My Lords, may I remind the noble Lord that on 4 February in London the Chancellor of the Exchequer told international bankers what he would do in next month’s Budget? He said that he would take measures,
“to raise growth and to effectively manage our public finances. Fiscal policy will continue to support monetary policy”.
We have had the interest rate cut, small though it be, but, with rising inflation and soaring government debt, how can we have tax cuts to stimulate growth? All the talk is of tax increases in the Budget. Is that not the sure road to recession?
My Lords, the noble Lord is as well informed as ever and therefore knows the answer to the question; the Chancellor made that clear a month or two ago. He will be fulfilling that prediction in the Budget. It will be appreciated that the British economy is established on firm and sound foundations. It is of course the case that there is a great deal of international turbulence at present, and that is why the Financial Stability Forum is so crucial in seeking to produce worldwide stability with regard to finances. Within that framework, the Chancellor will make his decisions clearly known at the time of the Budget.
My Lords, does the Minister agree that, given the weak state of public finances, the truth is that there is no wriggle room at all for the Chancellor in terms of fiscal stimulus or fiscal anything else, even if he were minded to do that? Have the Government any plans to review the nature and operation of the golden rule which, with the passage of years, looks increasingly unfit for purpose?
My Lords, the golden rule has served this country well and over a decade has provided the outstanding achievements of the British economy. Of course the Government will follow the golden rule. I emphasise that it is supplementary to the work on monetary policy, but the Chancellor does not use fiscal policy to regulate interest rates; the noble Lord is all too well aware of the independence of the Bank of England in that respect.
My Lords, is it not obvious that the Chancellor’s spending spree, which has taken the share of GDP spent by the state up to 45 per cent, has resulted in a squeeze on growth and that unless we cut taxes we are going to enter an era of stagflation?
My Lords, the House will recognise that the constraints on growth reflect the changing international position, to which the British economy and the Chancellor acting responsibly will need to respond. There is no doubt that it limits action regarding the Budget, but I maintain the obvious point regarding the fundamentals: that this country still has the highest level of employment of the advanced economies; that this country still has one of the lowest inflation rates; and that this country still has one of the lowest set of interest rates. Of course we appreciate that the world is moving into a period of extreme difficulty for national economies. Fortunately, we are well placed to withstand the challenges that are approaching.
My Lords, why is my noble friend underselling the situation? Is it not the case, as the Prime Minister—unless my ears deceive me—said at Question Time in another place today, that the public finance figures announced today for January are among the best on record for that month?
My Lords, that is all very well, isn’t it? But surely to goodness is not the Treasury paying more interest payments on government borrowing than at any time since 1979? I agree with the noble Lord on the Liberal Democrat Benches that there are strong suspicions that in fact the golden rule is in the process of turning to lead.
My Lords, the House is all too well aware of the one feature of the golden rule that is causing short-term difficulty, which is the unanticipated costs regarding the support of Northern Rock. I emphasise again that the Government are consistent in their strategy. Despite the blandishments of the Opposition spokespersons and those on their Back Benches, the Government will not depart from the golden rule and will not try to use fiscal policy to determine the development of the economy in the terms that the noble Lord suggests.
My Lords, on the inexpertise of this Government and, indeed, of the noble Lord, on recessions, would he nevertheless consult with the party opposite, which has a deep and profound knowledge and understanding of them? It faced many during its period of stewardship.