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Mr. Browne:
I will tell you if you listen. I said that no Department is ring-fenced. I have said not that there would automatically be cuts in every Department, but that we should not have a policy of ring-fenced Departments. I will give way to any Conservative Member who will say that all the extra money that Labour has spent on the NHS has been spent 100 per cent. efficiently and that there is no scope for finding efficiencies in the national health service. If there is scope for finding efficiencies in the NHS, the question Conservative MPs have to ask themselves is why they would cut efficient parts of schools, the Army or the police beyond a point they would otherwise need to do, to support inefficient
parts of the national health service. That is a valid question, which the Conservative party, due to marketing reasons, is unable to answer.
Mr. Pelling: Will the hon. Gentleman give way?
Mr. Browne: No, I want to make some progress.
I want the deficit cut, which is why my party has consistently made bold and eye-catching contributions to our national debate on that subject. That is why in the past months we have called for pay restraint, which protects those on low incomes but would make significant savings of billions of pounds over two years. As I have just said, Britain is almost 5 per cent. poorer than it was a year ago and we cannot afford a national wage bill that pretends nothing has happened.
We have led the way in saying that some major capital spending proposals are unaffordable. We have said that households with incomes that would be the envy of the majority of people should not also be topped up with unaffordable extra tax credits. We have identified specific projects that we believe can no longer be financially justified. That is why in a Statutory Instrument Committee in February-less than a year ago-I argued against both Labour and Conservative Front Benchers that the so-called baby bonds were no longer affordable.
There was great unity among the Front Benchers of the two old parties; they were committed to the old policies, as though the deficit had never happened, but later in 2009 the Conservative shadow Chancellor, to his credit, belatedly caught up, telling his conference that baby bonds are
"a luxury we can no longer afford."
Where the Liberal Democrats lead, others in the House follow. [Hon. Members: "Hear, hear."] It is true.
I am constantly looking for new savings. I realise the enormous challenge that a deficit of £500 million extra every day poses. I was looking through Hansard a couple of weeks ago and I found a question from the Member who is known to the Conservative shadow Business Secretary as Philip Holland, but is better known to the rest of us as the hon. Member for Runnymede and Weybridge (Mr. Hammond). Anyone anxious about the Conservatives' plans for deficit reduction needs to understand how seriously they are taking the task. I shall read out that brief question to give the House a flavour of the magnitude of the Conservative approach to the task. The question is headed "Christmas":
"Mr. Philip Hammond: To ask the Secretary of State for Wales how much his Department has spent on Christmas (a) cards, (b) parties and (c) decorations in the last 12 months.
Mr. Hain: In the last 12 months, my Department spent £385 on Christmas cards and £1,054 on receptions. We did not purchase any Christmas decorations."-[ Official Report, 10 November 2009; Vol. 499, c. 178W.]
The shadow Chief Secretary's job is not just to clear up the mess left by his leader; he is also asking the brave deficit reduction questions that can transform our country's prospects. I have done the calculations, and the savings identified by the hon. Member for Runnymede and Weybridge equate to 0.26 seconds of national debt-the gap between Usain Bolt and the man who finished second, with the Conservatives left on the starting blocks.
Kelvin Hopkins: I thank the hon. Gentleman for giving way, as I indicated a little while ago that I wanted to intervene.
The core of the hon. Gentleman's rather rambling round-about speech is squeezing public expenditure-wages, capital investment and other spending programmes. Surely that will deflate the economy and raise the level of unemployment, which will make the problem worse by reducing tax revenues and increasing benefit payments.
Mr. Browne: I have acknowledged in the past, and will acknowledge again, that the Chancellor is right to be concerned about debt. He is also right to warn that it is possible to cut too deep and too quickly. Navigating a course from our current dire position to calmer waters is a real challenge for the Chancellor and for whoever is in government over the next decade or more, but it is a great political and economic challenge that requires great political and economic skill from the Chancellor, the Prime Minister and the rest of the Government. It does not require legislation of the sort that is before us this evening.
John Hemming (Birmingham, Yardley) (LD): Does my hon. Friend share my concern that although the Government have a model of the economy written in Fortran, which they will provide, they will not provide the data that go into the model? Proper scrutiny of what the Government are doing is, therefore, difficult, as is making the right judgments, such as whether we are going too deflationary. Would it not be better if the Government were to release the data that go into the Treasury economic model, to enable people to make such judgments more effectively?
Mr. Browne: It would inform the debate, although one is sceptical about the accuracy of some of the data. Recently I told the Chancellor that he had revised upwards his borrowing figures for this year. He appeared to imply that that had not happened, but I have gone back through the figures. In his 2008 Budget-less than two years ago-the Chancellor announced that borrowing for the year 2009-10 would be £38 billion. At the time, some commentators were shocked at the scale of our predicament. Later in 2008-the pre-Budget report just over a year ago-the figure for this year was revised up to £118 billion. In the 2009 Budget, we were told that instead it would be £175 billion, and now the latest estimate for the year that is about to finish is £178 billion. That gap-between the £38 billion forecast less than two years ago and the £178 billion forecast today-represents the Chancellor's credibility in forecasting and deficit reduction. We are borrowing £140 billion more this year than the worst-case scenario forecast less than two years ago.
Anyone wanting to know the worth of the legislation need only look at the helpful explanatory notes provided to us all. One line, on page 5, sums it up perfectly:
"There are no significant financial effects of the Bill."
Never has anything been said with such brevity and accuracy in an explanatory note, or with such devastating political insight in a document that does not normally verge into that territory.
The cupboard is bare, and too much of the political debate is empty. No wonder that Labour and the Conservatives, in the initial skirmishes of the general election campaign, now both look to the Liberal Democrats for leadership and inspiration.
7.38 pm
Mr. Andrew Tyrie (Chichester) (Con): I did not think it would be possible for anyone's credibility to emerge from this debate weaker than the Government's, but after that speech I am beginning to wonder whether it is not the Liberal Democrats who have damaged themselves more in our discussion tonight. That really was a speech that missed the target entirely, if I may say so, yet it is a target that is pretty easy to hit.
The language that others have used about the Bill is overwhelmingly condemnatory-a con trick, vacuous, irrelevant; I will not go through all the quotations that my hon. Friend the Member for Tatton (Mr. Osborne) read out. The one bit I agreed with the Liberal Democrat spokesman about was when he described the Bill as a dangerous and pathetic piece of legislation.
The Bill will make bad law. It is declamatory. No explanation has been given about how it will be enforced. It will carry no credibility in the markets. Indeed, it could further erode credibility in the markets, as it may appear no more than a rhetorical substitute for the action we need. In other words, it will appear to be what it really is-mere words.
But it is not just the confidence in the markets that I am worried about and that could be eroded. Legislation such as the Bill erodes confidence in Governments and gives politicians and Parliament a bad reputation. It is corrosive of respect for the rule of law and our institutions. The Bill is, of course, a political document designed to substitute for the markets' lack of credibility for the numbers in the pre-Budget report and the Red Book about how the deficit will be filled.
That credibility deficit has three main causes. The first and immediate cause is that three quarters of the gap between spending and tax is now acknowledged, even by the Government, to be structural-that is to say, it will remain even after the effects of the recession on the deficit have been unwound. It has been created largely by explicit mistakes of Government policy in recent years, not by the crisis. The policy in question is the Brown spending binge that fuelled the boom and aggravated the bust. The Government increased public spending by much more than the economy was growing, and for many years.
Spending has increased from 37 per cent. of GDP to 48 per cent. of GDP. In some ways, that is the most dramatic change in the structure of the UK economy since the wartime measures were unwound. Many of us on the Conservative Benches warned that such rapid spending increases posed a danger for fiscal policy. When I was shadow Paymaster General, I gave several warnings myself. I pointed out that
"we could be heading for a serious financial threat to our fiscal position".
"extremely worrying that we should be facing that threat at this point in the cycle."-[ Official Report, 17 March 2005; Vol. 432, c. 487.]
The second cause of the credibility deficit-I said that there were three-is the sustained lack of transparency in the Government's accounts. If the markets cannot be sure of the Government's figures, they will fear the worst. Examples of the impenetrability of the accounts are legion. What really is the scale of the Government's liabilities? We cannot be sure. We have had some discussion
of that this afternoon. It will fall to an incoming Conservative Government, aided by the office of budget responsibility, to find out.
The third main cause of the collapse of credibility has been the emphasis in presentation on language rather than substance, and spin before action in the conduct of fiscal policy over a substantial period. The Bill is just one further illustration of that phenomenon-a phenomenon that we have had to endure for years. For example, we now know that the so-called fiscal rules were mere words. Their credibility was shot when the Prime Minister, who was then the Chancellor, fiddled his start date for the business cycle in July 2005, immediately after the election, in order to avoid admitting that he was breaking his own fiscal rule. Empty economic rhetoric has been the Prime Minister's stock in trade for a long time. It was, after all, the Prime Minister who, as Chancellor, as late as 2007 said in the House that
"fiscal discipline is the foundation of the strength of Britain's finances."-[ Official Report, 21 March 2007; Vol. 458, c. 816.]
Handing the assumptions in the Red Book to the Comptroller and Auditor General of the National Audit Office for supposed vetting was another gesture that eroded credibility. It sounded good but it was an insubstantial thing to do, as the markets soon discerned and as the Comptroller and Auditor General more or less admitted in evidence in public session in a Committee. In the end, it has only made Labour's credibility problems even worse.
I said at the beginning that the three main causes of the credibility deficit-the structural origins, the lack of transparency, and the empty rhetoric-cannot be addressed by Labour's current measures, but they can be assuaged by other practical steps. First, on the structural gap between spending and tax, the obvious answer is to set out how the gap will be plugged. That is what we have just been discussing with the Liberal Democrats.
In practice, that means explaining how public spending will be cut. It means reversing a proportion of Labour's spending binge. But Labour have done the opposite. They have announced increases in spending of £3.5 billion and they have even cancelled the spending review. That leaves a gaping hole in the credibility of Labour's overall financial policy.
Members of the Conservative Front-Bench team have been courageous in coming forward with a number of tough measures in recent announcements and have talked of an age of austerity. It is fair to say that the Conservative party has gone further than either of the other two in making a clear case for the reality of the situation-the reality that we will have years of very difficult fiscal policy before we can get overall financial policy back on an even keel.
More will need to be done by us from within Government, where I hope we soon will be, to find out the true scale of the deficit and to make it fully transparent. Then an analysis of the relevant merits of various additional measures can be done with full civil service support. I cannot stress too strongly that it is only by working with civil servants, drawing on their expertise and reviving a Whitehall culture of thrift, which has sadly been lost, that we can hope to restore Britain's public finances. The main reason for the binge was political, but a major subsidiary reason has been Labour's failure to mobilise Whitehall to the cause of the efficient use of public money.
The second point that I want to make in this respect is on the credibility of the numbers on the basis of which decisions will be taken. Have Labour really been cooking the books? Perhaps scarcely at all. Perhaps a lot. We do not know. Twenty years ago I left the Treasury and went to spend a very enjoyable year at Nuffield college, Oxford. There, among other things, I wrote a short book on public expenditure and fiscal policy. Two of the suggestions in that book, eventually published in 1996, were to create an independent national statistical office and to create a fiscal policy committee charged with the task of producing the forecast and thereby bolstering the credibility of the Government's accounts.
From the Front Bench a little over five years ago, I worked up those proposals at the request of the then shadow Chancellor, my right hon. Friend the Member for West Dorset (Mr. Letwin). They were subsequently published as "The Independent Fiscal Projection Committee" and "A Framework for Statistical Independence". The Government responded to the first after the election by giving independence to the Office for National Statistics, but the second pillar of the plan was wholly ignored by the Government.
I was delighted when my hon. Friend the Member for Tatton took up the latter idea. His proposed new body, which he has called the office for budget responsibility, goes further than I proposed in 1996-a good way further-and further than my right hon. Friend the Member for West Dorset suggested in that document. I believe that what my hon. Friend has proposed will contribute to the economic credibility needed to reduce the deficit in one crucial respect, which he mentioned in his speech. It will put the Government at one remove from the forecasting business, with all the temptations to fiddle the forecasts that can come with that.
Those two measures that I spoke about earlier, a credible plan to reduce public spending and a credible, independent, depoliticised and verified forecast, will act on the credibility deficit. That is important because, as the right hon. Member for Birkenhead (Mr. Field), who is no longer in his seat, pointed out, the credibility issue is not about mere words. It comes with a price tag, potentially huge in terms of loss of market confidence in plans to fund the deficit and service the debt stock. It is the Governor of the Bank who told us that the deficit, at nearly 13 per cent. of GDP is "truly horrendous". The debt stock will have doubled as a percentage of GDP to nearly 80 per cent. shortly, as the spokesman for the Liberal Democrats, the hon. Member for Taunton (Mr. Browne) pointed out.
Even if credibility is eroded only to the extent that it represents, say, 50 basis points on debt servicing costs, we are talking about billions and billions of pounds in higher taxes or lower public spending for a generation. Even more perilously, the loss of credibility could manifest itself in a collapse in people's confidence in the currency.
Mr. Cash:
I congratulate my hon. Friend on his prescience and look forward to reading the pamphlet that he produced at Nuffield college, Oxford, because it sounds very interesting. He mentioned thrift, but the issue is not just about efficiency. Does he agree that however much we develop models and look at the bond market, at credit risk and at the rest of it, until real change is made, the scale of the problem will require an adjustment on the statute book to the duties that are
imposed on all public authorities? That is a serious and difficult problem, but it is one that we will have to address. We cannot go on imposing legal duties, with which local, national and public auditors are required to comply, and at the same time step up the amount of legal liability that we impose on all of those public authorities.
Mr. Tyrie: My hon. Friend returns to a point that he made in an earlier intervention. I listened to it carefully, and I probably agree. The Americans deal with the same issue using their distinction between discretionary and non-discretionary funding in the federal budget.
This debate takes place against the backdrop of an election. The respective claims of the major parties on the public finances will come to the fore, and the danger is that there will be a bidding war. Each party will claim that it can do more than its opponent to tackle the deficit, with less pain than its opponent. That will not make for an enlightening election. It could lead to a further erosion in the credibility of politics and politicians, to which I alluded at the beginning of my remarks.
I am grateful to my hon. Friend for mentioning my book. In it I suggested a way out of the problem-a way that might bolster rather than erode the credibility of respective claims of the parties, particularly at election times. My proposal was quite straightforward: in addition to creating a fiscal policy committee, which is similar to the proposed office of budget responsibility, I suggested that to bolster the credibility of the Government and Opposition parties' policies on tax and spending in the months prior to an election, that body should examine all their pledges and come to a view about the bottom-line effect on the deficit.
It would be quite reasonable to ask that institution to undertake that work for any party registered under the Political Parties, Elections and Referendums Act 2000 and to publish the assumptions on which it came to its conclusions about the scale of the parties' pledges and their implications for public borrowing. If it did that it would concentrate the minds of politicians when they make exaggerated claims on economic and financial policy, especially at election time. Such a measure would raise the quality of debate in elections and of public discourse about economic matters between elections, giving the public greater confidence in the statements of politicians.
A major Opposition party might be reluctant to subject itself to such scrutiny, but what credibility would such a party have? It might supply inadequate information about its policies, thereby preventing meaningful costings to be made by the office of budget responsibility. If it did, the OBR should say so and let the electorate draw its own conclusions. At election times, such a measure is still achievable, even if things have to be done in more of a rush. The Government's costings would be largely straightforward: after all, one function of the OBR would be to have a firm grip on Government pledges. In any case, before the Government went to such a committee, they would have available to them the full resources of Whitehall in order to cost any additional pledges that they wished to unveil in their manifesto.
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