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Mr. Calum MacDonald (Western Isles) (Lab): As always, the hon. Member for Grantham and Stamford (Mr. Davies) made an entertaining speech. He made a number of charges against the Government and, from the way he was talking, it was difficult to recall that, when the Conservatives were in government, they were responsible for the two deepest recessions in post-war history, while the Labour Government are responsible for the longest run of economic growth in a 100 years.
When we hear the hon. Gentleman banging on about public borrowing, fiscal policy being out of control and the costs of interest payments in the future, we need only recall the level of public debt that the Government inherited in 1997, and the crippling burden on Government finances of paying the interest on it, and compare that with the situation nowadays to realise that the debt and borrowing picture is much healthier than when his party was last in government.
Mr. Davies: If it was such a bad thing for the Conservative Government in the 1990s to accumulate that debt and that interest chargeI agree that it waswhy is it such a good thing for the present Government to go back to increasing them?
Mr. MacDonald: It is obviously not a good thing to accumulate unsustainably high levels of debt and that is why the Government laid down their golden rule, which the hon. Gentleman cited and which the Government are following, contrary to what he was saying.
When I intervened, the hon. Gentleman chided me for trying to excuse what he claims are current lapses by referring to the activities of the previous Government, but while listening to the debate I could not help reflecting on the very first Finance Bill debate I ever sat through. That was in 1988, when the Government were coasting on the massive economic consumer boom of the mid-1980s, as the hon. Gentleman will recall because he, too, was a Member then. I well remember the then Chancellor, Nigel Lawson, boasting at the Dispatch Box that he was increasing public spending, reducing public borrowing and, of course, slashing taxationthat was the infamous Finance Bill that cut the top rate to 40 per cent. He was able to do all those things at the same time because he could take advantage of the buoyancy of the economy, but all he achieved was a still further stoking of the consumer boom, leaving himself with no resources to deal with the eventual downturn and crash. With that crash came the crash of his reputation as Chancellor. If the hon. Gentleman is looking for examples of fiscal policy out of control, that one is much more real and telling.
It is worth reflecting on that example, because the lesson that I draw from it is that the true test of a Government and a Chancellor is not how generous they are in the economic good timeshow well they spend
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money when the economy is growing and tax revenues are buoyantbut how well they manage the inevitable periods of slowdown and slow growth. I have no doubt that the Chancellor has passed that test over the last two or three years, better than any Chancellor I can recall and probably better than any Chancellor of the past 100 years.
The Chancellor's approach has been to hoard and hang on to public resources when, as the hon. Member for Grantham and Stamford was saying, the private sector is boomingas it was when we came to office in 1997, when the Chancellor earned his reputation as the Iron Chancellorthus enabling those resources to be released when the economy is slowing down and there could a danger of dipping into recession. The hon. Gentleman referred to the theory underpinning that approach, which, in the old days of the 1960s and 1970s, used to be called Keynesianism. It used to be a very fashionable economic theory, but it has rather fallen out of date now. The irony is that this is the first Government ever to apply successfully a Keynesian approach to the smoothing of economic cycles.
By contrast, so far as I can judge, all the other Governments since the warto be even-handed, I include Labour as well as Tory Governmentshave ended up doing precisely the reverse. They tended to increase Government spending, as Nigel Lawson did, when tax revenues were buoyant, but were then forced to cut or slash spending when economic times got harder. By doing that, they ended up exaggerating the booms and busts in the economic cycle, rather than smoothing them out and ensuring stability.
Conservative Front-Bench Members, as well as the hon. Member for Grantham and Stamford, have made a great case about the Government's borrowing in the past couple of years. In previous debates, Members have asked why the Government ended up borrowing more if the economy has been engaged in a record run of growth. The answer, of course, is that we have enjoyed a record run of economic growth precisely because the Government have been able to borrow more at the appropriate stage in the economic cycle.
The Government have borrowed to increase investment, to increase employment in the public sector and, yes, to increase public sector wages, about which the hon. Member for Yeovil (Mr. Laws) appeared to complain. I do not complain about that because such increases in the rewards for people who work in the public sector were long overdue.
The Keynesian theory does indeed advise borrowing when an economy is below capacity, but it also advises being in surplus or at least in balance when an economy has moved to capacity. What we have criticised is not the possible use of Keynesian measures when an economy is operating below capacity, but the fact that we are now at full capacity and, rather than borrowing trailing off, it stands at £30 billion or
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£35 billion and possibly £13 billion more than that. That is our essential point. We have not been saying that it is wrong to borrow when an economy is underperforming.
Mr. MacDonald: The hon. Gentleman and his colleagues take too mechanistic an approach. They should look at the pattern of borrowing and spending over the entire economic cycle rather than trying to match figures to particular years. On that basis, I hope that they will find that the Keynesian model has been met when the cycle is complete.
David Taylor (North-West Leicestershire) (Lab/Co-op): I am listening with interest to my hon. Friend's careful analysis. How does he factor in the fact that, in the seven years of Labour Government, we have racked up private finance initiative off-balance-sheet debt of approximately £120 billionabout 10 per cent. of gross domestic product? Does that have an impact on our borrowing position in the short to medium term?
Mr. MacDonald: Not necessarily, because the PFI debt remains small compared with overall Government spending and Government capital investment. However, the general point that we cannot ignore PFI debt as an obligation on Government finances is correct. In the past, there has been a temptation to move things off balance sheet to make the figures look better; all Governments should resist that temptation.
The hon. Member for Yeovil pointed out that the Liberal Democrats advocated a much greater spending increase in 1997. I suspect that, had we followed their advice and boosted public spending when we first came into office, we would have fallen into the same trap that every previous Government fell into. We would have exaggerated both the boom in the economic cycle and the consequent slowdown and bust, which would have caused great harm to the economy, disrupted the stability that we managed to achieve and harmed the living standards of our constituents.
Rather than the disaster decried by the hon. Member for Grantham and Stamford, the Government's fiscal policy has been one of the building blocks of the economic success and stability that they have achieved. The Government are rightly given credit for their early decision to give the Bank of England operational independence. That, too, has been an important building block, as hon. Members on both sides of the House acknowledge, but our fiscal policy has been just as important to our success in managing the economy. The Red Book indicates that we shall continue to follow that policy, which is precisely why the Government are planning for a slowdown in the rate of growth in Government spending, other than in key areas such as health and education.
To answer the hon. Member for East Carmarthen and Dinefwr (Adam Price), who asked whether the benefit of the successful economic regime pursued by the Government has been spread evenly throughout the country, I dare say that it has not been. However, I am certain that all parts of the country have benefited. I know that my constituency has. When I was first elected to Parliament in 1987, the unemployment rate in Western Isles was more than 20 per cent. As recently as
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1997, when the national economy was doing well, it was still in double figures. We all remember how in the 1980s and early 1990s it was regarded as a given that mass unemployment was a feature of our modern economy. In the late 1980s, I would go to local meetings and discuss such things. Everyone accepted that mass unemployment was here to stay, and the debate was about how to reshape and adjust society to cope with the reality of permanent unemployment. Teachers would say how depressing it was to educate children who would leave school and go straight on to the dole queue. People would come to our surgeries having been made redundant. If they were in their mid-40s to early 50s, they knew and we knew that they were never going to work again. All that has changed profoundly.
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