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"The UK, among the triple As is one of the most vulnerable, with Spain and France."
Fitch has previously warned of the need for an aggressive programme of fiscal tightening after the election.
Standard & Poor's has already downgraded the outlook for Britain's credit rating from "stable" to "negative". I could list a number of economists, all of whom express their concern about the credibility of the UK's fiscal position. Bill Gross, managing director of the leading bond investor Pimco rather alarmingly stated:
"The UK is a must to avoid. Its gilts are resting on a bed of nitroglycerine. High debt with the potential to devalue its currency present high risks to bond investors."
If our credibility is at risk, as it clearly is, we will have to pay more for our debt, and interest rates will rise unless something is done to address the issue.
My hon. Friend the Member for Tatton (Mr. Osborne), the shadow Chancellor, has stated that the first benchmark on which we, the Conservatives, would ask to be judged if we are in power in the next Parliament, is maintaining
our triple A credit rating. Is the Minister prepared to be judged on that criterion as well? Perhaps he will tell us in his remarks later.
With all the resources at their disposal, the Government have obfuscated on setting out any spending details. There is no comprehensive spending review. It has been kicked into the long grass. The Institute for Fiscal Studies estimates cuts of up to 24 per cent. in some Departments, but the Government refuse to give us any numbers. The Minister is partially exempt from some of these criticisms. He said today that some of the cuts will be pretty painful. He has previously said that they would be extremely painful.
The Government have done everything they could to prevent the numbers being available. In the report that some of us have before us, we see a further example of that. Last year, in the equivalent report, Government interest paid as a percentage of GDP was set out for all the years up to 2013-14. This year-I thank my noble Friend Baroness Noakes for highlighting this-one would expect interest percentage to be provided for an additional year. Instead we have the figures only up till 2010-11. When the point was raised in the equivalent debate in the other place last week, Lord Myners responded that
"the Treasury does not publish an AME"-
that is, annual managed expenditure-
"forecast beyond the current spending review period, given the uncertainty and volatility inherent in forecasting this far ahead."-[ Official Report, House of Lords, 4 February 2010; Vol. 717, c. 406.]
Why there is more volatility and uncertainty this year than last year is not entirely clear.
The Treasury Committee, a Labour-dominated Committee, said:
"There is a sense that the Treasury are using uncertainty to suit themselves".
Such a lack of openness and candour does nothing for the credibility of the Government or for the public finances of this country.
The Government's case, as we heard today, is essentially that unemployment is not as high as expected and that repossessions are not as high as expected. It is worth highlighting the remarks of the Association of Business Recovery Professionals, which stated that after the last recession in the early 1990s, the peak of corporate liquidations occurred five quarters after the return of growth, and the peak of personal insolvencies was 18 months after the return of growth. In the recession in the early 1980s, the lag was even greater, so let us hope that we are not going to see a high number of insolvencies and liquidations, but the historic precedents suggest that the worst is still to come.
Alistair Burt (North-East Bedfordshire) (Con): Does my hon. Friend not think it is the most curious defence from a Labour Government facing the figures of unemployment and bankruptcies that we have, simply to say, "Oh well, it's not as bad as it might be. The bruising might be tough, but it could have been so much worse"? There has been a 118 per cent. increase in unemployment in my constituency since 1997, the 15th worst in the United Kingdom. My constituents do not take kindly to being told, "We've handled your affairs badly, but it could have been so much worse."
Mr. Gauke: I am grateful to my hon. Friend for that excellent intervention. We should remember that all Labour Governments leave unemployment higher than they inherited, and they therefore judge themselves by those standards. Even by those standards, the situation is pretty appalling. There was a moment of consensus about the importance of a flexible labour market. The hon. Member for Taunton (Mr. Browne) was right. The reason why unemployment has not gone up as much as it might have done is that more people are working part-time, which partly compensates for the smaller number of people working full-time. The number of people in full-time employment has gone down by about 600,000; the number of people in part-time work has gone up by 280,000. That is welcome flexibility. I am glad that the Minister welcomed it, but I am not sure that the trade unions that fund the Labour party do.
On the long-term trend, the Institute for Fiscal Studies' "Green Budget" made the point that
"the non-accelerating wage rate of unemployment (or 'natural' rate of unemployment) is set to rise markedly-perhaps by 3 percentage points, to around the 9 per cent. mark at end-2015."
Interestingly, the IFS went on to state:
"A government that tightens fiscal policy aggressively, and relies more upon spending cuts than tax hikes to do so, is likely to experience a lower rise in the NAWRU"-
the non-accelerating wage rate of unemployment-
"other things being equal."
Let us look at the growth projections on which the Government rely for their public finance projections. Generally, the IFS says that the UK is poorly placed; specifically, the "Green Budget" states:
"Most likely it will therefore suffer a further, and marked, deterioration in its productive capacity, and one that leaves the total decline in potential GDP greater than the 5 per cent. that the Treasury has assumed when making its projections."
The IFS has a central estimate of a 7.5 per cent. fall in productive capacity. It goes on to state:
"More worryingly still, the growth rate of potential GDP will probably also be significantly reduced. Rather than the 2.75 per cent. per annum that the Pre-Budget Report suggests as a central estimate, it is more likely that potential GDP growth will run at something close to 1.75 per cent. per annum."
That has a significant knock-on effect on the credibility of the public finance projections.
In support of the IFS view, which is broadly consistent with that of the OECD, we have the McKinsey report "Debt and Deleveraging: the global credit bubble and its economic consequences". It states that slow economic growth is the inevitable consequence of high relative indebtedness, and in that context it is interesting to examine McKinsey's calculations. It added up the debts of households, companies and Government and financial institutions and compared them with GDP. It found that the UK debt ratio was 466 per cent. That is slightly lower than Japan's 471 per cent., but they are far and away the two biggest ratios among the major economies. Even if one strips out the banks, and to be fair there is an argument for doing so, one is left with the UK as the second most indebted major economy.
On projections, the IFS is more optimistic than the Government about the borrowing number for 2009-10. It thinks that £178 billion may be overly pessimistic, but that is the end of the good news. It anticipates weaker growth than the Treasury in tax revenues for a given economic outlook, and it sets out Barclays bank's growth
forecasts. Even under Barclays' central scenario, the fiscal forecast suggests that borrowing will persist at a higher level than the Treasury forecast.
Given the crisis in the public finances, what do we have from the Government? Their fiscal consolidation has been deferred until long after the general election, and there are no specific details about departmental spending. In fact, the Government have been downright evasive. There is no consistent willingness to level with the British people about what will be necessary; and, as for institutional change in order to enhance the UK's credibility, rather than create the widely welcomed office for budget responsibility, they have introduced the universally derided Fiscal Responsibility Bill.
The Opposition are optimists: we believe that this country can do better and can address the long-term challenges. But the fact is that we must be realistic about our situation. The Prime Minister promised an end to boom and bust; he has given us the worst bust since the depression. He said that Britain was best placed to withstand the recession; he has given us the worst recession of any country in the G7 and the longest of any in the G20. The Government promised us sustainable public finances; we have the worst budget deficit in our history, and our credit rating is under threat.
We have a boom built on debt-a burden that will hold back growth and drive up unemployment if we do not do something about it. The Government will not accept their responsibility for the disastrous state of the public finances, and they are not fit to accept responsibility for our public finances after the general election. The pre-Budget report reveals a Government who have a legacy of failure and no plan for the future. This country can afford this Government no longer. It is time for a change.
2.56 pm
Mr. Jeremy Browne (Taunton) (LD): I shall seek to be reasonably brief, because others wish to contribute to our deliberations and our time is limited.
The hon. Member for South-West Hertfordshire (Mr. Gauke), the Conservative spokesman, concluded his speech by summarising the Government's position, and summarising it well. The Prime Minister appeared to make his reputation on the basis that he was an iron Chancellor who had golden rules in place to prevent our total national debt from rising above 40 per cent. of GDP; and on the basis that he had, uniquely in the history of capitalism and human endeavour, abolished the cycle of boom and bust. Now in these debates we find that none of that was true at all. Indeed, the very basis on which the Labour party decided unanimously to make the right hon. Gentleman the leader of their party and the Prime Minister has been undermined absolutely, and his credentials are mere dust.
If we compare today's economy with the boasts that the right hon. Gentleman made as Chancellor and as Prime Minister, we find that in 2009 Britain's GDP fell by almost 5 per cent., our biggest fall in a single calendar year in peacetime since 1921, and that our national debt is increasing by £500 million every single day. The ready reckoner has always been that a deficit of more than 10 per cent. of GDP puts a country in dangerous territory; we will have a deficit of more than 12 per cent., not only this year, but next year. Throughout
this period, Government forecasts have been hopelessly wrong, but in debates with me and others the Chancellor keeps denying that.
Let me remind the House that in the 2008 Budget, less than two years ago, the Government forecast that the deficit for this year, 2009-10, would be £38 billion; instead, it is £178 billion. The Government's forecast was wrong by exactly £140 billion. The figure is even worse for 2010-11: less than two years ago the Government forecast a £32 billion deficit; now they forecast a deficit of £176 billion.
As the hon. Member for South-West Hertfordshire said, our recession compares very badly to those of other countries in the G7 and the G20. Even now, when we are out of recession, the anaemic growth figure, as the hon. Member for North-West Cambridgeshire (Mr. Vara) put it, of 0.1 per cent. means that there remains the genuine possibility that we may not be out of the woods. The economy may yet re-enter recession. I hope that it will not, and on the balance of probability I suspect that it will not, but the risk nevertheless remains real.
We have a Chancellor and a Prime Minister in a state of complete denial. We had, shortly before Christmas, the absurd spectacle of the Chancellor, in his pre-Budget report, coming before us to tell us of all the tough measures that he was taking in order to get to grips with the deficit, and then announcing additional spending programmes that exceeded in value the amount of money that he was saving through the austerity measures that he was bringing before us. We had the Prime Minister, in his speech to the Labour party conference, coming up with a shopping list of new spending commitments as if none of this were happening-as if the good times were rolling on and on, the golden rule was being adhered to, and we were still repaying debt. He came up with this proposal here and that proposal there-presumably all designed to try to make the Labour party's appeal greater at the general election, but based on absolutely nothing. There was no credibility and no funding available for any of those proposals.
Now, finally, we have the utterly preposterous Fiscal Responsibility Bill, which represents a desire by the Government to say that if they wish something to happen, it will happen by magic. They do not have the measures in place to bring about the 50 per cent. cut in the deficit over the lifetime of the next Parliament to which they say that they are committed. They cannot credibly show how they will achieve that objective.
It is a very sorry situation that the Government find themselves in. I therefore looked at the Conservative amendment with keener interest than I might have done in other circumstances, trying to find a credible alternative to what is clearly an incredible Government. I note that the Conservative shadow Chancellor has wisely left his name off the amendment, which calls for a "credible plan", presumably on the basis that associating himself with something that was credible would lead to a lot of scorn in this House. It has been a truly dreadful week and a bit for the credibility of the shadow Chancellor and for some of his team, although I suspect that the hon. Member for South-West Hertfordshire has done his best behind the scenes to try to keep his party on track. Last week, the shadow Chancellor set out his eight benchmarks, saying at the British Museum, "This is my plan for Britain." I will not read out lots of
quotes, but this is directly relevant to whether we should take the Conservative amendment seriously. City AM said of the shadow Chancellor's proposals:
"The report is a damp squib. A few of the proposals are great; most are fluffy; some are downright bad; none are new."
Andrew Alexander said in the Daily Mail, a paper very sympathetic to the Conservative party:
"At one moment, the Opposition says it will be swift in making cuts; at another, that it will make them in due course".
Jonathan Freedland said in The Guardian:
"The problem for Cameron is that his wobbling is not confined to the economy. There's a pattern here".
He goes on to cite other examples of where the Conservatives are wobbling in terms of policy and of credibility.
It is difficult for the Conservatives to argue that they have a credible plan to deal with the United Kingdom's deficit. According to the Government's figures, in 2010-11 Britain is projected to have a deficit of £176 billion, yet to deal with that deficit the Conservatives have offered in their last round of measures £1 billion-worth of "examples". In other words, a deficit that the Government clock up over a single weekend is the amount by which the Conservatives may reduce the deficit over the course of an entire year through finding a few examples of reductions.
The shadow Chancellor told us that this was the new age of austerity and that anybody who did not believe that tough measures were necessary right now was not telling the British public the truth. Then, only a few weeks and months later, we find out that that is no longer his analysis at all-that in fact the Conservatives do not have any meaningful proposals to reduce the deficit and are not even sure whether that is something to which they wish to turn their attention in the immediate future. No wonder there is widespread anxiety about the suitability of the shadow Chancellor and his party to assume the responsibilities of government.
Where does that leave us? The situation in this country is very serious. The Conservative spokesman and others are right to warn that our deficit is not sustainable in anything like the medium to longer terms. We cannot go on living so much beyond our means that we are having to fund through borrowing something in the region of a fifth to a quarter of all public spending. That is why my party and I have put forward a series of proposals that, as I readily accept, do not go as far as we would need to go in order to deal with this problem in its entirety, but go a lot further than any other party has been willing to go in putting forward concrete proposals to get to grips with the truly dreadful deficit that the Government have left this country. The Conservatives have acquiesced in keeping that debate and the full consequences from the public.
At the same time, we readily acknowledge that one does not switch off the life support machine until one is certain that the patient is dead. The patient that is the British economy is in an extremely sickly state at the moment. It is still not at all certain, until we see the growth figures for the first quarter of 2010, that the patient is functioning in anything like the healthy state that we would wish it to. On that basis, there is a reasonable economic consensus that it would be a mistake to cut too quickly. There is a danger of cutting too fast, as well as a danger of cutting too slowly. I am afraid
that the Conservatives, by trying to ride both those horses at once, no longer have a credible alternative plan in place; and the Government's credibility has disappeared altogether. We will need a tough, disciplined, intelligent approach to trying to get our deficit under control once we have tried to get the economy back into growth and on a stable footing again.
Mr. Deputy Speaker: Order. If hon. Members wish to hear a short reply by the Minister, there is limited time for those who wish to contribute from the Back Benches. I hope that there will be a certain amount of co-operation between those hon. Members.
3.7 pm
Mr. William Cash (Stone) (Con): The issue before us goes rather deeper than the pre-Budget statement and the report, and, if I dare say so, rather beyond even the very sensible amendment that has been tabled by my hon. Friends. I say that because the origin of section 5 has to be observed if we are to know exactly what we are talking about in terms of the British economy in the context of the European Union.
On 4 May 1993, a Labour amendment was moved and then accepted by the then Government, basically in order to do a deal over the Maastricht treaty. The right hon. Member for Oxford, East (Mr. Smith), who was leading for the then Opposition, said that the object of the amendment was, first, to make clear the priority that the Opposition believed should attach to article 2 of the Maastricht treaty in setting the goals of the Community in general; secondly, to deal with the question of the assessment of criteria, particularly convergence; and thirdly, to deal with the question of accountability. It is important to look at what article 2 says, because that goes to the very heart of the crisis that is going on in Greece and the whole practicality of the European Union. It prescribes as follows:
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