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The Prime Minister:
I thank my hon. Friend for his question, and I know that he has considerable expertise in this area. He is right to say that there are other parts of the world where al-Qaeda is, regrettably, quite strongly established, including Yemen and Somalia, but it seems to me that that does not negate the need to do what is possible to deliver a basic level of security in Afghanistan, so that at least that country cannot once again become home to al-Qaeda. Doing that at the same time as
working with the Pakistan Government can actually help to stabilise a region from which huge amounts of terrorism have come. In terms of the sovereign base idea, I am happy to look at it, and to discuss my hon. Friend's ideas with him, but I think that a military surge that is part of a counter-insurgency must be given time to work.
Sandra Osborne (Ayr, Carrick and Cumnock) (Lab): In accepting that security and a political solution are of the utmost importance, will the Prime Minister be mindful of the need to advance human rights in Afghanistan? What progress can he report? Will he confirm that there will be no return to the oppression, particularly of women, that was suffered in Afghanistan in the Taliban years?
The Prime Minister: I am grateful for the hon. Lady's question. I think that some progress has been made. When I say, "Look, we're not going to end up with a perfect democracy or a brilliant society," it does not mean that those things do not matter; they do. It is just about ordering our priorities. For instance, at the recent peace jirga, something like 20% or more of the representatives were women. I noted at my press conference with President Karzai that whereas the entire British press were made up of young, white men, all the questions from the Afghan press were from women, which I thought was a sign in itself.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): The Prime Minister has rightly recognised how important the integrated nature of the military operation is, and how the coalition forces are together trying to achieve security for Afghanistan. Does he have a commitment from our coalition partners that they have understood the message that we can leave only once security is established, as the population in Afghanistan has to believe that we have the commitment to see the job through to the end?
The Prime Minister: The hon. Gentleman makes a very important point. He will know that the Canadians and the Dutch have made their own decision about timetables, but it is very important to do all that we can to encourage other NATO allies-I met representatives of the Danish and Estonian military while in Afghanistan-and to ensure that all other NATO partners remain committed to the task, particularly in this most vital year, when the number of troops has increased in the way that I have described, and when there is a real chance of delivering a proper counter-insurgency strategy that protects the people, pushes the Taliban out and delivers that basic level of stability that we want to see.
Andrew Miller (Ellesmere Port and Neston) (Lab): The Prime Minister will be aware that the 1st Battalion the Mercian Regiment includes many of my constituents who were formally of the Cheshire Regiment, so I thank him for his statement. He rightly says that the military effort must be the highest priority in the campaign but, given his visits and the reports that he has received, may I ask him to reflect on the engineering resource on the ground? There is no doubt that the engineering resource helps massively with the military effort, but it also helps to rebuild communications, which can in turn help the governance of the country. Is he satisfied that it is at the right level?
The Prime Minister: The hon. Gentleman makes a good point. No, I do not think that we have made as much progress as we should have done on the engineering front. Let us take, for instance, the issue of the Kajaki dam: that should be delivering a lot more electricity to a lot more people in Afghanistan. Progress has not been anything like as fast as we would have hoped. That is the sort of tangible progress that people in Afghanistan want to see, to demonstrate that life is now better than it was under the Taliban. We have to deliver that as part of the message of security and stability that will enable us to leave.
Mr Bernard Jenkin (Harwich and North Essex) (Con): May I commend and support my right hon. Friend's determination and commitment personally to take responsibility for what our armed forces are seeking to achieve in Afghanistan? Is he aware, however, that there has for a long time been a widespread perception that while we are fighting a war in Afghanistan, Whitehall has not been on the same wartime footing and has not been tackling problems with the urgency that those in our armed services would expect? What is he doing to put Whitehall on a war footing and, in his absence, will he appoint a Secretary of State for Afghanistan to drive things forward?
The Prime Minister: My hon. Friend takes a great interest in these matters. We have put Whitehall on much more of a war footing, not least by appointing a National Security Council and a national security adviser, who met on day one of the new Government. That is a difference, and it is driving the policy. That message has got through clearly to the Ministry of Defence. Obviously, there are sometimes time lags in getting equipment out to the front line, but we are doing everything we can to make sure that that happens and that the commitment is there.
Richard Burden (Birmingham, Northfield) (Lab): The Prime Minister has focused most of his remarks on security issues-rightly and understandably so. Can he say a little more about the development angles of our strategy in Afghanistan, and in particular, what, if any, changes he sees in the overall development strategy, how he feels about the so-called whole Afghanistan strategy which looks beyond Helmand and Kandahar to other parts of Afghanistan, and how he feels about the use of instruments such as the Afghan reconstruction trust fund for the disbursement of assistance? Finally, will he revisit the International Development Committee's report from nearly two and a half years ago, which still has relevant messages to give about development strategies in Afghanistan?
Mr Speaker: I heard four questions, but one answer will suffice.
The Prime Minister:
I agree with what the hon. Member for Birmingham, Northfield (Richard Burden) says about a whole Afghanistan strategy. We must be careful not to be over-focused on Helmand province, although I make no excuse for that, as that is where troops are. In the end, the whole campaign and mission will be judged by progress in Helmand. With reference to how we are changing our strategy, it is to make sure that it is focused, particularly on the issues of security and helping
to deliver that security. On too many occasions in the past five years, people working hard for DFID have not been able to get out into Afghanistan to deliver aid projects because there is not enough security, so we have to get that right first.
Mr John Baron (Basildon and Billericay) (Con): One of the many problems with our involvement in Afghanistan is that there has in the past been confusion about the key objective, so I welcome my right hon. Friend's statement today, although I remain to be convinced that it can be achieved. Given that there has to be a political solution as well as a military one, how worried is he by the recent resignations from President Karzai's Government of the chief of intelligence and the Interior Minister? Will he support President Karzai in seeking the compromise that is needed?
The Prime Minister: I discussed with President Karzai the resignation of the two Ministers, to which my hon. Friend referred, and the prospects for political settlement and for reintegration. That, combined with the military surge, will be vital to securing the future of Afghanistan and enabling us to bring our troops back home. In the end, particularly in southern Afghanistan, people must feel that they are part of the Government, and that it represents them. That process of reintegration, with the red lines that have been laid down, is a vital part of making that country more secure.
Mr Tobias Ellwood (Bournemouth East) (Con): I am grateful to the Prime Minister for his commitment not just to the House, but to Afghanistan. It has been clear that our forces over there were undermanned. Instead of fighting one five-year war, we have been fighting five one-year wars. The various bases along the Helmand valley where British troops are now taking down the flags should be handed over not to the Afghans, but to the Americans. This is a repeat of Basra. Will the Prime Minister, along with the Defence Secretary, commit himself to counter-insurgency? We have always been good at that, but now we have been leapfrogged by the Americans.
The Prime Minister:
I am grateful for the question and I know that my hon. Friend has great experience of Afghanistan, including having travelled there a great deal. I do not agree with him, though, that there is somehow a repeat of Basra, as he put it. Under the counter-insurgency strategy we are making sure that we have the correct number of forces spread across Helmand and across Afghanistan to deliver counter-insurgency. In some cases, as he knows, that means moving forces from one place to another to make sure that they are thick enough across the whole ground. It is welcome that there are now 20,000 US marines in Helmand. That should enable us to deliver such security, so we should not be in any way worried or ashamed or anything
like that if we move the disposition of our forces around Helmand with our US allies. That is part of delivering a successful outcome.
Bob Russell (Colchester) (LD): I welcome the Prime Minister's statement. This autumn, soldiers from 16 Air Assault Brigade, from Colchester garrison, will be deployed to Afghanistan for the third time. In the Prime Minister's statement on equipment, he did not mention unmanned aerial vehicles. Bearing in mind that UAVs are a very welcome tool in identifying insurgents and those who lay improvised explosive devices, will he give a commitment that UAVs will be very much there and part of the equipment programme?
The Prime Minister: I can give the hon. Gentleman that reassurance. On previous trips to Afghanistan, I have had proper presentations on the work of UAVs, drones, Predators, Reapers and other such projects, and what they are able to do is incredibly impressive. A great deal of British investment is going into those technologies, too, and we will ensure that they can be deployed as quickly as possible.
David Tredinnick (Bosworth) (Con): When I recently spoke to soldiers from the Grenadier Guards who had just returned from Afghanistan, they made the point that the Afghan national police equipment is incredibly poor but the police themselves are very good, so will my right hon. Friend the Prime Minister please address that as a key issue?
The Prime Minister: I am grateful to my hon. Friend for that question. The problem has been not just equipment but recruiting, training and retaining good police officers, and obviously we had that appalling incident at Nad Ali last year. This cause has come out among Members from all parts of the House: for too long not enough focus was given to the most important things in Afghanistan, of which training the police was absolutely key. The effort is now going in. I met American and British police trainers, and the police training college in Lashkar Gah is now turning out very good police officers, but for too long that particular issue was ignored.
Andrew Selous (South West Bedfordshire) (Con): Does the Prime Minister believe that the mine clearance equipment available to our troops is now the best in the world?
The Prime Minister: Certainly I had a presentation out in Afghanistan on the equipment now being used and the training undertaken, and what our troops are able to do is incredibly impressive. The truth-I am sure that the former Defence Secretary will agree-is that we have to keep on investing and catching up with the latest technologies that the enemy use, because they are incredibly cunning at trying to find new ways of making those things even harder to find.
Mr Speaker: Order. I am grateful to all colleagues for their co-operation.
Office for Budget Responsibility
4.17 pm
The Chancellor of the Exchequer (Mr George Osborne): With permission, Mr Speaker, I should like to make a statement on the Office for Budget Responsibility, which the Government created on coming into office.
This morning, for the first time in British history, we have opened up the Treasury books and allowed the publication of an independent and comprehensive assessment of the public finances. From now on, Governments will have to fix the budget to fit the figures, instead of fixing the figures to fit the budget. I should like to thank Sir Alan Budd, the members of the budget responsibility committee and all their staff for the impressive work that they have done in short order. A copy of their report has been placed in the Vote Office and in the Libraries.
There has been some interest in whether the OBR would publish all the relevant underlying assumptions and judgments driving the forecast. Today's report does more than that: there are more than 70 pages of detailed material, much of which has never been published before. For the first time ever, the Government are publishing the assumptions that lie behind the estimates for average earnings, property prices, interest rates and financial sector profits, and, crucially, a five-year forecast for annually managed expenditure. That includes a forecast for the amount of debt interest that we as a country will pay over the coming years.
The creation of the OBR has already impressed the international community and been praised by the International Monetary Fund and the G20. We will now move to put the OBR on a statutory footing with legislation that was included in the Queen's Speech. From now on, Members of Parliament sent to this House to scrutinise how the Government spend taxpayers' money will have access to honest and independent figures.
Let me now turn to those figures and what the OBR has uncovered. First, there are the forecasts for growth in the economy. The OBR is forecasting that growth will reach 1.3% this year and 2.6% next year. In future years, the OBR's forecast is for growth of around 2.8% in 2012 and 2013, and then 2.6% in 2014. Sadly for our country, the forecasts for growth are lower in every single year than the figures announced by the previous Chancellor at the time of the last Government's Budget in March. He told us that growth would soar to 3.25% in 2011, and then to 3.5% in 2012. When those forecasts were given, neither the Bank of England nor 28 of the main 30 private institutions producing forecasts for the UK were offering such an optimistic central view of the economy; we can only speculate as to why such rosy forecasts for a trampoline recovery were produced only weeks ahead of a general election.
I turn to the OBR's forecasts for the public finances. The latest outturn data show that public sector net borrowing for last year was £156 billion. The OBR is forecasting that it will be £155 billion this year. It is the highest budget deficit of any country in the European Union with the exception of Ireland. It is £10 billion less than the forecast given only a month before the end of the last fiscal year, but I can tell the House that,
based on the OBR's figures, that £10 billion advantage that we start with decreases to only £3 billion by the end of the Parliament.
The reason for that is that the cyclically adjusted current balance, commonly known as the structural deficit, is forecast to be higher in every single year than what this House was told in March. That is perhaps the most important figure in the report, because the structural deficit is the borrowing that remains even when growth in the economy returns. It is the structural deficit that is a key determinant of whether the public finances are sustainable. This year, the structural deficit is forecast to reach 5.2% of GDP-that is, £9 billion higher than we were told in March. Next year, the structural deficit will be £12 billion higher than we were told before the election.
The OBR's forecast sees debt rising as a share of GDP throughout the Parliament-and the interest on that debt, which we as taxpayers have to pay, also grows every year. Let me be the first Chancellor in modern history to give Parliament those numbers for the coming years. The OBR forecast is that this is what Britain will have to pay for its debts: £42 billion of debt interest this year, rising to £46 billion next year, then £54 billion, then £60 billion and reaching £67 billion in debt interest payments by 2014-15. Over the course of this Parliament, more than a quarter of a trillion pounds will come from the pockets of taxpayers simply to service the debts left by the previous Government.
The figures produced by the OBR also give us a new insight into the spending plans that we inherited as a Government. They show that, given the OBR's assumptions, the previous Government would have had to find £44 billion of spending cuts in departmental budgets to deliver their published plans. I can confirm that I have found no evidence at the Treasury for how even a single pound of that £44 billion was ever going to be achieved.
There are two other very important considerations that relate to these pre-Budget forecasts and understate the situation that we inherited. First, these are central forecasts with a fan chart around them to represent the great uncertainty that exists, rather than Treasury forecasts based on an arbitrary reduction in the trend level of output. As a result, they understate the increase in the structural deficit and the reduction in growth. Secondly, and crucially, these projections have been based on recent market interest rates, which are about a third of a percentage point lower in Britain than at the time of the general election. As is widely acknowledged, that in part reflects investors' confidence that the new coalition Government will take action to deal with the deficit. As a result, as Sir Alan points out in his report:
"In present conditions the likely result is that these economic forecasts are biased upwards".
That is absolutely crucial to understanding today's figures, because if we followed the fiscal path set out by the previous Government, that would, again in Sir Alan's words in the report,
"lead to higher interest rates and so lower economic activity"
Let me conclude with this point. The independent report published today confirms that this coalition Government have inherited from their predecessor one of the largest budget deficits in the world, forecasts for growth lower than the country was told at the time of
the election, a larger structural deficit than had been previously admitted, and a debt interest bill larger than the schools budget.
It is indeed worse than we thought. The public would not have known any of this if we had not set up the Office for Budget Responsibility. Next week, I will return to the House to explain what we will do about it. In the meantime, I commend this statement to the House.
Mr Alistair Darling (Edinburgh South West) (Lab): I thank the Chancellor for his statement. My thanks would be more heartfelt had I not received it just 25 minutes ago. There was a time when statements were supposed to be in the hands of the Opposition an hour before the statement was made, and then 45 minutes. I do accept, before the Chancellor says it, that in my time there were occasions when he did not get as much notice as he wanted. All I would say, in the nicest possible way and in the spirit of consensus, is that if we could try to get these statements in the Opposition's hands rather earlier, that would be very helpful.
Turning to the substance of the Chancellor's statement, I welcome the measured approach taken by Sir Alan Budd, and his colleagues in the Office for Budget Responsibility, in presenting his report this morning. Higher borrowing by the Government, as the OBR acknowledges today, continues to support the economy. Indeed, without it, there was a grave risk that a recession could have tipped into a depression; that is why the expenditure was necessary in this country and in other countries across the world. However, as I have said repeatedly, borrowing needs to come down as the economic recovery is established. Has not the OBR forecast that borrowing will be £30 billion lower than I anticipated in my Budget, and does not that flatly contradict the Prime Minister who said last week that
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