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Dawn Primarolo: I recommend the hon. Gentleman to read the Red Book before speaking in debates such as this.
Mr. Davies: The Paymaster General will have to be more specific, and say which of the figures relating to the current budget or the total budget was quoted wrongly. She will be able to compare Hansard with the Red Book, and she will find that I quoted the Red Book precisely. What is more, she has not explained why the Government missed their forecast. We should be extremely interested to know the explanation. Some modesty or humility on the Government's part—some explanation when things go wrong, rather than an attempt to brush under the carpet everything that is not entirely favourable—would be very welcome.
Rob Marris: The hon. Gentleman might find some explanation on page 27 of the Red Book. I shall read out the second part of the quotation that he gave us, and then continue with the rest of the paragraph. This is what the hon. Gentleman quoted:
"For the public sector current budget, the estimated 2004–05 outturn shows a deficit of £16.1 billion compared with projected deficits of £12.5 billion and £10.5 billion in the 2004 Pre-Budget Report and Budget 2004 respectively."
The hon. Gentleman ended the quotation there, but the passage continues
"This is significantly lower than the deficit on the public sector current budget of £20.4 billion in 2003–04 as the impact of the strengthening economy has fed through to receipts. On the basis of cautious, audited assumptions, the Government is meeting its strict fiscal rules over the economic cycle."
Offering selective quotations is not helpful, and nor is comparing apples with oranges—comparing projected out-turns with actual ones—and not specifying the difference.
Mr. Davies: The hon. Gentleman has just read out a completely irrelevant quotation. I asked why the Government missed so badly the forecast for this year's deficit, and the hon. Gentleman proceeded to read out a passage about the deficit for the financial year 2003–04 having been greater than that for 2004–05. I shall not make the mistake of giving way to him again, because that has not advanced the argument at all. He was clearly engaged in an exercise of obfuscation, perhaps in order to defend his right hon. Friend the Paymaster General.
There is a third big question-mark over the direction in which the Government's management of the country's finances is going; indeed, it has been discussed quite a lot recently. Is the Chancellor about to face the dilemma of breaching his golden rule? Will he have to put up taxes or cut spending? The jury is still out on this issue, and I shall not go into it in detail as it has been well
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aired in recent public debate. All independent forecasters are considerably pessimistic about the Government's chances of meeting the golden rule and balancing the current budget through the cycle, given that it is supposed to finish at the end of next year without recourse to further taxes.
This is an important issue not so much because of the potentially severe economic impact of breaching the golden rule or of increasing taxes—we would all very much regret such increases—but because the damage to the Government's credibility would be enormous. We would realise not only that the Chancellor had missed a whole series of forecasts, but that at the end of the cycle, he had failed to observe his own rule. He started out with the immensely ambitious plan of more than meeting the golden rule—of having a surplus over the whole cycle of more than £100 billion.
Mr. Davies: I see that the hon. Gentleman is nodding. To move from a £100 billion surplus to the current break-even situation, with the possibility of going below the waterline and missing the golden rule altogether, is a significant turnaround.
Something more profound needs to be said about the Government's golden rule and sustainable investment rule, which I welcome in theory. They are right in principle and conceptually, but the question is whether they are being applied effectively, or so loosely that they do not represent the rigorous economic discipline that they purport to represent. If the latter is so, that is very dangerous for the long-term performance of the British economy and—once the cat is out of the bag—for the credibility of its management.
The golden rule says that the current budget must be balanced through the cycle. That involves a number of assumptions in deciding what the cycle is, which I shall not go into, but one's immediate reaction is that under such a rule, if the economy is growing above trend, the Government will be running a surplus, and if it is growing below trend, they will be running a deficit. So reduction in demand during a downturn is compensated by greater Government spending, and vice versa. That is the classic use of fiscal policy for stabilisation, but one need only look at what has happened since 1997 to see that it is not the golden rule on which this Chancellor bases his economic management.
When the economy was growing above trend in the late 1990s, public spending was growing at slightly less than the trend rate of the growth of the economy, which was 2.5 per cent. Then, when an election was about to be held in 2000, the Government suddenly took off the brakes, having been very fiscally prudent until then, and projected annual rates of expenditure growth of 3.2 to 3.5 per cent.—way above the economy's trend growth rate of 2.5 per cent.
Last year, the year before and this year, growth in the economy was significantly above the trend rate: 3.1 per cent., 3 per cent. and 3 to 3.5 per cent.—that is the projection for the current financial year in the Red Book. Nevertheless, there were substantial deficits. That must be contrary to any normal understanding of the golden rule. However, the Chancellor does not have a normal understanding of the golden rule. His definition
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of it is different: if we have had surpluses earlier on within the cycle, we can draw on those later and run up whatever deficits we like. As long as, when we get to the end of the cycle—whatever we decide is the end of the cycle—we have not drawn down all those surpluses, we balance the current budget through the cycle.
That is simply not good enough for several reasons. The first is that we never know when the end of the cycle is, so it is a pretty irresponsible way to manage the economy. We do not know over how many years to come we will still have, in practice, those accumulated surpluses to spend. We may think that the cycle will come back to the trend rate of growth at the end of 2005, but we may be wrong about that. No one knows, so that is not a responsible policy.
The Government have not properly focused on the other big problem with that approach to the golden rule. If the golden rule is taken to be—I am sorry, Mr. Deputy Speaker, I am not feeling very well this afternoon. I think I may have to interrupt my speech. I am so sorry.
5.37 pm
Ms Katy Clark (North Ayrshire and Arran) (Lab): Thank you, Mr. Deputy Speaker, for giving me the opportunity to speak for the first time in the House and to follow my hon. Friend the Member for Newport, East (Jessica Morden). The first thing that I would like to do in the House is to thank the people of North Ayrshire and Arran, who have given me the privilege of coming here and speaking on their behalf in the Chamber.
I represent a diverse and beautiful constituency. It is almost a mini-Scotland. I have two islands in my constituency—Arran and Cumbrae—which face unique issues. I have more prosperous areas such as Largs but I also have other areas that represent the old industrial part of Scotland: Kilwinning, the three towns of Stevenston, Ardrossan and Saltcoats, and the Garnock valley. Therefore, it is a mixed constituency with proud Labour and parliamentary traditions: Keir Hardie was the miners' agent in North Ayrshire.
Like the others in Scotland, mine is a new constituency with new boundaries, so I have more than one immediate predecessor. I am lucky enough to be here today because of the retirement of Brian Wilson, who originally came from the north of Scotland. He was a radical journalist who founded the West Highland Free Press, but came to Ayrshire and used his skills on behalf of the people of Cunninghame, North, where he is well respected. He held ministerial office in this place and was a high-calibre politician.
I have other predecessors, given that Cunningham, South was also part of the new constituency. One of the people whom I must thank for the support that they have provided me over recent months is my hon. Friend the Member for Central Ayrshire (Mr. Donohoe). Another previous Member for Cunninghame, South, David Lambie—he represented that constituency for many years—has also provided me with huge support on a personal level over the previous few months. David Lambie is a pacifist, a person of strong views and someone who I know will provide me with good advice over the coming years. He continues to be involved in my constituency Labour party and the wider community in North Ayrshire and Arran.
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However, perhaps the previous Labour candidate in my constituency who means most to me is my great-great grandfather, who stood twice as Labour's candidate in what was then North Ayrshire and Bute. He increased Labour's vote there twice before becoming the hon. Member for South Ayrshire. It is fair to say from everything that I have heard about my great-great grandfather that he was very much a rebel, a pacifist and a socialist. He went on to become general secretary of the Scottish National Union of Mineworkers and came to the House as a miners' MP. He always stood up for what he believed in.
My great-great grandfather was brought up in Dalry, which is in the constituency that I now represent, but when the mine there closed, he and his family walked to south Ayrshire where the mine owners were opening up a new pit. I understand that their possessions were transported by railway and that when they reached south Ayrshire, a village had been built with pit houses identical to those from which they had come. The mine owners tried to keep control over as many aspects of miners' lives as possible. It was hearing about people like Sanny Sloan, my great-great grandfather, that really brought me into politics. He was part of the landslide 1945 Labour Government, for which all hon. Members have a huge amount to be thankful in respect of the creation of the welfare state and the national health service.
As I said, my great-great grandfather was a miner, but the mines have long gone in my constituency, and in their place came many other forms of heavy industry. However, through 18 years of Tory rule, we saw industry after industry closing and my constituency has still not properly recovered from that experience.
Since 1997, as my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) said, much has been done to improve Scotland's and Britain's economies and much has been done to get rid of unemployment. My constituency has seen a 25 per cent. increase in employment since 1997, but the reality is that a huge amount more needs to be done. Unemployment is still too high, as is poverty, deprivation and the social problems that come with that.
From the point of view of my constituents, the most important Labour manifesto commitments in the coming years will be the commitment to full employment so that everyone has access to a job, and the commitment to eradicate child poverty, backed up with targets to eradicate that and all forms of poverty. I view my job as MP as doing all that I can on the Labour Benches to ensure that Labour implements the policies that will deliver on behalf of my constituents.
I am proud to be in my place on the Labour Benches and particularly pleased, as we move towards the G8 summit, that we have a Labour Chancellor who is leading the way in pushing the policies internationally to make poverty history. We all have an obligation to do all that we can to ensure that poverty is dealt with throughout the world. It is in none of our interests that so many people in so many countries live in such dire poverty.
I am involved in politics because I came out of a socialist tradition and because I still believe that it is possible to change the world. During my time in
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Parliament I intend to work as effectively as possible to represent my constituents and to put forward policies to ensure that in future the gap between rich and poor in this country is reduced. The reality is that we live in one of the richest countries in the world. Britain is the fourth richest in the world, but the gap between rich and poor remains wide. Similarly, the gap in respect of power and wealth in society is still far too great.
In representing the people of North Ayrshire and Arran, I hope to advocate policies that will ensure that future generations inherit a world that is fair and gives all of us a better chance in life. I thank the House for listening to me so courteously today.
5.45 pm
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