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Mr. Darling: I have said that we should halve the deficit over a four-year period, but the hon. Gentleman clearly thinks that we should go further and faster. How much faster and how much further?

Mr. Osborne: I am just coming on to my view, which is exactly the same as that of the Governor of the Bank of England, the person who is in charge of monetary policy. The Chancellor is in charge of fiscal policy in this country; the Governor of the Bank of England is in charge of monetary policy. It is the view of the Governor that we should eliminate a large part of the structural deficit in the next Parliament and that is precisely my view as well.

Mr. Darling: That is what we are proposing to do, but in addition, the Governor of the Bank of England said in the same interview in response to a series of questions that he recognised the difficulties that could arise from going too fast and too much further. Let me ask the shadow Chancellor again: if he thinks we should go further and faster, will he tell the House how much further and how much faster? Especially in the light of what has happened in the last 24 hours, some further detail would be very welcome.

Mr. Osborne: The Chancellor says that he has the same view as the Governor of the Bank of England-he has just said that-but when asked by the Treasury Committee what he thought about the risk of a credit downgrade to the UK, the Governor said that we needed "a credible plan", which by implication does not currently exist, and that such a plan should consist of the elimination of a large part of the structural deficit in the next Parliament. That is a view I share with the Governor of the Bank of England and it is clearly not the view that the same Governor believes is being pursued currently-or else he would not have referred to the need for a credible plan.

Mr. Darling: Let me ask the hon. Gentleman a last time, as it does not seem that I am going to get an answer. If he read the whole of the Governor's reply, the hon. Gentleman would know that he was talking about
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countries across the world, not just this country. But why will the hon. Gentleman not answer the question? He quite clearly hints that he would like to go further and faster, so why will he not tell us exactly how much? Does he want to reduce the deficit a year earlier than we do? If so, how does he intend to do it? If he does do that, it might mean taking another £26 billion or so out of the economy. Is that his intention?

Mr. Osborne: This is what the Governor of the Bank of England said when asked- [Interruption.] I know that it comes as a complete surprise to Labour Members that the Conservative party agrees with the Governor of the Bank of England and the Chancellor of the day does not seem to agree with him. When asked to comment on the plan that the Chancellor had set out, the Governor said this, and I have it before me:

the plan

commenting on the Chancellor's plan-

That is what he said in evidence to the Treasury Committee on 24 November 2009. I agree with the Governor of the Bank of England and that is our policy.

It is increasingly clear, by the way, that virtually every independent and respected opinion in this country agrees with us rather than with the Government of the day. Such opinion is also in agreement with our approach towards creating a fiscal framework in which we can be held accountable. What we are going to do if we are elected to power in the next few months is create a proper and independent office for budget responsibility. Indeed, we publish today draft legislation- [Interruption.] Well, I am not sure what Liberal Democrat policy is on independent fiscal accountability-although, of course, I must be careful.

Let me explain the very significant difference between what we are proposing and will implement and what the Government are presenting to Parliament today. The first striking difference is that while this Bill leaves the Treasury in charge of forecasts and gives the Chancellor the room to fix the forecasts in order to fit the Budget policy-as we know, a practice that has developed in recent years-our Bill would for the first time ever put the forecasts of the nation's finances in independent hands. In other words, it would not be the Chancellor of the Exchequer of the day who published the borrowing and debt forecasts; it would be an independent office for budget responsibility, properly resourced and accountable to Parliament.

Secondly, while this Bill leaves the Chancellor as judge and jury on whether he is sticking to his fiscal strategy, our Bill would subject the Chancellor to the independent verdict of an independent panel of experts in the office for budget responsibility. While this Bill tells us nothing about the true state of the nation's finances, our Bill would give the country a statutory independent audit of the true cost of public sector
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pension liabilities and the dodgy off-sheet accounting of PFI contracts, and give us a proper national audit of the nation's finances.

Mr. Pelling: Might not the arrangement be strengthened further if the body sat in Parliament, mimicking the Congressional Budget Office in some respects? I know the Opposition feel strongly that it is important to enhance the effectiveness of Parliament, and I may have misunderstood what the hon. Gentleman is proposing. Perhaps he intends the body to sit in Parliament.

Mr. Osborne: It would be rather like the Monetary Policy Committee. It would be independent, but accountable to Parliament. Its members would, I assume, appear before the Treasury Committee, and it would be asked to make a technical judgment in publishing the nation's borrowing and debt forecasts.

Instead of the Chancellor of the Exchequer, on Budget day or pre-Budget report day, standing up and saying "We predict that the country will borrow X, Y and Z over the coming years", this independent body, accountable to Parliament, would make the judgment. It is a technical judgment, and we do not need an elected politician to make it. We need elected politicians to be informed by a proper, independent judgment of the nation's finances; then we shall all be able to make the decisions on tax and spending for which we are held democratically accountable. It is clear from what has happened over the last few years how misled Parliament has been by the borrowing forecasts announced by the present Chancellor and his predecessor, which have turned out to be completely wrong and have led to decisions that were not in the interests of the country.

Mr. Geoffrey Robinson (Coventry, North-West) (Lab): The shadow Chancellor is rightly puzzled about the issue of sanctions that the Treasury might be able to impose on itself, but can he explain what sanctions the new independent body would be empowered to impose on the Treasury if the targets set by the body were not met?

Mr. Osborne: At or around the time of the Budget, and the pre-Budget report, the body will publish not just the forecasts but its view on whether the Government are on course to fulfil the mandate set by the Chancellor-in other words, the elimination of a large part of the structural deficit over the Parliament-and an independent report. Obviously, if the Government were shown to be off course, that would be hugely embarrassing for the Chancellor of the day.

I do not think that a Chancellor who regularly disagreed with the independent body could survive for long, so it would pose a challenge to him. This would constitute a proper, serious sanction. In extremis, the Chancellor of the day can overrule the Monetary Policy Committee or the independence of the Bank of England, although of course the question never arises. In this case, the Chancellor of the Exchequer would face a very difficult time if, after he or she had said, "We will achieve this fiscal result over the coming years", the independent body, at the time of the Budget, said, "Actually, they will not."

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Mr. Frank Field (Birkenhead) (Lab): Is not the truth that the sanction contained in both the Bill and the hon. Gentleman's proposal is the bond market? If a Chancellor of the Exchequer came to the House and said that he wanted to change, in primary legislation, the arrangement that we are discussing today, or if a future Conservative Chancellor said that he was ignoring what the new body was saying about the danger to the economy, we would very soon find our credit ratings lost or further downgraded, and long-term interest rates would rise. That suggests that the real discipline now is not in the House or even in the banking community. We are now subject to the requirements of credit agencies and the bond market for us to start behaving properly.

Mr. Osborne: The right hon. Gentleman has made a very good observation, which is, in fact, true of government through the ages. Even in mediaeval times, kings and Parliament in its then form were subject to the ability to raise money on what were then the international money markets.

Something interesting has happened in this country's politics. We used to regard Budget day, and pre-Budget report day, as the moment when the Chancellor, whoever it was, would come from on high and hand out the goodies. We were all supposed to be incredibly grateful, and then the Chancellor would disappear for another six months. Of course, things are very different now. The House of Commons is subject to the economic pressures imposed on it by, in part, the bond market.

I recently read an interview with the Swedish Prime Minister of the 1990s, Göran Persson, who said that no Prime Minister wanted to find himself in the situation in which he had found himself. He was spending more time in the City of London giving presentations to young bond market traders than talking to the Swedish people about the fiscal problems the country faced. The House should take very seriously the fact that the world's largest bond investor said today that next year it would sell gilts rather than buy them, the fact that all the credit ratings agencies have put the United Kingdom on a warning and will decide later in the year whether it should face a credit downgrade, and the fact that our gilt yields are rising at twice the rate of Germany's. Even if the Prime Minister is in complete denial about the economic situation and the fiscal problems that the country faces, I do not think that that is an excuse for the rest of us to ignore those problems.

I agree with the right hon. Member for Birkenhead (Mr. Field) about the discipline of the bond market, but I believe that an independent office for budget responsibility would help Members of Parliament to hold Chancellors and Prime Ministers to account for their promises, and would give Members proper information on Budget day so that they could challenge what the Chancellor and the Prime Minister of the day were saying. It would also discipline the Government internally, and would help Chancellors to achieve their and the Government's stated goals.

Our proposal has been welcomed by many different people, including independent economists. The Institute for Fiscal Studies has said that a new independent body of the kind that the Conservatives propose

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because it would enhance the confidence of the bond markets in the Government's ability to deliver on their objectives. It has been supported by the CBI and many other organisations. That is why we have published our legislation in draft today. It means proper accountability, a real set of national accounts, lower interest rates, economic stability, and the restoration of Britain's credibility in the world markets. That is what a Conservative Government will bring to this country as we consign this Government and this nonsense of a Bill to the dustbin of history.

6.56 pm

Mr. Frank Field (Birkenhead) (Lab): I want to explain briefly why I will not be supporting the Government tonight.

Mr. Eric Martlew (Carlisle) (Lab): There is nothing new about that.

Mr. Field: That is true, and it is a sadness for me, but clearly not a big enough sadness to the hon. Gentleman, who is now leaving the Chamber.

Given the Chancellor's ability to present such thin gruel to the House, I am surprised that his party did not claim to see the signs of joined-up government. Yesterday they announced that in future all five-year-olds in our schools would be taught the dangers of debt, how not to fall into debt, what to do if they fell into debt, and how to get out of debt as quickly as possible. Bright, or perhaps not so bright, five-year-olds might suggest that the lessons could start here rather than in the classrooms.

I want, however, to inject a note of seriousness, if not horror, into the debate. I want to compare our present position with the phoney war that led up to world war two. Although those on all three Front Benches now talk of the need to lower the deficit, they are all also talking about spending more. I do not believe that our voters-the voters of this country-have any idea how serious the financial position of the country is, or how massive the cuts will have to be if we are to return some semblance of order to our national accounts.

Let me illustrate that first by looking at the payments on the new debt. Let us suppose that we could not roll that debt over, but had to close Government Departments. The cost of the debt in the first year of bailing us out-I am ignoring past debt, which we have to service as well-would be the loss of the Department for Culture, Media and Sport, the Department for Environment, Food and Rural Affairs, the Department for business and enterprise, the Law Officers' Department and the Northern Ireland Office. In the second year-we are not concerned only with the new tranche of debt; there would be two years of debt-we would have to lose, in its entirety, the Department responsible for innovation, the universities and skills. In the third year, the debt repayments would be greater than the budgets for defence, the Cabinet Office and some other Departments of State. It would decimate what we do as a Government if we had to pay for the money that we intend to borrow by closing Government Departments and the programmes that go with them. I do not believe that the people of this country yet have any idea about the seriousness of the position that we face.

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Justine Greening (Putney) (Con): Does the right hon. Gentleman agree that part of the problem is that the Government also seem to have no idea about the seriousness of the situation?

Mr. Field: I am critical of all the Front Benchers. In the past few days, the official Opposition have been talking about spending new money. It is bizarre beyond belief to think that the health budget can be ring-fenced. It is one of our biggest budgets, and commitments have been given from Government and Opposition Front Benchers about the sanctity of such budgets. It will be impossible for us to balance the books even at the rate that the Chancellor is talking about-I shall discuss in a moment whether that level would be adequate or quick enough-if we decide that some of the largest departmental expenditures will somehow be saved from cuts.

Mr. Cash: The right hon. Gentleman is talking a great deal of sense. Does he agree with my earlier point that the approach of addressing these issues without having regard to the duties that are imposed on local authorities by Parliament is part of the problem? We have to deal with the question of whether legal liabilities are being raised to a level that cannot be supported by public administration.

Mr. Field: I accept that, but we face something far more immediate than that, as I tried to make plain in my intervention on the shadow Chancellor. We keep hearing contributions in this place that sound as though we are now in charge of our affairs and our future, but we are mere pawns on the chessboard of the credit agencies and the bond market. It is to their tune, sadly, that we now have to dance. My worry is that even in the next few months we are going to have difficulty in floating the amount of debt required to see us up to and through the election, let alone the next umpteen years.

Kelvin Hopkins: I usually agree with much of what my right hon. Friend says, but I am alarmed by what he says about the level of cuts that he believes we face. He is talking only about the expenditure side, and not the income side, of the problem, but we should be looking at income and not expenditure. If we cut spending now, we will just make the problem worse.

Mr. Field: In my view, if we do not cut enough and soon enough, we will not have a currency. The debate about whether we should have taxation or cuts is to some extent academic. The plea about tax evasion and avoidance that my hon. Friend has made ever since he has been in the House-ever since I have enjoyed listening to him-is one that I was pleased to hear the Chancellor pick up in such a positive way, but that alone is not enough.

I return to the central issue of whether we are going to see ourselves through to the general election. We have been living in a cloud cuckoo land partly because all the political parties have been saying that they are going to spend more, so that nobody would think that things will be all that tough. The economic crisis was said to be the most serious since the 1930s, but when improvements in programmes are announced, people think, "Well, it can't be all that bad, can it?" What has added to that illusion is the fact that the Government have been printing money, between 98 and 99 per cent.
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of which has been buying the Government debt. What we do not know is what the markets will do when there is no more funny money to use to buy that debt. We know that there is £25 billion more; presumably, that money is being spent now and will, one hopes, take us up to February-but then things will hit the fan. Of course, the Government are taking proper actions such as saying to the banks, which behaved so irresponsibly in that earlier period, that they need to restructure their liabilities and assets so that they have a more stable basis from which to carry out their trade. Surprise, surprise, one of the assets that the Government say that the banks should have more of are Government gilts. The danger is that if the international markets do not believe us, those gilts might not be much better than the American mortgage bonds that were floated a few years ago and that got us directly into this mess.

I want to make a plea to the Government. The point of maximum danger will certainly come when we cannot, or are not going to, print any more money to buy our own debt. Earlier, I made a comparison between the current situation and the phoney war-the lead-up to the war. The comparisons are chilling. In 1938, people came to the House and to the Dispatch Box and told us that there was no real threat from the international situation and certainly not from Germany. Recently, there has been an unwillingness across the whole House to get to grips with the size and extent of the debt. That unwillingness has been equivalent to the denials about the dangers of Nazi Germany. Back then, when the Government started to lose support, they were forced to give a pledge to Poland. An equivalent pledge today is the Bill before us, which the Government would not have introduced willingly, but they know that they need to introduce it if they are to increase the confidence of the markets. In 1939, the then Prime Minister said to Montgomery when visiting the British Expeditionary Force, "I don't think the Germans have any intention of attacking us. Do you?" Montgomery soon put him straight on that. The bizarre denial of that time culminated in the Norway situation, when we all learned just how grave and perilous the position of this country was.

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