It is said that if you ask two economists the same question, you get two quite different answers. My own experience as someone with two degrees in the dismal science is that the number of answers to an economic question is often four or five.
But what we have seen in the last ten years as a result of the Chancellor’s record is the addition of new answers to the standard questions. The textbooks used to say, for example, that there was a trade-off between inflation and unemployment. Distinguished economists have earned their reputation by plotting the graphs to describe the relationship. The experience of the past 10 years has been precisely the opposite, however, with low inflation and low unemployment occurring at the same time.
The political scientists also used to tell us that there were some political parties that promoted economic prosperity and others that prioritised social justice, and that the two were mutually exclusive. The experience of the past 10 years has shown that there are new answers in that field as well, given that we are now in the longest period of sustained growth for 200 years under this Chancellor, and that 2.5 million people have been taken out of relative poverty.
The main reasons why the UK economy has confounded the textbooks are, first, because the government had the foresight to realise that reducing levels of debt at an early stage would free resources later. Second, the Government set a low and credible inflation target—credible because it was managed by an independent central bank. The effect, which we have seen recently, is to bring down inflationary expectations, and therefore interest rate expectations. Consequently, when companies and individuals seek to borrow, they can do so at much more preferential rates, which has had a huge effect on building the capacity of the economy and keeping more people in work.
Third, and crucially for this Budget, the Government has not been afraid of massive interventions on the supply side to raise the capacity in the economy. Conservatives would abolish the new deal but they must realise that this kind of targeted welfare-to-work policy has had a transformational effect on employment levels and on the individuals affected. I am delighted that we are now using the same techniques to lift the long-term unemployed and those on incapacity benefit into the workplace where that is possible for them. My argument is that it should go further.
We now need to focus on people in work with low salaries. Immediately, we are doing so through the tax credit system, but we should also learn some of the lessons of the welfare-to-work and new deal programmes for this group of people. We should consider a new deal for those in work, with targeted career advice so that they understand where, if they invest in such training, it could be expected to take them in five or 10 years’ time. Experience has shown that such an approach is effective for people who are out of work; let us apply it more widely and, perhaps, draw lessons from organisations such as learndirect in extending it to the workplace.
The effects of better supply side policies and more cash for investment can be seen on the ground in my constituency. Unemployment is low and the targeted help for those on incapacity benefit is starting to bear fruit. Investment from the centre has been flowing now for a number of years in a way it never did under the Tories. I can see the effects in the regeneration of our terraced housing, the rebuilding of our secondary schools, and the prospect of a university in Burnley town centre to specialise in advanced manufacturing, building on our experience and skills base.
My constituency contains more terraced housing, and therefore more people eligible for the Warm Front scheme. This initiative provides better energy efficiency measures and central heating for those on poorer incomes than any other. Indeed such a scheme is a win-win. It is good for our carbon footprint, and it also benefits people on low incomes who will end up spending less on fuel as a result of the Government’s investment.
While there has been huge progress on fuel poverty, in the last year that progress has plateaued—and perhaps has gone slightly backwards—because of the blip in oil prices which translated into harsh fuel bill costs which hit the poorest the hardest. It is for that reason that I particularly welcome the measures announced by the Chancellor in the area of encouraging microgeneration. When people are on a budget they need to have control over every element of their expenditure. Therefore, the last thing anyone needs is a fuel bill that they were not expecting that blows all of their budgeting out of the water. Volatility of fuel bills affects the poor disproportionately.
I am attracted by the solution of smart metering technology, which enables people to realise on an hour-by-hour, day-by-day basis, the value of the energy that they are consuming, and does so without people having to pay the higher tariffs charged for pre-pay meters. Therefore, if there are simple things that people can do that will make an impact, such as turning down the thermostat by 1° or washing clothes at 30° rather than 40°, they will immediately be aware of the financial incentives of doing so.
There is also a new generation of smart meters can also be used to provide the necessary infrastructure to enable people to sell surplus electricity generated at home back into the grid. By supporting this and explicitly mentioning it in his budget speech the Chancellor has indicated his determination to provide a mechanism for the fuel poor to trade their way out of fuel poverty.
This is precisely the type of measure that 21st century progressives should be supporting. It works on several levels. It reduces the amount of CO2 emissions that we produce as a country. We could catch up with, and possibly overtake, other European countries in being innovative in this way. It is good for the fuel poor, too, as it reduces their budgets. It will also, of course, provide more jobs in the type of 21st-century advanced manufacturing of the future in which constituencies such as mine have the potential to be involved.
The past 10 years have confounded standard economic thought. As I said at the outset, if we put more than one economist into a room—perhaps just one would do—we get several different views. However, one point on which future economic historians will certainly be united is that we have seen something spectacular in the past 10 years.