Britain risks becoming dependent on soaring household debt-fuelled consumption as factory output tumbles and exports fall, MPs have been told.
SNP economics spokesman Stewart Hosie issued the warning after figures showed that household debt surged by more than 40% since last summer while manufacturing output turned in its worst performance in more than two years.
Mr Hosie said Chancellor George Osborne was failing to keep his promise to make exports a significant contributor to growth in order to rebalance the economy away from household consumption.
The rising debt figures from Aviva – with average family debt now at £13,520, up £4,000 from summer 2015 – are inconsistent with a rebalanced economy, he suggested.
Opening an Opposition day debate on trade, exports, innovation and productivity, Mr Hosie said: “The key thing about the impact of trade and exports on GDP is that it is negative and it has been marked down.
“I would ask the House to think just how different that reality is to the promise made by the Chancellor when he stated that exports would be a significant contributor to GDP growth, primarily to shift the economy away from a reliance on household consumption.
“As we saw in the reports yesterday, because industrial output is down and exports are likely to continue to fall, certainly not to grow in the way that he has promised, we are going to continue to see or need a dependence on household consumption and a rise in household debt which would be inconsistent with a properly rebalanced economy.”
Mr Hosie said people’s jobs depend on thriving manufacturing exports as he criticised the Chancellor for setting an “unachievable” target of doubling exports to £1 trillion by 2020.
Instead, exports fell from £521 billion in 2013 to £513 billion the following year, and the independent Office for Budget Responsibility said Mr Osborne’s target would be missed by £350 billion, he said.
Mr Hosie said fostering more innovation would prove key in boosting manufacturing – which still accounts for 44% of all UK exports.
“It’s action we need in order to reverse a number of declines, particularly in manufacturing,” he said.
“Indeed to ensure that the last quarter’s fall in manufactured output does not become a pattern and that will at least in part, require more innovation.
“That is as much a part of building a larger, more productive and faster growing manufacturing base as it is important in its own right.”
Mr Hosie slammed plans to change the funding model of the Government’s innovation agency, Innovation UK.
He said £165 million of grants for innovation will now be turned into loans, which “sends out all the wrong signals” and may suppress innovation “even further”.
“If one looks at some of the quotes from businesses when this was announced they were extremely clear indeed,” he said.
“They are happy to seek bank funding, they are happy to use their own resources, but when they are undertaking what may be slightly risky innovation and R&D, there is an expectation there might be a little help from Government.
“If that’s a grant then the work can proceed, the thinking can go ahead.
“If it’s a loan requiring to be repaid, that might just tip the balance in favour of the risk being too great and driving down innovation even further.
“But the reason that innovation is so vital, particularly in manufacturing, and why it’s so important to encourage it, is that over the past 20 years as it has fallen as a share of R&D investment, manufacturing output, exports, jobs have also fallen.”