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Mr. Hendrick: I join my right hon. Friend in congratulating Eaga Partnership on the excellent performance of the Warm Front programme, from which 7,000 homes in my constituency have benefited, but may I return him to the subject of capital expenditure on colleges? As he may know, the principals of Lancashire colleges visited Westminster last week. They are anxious for the Learning and Skills Council to release money quickly for many capital projects that are currently being held up. People are being asked to leave building sites and architects are being asked to stop works because of the delay, and those principals are very concerned about the impact that that will have.
Mr. Timms: As my hon. Friend knows, our right hon. Friend the Secretary of State for Innovation, Universities and Skills has commented on the issue. I know that some projects have not proceeded as quickly as was hoped, but the programme is going ahead on precisely the scale that we predicted: a great many projects are proceeding.
Alistair Burt (North-East Bedfordshire) (Con): The Minister must be careful in his choice of words. He is giving the impression that the hold-ups experienced by schools and colleges such as Sharnbrook community college in my constituency, which was told at Christmas that there was a freeze on capital decisions by the LSC, in some way constitute a planned freeze, and that everything is, in his words, steaming along. In common-sense terms, what he has described, what has happened in my constituency and what others have mentioned is a freeze. Perhaps he could explain the distinction between a freeze—which is what everyone thinks is going on—and steaming ahead.
Mr. Timms: I think we have all had some experience of what a freeze is like today!
As I said, a great many projects are going ahead; there are 250 altogether, of which more than 150 will be completed this year. It is true that some proposed projects have not been given the go-ahead because the resources available have been committed to projects that are going ahead, but it is not the case that the programme has been frozen. It is going ahead, and a large number of colleges will benefit as a result.
On the rail network, £10 billion has been committed to enhancing capacity between 2009 and 2014. Overall Government support for the railway over that period will be more than £15 billion. My right hon. Friend the Chancellor announced in the pre-Budget report that we would provide £300 million for the purchase of new rolling stock. The contract for those new carriages will be awarded by April this year, and the stock will be in place from 2011. I therefore hope that the House will accept that the true picture is very different from the one sketched in the Liberal Democrat motion.
Annette Brooke: I am grateful for the news that many projects are being brought forward, but why are further education projects being frozen when college principals had felt that they were well down the line towards full approval, and vast sums had already been invested? College principals need to know the time line for decision making, and the Treasury has a role to play in that.
Mr. Timms: As the hon. Lady knows, Andrew Foster has been brought in to look at those issues and he will report as soon as he is able to do so.
The Liberal Democrat motion is also wrong to criticise the fact that we have set out in our plans a fiscal consolidation in the period ahead. We have set out how we will get back to balance in the medium term, and I make no apology for that. We need to get back to balance and to set out plainly how we will do that. Indeed, that is what we did in the pre-Budget Report. I think that we are the only country to have set out the trajectory that we will follow to do that, and it is the right thing to do. It will involve, when the upturn comes, a level of public sector net investment that will be lower as a proportion of GDP than it will be next year—but at 1.8 per cent. of GDP it will still be three times as big as in 1997.
Mr. Love: My right hon. Friend mentioned the upturn and when it will come. The recent evidence from the IMF and other forecasters is that the recession may last longer. If the recession is likely to last longer than until the end of this calendar year, will Ministers, when they make the Budget projections, consider putting in place a further fiscal stimulus and bringing forward investment so that we do not have a deeper recession than is necessary?
Mr. Timms: As my hon. Friend knows, we will set out new forecasts at the time of the Budget, and of course we will reflect on the lessons from them. However, the IMF forecast is for growth for the UK for the next calendar year. Interestingly, it also forecasts a shorter period of negative growth for this country than for several other G7 countries.
As I was saying, our increase in public investment compared with the Tory years will be sustained not just through the current downturn but through to the other side of it as well. Of course, paying for the fiscal stimulus, and for the steps that we are taking to support British businesses and households, will require Government borrowing to increase. We are starting from a strong position. According to the OECD, the UK had the lowest net debt of any country in the G7 apart from Canada—the point that Joseph Stiglitz rightly underlined on “Newsnight”. That is the point that the Conservatives have failed to recognise. It would be helpful if the hon. Member for South-West Hertfordshire (Mr. Gauke) confirmed, when he speaks later on behalf of the Conservative party, whether it is his party’s view that President Obama should abandon his central economic policy proposal because of what they think is an emerging consensus, although it does not even appear to be a consensus in the shadow Cabinet, given some of the remarks that have been made by its members.
Of course debt in the UK will rise in the period ahead, as it will rise in the other major economies. Every advanced country in the world is increasing Government borrowing in response to the downturn. The latest OECD forecast shows not only that UK net debt was the second lowest in the G7 when the shocks began, however, but that our net debt will remain below that of most other G7 countries right the way through this downturn.
Some hon. Members would have us believe that we cannot afford to take measures to counter the effects of the global downturn in Britain. Their view is that we should do nothing, let the recession run its course and turn our backs, as the Tories did with such disastrous results in the recession of the early 1990s. We strongly disagree. Because of our responsible handling of public finances over the past decade, we can act now to preserve British jobs and boost our economy. These steps will ensure that Britain comes through the global downturn sooner and stronger than would otherwise be the case.
As the Institute for Fiscal Studies said last week, the cost of doing nothing would be greater than the cost of acting. Others in the House have today urged us to spend more—in effect, to throw sustainability in the public finances to the winds. We are not going to do that either. We will always live within our means. In that way, we will navigate a path that gets Britain through in the best possible shape. We will do that in a way that is fair to everyone, and make sure that we are in a position to grow again when the new opportunities of the upturn emerge in due course.
5.30 pm
Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to speak in this debate. The Liberal Democrats have proposed an interesting motion, which is very helpful to the House in one sense—it highlights an inconsistency in the Government’s approach. We hear how the Government are engaging in a fiscal stimulus through public works and additional spending to help people out of the recession, but almost daily we read that public expenditure is being held back and that capital projects have been cut. A number of those points have been raised today by hon. Members, including by the hon. Member for Twickenham (Dr. Cable).
The Minister, in a carefully worded response, stated that 250 further education college projects are under way and that there is some disappointment about what is going forward. However, it appears that there is a freeze on new projects, and that is the reality that Members are finding in their constituencies. It has not been made up—we are hearing about it, our constituents are telling us about it daily. We see frequent newspaper reports of PFI projects being put on hold. The Times tells us that more than 100 school and hospital projects are being delayed. The Government have announced that many of the proposals, such as the widening of the M25, are to be held back for budgetary reasons.
We know that there is a crisis in social housing. It is a long-standing fact that less social housing has been built in every year of this Labour Government than was built in every year under the last Conservative Government and that the number of households on local authority waiting lists for social housing has increased from 1 million to 1.8 million.
The Government say that they are trying to spend their way out of a recession, but in reality they faced the difficulty of the unsustainable nature of their public finances, and they are unable to deliver. I am grateful to the Liberal Democrats for highlighting that point. However, we are not entirely sympathetic with the Liberal Democrat policy that underlies the motion, which is to try to deal
with the recession through expenditure on public works. I think that that was essentially what the hon. Member for Twickenham outlined.
Bob Russell: Irrespective of the merits of capital expenditure, does the hon. Gentleman agree that if there is to be public expenditure, in order to get value for money and to spread the money to as many projects as possible, renovation and restoration of the existing capital plant owned by the public should be considered before demolition and rebuilding?
Mr. Gauke: There is always an argument for considering existing infrastructure and not demolishing it if it would be more worth while to keep it. That is a truism and I will not disagree with it.
It might be worth highlighting the evolution, to put it kindly, of the Liberal Democrats’ policy. It is now their policy that the country needs more spending and that that is the way to get out of the recession. Last May, the leader of the Liberal Democrats stated that they would
“focus all our attention on cutting taxes”
“We must get away from the Labour notion that if the Government is spending more it must be doing better.”
In his September 2008 party conference speech, the hon. Member for Twickenham, said that there was now
“a mood of austerity”
“an intolerance of...binge spending by government”.
As recently as 10 November 2008, in another Opposition day debate on the economy, the Liberal Democrat motion set out a number of measures that the country required, but nowhere within it was there a proposal for a large, unfunded fiscal stimulus to be spent on public works.
Lynne Featherstone (Hornsey and Wood Green) (LD): Does the hon. Gentleman not agree that binge spending on identity cards would be a waste of Government spending?
Mr. Gauke: Yes, I do agree with the hon. Lady, and if the Liberal Democrats’ policy is simply to identify wasteful spending, I am certainly with her. We welcome the Liberal Democrats to that cause.
In the debate on 10 November, the hon. Member for Twickenham made a thoughtful and interesting speech, as always, and, to be fair, he addressed the greater need to free up local authorities to expand their social housing. However, he argued against a large fiscal stimulus, initially in the context of tax cuts, saying:
“There are dangers in doing what I believe the Government propose, which is to have an unfunded tax cut, which I understand would be financed by Government borrowing. However, Government borrowing ultimately has to be paid for—it is deferred taxation or inflation, and that is not a satisfactory way forward either.”
We would certainly agree with that. The hon. Gentleman concluded by saying:
“We need a stimulus that will be funded”.
The hon. Gentleman’s colleague, the hon. Member for Taunton (Mr. Browne), taunted the Conservatives for being a high-spending party, saying:
“You do not have to remain trapped in the high-tax, wasteful spending box into which your shadow Chancellor has locked you”.—[ Official Report, 10 November 2008; Vol. 482, c. 499, 543.]
However, only a few weeks later, the Liberal Democrats are calling for higher spending, and are not calling for any tax cuts.
Chris Huhne: The hon. Gentleman is describing the evolution of our policy over a period that has seen a dramatic worsening of the economic outlook, not only in this country but more broadly. The great Liberal, Lord Keynes, pointed out that, when circumstances changed, he changed his mind. Sadly, that does not seem to be true of the Conservatives, who always seem to say the same, regardless of the circumstances.
Mr. Gauke: I am grateful to the hon. Gentleman for noting our consistency. I have to say that there has been a pretty dramatic change since 10 November, and I remind the House that, during the debate from which I quoted, the hon. Member for Twickenham said:
“Government borrowing ultimately has to be paid for—it is deferred taxation or inflation, and that is not a satisfactory way forward either.”
We share that view. I think that the hon. Gentleman shares that view in the context of tax cuts, but not in the context of public works.
Dr. Cable: Has the hon. Gentleman not yet understood the central point that lies behind the interventions by all western Governments—namely, that if people are unproductively unemployed and out of work, instead of being productively employed in public investment, that itself constitutes an unfunded public spending commitment? We are concerned with the alternative, which is that resources remain unemployed.
Mr. Gauke: The hon. Gentleman is making the Keynesian, expansionary argument, and I will address that. I merely point out that, in early November, the Liberal Democrats were the party of fiscal conservatism and that they now appear to be outflanking the Government in their desire for fiscal expansion.
Rob Marris: May I gently caution the hon. Gentleman? In late November, there existed a Government who were against fiscal stimulus. Last Tuesday, that Government introduced a budget that will involve a fiscal stimulus of 3.2 per cent. of gross domestic product over the next two years. That represents quite a turnaround in just a few weeks. They are a capital-“C” Conservative Government: the Conservative Government in Canada, led by the Conservative Prime Minister, Stephen Harper, and the Conservative Finance Minister, Jim Flaherty, who have, in the past few weeks, fallen into line with the rest of the world. They have recognised that the world has changed in those few short weeks, although they were a bit late in getting there. I suggest that the hon. Gentleman should follow his Conservative colleagues in Canada and go for fiscal stimulus.
Mr. Gauke: The hon. Gentleman always cautions gently. I say to him that there are different circumstances in different countries. I return to the Institute for Fiscal Studies quotation that I cited earlier to the Minister:
“Labour entered the current crisis with one of the largest structural budget deficits in the industrial world and a bigger debt
than most OECD countries, having done less to reduce debt and—in particular—borrowing than most since 1997.”
Our position is precarious and difficult. According to the IFS, our debt as a percentage of GDP will go up to 62.1 per cent.—even the Government acknowledge that it will be 57.4 per cent. According to the IFS, debt will not reach 40 per cent. of GDP for another 20 years. It will double over the next few years, with the danger that the cost of borrowing will go up. That puts us in an extremely difficult position. It would be splendid to be able to afford to cut taxes or fund public expenditure, but the fact is that over many years the Government have failed to put the country in the strongest fiscal position.
Mr. Gauke: I will give way, but I shall just make this point. The hon. Member for Twickenham mentioned the structural difficulties created by the collapse of our housing market and financial services, but the problem goes back further than that. Essentially, it goes back to the reckless running of the public finances in the early part of this decade, when during boom years we were still borrowing huge amounts and organisations such as the International Monetary Fund were warning the UK Government that the fiscal position was unsustainable.
My party was making that point; my right hon. Friend the Member for West Dorset (Mr. Letwin) made it as shadow Chancellor. Indeed, we entered the 2005 general election making that warning—I am not sure that it did us much good, but none the less we made the case. At the time, the Government and the Liberal Democrats dismissed it. The hon. Member for Twickenham said:
“We should not be panicked by the IMF into early tax increases or expenditure cuts, which would be damaging in the short term.”
Chris Huhne: I am grateful to the hon. Gentleman for giving way again. His case on the detail of the UK public finances is there, and we can examine the record. However, I am intrigued. Clearly, the United States is the most important global economy, but it has a higher level of borrowing to GDP and public debt to GDP than we do and its banking system is worse placed than ours. Does the hon. Gentleman therefore advise President Obama to shelve his plans for fiscal stimulus?
Mr. Gauke: The US has a reserve currency; it does not have the same risk of a run on its currency as the UK does. The important distinction is that its automatic stabilisers are much smaller than the UK’s. A lot of the fiscal stimulus that is going to occur in the UK would happen automatically, and the same does not happen to the same extent in the US. At the point where our respective economies entered into recession, the US was borrowing less than we were.
Chris Huhne: Will the hon. Gentleman give way on that point?
Mr. Gauke: I shall. I know that the hon. Gentleman is very keen to be shadow economic spokesman, and I shall give him that opportunity again.
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