Greece & Austerity

Mr Peter Hain (Neath) (Lab): I endorse the Prime Minister’s welcome to our excellent new chief Clerk. I also welcome the fact, Mr Speaker, that you are proceeding speedily to the appointment of the post that will carry out the chief executive duties, the director general. That is very important.

On Greece, may I suggest to the Prime Minister that simply repeating the same dose of austerity on the Greek people and their Government will not achieve the objective any more than the last dose did? National debt went up in Greece as a result of the austerity programme. Of course, the Greek Government have to reform to collect their taxes and to get rid of corruption, and the Government have volunteered to do that, but going down the same austerity road is not going to revive the Greek economy or enable it to repay its debts. Those must be rescheduled and the reforms around that must ensure that Greece is capable of repaying its debts, not being strangled with austerity.

The Prime Minister: I do not entirely disagree with the right hon. Gentleman. The problem is, though, that the people who have lent the money to Greece want their money back, and they believe that Greece should carry out a series of reforms before they give it any more money. He or I can take a different view and argue as I would, although he would not, that Greece should never have joined the eurozone in the first place. That is not the right hon. Gentleman’s view because he is a fanatic about the eurozone. None the less, as we have not lent money to Greece, we are not in that position. If he had been at the European Council he would have heard, whether from the Germans, the Dutch and the Scandinavian countries, or from the Spanish, the Portuguese and the Irish, who have all been through these painful processes, that there is very little appetite to cut Greece a lot of slack.

How can Labour prove it’s not on the side of a small cabal in the Square Mile?

How the recent tax avoidance scandal shows that the softly softly approach won’t work, and we need a financial transaction tax.

Ed Miliband repeatedly challenged David Cameron at Prime Minister’s Questions recently to close a tax loophole that allows hedge funds and others to dodge the stamp duty they should pay on share transactions. Last week in parliament a report was launched by former senior banker Avinash Persaud which shows that by tightening such rules we can raise a potential additional £2bn year. In both cases the Conservatives have looked the other way. Perhaps it’s something to do with the Conservative party receiving a large wedge of their funding from the financial sector?

It fits a pattern. The government has bitterly fought European legislation designed to keep financial services in check; the ringfencing of investment and retail banking has been delayed until 2018, a decade too late; and no individuals have been convicted for their part in the crisis. The list goes on: an anaemic bank levy has raised little revenue; financial sector corporation tax receipts are dwindling and financial sector remuneration is so out of sync with the rest of the economy it took senior bankers just the first week of January to earn what the average Briton will take home for all of 2015.

Timidity towards the Stamp Duty (itself a very modest proposal) is thrown into even starker contrast when we consider what is happening across the channel. Eleven European countries, that in total make up around 70 per cent of European GDP, are going further – they’ve committed to a broader Financial Transaction Tax. Our stamp duty, which is set at a rate of 0.5 per cent, is paid every time a UK share is traded. As France’s President Hollande indicated earlier in the year, the European proposal will apply to shares, but crucially it will also apply to the colossal market of financial chicanery known as derivatives. Whilst the details are still to be hammered out this is likely to raise in excess of £10bn a year for participating countries.

This is not a policy preserve of the left – Germany is one of its biggest champions. Like us, they too have unfurled a wide-ranging austerity programme, yet with a quid pro quo: if the public are paying the price of the economic crisis they did little to cause, the financial sector must also pay its share.

Of course, some financial sector players are squealing in horror – but they would protest about a tax they’ll have to pay wouldn’t they? Indeed, we should be more concerned if they were silent. The truth about FTTs is more prosaic than critics suggest. Many moderate variations of the tax have already been successfully implemented around the globe. Most have been implemented unilaterally without unduly impacting on markets, putting paid to the idea they must be global to work. The UK’s stamp duty provides the blueprint – it captures share trades wherever in the world they take place, since without it, legal title will not be transferred to the new owner. This is so effective, 40 per cent of its revenue comes from overseas counter-parties.

Closing the stamp duty loopholes could raise us £2bn a year in extra revenue – this offers a real chance for Labour to put itself on the side of the majority of the electorate and not on the side of a small cabal in the Square Mile. But the real prize comes in extending the stamp duty to a fully-fledged FTT that covers derivatives and other financial asset classes, as they are doing on the European mainland. Labour shouldn’t get bogged down in old arguments about waiting for the United States to join the proposal – not now it’s happening on our doorstep. We should act.

As I set out in my new book, the FTT isn’t a panacea, and must sit alongside other measures such as reforms to inheritance tax and a higher rate of VAT on luxury goods. What it is though, is a moderate, credible and proven revenue raiser that will also curb some of the sector’s most odious practices such as high-frequency trading that deliver little social value.

It’s time we learnt the lessons of history: a softly softly approach to the financial sector does not work.

Hain blasts slowest economic recovery since records began

Anti-austerity champion Peter Hain has launched a stinging attack on Chancellor George Osborne as figures reveal Britain is struggling through the slowest economic recovery on record.

Data compiled by the Trade Union Congress shows that the British economy has typically grown in size by 16.1% in the first five years after recession – however under George Osborne that number has struggled to reach 8.8%.

This news compounds the Tories economic woes as in January it was revealed that over one quarter of Wales’ working age population is economically inactive.

The Neath MP said, “We have to recognise the utter folly promoted by George Osborne and his Tory austerity addicts. Britain desperately needs growth and their cuts jeopardise the country’s economic security.”

Mr Hain continued: “Between 2010 & 2012 the government made a number of disastrous decisions which seriously harmed the public investment led recovery the last Labour government had started.”

“As the TUC’s research shows, the strongest recovery on record occurred after the Great Depression, when massive public investment helped create jobs, tax receipts and growth.”

In the last quarter of 2014 Britain’s economy grew by just half of a percentage point, much lower than estimates from the Office of Budget Responsibility and City of London had expected, while Britain’s growth prospects for 2015 have also been revised down to just 2.4% in total, after the OBR had initially confidently predicted growth of 3%.

Fears are growing of another recession in Britain as economic indicators are suggesting a general slowdown. Employment in Wales fell by 40,000 over the year from January 2014.

“A vote for a Tory is a vote for economic lunacy in the upcoming election”, said Mr Hain, as he urged Welsh voters to defy the neo-liberal orthodoxy that drastic cuts would balance the British economy.

A graph by the TUC details the average growth of the British economy in the five years after a recession.

The austerity agenda is based on a series of deceits

Western Mail

Former Welsh Secretary Peter Hain – one of Labour’s most senior figures – has urged his party to abandon its commitment to more cuts if it returns to government after May’s General Election.

Here, in the first of a series of extracts from his new book – Back to the Future of Socialism – Mr Hain outlines what he sees as the folly of the austerity agenda, and how a right-wing media narrative in sections of the London-based press is falsely representing Labour’s years at the helm of the economy:

‘The obsessive pre-election debate surrounding still more savage cuts to “cure” the deficit is based upon a whole series of deceits.

The first of these is that the last Labour government left the country with a mountainous levels of national debt, a budget deficit and the need for public borrowing because we spent too much.

In truth Labour cut national debt as a share of national income from over 42 per cent inherited from the Conservatives in 1996-97 to less than 30 per cent in 2001-02; though it rose to 36 per cent by 2007-08, that was still well below Tory debt levels.

Britain’s national debt as a share of national income was lower than that of France, Germany, the US, Italy or Japan, having fallen by 6 per cent since 1997 (worth some £90bn today).

Lower government debt meant Labour saved the taxpayer about £3bn in annual interest payments: we did indeed “fix the roof when the sun was shining”.

This helped to establish a stable economic foundation and delivered a decade of record investment in public services that so desperately needed repairing; from the dismal inheritance of patients dying on trolleys in hospital corridors and sinking school standards to the worst railways in Western Europe.

By June 2007 Labour had delivered a historically unprecedented decade of steady economic growth, low inflation and low interest rates which had taken employment to record heights as GDP per head grew faster than for any other member of the Group of Seven leading developed economies.

The low yields on government bonds before, during and after the 2008 credit crunch under Labour bore eloquent testimony to the fact that the international markets had full confidence in our policies; and that they were not clamouring for the right-wing cuts dogma subsequently visited upon Britain.

Before the global financial crisis, government borrowing was some £15bn lower in today’s money than in the Tories’ last year in office in 1996-97.

In fact the Tories have borrowed more money in the last five years than Labour did in the entire 13 years of our government.

International Monetary Fund figures showed that Britain’s 2007 public sector deficit, at 2.7 per cent of GDP, was also low: the same as that of France and the US.

The deficit too had been significantly cut from the one Labour inherited.

Indeed, so desperate was he to identify with Labour’s success that David Cameron in September 2007 even pledged to match Labour’s spending plans for three further years up to 2010.

In his subsequent lurid, repetitive denunciations of “Labour bankrupting Britain” he seems to have been struck by a prolonged bout of amnesia.

Labour’s spending was in fact lower than in France, Germany, the Netherlands, Norway and Sweden, and was never “out of control”.

But then came the international banking crisis, the global credit crunch and the worst recession in Britain for 80 years.

The proposition that by building so many new hospitals and new schools, by recruiting tens of thousands of extra nurses, doctors, teachers and police officers in Britain, Labour triggered the subprime mortgage defaults in the US that ricocheted throughout the world’s financial institutions is preposterous.

It wasn’t Labour’s public spending that triggered Britain’s or the world’s economic crisis. It was the global interdependency of reckless banking practices that in 2008 caused an economic meltdown in Britain and right across the globe.

Britain under Labour, just like the other G20 governments, took on record annual budget deficits by agreeing to boost public spending and borrowing through multi-billion bank bailouts.

But these were deficits which stopped a banking collapse and a slide into slump; and also laid the basis for recovery from the biggest shock to hit the world economy in peacetime since the 1930s Great Depression.

However the new Tory-led government that took office in May 2010 embarked upon massive and immediate public spending cuts which turned a fragile but real recovery from the banking crisis under Labour into a fresh recession under the Tory/Lib Dem coalition.

The budget deficit wasn’t caused by Labour’s “reckless spending and borrowing”, but by irresponsible bankers.

Today after all the cuts, the deficit is still more than double the target in the Tory plan for this Parliament. And yet – cheered on by the Daily Mail, Telegraph and Murdoch stables and echoed by broadcasters – their plan of action is still more savage cuts if they win.

It may be good politics for the Tories, leading Labour on the economy according to pollsters. But it is lousy economics, because it hasn’t worked.

Before the last election David Cameron luridly trumpeted that Labour’s commitment to halve the budget deficit would take Britain over “the brink into bankruptcy”.

It was necessary to eliminate the whole deficit he insisted, pledging to cut government borrowing by 2014-15 to exactly half what Labour had planned, £37bn instead of £74bn.

Yet official forecasts expect government borrowing to exceed £91bn – nearly £20bn more than Labour’s allegedly “disastrously high” target, and over £50bn above the Tory one. So the Tories have simply moved the goalposts, insisting their “plan” is working after all.

The problem is that none of this deceitful propaganda confronts the fact that the kind of capitalism we face today is a more financially unstable and more unfair system than ever before: productive but prone to paralysis, dynamic but discriminatory.

My book, Back to the Future of Socialism, explains why and provides a practical political alternative to reform Britain’s economy and generate sustainable growth.

It confronts the right wing orthodoxy of recent decades – an ideology favouring market forces wherever possible and tolerating state regulation only where absolutely necessary.

Although that same ideology caused the banking crisis, it has clung on nevertheless, as if somehow it were not the very root of the problem all along.

Nevertheless, despite having backed Labour’s spending plans in 2007, David Cameron suddenly switched after the banking crisis to announce in October 2009: “It is more government that got us into this mess.”

He made no mention of irresponsible bankers, still less of the failure of politicians to control them. The entire global banking crash was apparently nothing to do with Big Finance: it was all the fault of Big Government. The cause was too much public spending – not too little public regulation.

But the real culprit was that governments across the world (including Labour’s) allowed the financial system over a 30-year period to get out of control and become a law unto itself.

Takeovers and mergers led to banks so big they couldn’t be allowed by government to fail.

Bankers bent rules to lend ever more riskily without anything like enough capital cover, until it all unravelled to catastrophic effect.

In truth – at the very least in terms of finance – governments were too small and too passive, not too big and too active.

Back to the Future of Socialism explains why and insists that the real choice facing voters in the May election should be between the right’s insistence on minimalist government and the left’s belief in active government; between the right’s insistence on a free market free-for-all, and the left’s belief in harnessing markets for the common good.

Economic Rebalancing

Mr Peter Hain (Neath) (Lab): On the economy, how does the right hon. Gentleman respond to today’s research by the university of Oxford and the London School of Hygiene and Tropical Medicine that only a fifth of claimants who have had their benefits sanctioned and then taken away have found work? Surely this will not rebalance the economy or make it stronger, let alone make it just, and it is diabolically punitive.

Stephen Crabb: I have not seen that report so I am not going to get drawn into commenting on the specifics, but I have seen the latest figures for the performance of the Work programme in Wales, which should give us encouragement that we have a set of measures in place that is helping to bring down long-term unemployment.

Mr Hain indicated dissent.