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"is most likely when a country is facing a critical fiscal situation and takes strong action by cutting unproductive spending, and this is accompanied by further structural reform and an exchange rate depreciation."
In precisely the circumstances we are now in, a reduction in the deficit is likely to have an expansionary effect through restoring confidence, releasing resources and enabling one to take a more relaxed monetary policy than would otherwise be the case.
The best solution to our problems is the restoration of growth. Growing economic activity, with growing tax revenues and reduced unemployment, must be the best way to eliminate a large part of the deficit, but restoring economic growth depends on three things. It depends on confidence, it depends on cash, and it depends on a competitive exchange rate. I believe that the process of getting on with tackling the deficit will itself have a positive effect on confidence, as it did in previous recessions when we finally began to tackle the problem. A new Government will help restore confidence in the economy, too, as people see that those who got us into the problem are no longer being relied on to get us out of it.
As for more cash, people talk about the Government reducing their spending and taking cash out of the economy. What puts cash into the economy is banks lending more than they receive back in repayment. That is what creates cash in a modern economy. If we are to have a growing economy, we must have a growing money supply-not outstripping the growth of the economy, but growing in line with it and with its potential. We are not seeing that at present. We have seen the banks taking back more money than they are lending out, and we have seen a reduction and a tendency for the money supply and the economy to decline. We want to see the Government ensuring that the money supply grows in line with the underlying capacity of the economy. It can do so by quantitative easing. If it does, I hope it will do so more by ensuring that such easing takes place through dealing with private sector rather than public sector liabilities-exchanging them for cash and getting that cash straight into the private sector. That must be done.
The final element is a competitive exchange rate. That, thank heavens, we have. We have it solely because we were wise enough not to enter the euro area, so we have a more competitive exchange rate than we otherwise would have had. That gives us an opportunity, not a certainty. It is vital that we take that opportunity and create conditions of which our businesses can take advantage. I believe that we will be in that happy position only if we get rid of the Government who got us into this problem and replace them with a Government who have competence, confidence and the commitment to getting our problems under control as soon as possible.
2.33 pm
Sir Stuart Bell (Middlesbrough) (Lab): I am grateful to be called so early in the debate, and to follow the right hon. Member for Hitchin and Harpenden (Mr. Lilley). He was talking about the imbalance between services and manufacturing in our economy, which developed over many years. In fact, I believe it has developed over about 30 years. We must not underrate what manufacturing industry does for our country, employing about 2.6 million people in the UK. In 2007 it accounted for 12.5 per cent., or £154.9 billion, of our national economic output. I was very pleased to hear from the Chancellor today about a number of measures to help our industry and to help the small and medium-sized business sector.
I think that even the right hon. Member for Hitchin and Harpenden would agree that we are living, and have lived, through a worldwide recession. Although it is perfectly normal and natural for him to blame that on the Government, all Governments in the industrialised western world of whatever colour or political persuasion followed the same route. That applies to Germany, France, Spain, Italy and any other such country. It was the only route to save the nation. Everyone knows that.
The Leader of the Opposition talked about the worst recession since 1945. He had to be reminded, as he was by the Chancellor, that the recession did not become a depression. When we talk about unemployment, we recall all the forecasts and statistics suggesting that it would rise to 3 million, but that never happened. The measures that we took to reach the economic situation today have kept this nation on an even keel.
The right hon. Member for Hitchin and Harpenden made a fuss about the debt standing at £167 billion. The
Chancellor said, however, that revenues from Her Majesty's Revenue and Customs have brought it down to £163 billion. It is very high; we accept that. It is, to use a phrase used by a Conservative Chancellor in another context, a "price well worth paying" to save the nation from what would have been a very serious depression.
The right hon. Gentleman also mentioned cutting public expenditure. We fully understand that this is a basic element of Conservative policy. Margaret Thatcher-now Lady Thatcher-did precisely that in 1979: she reduced public expenditure and she reduced the public services. The right hon. Gentleman needs to explain to me how he can cut public expenditure without cutting services. Of course, he draws a distinction in respect of front-line services, but the fact is that the Conservative party policy is to cut public expenditure and to balance the books. We understand that; it is the philosophy that Conservatives have.
If we really want to understand Conservative party philosophy, we can look across to the United States and the Republican party, which has fought tooth and nail to prevent a national health service of some description from taking its place in their country and economy. That is a remarkable fact; it is what the Republican party stands for. In our country, it is the Conservative party that stands for balancing the books. The phrase is often used; it is perfectly normal and natural, but it is also a policy, and it will have consequences.
I agree with the right hon. Gentleman when he says that his party will not go down the route of the savage cuts suggested by the Liberal party-the £15 billion-worth of cuts they have promised us if they were in government, which would have an extraordinary impact on the British economy.
Mr. Ian Taylor (Esher and Walton) (Con): I am trying to follow the hon. Gentleman's argument. There is no disagreement between the two main parties that cuts are going to have to come, so the matter is purely a question of timing. The hon. Gentleman's argument is effectively that the Labour Government, if they were to remain in power, would also have to cut services.
Sir Stuart Bell: I am grateful for the hon. Gentleman's intervention, but the Chancellor of the Exchequer has laid down a policy of deficit reduction over four years up to 2014. [Interruption.] Well, there is a balance in the economy. We have talked about growth, and the right hon. Member for Hitchin and Harpenden talked about growth, cuts and taxation, so there is a balance. There will be a review of public expenditure a little later on in the year.
If one wants to argue the toss about what cuts we might make, I can tell the right hon. Gentleman and the House that we would not cut the work of public sector workers in health, education, social services or local government. All those people serve the community; they are not simply public sector workers for the sake of it; they serve our community and they help the disadvantaged in our communities, trying to get them into work.
There is a balance between public and private sector, but the Conservative balance is not a real balance, as it is biased towards cuts. When we hear it said that they must "start tackling the problem", does that mean an emergency Budget, in the unlikely event of a Conservative
Government? Conservative Members nod their heads. Will it mean emergency taxes as well as an emergency Budget being imposed on our public sector workers, destabilising our economy? Is that what the Conservative party promises? We will take that message to the country. Which of our public sector workers-our health, education, social services and local government workers-will lose their jobs? If there were to be a Conservative Government and an emergency Budget, those people should be told-and we will tell the nation.
Stewart Hosie (Dundee, East) (SNP): Will we not also be able to tell the nation, quite clearly, that the Chancellor was explicit about the £57 billion reduction in the economy that would take place in 2013, one third or so through tax rises and two thirds-about £40 billion-through cuts? Will we not be able to confirm to the same public sector workers that the Labour party is intent on making the same cuts? The hon. Gentleman's arguments simply do not add up.
Sir Stuart Bell: I can tell the hon. Gentleman that there is not the slightest prospect of a Labour Government in the future adopting the policies proposed by the Conservative party. We believe that a deficit reduction over a period will give this nation state a financial soft landing. What the Conservatives promise us-they do not offer it-is a hard landing for the economy and for those in work.
Conservative Members can take their campaign to the country. We too will take it to the country. The Conservatives will send to the country-those who are in the Chamber are nodding-an emergency Budget and emergency cuts, and we shall see unemployment rise. I shall come later to the point made by my right hon. Friend the Member for West Dunbartonshire (John McFall), but that is what is being offered in this Budget debate.
Greg Mulholland (Leeds, North-West) (LD): I do not think I am the only Member present who is a little confused by the hon. Gentleman's argument. Surely the point is that we need honesty in this election as never before. All the parties must say how they will reduce the deficit. The Liberal Democrats have clearly set out their plan for the next five years, and we must be honest about the fact that it will involve cuts. The question is where the cuts will be made, not if or when they will come.
Sir Stuart Bell: I will follow the argument of the right hon. Member for Hitchin and Harpenden. The economy requires growth, it requires reductions in public expenditure, and it may require taxes. It is a question of balance. It is not a question of an emergency Budget which says, "We're now going to cut public expenditure, and we're going to make people in the public sector unemployed. That is our recipe, and you'll take the medicine."
Mr. Michael Jack (Fylde) (Con): Is the hon. Gentleman aware that the Department for Environment, Food and Rural Affairs has already taken some £320 million out of its operating budget, and is now employing some 1,500 fewer people? Yet DEFRA would claim that its outputs have been sustained. This is called "improved productivity". Does the hon. Gentleman accept that fact?
Sir Stuart Bell: What I accept as a fact is the statement made by the Chancellor of the Exchequer that we shall be looking for efficiency savings. That is what the Chancellor said in his Budget speech, and that is what we accept.
The right hon. Gentleman reflects Conservative party policy, and I salute him for that. Conservative party policy is to cut. It is to go back to 1979 and Lady Thatcher, who said as Prime Minister, "I will cut," and that is what she did. I shall be happy-and I am sure that the country will be happy, and that my Labour party will be happy-if we spend a great deal of time establishing what the Conservative cuts will be, and I would be grateful to Conservative Members if we could establish that. I would like to move on, Mr. Deputy Speaker, but I shall be quite happy to go on answering their questions.
Mr. Mark Hoban (Fareham) (Con): I wonder whether the hon. Gentleman has read the Government's Red Book.
Mr. Hoban: Paragraph 2.57 states that the Government will reduce spending by £38 billion. Will all that come from efficiency savings?
Sir Stuart Bell: If I may say so, it is a bit offensive for the hon. Gentleman, in this House of Commons, to read from a Red Book-which I assume is the Red Book containing this Budget-and expect me to have read it, given that I have been sitting here since 11 am and the document has only just been made public.
Let us return to the point. Yes, there will be a reduction in public expenditure. The Chancellor has said it, and the Prime Minister has said it, but we have used the phrase "efficiency savings". We are not going to cut in the way that the Conservative party promises-not offers-to cut, and that is the message that we will take to the country. I will ask every public sector worker in my constituency, "Do you think your job is safe under a Conservative Government?" You will find, Mr. Deputy Speaker, a battleground there, and I will wager that you will be surprised by the result.
Stewart Hosie: I agree with the hon. Gentleman that it is unfair to expect him to have read the Red Book. He will, of course, be aware of what was said by a junior Treasury Minister-the Exchequer Secretary to the Treasury, the hon. Member for Portsmouth, North (Sarah McCarthy-Fry)-on 5 January, which is some time ago. She said:
"The Government have made it clear that reducing spending accounts for two thirds of the action the Government are taking to reduce the deficit following the crisis-measures that will reduce the deficit by £57 billion in 2013-14."-[ Official Report, 5 January 2010; Vol. 503, c. 126.]
Is it not time for the hon. Gentleman to come clean and concede that there will be £40 billion of cuts in a single year in 2013-14, and the Labour party is at it?
Sir Stuart Bell:
I do not think it is necessary to refer to a speech made by a junior Treasury Minister on 5 January, because the Chancellor of the Exchequer said exactly the same today. He said that in 2012-13 there would be £57 billion less in the economy than
there is now. The point is-it is difficult for me to labour it sufficiently-that that position will be reached by means of a variety of measures. It could be reached through the efficiency savings that have already been mentioned, and, as the right hon. Member for Hitchin and Harpenden said, it could even be reached through taxation. What we do not promise is what the Conservatives promise: cuts which will affect public services.
I should like now-with your leave, Mr. Deputy Speaker-to return to the subject of the Budget. At the beginning of his statement, the Chancellor of the Exchequer pointed out-this has not been quoted by the Conservatives, or, I believe, by the Liberal Democrats-that we have lived through a global recession. We have lived through a repeat of the 1930s. We did not do the same as we did in the 1930s, however. We did not let 12,000 banks go to the wall. We saved them, and put money into them. We introduced quantitative easing, which saved the banks. We did not go from a recession to a depression; we avoided that. We did not even reach the 3 million unemployment figure that was forecast-with some joy, I have to say. We have steadied the economy, as other nation states have done. Of course we need banking reform, but it must take place on an international basis. It is not possible for one country to introduce it without taking the rest of the group of 20 with it.
Incidentally, while we are throwing figures around the Chamber, why do we not cite what the Chancellor said about the £8 billion that came back to the Bank of England? Why do we not talk about the great success of the car scrappage deal? Last year, we were arguing about it. I have a copy of the speech that I made last year, and I will say very clearly what I said last year.
"In one car dealership in Middlesbrough alone-Jennings of Middlesbrough-there are 470 people who work there, and throughout the north-east. It invests in the latest equipment and it services and maintains our cars and vans. This helps to make our small and medium-sized enterprises viable. Anything that helps such businesses to continue, including the scrappage deal, is welcome. I predict"
-we can be prophets with honour in our own country-
"that while it is available, it will have the same impact as the similar schemes in France and Germany, and that the 30 per cent. loss of sales by car dealers will be rectified. We should not overlook the fact that our car dealerships play their part in the local community. They are, for example, investors in local charities. This will be a welcome proposal for them."-[ Official Report, 22 April 2009; Vol. 491, c. 290.]
The Chancellor of the Exchequer confirmed today that car sales had increased by 30 per cent.
Barry Gardiner: Does my hon. Friend agree that it would have been better for the car scrappage scheme to focus on making the money available only to those who bought more fuel-efficient cars, rather than enabling them to trade up and buy bigger engines with greater cubic centimetre capacity which polluted more?
Sir Stuart Bell: That concept might well have produced a better scheme, but the fact remains that the scrappage scheme saved our car dealers and our car industry. Sales increased by 30 per cent. There are all sorts of fuel efficiency measures in London. I have to congratulate the Mayor of London on his biodiesel scheme, which enables people to avoid the congestion charge. But, of course, everything can be refined and improved.
I would have loved to spend much more time dealing with the speeches of the Leader of the Opposition and the leader of the Liberal Democrats. They both reminded me of a business man who wishes to take over a football club. He is very successful in his business. That business man goes into the football club. He leaves his acumen at the gates, and he enters a world of total unreality: everything is unreal and bizarre. The team end up being relegated, however, and that unreality is replaced by a fast-moving reality.
The Leader of the Opposition's speech was totally nonsensical: it had no meaning, and it made no sense, because it was written before the event. It was meant to please those sat behind him, and to get a cheer and a wave, but it had no significance to the national economy. I must add that the leader of the Liberal party's speech was no better, and I draw that comparison because both of them get carried away by the media. They think that catching the headlines for the 10 o'clock or 9 o'clock news makes a policy, but that is not the case. We will make sure that we fight the coming general election on principles and policies, not personalities and press statements, and I was therefore disappointed by both party leaders' statements.
Although my right hon. Friend the Member for West Dunbartonshire is not in his place, I want to congratulate him: he has toiled for many years in his role as Chairman of the Treasury Committee, and he has rendered contributions of great significance to our economic debates and made some very fine remarks on the subject. I suppose, however, that after nine or so years in that post it is understandable if he has become a little conventional in his thinking, and whereas he said that we have to satisfy the markets, in fact we do that quite ably. Our last Treasury bond issue was oversubscribed. The markets have full confidence in our economy, and our ratings have not been downgraded. We are not Greece. When addressing a youthful audience, the Leader of the Opposition made the following aside: "We are now on the same level as Greece." That is not the case, however. Such false arguments are made because it is easy to catch the headlines with them, but that is not a policy. The ratings agencies support our economy and the Government's measures, and they have, in fact, maintained the ratings that we as a sovereign state have had for many years.
Mr. Andrew Tyrie (Chichester) (Con): Is the hon. Gentleman aware that the sum total of this year's bond issue almost exactly matches the amount that has been bought in quantitative easing by the Bank of England? Does he not therefore understand that this huge increase in the deficit has so far been absorbed, because on one day the bonds are sold in Eastcheap and on the following day they are picked up by the Bank of England in Threadneedle street?
Sir Stuart Bell: And the economy moves ever onwards. The economy moves: people buy; people sell; people borrow. So what is the hon. Gentleman complaining about?
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