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6.26 pm
Mr. George Osborne (Tatton) (Con): I beg to move an amendment, to leave out from "That" to the end of the Question and add:
"this House declines to give a Second Reading to the Fiscal Responsibility Bill because it does not establish an independent mechanism for ensuring the publication of credible fiscal forecasts and assessing the effectiveness of Government fiscal policies in achieving stated fiscal objectives; because the duties imposed by the Bill are not accompanied by any corresponding sanctions; because in the absence of spending plans which set out a credible means by which public sector net borrowing is to be reduced, legislating to secure sound public finances is irrelevant and a distraction; and, consequently, considers that the Bill is inadequate in achieving the objective of securing sound public finances."
Although this piece of legislation consists of only six short clauses, it must be the biggest load of nonsense that this Government have had the audacity to present to Parliament in this Session. Quite frankly, I do not think the Bill is the idea of the Chancellor of the Exchequer or any of his Treasury Ministers, or indeed of any official in the Treasury. It was dreamt up by the Schools Secretary and the Prime Minister when they were trying to think of something to say on the "Andrew Marr Show" on the eve of the Labour conference, so now we all have to go through the rigmarole of debating it in Parliament. The Bill was a completely feeble stunt, a fact that is revealed when we look at the clauses.
Let us remember what one of the economists whom the Prime Minister himself appointed to the Monetary Policy Committee has said about the Bill. Willem Buiter has said:
"Fiscal responsibility acts are instruments of the fiscally irresponsible to con the public."
That was the man whose economic judgment the Prime Minister trusted so much that he put him on the Monetary Policy Committee of the Bank of England, but no one is conned. If the Bill was supposed to reassure the markets, it has failed. This is what one of the City's leading economists, Michael Saunders of Citibank, says:
"the government's plans for legislation to cut the deficit are not convincing and are probably just camouflage-a sort of 'fiscal figleaf'-for the lack of genuine action".
If the Bill was supposed to con the business community, it has completely failed in that task too. Richard Lambert, the head of the CBI, was on the radio just two or three days ago saying:
"I'm certainly not satisfied with the government's plans. It's going to be publishing in the next few days legislation which says it is going to halve the deficit within the next four years, but it's a bit like me saying I'm going to join the gym and that means I'm fit already."
The Bill was also supposed to convince the independent economic commentators, but this is what the Institute for Fiscal Studies says about the legislation that the Chancellor has brought to the House today:
"it is far from clear why investors and voters should be any more impressed by this"-
"than they were by the Code for Fiscal Stability, which was enshrined in statute with much fanfare in 1998."
The Bill has failed to con even the Labour party. This is what the right hon. Member for Norwich, South (Mr. Clarke) says- [ Interruption. ] The Chief Secretary to the Treasury laughs, but I seem to remember that the right hon. Gentleman is the former Home Secretary-not
the former Home Secretary who says that the Labour party has a big charisma problem; I am talking about the other former Home Secretary, who says that this piece of legislation is "vacuous and irrelevant". As with so much that the right hon. Gentleman says about the leadership of the Labour party at the moment, he is absolutely right, because when we go through the Bill clause by clause, we see what complete nonsense it is.
Let us start with clause 1, which deals with the duties on the Treasury. Here we read:
"The Treasury must ensure that...public sector net borrowing expressed as a percentage of gross domestic product is less than it was for the preceding...year."
We are also told that the law will require net debt to be falling by the end of five years. Saying these things, and putting them into statute, will not actually make them happen, however. Every Budget and pre-Budget report produced by this Chancellor and his predecessor since 2003 has promised falling net debt at the end of a five-year horizon, and every one of those borrowing forecasts has been wrong, in times of boom and of bust.
The present Chancellor has got his total borrowing forecasts wrong to the tune of £560 billion since he entered No. 11. It is now four times higher than when he announced his forecasts for the PBR in 2007, after the credit crunch had begun. So why would anyone believe his latest forecast, just because he writes it into the clause of a Bill instead of publishing it in the Budget Red Book? Does the fact that it is printed on green paper, given a solemn title and passed through Parliament after being looked at by a Committee of the House make it any more likely to happen, or any more real, than when he stood at the Dispatch Box on Budget day and told us that these things were going to happen?
Clause 2 relates to "Further duties for securing sound public finances". In it, we find a stunning extension of state power. We discover that
"The Treasury may make an order imposing...a duty or duties"
"imposed for the purpose of securing sound public finances."
We also find that these duties
"must be consistent with the key principles as applied by the code for fiscal stability."
This is the same code for fiscal stability, by the way, that allowed the Prime Minister to run massive deficits in the middle of a boom, but never mind that. We shall have an order that will impose a duty to secure sound public finances, and it will have to be laid before Parliament and approved by resolution of the House of Commons.
Who is to be on the receiving end of this great order that will descend from on high, from Her Majesty's Treasury, to use the full authority of Parliament to impose a duty to secure sound public finances? Which public body will be quivering in fear, wondering whether it is to be the Treasury's chosen victim? Well, it turns out that that public body is the Treasury itself. Under clause 2, the Treasury will have the power to make an order that imposes a duty on the Treasury. That will make it sit up and take notice, will it not?
Mr. Cash:
On the question of duties, does my hon. Friend agree that the point he is making could equally be applied to the Government Departments on which Parliament has imposed a series of duties that drive levels of public expenditure ever upwards? Does he not agree that, to get the whole question of public expenditure
right, we would have to amend or repeal many of the duties imposed on public bodies in order to reduce the overall level of public expenditure?
Mr. Osborne: I take the point that my hon. Friend is making.
The Chancellor said in his speech that the great sanction would be that, if the existing code or Act were broken, the Chancellor would face the humiliation and embarrassment of coming to Parliament to introduce a new piece of legislation. I guess that he is in a position to know what that feels like. From what I can see of his behaviour today, however, that is not a huge sanction.
Lorely Burt (Solihull) (LD): Does the hon. Gentleman agree that legislation without sanctions is not worth the paper it is written on?
Mr. Osborne: I agree with my-I was about to say "my hon. Friend", but that would be to get ahead of ourselves, would it not? We are all being very nice to the Liberal Democrats these days. I agree with the hon. Lady. I take it from what she said that she will be joining us in the Division Lobby tonight; I certainly hope she will.
Hon. Members might be hoping to find something a bit more impressive in clause 3, but in it we discover that the Treasury will be required to tell us whether it has met its borrowing forecasts. The last time I checked, I found that that happens in every single Budget statement and pre-Budget report. However, we now need legislation to turn what has been the standard practice of Chancellors, at least since the second world war, into the law of the land. And when will the Treasury be required by law to tell us whether it has succeeded in performing its duty to secure sound public finances? According to clause 3(5), this will have to happen
"during the financial year ending with 31 March 2016."
We shall not have long to wait, then, for the Government's assessment of how well they are doing. They cannot get their borrowing forecasts right from one month to another, yet they now expect us to believe a commitment written in statute relating to 2016. They are living in a completely parallel universe.
Let us look at clause 4, which relates to accountability. Let us see what terrible fate will await the Treasury if it fails to comply with the order imposed on it by the Treasury. Will the Chancellor be hauled off to the Tower? Will he be forced to hand in the great seals of his office? Will his pay be docked for poor performance? Will he at least have to apologise? No. Clause 4 states that the fact that any duty imposed as a result of the Bill
"has not been, or will or may not be, complied with does not affect the lawfulness of anything done, or omitted to be done, by any person."
This is an absolutely ridiculous clause. There are no penalties. This must be the first law introduced in Parliament that contains absolutely no legal sanction whatever for those who break it.
We have only two more clauses to consider. Clause 5 is about interpretation, and states that the Treasury will be required to "explain the meaning" of such terms as "public sector net borrowing" and "public sector net debt". It is a shame that the meaning of those terms was not explained to the previous Chancellor when he was in office. As far as I can see, the clause does not require a proper explanation of the state of the national accounts
that takes into account the private finance initiative liabilities that are kept off-balance sheet, and public sector pension liabilities.
Finally, clause 6 deals with the short title of the Bill, and tells us that the legislation will be known as the Fiscal Responsibility Act 2010. We will have to see whether it ever becomes an Act. This clause confirms a time-honoured principle in this place: the greater the claims that are made by a Bill's title, the less substance it usually contains.
Of course we have to debate this vacuous and irrelevant legislation, but why did the Chancellor feel the compelling need to introduce it? Why is he the first Chancellor in history to feel that he needs an Act of Parliament on top of a Budget statement? There can be only two explanations: either he does not trust himself to secure sound public finances, or he knows that the public do not trust him to secure them. Neither is exactly a ringing endorsement; both are a reflection of the catastrophic, disastrous state to which this Government have reduced the finances of this country.
I have searched far and wide to find another country that has introduced a fiscal responsibility Act, and I have found one. It is that shining example of fiscal rectitude, Nigeria. That is where the Chancellor appears to have got his inspiration from. It was no doubt sent to him in one of those e-mails that we all get from Nigeria. Perhaps it said, "Dear honoured sir, I am a former finance Minister of this country, and I have a plan to reduce your debts. Please send me your bank account details and I will forward the money by return." [ Laughter. ] Of course this would be funny, if this were not such a fundamentally dishonest piece of legislation, and if this were not such a fundamentally serious time, in which the credibility of our nation and its ability to pay its way in the world are being questioned by markets, investors and credit rating agencies around the world.
A poll in yesterday's Financial Times found that a fiscal crisis was the biggest single risk facing the British economy at the moment. The managing director of Moody's Global Sovereign Risk group is now warning of the danger of
"an abrupt increase in long term interest rates"
in the UK. The former Deputy Governor of the Bank of England, Sir Howard Davies, whom the Prime Minister appointed to be the first head of the FSA, said this week that
"the major risk" to the British economy
"is the loss of confidence in the government's ability to get the public finances back under control".
And today we hear that the world's biggest bond investor, PIMCO, has announced that it will be selling off UK Government bonds this year. It says that this is a "significant policy statement" prompted by concerns about rising borrowing levels in this country. It has just issued a statement saying that the question is when, not if, Britain's credit rating will be downgraded.
Mr. Redwood:
Has my hon. Friend noticed that during the period in which the Bank of England has been buying a quarter of the total Government debt in issue to try to keep the price up, the price has been falling so the long-term rate of interest has been rising? That has
happened even though the Bank is buying a quarter of the issue, so what is going to happen when it stops buying?
Mr. Osborne: My right hon. Friend makes an extremely telling point, and I am going to come on exactly to the threat to interest rates posed by the Government's policy. Before I move on from Pimco, I cannot help noticing that the head of the European arm of PIMCO, one Mr. Andrew Balls, is the brother of the Schools Secretary. Clearly, the Balls family's confidence in the Chancellor's ability to do his job runs across the brothers.
My right hon. Friend the Member for Wokingham (Mr. Redwood) makes a very important point about gilts and the fact that we are now in a period when the Bank of England is pursuing a policy of quantitative easing, but with £200 billion of gilts to get away next year, we need buyers, not sellers of those gilts. Here, however, we have the world's largest bond investor saying that it is going to be selling gilts next year. Of course gilt yields are rising-up 1 per cent. last year and up 0.5 per cent. in the last month, which is twice the rate of increase in countries like Germany.
Rising gilt yields, of course, mean in the end rising interest rates, so a central objective of policy for recovery must be to allow the Bank of England to keep interest rates as low as possible for as long as possible, which requires a credible fiscal plan. The absence of such a plan from the Labour Government is pushing up the yields that will push up the interest rates and the mortgage rates, causing businesses to fail and jobs to be lost. The Chancellor, however, remains paralysed by inaction. He seems to see the storm clouds gathering, but he is doing nothing. We know the reason why. The Prime Minister and Schools Secretary-the man whom the Prime Minister wanted to be the Chancellor-will not let him. The disagreements between them are now an open secret. They are on the front page of The Financial Times and are being read across Europe. The Chancellor is at least vaguely aware, I think, of the seriousness of the debt crisis this country faces, but the Prime Minister is in complete denial. The Chancellor at least uses the word "cuts", but the Prime Minister could not bring himself to use that word in the first big interview he gave in the new year.
I believe that the Chancellor wanted to accelerate the reduction in the deficit and he wanted to do so in the pre-Budget report, but he was overruled by the Prime Minister who accelerated the spending instead. That is the problem-the Chancellor keeps losing this argument in Downing street and the result is that Britain's credibility in the world markets is further undermined. Britain's credit rating is for the first time in our history at serious risk and British interest rates are set to rise in a recovery.
The answer surely is to deal more decisively with the deficit. As the Chancellor well knows, that is the view of British business and the CBI. The Labour party used to parade the CBI as one of its great supporters, and I believe that in 1997 the CBI was invited into Downing street before the trade unions were. Now the Labour party dismisses the views of the organisation that speaks for many British businesses, but this is what Richard Lambert, the man who was also appointed to the Monetary Policy Committee by the Prime Minister, says:
"History tell us that these are really difficult nettles to grasp but if you grasp them in a clear and bold way, then the pain lasts for a shorter period than if you just limply grab and hold of
them... Our strong instincts are that the risks of going too soon are less than the risks of waiting too long... Two full parliaments of chancellors being responsible just seems too much to expect."
Here is the view of the OECD expressed in the last few days:
"Major fiscal consolidation is needed"
"and more concrete plans should be developed and communicated as early as possible."
That is the OECD's view expressed after the pre-Budget report.
Here, now, is the view of the international markets. BNP Paribas says:
"The UK's public finances are in such a poor state that delay could lead to a loss of confidence, a downgrade of the UK credit rating and a crisis in the public finances."
Sir John Gieve, another former deputy governor of the Bank of England appointed by the Prime Minister, stated that the Government's plan
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