To ask Her Majesty’s Government, following announcements by the Deputy Prime Minister on capital expenditure programmes, what consideration they are giving to increasing capital expenditure beyond the amounts included in the Chancellor’s deficit reduction plan.
My Lords, the Government are sticking to the spending plans set out in the 2010 spending review. Within this, however, we have been able to fund additional, targeted capital expenditure from otherwise unspent funds. This includes £500 million for the Growing Places initiative and £250 million on broadband access and support for world-leading computer technology.
I am sure that that will not please Nick too much. My Question asks whether any money has been spent beyond the deficit plan: the answer is clearly no. In any case, the hundreds of millions of pounds which I am happy to see was found in Manchester will surely be overshadowed by the IMF results, which recently forecast that growth of our economy will be not much more than 1 per cent. That in turn will lead to a much higher rather than lower deficit. Indeed, as I am sure the Minister is aware, the Financial Times recently forecast, based on OBR methodology, that the deficit will be £12 billion higher than previously thought. In those circumstances, will the Minister tell us the Treasury's estimate of the deficit at the end of the five-year term?
My Lords, as the noble Lord, Lord Barnett, knows very well, we have set up the Office of Budget Responsibility to keep track of all the forecast numbers and we will get its update later in the autumn. The critical point is, as my right honourable friend the Prime Minister said at the weekend, we are spending over £3 trillion of public money in four years and we are not going to wreck what we now have in a very low interest-rate environment for the sake of spending a few more billion. We will stick to our spending plans.
My Lords, does the Minister agree that although we need to cut public expenditure there is a very strong case for increasing capital expenditure in these austere times to create jobs and, as the noble Lord, Lord Barnett said, to create growth? Furthermore, will the Government explain what they are doing to incentivise and facilitate the private sector to invest in infrastructure once again to create jobs and desperately needed growth?
I very much agree with the noble Lord. That is why in the spending review last autumn we increased the amount of capital spend every year, up to £2.3 billion extra in the final year of the period. That is why we are spending £30 billion on transport—one of the most economically enhancing areas of spend and more than was spent in the previous four years. In the private sector, we are ruthlessly attacking the planning system that is so costly and so time-consuming when people want to put infrastructure in. That is why we are making sure that all the market structures, such as in energy, are conducive to the new infrastructure spend we need. That is why we are looking at the whole area of regulation around infrastructure, because I completely agree with him—70 per cent of the economic infrastructure is going to come from the private sector and we are working to make sure that that money flows.
My Lords, would my noble friend like to think about terminology? Given that the deficit and the debt are two different things, should we not be talking more about the debt and less about the deficit? The deficit is simply the rate at which the debt is growing and I believe many people in the country think when we talk about cutting the deficit that we are reducing the country’s indebtedness, whereas all we are doing is reducing the rate at which it is growing. If people understood that, perhaps we would have fewer people arguing for additional public expenditure when we simply cannot afford the commitments we already have.
I am grateful to my noble friend because the second of our two fiscal targets—namely, to put public sector net debt on a falling trajectory by 2015-16—is extremely important. He is quite right that we have to look at the total stock of debt and its trajectory as well as the deficit.
It will not surprise the noble Lord if I completely disagree with that. The state of the economy today is largely a result of the debt-fuelled boom with its unregulated banks that was allowed to go on for 10 years and more under the previous Government. We have inherited a dire situation and the first thing we have to do is to get the deficit under control. That we are doing but within that, as I have explained, one of things we are prioritising is infrastructure expenditure.
My Lords, if we are to increase infrastructure expenditure it is clear that a lot of that funding is going to have to come from the private sector, as the noble Lord has already said. Given that, can he confirm reports in the press last week that the Treasury is actively considering new structures that would encourage pension funds and other institutional investors to invest a lot more in infrastructure in the UK than they have in recent decades?
I am happy to assure my noble friend that we are thinking of every avenue to unlock flows of funds, whether they are from institutions in this country or abroad. I was in Canada two weeks ago, where some of the longest-term and largest investors in our infrastructure are based. We talk to investors all the time to see what more, if anything, they need from government to facilitate that flow of investment.
My Lords, the other cunning plan that the Government put forward, announced by the Chancellor, was the expenditure of billions—his word—on credit easing for small and medium-sized firms. What is the Treasury’s estimate of the impact on the deficit of the inevitable default rate associated with this programme?
I had to look back at the Question for this afternoon, which is about capital expenditure. Although this has nothing directly to do with capital expenditure, it is critical that we make sure that credit flows to the businesses of this country. What my right honourable friend the Chancellor was talking about yesterday was making sure that we examine every avenue possible to ensure that that credit continues to flow.