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However, given that we are where we are, and that the Government, despite the complete lack of enthusiasm and support from their own Back Benchers, are determined to plough on with this Bill in the final days of this Parliament, we might as well, as a responsible Opposition party, try to save them from the most masochistically bad parts of it. One of those parts relates to a point that
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has been raised by the right hon. Member for Wokingham (Mr. Redwood) and others. Why would the Government wish to bring in legislation that prevents the operation of the automatic stabilisers, which we all accept and which the Prime Minister routinely boasts about, or champions, in relation to Government intervention to protect some of the most disadvantaged people in society? Why would they wish to impose on themselves a straitjacket that prevents such measures from being implemented to help the people who are hit hardest in a recessionary environment? That is not only an unintelligent position to take but, potentially, a very socially divisive one. It seems to Liberal Democrat Members that it is worth specifying that, even if one accepts the basic premise of the Bill that we should concern ourselves with the structural element of the deficit. Therefore, we would support the hon. Member for South-West Hertfordshire (Mr. Gauke) were he to press the amendment to a Division.

Mr. Redwood: I rise to support the amendment tabled by my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke). I am grateful to him for considering the problem that I, and others, posed on Second Reading.

It beggars belief that a Government who have spent so much time claiming credit for the automatic stabilisers that all Governments have always used-it is something that happens naturally-should now try to legislate to stop their operation. They seem to be doing so in the spirit of a Government who think that their days are numbered and that it would be very amusing to pre-empt all the Budgets of the next Parliament by laying down in law what the overall shape of those Budgets should be. Moreover, they are doing so in such a way that if they leave a mess that results in a further downturn, or even a period of very disappointing growth, which is a possibility, the automatic stabilisers would not come into effect on the scale that they naturally would otherwise, so there would have to be offsetting action. I hope that the Minister shows, for once, that he is master of his brief, as he boasted at the beginning of the debate, and that he can understand this point and therefore wishes to support his Prime Minister's previous position, which was that the automatic stabilisers are a very good thing, and does not wish in any way to pre-empt their operation through the clause.

Clause 1, which we are seeking to amend, is the kernel of this miserable piece of legislation. It says, correctly, that the excessively large deficit that the Government have built up has to be curbed. As my hon. Friend said, we object to it for two principled reasons. First, a deficit is curbed not by legislation but by changing one's spending and/or taxing plans so that one controls the budgets properly and sets them sensibly.

Our second objection is that the profile of the reductions is wrong. It is not essential to cut the deficit in every year over a long period-not least, as we have heard, because of the need to look at the state of the economy-but it is terribly important to get on with cutting the deficit much more quickly than the Bill demands or the Government are requesting.

Mr. Jeremy Browne: My understanding of the Bill is that the deficit does not need to be cut in every year until 2014 but merely needs to be cut by half by 2014.
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There is then a provision for it to be cut on an annual basis for the following two years. However, it is possible, I suppose, that were Labour to be re-elected, it could dramatically cut the deficit next year and then be inactive for the following three years.

Mr. Redwood: That is set out right at the beginning of clause 1, which clearly states that

a five-year period-

Unless growth suddenly takes off at a rate that no one is forecasting or expecting, that means, in effect, that every year there will have to be cuts. That is how most people read the clause, and that is why we object to it. It imposes a very long and substantial straitjacket that may be difficult to implement in individual years, and it sets too relaxed a timetable for the immediate task.

Why have some of us been growing hoarse saying to the Government that they need to cut this deficit more rapidly than they are proposing? It is not because we are masochists who came to this place to cut public spending, but because we are deeply afraid that the Government are losing the confidence of the financial markets, and that if they do not take this issue more seriously, more quickly, they could lose that confidence in a very big way. Why does that matter? It matters because it means higher mortgage rates and higher loan rates for small and big business, and because it will lead to lost jobs and lost dreams for people who want to make a living or make a go of something in this difficult economic situation. We are thinking ahead.

The Government need not take my word for it. All that they need do is follow the financial markets. If they examine what has been happening even during this extraordinary period of over-borrowing and money printing to offset it, they will see that the cost of credit has been rising. Small businesses are having to pay many times the 0.5 per cent. minimum lending rate. The Government themselves are now having to pay eight to nine times their preferred short-term interest rate if they wish to borrow for 10, 20 or 30 years.

2 pm

The Government should heed the warnings. They do not need to believe the Opposition or the commentators; they should just examine what is going on. Clause 1 is lamentably too little, too late to deal with what has already happened. Once their quantitative easing stops and they stop printing money to pay wages in the public sector, which looks as though it will happen within a few weeks, they may well find that there is another surge in the cost of borrowing, which will be another direct hit against the productive economy, people's aspirations, small businesses and those who wish to gain a mortgage and own their own home.

I hope that the Economic Secretary will accept the amendment that my hon. Friend the Member for South-West Hertfordshire moved, because it is a necessary correction to this ill-begotten clause. I hope that he will also reflect further on the wording of subsection (1),
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which states that the process should take place at a fairly relaxed pace but very mechanically, and see that what we need is a Government who know how to govern and craft a budget for the economic circumstances of the day. We need a Government who know that sometimes we need to go faster in reducing the deficit-now is one of those times-and that sometimes we cannot follow the formula in the Bill because of economic circumstances. All the Prime Minister's previous rhetoric points in the direction of accepting the amendments, so I hope that the Economic Secretary will do so.

Mr. Andrew Tyrie (Chichester) (Con): There is an Alice in Wonderland quality about the Bill, and particularly about clause 1. One particular passage from that book is apposite. I shall not linger on it for long, but it is the passage in which a large white rose tree in the garden is being painted red. Alice goes up to the gardeners timidly and asks why they are painting the roses. The answer comes:

I shall come later to the penalty for misbehaviour under the Bill. As you may remember, Sir Alan, nobody does get their head cut off in "Alice's Adventures in Wonderland" because there are in fact no real penalties, as there are none in the Bill. All that will happen is that Government Members will find themselves sitting on this side of the House quite shortly. The Bill has failed to convince the public of its intended purpose, perhaps because it will change nothing and cannot have any meaningful impact because it is just rhetoric. It is designed to create an impression that something has changed when nothing has, just like the coat of paint on those roses, and to make a Government who are bereft of ideas look as though they had a meaningful exit strategy from the economic crisis.

In fact, clause 1 is even more pernicious than that. It begins with a statutory commitment requiring the deficit to be lower in each year than in the previous one. That is a very dangerous notion, as my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) and my right hon. Friend the Member for Wokingham (Mr. Redwood) pointed out. Of course, having a policy to reduce the deficit is sensible, and it is Labour's failure to provide such a policy in the detail required to get us out of the fiscal hole we are in that has so troubled analysts. It has also troubled the Treasury Committee, which berated the Government only a few weeks ago for their failure to add greater detail and clarity to the plan for cutting the deficit. However, having a statutory requirement to reduce the deficit is truly ridiculous, as my hon. Friend and my right hon. Friend illustrated.

What will happen if there is another downturn during the five years covered by the Bill? Just as the recession or downturn starts to bite, the Government will be required to tighten fiscal policy even further, sucking yet more demand out of the economy. The effect of the clause will therefore be to deepen that recession or downturn. We will be implementing the economic policy of President Hoover-at least, that is what he was criticised for.

The effect of the clause is to tear up the centrepiece of our economic orthodoxy of recent decades. As my hon. Friend the Member for South-West Hertfordshire pointed
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out, it will mean the abandonment of the economic stabilisers, which allow tax receipts to fall and public expenditure to rise in a recession. I shall come to the structural deficit in a moment.

Mr. Michael Fallon (Sevenoaks) (Con): My hon. Friend hits on a very good point. Has he noticed the fatuity of clause 1? It states that the Treasury "must ensure" something, but clause 3 then states that it must

with that duty. The Treasury either must ensure something or not. The Bill's drafting is lamentable.

Mr. Tyrie: Of course the Bill is gibberish, and it is very difficult to examine clause 1 without examining clauses 3 and 4. We will come to clause 4 later, but it is worth my reading out the relevant part of it in response to my hon. Friend. It states that the fact that

What kind of serious statutory requirement provides such a get-out clause?

To return to the structural deficit, if the economy were in structural balance, the stabilisers could be allowed to operate over the cycle, providing deficits in years of below-trend growth and surpluses in years of above-trend growth. Let us set aside for the moment the ghastly truth that by the Government's own estimate, three quarters of the unprecedentedly large deficit-by the way, it is the largest in peacetime history, as far as I know-was caused by Labour's mishandling of the public finances. That is to say, it is structural. Clause 1(1) dismantles the stabilisers, which is why amendment 1 is absolutely essential if we are to make any sense of the Bill at all. It would enable it to address the right measure, which has to be the structural deficit.

Of course, restricting the application of the Bill to the structural deficit might require an alteration of the targets in order to get the same level of desired reduction. I hope that the Government will take it for granted that the Opposition accept the need for that, and that when the Economic Secretary speaks, we will not hear the absurd objection that that somehow implies that we will be less tough on the deficit than the Labour Government.

It is clear to me that we cannot leave the Bill as it is, if it is to be taken seriously at all. As it stands, if the UK had another downturn we would be plunged into a downward spiral of economic decline. Nobody believes that any Government would allow that, so something else would be done. None of the major economies have made the mistake that the Bill does in any downturn in recent history. They have all remembered the lessons of the 1930s, yet incredibly, the Government are suggesting that we forget those lessons if there is another downturn in future.

My hon. Friend the Member for South-West Hertfordshire has already pointed out that when the Chancellor was challenged on exactly that point on Second Reading-I took a look at Hansard and I believe he was challenged three times, although it might have been twice-he repeated the same phrase each time: "We will come back". I presume that he meant "We will come back to the House", and that that is a euphemism for saying that if the Bill were tested in a downturn, he
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would repeal it and scrap it. As I tried to say at the time, he clearly does not believe in his own Bill. The first time that it is tested, he wants to put it into the shredder.

Of course, I think I know the answer that is really at the back of the Chancellor's mind-he thinks that the Bill is nonsense. The Economic Secretary is an intelligent man and I am pretty sure that he, too, thinks it is a load of nonsense. We are all here debating it because the Prime Minister wants to continue with the strategy that served him well for many years in opposition and for some years as Chancellor: announcing good intentions, putting them on the statute book and taking credit with the public for doing that.

Clause 1 is only one provision in a decade's worth of such Blair-Brown speak, of which there is a huge volume. The Financial Times commented on that recently, stating that that

That is exactly what we have here: announce that we will reduce the deficit, and somehow, magically, it is supposed to happen. It will not necessarily happen. Much more detail on the measures required to plug the deficit is needed. The cancellation of the spending review in the pre-Budget report is the crucial giveaway. Failure to produce detail is crucial to the collapse of confidence in Labour's economic policy.

The Bill was designed to be a legislative distraction and, as my right hon. Friend the Member for Wokingham said, the clause is its kernel. However, this time, the Prime Minister's luck has run out. Far from distracting the commentators and the public, the measure simply confirms what many Members of Parliament have known for a long time-Labour's economic policy is bankrupt of ideas. When a Government run out of ideas, they should go.

It is an open secret that it took all the combined efforts of the Deputy Prime Minister and the Chancellor to persuade the Prime Minister to make at least some attempt to give an indication of the public expenditure challenge facing the country. The Prime Minister apparently insisted on the fig leaf of a measure, of which clause 1 is a crucial part.

The Prime Minister seems, for the most part, to have retreated into a parallel world, articulating the mantras that worked in his younger days, such as "Tory cuts" and "Labour investment", as well as other nonsense. That is the Prime Minister's looking-glass world, where political battalions-an accumulated surplus from the 1990s-remain on the table to move around. Unfortunately, the accumulated surplus has all gone-it has all been spent.

The economy is in crisis, the Government are in crisis and Parliament is in crisis. At the heart of each crisis is the sort of legislation that we have seen time and again; it is embodied in clause 1. Such legislation makes the public cynical-even more cynical, if possible, than they are already are about politicians. People do not need to know economics; they need no more experience than managing their pocket money to know that clause 1 and the Bill are content free.

Content-free legislation makes this place worse off. It has the same corrosive effect as unfulfilled manifesto promises. However, the Government have an appetite
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for it: we have had the Child Poverty Bill, the Climate Change Bill-with even more absurd targets-and now the heart of economic policy is to be subjected to the same treatment.

Mr. Mark Todd (South Derbyshire) (Lab): Will the hon. Gentleman give way?

Mr. Tyrie: I will not give way, if the hon. Gentleman will forgive me, because I am about to finish.

Clause 1 in particular was designed as a political trap. The Prime Minister hoped that we would either have to support the Bill and clause 1, and thus be bound into a reckless policy of tightening if and when we won the election and found ourselves faced with a downturn, or we would oppose it, in which case he could say, "Ah well, the Conservatives are against all fiscal responsibility." The trap has been sprung, but the Prime Minister, not us, has been caught. The measure does no more then illustrate that there is nothing left to the economic policy of this Labour Government worth the name.

2.15 pm

Mr. William Cash (Stone) (Con): I am pleased to follow the excellent speech of my hon. Friend the Member for Chichester (Mr. Tyrie), and those of all other Conservative Members who have spoken so far. We are talking a great deal of sense and seeking the truth about the fiscal irresponsibility that has permeated the Government's programme since 1997 but has now come home to roost.

I, too, will quote from Lewis Carroll:

That is said to Alice. We have a perfect illustration of that in the Bill, not only in all the examples that my hon. Friend so cogently gave of the hypocrisy that lies behind the attempt to make us fall into a trap, which was sprung the wrong way from the Government's point of view, but because, as I said on Second Reading, at its heart is a travesty of the truth or an inability to identify the truth about net borrowing.

My right hon. Friend the Member for Wokingham (Mr. Redwood), my hon. Friend the Member for Braintree (Mr. Newmark) and I repeatedly raised the matter on Second Reading because it is impossible to form a judgment about what constitutes public sector net borrowing or the deficit. I entirely endorse amendment 1 to include the words "structural element of". Such judgments cannot be made unless one knows what public sector net borrowing, expressed as a percentage of gross domestic product, means.

Clause 5 states that we will be given a definition in the code for fiscal stability, which was produced in 1998. It has taken the Government from 1997-98 to the present day to undermine our finances completely. Moreover, if one examines all the golden rules, the nonsensical stability and growth pact and its application, and the criteria under the Maastricht treaty for public expenditure, and tries to form a calculation about what our economy is and what our debt levels are, one simply cannot make any responsible decision in the absence of a proper definition of public sector net borrowing. That completely undermines the purpose of the Bill.

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