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I shall turn to the historical backdrop to the elements in the clause. Others have referred to the fiscal rules of the late 1990s, which stayed in being until the onset of the crisis. As has been accurately described by the hon. Member for Chichester, those rules were first tweaked and bent to show apparent continuing adherence, and then abandoned when the crisis hit full force. The question of why the rules were there in the first place touches on part of the reason why we are having this
debate now. First, there was a short-term political issue: the first Labour Government for 18 years needed to produce some evidence of solidity and a framework for decision making that could reassure outside observers about how they would behave.
Mr. Todd: The right hon. Gentleman is nodding. That was a perfectly reasonable political objective and one that I supported, because of the problem of reassurance and-as much as anything else-unfamiliarity. The fiscal rules provided at least some framework for reassuring the wider financial community that the new Labour Government would follow a clear structure and not make ad hoc and irresponsible decisions.
The design of the rules, however, was imperfect even then. The difficulties with them were exposed when the crisis hit, but to be honest, as those who have looked at the Treasury Committee's comments on such matters over the years will know, many felt that they had imperfections even before the crisis hit. Part of the problem is that they tend to look in the rear view mirror. One is constantly looking at the past rather than setting public spending and economic priorities based on the future and projections. The past has some value in informing us, but it throws up difficulties, for instance with defining where economic cycles begin and end. We started to get into that in the middle of this decade. That could have been addressed using a better tool set, focusing more on the future.
Any Government ought to be thinking about that. I say "any Government" because there was a second reason for having the fiscal rules in place that had nothing to do with the arrival of a Labour Government-the memory of a Conservative Government that went through vast levels of deficit and borrowing in the early 1990s. As much as anything else, the measures were meant to demonstrate a difference and send out the message that we would pursue our economic policies within a published framework, within a clearly understood reporting mechanism, and within a set of rules that appeared to have been set with a degree of objectivity.
Mr. Pelling: The hon. Gentleman's comments are useful and instructive. I imagine that at the time the Labour Government wanted to establish credibility. However, in some ways is not such legislation damaging politicians' credibility, because the message being sent is that our promises are not of real value unless they are legislated for?
Mr. Todd: I suppose that point goes back to my initial remarks about whether such matters are best addressed through legislation. I have my doubts about whether that is the most appropriate way; nevertheless, with our set of fiscal rules effectively destroyed in the crisis, it is reasonable to suggest that a replacement is required. The Opposition have proposed a different model to replace our method of dealing with fiscal responsibility, so there is a consensus that we have to produce a framework.
The hon. Gentleman is making a valuable contribution. The reason why things went wrong in the early '90s was that there was a bipartisan policy of
basing all the fiscal rules on the exchange rate mechanism-something that I personally opposed, but which most people seemed to think was a good idea. The destruction of that bipartisan approach led to the search for a better answer that he is describing.
Mr. Todd: I was in no position of responsibility at that time, so I cannot disagree with the right hon. Gentleman more authoritatively, but I would say that there were more factors behind the difficulties of the early '90s than that, although we all recognise that there is some truth in what he has said.
I suspect that there is a consensus on the purpose of having something like what is proposed in the Bill. The exact mechanism, and whether we do things through a legal framework, are fair subjects for dispute. However, the need to build a clearer relationship with the wider economy in whatever we attempt to do in managing our fiscal future is essential. I have some doubts about whether the Bill does enough on that. The time frames within which we attempt to challenge the mountain of debt that we face also need to be debated. There is a genuine difference in policy on that. I take a firm view that rapid reductions in public spending have particularly deleterious effects in two ways. First, it is my experience that cutting rapidly means cutting badly. People cut the easy things; indeed, there is an argument that, in part, the Government too might be making that mistake. Capital expenditure has taken much the heaviest hit in the projections of where savings might be made, but it might not be the wisest place to do so.
Mr. Cash: The hon. Gentleman is making a thoughtful speech, as my right hon. Friend the Member for Wokingham (Mr. Redwood) has just said. Mention was made of the exchange rate mechanism, which is related to the stability and growth pact, and which is also part of the thinking embedded in the golden rules and the other rules, as well as the question of whether we can manage to get a responsible economy. I very much agree with the hon. Gentleman's sense of direction, but I would ask him to bear in mind that, although I do say so myself, a lot of these matters are conditioned, if not governed, by the criteria set down in the Maastricht treaty.
Mr. Todd: Which the Government have sought to distance themselves from, at least in part, by not joining the common European currency. Without hinting at my slightly dubious reputation on the Government Benches for being a Euro-realist, as opposed to a Eurosceptic, I start from the view that the Government made the right decision about that, and one that has stood us in good stead.
My instinct is that the House probably shares more common ground on many of the subjects that we are discussing than will be conceded in a debate of this kind. The areas of genuine debate are partly to do with the speed with which we proceed. It would be wise to see clear evidence of economic recovery-certainly beyond today's encouraging unemployment data-before rapidly reducing public spending. However, public spending reductions also need to be approached using a rather more robust methodology produced over a period of time, rather than simply taking out the razor blade as
rapidly as we can. My instinct is that some of the steps that the Opposition have suggested fit into the category of saying, "Let's make some headline cuts that sound dramatic," but which are ill considered when set against a wider portfolio of policy making.
Mr. Brooks Newmark (Braintree) (Con): I apologise for missing the beginning of the hon. Gentleman's speech. I am sure that this point has been made, but he has made two important points about identifying where the fiscal responsibility lies, one part of which is about halving the amount that is out there. However, surely one important benchmark is where we start from. Neither the transparency of what is on balance sheet-obviously, that is what the Government go on about-nor the transparency of what is off balance sheet, which is what I, along with my hon. Friend the Member for Stone (Mr. Cash), my right hon. Friend the Member for Wokingham (Mr. Redwood) and everybody else on the Conservative Benches, go on about, is clear. It is important that we understand what the starting point is, and then think about where to go, rather than simply halving what is out there on balance sheet.
Mr. Todd: I, too, am sorry that the hon. Gentleman missed the start of my speech, because I touched on that point. We do not have a common data set that we can all share. Although there are areas of dispute-I am not sure whether this happened before or after the hon. Gentleman arrived, but I had an earlier exchange about one of them with the right hon. Member for Wokingham-there are also areas where intelligent people can probably largely agree. On such an important subject, it would be helpful to try to find as much common understanding as possible of what our difficulty is before deciding how to tackle it, which partly relates to the point that I was making before the hon. Gentleman intervened. Simply naming cut figures and headline items is a simplistic approach to tackling a long-term strategic problem for our country.
Finally, the other useful aspect of this debate is the suggestion that what we are discussing is a problem that needs to be confronted. There are people-both in this House, to some extent, and certainly in the country at large-who would be prepared to accept a debt of roughly the scale that we confront now. They have equated our situation with that of others and said, "Well, the Italians managed perfectly well with a debt of that kind. Why shouldn't we just adjust our economy to deal with those changed circumstances?" I profoundly disagree with that position. Therefore, one of the values of this discussion is to expose that side of the debate and say, "No, that isn't the kind of economy that we would wish to run on in this country into the future." We are simply not equipped to achieve that, and trying to do so would have a thoroughly undesirable drag-anchor effect on private enterprise in any country where that took place. That aspect of the debate is of value in a discussion of a Bill of this kind.
As we go through the afternoon, I hope that I may catch your eye-if you are still in the Chair, Mrs. Heal-to discuss some other elements of the Bill. However, clause 1 has some value, and with those reservations, I commend it to the House.
We have had a wide-ranging debate. I agree with those hon. Members who said that clause 1 is a crucial part of the Bill. However, I have found it
difficult to agree with most of the other things that hon. Members have said about the Bill. That is a shame, because there are some strong arguments that can be made about focusing on structural borrowing, but they were not made by the Opposition. I will come to the amendments in a short while, but given the instruction that this should also be a stand part debate, let me say something broader about the economic and fiscal context. I shall do so briefly, because all Members will be aware of the events that have taken place over the past 18 months to two years, the actions that the Government have taken to stabilise the economy, and the situation that we now face, with a pressing necessity to reduce the overall national debt.
I want to focus first on the areas on which we can all agree. There is wide agreement across all political parties that we need to see fiscal consolidation in this country. One of the big issues between us is the pace of that consolidation. If we strip away the political rhetoric, we find that there are two judgments: one that has been made, and one that needs to be made.
Going into the recession, it was quite clear that the Conservatives would have spent less. They opposed the fiscal stimulus, so they would not have spent money on it. We wanted to see investment in public services, and we believed that the fiscal stimulus was necessary. We also believe that debt would be higher now if we had not taken the action that kept people in work. I think that every political party agrees on the need to use automatic stabilisers.
The second judgment relates to the speed at which we get the debt down. The difference between the parties relates to whether we cut immediately or wait until we are sure that the recovery is locked in before we take action. The Government's view is that we should do the latter. We want to ensure that the recovery is in the bag. We do not want to jeopardise the economy or risk falling back into recession by taking precipitate action.
Stewart Hosie (Dundee, East) (SNP): The Minister has mentioned reducing the debt. However, at the end of this deficit-consolidation phase, the annual deficit will still be 5.5 per cent. of gross domestic product, which will definitely be above trend and almost certainly above annual growth. When do the Government intend to start paying the debt down, as opposed merely to reducing the level of the deficit?
Before that, I want to refute suggestions that the Government are not doing anything to reduce borrowing. We have set out measures to reduce borrowing by £57 billion by 2013-14, and to contribute to more than halving the deficit over four years. The measures in the pre-Budget report of 2008, the 2009 Budget and the pre-Budget report of 2009 will make a difference. Sometimes, the Opposition like to pretend that we are doing nothing to cut the deficit and that we have no plans to do so. Well, what is the 50p rate of tax? What is the 1 per cent. increase in national insurance contributions? What is the action that we are taking to create savings from smarter procurement, from the pay cap and from
public sector pensions reform? Action is already being taken, and that is important if we are to achieve our fiscal reduction plans.
Mr. Gauke: The Minister says that the Government are taking action now and already addressing the problem. May I quote to him what the Governor of the Bank of England said in a speech in Exeter last night? He quoted the chairman of the Federal Reserve, Ben Bernanke, as saying of the similar fiscal position in the United States that
"near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances. Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth."
"The Chancellor has made it clear that the Spring Budget provides the opportunity to do precisely that."
Ian Pearson: I have read the Governor's speech as well, and I agree with him: we do need to take action to cut the debt. However, if the hon. Gentleman were to ask him whether the Government had taken action through the pre-Budget report of 2008, the 2009 Budget and the pre-Budget report of 2009 to ensure that fiscal consolidation took place in our economy, I am sure that the Governor would agree that we had done so.
Ian Pearson: I will give way again, but if the hon. Gentleman is just going to make selective quotations, he will not be doing justice to his own side; he is not being fair to what the Governor is saying. It is clear that we need to take further action, and we shall need to do so at the time of the Budget. We need to hit the targets that we are proposing in the Bill, and I want to go on to explain why it is important to legislate for those plans. I think that it is the right thing to do. This is not gesture politics; it is an important measure in which we can ensure that there is public and market confidence that we mean what we say and that we are going to deliver on our plans. I shall happily give way to the hon. Gentleman again, but I hope that he will do a bit better this time.
Mr. Gauke: The Minister worries about my making selective quotations, but I think that all quotations are selective, by definition. He also said that he agreed with the Governor of the Bank of England. Does he agree that the spring Budget will provide an opportunity to demonstrate a strong commitment to fiscal sustainability?
Ian Pearson: I am not going to tell the House what will be in the Budget. We are working on it at the moment, but I would be absolutely amazed if it did not say something very strongly indeed about the overall fiscal situation and the Government's plans. The hon. Gentleman will have to wait until that is all made clear in the Budget, however.
In the Bill, we are embedding into legislation the deficit reduction that was announced in the three fiscal events that I have just mentioned. We are also setting further targets for reducing the deficit in each year to 2015-16, and for halving the national debt falling in that year. These plans contribute to ensuring sustainable public finances in the medium term. I believe that legislating will provide certainty and stability for businesses and individuals in relation to the future path of fiscal policy. It is right that we should set out those long-term plans.
It is also right that Parliament should be given a role in setting and monitoring our fiscal plans. It is enshrined in the Bill that Parliament must approve the plans before they become law, which represents a significant development of the extent to which the Government are held to account for their medium-term fiscal policy. Again, I think that that is the right thing to do. The hon. Member for Chichester (Mr. Tyrie) was jumping up and down a moment ago. I saw him first, so I shall give way to him first.
Mr. Tyrie: It is very kind of the Minister finally to give way. I want to take him back to his suggestion that the Government have credible plans to deal with the deficit. He and the rest of the Government are virtually on their own if they really believe that. Goldman Sachs says:
"The plans laid out by the UK government...do not represent a credible fiscal consolidation plan."
"does not produce credible and detailed plans to return the UK to a sustainable fiscal stance in coming years".
"Our strong instincts are that the risks of going too soon are less than the risks of waiting too long".
Ian Pearson: I am tempted to say that perhaps the hon. Gentleman should look at the amendment that those on the Opposition Front Bench will want him to support. That would result in going at a slower pace than the Government are proposing. I shall explain that in a moment, and I will happily give way to him again when I do so. First, I shall give way to the hon. Member for Dundee, East (Stewart Hosie).
Stewart Hosie: The Minister has been very generous in giving way. I hope that it was a slip of the tongue when he said that there were plans to halve the national debt. Will he confirm, for the sake of accuracy, that the national debt in 2010-11 will be 65 per cent. of GDP and will rise every year until 2014-15-to 71.7 per cent., 75.4 per cent., and 77.1 per cent.-reaching £1.47 trillion, or £1.7 trillion according to the treaty calculation? Will he also confirm that the Government have precisely no plans to reduce the level of the national debt?
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