Government’s assessment as set out in the pre-Budget report 2006 for the purposes of section 5 of the European Communities (Amendment) Act 1993

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Mrs. Villiers: rose—
Ed Balls: I shall just finish my point. The view that a structural deficit is bad, and will have bad consequences, and the desire to abolish budget deficit and get back to a balanced budget is perfectly acceptable; it means billions of pounds of cuts in public investment relative to our plans, every year.
What cannot be done is to have it both ways—to say, “You have got the highest structural budget deficit in Europe, which has bad consequences” and at the same time say, “but we will not cut public spending or investment, because we like that bit as well.” It does not add up. It is not possible to spend more, tax less and abolish borrowing without being thought completely incoherent and incredible. The reality of abolishing a structural deficit is cuts in public investment year by year, which, as the hon. Lady knows, is her policy.
Mrs. Villiers rose—
Ed Balls: I will give way in a second and let the hon. Lady respond.
There is the third fiscal rule—the proceeds of growth rule—which has public spending falling year by year. It is unclear. I always thought that the third fiscal rule existed to finance the £21 billion of tax cuts that the Conservative tax commission proposed. We now hear that it must also pay for the elimination of the structural budget deficit. The public spending cuts that we will have to contemplate will be multiples of the £21 billion that I was expecting year by year. If the hon. Lady wants to clarify the position and explain that when she said structural borrowing was bad she did not mean it, I am happy to give way.
Mrs. Villiers: I never said that in no circumstances should any Government run a structural budget deficit. I was expressing concern about the level of the structural budget deficit relative to those of other European countries. That is quite a different thing. The Economic Secretary is completely distorting what I said. He repeatedly accused us of contemplating cuts. We have made a commitment that public spending on public services will increase under a Conservative Government.
Ed Balls: I am very happy to set out the full position. It is all set out entirely in the documents that we are debating today. The public net borrowing—the overall amount of borrowing—is going from 2.8 per cent. in 2006-07 to 2.3, 1.9, 1.7, 1.5 and 1.3 per cent. We believe that that is a level of net borrowing that is fully consistent with our fiscal rules, that keeps net debt at a stable level, and that is—the hon. Lady is right—higher than that of several European countries this year that do not want to borrow for investment. We think that it is the right level of borrowing to allow us to carry out our investment plans, while following the golden rule. We are not borrowing for consumption; we are borrowing for investment.
If the hon. Lady says that that level is too high, she does not accept our sustainable investment rule. She is saying that she wants to get net debt and borrowing down further. The only conclusion to be drawn from her saying that the level is too high relative to other European countries is that she wants it to be lower. The only ways in which she can get a lower level of borrowing are by tax rises—but the Conservatives say they want tax cuts—or by cutting public investment.
“So therefore compared to what”
the Chancellor
“planned on spending you would be spending less?”
She replied that, yes,
“it would certainly...undoubtedly that could be a possibility”.
Mr. Siôn Simon (Birmingham, Erdington) (Lab): Surely, that does not mean anything.
Ed Balls: This debate has been so revealing because previously we were confused and could not understand why we were going to get £21 billion in tax cuts, more money being spent on public services and no spending cuts. Now, however, it has been revealed that there will be spending cuts because the structural deficit is too high. I guess that if borrowing had been much lower, the hon. Lady would have been satisfied and would not have needed to consider those investment cuts. The reality is that the borrowing numbers are consistent with the fiscal rules and allow our planned public investments to go ahead. The hon. Lady has made it clear that, under a Conservative Government, those public spending plans would not go ahead. That is the difference in the reportĀ that we are submitting, following this debate.
Our report to the European Commission, which we are required to produce under the Maastricht Act, sets out how we can have stability, prosperity and fairness. However, the hon. Lady has made it clear that, with a different set of fiscal rules and priorities and a different approach to public investment—not rising public investment, but cuts—we would have a different set of outcomes to report to the European Commission. In future, in my view, the European Commission, our European partners and the British public will be more inclined to receive, read and support our report, but only time will tell.
Question put and agreed to.
That the Committee has considered the Government’s assessment as set out in the pre-Budget report 2006 for the purposes of section 5 of the European Communities (Amendment) Act 1993.
Committee rose at twenty eight minutes to Six o’clock.
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Prepared 19 December 2006