My Lords, the Office for Budget Responsibility’s March 2012 forecast shows public sector net debt falling as a share of gross domestic product in 2015-16. The Government are therefore on course to meet the target for debt set at the June 2010 Budget.
My Lords, I am grateful for that Answer, but since then the Bank of England has forecast that growth will be even lower and it could be lower still according to other independent forecasters. In those circumstances, the debt is likely to go on much longer. Despite that, I am happy to congratulate the Government on being willing to find up to £1 billion to help the European growth fund if needed, if asked—which I hope they are. Will the Government therefore be willing to find—because it is petty cash in the context of £1 trillion or more of national debt—the same amount or more petty cash for what the CBI is asking for: a UK growth fund for infrastructure expenditure?
My Lords, there are all sorts of good ideas and lobbying that come from all sorts of quarters, but if the Government were to treat £1 billion here or there as petty cash, the British public would be absolutely appalled with what we were doing with public expenditure. As for business investment, yes, we talk to the CBI—it comes up with a lot of good ideas—but what is important is that the provisional data for the second quarter of 2012 indicate that business investment is showing a stronger recovery than forecast by the Office for Budget Responsibility. The OBR did not expect business investment to reach the level that we have seen in the second quarter until 2013. It is good that business investment is rising.
When the Deputy Prime Minister made his speech in the tractor factory and said that the Government had a moral duty to the next generation to wipe the slate clean for them, that we had set out a plan that lasts six or seven years to wipe the slate clean, to rid people of the dead weight of debt that had built up over time, what was he talking about? Will not the debt have gone up in six or seven years’ time by half a trillion pounds?
My Lords, does the Minister agree that one of the main reasons for the financial crisis and the great recession was the record level of low interest rates—we were talking of 5%? Now, for three years, interest rates have been 10 times lower than that. Do the Government want to help money to flow through? Lending needs to increase to small businesses and it is not happening at the moment. Secondly, could the Minister summarise the Government’s strategy and prognosis for the interaction between debt, deficit, interest rates and inflation?
My Lords, I think we shall need a little longer on the latter part of the question. The noble Lord, Lord Bilimoria, raises an important point in that the first thing we have to do is to ensure that interest rates are kept low. I need hardly remind the House that 10-year interest rates, as of last night, were at almost record lows at 1.75%. We want to see the benefit of those low interest rates flow through to businesses, which is why, among other things, we have the national loan guarantee scheme. In the time of the noble Lord, Lord Barnett, there was not 3% inflation but it peaked at 26.9% and interest rates were more than 10%. That is why I know he is sympathetic to the challenge we have and why my right honourable friend the Chancellor is doing such a fantastic job in these difficult headwinds.
My Lords, yesterday’s government announcement on VAT will add £110 million to the annual deficit and hence cumulatively to the public debt. Will the Minister explain to the House why the announcement on VAT was not first made in Parliament, in compliance with the Ministerial Code? Will he also tell us what alternative ways of spending the £110 million of petty cash were considered? Does VAT now apply to humble pie?
My Lords, I am glad that in the space of three minutes the party opposite’s definition of petty cash has come down from £1 billion to £110 million. On a number of issues, including the VAT changes, we said that we would consult. We have consulted and we have come up with what we believe is the right approach, having talked to a range of interested parties.
My Lords, we have not heard from the Liberal Democrat Benches, so perhaps we can now.
My Lords, the Government have stated repeatedly that reducing the deficit must take priority over reform of the Barnett formula. Can the Minister tell us whether Treasury discussions with the Government in Wales have included consideration of a temporary mechanism—the so-called Barnett floor—which, although it would not solve the problem, would at least alleviate the immediate widening of the unfairness in the funding of Wales?
My Lords, we are ranging a little widely at this point. My understanding is that discussions with the Welsh Assembly are going on. We intend to report back by the end of the year. A Barnett floor is one of the ideas that I know has been put forward, among others, and is subject to the discussions with the Welsh Assembly.
In the debate on the Queen’s Speech, the noble Lord assured the noble Lord, Lord Skidelsky, that sustainable recovery was already under way, as he has again said this morning in response to the noble Lord, Lord Barnett. How does he reconcile that with the fact that we are actually plunging deeper into recession? Is this recession denial?
My Lords, if one looks, for example, at job creation over the two years since the election, the private sector has created more than 600,000 jobs at a time when some 400,000 public sector jobs have been lost. The latest figures show that unemployment is at a seven-month low. Of course we would like to see growth sustained and at a higher level, but we should not run down the very considerable achievements of the private sector in generating jobs and exports in the economy.