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Budget Deficit

Volume 507: debated on Tuesday 16 March 2010

4. What recent estimate he has made of the current and future level of the Budget deficit; and if he will make a statement. (322188)

With your permission, Mr. Speaker, I will answer Questions 4 and 23 together. The Chancellor will provide an update on the Government’s—

Order. Far be it from me to rain on the Chief Secretary’s parade, but I have received no such request, and I regard both the request and its timing as deeply irregular. I think we will treat the questions separately.

I am very grateful for your judgment, Mr. Speaker; I shall answer Question 4 directly.

The Chancellor will provide an update on the Government’s fiscal position, including forecasts for public finance, at the Budget. The Fiscal Responsibility Act 2010 puts a legal obligation on the Government to more than halve the deficit over four years and have debt falling by 2015-16.

The Government’s fiscal plans have been criticised by the Governor of the Bank of England and the European Commission in the past week. A few moments ago, in response to my hon. Friend the Member for Sevenoaks (Mr. Fallon), the Chief Secretary said that this was the wrong year to make cuts. Last week, the Chief Secretary told us that there was no need for tax rises, but this week he has changed his mind. Following the Chancellor’s reprimand of him, is he now going to tell us that this is the right year and that this Government will be increasing taxes this year?

We were clear in the pre-Budget report about our belief that £19 billion-worth of tax increases need to be secured over the next few years. We have not caveated our language with the kind of dissembling that we have seen in some quarters about whether proposals on national insurance contributions will be reversed or implemented. Alongside those proposals, we have said that £38 billion-worth of cuts and efficiency savings also need to be secured. We have been clear about our plans to halve the deficit—I hope that the Conservative party will match that clarity.

At a time when we need to make savings, is my right hon. Friend aware that Gloucestershire has seven local authorities? There are too many councillors and too many local authorities, so in the run-up to the Budget will he consider allowing us to bring in unitary authorities in places such as Gloucestershire? We could save £16 million a year by reducing the number of authorities from seven to two, by cutting the number of councillors and by reducing the amount of duplication. If we took a similar approach across the country, we could save half a billion pounds a year.

Is the Minister not mildly embarrassed that the Government claimed to be leading the international debate on recovery from the financial crisis but have now been chastised by the European Commission for a lack of clarity in their plans for tackling the fiscal deficit? Although the Government have been clear about when to make cuts and how rapidly to do so, they have been massively unclear about what they propose to cut—when are we going to hear that?

I think that the European Commission made the wrong decision by saying to the United Kingdom that we should reduce the deficit to 3 per cent. of GDP by 2014-15. That would entail a cut of well above £20 billion in public spending or commensurate tax increases. In the pre-Budget report we set out deliberately how we would save £20 billion of current spending over the next four years: £4.8 billion of that would come through savings on pay and pensions; there would be £5 billion of cuts to departmental expenditure limits; and £11 billion of it would come through the reorganisation of Whitehall and doing things more efficiently in the future. We set that out clearly in chapter 6 of the pre-Budget report.

Does this European report not also relate to a deeper argument within Europe about whether recovery should be led by countries such as Germany widening their deficit—that is the French argument—or by the weaker countries, such as Greece, Ireland, Italy, Spain and probably Britain, taking action on their deficits? Where do the Government stand on that debate?

We are very clear that what is in the interests of the United Kingdom economy—I believe that the hon. Gentleman has made this argument before—is rebalancing our economy in the years to come and having an investment and export-led recovery. No one country can secure that policy acting on its own, which is why international trade reform is part and parcel of our approach to the agenda for the G20 over the year to come. The truth is that if American savers carry on saving at today’s rates we will not be able to rely on them to drive growth in the global economy in the way that they have done in the past.

Will my right hon. Friend confirm that there could not be a more bizarre sight than the Tory Front-Bench team joining unelected European Commissioners to call on the British Government to carry out a policy of creating mass unemployment by postponing the attempt to halve the deficit in four years? And the Member for the Liberal party ought to know better than to join these unelected people who want to throw workers on the scrap heap.

My hon. Friend is absolutely right. Over the past year, 22 million people have benefited from tax cuts because of measures we have introduced. Up to 500,000 jobs have been protected, more than 160,000 businesses have been helped with their cash flow and 120,000 jobs have been provided through the future jobs fund. That has all been possible because of the measures that we took over the course of the past year. It would have been impossible to sustain those steps had we followed the advice of the Opposition.

Given that the Chief Secretary’s pronouncements on tax policy last Thursday were overruled by the Chancellor on Sunday, will the Chief Secretary tell the House whether he speaks on these matters with the authority of the Chancellor, or is the relationship between the Chief Secretary and the Chancellor as dysfunctional as the relationship between the Chancellor and the Prime Minister?

What a non-question. What I did last week was set out very clearly proposals for how, over the next four years, we will increase taxes by about £19 billion. They are difficult decisions that no Chancellor wants to implement, but none the less they are decisions that we have faced up to. Alongside that, we have said that we will reduce spending on day-to-day public services, but we will not take precipitate action as proposed by the Opposition. We will lock in the recovery, not put it at risk, as proposed by the Opposition.

If John Maynard Keynes were alive today, he would agree absolutely with my hon. Friend the Member for Bolsover (Mr. Skinner) and would have contempt for the views of the Opposition. May I suggest to my right hon. Friend that cutting now would be about as intelligent as burning witches in the middle ages?

Not just my hon. Friends agree with our approach. My hon. Friend and others may convey it in different language, but that approach is supported not only by the International Monetary Fund but by the Institute for Fiscal Studies, UBS, the CBI, two Nobel economists, the hon. Member for Twickenham (Dr. Cable) —on occasion—and the independent fiscal forecaster for the Conservative party, Sir Alan Budd.