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Gross Domestic Product

Volume 523: debated on Tuesday 8 February 2011

1. What factors he has identified as underlying the fall in gross domestic product in the fourth quarter of 2010. (38618)

The Office for National Statistics attributes the actual fall in GDP to the bad weather in December, but we have been clear that even without that effect, the numbers were disappointing. In the past week, there have been more encouraging survey data showing services, construction, retail and especially manufacturing all growing more strongly—something the Opposition have been mysteriously silent about.

Could the Chancellor please tell the traders on Blackwood High street whom I met this Saturday whether the rise in VAT will help or hinder them this quarter?

The VAT increase, like the other measures we are taking, helps to deal with the record Budget deficit that we inherited from the Labour party. By dealing with that, we have provided financial stability for the British economy. That has also been made clear by the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), who would also have gone ahead with a VAT increase.

Given that the last quarter of last year saw a big real increase in public spending and a further big increase in debt, does that not show that there is no necessary connection between those things and growth and that it would be quite wrong to think that spending and borrowing more would solve the problem?

My right hon. Friend is absolutely correct. Of course, in December, the Government were spending, in real terms, a record amount. I make the point again that we inherited a record Budget deficit. I believe that Labour’s plan, set out in its March Budget, was to start cuts in April this year. We have set out a credible plan and we are awaiting one from Labour.

The figures underline that the economy is not out of the danger zone. Does the Chancellor know of the concern expressed by the Recruitment and Employment Confederation about a new lost generation of unemployed young people of the kind we saw in the ’80s and ’90s? What assessment has he made of measures the Government can take to avoid that problem?

The right hon. Gentleman is absolutely right that unemployment went up by 1 million under the previous Government. We know that even in the good years, the problem of youth unemployment increased and that we as a country were not able to do much about it. This Government are determined to tackle that head-on with reform of the welfare system so that it always pays to work and, at the same time, with the new Work programme, which will give young people the skills and opportunities they need to get off those unemployment rolls.

In giving evidence before the Treasury Committee, Lord Turnbull made it clear that spending as a proportion of GDP should be nearer 40% than the current level of nearly 50%. The OECD has said that the deficit will retard growth. Will the Chancellor make more of the case that action is needed to tackle the deficit not just on financial grounds but to help release the wealth-creating sectors of the economy?

My hon. Friend is clearly correct that it is unsustainable for the Government to be consuming almost 50% of national income. Lord Turnbull observes that under Labour and Conservative Governments in the past, the number was closer to 40%. Of course, the deficit reduction plan that we have set out brings that about.

It is an honour and a great responsibility to shadow the Chancellor of the Exchequer at this critical time for our economy and our country. I pay tribute to my predecessor and thank him for everything he did despite the fact that I seem to have inherited an excessively large number of breakfast meetings from him. It is a good job that I did not have one today, or I would have missed this morning’s rather hurried mini-Budget.

It snowed so badly in December in Britain that airports closed, our economy shuddered to a halt, consumer confidence slumped and unemployment rose. In America, it also snowed so badly that airports closed, but the pace of US economic growth increased, consumer confidence was high and unemployment fell to a two-year low. Could the Chancellor tell the House whether there is something different about snow in Britain—or is there a better explanation as to why the American economy grew and Britain’s did not?

First, I welcome the right hon. Gentleman to his post and congratulate him on his appointment. Now he and the Leader of the Opposition know what it is like to be second choice. The new shadow Chancellor knows, because he was at the Treasury and he is a man with a past, that Britain had the largest housing boom, the biggest banking crash and the largest budget deficit, and as a result, recovering from the deepest recession was always going to be challenging and choppy, but we have set out a credible plan, including an increase in the bank levy, to deal with the budget deficit, which he refuses to deal with because he is a deficit denier.

No answer to the question on America. Perhaps the Chancellor should have spent less time on the ski slopes of Switzerland and more time in the conference halls of Davos, listening to the American Treasury Secretary. Let me tell the right hon. Gentleman what he said:

“You’ve got to make sure you don’t hurt the recovery . . . There are some people who like to move . . . very quickly to do very deep cuts in spending but it is not the responsible way to do it.”

In June, unemployment was falling and growth was forecast to be 2.3% this year. Now unemployment is rising and growth is stalled. With consumer confidence falling, inflation rising, no bank lending agreement, no plan for jobs, no plan for growth, no plan B, does the Chancellor really expect us to believe that he can meet his forecast for economic growth this year, or will he have to stand at the Dispatch Box at the Budget in six weeks and downgrade his very first growth forecast?

The right hon. Gentleman clearly had a lot of time to prepare that, but I am not sure it all came out as he expected. We have had to deal with his economic legacy and he is running away from his past. He was the City Minister who knighted Fred Goodwin. He is the economic adviser whose fiscal policy has led to fiscal disaster. He is the leadership candidate who, for reasons of political positioning, denies the deficit. The truth is this: we have a plan to clear up his mess. He has no plan at all.