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Mr. Tim Smith (Beaconsfield): Does the hon. Gentleman accept that there is a clear correlation between the level of public spending--the proportion of gross domestic product spent by the Government--and economic growth? We support the policy not for ideological reasons, but because we believe that it will lead to higher growth from which everyone will benefit.
Mr. Bruce: That is not necessarily true as an economic thesis--it depends on how the money is spent, not on who spends it. Countries with high levels of Government spending as a proportion of GDP have sustained consistently higher growth rates than the United Kingdom. While it may be a good discipline and a perfectly legitimate objective, I do not think that the hon. Gentleman describes a fundamental law of economics.
My party and I welcome several aspects of the report. It said that, whatever course of action this country takes in relation to monetary policy and monetary union, we should have--and would need--an independent central bank sooner rather than later. The report argues
that if we join the single currency we shall, by definition, sign up to the European central bank. If we stay out, having qualified, we must have our own independent central bank so as to reassure the markets that we will behave in a responsible fashion.
That view was also articulated clearly by the Governor of the Bank of England. As an independent central banker, he would be bound to say that. However, he made two further points. First, referring to sustainable low inflation and to our achievements in the past four or five years, he pointed out that Britain has a long way to go before it has a track record of real confidence and competence in those areas compared with our competitors. Therefore, we must reassure the markets that we shall not politicise decisions. Secondly, he pointed out that when political decisions are separated from those of the central bankers there is a premium on long-term interest rates of between 0.5 per cent. and 1 per cent. That would save the Government £300 million over five years on current debt levels. It is a significant benefit for the Government and for those in the economy for whom the rate of interest is an important factor. There are strong, sound economic arguments and benefits.
It is interesting to note that the most resistance to the idea of an independent central bank comes from the right of the Conservative party and the left of the Labour party. That is because they want to interfere in the economy on a day-to-day basis for political reasons. We have suffered stop-go economics over the years for that very reason. It does not, of course, deny that the Government set the policy within which the bank operates, but it means that from day to day people can have confidence that economic factors are uppermost in the minds of central bankers.
In reply to a question from me, the Governor of the Bank of England reaffirmed his conviction that its forecasts and concerns about inflation are real and legitimate. He did not accept the Chancellor's argument that the Bank of England's inflation forecasts are always wrong, because they have not been. Indeed, he agreed with me--although he was more polite about it--that the Chancellor had some nerve to attack the Bank of England for its inflation forecast in the very week when he announced that his borrowing forecasts were £4.5 billion out and his growth forecasts were ½ per cent. out.
Mr. Livingstone:
Why do Liberal Democrats, who are so committed to extending democracy in every other sphere, want to remove from democratic accountability key elements of the economy which affect the lives of every voter? If he examines the track record for the past 100 years of advice from the Bank of England, to which he wants to give this power--whether it was telling Churchill to go back on the gold standard or telling the current Government to join the exchange rate mechanism at an over-inflated rate--he will see that it has been irredeemably wrong decade after decade.
Mr. Bruce:
The hon. Gentleman completely misunderstands what an independent central bank is about. The decisions that he mentioned are policy decisions, which would continue to be determined by the Government and by Parliament. An independent central bank is about the day-to-day administration of a policy set by Parliament and by the Government. Out of 15 member states in the European Union, we are the only
Mr. Barry Field (Isle of Wight):
If the Liberal Democrats are so in favour of a European central bank, why does the Liberal Democrat-controlled Isle of Wight council want to come out of Europe altogether and have devolution?
Mr. Bruce:
I am not aware that the campaign was for the council to come out of Europe altogether; it was to have autonomy within the United Kingdom. Indeed, as a Scottish Member of Parliament, I sincerely hope that Scotland will soon have its own Parliament within the United Kingdom and the European Union.
Mr. Spring:
Will the hon. Gentleman give way?
Mr. Bruce:
No, I shall not give way again--I have a speech to make.
The issue in the debate today has been the summer economic statement, and the Government have had to acknowledge that what the Chancellor told the House in his Budget was fundamentally incorrect. The forecast was wrong. It was interesting that, when pressed in the Select Committee on Monday, his reaction to forecasting was to say, "Who believes forecasts anyway?" Then, when asked why he bothered to make them, he made rather a slip: he said that he had to do so by law because there was some socialist measure that the Government had forgotten to repeal, but he did not really pay much attention to these things.
At the time of the Budget, the Chancellor led us to believe that the forecasts were serious, accurate, and his best guess as to what was going to happen. They were, of course, his justification for recommending a cut in income tax--a cut that the figures now clearly show was not justified at the time. I submit that he knew that perfectly well, but he needed to put phoney figures into his Budget, at the wrong end of any forecast that he could have got from his independent advisers. The only way in which he could meet the demands of the baying hordes on his Back Benches was by cooking the forecasts and then saying afterwards, "Well, who believes forecasts anyway?" That is exactly what he is now trying to with the forthcoming Budget, and, I presume, the general election campaign, which he is to fight not on the Tory record but on the forecast: optimistic forecast--poor record.
It is worth putting it on record that the borrowing deficit forecast is higher than that for the same time last year. All the confident assertions that borrowing is coming down may well turn out to be over-optimistic. There is an indication that the borrowing outturn for this year could be as high as or even higher than it was last year. The Chancellor of the Exchequer is on record as saying that there would be no justification for cutting taxes if public sector borrowing was at £30 billion or above. He cut taxes when it was £30 billion. He is, apparently, considering cutting taxes further when, potentially, it will continue to be above £30 billion, which demonstrates quite clearly
that he is an irresponsible Chancellor who is determined to pursue political policies rather than the economic interests of the country, and is doing so in circumstances that will damage the country's long-term prospects. Perhaps he is doing that because he does not expect to be in charge of them for very much longer. That can be the only conclusion.
Some aspects of our economic performance are welcome. We are, of course, experiencing growth and low inflation, which is welcome. There has been a fall in unemployment, but from very high levels. I shall briefly go through some of the claims and qualify what the Government suggest, and the enthusiasm and euphoria with which they sometimes promotes their claims.
At times, we are told that inflation is down and out. I submit that it must be under control for a significantly longer period before we can say for certain that it is back in the box. Inflation is low right across the world. In fact, ours is the fourth highest in the European Union. We have not yet demonstrated that in terms of inflationary pressures we have the mechanism in place that could keep it under control. That is one of the reasons why the Liberal Democrats believe that allowing the central bank to take the key decisions on inflation on a day-to-day basis would keep inflation down, as well as having a clearer target.
Unemployment is falling, but it is still above 2 million, even using the official figures. In fact, although this month's figures show that unemployment has fallen by 14,000, employment has fallen by 34,000, which is a sign of people dropping off the register rather than finding work, and that is rather different. When the Conservative Government came to power using the slogan, "Labour isn't working," unemployment was 1.29 million. There are now 2 million unemployed. Indeed, the figure was 1.66 million when the present Prime Minister came into office. In all the circumstances, unemployment is far too high, and it is one of the main reasons why the social services budget, about which the hon. Member for Bridlington complained, is high and is failing to come under control.
The next claim that the Government make is that Britain's growth is the highest in Europe, but that is only because Britain went into recession first and so came out first. Between 1989, when Britain went into recession, and the end of 1995, the British economy grew by 7.2 per cent. compared with the German economy at 16.5 per cent., the French economy at 8.5 per cent., the Italian economy at 10.3 per cent., the American economy at 15.4 per cent. and the Japanese economy at 13.4 per cent. Our performance across that period is modest in the extreme, and it is a short window of comparison on a very low base.
The Government say that taxes are coming down, but even the hon. Member for Bridlington acknowledged that the total Government tax take as a proportion of GDP is exactly the same as it was under the last Labour Government. In the meantime, more than half the accumulated national debt has been incurred since the present Prime Minister took office. That is hardly the record of a Government of sound financial management who have public finances under control.
The recovery in consumption has almost nothing whatever to do with the Government; it has much more to do with the changing character of our building societies and the windfalls that they inject into the economy.
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