse the Chancellor’s proposals. Even the Governor of the Bank of England, when pressed by the Chair of the Select Committee, said that he was “declining to opine on specific legislation”. He stated that “the UK Government have had the announced intention in Budgets in place for a sustained fiscal consolidation. That is one of the headwinds against the economy”.

It was not just left-wing economists who criticised the Chancellor. The head of the Thatcherite Institute of Economic Affairs, Professor Philip Booth, said that the fact that “these very damaging things have been done to child tax credit systems…is my biggest concern.” He continued: “I think in the handbook of possible fiscal rules the Government is choosing a very, very, very bad one.”

One of the most pernicious things about the rule that the Chancellor has chosen is that it treats capital and current spending the same. He is ignoring the fact that investing in housing, science, broadband, transport and the university system is a way of strengthening economic productivity and increasing growth in the British economy. Nobody thinks that it is right to max out the credit card to pay the weekly grocery bill—of course not—but families up and down this country take out mortgages to buy their homes. There is a precise parallel here.

Opposition Members are not deficit deniers. We want to bring down the debt-to-GDP ratio, as the shadow Chancellor said. In that task, the Chancellor has failed spectacularly. The debt has gone up by £500 billion under his stewardship. To get the debt-to-GDP ratio down, we must do two things. We must run the public finances in a sensible way. That means making sensible savings, for example by tackling fraud in the housing benefit system and not going ahead with the ludicrous cuts to inheritance tax, which will benefit the richest in our country. At the same time, we must get sustainable growth into the economy. That means investment.

http://www.publications.parliament.uk/pa/cm201516/cmhansrd/cm151014/debtext/151014-0004.htm