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9 Apr 2003 : Column 321—continued
Mr. Flight: Surely the point is that not only is borrowing rising, but, as this year's Red Book shows, taxation is going up by £27 billion.
Mr. Dorrell: Borrowing is rising despite the huge increase in tax revenues. Some of that can be attributed to the national insurance increase—the £8 billion extra tax on jobs—that started at the beginning of this financial year. Incidentally, that increase was justified in last year's Budget as being necessary to fund health expenditure and we were invited to debate the benefits of spending extra tax revenue on health. Hon. Members should remember that only £2.4 billion of the £8 billion is for the national health service, while £5.6 billion is for elsewhere. The debate about health was not relevant to the debate about the £8 billion tax increase that was announced last year.
The fact of the matter is that expenditure is rising faster than any likely outturn from economic growth, which is why the Chancellor is playing fast and loose with the projections of growth that he publishes annually. He told us today that the outlook for growth in 2003 is 2.25 per cent.—between 2 and 2.5 per cent. That is a whole percentage point less than he predicted at this time last year. For what it is worth, the consensus forecast is that even the reduced level will not be met. We are being asked to believe that the forecast that the Chancellor published a year ago for next year was too cautious, so he has improved it for 2004. Why? Because if he did not, he would be unable to publish the figures of projected declines in borrowing.
The Chancellor is grappling with an economy that is not growing fast enough to meet the public expenditure ambitions to which he has committed himself before his colleagues, and he is trying to assure the electorate that they can be delivered without increases in taxation. That is why I describe the situation as unstable. In truth, we have gone back to planning the public finances on the basis of a wish list.
I started by drawing attention to some of the disciplines that the Chancellor praises—disciplines without which he will never deliver successful economic management. One of the most basic disciplines is that one draws up the forecast before deciding the expenditure plan; it is not possible to draw up the expenditure plan and make the forecast fit. I do not often agree with much of what the leader of the Liberal Democrats says, but I agreed strongly with his opening comment. He said that on this Budget the Chancellor had shut his eyes and hoped for the best. That is exactly right. We are committing ourselves to a set of spending
plans and the only way in which they can be made to work is by making the forecasts fit the plans rather than making the plans fit the forecasts.It is right to remind ourselves of the claim that new Labour made to be different from old Labour. We were asked to believe that the old ways of tax and spend were no longer the instinct of the Labour party—that somehow things in the future would be different. But the Government are reverting to type. We do not need to look into a crystal ball to see what the effects of that will be on the economy. Prudence is dead and has been replaced by Heath Robinson improvisation. The situation will continue to get worse, as it has over the past 12 months, unless there is an outbreak of realism in Great George street.
3.40 pm
Rob Marris (Wolverhampton, South-West): It is interesting to follow the right hon. Member for Charnwood (Mr. Dorrell), because I too want to begin with borrowing, as several right hon. and hon. Members have done. Many hon. Members may know that I lived in Canada for a number of years and I follow events there quite closely. The debate in Canada on the federal Government's level of borrowing started 10 years ago and has largely worked its way through the system. I am delighted that we are discussing it, but I note that the approach of Opposition Members is to look for doom and gloom. I appreciate that that is the official Opposition's role, but given that average household income has increased by 3.5 per cent. in real terms every year for six years, it is surprising to hear them talk about the economy as though it is in rack and ruin.
Mr. Tyrie: I got a bit of a shock when the hon. Gentleman began by suggesting that we should look to Canada. Its level of borrowing, both at provincial and national level, has been out of control for ages. Partly as a consequence of that, the gap between its GDP per capita and that of the United States has widened markedly over the past decade.
Rob Marris: We are here to debate matters relating to the United Kingdom. However, the hon. Gentleman is not correct. The forecast for economic growth in Canada is higher than in other G7 countries apart from the UK. All economists in Canada would agree that its federal debt has been markedly reduced and is well under control. He would not find a single reputable Canadian economist who would say that federal Government debt was out of control. Economists might have said that five years ago, but they would not say it now.
The right hon. Member for Charnwood implied that the Chancellor fudged the figures on borrowing. Of course borrowing will increase. Table C5 on page 254 of the Red Book sets out the end-of-year public sector net debt as a percentage of GDP. It will be 32.2 per cent. in 2004; 32.7 per cent. in 2005; 33.2 per cent. in 2006; and 33.5 per cent. in 2007. That trend is rising very slowly. It is not a fast rise or fudge. It is right that the Government should engage in counter-cyclical spending.
We must also consider the history of the official Opposition. On public borrowing, the national debt doubled in the five years of the Conservative Government between 1992 and 1997. When Labour took over in 1997, national debt as a proportion of GDP was, from memory, about 46 per cent. The figures that I quoted are in the low 30s and not climbing markedly. Labour Members need take no lessons from Conservative Members about the difficulties of borrowing and the public debt.
Mr. Tyrie: If the hon. Gentleman looks up the figures for the 18 years of Conservative government, he will find that the British economy was just about the only one that succeeded in reducing its debt stock as a proportion of GDP. All other major industrialised countries saw sharp rises, which was a remarkable achievement. Only by picking the arbitrary period of the last five years can he make his point.
Rob Marris: I am afraid that I must again disagree with the hon. Gentleman. It was not an arbitrary period. What happened was that, for their first 13 years in office, the Conservative Government sold the family silver to cook the books. When they ran out of silver, they had to borrow massive sums to try to balance the books. That is the history, and it is why borrowing doubled.
David Taylor (North-West Leicestershire): I am listening carefully to my hon. Friend's analysis of the trend in Government borrowing. Does he accept that one of the Major Government's responses when their public borrowing got out of control was to introduce the concept of the private finance initiative and the public-private partnership? Given the borrowing levels under the current Government, does he agree that further expansion of PFI and PPP is not only wrong and flawed but absolutely unnecessary?
Rob Marris: I would not agree with all the adjectives that my hon. Friend uses, but I do have grave concerns about the PFI, as he knows. Public borrowing, in which the Government continue to engage—and rightly so, as it is counter-cyclical—is quite reasonable. The Organisation for Economic Co-operation and Development estimates show that the United States of America, France and Germany have public debt of around 60 per cent. of GDP, and Italy and Japan have public debt of more than 100 per cent. of GDP, while we are talking about public debt of 33 per cent. in round terms—32.2 per cent., I think, in this financial year. It is not exactly a cascade of debt.
Mr. Flight: In focusing on the level of Government borrowing, does the hon. Gentleman agree that everyone should be aware that something of the order of £100 billion is off balance sheet, covering all the PFI liabilities, Network Rail and other obligations?
Rob Marris: I am aware of that figure, as are all right hon. and hon. Members. Interestingly, that brings me neatly to my next point, which is based on something that the hon. Member for Arundel and South Downs (Mr. Flight) has rightly and widely been quoted on: the 20 per cent. cut, which Labour Members often say the official Opposition are considering. Last Thursday in a
Statutory Instrument Committee, I raised the issue in response to a comment by the hon. Member for North Wiltshire (Mr. Gray):
- "His party talks about a 20 per cent. cut in spending across Government, but he has put forward three points, and adverts to a fourth, all of which would involve increased spending."
- "He is also wrong about the Conservative party's proposals. We propose a cut in taxation. At no stage have we proposed a cut in public spending. The two are quite different."—[Official Report, Standing Committee, 3 April 2003; c. 9–10.]
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