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UK Economic Policy (IMF)

Volume 530: debated on Tuesday 21 June 2011

The IMF completed its article IV assessment of the UK economy this month. Its recommendation could not have been clearer. When asked whether it was time to adjust macro-economic policies, its answer was no.

I am delighted that the IMF has confirmed that the Chancellor is pursuing the right strategy to clear up the mess left by the last rotten Labour Government. Will he explain why the yield on UK Government bonds is only 0.25% higher than in Germany, whereas in Portugal it is 8.5% higher?

The simple reason is that we have a credible deficit reduction plan. Even though we inherited a deficit higher than Portugal’s, our interest rates are closer to those of Germany. Indeed, the spread over Bunds—the difference between German and UK interest rates—has come down substantially over the last year, even though that gap has gone up in France, Spain and other European countries. The real monetary stimulus being provided to the economy by those low interest rates is anchored in the credible deficit reduction plan.

May I take up the point made by the Chancellor about the outstanding speech made by my right hon. Friend the shadow Chancellor? Why does the Chancellor have this touching, childlike faith in the views of the IMF when it got things dead wrong on the exchange rate mechanism, which it unfortunately imposed on this country the previous time it had the misfortune to have a Tory Government?

It is normal for Finance Ministers to pay some attention to what the IMF says, but there we go. The last time we had a Labour Government, we had to turn to the IMF for help; I am trying to avoid that.

Is my right hon. Friend aware of the recent comments of the director general of the CBI? He said:

“Acting swiftly and decisively on the deficit has…laid a firm foundation for…growth.”

Who does my right hon. Friend think is more plausible: the director general of the CBI or the lone voice opposite?

I think the CBI’s view reflects those of almost the entire business community in Britain and almost all international commentators on the United Kingdom economy. When the CBI was asked explicitly what it thought of the Labour party’s plans, its chief economic adviser said:

“The economy would be weaker because of the impact of a loss of confidence in the markets.”

Since the Government came to power, the growth forecast for this year has been downgraded by 1%. The IMF has also said that the speed of Government cuts poses a risk of higher inflation, lower growth and rising unemployment. Does the Chancellor agree with the IMF, which he is keen to support, that if

“a prolonged period of weak growth”

—which we have at present—

is in prospect, “temporary tax cuts” should be considered?

First, the right hon. Gentleman has misquoted the IMF. Perhaps he will give the House the full quotation. The IMF did not say “at present”, which the right hon. Gentleman slipped into the quotation. [Interruption.] Perhaps he will take the opportunity to correct the record later. Secondly, the IMF said:

“Strong fiscal consolidation is underway and remains essential”.

The managing director of the IMF could not have been stronger in his endorsement through article IV.

I note that three Opposition Front Benchers have asked questions, and that not one has mentioned the new policy of the shadow Chancellor.