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As for the Opposition parties, any party worth its salt and challenging seriously for power would want the credibility of its economic plans endorsed by the OBR.
The party would be likely to engage with the office well before it published its manifesto, and it should be permitted to do so confidentially. In Committee I intend to table an amendment to give effect to this proposal, and I very much hope that it secures cross-party support.
The agenda of British politics has been set by Labour: it is to repay Labour's debts. That will be a huge and painful undertaking, affecting the entire British population. Labour's only hope of restoring confidence in itself would have been to set out the spending measures required to plug the deficit. That is Labour's duty, after all: it is still in government. But even if it had done so, I am not sure how much weight it would have carried with the markets or with the public at this stage, because the canker at the heart of Labour economic policy derives not just from its credibility on fiscal policy, but from a deeper collapse in confidence: confidence in the Government's ability to take any correct decisions for the country-the confidence that can, in turn, be built only on the sound foundations of economic competence.
When the economic history books are written, the writers' pens will above all linger not on the Government's intentions but on their incompetence. How was it that a Government inheriting such a strong economic legacy could have so easily squandered it? How was it that so little could have been bought with so much extra public spending? Even two years into this crisis, Labour still tries to return to the tactics of the past decade-the tried and failed tactics of rhetorical devices, which we have in this Bill, as a substitute for something solid. The Bill's title could usefully serve in one of those history books as the heading for a final chapter. It could read: "All credibility gone: the Fiscal Responsibility Bill is brought to the House." It would describe willing the end without the means and yet another addition to the catalogue of gesture politics.
The decision to postpone the spending review has been crucial. Those who argue that the Bill is merely a cheap political trick to avoid disclosing the pain that Labour would have to inflict on the electorate get at only half the truth. The Government appear to have no notion of how to implement the measures required to give effect to the good intentions of the Bill, and that is symptomatic of so much policy making over the past decade. Their response to any problem has all too often been to seek to legislate it out of existence, and, when disappointment has inevitably followed, the tendency has been to blame others, especially Whitehall officials, and the wider public service, for a so-called "failure to deliver". We have therefore had a succession of initiatives, most of them equally misguided, seeking to deal with the problem through efficiency units, a succession of studies, the tsars and so on.
Ministers hoped that those measures would compensate for Whitehall's alleged shortcomings, when the shortcomings that mattered were really much closer to home. It is the bankruptcy of ideas and, above all, of understanding how to translate intentions into action, more than the financial bankruptcy, which this Bill illustrates.
7.58 pm
Mr. John Redwood (Wokingham) (Con): I remind the House that I have business interests with a multinational industrial company and an investment management company.
I rise to remind the House that the big financial crisis through which we have been living was in origin a crisis of borrowing too much. The Government now admit that their regulators were asleep on the watch, and that banks borrowed too much. It is clear that individuals and families borrowed too much. They felt that they had to because the erratic and expansionary monetary policy followed on both sides of the Atlantic fuelled a house-price boom and took houses and flats ever more beyond people's reasonable expectations of being able to service a mortgage. They were dragged into borrowing too much to meet those giddy house prices based on the monetary excess that the Government and their agents had unleashed.
Industry and commerce also borrowed too much, and in some cases, particularly under the private equity model, the levels of leverage for companies were very high and made it difficult for them to trade profitably and successfully. Yet the Government, who tell us that the private sector sinned and borrowed too much, now seem to believe that the way to correct the problem is for the state to borrow too much in its turn.
My first message for the Government is that we cannot solve a crisis of over-borrowing by borrowing too much in the state sector. We cannot resolve the British state finances by underwriting every bad debt and every bad loan throughout the banking system-we have to get the banks to sort it out and to take more of the hit. This Government have dragged the taxpayer and the state into accepting far too much risk and far too much debt obligation. That is why we are now on the verge of another nasty phase to this long and tragic financial crash: the phase when the state is made to realise that it is borrowing too much, and the markets and others force the state and its agents-the Government of the day-into getting their own house in order because otherwise they will find that they cannot borrow at anything like a sensible rate, if at all, or on the scale that they wish.
I think it is agreed ground between the three largest parties in this House that the deficit is too large, that it is growing too quickly, and that it needs to be controlled within the next four to five years. It seems that the principal disagreement remains between the Government and the rest of us about the timing of when to start to control borrowing. It is less painful to start to control borrowing now than to leave it for another year. It will do less damage not to have borrowed another £200 billion before deciding to give up the bad habit. If someone is an alcoholic, the time to stop drinking is today-it is not a good idea to have another year of drinking very heavily and damaging their liver. They know they have to tackle the issue, so why not start now? They may then discover that they have a longer and happier life, because there is life after alcoholism, as all those of us who are not alcoholics are pleased to report to anyone who might be in doubt.
We have to say exactly the same thing to this Government about borrowing. There is life for a Government after borrowing too much. It can be a very good life where the economy will function better, not worse-a situation where the public services are better run, not worse run, and where if they put quality, efficiency, productivity and performance into their vocabulary when managing the public services, they may well discover that they can run them better and provide more for considerably less input than the current costs. As my hon. Friend the
Member for Chichester (Mr. Tyrie) remarked, one of the extraordinary things about this Government is how they managed to spend so much money to so little effect; that is the tragedy that we have to tackle. Unfortunately, the Bill is not the means to do that, as my hon. Friend the Member for Tatton (Mr. Osborne) pointed out with great humour and aplomb in noting that it sets out to have the Treasury controlling the Treasury. Why should the Treasury need to control itself? Why can it not run self-disciplined budgets in the normal way? Why can it not use the existing mechanisms of pre-Budget reports, Budgets, forecasts and economic reports to this House to provide the discipline that is required?
I should like to pause for a little on the details of the Bill, which I hope will be substantially amended if we have to go through the rigmarole of legislating it at all. It is bizarre in its own terms and seems to be against the run of the advice that the Chancellor has regularly given us on how to run an economy in trouble. Clause 1 tells us that in
"each of the...years 2011 to 2016, public sector net borrowing expressed as a percentage of gross domestic product"
has to fall compared with the preceding year. To ensure that it falls by a reasonable amount, there is the added rider in subsection (2) that it needs to halve by 2014. That means, as I reminded the Chancellor when he was here earlier, that in any given year borrowing could go up. That is even true in the period when one is trying to halve borrowing, because one could leave it all to the end and suddenly have very big cuts in the last year or do it all earlier and then have greater freedom. Because it is expressed as a proportion of income, there could be individual years when borrowing was going up, assuming that the economy was growing. Perversely, however, if in that period we had another unfortunate year when the economy was not growing, it would be necessary to reverse and to cut borrowing in cash terms. That is the exact opposite of the natural stabilisers that the Chancellor has always told us are very important, as Conservative Members have accepted. We agree that the natural stabilisers are important if one gets into a position where there is such a big fall in output as this Government have presided over. The Government should change this and come up with a formula that recognises that it is necessary to take into account the state of the economic cycle.
The second part of clause 1 contains the most important part of the whole proposition-that borrowing should be halved as a proportion of gross domestic product. Given that under current economic policy we are not going to get much growth, that means that it is necessary, roughly speaking, almost to halve the current cash deficit, so we are talking about somewhere between £80 billion and £100 billion of spending cuts, tax increases or some combination of the two. There is always a temptation among those on the Labour Benches to believe that tax increases are the better option, but if they choose the wrong tax increases they could make the position worse. If enterprise is taxed too much, there will be less of it and they may end up with less revenue. They also like to tell themselves that if only they could at last get to grips with tax evasion and avoidance all our problems would be solved, whereas after 12 years of their trying to do that, all the evidence shows that it does not solve the problem as it is a very small part of a much bigger problem.
We cannot get away from the fact that in order to cut the deficit by this magnitude, even under a Labour Government with some strange tax plans, most of the burden would have to fall on public spending, and trying to cut public spending by £80 billion to £100 billion has proved to be difficult in the past. The Government clearly find it impossible because they have produced a Bill for the House of Commons demanding that we do this, yet there is not a single item in the supporting papers or speeches to tell us how they would achieve it. Worse than that, they have cancelled the normal public expenditure review setting out detailed plans for the future because they clearly find it too difficult, too embarrassing, or both, to have to admit that the large chunks of money that they have committed in the past are no longer affordable and perhaps discover that some of those chunks of money are indeed very wasteful.
Mr. Cash: My right hon. Friend is making an excellent speech. Does he agree that there is another factor apart from having to review legislation, which imposes the duties to which I have referred-that is, the need to emphasise the necessity for enterprise and small businesses from which one can generate the growth that is required in order to fill the gap? After all, not one penny of public expenditure comes from anything other than the tax revenues from private enterprise, and if we do not put our emphasis on the growth of small businesses and enterprise companies, we will not be able to close the gap, which makes complete nonsense of this ridiculous Bill.
Mr. Redwood: My hon. Friend is absolutely right. We clearly need a lot more growth; I think that that is also common ground between the main parties in this House.
The evidence of our past successes and failures as a country is very clear. When a Government have had the courage to cut the marginal rates of income tax on people of enterprise and investors and to cut the rates of profits tax and other taxes on employment in small businesses, there has been a proportionate improvement in the growth rate and an increase in the tax take from those sectors. Governments who have gone for extremely high penal rates of tax on the rich, the successful and the potential investors who might do something to improve our economy have had the reverse experience. They have discovered that growth has slowed or gone into reverse, and that lots of bright and talented people have gone abroad because they do not wish to pay such tax at all. That would be even more true today in this extremely footloose globalised world. Surely we should learn the lessons of the '70s, when Governments had high taxes and it did not work, and the '80s, when they summoned up the courage to cut the taxes and it started to work rather well with the enterprise policies that were introduced. The same has been true all around the world. Wherever a country has had the courage to set very competitive tax rates on enterprise, business, success and investment, it has found that it gets a lot more revenue in.
As I always try to tell the Labour party, the best way to tax the rich-I would like to tax the rich more as well-is to cut the tax rates, because we then have more rich people in this country who pay more tax, because it is less worth while to pay for all the accountancy advice
to get around it, and venture more of their money. This morning I spoke to a successful entrepreneur who told me: "I'm on strike. I was a successful entrepreneur. I sold my company because the climate was becoming so hostile in this country. I managed to sell up before the crash. I have no intention of going back in because they're making the climate even more hostile-I'll sit on my backside and do nothing for a bit."
Mr. Pelling: I know that it is politically difficult to say that one is in favour of bringing the 50 per cent. tax rate back down, but would that not be the best approach for an incoming Conservative Government so as to encourage enterprise?
Mr. Redwood: I have made a clear statement about what I believe is the way that works best, and I trust that a future Government will be wise and will want to set competitive rates of tax on enterprise, success and rich people so that we tax them more in the way that I have described. That is clear advice that I am sure will not fall entirely on deaf ears, because it works and has worked in the past and elsewhere in the world.
In clause 1, after the extraordinary claims and strange wording that I have mentioned, we go on to be told that in due course net debt has to start to fall as a proportion of gross domestic product, but only in the final year of the period. The Chancellor effectively confirmed that the Bill is drafted in that way because the Government do not believe they have any chance of getting net debt down as a proportion of our national income until 2015-16. That could well be after the next election but one, in two Governments' time rather than one. It is remarkable that they can be that precise in thinking that that will be possible by that stage. For once, I agree with their realism that, with their policies, they will not get net debt down any time soon, and not before 2015.
My hon. Friend the Member for Stone (Mr. Cash) rightly pointed out that the debt is grossly understated in the figures that the Government use. The Office for National Statistics has got nearer to the truth. I have always cited a figure of £3 trillion-plus for the true level of debt and obligations of the British state. Now that the Government have gone to the aid of banks in difficult situations and allowed the pension deficits to build up so colossally, that is the kind of figure that we would come up with if the British state account were put on the basis on which the British state puts any reputable company account. I see no reason why it should be treated differently. Clause 1(3) is pretty meaningless, because the Government will clearly carry on using definitions of net debt that no one else believes. Everybody else knows that they greatly understate the position.
That brings me to another problem with the Bill. The part about interpretation, definitions and so forth is one of the slenderest that I have ever seen in a piece of legislation. I presume that that is intentional and designed so that were there to be a future Labour Government in the time period in question, they could play all sorts of games with the definitions of net borrowing and net debt if things went wrong, just as Labour played all sorts of games with the cycle and the definitions of the golden rule in its earlier years in Government. The Bill is shoddy and unacceptable because there is no professionally and internationally agreed definition of
the debt and borrowing that they are trying to measure. Doubtless they would want to leave quite a lot out by anybody else's standards of financial reporting.
My hon. Friend the Member for Tatton made mincemeat of the Treasury imposing a duty on itself and of the fact that there are absolutely no sanctions on anyone involved in this sorry charade. It is not so much a case of Ministers giving themselves a "get out of jail free" card in case something goes wrong as giving themselves a card that says that no Minister ever goes to jail or suffers any other penalty of any kind, however bad, grotesque and wrong their implementation of the policy.
The Bill is a worthless piece of paper and an unnecessary intrusion into what should be a serious debate. It will not take a trick with the bond markets in the City or with anybody in this place other than a few Labour loyalists. It is a political prank, an expensive press release. It is wasting the time of the House and it is completely unsubstantiated by any plans.
Mr. Osborne: Say what you think!
Mr. Redwood: My hon. Friend tries to tempt me to be a bit more outspoken, but the House knows me all too well-I am not characteristically outspoken.
I return to the divide on the timing of the reductions that the Bill requires. The Government's case is that they should delay the reductions for about another year. That is felicitous, because it will get them through the general election period and put all the burden of the cuts on to a future Government, but perhaps they actually believe what they are saying. Maybe they believe this neo-Keynesian nonsense that they have come up with that the only thing that is sustaining the economy is the excess public spending and borrowing, and if they started to reduce it now, it would plunge the economy back into a nasty recession. I have some simple questions for them about that. If all this public spending and borrowing is so good, why is our economy still in recession, as the Chancellor admitted from the Dispatch Box? Why is it the only main economy in the world that is not out of recession? As they have made so much more of the matter and are borrowing so much more as a proportion of national income than most competitor and comparable countries, one would have thought from their analysis that we would be romping out of the recession ahead of the others. Instead we have been mired in it for all too long. Let us hope that we are now coming out of it. There is evidence of some revival in the private sector, which is most welcome.
Another problem that the Government have with their punk Keynesianism is the idea that all this spending is somehow not getting in the way of borrowing and spending in the private sector, which of course it is. The only individuals and institutions in this country that can borrow on the scale that they want to at the moment are public sector ones. The Government have developed a sort of recycling machine whereby money is lent to the banks, who lend it back to the public sector, and the Bank of England prints the money just to ensure that the Government can afford to buy all the debt that they are creating to route through the public sector.
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