In 2010, the Chancellor of the Exchequer promised to eliminate the structural deficit and to reduce the percentage of national debt to GDP. Both of those will now fail to materialise—I would argue, through low growth. When do the Government think that they will achieve them and why do they think that they have failed to achieve them?
My Lords, the figure I gave was for the peak level of net debt. After that, the level will fall. Of course, if growth proves to be higher than forecast, as seems likely, for this calendar year, net debt will be less over the period ahead than has been forecast.
My Lords, is there not great confusion in the public mind between debt and deficit? Is it not the case that the debt is going up because the deficit has been cut by only one-third and that, consequently, the debt is going up by two-thirds of the rate that we inherited? Does that not show that we must make more determined efforts to cut the deficit and that the idea of Mr Balls that we are cutting too fast and too much is certainly not the case?
My Lords, is the noble Lord aware that research evidence shows categorically that if you want to get the debt to GDP ratio down, the vital ingredient is to increase the rate of growth of GDP? That is the way to do it. Measures such as raising taxes or cutting the deficit by cutting large chunks of public expenditure simply do not work. Overall, the lesson we have to learn is that an austerity package is not required; a package concentrating on raising GDP is the correct policy.
I am sure that the noble Lord will therefore have been very pleased to have seen the growth figures last week. I point out to the House that a key factor in growth is the level of interest that people have to pay and that, as a result of the Government’s decisive action in 2010, interest rates have fallen compared with the forecast, as a result of which we will, by 2015-16, have paid £31 billion less in interest payments than was expected in 2010-11.
My Lords, the increased growth figures will of course have a materially positive impact on the debt forecast going forward. With regard to lending to SMEs, the Funding for Lending scheme was strengthened at the Budget and I am pleased to say that the figures published this morning show that there has been for many months a slight uptick in lending to SMEs.
My Lords, the Minister has recognised that the public debt that this Government inherited in 2010 will be greater when they leave office in 2015. No less a figure than the editor of the Spectator has said that the amount of debt that this coalition Government will borrow will be greater than the total amount of debt of the Labour Government in their 13 years from 1997. Is it not the case that there is not a deficit reduction strategy but a growth reduction strategy, which has been the most successful in history? This Government need to acknowledge that and do something about it.
My Lords, I disagree with virtually all of that. As I pointed out earlier, during the five years of this Government we will have borrowed very significantly more to shore up the economy. That is why debt is higher. I am not sure whether the noble Lord is suggesting that we should have borrowed even more.
Is not the noble Lord, Lord Peston, leading us all into a bit of a false dichotomy? Of course we want economic growth, and we are getting a little now. The growth is coming back, as the noble Lord will have seen from the newspapers. Although we would obviously like more of it, growth depends on getting the debt curbed and on getting public expenditure under control. These things are not opposites or choices but all have to go together. Surely the noble Lord, who is a very good teacher and an expert, should be teaching us that. That is what he should be telling your Lordships.
My Lords, the noble Lord, Lord Peston, is an extremely eminent economist and he knows, as a good Keynesian, that the key at this point of the cycle is the change in animal spirits—the sense to which people have confidence to invest. Animal spirits have been very significantly subdued over recent years. There is a suggestion in every single figure that we now see that they are returning to the positive. That, more than any single thing that the Government now do, will be what drives growth forward.
My Lords, the Minister has taken great comfort from the reduction in the amount of interest paid. Does he have any sympathy at all for those on fixed incomes and small and medium savers, for whom the policy of low interest rates has been quite ruinous?
I do, my Lords, but with interest rates you cannot have it both ways. You cannot have low interest rates for people who want to borrow and high interest rates for those who want to save. On balance, the Government’s view is that having had interest rates low has kept families being able to spend, compared with having higher interest rates. For example, a 1% increase in mortgage rates would have added £12 billion per year to interest payments. It would have sucked that out of the economy. If you have that kind of reduction in expenditure and the kind of diminution of growth which it entails it harms everybody, even those who are savers.
We certainly have not seen the rate of growth that we or, indeed, anybody envisaged in 2010, but as the Office for Budget Responsibility has made absolutely clear in a succession of reports, the single greatest check on growth has been the ongoing eurozone crisis because that is where we sell most of our goods.