by Ian Lucas
As the dust settles on a tumultuous couple of weeks it is becoming clear that outside the Westminster bubble, only one event has truly cut through to the general public: the budget.
With the cut in the 50p rate of tax and the imposition of the “granny tax”, this was truly a Budget for “the premier league” – those top rate taxpayers who had the ear of the prime minister and have benefited directly as a consequence of George Osborne’s announcements.
What is clear is that securing economic growth and new jobs was not a key topic of conversation at the Downing Street dinners. Before the Budget, and after it, the failure of this Government is its failure to build growth.
A cut to capital projects has taken away key Government support for private sector job creation. Whole industrial sectors – such as construction – are suffering as a result, and both large-scale firms and their smaller subcontractors are holding back.
The uncertainty in the jobs market is reducing employee confidence. People are postponing major spending decisions. If you are worrying about your job, you won’t move house. Income for the local economy, agents’ fees, finance to builders is held back.
Worries about jobs are hold back spending; yet the Government has increased taxes on consumers. Every penny more on VAT for central Government is a penny less for local business.
It is necessary to reduce the deficit. But the most damning statistic for the Government is that it is borrowing £147 billion more than predicted – because the economy is not growing and more people are out of work.
This has happened because of Tory policies before. In the 1980s, unemployment reached 3 million twice. In that decade, public finances were cushioned by two major alternative funding sources: North Sea oil and privatisation. Neither are available now.
The roots of our economic failure lie, in my view, in the consumer booms and privatisations of the 1980s and the shift in focus from industries which made Britain the ” workshop of the world” to investment in financial services, not just in the UK but worldwide. Britain stopped investing in wealth creation and focused on extracting income from wealth transfer.
The most obvious examples lie in our building societies. Northern Rock was established as a way of providing homes, and the jobs created in building homes, to the people who helped make Britain the first industrial nation. Privatised, it ended its days as a consequence of failed casino capitalism on the US sub-prime mortgage market. Capital raised in Britain was exported, not just abroad, but abroad to be gambled on property market speculation.
These institutions held our money yet, rather than using it to provide jobs for the future, it was wasted and lost on failed speculation.
We need to do things profoundly differently.
The concept of a government investment bank is long overdue. But I also believe we need to look again at devolving financial power just as we devolved political power.
Building societies, like banks, were originally local institutions providing investment for local projects. Those institutions are no longer there. Our nations and regions suffer because of our banking and investment system is intensely centralised.
In the early days of the industrial revolution, banking was local, not just in decision-making but in the institutions themselves. As individuals, we need to start looking at how our money is invested. Pension funds and savings accounts are long-term investments which, since the 1980s have been plundered for short term gain by those taking commission in the financial services industry.
Examples such as pensions mis-selling in the 1990s and the failure of endowment policies to reach promised returns show that, even measured against its own criteria, our current financial model has failed. But, more importantly, it has also failed to provide finance for new business and jobs for our young people.
Osborne’s Budget has failed on taking forward a real growth agenda. Beyond pasties, jerry cans, cash for access, and even Bradford West, this is what will impact peoples’ lives from the past couple of weeks of political shenanigans.
That the Tories have failed in this way is no surprise. But what Labour must do is provide an alternative model for financing growth, a model which means that all of us, as individuals, share an obligation to invest to provide jobs for a shared future.
Ian Lucas is Labour MP for Wrexham and a shadow minster responsible for the business relations side of the FCO brief
Tags: Budget 2012, building societies, George Osborne, Ian Lucas, Northern Rock
It’s the debt stupid. All of the debt.
How are you going to pay back 7,000 bn?
How are you going to pay the interest and capital growth on that debt? Last year it was 350 bn, on top of the 150 bn deficit.
Ah yes, its going to be ‘lets screw the pensioners’. They don’t need their pensions.
Civil servants beware. When the government doesn’t admit in their accounts to owing you a state pension, the intention is clear, they don’t intend paying you.
But what Labour must do is provide an alternative model for financing growth, a model which means that all of us, as individuals, share an obligation to invest to provide jobs for a shared future.
Get a million back to work, with no costs (investment) and you get 15 bn a year of growth.
What’s your plan for the rest of the 135 bn of deficit?
Nick is still panicking about debt. Even though that is daft.
And even if we were to be exercised about debt, there’s no point getting worked up about Nick’s made up £7trn – as most of that is hugely long term liabilities like pensions and PFI and not debt itself.
I worry more about the deficit though, only because it reflects the sickly state of the UK economy. And I worry about it in the context of Osborne’s three budgets which have done nothing to address the deficit at all. Hence it will stay.
Unless the government underpins work financed by borrowing, then we can look over the Irish Sea to see what the endgame of sitting on our hands will be.
£147billion not million!
The biggest worry I had in the current budget is that it all depends on a growth in business investment which it attributes to the fairies or some other causation that no one sensible has been able to identify. If there isn’t any growth then Nick has a point in that carrying debt becomes more difficult – so what is your plan for growth Nick – more of the same?
£147bn indeed, thank you & corrected – ed
The public doesn’t care about the 50p tax rate and no-one will even remember this budget as it contains absolutely nothing of importance.
You don’t seem to understand why Northern Rock went bust. The capital held by Northern Rock was not gambled abroad, rather they didn’t have enough capital to start with. Their business model was irresponsible and highly risky, and that was the main problem.
Are you saying we should cut VAT? I cannot follow your reasoning there.
I think you have a good point about local, informed financing. How do we go about creating or encouraging that?
“But what Labour must do is provide an alternative model for financing growth […]”
I await details of this alternative model with interest. I won’t hold my breath though.
The facts are that banks are being forced to cut back lending due to the reactions to the 2008 banking crash – more capital is need to fund any given level of debt. That is not just a UK but a EU wide problem and it’s not going to go away quickly.
Now I agree Osborne’s budget did not focus on growth – but it did cut Corporation Tax – which should encourage inward investment…
So instead of saying “Labour should.. ” lets have some proposals which are realistic..If they rely on large scale Government funding, no doubt there will be the corresponding cuts in the UK Budget proposed to offset the funding required for other purposes?
And if they are not Government funded, no doubt you will explain how to persuade others to invest instead?
Any proposal which includes wholescale privatisation will be treated with the contempt it deserves…as under EU law it will cost £ billions.
“Now I agree Osborne’s budget did not focus on growth – but it did cut Corporation Tax – which should encourage inward investment…”
So how sucessful were the previous Corporation taxes in doing this. The Corporate Sector is sitting on a very large surplus at the present – this is the mirror image of the public sector deficit. Taxes on Corporates need to be a lot more geared to whether they invest or not – and I would make them pretty punitive on those who just sit on cash piles. But because the Tories are so wedded to deregulation and not interfering they did next to nothing in this regard.
If Labour should do one thing – it should acknowledge that markets are not always self correcting, efficient and price risk correctly and that market deregulation is not automatically a good thing. This is the big mistake that was made by most Western economies with regard to banking and financial markets before the 2007-8 crash. Labour should acknowledge that it got this wrong – the Tories given their underlying ideology will be incapable of doing so.
There is question regarding how markets should best be regulated – and personally I don’t believe in micro management and regulation by detailed rules and bureacrats. I don’t think it is justing banking and financial markets which need looking at either – energy and commodities markets and UK supermarkets all seem to have built in inefficiencies which work against the interests of the end consumer. The economic thinking is already there if Labour politicians are brave enough to look and change.
Stephen
Labour DID regulate markets.
It had the FSA.
The only trouble was it was basically incompetent. Rather like the Care Commission. Another totally incompetent body.
Labour seemed to specialise in creating bodies – which in theory could have regulated properly – but failed to do so,
So your basic premise is wrong and frankly I would not trust any Labour politician to run anything properly. See Gordon Brown… who started off when he became Chancellor in telling us year after year what he was NOT going to do.. and then actually doing it. (Housing bubbles, boom and bust, Prudence).
As far as I can see, Labour do not acknowledge they have done anything wrong: so there is NO chance they will do it right in future.
I expect politicians to make mistakes.. everyone does. I expect them tpo acknowledge them and learn from them.
They don’t..
As a result : zero credibility..
I also remember expenses: most MPs act as if it never happened: and then wonder why most people think they are lower than estate agents… Crooked estate agents go to jail. very few thieving MPs did.
“As far as I can see, Labour do not acknowledge they have done anything wrong: so there is NO chance they will do it right in future.”
George Osborne has killed growth through a spending review and 3 budgets which systematically sucked demand out of the economy.
That is gargantuan failure.
Will Tories who supported this nonsense please acknowledge their economic failure or else they will never learn and will undoubtedly get it wrong again in future.
Madasafish
If you knew anything you would know that it was the Bank of England and Treasury that had responsibility for the general functioning of markets. I don’t remember anyone in any of the parties shouting when the markets were failing to price credit risk properly on asset backed securities – all parties were in thrall to deregulated markets – and the Tories still are. Better the sinner who repents than those who carry on – I think that if you bother to listen there are plenty on the Labour side who understand what went wrong, politics being politics just don’t expect them to shout too loud. You are being incredibly naive if you believe that all that happened in 2007/8 worldwide can only be blamed on the Labour Govt – and if you believe that you will never identify any meaningful solutions – a bit like George Osborne!
BenM
As there has been no growth since 2005, your comments are an irrelevance.
I’ve never known a budget unravel so quickly.
And often wonder what the point is of setting measures that won’t take effect until the near future. Because its more than like that the forecasts are wrong, completely wrong, and will have to be revised anyway. So what is the point apart from declaring an intention, which the next incoming Govt is likely to reverse anyway.
It seems that a lot of families are going to lose out by at least a couple of hundred a year, and on top of that tax credits of at least a couple of thousand a year because they haven’t enough hours of work required. So Osborne has miscalculated.