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5.42 pm
Mr. Andrew Tyrie (Chichester): First, may I congratulate the hon. Member for Tottenham (Mr. Lammy) on his maiden speech. I am sorry that he is not here at the moment, although I quite understand, as he is probably having a well earned cup of tea. He delivered an outstanding maiden speech, one of the best that I have heard since I came to the House, although that was not very long ago. Nevertheless, I have heard quite a few maiden speeches.
I was very interested in and sympathetic to what the hon. Gentleman said about the need for representation of his highly multicultural constituency. He also spoke about the declining interest in politics in his area. I hope that he is wrong, but it is a matter to which we should all pay careful attention. I trust that, as a House, we can all do something about the decline in interest in political activity--if, indeed, that is what is going on.
My hon. Friend the Member for Westmorland and Lonsdale (Mr. Collins) also gave an outstanding speech, and made many crucial political points. I shall not go over
that ground again, but his two key points were that, year after year, we have been spun a yarn about the level of public spending. Huge announcements are made, but we do not know exactly how much is really being spent. At the same time, taxation has been steadily increasing, despite the fact that we were told that it was not. The plain fact is that taxes are going up.Part of that spinning is reflected in poor Government documentation. We may still have a strong economy, but we already have banana republic-style Government documents to back it up. Last week, the Government's annual report announced the completion of a sports academy that has never even been started. Now we have the spending review document. If, for example, one looks up the Ministry of Defence in the index, one is told to turn to page 59. However, when one does so, one finds the Home Office section instead. One might then have a go at finding the Home Office from the index. One is told to look at page 51, but one will find something completely different there--the Department of Health.
Lest we be in any doubt about what the document is about, we might look at the spine. The cover says that the document is about spending, but the spine says that it is another Budget. I really think that something should be done to sharpen up the Government's publications, which are a symptom of a wider phenomenon. I had a small hand in trying to write to Red Books some years ago, but this Red Book, like its predecessor, is completely incomprehensible to me. Even to cognoscenti of Red Books--perhaps I could classify myself as one such--much of it is gibberish. Nobody could possibly work out from this document what is going on in the economy; it is a scandal and a disgrace.
All the beacons and milestones that have been used in the past to try to assess what is happening in the economy have been removed, and a load of new definitions have been brought in which are extremely difficult to disentangle and understand, even for experts in the City. That was a plea for better documentation. This document cost a lot of money; I wonder how many will be pulped.
Caroline Flint: How many copies of "The Common Sense Revolution" have been pulped this week?
Mr. Tyrie: I do not have that number at my fingertips.
Mr. Loughton: The spending review document costs £32.
Mr. Tyrie: My hon. Friend says that this excellent publication costs £32, and I should not think that W. H. Smith sells many documents that badly edited.
I want to address three relatively serious questions, and although I do not want to upset my hon. Friends, I think that my questions will not be too party political and controversial.
Mr. Andrew Love (Edmonton): In that case, the hon. Gentleman has not made a very good start.
Mr. Tyrie: That is a good point. Most sedentary comments are made by people who are too afraid to stand up and make them, but that one sounds reasonable.
I want to ask three questions, and then have a go at answering them. First, is this increase in public expenditure sustainable? Secondly, will the money be well spent? Thirdly, will the spending increase have other consequences for the economy?
Outwardly, the position on sustainability looks good. Debt repayment is taking place, which must be good news. Debt repayment was 1.6 per cent. of GDP over the past two years. We cannot know about the delivery of projections, but let us consider what is happening now. The debt repayment makes fiscal policy look tight, but I remind the House that in the 1980s debt repayment was a little higher, at 1.7 per cent. of GDP. I seem to remember that there was a bit of asset price inflation then, and we have that again in the economy at the moment. There is rather less of it, but the same storm signals can be seen. I was in the Treasury in the late 1980s, and in retrospect it is clear that fiscal policy was too loose and we should have been repaying more debt. I ask the House whether we should be repaying more debt now.
Hon. Members may ask how a country repaying debt could suddenly have its fiscal so policy shaken out of kilter. The answer, which the Government do not like to talk about, is economic cycles, and in particular, the change in their nature in recent decades. The length of cycles is growing, and the gap between troughs is widening. We used to have three or five-year cycles; now it seems that we have cycles that last a decade or more. It appears that we are now eight years into the upswing of this cycle, which has lasted almost as long as the previous cycle, which had a nine-year upswing.
We are likely to see greater levels of volatility in the future. There are many reasons for that. I shall not go into those now, but one reason why that volatility has been concealed recently is the introduction of new technology, which has created uniquely benign, non-inflationary economic circumstances. I do not know whether that will last. Frankly, I think that it must be a one-off shift, and that when it unwinds we will find ourselves with an economy that is precariously close to a resumption of inflationary pressure.
The Government's rhetoric is that they have abolished the business cycle and brought an end to boom and bust. I do not usually make predictions, because that is a dangerous game, but I will make one: I can guarantee that after this boom there will be a bust; after this recovery, there will be a boom phase and a recession. I guarantee that. I hope that that is firmly recorded in Hansard. It has always happened in history, and it will happen again.
Mr. Love: Will the hon. Gentleman give way?
Mr. Tyrie: If the hon. Gentleman will forgive me, I want to make progress. If I succeed, I shall let him in later.
How deep will the downturn be? I do not know, but the arithmetic could turn nasty very quickly, much faster than in previous downturns, except perhaps the last one. There are good reasons for that. The main one is that in a deregulated economy, and in an economy with a much higher private sector share of GDP than in earlier periods of the post-war era, tax revenues collapse much more severely, and public expenditure commitments increase much more sharply, the latter because such a high proportion of public spending is non-discretionary--much higher than it was in the 1950s and 1960s. My guess is that the arithmetic is quite vulnerable to a downturn.
The second question that I posed was whether the money was being well spent. It was a big mistake to announce huge increases in spending in so many areas, without having drawn up clear plans for using the money more effectively. Let us examine what is going on in health. Huge increases in health spending have been announced, without plans to introduce better management in the health service.
The last time there were such huge increases, they were Conservative increases of almost identical size, although only for two years rather than the five years to which the Government are committed, on a scale of 5 or 6 per cent. in real terms per annum. However, that was accompanied by the introduction of the internal market. Many hon. Members may not like the internal market, but the evidence published every year by the Department of Health is overwhelming that the introduction of the internal market increased efficiency in the health service overall, even though many health service workers did not like it.
I fear that the Government have little idea how to go about restructuring the health service to get a bigger bang for their bucks. There are only two routes to greater efficiency in public sector spending. One is managerialism--that is, creating a shadow private management structure, which is what we did, to some degree--and indeed, the Government have attempted to do that in one or two areas. The other route is privatisation or contracting out.
There is no third way to improve the quality of management output in the public sector. There is a way that can be described as different, which is the statist route, which I fear may result from the introduction of tsars, diktats and attempts to manage from the top down. That method of management in major public sector institutions was tried in a host of economies in the post-war era, and was still being tried until recently in eastern Europe. It has been a disaster wherever it has been tried. It requires planning on a grand scale, and planning has always failed, wherever it has been tried.
I worry about whether the money will be well spent. [Interruption.] I am tempted to welcome the Treasury Whip, the hon. Member for Nottingham, North (Mr. Allen), to the Chamber.
The third question that I posed was what the long-term consequences of an increase in spending might be for the economy. The balance between the public and the private sector cannot simply be arbitrarily altered. When it is altered, there is a one-off frictional cost and, in the longer term, a larger public sector always risks crowding out private sector activity. In other words, there may be a price to be paid in economic growth forgone for increasing the size of the public sector.
The Government's response to that point is to claim that they are engaged in investment, not public spending. If they believe that we will get investment from the increase in public spending, they should back their rhetoric in the outer years by writing into the Red Book a higher figure for long-term growth. However, they do no such thing. In the Red Book, growth remains the same for the whole run of years. They do not believe their rhetoric; they do not believe that higher public sector investment will lead to better economic performance.
The only increase that the Government made--from 2.25 per cent. to 2.5 per cent. in the long-run growth rate--was written in last year. Clearly it can only be
attributed to the changes that we made to the economy. The Government do not believe that their increase in spending will genuinely increase growth. They believe in their spending for other, perfectly laudable reasons. However, the rhetoric of investment is just rhetoric. It will provide no overall increase in economic return. Some aspects will show a net increase, but others will not. There will be a crowding-out effect, which will more than compensate for any such increases.I have little time left, but I emphasise that there is a risk of the announcements being unsustainable. They are vulnerable to an economic downturn, and the increases may trigger lower growth; they certainly will not increase it. The growth assumption is a key point, and is precarious and vulnerable to fluctuations in the economic cycle.
I shall end with two brief points. First, in western economies everywhere, the scope for higher sustained public spending is less than it has ever been. The penalty for excessive borrowing is now more heavily policed by the markets, and taxes will become increasingly difficult to collect as tax bases become more footloose.
My second point is about the relationship between fiscal and monetary policy. [Interruption.] I have got the message about the time. If the Chancellor genuinely believed that we should become part of economic and monetary union, he could do that by repaying more debt, creating room for lower interest rates and therefore allowing the exchange rate to fall. He has not done that--
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