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Public Expenditure: Deficit Reduction

Volume 730: debated on Tuesday 6 September 2011


Asked By

To ask Her Majesty’s Government how much public expenditure has changed in the Chancellor of the Exchequer’s deficit reduction plans through the use of the flexibility built into his plans.

My Lords, the Government’s fiscal mandate targets a cyclically adjusted aggregate to allow some fiscal flexibility at a time of economic uncertainty and to allow the automatic stabilisers to operate in full. Automatic stabilisers are those features of the tax and spending regime, such as unemployment benefits, that vary with the economic cycle and so act to stabilise the economy. The forecast for total managed expenditure by 2014-15 increased from £737.5 billion in Budget 2010 to £743.6 billion in Budget 2011.

The noble Lord forgot to mention that he apologised recently for having denied that the Chancellor had said in terms that he had flexibility built into his plan. I assume that he is now admitting, despite all the figures that he has just given us, that that is the case. Therefore, should the Chancellor not be using that flexibility in the current economic circumstances? He said recently:

“The break-up of the euro would be economically disastrous, including for Britain”.

That seems all too likely at the moment. Given the lack of growth in the United States and Europe, is this not a good time to use that flexibility, rather than all that stuff that he does not believe in himself?

I do not know to which “he” the noble Lord is referring, whether it is me or my right honourable friend the Chancellor, but we all believe in it and we are sticking to it. However, as I have explained, the cyclically adjusted nature of the mandate which the Chancellor has set means that, in times of economic uncertainty, factors such as varying levels of employment and inflation feed through so that the economy benefits, for example, from increased social security benefits and we do not in some slavish way have to cut back on other expenditure. The flexibility is there for very good reasons and it is operating.

My Lords, could I ask my noble friend perhaps a rather simpler question? Despite the dreadful headlines in today’s newspapers, to what extent does the Chancellor of the Exchequer feel that he is on course in deficit reduction?

My Lords, I remind noble Lords, lest they forget it, that we have introduced an independent Office for Budget Responsibility so that we can no longer keep fiddling the numbers and restating the cycle like the previous Government did. The Office for Budget Responsibility’s latest numbers, produced at the Budget, confirmed that we are on track to meet the Chancellor’s fiscal mandate on the rolling five-year period.

My Lords, does the Minister really believe that the automatic stabilisers will do the trick? Is it not a mark of leadership to be able to admit that you have got it wrong? Is it not now time for the Chancellor and the Prime Minister to acknowledge that their strategy of drastically reducing public expenditure cannot enable the UK economy to revive when there is no sign anywhere else on the skyline of demand for what the UK economy is able to offer?

I am not quite sure who should admit what they got wrong, but the former Chancellor, Alistair Darling, made a complete mea culpa when he said, “We got it totally wrong, raising national insurance and putting a tax on jobs”. He said that there was no credible economic policy at the last election, which is why Labour lost.

We have introduced a policy that is on track to get the economy growing. It is the underpinning of the economy by a clear fiscal plan on which we can build. The Chancellor and the Prime Minister are working very hard on the growth of the economy, which is founded on the stabilisation of the deficit that we inherited.

My Lords, there is time for both noble Lords. Perhaps we can hear from the noble Lord on the Cross Benches and then from my noble friend Lord Newby.

My Lords, the Minister talks about growth; we hear about the Chancellor sticking to his plans; but we also hear a clamour for Plan B. What is going on around the world is unprecedented; with the EU and the American debt crises there is so much uncertainty. By raising taxes the consumer is absolutely squeezed. As for perception and reality, there is a perception of cutting even though the cutting is not taking place as much as we all think. We all know that public debt was far too high under the previous Government. What are the Government going to do to generate growth?

To generate growth the Government are, first—in answer to the charge on tax—lowering tax in critical areas, such as corporation tax, by increasing the tax allowances for those starting new businesses through, for example, the EIS scheme. We are insisting on a much cheaper and simpler planning system than the one which has been holding back business investment in this country for the past 50 years. We are also significantly increasing the number of apprenticeships—by 250,000 places compared to the previous Government’s plans over the spending review period. I could go on but we need time for other questions. We are working fundamentally on the growth agenda.

My Lords, does the Minister agree that one of the keys to growth will be increased expenditure on infrastructure? It does not bring growth of itself but in the short term it brings many more jobs. When do the Government intend to bring forward the legislation to introduce the green investment bank, and when does the Minister expect that bank to make its first loans?

I completely agree with my noble friend that capital and infrastructure expenditure is one of the keys to growth, which is why we were able in the spending review last year to increase the plans that we inherited—to increase, I say again, the spending plans that we inherited from the previous Government —by up to £2.3 billion a year. That is an additional £8.5 billion on capital expenditure in the review period. I therefore agree with my noble friend. As for the green investment bank, it is on course to start the first phase of operation in April 2012. Legislation will be brought forward as soon as the state aid approvals have been forthcoming from Brussels.

My Lords, the Minister referred to the predictions and forecasts of the OBR but those were produced nearly six months ago and forecasted 1.7 per cent growth at that stage. Ever since, everyone else’s predictions have been somewhat lower. In circumstances where the American economy is clearly in difficulty and we have crisis in Europe, are the Government going to continue to pursue a strategy which will take us headlong into recession, with the price being paid by middle England and low-income families if that occurs?

It has never been on such a strategy, and therefore there is no question of it continuing on such a strategy.