Skip to main content

Government Borrowing/Debt

Volume 485: debated on Thursday 18 December 2008

2. What his most recent estimate is of the levels of Government borrowing and debt; and if he will make a statement. (244630)

I note the Chancellor’s comments. Given the responses that we have had from him, the future looks bleak indeed. Does he agree with the German Finance Minister’s view that this Government’s policies will saddle the country with debt

“that will take a…generation to work off”?

No, I do not. I wish to say three things on that. First, Peer Steinbrück is an extremely charming man and I enjoy working with him very much. Secondly, I fully supported him when he introduced a fiscal stimulus into the German economy of about 1 per cent.—that is almost exactly the same as what we have done—some time ago. Thirdly, our debt levels are lower than Germany’s.

The business community in my constituency has emphasised to me that the Government’s priority must be to have measures to sustain our manufacturing base, so as to maintain our tax base for the future. Can my right hon. Friend assure me that he will not listen to the scaremongering and siren voices from Opposition Members, and that he will ensure that support for business is maintained as the Government’s priority during this economic downturn?

I agree with my hon. Friend that it is important that the Government support business. That can be done in a variety of ways, both indirectly and directly, as appropriate. Of course, we need to balance that with a need to ensure that we have proper regard to the public finances and the interests of the taxpayer. He is right to say that at a time such as this all the measures that the Government are examining are designed to help businesses get through what is undoubtedly a difficult period.

Despite the record levels of debt that the Chancellor is predicting for the next five years and beyond, he continues to assert that Britain is uniquely well placed to deal with this downturn. On what basis has he come to that conclusion?

The hon. Gentleman is right to say that our debt levels will rise over the next period. That is partly because it is inevitable in any downturn such as this that the Government’s revenues will fall and the unemployment benefit payments that we have to make will rise. The operation of the automatic stabilisers, to which I have referred, is supported on both sides of the House—indeed, the Leader of the Opposition said that he supported it—and it accounts for the major increase in the Government’s expenditure. As I said, it is also necessary for us to put more money into the economy. If we look ahead, we will see that during the next year we will have low interest rates and far lower inflation than in the past, and energy prices will continue to fall, which will help in relation to what people pay at the pump and must also affect the amount that people pay for gas and electricity. Of course, in addition, we reduced the amount of debt from the level that we inherited when we took office in 1997, and we will continue to do everything we can to support the economy.

Is this not rich coming from the Conservatives, who, as my right hon. Friend has said, support the automatic stabilisers, which account for the vast majority of the increase in debt and borrowing, and who have two major recessions behind them? Is it not outrageous that, as the official Opposition, the Conservative party is the only one in this House that does not support—

Order. The Chancellor has enough to do without worrying about what the policies of the other party are. I think that he can answer.

I agree with my hon. Friend. The difference is that whereas during this downturn we are prepared to take action to help people and businesses, that simply did not happen in the 1980s and 1990s, and the country paid a very heavy price.

As the hon. Gentleman knows perfectly well, the market for trading in Government debt is pretty thin and it really cannot be compared with the trading of Government debt in relation to companies.

Although there is a great deal of risk in not doing anything, there is a certain amount of risk in what is taking place. Does my right hon. Friend agree that even a 1 per cent. financial stimulus in the economy may not be enough? Will he comment on the possibility of considering further financial stimulus in the new year because of the level of the global economic downturn and its effect in constituencies across this country?

The announcements that we made in the pre-Budget report were right. As my hon. Friend says, the risk of not doing anything was far outweighed by the advantages of taking action. In the current climate, there is no Government in the world who are not looking every day at what else they need to do, but while it is right to allow borrowing to rise now, we must ensure that we take the right action to ensure that borrowing falls and that we come back into current balance within a reasonable period. That is what I said in the pre-Budget report and that remains the Government’s position.

The Chancellor plans to increase taxes by £40 billion to reduce Government borrowing, but will not the planned £5 billion tax hike on jobs hamper our recovery? Does he not realise how much damage this borrow now, pay later policy will cause?

Assuming that the hon. Gentleman agrees with his party’s leader, he supports the decision to allow borrowing to rise through the operation of the automatic stabilisers, and that accounts for about £60 billion of the borrowing. I know that he does not agree that we should go further, but his approach is just plain wrong. We need to ensure that as the economy comes out of this period—as it recovers and starts to grow—we bring our borrowing back down. It is better that we should do that and I set out in the pre-Budget report a fair way of doing so.