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Fiscal and Monetary Policy

Volume 505: debated on Tuesday 2 February 2010

As I set out in the pre-Budget report, we will continue to provide fiscal support during 2010-11, alongside the monetary policy action being taken by the Bank of England.

Does my right hon. Friend agree that priority must be given to economic growth and protecting jobs and services and that, while it is important to reduce the deficit, immediate cuts could plunge this country into recession?

I very much agree with my hon. Friend. It is important to recognise that across the world, including in this country, it is the support given by Governments that has enabled us to avoid the recession becoming a global depression. It is also one of the reasons why countries are beginning to come back into growth. To remove that support prematurely would run the risk of derailing the recovery. That would be unforgivable, given all the pain that people have had to go through, and that is why we will continue to support businesses and families, to ensure that we get the recovery firmly established. Then we have not only to reduce the deficit, but to ensure long-term growth to provide the jobs in the future.

But cannot the Chancellor see that because he is overspending and over-borrowing in the public sector he is squeezing the private sector, which is having to pay high and rising rates of interest if it can get credit at all? What does he say to people with Skipton mortgages or small businesses that cannot borrow a single penny?

As the right hon. Gentleman will know, we have taken steps to ensure that the banks increase the amount of gross lending that they are putting into the economy. At a time when private sector investment has stopped or reduced, if it had not been for the public sector intervention, the downturn would have been much greater than it is. As it is, we can see signs of increasing confidence—he will have seen the survey of manufacturers published yesterday, which is very encouraging. Across the world, we can see the results of Governments acting together and making a real difference. To remove that support prematurely, if indeed that is the Opposition’s policy today—who knows?—would be the wrong thing to do because it would be damaging to the country.

Does my right hon. Friend accept that the exchange rate is crucial in maintaining a good level of demand in the domestic economy, and that the bounce-back in manufacturing is due largely to the wise and substantial depreciation of sterling? Will he continue the downward pressure on the sterling exchange rate to ensure that our recovery is sustained?

As my hon. Friend knows, the Government’s policy is to target inflation, but it is the combined efforts of fiscal policy and monetary policy that will make a difference and ensure that we can get through this and achieve the sustainable growth that is absolutely essential. It is very important that we secure that growth and we continue to take no risks with the recovery, and that is why the approach of the Conservatives is profoundly wrong.