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Budget Resolutions and Economic Situation

This Budget plans for £155 billion of deficit reduction by 2016-17, including £126 billion of spending cuts. The amount of cuts being pushed up into the next Parliament has grown, so the Conservatives and Liberal Democrats are currently planning to go to the next election promising to cut spending by at least £47 billion in the first two years of the next Parliament, on top of the cuts continuing throughout this Parliament, while giving top earners a tax break. The OBR has again downgraded its estimate of the economy's sustainable growth rate. As of June 2010, it thought the rate over this Parliament would be 2.1% to 2.35%. The OBR still expects the sustainable growth rate to pick up over the next couple of years. It believes that 2.3% is doable with the Budget measures; I do not think so. Even if it is right, which it consistently has not been, the growth will be jobless growth, with a high dole bill to pay. The Chancellor, therefore, should be trying everything in his power to get the sustainable growth rate up, but he is not. At the moment, cutting spending is almost the only thing he is doing. Although the OBR has made few changes to its headline growth forecast, it has changed the expected composition of that growth. The Government are keen on talking up exports and investment, but the OBR's estimate is that the UK's recovery will be dependent on the consumer. The OBR's growth forecast for 2012 to 2016 is spilt into two categories only: private consumption and everything else. Quietly, private consumption is expected to be a crucial driver of Britain's growth in the years ahead. In November, the OBR expected 12.5% of all growth in 2012 to come from private consumption. It has now revised that up to 37.5%. That is a massive change in just five months. Indeed, over the next five years to 2016, the OBR now expects more than half of all growth to come from private consumption. Hon. Members will remember that that is the ““wrong”” sort of growth, according to Government Members previously. The OBR believes that in four of the next five years, consumption will add more to gross domestic product than net trade, and consumption is expected to be a more important driver of growth and business investment in every year of the forecast. For all the Government's talk of exports and business investment-led recoveries, the forecast now suggests that they are banking on a return to consumer-led growth while simultaneously condemning it and laying absolutely no foundation for it. They privately count on consumer growth, yet politically condemn it. What tells us that consumer-led growth is not coming from current Government policy? According to the Office for National Statistics, hopes for growth from the wider UK economy in the first quarter of the year were dealt a further blow as retail sales volumes were revised down to 0.3% growth from an initial estimate of 0.9%. The Chancellor also said the Budget is about business, but the real policy should have been getting UK businesses to part with their hoarded billions of pounds in cash, and getting banks to lend. The Chancellor has not addressed that hoarding. Today, BT paid off a considerable deficit regarding its pension scheme—£3 billion by the end of the month and nine annual payments of £325 million. BAE Systems has a £2.1 billion cash pile, but in the past two years has cut 22,000 jobs, including 3,000 in the UK, while returning £2.2 billion to shareholders. The story is similar at Apple and AMEC, which ended 2011 with £521 million of cash and unveiled a £400 million share buy-back programme. It is a familiar tale across the country. Last year, shareholder dividends from listed companies jumped 19% to a record £67.8 billion, according to Capita Registrars, and are expected to hit a new high of £75 billion this year. After nearly two years of this Government, something has clearly gone wrong. The last 15 months saw the UK economy contract. Business investment is shrinking. In the final three months of 2011, it fell by 5.6%—the single biggest drag on growth, pulling the economy down by 0.5 percentage points. Business investment is still more than 15% below its pre-recession peak. Last year, the OBR forecast business investment to deliver 6.7% growth. It did not; it shrank 2%. According to the Bank of England, 2012 is not looking encouraging either, despite the OBR's hopes. The Bank's most recent agents' survey from February found:"““Investment intentions continued to weaken, suggesting little growth in spending on capital over the next twelve months””." John Hawksworth, of PricewaterhouseCoopers, says that he cannot see a recovery in business investment until 2013. Simon Hayes, of Barclays Capital, says that the OBR's projections require a level of spending not seen in 30 years. Most pointedly of all, BAE has made clear that business will not invest if it cannot make the returns. At the moment, the numbers simply do not add up. Corporate balance sheets are brimming with cash. According to official data, UK companies are tucking away about £70 billion a year, which is twice as much as before the crisis. Some analysts have estimated the total stash of cash under the corporate mattress at £750 billion. Investing just £20 billion of that in the UK would deliver 1% of growth. We need a Budget for households, but unfortunately the Government are wedded to supply-side economics. Until we have demand policies, that money simply will not be spent.