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Mr. Jim Cousins (Newcastle upon Tyne, Central): Does the right hon. Gentleman think that mortgage tax relief should be reclassified as housing expenditure, or that tax relief on pensions should be reclassified as social security expenditure? Does he think that the distinction between current and capital is a useful one in the public accounts?
Mr. Heathcoat-Amory: We are talking here about a social security benefit. This is a welfare benefit and it should be classified as such. If the Government wish to take out part of that and show it as a different line, let them do that. Is the hon. Gentleman seriously claiming that it is part of the transparency principle not to describe it as in any way connected with the working families tax credit, but to bury it as an accounting or other adjustment?
The code, and the whole of section 155, is an exercise in posturing. It places no real disciplines or obligations on the Government. Even if it can be taken as a suggestion of some general principles, the Government have already broken them, in the way that I have described.
To some extent, this is a useful debate. To that extent, perhaps it is a useful guide; not for what it requires from the Government, but for what it tells us about the Government. Instead of the principles of transparency, stability, responsibility, fairness and efficiency, we are increasingly finding from the Government an opaque treatment of unstable accounts, presented in an irresponsible manner, unfair to the tax-paying public and inefficient to the economy at large.
Sir Michael Spicer (West Worcestershire):
As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) has just said, the code for fiscal stability is a load of rubbish. My right hon. Friend put it more politely. He described it as misleading spin. However, it is more than just misleading; it is dangerously misleading.
Principle 3a is transparency, but the code is the opposite of transparency. As my right hon. Friend said, the golden rule, which the code does not mention, but which the Chief Secretary did, lies behind the whole concept of fiscal probity. The golden rule is probably the most muddling, obscure and spin-infested concept that one could imagine.
First, it is wrong and misleading because the distinction between capital and current spending in public expenditure is false.
Sir Michael Spicer:
If the hon. Gentleman allows me to develop my point, I shall happily give way to him. We debate matters happily on the Select Committee on the Treasury, so we can do so in the House for once.
The Government recognise that the distinction is misleading, because, as has been said, they keep on reclassifying capital and current spending. The blur is there, and the Government know it. It is misleading because, as we all know, there is a direct connection between decisions on capital spending and decisions on current spending. That link has been recognised for many years. A capital expenditure programme is started, and the current expenditure flows along behind it. Roads may be classified in one case as capital spending, although not always, and maintenance as current spending, and the same applies to hospitals. The distinction is a false one.
The fundamental point as to why the matter is so confusing is that all public spending has to be funded in the same way. Whether it is capital or current spending, public spending is funded through taxation or by borrowing. The macro-economic effects are therefore the same.
In the late summer, the Government said that they would spend £40 billion more than they had originally intended--on health and education--but would magically balance the books on current account. The Budget forecast was couched entirely in terms of balancing the books on current account. That was the spin, but they slipped in a footnote that the total deficit on public spending would go up by £11 billion in the next two or three years.
The measure is so dangerous because the whole thing is presented through the fiscal code and the golden rule by using mirrors--in a way that obscures what is going on with public spending and the public borrowing requirement in particular, which is going up strongly. The Government keep talking about having been frightfully careful with the public finances over the past couple of years, but they have failed to say that they inherited and stuck with Conservative policies--unashamedly, but to the embarrassment of their Back Benchers.
We are now out at sea with Labour. Public spending is going up--no doubt the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) would approve of that--but the Government cannot have it both ways. Public
borrowing is also forecast to go up. The false distinction between current and capital accounts in terms of public spending is helping to obscure that from the public, and it is therefore dangerous.
Mr. Desmond Swayne (New Forest, West):
Does my hon. Friend agree that what matters is not whether an arbitrary distinction is made about current or capital spending so much as whether capital expenditure has sufficient return to repay the initial investment? If that is not the case, the golden rule is no more than rust.
Sir Michael Spicer:
My hon. Friend makes a good point. Most public spending does not have such a rate of return.
The Government's problem is that they may be deceiving themselves about the so-called golden rule. They have divided up fiscal and monetary policy in such a way that they have been forced into this position on fiscal policy. In reality--as opposed to the spin and this golden rule idea, which may even be deceiving the Government, let alone the public--public expenditure, and with it the borrowing requirement, is going up. That is the small print in the Government's own document.
The monetary authority--the Bank of England--is being asked in statute to keep inflation at 2.5 per cent., although fiscal policy is becoming more profligate and pushing up inflation. As some of us keep reminding the Governor when he appears before the Treasury Committee--much to the embarrassment of some of my Labour colleagues--the Bank is charged specifically and overwhelmingly with keeping inflation at that level. Everything else is subsidiary.
The bank is bound by law, therefore, to keep interest rates higher than they would otherwise be, because of profligacy and perhaps because of the Government's self-deception about the golden rule. Such self-deception is dangerous. Keeping interest rates at such a level will be economically disastrous for the country. The only good news is that the public will start to rumble the Government, and their position will be eaten into.
Mr. Edward Davey (Kingston and Surbiton):
Unlike the right hon. Member for Wells (Mr. Heathcoat-Amory) and his colleagues, the Liberal Democrats welcome the code for fiscal stability. The Conservative party's view on this issue is not consistent. When it was in government, it believed that there should be a clear framework for setting economic policy. Some of us remember the publication of the medium-term financial strategy. The economic theory that underpinned that framework is not dissimilar to the economic theory underpinning this code for fiscal stability. One no longer expects consistency from the modern Conservative party.
However, I agreed with the right hon. Member for Wells that there is nothing new in the code. I studied the document with anticipation, because, having read the
Prime Minister's speech at the Lord Mayor's banquet, in which he expressed his new-found excitement and desire for stability, I thought that there might be something new in it, but I suppose that a code of fiscal stability should not change too much. That is the benefit of it: it gives clarity to economic policy and reduces uncertainty, which helps the public and the House to hold the Government to account for their economic policies.
That is the theory, and it is, in principle, a good way forward. However, I share some of the concerns of the right hon. Member for Wells, because it is not the theory but the practice that matters. We have yet to see the worth and substance behind the code, and we shall be able to measure that properly only when we see what the Government will do when the chips are down. Will they revert to the practice of the previous Government, who fiddled the figures when they did not turn out as they had predicted, or will they rely on the independent auditors? Will they ensure that the figures they put before the House have wide acceptance?
Concern was expressed about the recent pre-Budget report. There were arguments over the growth forecasts, which did not relate to the consensus reached by external forecasters, and there was anxiety that the Government will not be quite as up front and honest as the principles outlined in the code suggest.
We shall give the Government the benefit of the doubt for the moment. We urge them to make progress on some of the points in the code. Page 7 of the code refers to accounting practice:
"The Government shall, as soon as reasonably practicable, adopt a Resource Accounting and Budgeting approach for planning".
I am pleased that the Chief Secretary mentioned that in his opening remarks. I hope that those plans for a new form of accounting will be implemented as soon as possible, because they are vital for the objectives of the fiscal code.
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