The IMF holds bilateral discussions with each of its member countries, usually every year, as part of its country surveillance function. IMF staff last visited London in May 2009 and met representatives of various institutions, including Her Majesty’s Treasury.
The IMF recently published its report on the British economy and the Minister’s colleagues have clearly read it, as they are very fond of quoting the odd phrase that supports the Government’s tattered economic policy. However, at its heart it is highly critical and calls for a
“more ambitious medium-term fiscal adjustment path”.
Does the right hon. Gentleman agree that that is bureaucratic code for, “We’re in a mess and the Budget doesn’t sort it out”?
I am afraid that I am going to be guilty of quoting from aspects of the IMF report again, but like me the hon. Gentleman will have read the IMF’s endorsement of the Government’s response to the crisis. It said that it was “bold and wide ranging” and would “support the recovery”—an echo of what IMF managing director Dominique Strauss-Kahn said when he told “Newsnight” that it was “obvious” that the fiscal stimulus
“is the right thing to do”.
However, there will be differences of view with the IMF. For example, we have a different projection or estimate of what the return to growth will look like; the IMF estimates that economic growth will contract by 4.1 per cent. this year, but the consensus among independent forecasters is for something more akin to 3.8 per cent. It is not unexpected, therefore, that we will have different ideas and judgments about what is the right pathway back to fiscal balance. We are determined to make sure that we halve the deficit over four years and pay off something of the order of £50 billion by 2013-14. Where there are difficult decisions to make, we will make them, especially on tax and efficiency. Unlike the Opposition, however, we are determined to make sure that we protect front-line services because we think that that is the best way to protect businesses and families in this country while returning as quickly as possible to a sensible and sustainable fiscal position.
The economies of some European economies, such as Hungary and Latvia, are experiencing deep economic troubles, and traditionally they would turn to the IMF for help and rescue. They are also committed to becoming members of the eurozone, so is the Treasury having any discussions with the IMF on how to co-ordinate the actions of the IMF and the European Commission in respect of those failing currencies?
As my hon. Friend knows, conversations about such questions go on all the time with the IMF and within the European Commission. She underlines the point that we need a better system of international surveillance so that preventive action, where it is needed, can be taken fast.
Will the Chief Secretary confirm that this country is now formally in an excessive deficit procedure, and that the Economic and Finance Council wrote to the Chancellor on 27 April to say that the Government had not taken effective action to correct the situation? ECOFIN also said that, even on the Government’s own figures, our deficit will be more than four times the permitted 3 per cent. level. Is the Minister pleased or sad that that rules out this country joining the euro in the foreseeable future?
I missed the last bit, but the answer to the substance of the question is that we have to make sure that we publish a pathway back to balance that is open, transparent and credible. It will entail the difficult policy choices that were set out very clearly in the Budget. Difficult decisions will have to be taken, such as increasing marginal rates of tax on the 600,000 people who earn more than £150,000 a year. Serious efficiency measures will also be needed, but as my right hon. Friend the Financial Secretary said recently, that is precisely the sort of discipline that we are determined to set out, and stick to.
Since debt reduction is of the utmost importance to developing countries, will my right hon. Friend confirm that the Government remain absolutely committed to achieving the millennium development goals?
Yes, I am happy to provide my right hon. Friend and the House with that assurance.
Given the way our debts are growing, is the right hon. Gentleman aware that according to The Economist, our Budget deficit this year as a percentage of GDP will be the highest in the entire industrialised world?
The very reason we are able to mount the fiscal stimulus that we put in place this year is that, against international comparisons, we went into the downturn with relatively low levels of debt. We think it is important that we invest now, because if we did not provide the stimulus that we are putting in place, the recession would cut deeper and longer, and would more closely resemble the kind of experience that this country went through in the 1980s and 1990s. That is not an experience, thanks very much, that we want to repeat.
I do not know where The Economist got its figures, but the IMF figures indicate that debt in this country as a percentage of GDP is lower than in all our industrial competitors and will stay lower than theirs for several years. Is not the key thing about debt whether or not we can service it? As we reduce those levels of debt, may I ask my right hon. Friend not to cut the investments that we are making in jobs, wealth creation and public services, because those are what will guarantee that we can repay the debt in the long term?
I can provide that assurance because in the Budget the Chancellor was able to set out a pathway back to balance, which involved difficult decisions on tax, spending and efficiencies, not least adding to the £30 billion of efficiencies projected for next year a further £5 billion. The Chancellor was also able to set out the kind of sustained investment that we can continue this year, for example, in primary care trusts, with budgets up 5.5 per cent., in schools, with budgets up this year 4.3 per cent., in front-line policing, with budgets up this year 2.7 per cent., and in local councils, which this year helped to deliver the lowest council tax increases for more than a decade.
May I welcome the Chief Secretary to his new position? I am sure his arrival in his new post will be welcomed by the Chancellor as well, not least on the grounds that, presumably, the Chief Secretary’s spouse will not be plotting to replace the Chancellor. The IMF report that we have been discussing says that the UK recovery will be subdued and gradual, in contrast to the Treasury’s very optimistic forecasts, yet is was reported in The Times last week that even the Treasury’s projections were insufficient for the Prime Minister, and
“the Prime Minister tried to upgrade the growth forecasts to make the economic outlook appear rosier than it was; the Chancellor refused.”
Is there any truth in this allegation? Is this not another example of splits between the Prime Minister and the Chancellor?
What are important for the House are the estimates that were published. There is indeed a range of views right the way across independent forecasters. The hon. Gentleman will no doubt have access to those, as I do. The IMF, it is true, is on the pessimistic end of those forecasts, projecting a 4.1 per cent. contraction this year. I understand that the IMF has now revised its forecast three times since October last year, reflecting a degree of uncertainty in the international economy, but I merely note for the House that the IMF is at the pessimistic end of that range of forecasts. If one corrals the range of independent forecasts that are available, one finds the consensus among them is about 3.8 per cent. We think growth will be stronger than that but, as the Chancellor has said to the House a number of times, the international economy remains in an uncertain place.