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I want to end by making a plea to the Government. The Conservative party did not have a terribly good record on Munich, so I am not trying to make party political points here; it is far more serious than that. It is a big regret of mine that in the lead-up to the Iraq war-and I am probably the only person in Christendom who still believes that the Iraqis did have weapons of mass destruction-I did not ask the then Prime Minister an obvious question about the plan for day two. I did not ask about the plan for ensuring that the country did not descend into chaos after the Government had been toppled. I therefore make a plea to the Chancellor, knowing that no one will be able to stand up and say that they have taken the relevant precautions. What defences have the Government thought through if long-term interest rates do not rise in the way that the shadow Chancellor has described, but start to gather pace? What will our response be? What will be our defence to prevent further deterioration if we lose our credit rating? What do the Government have in the cupboard to ensure that we do not face a gilt strike when the Debt Management Office at the Treasury reports to the Prime Minister that it has not been able to garner enough
funds that week to buy up the Government debt? Margery Allingham wrote a brilliant diary on the horrendous drift into war from 1938 to 1939. When the Norway disaster engulfed the country, she wrote of the then Prime Minister, Chamberlain, that he was a "vain old man with nothing up his sleeve." Please, God, I hope that this Government have a lot up their sleeve.
7.9 pm
Mr. Jeremy Browne (Taunton) (LD): Thank you, Mr. Deputy Speaker, for giving me an opportunity to contribute to this pressing and important debate. As we have just been hearing from the right hon. Member for Birkenhead (Mr. Field), we gather at a time of great economic risk for our country. The first signs of tentative economic growth may be appearing, but we are far from out of the woods.
The economic backdrop to the Bill is dire, as the right hon. Gentleman has just said. In 2009, the British economy contracted by almost 5 per cent. That is worse than in either of the Conservative recessions of the early 1980s and 1990s, and worse even than 1978 and the winter of discontent. Remarkably, it is even worse than the year of the Wall street crash or any of the subsequent years during the great depression.
Our economy contracted by more in 2009 than in any peacetime year since 1921, and the impact on our public finances has been truly devastating. One quarter of British public spending is now unfunded. We have a low-tax economy, not because ordinary people and households around the country pay less tax but because of a collapse in corporation tax. At the same time, however, we have a high-spending Government. The money coming into the Treasury's coffers is comparable to that in an American-style society, but the money going out of those coffers is more comparable to that in a Scandinavian-style society. The long-standing ready-reckoner suggesting that any country borrowing more than 10 per cent. of gross domestic product in a given year has entered basket-case territory has been breached. In this financial year, we in Britain will borrow more than 12 per cent. of our GDP, and the proportion will be well over 10 per cent. again next year.
What will be the effect on public services-the local schools, the police, the hospitals-in our individual consistencies? One quarter of those services are unfunded, and we are plugging that gap this year with public borrowing. As a country, we are borrowing an extra £500 million every single day, which equates to more than £20 million extra every hour or £1 million extra every three minutes. We have borrowed about £25 million extra since this debate started. Our currency has been massively devalued, and we are now printing extra money.
It is often said by the Government that other countries have experienced recession too, and that is of course true. When those countries were growing, however, we never heard from the Prime Minister that Britain's rising prosperity was due to international factors that had nothing to do with the policies of his Government. Instead, all his plans were predicated on the best-case scenarios, and that left Britain dangerously over-exposed. When this Prime Minister boasted that we had abolished boom and bust on his watch, he was half right-he just got the wrong half.
I want, however, to turn to where the Prime Minister has a valid story to tell. It has been said-and the Chancellor said it again today-that our borrowing is at a level similar to that of other comparable countries, and that is broadly true. We were told by our iron Chancellor that we would not let our debt rise above 40 per cent. of GDP, but it is now doubling to 80 per cent. Even so, it remains lower than the debt level in Italy-although by some measurements Italy's economy is now bigger than ours, and our total debt is still rising faster than Italy's.
It is also true-and in this the Chancellor, the Prime Minister and others have a point-that by historical standards Britain's debt looks manageable. It may be rising to 80 per cent. now, but we have just been hearing from the right hon. Member for Birkenhead about the consequences of 1945, when our total debt as a percentage of GDP stood at a terrifying 250 per cent.
The second world war is always rightly portrayed in terms of the human casualties that were suffered, but until I saw that figure I had not fully appreciated the terrifying scale of indebtedness that we as a country faced at that time. We may be broke now, but we have been three times more broke in the past.
Mr. Cash: Given my earlier remarks about the true level of debt, would the hon. Gentleman be surprised to hear that aggregating the bank bail-outs-never mind the cost of the RBS-Lloyds deal that was never even disclosed-would put the actual liabilities in the region of £3.84 trillion? He has just given the figures for 1945, but that sum is equivalent to 274 per cent. of GDP.
Mr. Browne: The hon. Gentleman makes a valid point. I shall not comment on his specific statistics, but merely observe that I am painting the rosiest picture that I can of the current state of the public finances.
Mr. Redwood: Does the hon. Gentleman agree that there is another very big difference between 1945 and now? In 1945, it was decided by common acclaim to get the deficit down by sacking, through demobilisation, almost 1 million public officials who were in the Army or serving the Army. The Government are not about to do the equivalent now.
Mr. Browne: There is another, slightly more obvious difference between now and 1945. Then, we had run up a spectacular debt that changed Britain's place in the world, in many ways for the worse. It left us vulnerable and led to years of rationing and hardship for households right across the country, but we had something pretty spectacular to show for that greater debt-we had defended ourselves against an unprecedented threat to our freedom and independence. Sixty-five years later, it is somewhat harder to work out what the current Prime Minister's monumental achievement from our rising debt is.
Instead, our Prime Minister today stands metaphorically on the observation deck of the new Burj Khalifa skyscraper. Lifted high on a mountain of debt and hubris, he surveys a scene of economic depression and endless desert.
Mr. Graham Stuart (Beverley and Holderness) (Con):
The hon. Gentleman is right to follow the right hon. Member for Birkenhead (Mr. Field) in emphasising the
severity and seriousness of the current situation, but the big difference between 1945 and today is that then the war was over and the expenditure on it had finished. In contrast, the unsustainable level of expenditure that we have today has not finished, and there does not appear to be any credible offering from the Government as to how they are going to bring that expenditure under control. We just have this Bill, which halves not the overall debt but just the rate at which we will increase it. That is no real solution at all.
Mr. Browne: The hon. Gentleman is right that our debt-to-GDP ratio fell, in a good way, quite markedly after the second world war. Nevertheless, it is still true that we have previously been in territory where that ratio has been well over 100 per cent. We are not in that position at the moment.
Kelvin Hopkins: I am glad that the hon. Gentleman has referred to 1945, because we had a wonderful Labour Government who brought us out of that terrible time. Does he agree that, instead of deflating our way out of the massive problems that we faced at that time, we grew our way out of them? We did not spend our time talking about what we had to cut: in fact, we created a national health service, for example, in which we spent more.
Mr. Browne: Perhaps I should avoid a protracted historical discussion, although I always thought that the hon. Gentleman's favourite Labour Government were in office during the period of achievement from 1976 to 1979. However, we have managed to identify another one whom he holds dear to his heart.
I was talking about the Prime Minister standing on deck looking at the consequences of his policies. In that economic desert, we find before us this Fiscal Responsibility Bill-a pathetic and dangerous piece of legislation.
It is pathetic, because we should not need a new law to make the Government do their job. We just need the Government to do their job. The Chancellor is like a man with a new year's resolution to lose weight. He knows that he desires the outcome, but he doubts his ability to make the disciplined decisions that are necessary. He therefore passes a law requiring himself to lose weight, confident in the delusion that he can now tuck into a diet of endless doughnuts and pork pies. As people across the country are daily discovering to their dismay as they examine their discarded gym memberships and low-fat cookery books, there is a world of difference between resolving to do something and having the fortitude to see it through.
The Chancellor has flunked the difficult decisions at every turn. The media were briefed that December's much delayed pre-Budget report would be bristling with tough choices. It did contain an announcement from the Chancellor on pay restraint, as well as the bizarrely counter-intuitive set of higher taxes on employing people, but it then emerged that the extra spending in the PBR added up to more than the extra revenue that would accrue. As in the Prime Minister's Labour conference speech, the goodies kept on coming, but these really were empty promises.
What was the result of the PBR? Having previously said that the deficit this year would be £175 billion, and after announcing a slew of supposedly tough choices in
the pre-Budget report, the Chancellor was able to announce that the deficit would now be £178 billion, falling next year-during a period when the economy is forecast to grow in all four quarters-to £176 billion. That is why, speaking as a man still just in his 30s, I know that our national debt will not reach 40 per cent. again until I am in my 60s. The Chancellor's legacy is a burden that blights an entire generation.
It is not an enviable record, but the Chancellor has at least one partial admirer. I was reading The Economist over Christmas. Its edition of 19 December identified the "Heroes of New Labour". Underneath, it added, "Yes, there have been some". There are, to be precise, five heroes of new Labour. None are current MPs; two have died, sadly; and one, Lord Adonis, experienced his finest hours as a member of the Liberal Democrats. The Chancellor is not one of them, but he warrants a footnote under the heading "The nearly men". The article says:
"By stubbornly keeping his job, Alistair Darling, the unfortunate Chancellor, probably prevented a desperate fiscal plight from becoming even worse under a putative successor."
His biggest legacy, his entry to the new Labour hall of fame, is to have prevented the right hon. Member for Normanton (Ed Balls) from making a bad situation even worse. We are all genuinely grateful, but the Chancellor's hopes must have been so much greater as he walked into this Palace as a new Member of Parliament many years ago.
The Bill is not only pathetic but dangerously wrong-headed. How can we know what the world will face in 2016? We may confront the scale of threat to our national security that demands the wholesale economic sacrifice that helped us to win the second world war, which we have discussed in this debate. What are we meant to say if that happens-"Sorry, we are not fighting. We can't due to our obligations under clause 1 of the Fiscal Responsibility Act 2010"? We may face another recession-it is entirely possible; the so-called double dip scenario. We all hope that it is unlikely, but it is entirely possible. What then? What are we meant to do? Are we meant to say, "Sorry, all the hospitals are going to have to close. That is our obligation under clause 1 of the Fiscal Responsibility Act 2010"? The Chancellor said today that that would not happen because the Chancellor of the day would come to the Dispatch Box, rip up the Act and say, "Don't worry, I never meant it in the first place." That raises the question why we are all here pretending that this is a serious piece of legislation.
We need real determination to plot a path to sustainable recovery, and that requires real political leadership. So how dispiriting it is that the so-called official Opposition woefully fail to match the scale of the task before us. The Conservative shadow Chancellor, in his speech to his own conference, made a virtue of his supposed resolution. It was an interesting speech, but as he confirmed his intention to target big tax cuts on the very richest households, he told us:
"We are all in this together."
As I watched the television and listened to his speech, I was initially reminded me of the immortal question asked to Debbie McGee-to paraphrase: "What first made you sceptical about the shared austerity message of millionaire George Osborne?"
The shadow Chancellor went on to say that he had identified £7 billion-worth of savings. Let us leave aside for a moment the fact that some of those were costed in 2020 prices and failed to match any sustained scrutiny. This is the crucial bit. The Conservative shadow Chancellor went on to say:
"Anyone who tells you these choices can be avoided is not telling you the truth."
But that was not really the truth. We have a structural deficit of about £85 billion, so what the Conservative shadow Chancellor told us was perhaps at best one 12th of the truth. It might have been up to a point the truth, but it certainly was not the whole truth and it certainly was not nothing but the truth. Instead, just yesterday we had the Conservatives splashing £400,000 on posters claiming that they would aggressively cut the deficit, but they gave no specific proposals except a single pledge to spend more.
Mr. Gauke: Those of us who were listening carefully to my hon. Friend's speech at that party conference will know that he stated that we did not claim that we had set out a full policy. What he announced was not going to address the full structural deficit, but we had provided an indication. Given the criticisms made by the hon. Gentleman, does he have a full plan to address an £85 billion structural deficit?
Mr. Browne: Let me come to our proposals in just a moment. People will be keen to hear them.
Lorely Burt: Given that 70 per cent. of the deficit is structural, and therefore pre-dates the current financial turmoil, does my hon. Friend think that a Bill that provides no detail about how the Government intend seriously to tackle the problems with the public finances demonstrates any fiscal responsibility at all?
Mr. Browne: I accept my hon. Friend's point. The Bill is near to worthless, but it is a valid point that the Conservatives have just spent a lot of money on a poster campaign across the country that does two things: says that they will try to tackle the deficit and identifies one measure that does nothing to tackle the deficit. That is the point that the right hon. Member for Birkenhead was making. If anything, the deficit would be even greater were the Conservatives' proposal to be implemented. This is the new, cool Steve Hilton-aroma Conservatism, pointing in different directions at the same time. It is what Tony Blair called triangulation and the third way, what fashionable Cameroons call red Toryism and the rest of us call an abdication of leadership. I do not doubt that the Conservative leader's greatest priority is the NHS, but he does not mean the national health service; he means the Notting Hill set.
Philip Davies: The only interpretation that anyone can put on the hon. Gentleman's remarks is that the Liberal Democrats propose a huge cut in spending on the NHS. By how much does the hon. Gentleman's party think that the NHS budget should be cut? Everyone would be interested in that.
Mr. Browne:
We are getting to the interesting nub of the argument. We are saying that there is not a good reason to ring-fence Departments. That does not necessarily mean that the Department of Health would be cut, but
the implication of the Conservatives' policy- [ Interruption. ] Hon. Members should hear me out; I am doing the hon. Gentleman the credit of taking him seriously. The implication of his party's policy is that the cuts in schools, police and our soldiers in Afghanistan would be greater, deeper and more fundamental than they would be if all the Departments took the burden of the deficit reduction. That has got to be the case. If the Conservatives would make the cuts across a smaller number of Departments, the cuts would have to be deeper to make up for the fact that some had been ring-fenced. That is a serious question that the Conservative party will have to explain to teachers, police officers and many other public servants and people who use our public services.
Stewart Hosie: I know that the hon. Gentleman is getting dreadfully angry. There is a big fight between the Liberals and the Tories in his seat in the south-west, and it is all dreadfully vexed. The hon. Member for Solihull (Lorely Burt) said that 70 per cent. of the deficit was structural. That comes in at about £125 billion. Scotland's share of that would be about £11 billion-the total cost of the NHS in Scotland. How many nurses and teachers does the hon. Gentleman plan that the Scottish Government should sack in order to meet the Liberals' version of cutting the debt?
Mr. Browne: My understanding is that the Scottish National Party aspires to be in coalition with the Conservatives after the general election, so they may be able to come up with a joint plan at that stage. Let me get to our deficit reduction proposals. The straightforward answer is that we are not saying that Departments should be ring-fenced. In the mind of some Members, the right hon. Member for Birkenhead may have exaggerated in his speech the scale of the threat we face, but he rightly warned of the scale of the problem, as I tried to do in the introduction to my speech. Our economy is 5 per cent. smaller than it was a year ago. We cannot carry on with all this "share the proceeds of growth"-with a robe of feel-good Conservatism, without wearing a tie-saying that there are no hard choices to be made. It is not a realistic way forward.
Mr. Gauke: I just want to be clear. The hon. Gentleman has set out the argument for cutting spending across the board, so the implication is that there would be cuts in the NHS budget under a Liberal Democrat Government.
Mr. Browne: No, I have not said that.
Philip Davies: What have you said then?
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