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Instead of the economy going from a staggering 3.5 per cent. contraction to a fantastically optimistic 3.5 per cent. growth in just two years, the IMF says the recovery will be much slower and, indeed, that Britain’s economy will still be contracting next year. I hear sneers and dismissal from Government Members about the IMF’s figures, but I thought that the IMF was going to be the new early-warning system for the Prime Minister. In a stroke, the IMF destroyed the credibility of the premise on which the Budget and its borrowing figures had been built. The claim is that within just two years, the British economy is supposed to bounce from the deepest recession that it has known since the second world war to levels of economic growth and household consumption seen only at the height of the boom; we now know that, frankly, in the view of almost every independent forecaster, that is a complete fantasy. No wonder that one paper this morning described the whole thing as “Alistair in Wonderland”. I guess that that leaves the Prime Minister as our mad hatter—and given the expression on the face of the Secretary of State for Energy and Climate Change, he is the white rabbit.
As I say, the IMF was not the only one to question the central Budget assumptions. Almost every single business organisation and independent forecaster followed suit, including the Institute of Directors, the Engineering Employers Federation and a host of others. This is what the chief economist at Standard Chartered—one of the few banks that has not gone bust under this Government—said yesterday afternoon:
“The chancellor...believes recovery will be rapid...we will see growth of 1.25 per cent. in 2010 and 3.5 per cent. in 2011. This is fantasy...as this...rebound is expected to occur”
while the “legacy” of the borrowing binge “lingers on”.
Extraordinarily, the Chancellor of the Exchequer yesterday announced the worst public finances ever announced in the House of Commons, told us that in the next two years we would borrow more than has been announced at that Dispatch Box by all previous Chancellors combined, and said that he would double the national debt, yet he was guilty of being too optimistic. That is the scale of the mess that the Government have created. The tragedy of yesterday was that instead of being honest about that mess—instead of taking responsibility for the mistakes that have been made and giving us a credible plan to pull Britain through—we got that complete fantasy.
This is what the director general of the CBI said yesterday afternoon:
“The key question for this Budget was whether it set out a credible and rigorous path for restoring the public finances to health. The CBI’s preliminary judgement must be that it does not”.
That sums up the scale of the failure yesterday. The central task of a Budget in a recession such as this is to inspire confidence in the future—confidence that the Government are realistic about the problems that the country faces, confidence that they have a credible and rigorous plan to deal with those problems, and confidence that they have the leadership and vision to take this country forward. Who would say that in Britain today, people and families are feeling more confident about this country’s future as a result of the Budget? Almost no one. That is why yesterday was not a route map to recovery but the death rattle of a tired and discredited Government who are limping on until the law of the land actually forces them to hold a general election.
Let us look at the components of what a credible and rigorous path for restoring the public finances might look like, and then we can see why the Budget failed. [Interruption.] Indeed, and it might come as a surprise to the Secretary of State for Energy and Climate Change, that there is such a thing as a credible and rigorous path because we certainly did not hear of one yesterday. First, it would involve understanding why the public finances are in such a disastrous state. The Prime Minister is still stuck in the rut of claiming that this is the recession that came from America and hit an otherwise sound British economy. I see the hon. Member for Midlothian (Mr. Hamilton) nodding his head. He must be about the only person in the world who believes that now. [Interruption.] Okay, the three of them do—the hon. Members for Glasgow, North-West (John Robertson), for Coventry, South (Mr. Cunningham), and for Midlothian. Perhaps if we have a swipe-card system, we will get some more in, too.
Whether we are talking about Lord Turner, from whom the Government commissioned a report, or the Treasury Secretary of the United States, there is now consensus that the British economy, like the American economy, went through a credit boom that fuelled an unsustainable rise in house prices, household borrowing and bank leverage. Indeed, it was greater in the UK than in the US. It was an illusion of economic stability built on a mountain of debt. Given that, the claim to have abolished boom and bust was surely one of the greatest political deceits ever told to the British people, and the decision to borrow at unsustainable levels during the boom, instead of fixing the roof when the sun was shining, left Britain totally unprepared for the economic slow-down. That is why Britain now has the worst public finances of any major economy in the developed world. Even in the past 24 hours, after the Government forecast a Budget deficit of over 12 per cent. of national income, Ministers still will not admit it.
I welcome the Chief Secretary to the Treasury to the Chamber. Yesterday, I watched her saying in the media that the US deficit was going to be higher than ours. I do not know whether she read the IMF report published yesterday afternoon. It says that with the exception of Ireland, the UK has the highest budget deficit of any of the countries that it looked at—higher even than that of Iceland, let alone the United States of America. That is the highest deficit in our peacetime history.
Let us remember what the Prime Minister said just last year. Perhaps these words were crafted by the Secretary of State for Energy and Climate Change:
“Look in the early 1990s, let’s look at how economies go wrong,”—
“in the early 1990s Government borrowing went up to 8 per cent of GDP, that’s what happened under the Conservatives. It went completely out of control.”
If he describes 8 per cent. as “completely out of control”, what does he call a 12 per cent. budget deficit?
In the Red Book, there is an admission, which we might well be putting on posters in the run-up to the next election, that the current downturn is forecast to be much deeper than that of the early 1990s.
The Secretary of State for Energy and Climate Change (Edward Miliband) indicated dissent.
Mr. Osborne: The right hon. Gentleman shakes his head, but it is there on page 200 of the Red Book. He can read it out if he likes, or I will. [Hon. Members: “Go on!”] Oh, all right. It says that
“the current downturn is forecast to be much deeper than that of the early 1990s”.
There we go—from the lips of Labour itself, after all those years of lectures about the 1990s, Black Wednesday and all that, we have that admission, and we will treasure it.
Of course, when the Government’s defence on the deficit is looking a little threadbare, they turn to the argument about the stock of debt—overall levels of Government debt—but that argument is now falling apart, too, because the stock of debt is soaring as well. According to the OECD, Britain will have higher debt than 20 other developed nations—higher than France and Germany. The significance of that is that the Prime Minister said, just a few months ago:
“The national debt, even after the difficulties that we go through, will be lower as a percentage of national income than in France, Germany”—[ Official Report, 26 November 2008; Vol. 483, c. 716.]
That commitment—that promise—given by the Prime Minister just a few months ago is now completely worthless. We will see whether the Secretary of State for Energy and Climate Change repeats it today. How on earth can the Prime Minister be trusted to get the future right when he does not understand the mistakes of the past or the problems of the present?
The second component of a credible and rigorous path to restoring some sanity to the public finances is a clear statement that the principal weapon in dealing with Britain’s overspending is spending restraint. Let me be fair: Labour has come off its spending plans. Fantastic! At last! We have been telling it to do that for months. We would like to hear an apology from every single Labour Minister who has stood at that Dispatch Box month after month and said that coming off Labour spending plans meant savage public service cuts. Only a few months ago, the Prime Minister said of my right hon. Friend the Leader of the Opposition:
“he wants to cut public spending. He is totally on the wrong side of the argument.”—[ Official Report, 14 January 2009; Vol. 486, c. 210.]
But listen to what the Chancellor of the Exchequer said on the “Today” programme this morning:
“I have cut overall public spending”
in the Budget. In fact, the Budget Red Book shows that Labour will cut its departmental spending plans by £9 billion, and its capital spending plans by £11 billion, over the next four years. That is what the Labour MPs were cheering about at the end of that Budget statement—not that the cheering went on for very long.
That is the political tragedy of the Budget. We have moved from the age of prosperity to an age of austerity, but the leadership of the Labour party has been completely left behind by events. There should be a sensible debate in this Parliament, now, about how we can deliver decent public services in a period of tight spending control. We should be discussing how to get better value for money now that the cupboard is bare. We should be deciding—and perhaps have a debate between the parties—on the best way of tackling the long-term drivers of public expenditure, such as unproductive
services, welfare dependency and family breakdown. We should be working out what replaces the completely defunct fiscal rules and the two-year spending reviews that used to provide at least some appearance of a fiscal framework. But what do we have from the Labour party? Absolutely nothing. The fiscal framework now consists of a temporary operating rule that will be more permanent than the temporary fiscal rules that were supposed to be permanent.
To be fair, some people in the Labour party, and some people who used to be in the Labour Cabinet, want to have debate about the politics of austerity and how to deliver government to the people in a time of spending constraint. The right hon. Members for Birkenhead (Mr. Field) and for Norwich, South (Mr. Clarke) and even the hon. Member for Dagenham (Jon Cruddas) have all called for such a debate, but their problem is that their party is led by someone who still wants to reduce everything to a pathetic dividing line of Labour investment versus Tory cuts. How on earth does the Prime Minister expect to achieve that? How on earth does he expect to advance that argument when, on the basis on which Labour fought the last election, the cuts announced in yesterday’s Budget amount to £84 billion? Does he really think people will not notice that, far from seeing so-called Labour investment, we have just seen investment in the health service—capital investment—cut by £2.3 billion next year and investment in schools and universities cut by £900 million?
The Government have another problem. Although the Budget accepts the principle that Labour spending plans were completely unaffordable, and although the Government have told us that billions of pounds are being wasted in Whitehall as we speak, they cannot explain why they are still planning to increase spending in 2010 by 2.9 per cent. Indeed, yesterday the Government actually increased their spending plans for 2010—next year—by £20 billion, and only half of that was extra spending on debt interest and unemployment. When will they admit in their arguments what the figures in their Budget tell them? Their spending plans are simply unaffordable.
The Chancellor has admitted that there is scope for efficiency savings. On the radio this morning, he said:
“Any organisation can always be more efficient...We”—
“need to be more efficient.”
Anyone listening to that might have been under the impression that the Government were actually taking some of those tough decisions to make things more efficient, but the Chancellor will start to constrain public expenditure only in 2011. I wonder why he picked that date— [ Interruption. ] The Secretary of State says that we want to cut it now. Just to be clear, we are proposing, in a recession, to restrain the growth of public expenditure by £5 billion and use the money to reduce taxes on pensioners and savers and to provide extra courses for people who are leaving university this summer. Even with the right hon. Gentleman’s economic understanding, he must realise that that is not a fiscal tightening or a fiscal loosening. It is fiscally neutral and it is the right way to spend money that the Government themselves admit is being wasted at present.
Is it not the most cynical trick of all for the Government to pretend that they are only hitting the rich by raising their taxes before the election, while delaying the real
tax rises and tough spending decisions until after the election? How courageous. What leadership: a move worthy of a Prime Minister who has never had the courage to submit himself to a democratic vote. Thankfully, the public have seen straight through it. Instead, we see the Labour party lurching left, off the centre ground that Tony Blair put it on all those years ago. Gone is the language of aspiration and opportunity; in comes the talk of “soak the rich” and “pips squeaking”. Never mind that a 50 per cent. tax rate before the election clearly breaks one of the central promises in Labour’s election manifesto. It will be interesting to hear what the Secretary of State says about the election manifesto commitment not to raise the top rate of tax. The manifesto said:
“We will not raise the basic or top rates of income tax in the next Parliament.”
As I understand it, if there is a general election next May or June, that will have happened and the manifesto promise will have been broken. That is from a Prime Minister who, unbelievably now, came into office pledging to restore trust in politics.
Of course, it is not the rich who will bear the burden of Labour’s historic incompetence. When we look closely at the Red Book, it is clear that the headline-grabbing measures announced by the Chancellor will actually raise less money than the national insurance rise on the jobs and incomes of people earning more than £20,000 a year. Although we do not think that higher marginal tax rates are a good idea, and although we agree with all the arguments that used to be advanced from the Dispatch Box by the former Chancellor and the former Member for Sedgefield that higher top rates of tax can damage enterprise, our priority will be to reverse the tax rises on the many, not the few.
Mr. Clive Betts (Sheffield, Attercliffe) (Lab): Will the hon. Gentleman say whether a future Conservative Government would actually implement the 50 per cent. tax rate? If not, what would he do instead to raise the necessary finances?
Mr. Osborne: I do not know whether the hon. Gentleman noticed, but one of the key changes in the Budget is that the tax will be implemented by a Labour Government before the general election. I make it very clear that I cannot make a pledge to reverse that—[Hon. Members: “Ah.”] No, I cannot make a pledge to reverse that. I do not claim that it is a great idea, but my priority is to avoid tax rises on the many, not tax rises on the few. By the way, Labour MPs had better get used to the phrase, “Labour’s tax rises on the many, not Labour’s tax rises on the few”, because they will hear it a lot between now and the general election.
Mr. John Gummer (Suffolk, Coastal) (Con): Is my hon. Friend aware that the former Labour Minister, Lord Digby Jones, said today that the Budget gave him no hope whatever about the future of British exporters and the British economy, and that it was a Budget without any kind of vision? Is that not an interesting comment from somebody who was sitting on the Labour Benches only a few weeks ago?
Mr. Osborne:
It is a telling comment from a person who was appointed just days after the Prime Minister became Prime Minister. No doubt the Secretary of State for Energy and Climate Change and his cronies,
such as the Chief Secretary, plotted the appointment of Digby Jones for months. They thought it would be a brilliant appointment. I have to say that some Members, including me, were sceptical about whether he should really be Lord Digby Jones of Birmingham, but given how helpful he is being at the moment I think that he should indeed represent an entire city in the House of Lords.
Miss Julie Kirkbride (Bromsgrove) (Con): And Bromsgrove.
Mr. Osborne: Indeed. He can have a dukedom as far as I am concerned.
The national insurance tax rise, which we will hear much of between now and the election, is about the only real policy the Government have for the recovery: a tax on jobs at a time when we have the fastest rise in unemployment in our history. There was almost nothing in the Budget to help Britain move from an economy of borrow and spend to one where we save and invest.
The measures on unemployment were another cruel mirage on a day when we saw a record rise in unemployment.
Mr. Osborne: I am coming to why if the Secretary of State could be a little patient. Perhaps he can explain why the Chancellor did not tell anyone that the Budget assumption is that the claimant count will go up to 2.4 million, which would put the labour force survey figure well above 3 million. Why was that not in the Chancellor’s statement to the House yesterday?
Mr. Bone: What would my hon. Friend say to my constituents who have seen a rise in unemployment of 67 per cent. under the Labour Government since 1997?
Mr. Osborne: I would advise them to continue returning my hon. Friend to Parliament. I remind the House that he was one of the first to draw attention to the impact of unemployment in individual constituencies as a result of Labour’s recession.
The Chancellor made great play yesterday of his guarantee to everyone aged between 18 and 24 who claims jobseeker’s allowance for more than a year that they will be given a work placement or work-related training. That was the big promise on unemployment. Well, we have done some research over the past 24 hours. What the Chancellor did not tell us is that, as of today, only 5,755 people are covered by that guarantee. I hope that it is good help to that 5,755, but there are 1.2 million young people aged between 18 and 24 who do not qualify. They are languishing; they are not in school, not in a job and not in training—a record number of NEETs under the Government.
We heard much of the green recovery that would be unleashed by the Budget—something that I know is very much on the mind of the Secretary of State; no doubt he thought all about it in advance and did the spinning. What happened? What about the electric car announcement? The battery ran out before it even made it to the Budget speech. Friends of the Earth said about yesterday:
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