I beg to move,
That the Charter for Budget Responsibility: Autumn Statement 2014 update, which was laid before this House on 15 December 2014, be approved.
The charter sets out the next steps we take to turn Britain around and ensure that the mistakes of the past are not repeated. People will remember the fiscal crisis facing this country five years ago: a deficit that stood at more than 10% of our national income; a Government borrowing £1 in every £4 they spent; a Treasury whose departing Chief Secretary left a note saying simply that there was no money left; a country described by international bond investors as sitting on the financial equivalent of a bed of nitro-glycerine; and a British economy whose ability to pay its way was questioned in the world. That was the appalling inheritance left to us by the last Labour Government.
The Chancellor mentions a British economy with an ability to pay its way. When did the UK last pay its way? When was it last not in deficit?
The last time it was not in deficit was when people followed Tory spending plans: there was a surplus at the end of the 1990s and 2000. That is what we advocate again.
At the moment of maximum danger five years ago, as much of the rest of Europe became engulfed in a sovereign debt crisis, Britain faced a choice: did we have the resolve to cut our spending, cut our deficit and set a course for economic stability, or did our country go on borrowing and spending our way to economic ruin?
But surely we cannot relax for a moment. When we say we have cut the deficit by half that is good, but it gives the impression that the problem is solved and we are still borrowing £90 billion a year. The debt is still at about £1.7 trillion. Therefore, we cannot relax for a moment and we cannot allow there to be any sort of Government who let the anchor off. We therefore have to say no to a Labour Government.
My hon. Friend is absolutely right. Having brought the deficit down, we have to complete the job. We have to run a surplus and get our national debt down—that is what this debate is about. We remember Opposition Members in this House five years ago urging on us a ruinous course of more borrowing and more spending, the very same people who had presided over the borrowing and spending that had put Britain into such a perilous position.
I will give way in a moment, but I want people to remember that the country knew better than to listen to Labour again. The country supported this Government as we took the difficult decisions required to cut our spending, reduce our borrowing and get our country living within its means. Then, when the problems in the eurozone became acute and the currency union on our doorstep was threatened with collapse, we heard again, as we hear now, the siren voices luring us on to the economic rocks. “Stop the cuts,” they said, “Spend more, borrow more, adopt a plan B”. But Britain stayed the course. We did not spend more. We did not spend less. We worked through our plan. The result, in the verdict of the International Monetary Fund, is that no other major economy has achieved such a substantial and consistent reduction in its structural deficit over recent years.
The Chancellor told this House that if Britain was to lose its triple A credit rating it would be a disaster for Britain. Can he remind the House when Britain lost its triple A credit rating? Was he the Chancellor at the time? When are we going to get it back?
We retain our triple A credit rating with some credit rating agencies. I can tell the right hon. Gentleman one thing for sure: the only way we will get back our triple A credit rating is by dealing with our debts, cutting our spending and making sure this country can live within its means. If anyone thinks the answer to Britain’s debt problems is to borrow £170 billion more, which is what the Labour party is proposing, they will be leading Britain back into economic ruin.
We remember what the shadow Chancellor said was going to happen if we pursued this plan. He said we would choke off growth and that there would be a double-dip recession. Britain has grown faster than any other major European economy in the past four years. We have grown faster than any major economy in 2014 and the one recession we had was the one big recession, the great recession, on Labour’s watch.
It was of course a Labour Government, led by James Callaghan, who went cap in hand to the IMF, and the Blair-Brown Government left us with a record deficit. Does the Chancellor share my view that it does not matter what that lot say today? History repeats itself and, when it comes to Labour, we cannot trust them with the public finances.
You cannot trust the Labour party with people’s money. Every Labour Government leads this country into bankruptcy. Every Labour Government left office with unemployment higher than when it came to office. That is what Labour does when it gets into office. People remember that and they will not trust them with the public finances again. We remember what Labour said was going to happen to jobs: they said that 1 million jobs would be lost. Instead, we have 1.7 million more people in work. Unemployment is falling. Youth unemployment is down by more than half. Full employment is in sight. They said that public services would be decimated and crime would rise. Crime has fallen and satisfaction with local government services is up. They said that the north of England would suffer the most, just as it had suffered the most in their great recession. Now, the fastest growing part of our economy is the north of England and we are building that northern powerhouse.
I wonder if my right hon. Friend, during his busy schedule, was able to notice the comment of the Labour leader of Leeds city council, who said that he has to hand it to George Osborne because he is doing more in the north of England than a Labour Government ever did.
There has been a constructive alliance between Labour civic leaders in the north of England and Conservatives to bring an elected mayor to Greater Manchester and deliver High Speed 2. We have done so in the face of the opposition of the Labour shadow Chancellor, who has tried to frustrate all these things all along. Thankfully, Labour civic leaders are not listening to those on their own Front Bench anymore.
Although the deficit has been halved, at 5% of our national income, it is too high. Our national debt, at 80% of our national income, is too high.
There have probably been about half a dozen attempts to try to buttress fiscal policy with rules in the past 30 years. Most of them have collapsed at some point during the business cycle. To get something that works, does the Chancellor not agree that we need something credible, not just for dealing with the deficit but for reducing the stock of debt, and that that must mean over the cycle running a surplus?
My hon. Friend is absolutely right. It is not enough to eliminate the deficit. We then have to get our national debt down. It is too high and leaves us exposed to the next economic shock. We do not want to go into the next economic shock with a debt-to-GDP ratio of 80%. That is precisely why, in good economic times, we need to be running an overall budget surplus. That is the only credible and sustained way to get national debt down. That is the way to fix the roof when the sun is shining.
What we have done is cut the deficit by a half. We have neither gone faster than we said we were going to go, nor gone slower than we said we were going to go. We have stuck to our spending plans when people were urging us to take either course. To get lectures in managing the public finances from the Labour party is extraordinary.
I will give way in a moment. Labour are in the bizarre situation of complaining that we are borrowing too much, yet they want to borrow even more. Perhaps the shadow Chancellor can help to illuminate this debate and simply confirm that a Labour Government would borrow more than a Conservative Government.
The Chancellor just said to the House that he has not gone slower on the deficit than he intended to in 2010, but the Office for Budget Responsibility says he has borrowed more than £200 billion more than he planned. Can he explain that remark? I have to say that I think everybody in the country will be totally baffled by the Chancellor’s remark.
We have delivered exactly the spending plans that I set out and which the shadow Chancellor opposed. If he is complaining about those spending plans, and if he would like to spend more, he should be honest with the British people and say that a Labour Government would like to borrow more. Why does he not have the courage to tell the truth? The truth is that he does not tell the British people the truth because he knows that when they discover he wants to borrow £170 billion more, they will not let him near Downing street again.
Does the Chancellor recall, when the Government outlined their deficit reduction plan, that Opposition Members, including the shadow Chancellor, said we were going “too far, too fast”? Now the right hon. Gentleman criticises us for not cutting the deficit enough. Will he make his mind up?
It is a totally chaotic and farcical position from the Labour party. It has spent the first two weeks of this year complaining that the Conservative party is cutting too much and promising that it would not cut as much, but now Labour Members are going to troop through the Division Lobby with us in support of a charter that requires £30 billion of fiscal consolidation over the next couple of years. To be fair to the Scottish National party, I think its Members are going to vote against us, as too is the Green party, but Labour Members are sitting there in total silence. They are going to go through the Division Lobby with us to support £30 billion of spending cuts. [Interruption.] Cheer up, it is what the Labour Front-Bench team has asked you to do. It is going to lead the party through the Division Lobby because it does not want to admit to the British people that its plans involve spending more money.
The Chancellor is asking us to be honest and state our position. Will he tell us what he said today? A few moments ago, he clearly said—we can all check Hansard tomorrow—that he had not gone any slower on reducing the deficit. He said that word for word. We are simply inviting him to clarify his remark—to tell us it is not correct, that we must have misheard, or that he will correct Hansard. Whatever he does, will he clarify his position? He is clearly totally out of order.
I will give way to the shadow Chancellor in a moment, but I want him to understand what he is asking the Labour party to vote for. To their credit, the SNP and the Green party understand that they do not want to agree with our spending cuts.
The charter sets out that the OBR will continue to monitor our fiscal rules. This is a major innovation. We take it for granted now, but only five years ago we had a Labour Chancellor and the team behind him fiddling the figures and making sure they were marked against their own rules. We then commit in the charter to achieving falling national debt by 2016-17 and a surplus on our cyclically adjusted current budget by 2017-18. That requires £30 billion of consolidation. So for the third time, I ask the shadow Chancellor: will he accept that his plans involve borrowing more? What is wrong with the “borrowing” word? He used to give whole lectures about why the country should have a fiscal stimulus and borrow more. Why does he not get up and say, “Yes, Labour would borrow more”?
We can accept that the Chancellor may have misspoken—we can check Hansard—but will he confirm that he has reduced the deficit much more slowly than he intended and borrowed £200 billion more than he planned? We do not need to debate what he said. Will he just confirm whether he has reduced the deficit much slower than he planned and borrowed a lot more?
We have halved a record budget deficit to 5% of national income. The shadow Chancellor says we should have borrowed more, and his plans involve £170 billion of more borrowing, yet he finds himself in the extraordinary position of asking the Labour party to vote for a charter that requires £30 billion of more consolidation. Where should that £30 billion of consolidation come from? To be fair to the Liberal Democrats, they say we should increase taxes to help achieve that consolidation. The Conservatives say it can be achieved by bearing down on spending, the welfare budget and tax avoidance—£13 billion of savings from the Departments, £12 billion from welfare and £5 billion from tax avoidance. That is our clear plan. Labour cannot pretend to support the charter while claiming that the £30 billion does not exist. It is a totally chaotic position.
I have been trying to get in for a while, so I am grateful to the Chancellor for giving way now. I cannot move on from what he said about cutting the deficit at the level he said he would. Unless my memory is false, he said in 2010 that he would get rid of the deficit over the Parliament. Furthermore, did he intend there to be three years of flat-lining growth?
The British economy has grown faster than any major European economy over the last four years. It has created 1.7 million new jobs and 750,000 new businesses, and today the Governor of the Bank of England described it as being in a “sweet spot”, but Labour opposed every difficult decision we took to do that. It opposed every spending cut and welfare change. It goes around the country pretending it would reverse these things. It has made £20 billion of unfunded spending commitments. Every day in this Chamber, Labour Members ask for more public money to be spent on more things and complain about the difficult decisions we have taken. It is a totally incredible position from the Labour party and it is being exposed today.
Is it not obvious that the Labour party is stuck in the past, talking about things done years ago and frightened to talk about the future? Did the Chancellor hear Paul Johnson from the Institute for Fiscal Studies say on the “Today” programme that borrowing would be higher under a Labour Government and that debt would be higher in the long run? The IFS says it; the Labour party ought to admit it.
My hon. Friend is absolutely right. The IFS today confirmed that Labour would borrow £170 billion more. This is its published plan. It is extraordinary that Labour Members are totally silent about it. They are not prepared to talk to the British people about what I assume they believe to be the right economic policy for the country.
I want to make sense of this strange journey that the Labour party has taken on fiscal policy over this Parliament. After all the twists and turns, I think it has managed to end up in exactly the same place as it started. In 2010, as part of his pitch for the Labour leadership—we thought at the time he was a worse choice than the current leader, but given all that has happened, perhaps we were wrong—the shadow Chancellor said we should not be cutting spending. He said that more spending would grow the economy and that the economic growth would eliminate the deficit. That was the position he set out in his Bloomberg speech—his so-called plan B. The problem was it was rejected by the British public and eventually by the Labour party. So two years ago, Labour changed its approach and committed to the original phrase of “iron discipline”. The only problem was there was no iron discipline and instead it made all those spending commitments. Last autumn, it moved on to another approach—the Basil Fawlty approach—which was not to mention the deficit at all. I think the House can agree that the Labour leader executed that strategy brilliantly at the Labour party conference.
In December, at the end of last year, Labour tried something else. The shadow Chancellor announced that he would seek to balance the current budget and get debt falling, but he would not say when, saying just as soon as possible. When pressed on specific dates, he dismissed them; he said he would not sign up to some arbitrary timetable. When challenged specifically to match our plans, he said a month ago, on 11 December, that he was not going to set a timetable to balance the current budget by 2017. Here he is, one month later, saying that he is going to vote in favour of a timetable to balance the current budget by 2017-18.
I thought that was the end of Labour’s journey. They had ended up supporting a charter that they had previously rejected, a timetable to which they had previously refused to sign up and £30 billion of cuts they had previously denounced. Then, this weekend, we were treated to the spectacle on “The Andrew Marr Show” of the Labour leader dismissing the charter altogether, rejecting the £30 billion figure and returning full circle to where the Labour party started four years ago. This is what the Labour leader said on Sunday:
“if we just try and cut our way to getting rid of this deficit, it won’t work.”
That is the latest version of the Labour party’s policy. It is exactly where they were four years ago. The Labour leader has gone full circle and gone back to saying that the answer to our debts is simply to grow the economy. That is economically illiterate when we have a structural deficit, and it is based on the fiddle of trying to upgrade the country’s trend growth rates—exactly the mistake made by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) when he was Chancellor and got us into this mess. Labour has gone from plan B to plan A to no plan at all.
The Chancellor is shouting a lot and sounded a bit rattled. Will he clarify where in the charter for budget responsibility it says that we are going to balance the current budget in 2017-18? It actually says that it will be done
“by the end of the third year of the rolling, five-year forecast period.”
A moment ago, the Chancellor said it would be 2017-18, but where is that in the document? I cannot find it.
It does not augur well for someone who wants to be the Chancellor that he thinks three years from now is 2017-18. [Interruption.] He will have his chance. I have been wondering what he has been up to all this time while Labour has got itself into such a mess. Let me make this observation, and then I will give way to him. This gives us a clue to what he has been up to. He said to The Independent a couple of weeks ago:
“If I am sitting”
at the piano
“and I start thinking about the deficit, it all goes wrong. On the piano, you have to be totally focused”—
and with that set of priorities, I think the British people would agree that he should go on playing the entertainer and I will go on being the Chancellor of the Exchequer.
The document does not say 2017-18, and nor does it say in three years’ time. It says
“by the end of the third year of the rolling, five-year forecast period”.
When does the rolling, five-year forecast period end—in 2017-18, in 2020-21 or in 2029-30? It is totally baffling.
Does my right hon. Friend draw the conclusion from the Chancellor’s recent interventions—[Interruption.] I mean the shadow Chancellor’s interventions—he will wait a long time to become Chancellor. Does my right hon. Friend draw the conclusion from the shadow Chancellor’s interventions that he either does not understand the paper in front of him or is about to go through the Division Lobby to support something he describes as “baffling”?
I think the shadow Chancellor is trying to perpetrate a grand deceit on the British public. I think he has no intention of delivering the £30 billion of cuts. He does not want to do that: he wants to spend and borrow more, but he does not want to tell the British people the truth about that. We had independent confirmation from the IFS today that Labour would borrow £170 billion more. It confirms what we already know—that the Labour leader and the shadow Chancellor would do it all over again: tax, borrow and spend their way into an economic crisis, letting the British people pay the price in lost jobs, lost incomes and lost futures.
The shadow Chancellor faces a choice. He can either confirm by voting for this charter that he accepts the £30 billion of deficit reduction required to fulfil the objectives, in which case, since he does not approve of our spending plans, he admits that there will be major tax rises under a Labour Government; or he can reject the deficit reduction required, in which case he is confirming that voting for this charter today is nothing other than a grand deceit—pretending to the British people that Labour does not want to borrow more when that is exactly what it plans to do. With the Labour party, it is either a tax bombshell or a borrowing bombshell. The only question is which will it be. Either way, it leads to economic chaos for this country.
Does the Chancellor agree with me that with the feeble and inconsistent opposition coming from the Labour Front Bench, there is a very good reason for seeing the SNP, the Greens and Plaid as the real opposition on this issue because we are clear and consistent about the fact that austerity is not working?
That shows why we want the hon. Lady’s party in the TV debates.
What is clear today is that there is only one credible plan to deal with our debts, and that is our long-term economic plan. It binds us into eliminating the deficit, getting debt falling and running a surplus. It delivers economic security. This charter is part of that plan, and I commend it to the House.
We have pledged to balance the books in the next Parliament. I said a year ago that the next Labour Government would get the current budget into surplus and our national debt falling as soon as possible in the next Parliament. This charter is fully consistent with our position, so on that basis we will support the motion today. We are not going to change our view about what is in Britain’s best interests, because of another one of the Chancellor’s silly failing games.
If you do not want to take this from me, Madam Deputy Speaker, an interesting press release was issued this morning by the TaxPayers Alliance—not an organisation I normally quote in the House. This is what its chief executive said just an hour ago about this debate:
“This is a meaningless political gimmick of the most transparent kind, and one that serves only to remind taxpayers”—[Interruption.]
The hon. Member for Dover (Charlie Elphicke) should listen to this. The chief executive said that this gimmick
“serves only to remind taxpayers how dramatically this Chancellor has missed his own original targets.”
We are happy to vote to remind people how much the Chancellor has missed his targets.
I will explain that in my speech. What we have before us—this so-called trap—is not a trap at all, as I will explain. I will discuss the new fiscal charter in detail in a moment, but let us first be clear about the background to today’s motion and the new charter before us. This is not the first fiscal charter before us in this Parliament, but the second. The first was presented at the beginning of the current Parliament when the Chancellor lay before the House a charter committing the coalition to balance the books in this Parliament, to get the cyclically-adjusted current budget back into balance and the national debt falling by the coming financial year 2015-16.
As I reminded the House on the day of the autumn statement, the Prime Minister actually went further in 2010. He said that he would balance the Budget in 2015. However, just a few weeks ago, in the autumn statement, independent forecasts from the Office for Budget Responsibility confirmed that this Chancellor was not going to balance the books in 2015, or in 2015-16. In fact, public sector net borrowing in 2015-16 is now forecast to be £76 billion, £7.7 billion higher than was forecast even as recently as the Budget.
The figures on page 15 of the OBR’s “Economic and fiscal outlook” show that this Chancellor, in this Parliament, is borrowing—staggeringly—over £200 billion more than he proposed to spend in the 2010 plans. As a consequence, the national debt, compared to the 2010 forecasts, will be much higher in 2015-16 than he suggested. Back in 2010, he said that in 2015-16 the national debt would be 67.2% of GDP. According to the latest figures, it is now forecast to be not 67.2% but 81.1% of GDP, 14 percentage points higher than the Chancellor’s 2010 figure. Worse than that, according to the 2010 fiscal mandate the national debt would be falling, but the OBR figures show that in 2015-16 it will be rising again, from 80.4% to 81.1%. On the deficit, on the current deficit and on the national debt, the Chancellor made promises in 2010, in a clear fiscal charter, and he has broken every one of them.
Was my right hon. Friend as surprised as I was that, in all his political bluster, the Chancellor of the Exchequer did not mention once that, while he used to say that he wanted to balance the overall budget, he now wants to commit himself to Labour’s policy of balancing the current budget, excluding capital investment? Moreover, he did not mention the fact that the fiscal mandate had been downgraded from a target to an aim.
I shall provide an analysis of the new charter and why it is different from the old charter in a moment, but my hon. Friend is quite right. The Chancellor did not explain either that he had failed to meet the requirements of his charter in the current Parliament, or that he has now changed it for the next Parliament for reasons that are surprising and a bit confusing.
Does the shadow Chancellor agree that all these fiscal forecasts are based on a forecast of spending reductions and growth in tax revenues and the economy? Does he agree that in 2010, no one on either side of the House, including him and including me, realised just how persistent the global problems were going to be and how grave the banking crisis was, and that therefore the growth that everyone—including him—expected to see was not achieved? The Government stuck to their spending plans, but could not achieve the growth forecast. Is the shadow Chancellor saying that in the middle of that grave crisis, when it was still persisting, a Labour Government would have cut our spending plans more dramatically in order to hit what he is now praising as our target?
As ever, the right hon. and learned Gentleman has got to the heart of the issue. Three factors can bring the deficit down: spending cuts, decisions to raise taxes, and what happens to the underlying growth of the economy and the tax revenues which flow from that. The Chancellor did not talk about the third factor, for understandable reasons.
I will give way in a second, but let me first explain this point to the former Chancellor.
Even as recently as the March Budget, the OBR made a forecast for growth and for tax revenues. Between the Budget and the autumn statement it revised the growth forecast up by a little bit, but revised income tax and national insurance substantially down because, owing to this year’s stagnating wages and cost of living crisis, growth has not brought in the revenues that the Chancellor wanted. In comparison with the March Budget, we have actually lost £8.4 billion in this fiscal year, not because spending cuts have not gone ahead or tax cuts have not been delivered, but because the tax revenues have not come in as a result of growth and stagnant wages. Ultimately, the only way of reversing the problem is yes, to cut spending, and yes, to raise taxes—as the Chancellor has done in this Parliament—but also to get the economy growing in a stronger way which will bring in tax revenues. If he does not do that, the Chancellor will carry on failing year after year, as he has in this Parliament.
I will explain the nature of the fiscal charter and how it works in a moment. I am sure that the hon. Gentleman will then see the stark difference between our position and the position of the Conservatives. He will probably find that he agrees much more with our position than with theirs.
The point that my right hon. Friend has made about low pay and tax revenues is crucial, but is it not also the case that since 2010 the Government have spent £25 billion more on social security than they originally planned to spend because of that failure on low pay and the failure to deal with the cost-of-living crisis?
That is true. If we compare the welfare spending plans that the Chancellor set out in 2010 to the actual outturns, we see that he has overspent in this Parliament by £25 billion. He has spent £25 billion more on disability and housing benefits because of what has happened to the economy. The former Chancellor, the right hon. and learned Member for Rushcliffe (Mr Clarke), is right. We have to deal with the big issues rather than playing silly political games.
I will give way in a moment, but I want to deal in a bit more detail with the interesting point that has been raised. What is clear not just from the Chancellor’s speech, but from his whole chancellorship, is that—unlike the former Chancellor—he has never really gripped the actual economics of what happens in our economy. He understands slogans, but he does not understand how the economy actually works. Let me explain it.
We all know that the Chancellor flatlined the economy for two or three years after 2010. Now, although the economy has recovered, growth has returned and unemployment has come down, the fact is jobs have been created in low-paid, often insecure work. There is lower productivity in our economy, many people are trapped in part-time employment and zero-hours contracts, and, as a result, tax revenues have not come in.
According to the OBR, income tax receipts are a cumulative £68 billion lower than the Chancellor’s 2010 forecast, and national insurance contributions are a cumulative £27 billion lower than he planned. His fiscal failure in this Parliament—which he could not deny when we asked him about it earlier—has occurred not because he has failed to deliver spending cuts or because he has not raised VAT, but because of the underlying way in which the economy works. Because more people are in low-paid work and wages are stagnating, the tax revenues have not come in. It is clear from the Chancellor’s speech that he does not understand the economics of the matter, but that is the truth. I know that the former Chancellor understands it.
Is it not also the case that many people who are in work are receiving benefits, and is that not a symptom of the low-wage economy? Given that we are discussing budget responsibility, is my right hon. Friend as concerned as I am about the fact that the Chancellor promised an unfunded tax cut at the Conservative party conference, but is talking about consolidation today?
I will give way in a second, but I want to develop a point that the former Chancellor has helped me to make, about the relationship between receipts, growth and the deficit. Before the autumn statement, the OBR said that
“weaker-than-expected wage growth so far in 2014-15”
“depressing PAYE and NIC receipts.”
Then, in the autumn statement, it said, “We expect earnings growth to remain subdued for longer than in March. This is the key driver in the lower forecast for PAYE and NIC receipts.”
The Chancellor had to revise up borrowing this year because real wage growth has been revised down for this year, next year and the year after. In table 4.10 of its document, the OBR forecasts a cumulative loss even in relation to the Budget, and predicts that lost income tax and national insurance revenues alone will rise to £9 billion a year. The Chancellor does not understand that unless he can bring in receipts from income tax and NICs, from growth and wage growth, he will not succeed in meeting his targets without “colossal”—that is not my word, but the word used by the Institute for Fiscal Studies—cuts in public spending. The Chancellor has never really “got” the economy, and therefore he does not understand that point.
The shadow Chancellor is claiming to have a grip on economic reality which, with great respect, I do not think he had when he was in office, but on the point, which we are getting dangerously near to agreeing on, presumably he is not saying that when we had the growth forecasts not being met in those dark days three or four years ago we should have put up income tax, any more than he is saying we should have done anything other than stick to our spending reductions. Until conditions improve, we have to attack the structural problems. Has the right hon. Gentleman not noticed the banking reform, the banking regulation, the skills training, the education reforms, the support for small business, the introduction of research and development in technology? That is the real job, but fiscal responsibility is the essential precondition before any of those things work.
I agree with the right hon. and learned Gentleman. I am not going to pick over past debates, but when he led his party through the Lobby opposing Bank of England independence, well, that was then; and when he advocated Britain joining the single currency in 2003, well, that was then. We probably agree on other things these days.
Let me take the right hon. and learned Gentleman to the most recent OBR forecasts. He makes an important point about trend, and in 2010 the OBR forecast that the underlying growth in our economy—trend growth—would in this Parliament, in 2014, be 2.1%, but in its most recent document it has revised down the underlying trend in 2014 from 2.1% to 1.7%, so, despite the reforms he talks about, we have been going backwards in terms of trend growth and productivity.
On the other hand, if we can raise through reform—I will come to this in a moment—the underlying trend growth of the economy, we can turn this around. These are not my numbers; they are the OBR numbers. The numbers show that if we were able to increase the underlying trend growth of the economy by just 1%, so it was 1% higher by 2019, which is the equivalent of about 0.2%—
In a second; not in the middle of a sentence. That 0.2% a year improvement in the underlying growth of the economy would, by the end of the period, bring in £15 billion a year more in tax revenues. So the trend of growth has gone in the wrong direction under this Chancellor and the key for the next Parliament, as well as spending cuts and tax rises, is to improve the underlying growth of the economy. If we can do that, we can bring in the revenues. If, on the other hand, we fall short in the next Parliament under the same Chancellor in the same way as we have in this Parliament, that would lead to over £110 billion in extra borrowing. If we are going in the wrong direction on growth and wages, the revenues do not come in and the deficit does not come down. We have got to improve the underlying growth potential of the economy. The right hon. and learned Member for Rushcliffe and I agree on that, but I do not think that this Chancellor understands the point.
Is not the shadow Chancellor making the Chancellor’s case for him: that the first thing to do is get fiscal stability, and then we get a growing economy and tax revenues come through? Tax revenues are always a lagging indication of economic performance, and they will come through because of what this Chancellor has been doing.
The problem is that the Chancellor said he would make people better off, and they are actually worse off at the end of this Parliament; he said he would balance the books, but he has not got the deficit down, and the reason is that trend growth and productivity have been weaker than he expected in 2010, which means the tax revenues have not come in. So in fact the opposite is true. It shows that we need a proper plan for jobs and growth to turn around the underlying growth of the economy. On that, he has totally failed to deliver.
In a second. First, let me turn to the fiscal mandate, because this is where the Chancellor’s position becomes, to be honest, farcical. The current fiscal charter says:
“The Treasury’s mandate for fiscal policy lapses at the dissolution of this Parliament.”
Rather than lapses, I would say that it has totally collapsed in this Parliament. It is totally discredited. Even the TaxPayers Alliance can now see how discredited the Chancellor’s forecasts are for this Parliament, but the Chancellor has a bail-out clause, because in the old charter it says that he has a
“duty to set out a fiscal mandate”
“will require the Treasury to set out a revised mandate for fiscal policy as soon as possible in the life of the new Parliament.”
This Chancellor, always alive to trying to find a new gimmick, decided—and has told every Tory commentator going—that this is a new trap for Labour. That is what we are going to get. It is not a stunt; it is not a gimmick; it is a trap for Labour. The problem is that, as we have seen today, this has been an opportunity for us, him and the TaxPayers Alliance to highlight to the country how much he has totally failed in this Parliament on fiscal policy. It is not only a chance to show how extreme his plans are for the next Parliament—and I will come to that—but he has not even managed to deliver the trap he promised.
I did not want to disrupt the shadow Chancellor’s flow, because I know he is easily distracted. Is it not because of the Chancellor’s support for the north-east by way of city deals, manufacturing and business support that the north-east now has the fastest rate of growth in private sector business in the autumn quarter, and the highest rate of growth in exports? Surely that is evidence that this economy has been turned around by a Chancellor who cares about business and manufacturing?
Maybe we could form a consensus on the way forward on devolution for the regions—I am in favour of that and so is the hon. Gentleman—and that is not the only thing we could form a consensus on, because this is what he told ConservativeHome just recently:
“A bit of extra tax on properties over £2 million seems perfectly fair to me.”
I am with him all the way. Maybe we should get together on that one as well—you shouldn’t have let that one through, George!
Let me come back to the vote and what the Chancellor said at the time of the Budget. He said:
“Britain needs to run an absolute surplus in good years…To lock in our country’s commitment to this path of deficit reduction, we will seek the support of Parliament in a vote, and I will bring forward a new charter for budget responsibility this autumn.”—[Official Report, 19 March 2014; Vol. 577, c. 784.]
The vote was supposed to be on an absolute surplus. That is what the Chancellor was talking about. The Prime Minister on 15 December—the day the new charter was published—attacked Labour for our proposal for two or three years to get the current Budget into surplus. What was surprising about that speech was that the Prime Minister made it, did the Q and A, and got off the stage before the Treasury published the new charter. That was an odd thing to do when he was talking up the charter. Why would they not put it out in advance? It turned out to be because the Prime Minister had just finished a speech attacking Labour and our plan to get the current Budget into surplus, and then the Treasury published a new fiscal charter committing the Government to get the current Budget into surplus. No wonder he got off the stage so quickly.
The Chancellor promised in the last Budget a vote to balance the overall budget. Now the Government have done a U-turn and are proposing a vote on the current Budget excluding capital investment, which is the same measure we have been committed to for three years. Can he confirm that in the last Budget he promised a vote on an absolute Budget surplus and this charter before us is a vote on the current Budget? Is that right?
Also, when we study the fine print of this fiscal mandate, we find that it turns out to be even more different from the old one than I expected. The old fiscal mandate talked about having a target to balance the current Budget in 2015-16 and a target to have the national debt falling. We can see why this Chancellor has got a little worried about setting targets because they have not gone very well. It turns out that in this new document it has been downgraded from a target to an aim. Why have the words changed? Would the Chancellor like to explain?
In a second.
As we established a moment ago, even though according to the Chancellor and the Prime Minister the vote is on balancing the current Budget in 2017-18, in fact when we read this charter, we find that there is no mention anywhere of the dates 2017-18. It is baffling that they are not there. Let me read it out. It talks about
“a forward-looking aim to achieve cyclically-adjusted current balance by the end of the third year of the rolling, 5-year forecast period.”
What on earth does that mean?
I will give way in a moment. Let me explain what is going on here. It is a three-year rolling target, so in 2015—[Interruption.] Let me explain it to the Deputy Chief Whip or whatever he is—the hon. Member for Croydon Central (Gavin Barwell). In 2015 the three-year target presumably refers to 2017-18, but in 2016 it is rolled forward to 2019 because that is three years later. In 2017, it rolls on to 2020 and in 2018 it rolls on to 2021. It is a three-year rolling target, so it rolls on, which means that the Chancellor could come back to the House in 2020 and say, “It is okay. Consistent with the charter, I am meeting the aim because I am balancing the current budget in 2023.” That is what this says and it is utterly ridiculous. It does not even sign him and his party up to balancing the current budget by the end of the next Parliament. The fact is that for all the boasts, the rhetoric and the talk of traps, in this new charter before the House it is not targets but aims; it is not balancing the overall budget but the current budget; it is not an absolute commitment to deliver a surplus in the next Parliament, but an absolute commitment to a three-year rolling five-year target. The Chancellor has spent all of the past nine months telling everybody what a clever wheeze this is and, once again, it has totally backfired. It is less of a trap and more of a load of complete pony and trap. That is what we have before us today.
Does my right hon. Friend agree that perhaps one problem with a rolling target is that it is very difficult to hit? The point for many people is this: low-paid workers in my constituency do not get to pay tax at all; instead they need the taxman to be giving them money. Is it not because so many people need in-work benefits—they work and yet the taxman gives them money—that the Chancellor is spending £25 billion more than he expected to in 2010?
He is. As my hon. Friend says, not only has the Chancellor overspent in this Parliament, but he is promising £12 billion of further cuts in the next Parliament, and as the IFS made clear in December, his party has been totally unspecific about where any of those will fall, beyond the fact that they will be hitting the tax credits of working people.
It is either a three-year rolling five-year target to avoid ever getting to be judged on it, or it is because he could not get his quad partners to agree with it before the autumn statement. We know from the letter from the OBR that the quad signed up to the spending cuts, but perhaps the quad did not quite sign up to the fiscal charter the Chancellor wanted.
Does my right hon. Friend agree that perhaps the reason for the wording is that at any given point when the Chancellor is asked whether he has met the aim—not the target—he can say, “We are going to meet the aim because this is now the five-year rolling period and we aim to meet it in the third year”? But in no specific year will he actually be held to account for whether he has met it.
Of course that is exactly what the Chancellor has done in this Parliament. In 2010, when he set his first mandate, he said that this would be done by the end of the rolling five-year forecast period. In 2010, the Prime Minister clearly thought that that meant 2015 but the Chancellor now thinks it means 2018 or 2019, which is why he still says he is meeting his fiscal target. Everybody else can see it is a completely preposterous claim.
The shadow Chancellor has called this proposal a load of “pony and trap”, which I believe is a metaphor for something else. He has also called it a “gimmick”. He knows that many in his own party oppose it, but he has not explained to this House why he is forcing them to vote for it.
The shadow Chancellor is very generous, and I assure him that this is my last intervention. I am afraid I am not quite following this rambling textual analysis, so let me take him back to where I thought we were near to agreeing. He agrees that we were right to stick to our spending reductions and that further fiscal consolidation of the kind the Chancellor is describing is required. The shadow Chancellor’s case appears to be that he has some great plans that will increase our underlying growth rate in future, on top of those the Government already have. Is he going to set out these startling new plans in the remainder of his speech?
I will do so. Let me just say, for the interest of the former Chancellor, because it was not like this in his day or when I was in the Treasury, that our trend rate of growth in 2014—1.17%—puts us 19th out of 34 countries in the OECD. We have a lower underlying trend than Chile, Israel, South Korea, Australia, Mexico and Poland—and the list goes on. The right hon. and learned Gentleman is completely right: we have to find a way to strengthen the underlying growth of the economy.
Let me come on to Labour’s position. We will cut the deficit every year. We will get the current budget into surplus. We will get the national debt falling as soon as possible in the next Parliament, fully consistent with this fiscal charter. How fast we can do this will depend on what happens to growth, wages, the housing benefit bill and events around the world. But our approach will be very different from that of the Conservatives, on the following fronts. We believe, unlike the one-club Chancellor, that three different things need to be done to properly and fairly balance the books in the next Parliament.
First, as we have said, because we will cut the deficit every year, there will be sensible spending cuts in non-protected areas. We will cut the winter allowance, taking it away from the richest 5% of pensioners. We will cap child benefit at 1% for two years, and our zero-based review is examining every pound the Government spend in order to find savings. Secondly, we will make different and fairer choices, including reversing this Government’s £3 billion-a-year top-rate tax cut for people earning more than £150,000. Thirdly, our plan will deliver the rising living standards and stronger—
No. Our plan will deliver the rising living standards and stronger growth needed to balance the books: We will have more free child care, paid for by the bank levy; we will properly capitalise the business investment bank; we will raise the national minimum wage faster than wages; we will repeat the bank bonus tax to get young people back to work; we will devolve full growth in business rates to city and county regions; and we will get the houses built that we need—200,000 a year more by 2020. That is all part of a proper long-term plan for growth and jobs.
The OBR figures show that if our economy was not to slow down next year, the year after and the year after that but instead grew 0.5% faster, that cumulatively would bring in £32 billion in the next Parliament. If we could increase the underlying trend rate of growth in the next Parliament by 0.25%, that would mean £19 billion a year more in tax revenues by the end of the Parliament. This is not only about tax rises and spending cuts; it is also about growth, jobs and the underlying trend. This Chancellor has seen growth downgraded—we have got to do a better job. Unless we do that, we will not see the books balanced in the next Parliament. So that is what we mean by an economy that works for working people and a tough, fair and balanced plan to get the deficit down.
We are only 114 days from the general election and the shadow Chancellor has spent the past four years and more criticising and saying what he would object to. Why does he not put before the House and before the people of this country his proposals for increasing taxes, which he has said he will do. Will he say where those are going to come from for the hard-working people of my constituency and other constituencies in this country?
Which taxes are you going to put up?
We are going to put the top rate of tax back to 50% for people earning over £150,000, and if the hon. Gentleman wanted to win his seat, he would support it.
Instead this Chancellor is taking an increasingly unbalanced and extreme approach. Let us look at what he has failed to put in the charter. He has not included asking those with broader shoulders to make a greater contribution, as I just said. He has not said that we need to strengthen the underlying growth of our economy and improve living standards. Instead, he has made up for all that loss of tax revenue by imposing even bigger spending cuts in the autumn statement than he was planning.
Let me outline the facts to the House. More than 61% of planned departmental spending cuts are still to come in the next Parliament under this Chancellor. There is a further cut for unprotected Departments of 26.3% over the next four years, which is a third bigger than in the previous Parliament. There will be the biggest fall in day-to-day spending on public services in any four-year period since the second world war. That is what is in the Chancellor’s prospectus for his manifesto. We are talking about cuts that the Institute for Fiscal Studies has called “colossal” and that the OBR says will take spending on public services back to the level of the 1930s as a percentage of GDP. That is the Chancellor’s extreme and unbalanced plan, and that is what we are opposing.
If Government Members are so dismissive of Labour’s plans, why will they not let the OBR independently audit our plans instead of using civil servants fraudulently to manufacture fictitious dossiers about Labour’s plans? Is it that they are scared?
On the issue of the dossier, to which my hon. Friend just referred, the Conservative peer and former head of the Conservative party think-tank, Lord Finkelstein, described the figures in the Chancellor’s document as “ridiculous”. Mr d’Ancona, the commentator from the Evening Standard, said:
“Indeed, if the Tories are to win…they cannot afford schoolboy errors of the sort that wrecked their dossier this week”.
I will not say that they are fraudulent, but there was a whole series of untruths in that document, which the Chancellor should withdraw so that we can have a proper debate. He could go further than that and agree with the proposal from Labour, the Chair of the Treasury Committee and the Chief Secretary to the Treasury and not have the Chancellor—or supposedly the Treasury—costing Opposition policies based on political assumptions and special advisers. Why not ask the OBR to do that audit? He could have done that at any time in the past 18 months. Many have called for that to happen. [Hon. Members: “Why not?”] I will tell Members why not. It is because he has made £7 billion of unfunded and uncosted commitments to cut taxes, and he cannot say where the money will come from. Rather than having an honest debate, he wants to spread smears about Labour’s plans, which he knows will not stand up to independent scrutiny. That is the reason. He could have joined the cross-party consensus, and we could have been voting today in this new fiscal charter to allow the OBR to play that role. That is what should have happened. It is what we called for and what many others supported last year, but this Chancellor has ducked it because he does not have the courage to have an honest debate. That is the reality.
The Chancellor claims that his policy is working. There is nothing competent about borrowing £200 billion more than was planned. Our plan would cut the deficit every year and balance the books. His extreme plan will take public spending back to the level of the 1930s. This Chancellor should stop spending his time playing silly political games, which time and again backfire as they have backfired on him today. He should sort out the economy and spend a bit more time making his sums add up.
That last speech clarified the fact that the shadow Chancellor admits that fiscal consolidation of the kind we are describing will be necessary for whoever comes into office after May and that getting back to a balanced economy depends on continuing efforts to improve the underlying growth rate of the economy. He was not able to produce any specific ideas at all. The only things on to which I could latch were that he was going to put up the minimum wage and restore the completely pointless 50% tax rate on the very highest earners. If he thinks that that is an economic growth plan to stimulate our underlying trend in growth to the levels of Chile and Mexico, he is showing the same levels of competence that he displayed when he was the main economic adviser to the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) in the previous Government.
What we are talking about and what I hope we will get agreement on—I hope that the reality of this will dawn on the Labour party as a whole eventually—is that the essential pre-condition of any economic policy that will get this country back to healthy balanced growth is fiscal consolidation by eliminating the deficit, controlling the overall level of debt and, at the top of the cycle, running a surplus on the budget to get the stock of debt back to a manageable level. That is a message that the present Chancellor has been trying to get across in the four years that it has taken to get us to the position that we are in at the moment, which is much more successful than that of almost every other western democracy in similar troubles. If the Labour party has really taken that on board, at least it is beginning to be fit for office. But as far as I can see, it has no other policy.
The former Chancellor may remember that, in the 1920s, similar policies were followed and that, at the end of the 1920s, the debt was larger and we had a decade of unemployment and poverty. After the second world war precisely the opposite policy was adopted, and we had rapid growth, full employment and the debt came down.
No two crises are the same. The causes of the problems in the 1920s were quite different. The steps taken to stimulate demand then were too late. We have been running a deficit throughout these difficult times. We are not going into surplus until the next Parliament. As I have said, the circumstances in which the United Kingdom found itself trading are much more difficult than anybody predicted in 2010, but the idea that what we have done so far resembles anything that was done by the less successful Government in the 1930s is absolute nonsense. The idea that we are going back to the 1930s is also nonsense. The Labour Front Bench has just accepted that what has been proposed by the Chancellor is an essential pre-condition to any lasting success for the benefit of our children.
There are all kinds of other things, but I have no time to go into them. The structural changes that we, like many other Europeans with damaged economies, have got to go in for, and that we are going in for, include: bank regulation; skills training; education reform; and stimulating modern technological industry and businesses in this country. All of those are absolutely essential and include sensible infrastructure spending, which we are sustaining. Unless we get the deficit under control, we have no prospect of getting back to the kind of levels of growth to which we used to aspire. In fact, the debts we are running are rather easier to sustain with interest rates down to a 300 year-low. Once we go back to ordinary levels of interest, all those countries that have failed to tackle their underlying problems of fiscal discipline will find themselves in terrible, terrible trouble. This is a challenge for every western democracy, and it is a difficult message to get across in a democracy. The Greeks may be the latest population in danger of being seduced into not doing difficult things and living on other people’s money. That is very dangerous indeed. The next time that we have another crisis will be difficult because, with the present level of debt, we will have so little in reserve to draw upon to help us through.
The last Labour Government completely failed to foresee what happened, and I think that even now they do not quite understand where they went wrong. They ran a massive surplus during the dotcom bubble, because they stuck to my fiscal figures, and found their tax revenues were inflated for a time. Then, when the next South Sea bubble came around and we had the credit bubble and the credit crunch, they were still—at the top of crazy levels of growth—running a fiscal deficit. They borrowed, but claimed they did not have a deficit. Well, they did not have much of one in 2006, but once the crazy tax revenues from the City collapsed, they were left high and dry, with the full extent of their irresponsibility exposed. They had failed to regulate the mad borrowing and lending in the City of London just as the Americans had failed in Wall Street. It was free money, which their last Chancellor indulged in, and when the bubble burst they were caught.
The former Chancellor is making a strong speech. He might remember that the Labour Government increased the trend growth rate—a decision that at the time was in the hands of the Treasury, rather than an independent OBR. That led them to spend more money and run a structural deficit—the highest, according to the IMF—during that period. Now, we have come full circle and the shadow Chancellor, who was an economic adviser at the time, is proposing exactly the same assumption to underlie his economic policy, so that he can spend and borrow more.
I entirely agree. The shadow Chancellor has done just the same today. In his way of looking at things, the future trend rate of growth will be what he says the future trend rate of growth has to be to justify his plans. I used to envy the Ministers in China, who did not have to worry about a national statistical office: what the Minister said the growth rate was now was what the statisticians told him his growth rate was.
I am sure the former Chancellor knows that decisions on the trend rate of growth in previous Parliaments were not made by the Treasury; they were audited by the National Audit Office. They are now a matter for the OBR, not for the Treasury, but he agrees with me that that is what we should do.
A lot of people did not—I did not—foresee the full extent of the catastrophic crash that resulted from the combination of problems in both the regulation of banks and the credit markets and in fiscal policy that occurred under what, with hindsight, were the most irresponsible Government we have had since the war. I will not mention the invasion of Iraq—another matter they presided over.
Everybody has to have their targets and ambitions. My stated target when I was Chancellor was to balance the budget over the cycle, which is really where we are going back to and which I think is essential prudence. I also said we should not spend more than 40% of GDP—Conservatives before me had allowed spending to get above that. The Maastricht criteria were quite useful—the right hon. Member for Kirkcaldy and Cowdenbeath used to agree with them—but we have to have targets, and the new ones, in a more globalised economy, cannot return to where we were. The Chancellor has to respond to events, but I congratulate my right hon. Friend on what he has achieved so far, and what he will achieve if he sticks to the charter.
It is always a great pleasure to follow the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr Clarke), and to see him so loyally supporting the present Chancellor. He does so against all the evidence, because I cannot think of a single target of any significance—apart from on unemployment, which we will come to in a moment—that this Government have achieved from what they set out to do in 2010. I think the shadow Chancellor wanted to set this proposal up—
I beg his pardon—the Chancellor, soon to be shadow Chancellor.
It is worth thinking briefly about why we are having this debate at all. Like my right hon. Friend the Member for Morley and Outwood (Ed Balls), I do not often agree with the TaxPayers Alliance, but on this I think the TPA has got it dead right. Mr Jonathan Isaby, the chief executive, says:
“This is a meaningless political gimmick of the most transparent kind, and one that serves only to remind taxpayers”—
of this Government’s failure. We will come to that in a minute, along with what happened under the Labour Government all those years ago. What the Chancellor always fails to mention is what happened on black Friday, when the Prime Minister, no less, was a senior adviser to the Treasury. That was only a few years before the period on which the Chancellor dwells with such delight, thinking it indicative of future events. What he is doing is meaningless.
The TaxPayers Alliance statement continues:
“This…serves only to remind taxpayers how dramatically the Chancellor has missed his own original targets.”
I could not agree more. The TPA says that
“Mr Osborne was right to call this legislative pantomime ‘vacuous’”—
and that is about what it is. Today, the right hon. Gentleman tried to turn this into a political, general election-type of debate—way ahead of the date of course—and to step up the temperature, but, quite simply, it backfired. The shadow Chancellor—and some of the Chancellor’s own Back Benchers—turned the tables on him. Much though the right hon. and learned Member for Rushcliffe, the former Chancellor, might try to make a case for the Government’s policy, the case simply does not stack up.
We will deal with unemployment in a moment, because that is very important. What single major target in the Government’s 2010 plan have they actually met? I know targets or aims—whatever one calls them—are difficult. The bigger the entity one tries to budget for and forecast, the bigger the difficulties get; we all know that. Some are hit and some are missed, but this Chancellor has missed every single target since 2010. Growth—apart from unemployment, which we will come back to—[Interruption.] All right, let us deal with it.
Why is it that, the unemployment target having been hit, tax receipts are so low? It is because all other parts of economic policy have failed and the Chancellor does not want to face up to it. My right hon. Friend the shadow Chancellor gave the figures. Why are tax receipts so below what the Chancellor forecast, despite doing well on employment? It is because we have, despite what he says, a low-skill, low-wage economy. That is why tax receipts are much less than we would expect at this stage in the economic cycle. That is his failure, yet again.
Exports have failed. Growth has failed. The budget deficit has failed. Borrowing has failed. It is staggering: the Chancellor is borrowing £220 billion more than he forecast. He said he would eliminate the deficit, but what has he actually achieved? The deficit is still running at almost £100 billion a year. These are mind-boggling sums and it is a mind-boggling failure by the Chancellor that he has given us the opportunity today to debate. I hope he is regretting it. We are certainly enjoying it.
I agree with much of the hon. Gentleman’s argument, which chimes with my economic critique, but can he explain why this evening Labour Members will be voting with the Tories in favour of the motion and wedding themselves to more Tory austerity?
I have told the hon. Gentleman exactly why:
“This is a political gimmick of the most transparent kind”.
The Chancellor wants us to fall for his political gimmick. We are voting for it because we are not going to fall into the silly trap that he has tried to lay for us. It is pathetic. He could do much better and has done in the past. Today, he has done very badly and been caught out, and he should regret it.
There is a serious point, to which the right hon. and learned Gentleman the former Chancellor alluded when he talked about the underlying rate of growth of the economy. That has been with us for as long as I have been in the House, and indeed way before, when I was a researcher with the Labour party back in the 1960s. [Interruption.] We are not going there; the Chancellor can relax. The whole ill-fated national plan was based on the idea of upping the underlying rate of growth—the productive rate of growth—of the economy. That is still with us, even now, and this Chancellor has done nothing, but nothing, about it. That is what we are debating today: his failure as Chancellor, not that of any past failure of any previous Government. If he wants to go back, let us go back to his own Prime Minister and the black Friday disaster on which his own Prime Minister advised.
For us, this is about the future. We are fighting the next election and we will fight it on our plans. Why will the Chancellor not have them costed by the OBR? We do not need him to cost them at the Treasury. We have an independent body, which we set up and we supported, as we support the charter motion today. Why will the Chancellor not have our plans vetted? Why is he scared? It is because he knows they will be proven to be well costed, as the Institute for Fiscal Studies has already said.
I welcome the proposals today that enshrine into law sustainable public finances and aim for public sector net debt as a percentage of GDP to be falling in 2016-17. The argument today revolves around not whether we need to deal with the deficit but how to deal with it. Within that, we must remember that we live in a global market where capital, companies and people can choose where to live and where to be taxed, something that the Government are acutely aware of and have acted upon.
If we are to continue to reduce the deficit in line with the fiscal rules laid out today, aiming for public sector net debt to be falling in 2016-17, and the current budget to be balanced by 2017-18, we need to ensure that our tax system remains competitive. Tax competition and competitive tax rates need not be viewed as dirty words; they are an end to a stronger economy, higher employment and better public services. The problem is that the Labour party believes in two things: first, that higher taxes, corporate or personal, lead automatically to higher revenues; and, more worryingly, that taxation is not just a tool for raising money, but a punishment to be levied on success.
Instead of trying to tax more and more out of people and businesses already sitting around the table, we should be trying to attract more to the table itself, and subsequently ensure that they pay their taxes to the Treasury. Large multinationals choose where to pay tax. This is not the 1930s, where capital was difficult to relocate, although I secretly think that Opposition Members would like to take us back there.
On Sunday, the Leader of the Opposition said that there would be tax rises under a Labour Government. I hope that Labour will come clean about what tax rises it will impose on Britain. My fear, and, I suspect, the fear among Britain’s businesses, is that its first target will be corporation tax, undoing the hard work that we have done in the past four years and turning away companies that wish to be based here.
Everyone who is watching the debate today knows exactly where both parties stand on this. Come the May general election, most people will make a judgment on who has been clean about where we are on the country’s finances and where the future of its finances lie. That is the important thing.
We are starting to see the fruits of the UK’s low corporate tax economy. I read before Christmas that Ferrari is considering moving its headquarters to the UK to escape Italy’s high corporate taxes. Who would ever have envisaged the prancing horse fleeing Italy? That is a strong sign for the UK economy. I would rather companies locate to the UK, essentially importing tax, than threaten to leave, as we saw under the last Labour Government. Just to be clear, competitive taxes do not mean allowing or turning a blind eye to tax avoidance. The Government are tackling that with a target to raise at least £5 billion a year in the next Parliament from tax avoidance and evasion, with all the money used to help to reduce the deficit.
Focusing on corporation tax in this speech starkly illustrates the broader political chasm in the Chamber today and the short-sightedness of the Labour party. The top 100 companies in the UK employ nearly 10% of the UK’s work force and generate nearly a sixth of the tax take. By creating financial stability we have managed to achieve growth while still reining in Government spending, which the Leader of the Opposition said was impossible, then thought was possible, because it was happening in front of him, and apparently now thinks is impossible because we are months away from a general election.
Please do not take my word for it. Writing in The Times today, Paul Johnson, the director of the Institute for Fiscal Studies, says:
“If Labour is spending more—and if it doesn’t raise taxes—it will be borrowing more and, perhaps more important, presiding over a greater burden of debt.
The effect of this might be relatively modest in the short term, but borrowing as much as their rule would allow beyond 2020 would mean national debt about £170 billion higher (in today’s terms) by the end of the 2020s than would be achieved through a balanced budget.”
I would like to highlight one more important matter, and that is the impact that small businesses have on reducing the deficit and lowering the national debt. A competitive tax system does not just help large firms; it allows smaller companies to survive and grow. I am proud that more than a third of the country’s 1.2 million employers—around 450,000 firms—will no longer pay national insurance. This makes a huge difference to them, allowing them to take on more staff, lowering the unemployment rate and lowering welfare payments. I am proud that this has happened under this Government, and that exactly the same would happen again under a future Conservative Government.
I was struck by the shadow Chancellor’s contribution. His criticism of the charter appeared to be that it was not particularly clear when some of the Government’s targets or aims might be met—not an unreasonable criticism, although I was reminded that the last Labour Government used to try to balance the books over the economic cycle and then change the start time of the economic cycle to make the numbers fit. However, that is ancient history.
What is also history is that five years ago this month on 5 January, the then Labour Government debated their Fiscal Responsibility Bill. It set out the framework that they would work within to halve the deficit in a four-year time frame. This Government went further and announced that they would eradicate the entire structural deficit within a single five-year Parliament, and the following year the first charter for budget responsibility was introduced. To meet the provisions of that charter, the Government said that debt would begin to fall as a share of GDP by this year, 2014-15, the current account would be in balance next year, 2015-16, and public sector net borrowing then would be reduced to £20 billion. We know now from the autumn statement, given one month ago, that debt will not now fall as a share of GDP until 2016-17 at the earliest, the current account will not be in the black until the following year, and borrowing in 2015-16 will not be the £20 billion promised, but nearly four times that at £75 billion. The new targets are the essence of the new charter.
The Chancellor and the Government have failed to meet a single one of the targets that they set for themselves. The policy of a fixed-term approach to deficit reduction strangled recovery in the early years of this Parliament, and with £75 billion of cuts and tax rises to come, the inescapable conclusion is that austerity has failed. So today’s measure is less about the purported updating of the charter for budget responsibility and more about providing cover for a failed policy of fixed-term deficit reduction; cover for a plan for further attacks on the welfare budget, which are in the charter; and cover for a plan to balance the books on the back of the poor when public spending goes back to 1930s’ levels.
Is it not the case that we are living in very uncertain times in terms of the global economy? As the right hon. and learned Member for Rushcliffe (Mr Clarke) said, we could have a Greek exit from the eurozone in a matter of weeks, with all the turmoil that would create for the eurozone, and the direct impact that would have on the wider UK economy. With that in mind, would it not be more advisable and wiser to have a more flexible approach to fiscal policy?
That is absolutely right. I will answer that question directly. Instead of the provisions in the charter, we should be tackling the deficit reduction and the debt reduction in a different way. It should not be a fixed-term approach; it should be a principles-based approach based on the medium term. It has been proven to work in New Zealand, and I want to refer to the way in which it goes about that. It says that the first principle should be about reducing debt to a prudent level, where the Government of the day specify what is or is not prudent, depending on the circumstances that they face—precisely the point that my hon. Friend made. The second principle should be that once debt is reduced, the Government should maintain a balanced budget over the medium to long term. That would not prevent any Government from implementing the steps they believe are necessary to achieve the long-term objective of having a prudent level of deficit, but it would mean that it would happen, on average, over the medium to long term, rather than arbitrarily specifying one cycle or one Parliament.
The third principle says that the Government should achieve and maintain a level of net worth that provides a buffer against unforeseen future factors. The fourth principle calls on the Government to manage fiscal risks prudently, and the fifth is that the Government must pursue policies consistent with a reasonable degree of predictability about the level and stability of tax rates. That is incredibly important, because the tax system, tax rates and tax certainty, which have not yet been mentioned today, are a vital component of fiscal stability and fiscal responsibility. In the sense that we have seen tax yields reduce, it is all the more important to get that bit right.
The hon. Gentleman talks about fiscal stability and fiscal responsibility, but let me take him to task on the plans the SNP made, based on the price of oil, and what has happened to the price of oil. Does that not show that what the SNP has to say on these matters is not worth listening to?
That is a ridiculous argument. If one thinks that those oil revenues, which are most certainly falling, are causing a big hit to the UK tax yield, all the more reason, one would have thought, to allow a degree of flexibility in the economic plan so that the overall strategy of deficit consolidation and debt reduction is achieved, rather than the facile political comment from the hon. Member for Dover (Charlie Elphicke).
Before I move to the second and third criticisms of the plan, on the overall plan for deficit consolidation and our opposition to it being on a fixed-term basis, when the New Zealand finance committee looked at alternative models—rigid, straitjacketed models—it made a number of interesting observations. The committee said that there was no solid theoretical justification for any particular fiscal target to be maintained over a period of time, and that judgments on the appropriate level of fiscal aggregates vary over time and depend on the prevailing economic circumstances. A fixed-term target with a fixed objective cannot do that.
Having looked at other countries, the committee said that their experience of legislated targets suggests that there are substantial risks attached to their use. In particular, rigid adherence can seriously distort decision making and, unless carefully handled, minor variations from target can result in significant but unnecessary damage to credibility. The committee went on to observe, in the context of the inherent inflexibility of a fixed target system, that it
“makes it difficult for fiscal policy to respond appropriately to the inevitable volatility of economic circumstances.”
Given that we have seen, and hon. Members have commented on, the eurozone crisis, the Cyprus banking crisis, the Irish bank bail-out and other issues, to put this country back into a straitjacket of a policy which has failed so far, ignoring the possibility that similar shocks could occur in the near and medium-term future, is silly and wilful. It is most certainly a political dividing line which we will not support.
Apart from its inherent inflexibility, our second criticism of the measure is that it sets in concrete a further attack on welfare budgets. With 22% of Scottish children, 11% of Scottish pensioners and 21% of working age adults in poverty, to launch a further attack on welfare at this time under the guise of amending the charter for budget responsibility is simply wrong. Thirdly, to set out a plan for future discretionary consolidation, on which the charter is predicated, which changes the ratio of cuts to tax rises from 4:1 to 9:1 to try, in effect, to balance the books on the backs of the poor is completely wrong.
We do not believe that anyone genuinely opposed to austerity could support the measure tonight. We do not believe that anyone who is genuinely opposed to the draconian changes to welfare can support this Government tonight. We do not believe that anyone who is opposed to trying to balance the books on the backs of the poor and take public spending levels back to those of the 1930s can support this Government tonight. My right hon. and hon. Friends and I will oppose the measure tonight.
I am rather excited by this debate on fiscal responsibility. This is not to say that I am an anorak who should get out more. My happiness resides more in the fact that those who support the motion will be committing to balanced budget economics. Anyone voting for the motion will not just be saying that they believe in balanced budgets; they will be voting for that.
In the new world of transparency the public will be watching who votes for what, and they will rightly hold everyone who votes for the motion to account for the two propositions contained in the charter. The first is the fiscal mandate. As the Chancellor spelled out—there is no confusion—we will balance the current budget by 2017-18. The second is the supplementary debt target, which means falling debt as a share of GDP by 2016-17.
How will we do this? The Conservatives are clear. It means that for the first full two years of the Parliament we will continue the public spending reductions, so that total managed expenditure will fall at roughly the rate that it has been falling in this Parliament—about 1% overall in real terms. That is equivalent to about an extra cut of £1 in every £100 being found in the next forecast period. Any business in my constituency asked to find a cut of £1 out of £100 would do it standing on its head, especially if it knew that that was vital to the survival of the business.
Specifically, we know that £30 billion of fiscal consolidation is required to deliver the fiscal mandate. So Members who vote for the motion tonight are absolutely committed to finding £30 billion. The Conservative party thinks it can be done as follows: £13 billion of that £30 billion by cuts to departmental expenditure limits, excluding the protected budgets for schools, the Department for International Development and health, and a further £12 billion from annually managed expenditure—the welfare budget. I shall not speculate, as I am not in the Government, but we might be looking to find those £12 billion-worth of cuts by, yes, restricting child benefit, maybe to two children; yes, perhaps restricting the top-heavy housing benefit budget and consider saying that those under 21 or under 25 should have their housing benefit curtailed. Finally—one of the biggest exemplifications of social justice that the current Treasury has come up with—yes, tough anti-avoidance rules. The Labour party in 13 years never dared introduce a general anti-avoidance rule. We are saying that those who have the broadest backs cannot be allowed aggressively to exploit tax loopholes. That will find £5 billion.
Our numbers add up. After those first full two years of consolidation, we would have flat real-terms settlements—flat, not further cuts. The result of all this, as we know, is that we would run an overall surplus, not just a surplus in the third year on current budget. Why is that important? Why did the Chancellor say it? The Chancellor said it because he understands that we have to start paying down debt. If we do not pay down debt, it will mean further tax increases and inevitably spending cuts further down the road for the next generation.
This is an ethical proposition, not an ideological one, as the Chief Secretary—I hate to say it—has branded these Conservative plans, and the Labour party as well. We need not waste any time on the Orwellian invocations of “The Road to Wigan Pier”. That is childish point-scoring. This is not ideology. It is about paying down debt.
In the Red Book there is a chart showing debt interest in 2015-16 overtaking the education budget. Does my hon. Friend agree that there is an extremely practical problem of making sure that debt interest does not consume all the tax revenue that we might otherwise spend on services?
My hon. Friend makes a trenchant point. Do we want burgeoning debt interest under the policies of the Opposition parties to eat away at front-line services? The money, as we know, has to come from somewhere.
I am not clear where the major Opposition party stands on this. The £30 billion is what anyone who votes for the motion today must account for. It was not clear whether the Leader of the Opposition acknowledged that figure on Sunday, but he made a stab at how the Labour party might fiscally consolidate. There was the reintroduction of the 50p tax rate for high earners; we know that that raises less than £1 billion. There has been reference today to restricting pensioner benefits to very well-off pensioners; we know that that raises less than £0.5 billion. Labour Members are not even remotely in the ballpark in coming up with a £30 billion consolidation in anything they have said today inside or outside the House.
This leaves us with two possibilities in relation to Labour Members who are going to vote for this proposition today. The first is that they are voting for it in the full knowledge that they have no intention of balancing the current budget in year 3. I am a kind and generous individual, and I do not think they would do anything as dishonourable as to vote for something they had no intention of honouring. They are not going to get the money from spending cuts most of which they admit they will not pursue, and they will not guarantee our spending reductions. That leaves us, I am afraid, to conclude that the iron law of modern British politics still obtains: dogs bark, cats miaow, and Labour puts up taxes.
The Chancellor said that he was not going to balance the budget on the backs of the poor. Yet since 2010 there have been 24 tax rises that have meant that ordinary families are paying £450 a year more in VAT. Households will be £974 a year worse off by the time of the next general election because of tax and benefit changes alone since 2010. The Chancellor cut the 50p rate to 45p, which gave an extra £3 billion not to the poorest but to the richest 1% in the country, meaning that someone earning £1 million will receive a tax cut of over £42,000 a year. The Chancellor has opposed a mansion tax to improve the NHS, but he has hit the poorest and the most vulnerable in our society with the bedroom tax. Not on the backs of the poor? I think not. All in this together? I think not.
In fact, the Conservatives have pencilled in spending cuts to public services in the next period that are 30% greater than those they have already introduced. The hon. Member for Wolverhampton South West (Paul Uppal) said that Labour wanted to take the country back to the 1930s. He should check the figures. In fact, it is his own party that will see the level of public spending as a proportion of GDP reduced precisely to the level it last was during the great depression, the way out of which was not to cut more taxes but to make sure that the economy grew. The Government have now announced £7 billion of unfunded tax cuts. We would like all our parties’ manifesto commitments to be scrutinised by the Office for Budget Responsibility, but the Chancellor has set his face against that. That is hardly surprising, because his failure is significant.
I am sorry, but I cannot because of the time limit. I am conscious that other Members want to speak.
In 2010, the Prime Minister told the CBI:
“In five years’ time, we will have balanced the books.”
Some might say, “Surely that was before the general election—before he saw the books”, but it was not: it was on 25 October of that year, well after the general election. The Conservatives have broken that promise, and borrowing in 2015 is set to be over £75 billion. The Chancellor is now borrowing £200 billion more than was planned in 2010.
This failure to deliver on the central goal is fundamentally linked to the Government’s failure to tackle the cost of living crisis. Wages continue to stagnate for very many workers. Too many of the jobs that are being created are low paid and insecure; they are not jobs in high-paid, high-productivity sectors. As a result, our public finances have been weakened. Low and stagnant pay means that tax receipts are £68 billion lower, while receipts from national insurance contributions are £27.3 billion lower across the same period. Low pay combines with higher housing costs and failure to deliver benefit reform to drive social security costs higher. This Government are now set to spend £25 billion more on social security than they planned five years ago. The Government who came in to reform social security because it cost too much are spending £25 billion more than they said they would.
In the 2014 Budget statement, the Chancellor said that he wanted a vote on an absolute surplus. The country understands that there are few, but significant, levers that one can use to sort out the deficit: one can vary spending, vary taxes, and vary borrowing. However, varying spending and taxes can vary the level of tax receipts the Treasury gets in, and that level determines how much one needs to borrow to balance the books. The Chancellor said that
“in this Budget all decisions are paid for. Taxes are lower but so, too, is spending”.—[Official Report, 19 March 2014; Vol. 577, c. 784.]
He should have gone on to say: “But so too are tax receipts, and social security spending is up.”
The Government have failed on their fiscal mandate, but we should look at not just the Red Book but the green book, because growth cannot be built by eroding our natural environment—
I am absolutely delighted that this motion is being put before the House today, not just for the reasons I will come to about the direction of Government policy, but because since I came to this place I have advocated stronger fiscal rules such as those which this charter seeks to introduce. This is part of a direction of travel that I hope will find us in a position whereby we can introduce proper legislation on fiscal rules in much the same way as the Swedish did some 15 years ago.
The hon. Member for Dundee East (Stewart Hosie), who is no longer in his seat, made a good analysis of the problems with fiscal rules, and I completely concur. If they are not drawn up properly, they can cause more problems than they help solve, not least because they allow some parties and politicians to pretend that they are doing things that are prudent when in fact they are not doing so. However, in a few circumstances they have been successful. The important thing about the rules that are being developed by the Treasury, the Chief Secretary and the Chancellor is that they are building a consistent basis on which we can create a decent fiscal framework for the future.
The history of fiscal rules in this country is not good. That is because of the mendacity of the golden rules dreamt up by the former Prime Minister and Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), and by his adviser at the time, now the shadow Chancellor. Those rules were mendacious because they pretended to the British public that prudence was being pursued, when in fact it was not. The right hon. Member for Kirkcaldy and Cowdenbeath spoke all the time of current budget balances, yet from 2002 onwards, as my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) pointed out so eloquently, a large and increasing deficit was being built up. What is so troubling about this debate is that it has proved that the right hon. Gentleman’s adviser at the time is now planning to do precisely the same thing again—to imagine a trend rate that is informed by his own desires and not by actuality, and informed by a mode of economics that suggests that if one somehow creates different living standards through the force of Government, one can create the economic weather that one wishes to see. That argument is pursued only in Venezuela and nowhere else in any developed country. It fails because it goes against all the economic laws that have been found to be consistent through this crisis and which proved the previous economic policy so very wrong.
This debate is so important—fiscal rules matter, even if they are not perfect—because it forces us to have this discussion. Here I differ, which I rarely do, from my hon. Friend the Member for Bury St Edmunds (Mr Ruffley). He is a kind and generous soul, but on this I am not. I am afraid that the Opposition are introducing us not to some different policy agenda, but to a fraud. I do not think that they have any intention of consolidating the fiscal situation of this nation if they come to power. They are not promising to introduce a real surplus by the end of the next Parliament; they speak only of the current budget, and that is why we failed so magnificently last time. We were left high and dry when the water went out, leaving us in a position where we had no ability to fight the greatest threat to our economy since the second world war.
This is an important day, because it reaffirms the Government’s commitment to securing the future of the economy for our communities and our nations and because it exposes the fraud being put to the British people by the Opposition in advance of the next election. We can see today that the British people have a clear choice between chaos and competence. I am glad that it is such a clear choice that even the Opposition in their heart of hearts know they have to vote with the Government and with competence.
Her Majesty’s Opposition bear a heavy responsibility, because they set the dividing line in this debate. They chose to attack the coalition Government for cutting too far, too fast and to set up the Chancellor as if he were the author of austerity. The reality is four years—it is coming up to five years—of fiscal incontinence and a borrowing binge greater than any this country has seen in peacetime. In the run-up to the last election, a number of Conservative voices drew attention to the Labour Government having borrowed in three or four years more than the country had borrowed in the previous 300. Since then, however, the coalition Government have borrowed even more.
Both Labour and the Conservatives seek to reduce our deficit with at least one hand tied behind their back. Their excuse is crisis in the eurozone, yet they failed to explain, despite the claims, particularly from Conservative Members, that the economy is supposedly doing so well, why we are borrowing so much. Why are we borrowing so much more than France, Italy, Spain and Greece? The answer is that the Government have failed to keep their promise to deal with the deficit, let alone to pay down our debts. They have tied their hands behind their back in the way that every other party in the Chamber has, except my own. There is a consensus commitment across the House—it is not in the country and it is not shared by my party—to spend between £10 billion and £20 billion each year on a budget contribution to the European Union, to spend a sum rising to £13 billion on a net transfer of overseas aid, and to spend a sum rising from £2.3 billion in 2012 to £9.8 billion in 2020, partly classified as spending, through the levy control framework. There is also the vow the party leaders made in Scotland to carry on the commitment to the Barnett formula for as far as the eye can see. With those spending commitments, the Government are enormously handicapped in reducing the deficit.
The common agricultural policy operates with such fantastical inefficiency that there is enormous scope for treating farmers better while spending less money. The problem is that the Government and the country are spending money that we do not have. The problem is not just the level of the commitments I described, which my party does not endorse and would make savings from, but that the spending has been allocated on the basis of forecasts by the Office for Budget Responsibility. When this Parliament started, the OBR was essentially one man: Professor Sir Alan Budd. Instead of relying on the electoral mandate and authority of the Government—or the institutional ability of the Treasury, as the right hon. and learned Member for Rushcliffe (Mr Clarke) did—the Chancellor based his whole economic and fiscal strategy on the forecast of one man, Professor Sir Alan Budd.
The right hon. and learned Gentleman rightly said that GDP evolved in a way that was worse than almost anyone predicted, but he did not say that the OBR’s forecast was far more optimistic than that of most economists at the time. That forecast was made even more optimistic in October 2010, and we are paying the price for that. The Chancellor has come to realise that he needs to restrict benefits growth to 1% a year for at least two years—it is perhaps now three years or more—in the same way that public sector pay has been restricted, but back in 2010, 2011 and 2012, he raised benefits by inflation when at times it was more than 5% and wage growth was only 2%.
It is those fiscal commitments—to the EU, to overseas aid, to energy and to Scotland—combined with putting so much trust in the one individual and the three men and a dog in the OBR and its approach to economic forecasting that has led the country into this terrible fiscal position. The OBR forecasts that the fiscal position will go back into balance, with more than £20 billion of surplus in 2019-20, but that reduction in Government borrowing must be predicated on a combination of an increase in private sector borrowing and a reduction in the current account deficit.
The OBR tells us that there will be an explosion in household debt and at the same time a big fall in the current account deficit. It made that forecast on a risible analysis. It looks at what has happened to our investment balance. For 300 years, the country has earned its way through a surplus on investment income. That has disappeared because of the combination of the fiscal incontinence of both the Labour party and the Conservative party, which have borrowed such enormous amounts of money, and what the banking crisis has done to impair the quality and quantity of our net asset base. The OBR simply assumes that that investment income will magically come back. If it does not, things will be a lot worse. If we are to carry on giving 0.7% of GDP to overseas aid, £10 billion to £20 billion to the EU—perhaps 2% net of Government transfers—then unless the Government run a surplus to pay that, the private sector has to borrow more. These two parties have left us in a fiscal mess.
I rise to support the Chancellor and in particular to draw attention to the second line of objective 3.1, which talks about “intergenerational fairness”. That is incredibly important when we discuss these issues. There is a moral aspect to balancing the books and not relying on our children and our grandchildren to pay for the deficit. I would find it particularly galling to draw a pension that my five grandchildren—they are still at school—were paying for. We have a moral duty to get a grip on this issue and ensure that we get things balanced. In its draft manifesto, my party mentions 2017-18 as the year we get the current budget into balance, and I expect that to be the platform on which we fight the election.
When we are talking about moral issues, it is also perfectly valid to talk about investment for my children and grandchildren from which they will benefit. I do not see any problem investing in the schools, roads, universities and so on that they will use, particularly when those assets are productive and help the infrastructure and economy of the country. Balancing the current budget is the right way to go, but we also need to address paying down the debt in the years after 2017-18.
The document includes extensive clauses on the welfare cap, which was widely supported in this House. I am not surprised that it was supported by the Labour party since, to quote the shadow Work and Pensions Secretary, it is going to be tougher on welfare than the Tories. I would love to hear how it is going to be tougher on welfare, because it is not selling that to the electorate. Having said that, I note that paragraphs 3.26 and 3.28 allow a future Government to change the amount of the welfare cap and items included in it simply through a vote in this House, which I guess means that it could well change in the future.
The role of the OBR features heavily in the document and the Liberal Democrats have been the only party in the past few elections to present a balanced budget to the country going into a general election. I am proud of that, but I do not believe that the OBR should be the organisation to certify and test that. It has a particular job to do and a level of impartiality that means that it should not get involved in party politics. The Institute for Fiscal Studies is already more than capable of doing that. It has been heavily quoted in today’s debate and already receives more than half its funds from the public purse, so we should rely on it to sense check the various budgets. It is in the interests of the IFS to maintain its independence in doing that.
One item not mentioned in the charter that I would like to see a lot more of is the whole of Government accounts. There is a move behind the scenes in Government to start doing proper accountancy in the public sector. As an accountant, I am stunned by how the Government account for their affairs. For example, the Government have accounted for the sale of 3G licences in a similar way to that which got the Tesco management into huge trouble. We do not account properly for our pensions liabilities and the way we do our accounting has led to the huge scandal of the sleight of hand in the private finance initiative that has cost taxpayers dearly. I hope that in future charter updates the whole of Government accounts will be a key plank of the Government’s strategy for fiscal responsibility.
We are living in difficult times. We had a huge economic crash and it is amazing that the people who crashed the economy are now seriously suggesting that they should have the keys back. We had chronic neglect of the north of England and of manufacturing in particular under the previous Government while they added 1 million people to the public sector payroll. All that was disastrous for my constituency of Redcar. The Liberal Democrats have a clear plan. We want to cut less than the Tory party and borrow less than the Labour party. We think that that is the right way forward to a stronger economy and a fairer society.
Nothing says more about why we need change in 16 weeks’ time than the Government’s cynical attempt in this debate to divide Parliament and the country by tactical tricks and wheezes as a cover for their failure on the deficit and their inaction on the other big challenges that face our country: wages, productivity, inequality and banking reform.
This is a debate that the Chancellor has been plotting for months as his election battleground, but just last week we saw his attack on the fiscal policies of the Labour party collapse within hours. In 2010, he pledged to eliminate the deficit within five years, but now, having borrowed £200 billion more than he planned, he presents a watered-down charter for budget responsibility in a desperate attempt to ensnare the Opposition on tactics. This is a Chancellor who makes billions of pounds of unfunded tax commitments but refuses to allow the impartial OBR to cost all parties’ election spending promises. Today, his guile has deserted him and his economic failure has rebounded on him. From iron Chancellor to boomerang Chancellor in just five years: Britain surely deserves better than this.
When the OBR slashes its forecasts for receipts from income tax and national insurance contributions as comprehensively as it did in December, we have the proof that the Government are taking the country down the wrong path. In December, the OBR downgraded its forecasts for income tax receipts and national insurance contribution receipts for this and the next four fiscal years by a staggering £39 billion and £53 billion respectively, compared with its forecasts from March 2014. The bulk of that shift was down to much lower than predicted wage growth. That shows that our economy under this Government is simply not generating the scale and number of higher wage, higher skilled jobs that modern Britain needs to succeed in the world. That failure on skills and prosperity is led by a Chancellor who has been the worst for the nation’s pay packets since the 1870s.
When we look at the general trend over the past five years, we can see that the Chancellor thought that the problem was confined to Britain. He has consistently made excuses every time his targets have not been met because the Tories cannot face up to the fact that the crisis started internationally, particularly in America, but unless they face up to that, they will never get the economy right. They will tinker with it, but they will not get it right and as a consequence the cost of living has gone up and wage values have gone down by 6%.
My hon. Friend makes an incredibly powerful point. The historic weakness of wage growth under this Government, the disastrous levels of productivity, the growth of insecure work, the failure of the Government to meet their targets on export-led growth and the fact this is a country in which the number of apprenticeships fell, rather than rose, in 2013-14 are not factors that any Chancellor who wants to get the deficit down should ignore. Tackling them will be central to any credible plan to get our deficit down and to move forward the living standards of millions of ordinary people in this country.
The reason for this Government’s failure on wages and tax receipts was explained to me by a constituent I met on her doorstep in Ruchazie last Saturday morning. It is important that the voices and experiences of ordinary people are brought into this debate. Her husband works as a security guard and earns barely above the minimum wage. He does not earn a living wage. She told me that life is tougher for her family than it was five years ago. They are working harder, but they have less to show for it. They do the right thing and get up early and go to work, but they have never felt so insecure. They keep going, but they speak for millions of people in this country who have suffered the same fate. In just 16 weeks, they will have the opportunity for change.
Like the Prime Minister chickening out of televised debates, the Chancellor is ducking out of an independent evaluation of our spending proposals because, like the Prime Minister, he knows that he would be the loser. All the Government have left are weeks of cynical tactics rather than a vision of hope for our country, but political stunts are no substitute for a national strategy for increasing our nation’s productivity, increasing the minimum wage over the next few years, restoring the promise of our young people with a credible plan for skills and rising apprenticeships, and making a plan for a fairer economy with rising living standards. If the Government find that task beyond them, they should get ready to move aside because others are ready to offer hope in place of fear in just 16 weeks’ time.
Order. We are under quite a lot of time pressure now. In order to make sure that every Member who wants to speak gets in, I am taking the time limit down to four minutes for each Back-Bench contribution. I think we will be able to make sure that everybody gets in on that basis. The time limit is now four minutes and I warned Steve Baker about that beforehand.
This has been a fascinating debate in which we have learned a great deal. The Government have been accused variously of making savage cuts and of making no cuts at all. We have learned that the Labour party is a party of fiscal discipline; indeed, the shadow Chancellor could not have been any clearer that he intends to balance the books and cut the deficit in every year. I think, therefore, that something that has happened in Greece is beginning to happen here. As the mainstream left-wing party shows its fiscal credentials, talks tough and prepares to fight the election, it creates a hole on the left. Who fills that hole? The hard-left parties: the parties of nationalism and the green parties—parties that live in a fantasy world where it is possible to keep on borrowing and taxing and where the rich will pay. We have heard all that nonsense before. It is not too much to say, as my hon. Friend the Member for Ipswich (Ben Gummer) did, that down that path lies a situation similar to that in Venezuela.
The hon. Member for Rochester and Strood (Mark Reckless) suggested that we have not done anything like enough. Of course, not that long ago he was on the Conservative Benches, strongly supporting the Government.
We ought to consider what would happen if there was a change of Government. The Labour party would find that there was no low-hanging fruit. Labour would not cancel HS2, I think we can rely on it not to scrap the international aid budget, and it would not leave the European Union. Labour has suggested that it was reckless of us to protect the NHS, so perhaps it would cut the NHS. It might reduce the number of nuclear submarines in our deterrent. It would find that it is extremely difficult to cut spending.
There are, of course, three big taxes: income tax, national insurance and VAT. No one should want to put up VAT, because it is too high already.
I am well aware of that, but it was necessary in the context of the hideous mess left by the hon. Gentleman’s party. It is always the same and this is the essence of the problem: there is no kindness whatsoever in making to those in need attractive promises that subsequently cannot be kept. That is not kind; it is cruel.
My hon. Friend is making a powerful speech. Does he agree that the chaos that could be brought about by a lack of fiscal discipline would result in huge uncertainty for public sector workers, who will not be able to rely on their jobs if balanced books are not maintained, because they will lose them? More importantly, for the thousands—possibly millions—of households across the country who were encouraged to pick up an extra £1 trillion-worth of household debt in the Brown bubble in the lead-up to the financial crisis, the uncertainty of unbalanced books could result in much higher interest rates and imported inflation as a result of reduced currency. An enormous amount of pressure would be put on those households as a result of chaos through ill-discipline.
My hon. Friend is, of course, right. He and I sit on the Treasury Committee and we have heard from the Debt Management Office about the factors propping up the current level of borrowing. Not only has borrowing been back-stopped by the Bank of England, but bond market traders are aware of the Chancellor’s and the Government’s intention to balance the books, have confidence in it and, therefore, will keep lending to us. The situation, however, is precarious and the Labour party would put it in danger.
VAT cannot really go up. If it went up further, it would hit the poorest hardest and that would be wrong. On income tax, perhaps Labour would reduce the personal allowance. The truth is that the top 1% already pay a quarter of income tax. How much further can we go? My right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) said that the 50p rate was pointless, I think—I will have to check whether that is what he said, but it is pointless. It is an act of spite to pretend that the rich will pay through their income tax; all they will do is adjust their behaviour. We put up capital gains tax and the revenues from it went down. My right hon. Friend the Member for Wokingham (Mr Redwood) has explained that in detail on his blog.
The truth is that the evidence shows that in this country there is a hard limit to how much the public will pay in taxation. Depending on how we measure GDP, it is somewhere between 35% and 40% of GDP. If we are committed to balancing the books, we have to take overall Government spending down to the level that people will pay in tax, and there is a historical limit.
Labour Members have been rather hysterical about the Government consumption chart, which shows us going back to the 1930s. This is about balancing the books. I believe that Labour Members want to put up capital spending, and debt interest is already forecast to overtake education spending. There is a really tough problem here. The truth is that hysterics on either side of the argument will not do. For example, wealth taxes will not work. Opposition Members seem to think we will get the rich to pay, but Denis Healey said of a wealth tax:
“I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.”
The truth is that there is very little chance of getting out of the mess we are in without taking extremely difficult decisions. Unlike turning around a commercial company, we cannot cut to the bone once and then build back up; reducing the deficit has to be taken gently, and we have done it at an appropriate pace. The Chancellor has the right plan, and I shall certainly back him tonight.
I welcome the motion, which is another step on the path to long-term responsibility in Government fiscal policy and, indeed, debt management. It is useful to look at the position that this Government inherited to see why the charter for budget responsibility is absolutely necessary.
Before the Government came into office, the deficit was 10.2% of GDP, the highest in the EU and one of the very highest in the developed world. The independent Office for Budget Responsibility expects the deficit to be reduced by half this year: it will finish at 5% of GDP, and then fall to 4% of GDP next year. The Government have achieved that by reining in public spending and creating the conditions in which our GDP growth could outstrip that in virtually every other country in the developed world.
All that was done with policies that, in the overwhelming majority of cases, were opposed by the Labour party. It has opposed virtually every one of our necessary spending reductions. At the same time, Labour doom-mongers predicted mass unemployment and often repeated their mantra that we were going too far, too fast on deficit reduction. They sound like a nervous passenger in the back seat of a car, which is a useful analogy because I believe that Labour Members are completely unfit to be given the car keys, given that this Government have only just got the economic wheels back on the car after the last time they took it out for a joyride when they were in government.
Let us again remind ourselves of where we were in 2010, when Government spending represented almost 50% of GDP, which is a completely and totally unsustainable level.
Yes, of course. As the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), had ended boom and bust, the whole country embarked on a Government-inspired orgy of credit, safe in the knowledge that there would be no day of reckoning, but such a day came in 2008, as we all recall; that is history.
The Labour party opposed our reductions in public sector work force numbers. Rather than those people returning to the productive part of the economy—the private sector—they would have stayed in the public sector and the deficit would have grown even further. In fact, five private sector jobs have been created for every one of those that had to be lost in the public sector. That tells us all we need to know about the Labour party’s view of deficit reduction.
Let us consider the announcements at the Labour party conference. The shadow Chancellor announced paltry measures that would save only £400 million, and he failed to rein in shadow Ministers who promised an extra £20 billion of spending. As we all recall, the Leader of the Opposition famously forgot even to mention the deficit—he did not recall it—in his conference speech, which shows where it ranks on his list of priorities for the country.
The truth is that Labour has not learned the lessons of the past. It still believes that it can tax and spend its way to prosperity. We know that the Leader of the Opposition admires the economic model currently pursued by President Hollande in France, which is delivering double-digit unemployment and anaemic rates of economic growth.
There is much for my constituents to fear from a Labour Government. North West Leicestershire is delivering one of the highest growth rates outside London and the south-east, thanks to a strong private sector. As with the national economy under this Government, the economy of my constituency has been rebalanced and strengthened. That has resulted in a 60% fall in unemployment and a 70% fall in youth unemployment since 2010, meaning that hundreds of extra people are in work, paying taxes and looking after their families, without Government support.
In conclusion, it is essential that we continue to reduce our deficit. We must have a plan to ensure that public sector net debt continues to fall consistently as a percentage of GDP. By contrast, the Opposition clearly intend to run deficits indefinitely for our children to pay for. They have not learned the lessons of the past, and their plan is for more borrowing, more taxes and more debt. That will lead to higher interest rate payments, meaning less money for schools, hospitals and infrastructure, as well as lower economic growth. By looking across the channel to France, we can see where the socialist economic policies of the Labour party will lead our country. Labour’s plan B always stood for bankruptcy. That shows how essential it is that we win the next election, stick with our long-term economic plan to deal with the deficit, and keep on the road to economic recovery and prosperity.
When I was elected, one of my first actions was to visit local schools because I felt that I should do my bit to pass on our proud British democratic tradition. Far from finding those schools filled with apathy and ignorance, I found classrooms filled with young people who were alive with anger and who believed, as the hon. Member for Redcar (Ian Swales) said, that their futures had been sold down the river by fiscally irresponsible government. At that point it was hard to reassure them. Fiscal tightening and public sector reforms are difficult to sell to young people who are making decisions about GCSEs, apprenticeships and UCAS applications. They felt that they were bearing the brunt of economically incompetent decisions in which they had no say. Today when I visit the very same schools, I can tell pupils of a falling deficit and record employment. Where they live, youth unemployment has fallen by 76%, more than 3,000 new businesses have started up, and 2,240 new apprentices have started since 2010.
I do indeed. I can also tell those young people that we are investing in their future through the Oxfordshire city deal and growth deal—not through centrally mandated planning committees, but through universities, local further education colleges, and future employers—and that local authorities of all stripes are working together to develop our own long-term local economic plan. We are targeting that funding exactly where it will stimulate growth and jobs—infrastructure, skills training, local business support, and urgently needed housing and flood defences. That twin message of more jobs and growth alongside targeted local investment is possible only because of the essential precondition mentioned by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke). Incredibly difficult decisions on spending cuts across Government have been made with one end in sight: reducing our deficit while reforming our public services and protecting front-line services. That is why I support the motion.
If we do not commit to continuing along that path and maintaining fiscal consolidation and the public sector reforms necessary to bring our public finances back to health, and to boosting growth and wages in a sustainable way, rather than the chaotic manner outlined by the shadow Chancellor, our economic recovery will falter and we will lose the hard-won gains we have already made. Already, thanks to Labour’s billions of pounds of undisclosed tax rises and unfunded spending commitments, the single biggest risk factor facing markets is political instability, as economists consider the chaotic consequences of a Labour Government with the shadow Chancellor at the helm once again, free to borrow and tax us back into recession and rising unemployment. I for one am not prepared to go back to those schools and explain how we got halfway through the work of restoring our national finances, only to fail to complete the job.
I support the charter for budget responsibility. I think it is a good thing and a vital part of the long-term economic plan. For four and a half years we have been faced with a Labour Opposition who have opposed every single budget reduction, and I have no faith in Labour choosing fiscal discipline in future years. As various Members have eloquently explained, the Labour party is effectively France in all but name. It wishes to have a socialist Government with higher taxes, and all the financial and economic consequences that that would bring.
This coalition Government have turned around manufacturing—we have seen tremendous increases in manufacturing, particularly in the north-east. We have infrastructure support, city deals, regional devolution on a scale not seen before, support for apprenticeships, fuel duty frozen, increases to the fairer funding formula on education, and reductions in unemployment in every constituency across the north-east, including by 50% in my constituency. We should be proud of that genuinely good record.
The consequences need to be addressed, too. The shadow Chancellor, as usual, did not answer my question. I put it to him that the north-east has the fastest rate of growth of private sector business in the autumn quarter and the highest growth in the value of exports, and it is the No. 1 exporter, with a positive balance of payments.
My hon. Friend mentions manufacturing. Has he heard anything from the Opposition about how they intend to expand manufacturing? He will remember that they managed to reduce it from 22% of GDP to 11%. Has he heard anything about how they plan to reverse that trend, if they come to power?
Absolutely nothing whatever. My hon. Friend and I are leading lights in the all-party apprenticeships group, which has seen fantastic work. I should probably make a declaration that I am the first MP to hire, train and then retain an apprentice as an office manager—not as an MP, I hasten to add—because she was doing a fantastic job.
On what the Opposition intend to do, we have to address the deficit. The Chancellor eloquently put it that the Leader of the Opposition is practising Basil Fawlty politics by not mentioning the deficit at every opportunity. We also have to look at fiscal consolidation. We all heard what the shadow Chancellor said today, but what did the Leader of the Opposition say only on Sunday on “The Andrew Marr Show”? He said that
“if we…cut our way to getting rid of this deficit, it won’t work”.
So there goes fiscal tightening in any way whatever. To the clarification put to him that
“that requires a £30 billion fiscal tightening”,
he replied, “I don’t accept that.” Whatever the Opposition say today, the reality will always be that the Labour party will introduce greater taxes and greater borrowing, and greater difficulties for our children.
On attempts to address the deficit, other Members have made the point, including my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), that raising the tax rate to 50% will not increase the tax take by any margin and will actually decrease investment. On the minimum wage, tax credits from the coalition have already addressed that in a very successful form and we intend to raise it. I heard on the BBC “Daily Politics” today the hon. Member for Nottingham East (Chris Leslie) proposing that his plan for addressing the deficit was an increase in gun licences. That may be laudable, I do not know, and I am sure he has fiscally costed this matter in great detail, but if that is his plan to address the entirety of the deficit, we really are in more trouble than we thought.
We were indeed fortunate to hear from the hon. Member for Rochester and Strood (Mark Reckless). It is always a pleasure to comment on his speech. I will not cast aspersions on his honour, but I will attack his memory and grasp of economics. He supported the coalition as we did the tough work from 2010.
I am grateful for the opportunity to participate in this debate, which is vital. It goes to the heart of the views of this Government and the next Government on fiscal policy. It is about much more, however. It is about the job prospects of people in Macclesfield and the north-west, and millions of people across the country. It is about the prospects of young people getting on to the property ladder. It is about the financial future and how we secure it for people who are planning for retirement or are already in retirement. It also deals with the issue, which many Members have touched on, of who will be tackling the mountain of debt we have faced since the recession. Are we going to pass the buck to the next generation, or is this generation going to do the right thing and tackle the debt burden in the years ahead?
We want to see action now and continue to see public finances getting back under control. The charter for budget responsibility will help the country to achieve that ambition. I support the Government’s aims to see debt fall as a share of GDP by 2016-17, and to return the cyclically adjusted current budget to balance by 2017-18. Those objectives do not, I admit, roll off the tongue, but the impact of turning the deficit into surplus and reducing the burden of debt is vital to bringing our country’s public finances back under control. That is where they need to be. Furthermore, the charter will help people decide which party is serious about getting our public finances under control. There will be a clear choice for voters on 7 May. There is only one party serious about tackling the deficit, getting our house in order and delivering the sustainable economic growth that is so important, and that is the Conservative party.
It always does. It is as if there is a drug that Labour is addicted to called “debt”; they cannot get away from it.
I was fortunate to serve on the Treasury Committee in 2010 when the OBR and the charter for budget responsibility were established, and I spoke in a debate in May 2011 that brought greater insight into Government policy, greater transparency and more trust. I was pleased to participate in it and highlight how the OBR had very quickly become—it still is—an important reference point. Since those early days of the Parliament, which seem a long time ago now, the Government have made clear progress on their long-term economic plan: on economic growth; job creation—1.8 million jobs over this Parliament; unemployment; deficit reduction—down by 50%; and reducing the rate at which the debt is growing. Their ambition and achievement are unprecedented.
Those were important tasks, but the progress has not been without challenges. The OBR, which has been much referenced by Members on both sides of the House, has highlighted how deep the recession was—much deeper than originally anticipated—and how the challenges in the eurozone contributed to the challenges faced by the Government. However, positive progress has been made, and it is vital that the charter be renewed, because further consolidation is required. We need to finish the job of getting public spending firmly under control, as was spelled out by my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) and my hon. Friend the Member for Bury St Edmunds (Mr Ruffley). I support that view. Lower spending will lower the deficit and enable us to lower taxes for working people, which is something that Conservative Members feel passionate about.
Paul Johnson, the director of the Institute for Fiscal Studies, who has been broadly quoted, highlighted in The Times today something that has not been pointed out, which is that this approach is also vital to get the country’s finances better prepared for any future economic crises or recessions. We have to learn the lessons of the economic crisis we are emerging from. This Government have, but the Labour party clearly has not. I will be supporting the charter today because it is critical that we get our finances under control. The Government have found a way forward, and the long-term economic plan is delivering. The charter will take us a step closer to achieving our important ambitions for businesses and the public of this great country, and I will be supporting it.
Like my hon. Friend the Member for Macclesfield (David Rutley), I will be supporting the charter.
This has been an interesting debate. We have heard principled speeches from the hon. Members for Glasgow North East (Mr Bain) and for Brent North (Barry Gardiner) and the right hon. Member for Morley and Outwood (Ed Balls) explaining the travesty of Government economic policy and saying how bad the economy will get and how the country needs a Labour Government to sort it out. The odd thing is that about half an hour from now those three Members, who spoke in so principled a way about why Government policy is wrong, will go through the Lobby on the same side as me in support of this “gimmick”, this “cheap stunt”, this “travesty”, as it has been called. At least the SNP, the Green party and the Welsh nationalists have taken a principled position. The hon. Member for Dundee East (Stewart Hosie) made an eloquent and reasoned speech about why targets are wrong. We used to say in business: “The great thing about not knowing where you’re going is that you can’t get lost.” That would be a summary of the SNP’s position.
Why is the Labour party going to troop through the Lobby to support the Government? I have only one explanation. I may be wrong, and it is possibly above my pay grade to get involved, but I think that Labour’s decision to support the Government tonight is the start of overtures around a grand coalition. I think Labour has realised that the polls are changing and it is not looking too good out there for it. It has few options left other than to start this dialogue. That is why the hon. Member for Brent North, who spoke so eloquently about the unprincipled Government position, is going to support the Government today. If he did not, Labour would not be signing up to our fiscal compact, and it would be difficult for them to join us in a coalition in May.
As I said, it is not for me to take this decision, as it is way above my pay grade. I would, however, say one thing to those on the Government Front Bench: if we decide to go into a grand coalition with the Labour party on the basis of its support today, could they please not give the right hon. Member for Morley and Outwood (Ed Balls) a job in the Treasury?
It is worth reminding Labour Members of the three components of the charter. First, in three years from now, the current spending round will be balanced. That is part one. Then, the supplementary target is that debt will be falling by 2017. Of course, it has not been talked about, but there is also the concept of the welfare cap, which Labour Members will be supporting when they go through the Lobby.
It behoves all of us to say how we are going to meet these targets. The Conservatives are talking about a mixture of continued spending, welfare reforms and tax evasion. The Liberal Democrats have their own plans. Thus far, Labour has no plans, but let us be clear that the implication of tonight’s vote is that there will be a £30 billion consolidation or the equivalent in tax rates. In the remaining 14 seconds, I reiterate the point that if there is to be a grand coalition, we should not allow the shadow Chancellor into the Treasury.
It is worth recapping at the end of this debate why we are here and why we are having this debate at all. We are still talking about the deficit because the Chancellor of the Exchequer has failed to fulfil his promise to get rid of that level of borrowing—the difference between our expenditure and our income as a nation. This charter, of course, is a device designed to distract from the Chancellor’s failure, making out as though the Tories still have a plan as they originally set out. As my hon. Friend the Member for Glasgow North East (Mr Bain) correctly pointed out, this debate was also supposed to provide a party political opportunity to smear the Opposition and to set up the Conservatives’ election tactics.
No, I will not give way to the hon. Gentleman.
The trouble for the Chancellor is that this debate gives us an opportunity to draw attention to his colossal failure to fulfil his promise to tackle the deficit. In his eagerness to trip up the Opposition, he has caught himself in a series of contradictions and entangled himself in his own spin.
We should remember that it was only nine months ago that this charter was changed. It keeps changing because the Government desperately have to pretend that they have a grip on things and that they are somehow on top of the deficit issue. The deficit after the next general election, however, is predicted to be a massive £76 billion. Revenues have collapsed over the lifetime of this Parliament, and we have seen rising tax credits and rising levels of housing benefit to subsidise low pay and the high-rent economy that the Chancellor has been fashioning. The Government now find themselves with an extra £200 billion-worth of borrowing over what they originally set out.
The Tories love to talk tough. They publish their documents—[Interruption.] I am delighted to see the Chancellor back in his place. He loves to bang that Dispatch Box and was getting very shouty and loud in his earlier contributions, but the reality is that his strategy has failed. The Chancellor and the Chief Secretary do not have a clue about what they are doing.
The debate was revealing, however, and I would like to ask the Chancellor about it. He said in his opening remarks that his deficit plan had not gone any slower than he had planned. I have taken the opportunity to look at the Hansard record of what the Chancellor said. He said:
“What we have done is cut the deficit by a half. We have neither gone faster than we said we were going to go, nor gone slower than we said we were going to go.”
The Chancellor has got himself into a terrible muddle if he thinks that he did not promise to eradicate the deficit back in 2010. The Prime Minister himself said:
“In five years’ time, we will have balanced the books.”
That was the Prime Minister’s solemn promise to the country.
The Chancellor did become a little bit over-excited. Perhaps he found this rather a difficult occasion, given that the situation was blowing up in his face. Not only did he get into a tangle thinking that he had not changed his deficit reduction plan, but he got into a terrible muddle with the charter. That is quite embarrassing for the Prime Minister in particular. At 3.30 pm on 15 December, the Prime Minister said in a speech that targeting the current budget deficit would be
“a great, black, ominous cloud”
—that it would be a total disaster—but by 4.30 pm, the Chancellor had tabled a Charter for Budget Responsibility that actually supports a current budget process, which is, of course, the correct strategy.
Perhaps the Chancellor needs to be reminded what he said originally, in his 2010 Budget speech. He said that the mandate was current—[Interruption.] Does the Chancellor want to deny that he said, back in 2010, that the mandate was
“current, to protect… productive public investment”?—[Official Report, 22 June 2010; Vol. 512, c. 167.]
If so, let him correct the record now from the Dispatch Box. He will not do that, however, because he knows that targeting the current budget is the right thing to do.
At no point does the Charter for Budget Responsibility commit itself to a fixed deadline for 2017-18. The Treasury would like to pretend that it does, but it does not. Instead, it goes for a “rolling horizon” and year 3 of a five-year rolling forecast. The Chancellor needs to understand properly what that means; he did not quite get it earlier. It means that the target moves forward by a year each year. Perhaps the Chancellor does know that. Perhaps he did this because he wanted to wriggle out of any responsibility to which he might be held now, ahead of the approaching general election. However, if he feels that this is somehow a firm commitment to 2017-18, he is wrong. Labour Members believe that we shall need to get the current budget into surplus as soon as possible in the next Parliament, and nothing in the charter is inconsistent with that view. The Chancellor, incidentally, did not really talk about the charter at all.
No, I will not. We have only a few minutes left, and I must give the current Chief Secretary to the Treasury a chance to reply to some of my questions.
The Chancellor referred to an “aim” rather than a “target”. I should be grateful if the Chief Secretary could explain why he chose to allow the language in the charter to move away from the idea of a target and towards the idea of an aim.
It is not enough for the Government to explain in the charter how they will measure progress. They need to explain how they will make progress, and that requires a balanced and fair plan. Ministers simply do not understand that the health of the economy and rising living standards are a vital pillar in the process of tackling the deficit and securing healthier public finances. If only wages and living standards rose at the historic average level during the next Parliament, there would be an additional £12 billion in tax revenues.
Cuts alone do not cut it. We have seen where that road leads: it leads to failure. We need a balanced approach across the three routes to improvement in public finances. Yes, we need sensible reductions in public spending, but we also need fairer tax choices—which means not giving away £3 billion to the richest 1% in society—and, crucially, we need rising living standards and sustained growth. The Government have lost revenues of nearly £100 billion over the current Parliament, and if we repeat that, we will lose £100 billion again. Any proposals in our manifesto will be fully funded, and the IFS has said that we are taking “the most cautious approach”.
Before I end my speech, I want to ask the Chief Secretary two more questions.
No, I will not, because I do not have time.
First, I want to ask the Chief Secretary about whether we can have an elevated level of debate and discourse ahead of the general election. Does he agree that it would be preferable for the OBR to audit and validate the costings of the manifesto proposals of the main political parties properly? My understanding is that the Chief Secretary agrees with that, but I want to get on the record and make clear his view on that.
My second question for the Chief Secretary is about what happens after deficit eradication and the Chancellor’s lurch to the right—his wish to return to what the OBR has called the public expenditure situation of the late 1930s, when we did not have a national health service, there were only 1 million cars on the road and children left school at 14. We know that the Conservatives want to wage war on the public services, but the Chief Secretary signed off the spending assumptions in the official projections. We know from Robert Chote, chairman of the OBR, that these projections, all the way to 2020, were
“signed off by the quad”,
and so far as I understand it the Chief Secretary is a member of the quad, so why did he agree to allow the official projections to take that lurch to the right—to go down that particularly ideological route? [Interruption.] The Chancellor might give him some clues, but I want him to answer for himself. If it was a genuine mistake and he did not spot it, he should just say so and we will accept that; or did he for some reason actually think that, yes, he does want to go down that far right-wing position? If that is the case, did he get scared when he saw the public reaction to it? I want to get a sense from him of what is happening.
Going down to that consistent 35% of GDP or national income has severe consequences for our public services. The Government must realise that we need a sensible, moderate approach to tackling the deficit. The focus must be on eradicating the current budget deficit. That is what the charter says, but we will take a fairer and more balanced approach to clearing the deficit. Where the Government have failed during this Parliament, we will succeed in the next.
This has been a very good debate. I am sorry that neither the Chancellor nor the shadow Chancellor were present to hear the remarks of the hon. Member for Warrington South (David Mowat), the last Back-Bench contribution. He made an excellent speech, proposing a grand coalition between their two parties as a consequence of this debate. They can both reflect on that helpful suggestion.
After the defence of the realm, a Government have no greater responsibility than creating the conditions for a strong economy. To do that, we have to be responsible with the people’s money. The Charter for Budget Responsibility is a major stepping stone in embedding the fiscal discipline that we have shown in this Parliament at the heart of our politics for the next Parliament. It highlights the very real and pressing need to finish the job we started in 2010 to get rid of the structural deficit, get our national debt under control and create a fairer and stronger society. Our plan has made sure that in this Parliament the deficit is falling by half, and the measures we have taken to do that have been fair and balanced. Looking around Europe, we have seen what happens when Governments lose control of the public finances: the economy starts to fail, and people suffer, and the least well-off in society suffer most.
I am proud of the progress we have made in this Parliament and welcome the widespread support this Charter for Budget Responsibility has received across the House, but it is important to be clear what this charter does and does not do. It sets out that the Government of the day must have a plan to eliminate the structural deficit within three years and get our national debt falling as a percentage of GDP by 2016-17. Of course it does not prescribe what specific steps various parties would actually take to meet the commitments that the charter imposes. I note the contributions of Opposition Members, and I suppose in one way we have to welcome their Johnny-come-lately admission that the deficit needs to be tackled, albeit with fingers firmly crossed behind their backs.
The shadow Chancellor’s speech was extraordinary, based, as it was, on an assumption that neither he nor anyone else can count to three. It illustrates why the Labour party always runs out of other people’s money. It is a good job he was not there at the start of creation. It would be, “On the third day the lord lost count and forgot to create the land and the vegetation.” It would be a wasteland, which I suppose is what Labour tried to leave at the end of the last Parliament.
I am going to make some progress. The shadow Chancellor should be aware, because this is a very serious business, that if his party has a majority his first Budget will be judged by the OBR against achieving this goal in the financial year 2017-18. So unless he is telling us now that it is his deliberate intention to fail this test, he will have to set out between now and the election how he will find some £30 billion of deficit reduction. This is immensely serious and every Opposition Member should weigh that up before deciding which Lobby to vote in.
Each Government have to account for their own economic policy in their own way. I am proud that we have put in place a plan that has got the deficit down by half and, more importantly, got us the best economic growth in the European Union and the strongest record of job creation—Opposition parties are notoriously silent about that.
Let us put this matter into some sort of context. While we have been busy cutting the deficit, the shadow Chancellor and the Leader of the Opposition have spent their time marching their troops up and down the hill of deficit denial. If their votes today are to have any credibility, they will have to march them down that hill again. We have still not heard one word of acknowledgement for their role in the crash of 2008, let alone a word of apology.
By the end of this Parliament the Government will have halved the deficit as a percentage of GDP. That has meant facing up to reality and taking difficult decisions. This has been a process during which Labour voted against every measure that we have had to introduce to rescue the economy. There have been scores of votes on deficit reduction and, you guessed it, the Opposition voted against every one. So I say this to Labour: “Supporting this motion does not restore your credibility on the deficit. You have said your aim is to push out the time scale as far as possible. You are perfectly happy to borrow tens of billions of pounds more. That will mean more debt, more interest payments and the pain of rebalancing the books dragging on for years to come.”
Numerous contributions have been made to this debate, and I thank those who have spoken from the Conservative and Liberal Democrat Benches. We heard a wise contribution from the right hon. and learned Member for Rushcliffe (Mr Clarke), and excellent contributions from my hon. Friend the Member for Redcar (Ian Swales) and from the hon. Members for Hexham (Guy Opperman) and for Ipswich (Ben Gummer), in particular.
However, some Conservative Members have criticised me in this debate for the views I have taken on Conservative plans beyond 2017-18—the shadow Chief Secretary asked me about this, too. Let me send a note of warning to some of my Conservative colleagues. We formed the coalition to tackle the deficit in a timely manner. That is why we agree that the structural deficit must be eliminated by the end of 2017-18 and debt must fall as a share of GDP. Hitting that 2017-18 target will require further consolidation to the tune of some £30 billion, and to say that we can reach that figure by spending reductions alone, with some £12 billion coming from cuts to welfare, would be grossly unfair. It would hurt millions of families who are trying hard to make a success of their lives. Tax on the wealthy should and must play a significant part in how we finish the job in the next Parliament. But our real concern, and where we differ, is on what happens after that mandate is met. As a country we should not be wedded to austerity for austerity’s sake. People in this country supported our coalition approach because it has been necessary and successful in turning the economy around, but they will not support an ideological drive for an ever smaller state.
It is a neutral assumption about the public finances that does not reflect the policies of the Liberal Democrats. I was just in the middle of describing those things, because people want to see some light at the end of the tunnel. They do not want a Dickensian world of decimated public services. I do not see any need for tens of billions of pounds of further cuts beyond 2017-18. If it happens, the reality for many people would be grim. Going too far or too slowly will not offer that light at the end of the tunnel.
No, I will make some progress because there are only a couple of minutes left of the debate. For our part, we Liberal Democrats are very proud to support this charter. Indeed, this is Liberal Democrat fiscal policy being voted on in Parliament. As my hon. Friend the Member for Redcar said, we will eliminate the structural deficit by 2017-18, but do so fairly, so we will ask those with the broadest financial shoulders to bear the heaviest burden by paying a little more in tax. When we have the national debt falling as a share of our national output and have eliminated the deficit, we will then balance the books, allowing borrowing only for productive capital investment or for financial stability. That means that we will finish the job and then be able to invest in our public services so that the people of the country can enjoy the world-class public services that they expect. That is the common-sense approach to keeping our national finances under control and to ensuring that our stronger economy also delivers a fairer society.
We should not delay the time by which we seek to finish the job, as the Opposition wish. Putting our nation’s finances back in order is the responsible thing to do, and that is what this charter does. It sets out two clear, simple, coherent targets for the public finances in the next Parliament. The first is to balance the structural deficit by the third year of a rolling five-year forecast, which, to correct the Labour Front-Bench team, does mean meeting that target by the financial year 2017-18. Should Labour win a majority at the election, it will be judged on that three-year target, so it should be straight with its own Back Benchers about what it is asking them to vote for. The second target is to be judged on those goals twice a year by the independent OBR, and also to be judged by the British people as they scrutinise the plans that each party puts forward at the general election against what we are voting for today.
This vote is deeply serious. These rules are a wise, sensible and balanced framework for the public finances in the next Parliament. The British people will expect us to stick to it, so I commend this charter to the House.
That the Charter for Budget Responsibility: Autumn Statement 2014 update, which was laid before this House on 15 December 2014, be approved.