Examination of Witnesses (Questions 295-299)
RT HON
ALISTAIR DARLING,
MR DAVE
RAMSDEN, MR
MIKE WILLIAMS,
MR EDWARD
TROUP AND
MR SIMON
GALLAGHER
19 MARCH 2008
Q295 Chairman: Chancellor, good afternoon
to you and your colleagues in this examination of the Budget.
Can you introduce yourself and your colleagues for the shorthand
writer, please?
Mr Darling: Yes. Thank you very
much, Mr McFall. I think three of my colleagues will be familiar
to you, since you saw them yesterday evening. Dave Ramsden is
the Managing Director of Macroeconomic and Fiscal Policy, sitting
to my left. Mike Williams, to my right, is Director of Personal
Tax and Welfare Reform; and Edward Troup, who is Director of Business
and Indirect Taxes. And, new to you, at least on this occasion
is Simon Gallagher, who is the Team Leader, Financial Services.
Q296 Chairman: No, he was with us
yesterday!
Mr Darling: Perhaps I should have
been here last night and we could have got the whole thing wrapped
up then! Anyway, here we are.
Q297 Chairman: Do you still stand
by your Budget forecasts, Chancellor, since they have been made,
what with Bear Stearns and the subsequent fall in market confidence?
Mr Darling: Yes. The forecasts
that we made last week in the Budget are for the long term, and
from the pre-Budget report last October to the Budget last week
we were very conscious of the fact that we are going through a
period of considerable uncertainty, especially in the money markets
and the financial markets. As you know, I downgraded our growth
expectations last October by half a per cent and I downgraded
them again for the budget because we were acutely aware that the
present uncertainty and turbulence, which is unprecedented in
recent times, will have an effect over the coming year and it
will affect the growth not just of our country but of countries
right across the world. I did say last week that right across
the world all developed countries, and even many developing countries
like China, India and Brazil, were also taking the same view that
there will be an effect on growth. What I would say, if I may,
Mr McFall, in relation to the last few days, is that I think what
you are seeing now is a manifestation of exactly what I was talking
about last week; there is a great deal of uncertainty and turbulence
in the financial markets at the moment, and Bear Stearns in America
is the latest example of that. Fortunately the Fed and the US
authorities were able to intervene, though quite clearly Bear
Stearns paid the price in that it was being taken over by JP Morgan
at two dollars a share, which is a fraction of what it was worth
at the beginning of this year. But right across the world I think
you will see—not just in America but just as we did last
October—the authorities in the shape of governments, central
banks and regulators doing everything they can to ensure that
we maintain stability in what is a very uncertain time. So we
are prepared to take action, whatever is appropriate, and what
is appropriate will vary from country to country because it is
important that we should do that. I will add two other things,
if I may? One is the need now for us to take international action
at the G7 level and with the meetings coming in Washington I believe
it is absolutely essential to get greater transparency, to get
far more effective reporting, far better coordination between
the regulators and supervisors, to deal with the question of credit
rating agencies, to improve the information available to investors,
that all of that is absolutely essential and we make progress
as quickly as we possibly can so that we can improve market conditions
not just now but in the future as well. The last point I would
make has a direct bearing on what you were saying right at the
start in relation to our forecasts. Yes, of course, we are very
focused on what is happening now in the immediate term but we
also need to remain focused in the long term, and if you look
at two of the indicators that are very important—the employment
and unemployment figures which were published this morning, which
yet again show strong growth, particularly an increase in jobs
over the last quarter, which is during this period of financial
instability—I think 166,000 extra jobs—in addition
to that you will see that unemployment is the lowest it has been
since 1975. The other thing is the CBI's Industrial Survey published
today again shows, especially in relation to output, some very
healthy figures. I have always made the point that you cannot
read too much into any one set of figures but I think if you look
at the data that is published today it bears out our forecast
and that is that there will be a slowdown but our economy remains
fundamentally strong; it remains resilient and we are well placed
to deal with a period of great uncertainty. Having said that,
in terms of the immediate problems we face, as I have just said,
that is something on which I am very focused now and over the
next few weeks as we move towards the meetings in Washington in
the middle of April.
Q298 Chairman: But your growth forecasts
are out of kilter with most outside economists and we have received
evidence, both in writing and orally, on that point.
Mr Darling: I know you discussed
this yesterday when you spoke to Treasury officials and I do not
believe they are. If you look at the range that we set out, the
growth for this coming year and thereafter, I believe that what
we have done is realistic. If you look at the Treasury's forecasts
over the last few years in relation to growth they have been pretty
good and they have been recognised as such, and there are some
people who are forecasting more positive, higher levels of growth
than we are and of course, inevitably, if you have 30-odd economists
commenting on something it is unlikely that they are all going
to agree and come to exactly the same conclusion. But I do believe
that given the resilience of the economy, given what we know of
what has happened in the past, that what we are setting out is
realistic. As I say to you, if you look at the figures today,
the employment figures, if you had been asking this question 15
years ago, would Britain be in a position where unemployment was
the lowest it has been since 1975, and especially at this time,
despite the turbulence that we are going through at the moment,
would we see more people going into work even in the last three
months, to the end of January, people would have said that that
would be surprising. It has actually happened. I think it is important
that we look at what is actually happening and look at the resilience
of the British economy and look at our strengths as well as, of
course, we must take account of what is happening presently because
it will have an effect, as is patently obvious.
Q299 Chairman: Again, to many economists
and outside observers it seems that more could have been done
by the government to, in their words, "consolidate the public
finances when the economy was above trend". If we have a
biblical analogy when you have the seven fat years you have to
prepare for the seven lean years, Chancellor, why was that not
done?
Mr Darling: I would say two things.
One is that since 1997 we have reduced the levels of debt that
we inherited; our debt levels now, as a proportion of GDP are
a lot lower than they were ten years ago. We reduced debts in
the late 1990s. Also since we came into office over 11 years ago
our policy has been driven by two fiscal rules which are designed
to make sure that we do not borrow to fund current consumption—something
that successive governments in the past repeatedly did; secondly,
the sustainable investment rule, which is designed to ensure that
we can maintain investment, particularly investment in infrastructure,
which has been historically a problem in the past—we have
not put enough money into education, schools, hospitals and we
have not put enough money into transport. So we had these fiscal
rules and we stuck to those fiscal rules. If you look at our debt
levels now they are lower than most of our competitors, they compare
well internationally and they have enabled us to build the resilience
and have the flexibility we need to deal with the problems. The
other thing I would say—and I know that many people, not
so much the commentators but inside this House are now saying—"You
should have cut back at times when the economy was growing above
trend." Firstly, I do not actually remember them saying that
at the time, and indeed many of them were actually calling for
more spending. Also, if we had actually not borrowed when the
economy was growing above trend then we would have had to cut
back quite substantially into some of the investment that we have
been making in our long term infrastructure, and I think that
would have been to repeat all the mistakes of successive governments—and
I am not just talking about the last one but other governments
of different political colours over the last 30 or 40 years.
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