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Of course, to this sum may be added the windfall of lower unemployment. For the purpose of the PBR, we made the extremely cautious assumption that unemployment would not fall. In fact, if unemployment
does indeed come down, as we expect it to, the benefits bill will be billions of pounds lower. It is also possible that, as the economy grows faster-as the Bank of England has projected-there will be further fruits of growth in the years to come.
The House will rightly ask how such windfalls will be put to use. I will state the position bluntly, by repeating what the Chancellor said to the Treasury Committee. He said that, in the event that growth turns out to be more robust than in his forecast, borrowing would naturally fall faster, and that it would then be possible to reduce the structural deficit further in the medium term.
Derek Twigg (Halton) (Lab): I received some figures this morning from my local authority. They show that, in August 1985, the youth unemployment rate was 19.1 per cent. My right hon. Friend has made a good point about people getting back into work and no longer claiming benefit. We have to have cuts and efficiency savings, but we do not want to go back to those unemployment rates. I urge him to ensure that we have continual growth to provide jobs, particularly for our young people.
Mr. Byrne: My hon. Friend is absolutely right. The fact that unemployment is so much lower now is a result of many of the actions that we took to ensure that businesses had flexibility over cash flow and that there was guaranteed new help for young people after nine months. We were, however, conscious of the need to do more than that, which is why we said in the pre-Budget report that no young person should be out of work for longer than six months without being offered a job, training or community service.
Sir Nicholas Winterton (Macclesfield) (Con): I want the Government's plans to succeed and the economy to grow, but will the Minister now deal with the question most appropriately put by my hon. Friend the Member for Kettering (Mr. Hollobone)? Would not the plans that the Minister has announced be derailed if our huge deficit caused a loss of confidence in the international monetary market and our credit rating was reduced, with all the horrors that would result from that? Will the Minister now deal with that question, because it is critical to what he is saying now?
Mr. Byrne: I am going to ask for the hon. Gentleman's patience for just a minute or two longer while I make one further point.
Mr. Philip Hammond (Runnymede and Weybridge) (Con): Will the Minister give way?
Mr. Byrne: I will address this point before I give way.
The pre-Budget report set out plans to rebalance our economy in the years to come. In the Budget, we said that we would do this through fair tax increases and the tighter control of public spending, to ensure that long-term interest rates were kept low. That point has often been made by the hon. Member for Runnymede and Weybridge (Mr. Hammond). There are now great strengths on which we can build in the years to come. We have low interest rates and low inflation. We also have the most flexible labour market in Europe, the lowest rate of corporation tax in the G7 and a competition regime
that is among the best in the world. That is why we are judged to be one of the best places in the world in which to do business and to attract inward investment.
The pre-Budget report develops those strengths. It sets out how we will maintain our leadership in the low-carbon sector, how we will boost investment in our national infrastructure and skills, and how we will support our world-class high-tech industries. Over the next year or two, we will extend by £500 million the amount of lending available to small and medium-sized enterprises, through a 12-month extension of the enterprise finance guarantee scheme. We have created a new growth capital fund, with a new £325 million. We have created Infrastructure UK, which will help to accelerate private sector investment in new infrastructure. We are proposing to introduce a patent box, which is a reduced rate of corporation tax applying to income from patents from April 2013. We have also proposed £200 million for the strategic investment fund, of which £150 million will be routed to support low-carbon investment. We are doubling the UK's commitment to funding carbon capture and storage demonstration sites from two to four. We are increasing support for low-carbon vehicles and setting out additional funding for low-carbon industries and energy efficiency, including Warm Front. Those are all policies-indeed, all ambitions-in which the Conservative party has little interest.
Mr. Philip Hammond: The Minister has moved swiftly on from the question that the hon. Member for Halton (Derek Twigg) asked him, but, before we lose the point, will he confirm that youth unemployment in Britain is now at a record high level?
Mr. Byrne: Youth unemployment, in my view, is too high, but the hon. Gentleman will recognise that something like 200,000 to 250,000 of the numbers in the current count provided by the International Labour Organisation include those in full-time education who may be looking for part-time work. The hon. Gentleman is wrong to bandy around figures in headline terms in a debate such as this without setting out some of the detail.
Mr. Byrne: Let me deal with the points about bonds, which were raised by the hon. Member for Kettering (Mr. Hollobone), after which I will give way again.
I hope that over the hours to come, we get a chance to explore some of the myths thrown around during the last week, starting perhaps with the most important question of whether our plan to cut the deficit is fast enough. Is it fast enough, for example, for the people who buy our bonds? We have heard a lot about the intentions of PIMCO and some of the quotations bandied around the House to date have, of course, been a bit selective and one-sided, if I may say so. PIMCO, reflecting on the flight to safety that brought buyers to UK bonds and brought gilt rates so low is naturally thinking about divestment into riskier assets as the world economy returns to its former state. This is not a new notion, as that was said last July.
Is the plan fast enough for the Governor of the Bank of England? The shadow Chancellor is fond of quoting the Governor. The shadow Chancellor is not in his place.
Mr. Simon Burns (West Chelmsford) (Con): Neither is the Chancellor.
Mr. Byrne: No, indeed. In fact, the full answer from the Governor of the Bank of England on this question paints a very different picture. He gave his answer in evidence to the Treasury Select Committee, saying:
"It is certainly true that if you eliminate the deficit too aggressively it will have an adverse consequence."
"You have to take action to bring down the deficit of the size we have-it is a very large structural deficit-but to do so at a rate that is consistent with the restoration of growth in the economy".
That is why we propose to reduce the structural deficit from 9 per cent. to 3.6 per cent. in the space of just one Parliament.
Is our deficit reduction plan fast enough for the ratings agencies? Again, their views are sometimes traduced in this House, but the reality is that in Moody's analysis published last month, both the US and the UK triple A ratings are described as "resilient"; all three rating agencies have acknowledged the UK has access to particularly deep and liquid capital markets; and on perhaps the ultimate test of demand, gilt auction performance remains strong. Ten-year gilt yields averaged over 11 per cent. in the 1980s; they are now around 4 per cent. I hope that all these arguments and more are debated this afternoon.
If I were forced to characterise this pre-Budget report, I would say that the sweep of its ambition is matched by the depth of its detail. In the debates that we have had-not only in this place, but in the media and elsewhere, and particularly in the debates the hon. Member for Runnymede and Weybridge and I have had late at night in TV studios around London since 9 December-I am sure that you, Mr. Deputy Speaker, will have been struck like me by the sheer contrast between 212 pages of detail on specific, pressure-tested proposals and the vacuous nonsense of the Conservative party.
Mr. Byrne: Before I conclude, I will give way to hon. Members.
Mr. Andrew Pelling (Croydon, Central) (Ind): Because of the impact on the economy, I applaud the Government's cautious approach towards reducing the fiscal deficit, but what is the estimate of the reduction in economic growth that will result from the proposed reductions in spend in the pre-Budget report?
Mr. Byrne: The growth forecasts that we have set out are the basic answer to that question. There is, of course, a degree of uncertainty about the future path of growth for our economy. The independent forecast is different from the forecast that the Chancellor presented, while his forecast is rather lower than that presented by the Governor of the Bank of England. It would be difficult, especially this afternoon, for me to decouple these projections for the public finances and those presented for growth.
Mr. William Cash (Stone) (Con):
The Treasury Select Committee criticised the temporary operating rule, which in turn, in line with the pre-Budget report of 2009, has been followed by the Fiscal Responsibility Bill, debated
yesterday, to implement those provisions. That includes the code for fiscal stability, the principles of which are set out-including the principle that
"the Government shall publish sufficient information to allow the public to scrutinise the conduct of fiscal policy".
This includes debt, and provision is made for the definition of debt. I am sure that the Minister will understand it when I say that organisations such as PIMCO and others that are working out the degree of credibility they can ascribe to the Government's position will take account of whether the definitions and the actualité, as they say, of net borrowing are actually true. The Minister knows that we do not agree on that, so is he prepared to spell out the definition of net borrowing? I asked his Front-Bench colleague the same question yesterday and she did not or could not answer. Will he do so now? What is net borrowing?
Mr. Byrne: I seem to remember that the hon. Gentleman intervened on the Chancellor earlier in the week, so it will not surprise him to learn that I have nothing to add to the Chancellor's excellent answer provided to the hon. Gentleman at that time.
Mr. Byrne: The hon. Gentleman asks me to go further than the Chancellor's position, which was set out-
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I am sorry to interrupt the right hon. Gentleman, but the hon. Member for Stone (Mr. Cash) should not pursue the answer that he has been given by calling from a sedentary position-irrespective of whether or not he is satisfied with that answer.
Mr. Byrne: Thank you, Mr. Deputy Speaker.
Stewart Hosie (Dundee, East) (SNP): Given that the earlier intervention was not answered at all satisfactorily, the Chief Secretary must be able to tell the House what the suppression of gross domestic product growth will be as a result of £57 billion being taken out of the economy-£20 billion as a result of tax rises and £40 billion as a result of spending cuts. To homogenise it altogether in a global growth figure is really not good enough. That is a heck of a lot of money out of the economy, so surely the Government must know the impact of it on the suppression of GDP growth.
Mr. Byrne: I am trying to avoid taking the House through what would be a quite complicated economic equation, which no one will be surprised to hear I have not brought with me this afternoon. The hon. Gentleman is looking at only one side of the argument. He will know that when we have such a large structural deficit because of the action we have taken to protect the country from the worst of the economic storm, it is vital to set out for members of the public and for taxpayers, as well as for people who buy our bonds, exactly how we plan to reduce that deficit. We have set out the fastest deficit consolidation plan in the G7. Without that clarity in place, it would be quite possible for long-term interest rates to begin to rise, which would also be damaging to the success of investment in this country in the years to come. The Chancellor has thus set out a central scenario, clarifying what we think is the right judgment to make on public finances and what the consequences for growth will be.
Mr. Philip Hammond: I wonder whether part of the disagreement between us is definitional. The Chief Secretary has said that some of the structural deficit we face is the result of the actions taken by the Government to protect people and citizens from the effects of the recession. In my definition, that is part of the cyclical deficit we face, not the structural deficit. Can we be clear about that?
Mr. Byrne: I apologise for mis-speaking earlier, but the point I was making is that the plan we have presented involves a rapid-indeed, the most rapid of any G7 country-reduction in the cyclically adjusted deficit: from 9 per cent. this year to 8 per cent. next year and then down to 5.8 per cent. in 2011-12, when we anticipate the economy growing above trend.
I conclude by saying that I feel very strongly that this pre-Budget report constitutes 212 pages of great detail, which is in complete contrast to the plan-if it can be so characterised-presented by the Conservative party. The truth is that the Conservatives have been love-bombing every audience they can find within easy reach of a press conference, and with that love-bombing has come a new lexicon of ambiguity. Thus, instead of a straight "promise", we now have a "pledge", an "aspiration", a "commitment" or a "No. 1 priority".
This morning the Leader of the Opposition continued his careless whispers, reassuring listeners to the "Today" programme. He said that he would have to be tough and pull back from the Conservatives' guarantee of 45,000 single rooms in the national health service. It could not be a pledge, he said, but he told the listeners not to worry, because "it is an aspiration". It seems that the Conservatives now cannot stop adding to their now famous "queue" of commitments. We all remember what a Tory queue looks like. We used to call them waiting lists, and they were so long that people often expired before they reached the front.
The Conservatives' "all things to all people" policy has left them with a £34 billion credibility hole that they cannot airbrush away. If the Shadow Chancellor spent more than 40 per cent. of his time on economics, perhaps the hon. Member for Runnymede and Weybridge would not be in such an embarrassing position this afternoon; but he is, and the whole House is looking forward to seeing whether he can climb out of the hole in which his party leaders have left him.
1.20 pm
Mr. Philip Hammond (Runnymede and Weybridge) (Con): I shall try to match the Chief Secretary's brevity, although I came prepared for Members of the House to be a bit thinner on the ground. Evidently not all experienced the same difficulty that some of us encountered in battling through the snow to get here.
This is the first opportunity that the House has had to debate the pre-Budget report, the last important economic statement made by the Government before a pre-election Budget which markets will rightly discount. Given the critical state of the public finances, the huge borrowing requirement that must be met, and the fragility of confidence in the United Kingdom economy and United Kingdom Government debt in particular, we would have expected the Government to use this opportunity to send a powerful and unambiguous signal to investors and lenders alike of their determination to get the deficit under control.
Listening to the Chancellor and the Prime Minister yesterday, and to the Chief Secretary, one would think that the global financial crisis caused the meltdown in Britain's public finances, but that is not what has happened. According to the Treasury's figures, the economic recession accounts for about a quarter of Britain's deficit-that is the cyclical part of the deficit, which economic recovery will eventually eliminate-but three quarters of it is structural, and requires a structural response. The truth is not that the financial crisis has caused the fiscal crisis, but that for many years the global financial boom masked the scale of the underlying fiscal problem as this profligate Government spent the tax receipts that were the proceeds of a series of bubbles in financial assets, and property in particular, as if they were permanent features of the economic landscape. The real structural crisis that needs to be addressed is not caused by the Government's support for the banking system, as they like to imply. In fact, none of this year's £178 billion deficit is directly attributable to support provided for the banks.
The pre-Budget report was the Government's last chance to set out a credible path to fiscal stability, to put our economy back on the road to sustainable growth and enduring prosperity, and to ensure our triple A credit rating. They blew that chance, and now the country knows beyond doubt that only a change of Government can deliver the economic change that Britain needs. The present Government have shown themselves to be unfit for office by shirking their task in the nation's hour of economic need.
Mr. Byrne: I am following the hon. Gentleman's remarks with great interest, and I am grateful to him for giving way so early in his speech. He appears to have changed tack slightly in his critique. For some months he has been saying that we should move faster in reducing the deficit. Is he now accepting that four years is the right time frame within which to halve it?
Mr. Hammond: It sounds as though the Chief Secretary has not been listening over the last few months. We have consistently said that we need to start earlier: we need to start reducing the fiscal deficit in the coming year. As he will know, if he has his calculator with him, starting earlier would have a compounded effect throughout that four-year period, and would make a greater impact on the deficit.
Kelvin Hopkins: Will the hon. Gentleman give way?
Mr. Hammond: I will, but then I must make some progress.
Kelvin Hopkins: The Conservatives are constantly harping on about borrowing and debt, but the truth is that our gross national debt is still below that of France and Germany, and about half that of Italy and Japan. There is no need for panic. May I suggest that the Tories are trying to make the Government panic simply for electoral advantage, rather than for the benefit of the country?
Mr. Hammond: I think that if anyone is running policy for electoral advantage, it is to the Chief Secretary that the hon. Gentleman should address himself.
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