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Just about every day in the run-up to the election, the hon. Gentleman's party was anxious-desperate even-to compare our economy with the Greek economy. To his credit, the Secretary of State for Transport-he is not here today, but I made this point to him when we were debating on the television last night-said that Britain was nothing like Greece. The idea that we are in the same position as Greece or Spain is complete nonsense. Our economy is much larger and much stronger, and our ability to service our debt is much greater. The average maturity of our debt-as the hon. Gentleman knows, I assume-is 14 years, whereas in Greece the average maturity is three years and in continental Europe it is about five years.
Of course we have to get our borrowing down and ensure that we can get debt down as well. No one would disagree with that. The question for us is how do we do that in a way that maintains growth, so that we can ensure not only that we get growth in our economy and that we do not damage our future prospects, but that we do so in a way that is socially and politically fair? That is the difference, but to compare us with those smaller countries is, frankly, ludicrous, as many in the hon. Gentleman's party realise.
Andrew Bridgen (North West Leicestershire) (Con): Did the right hon. Gentleman really believe that the previous Government had ended boom and bust, and is that why he put no money away for the rainy day that has now arrived?
Mr Darling: The hon. Gentleman was not here in the last Parliament, but I was asked that on numerous occasions. No Government can ever eradicate economic cycles. They have been around for years, and I expect that the current Government will find that they will be around for years as well. What I would say to the hon. Gentleman is this. Just before we went into this crisis, we had the second lowest debt level of the G7, behind only Canada, and although we had a structural deficit, it was much smaller- [ Interruption. ] Yes, we were borrowing to build schools and hospitals, but when they were sitting here on the Opposition Benches, Conservative Members used to call for more spending on schools, hospitals and the police, not less.
The point is that whatever we do, when we get that borrowing down, we have to ensure that we do it in a way that does not damage the fabric of the economy. Indeed, the Secretary of State for Business, Innovation and Skills said that he was
"very much opposed to the Conservative approach of rushing into cuts...regardless of the condition in the economy. That's not sensible."
He was right then and he would have been right now, but he is pursuing a different policy.
Geoffrey Clifton-Brown (The Cotswolds) (Con) rose-
Mr Darling: No, I am going to make some progress.
The current context is a fragile recovery, with growth in Europe sluggish. Crucially, however, we cannot assume, as the Government seem to, that it is axiomatic that if we cut back on public expenditure, the private sector will come in and take its place. That is not guaranteed at all. We have seen that in Japan and other countries. Indeed, the private sector often relies on public sector
spending in many ways, whether through investment and support or directly, because it supplies goods and services to the public sector.
As I have said, borrowing is too high and we need to get it down. As I said to the hon. Member for Bexleyheath and Crayford (Mr Evennett), our receipts from income tax and corporation tax fell, as did our stamp duty receipts when the housing market went down, but that would have happened-indeed, it did happen-to every other major economy. We are not talking about something that was confined to the United Kingdom. Of course, as unemployment goes up, social security spending goes up as well. Indeed, it is interesting that if we look at what has happened to other countries across the world, we see that the deficit this year in this country is about the same as it is in the United States. If we look at debt and the IMF comparisons that were published in 2009, we find that our debt was less than that of Japan, Italy, Germany and France, and, looking ahead to 2015, it will still be less than that of the United States, France, Italy and Japan.
The idea that we are talking about a particularly British problem simply does not stack up. It is not true, but it is used as a convenient excuse for what the Conservative party always wanted to do. The truth is that the Conservatives supported our spending plans right up until the end of 2008-the hon. Member for North West Leicestershire (Andrew Bridgen) might want to consider this point. Indeed, when the now Prime Minister was challenged-I think by some right-wing newspaper-as selling the pass, he said that those spending plans were "tight". That was the word he used. He said:
"This is why we are sticking to Labour's spending totals. Taken alone, these are tight."
That is what he said in 2008, but now the Conservatives turn around and say that what happened would not have happened if they had been in power for the past five years and that things would have been completely different.
Let us be clear: we all want to see borrowing come down, and we need to ensure that that happens. It is also clear that we need to understand the consequences of what we are doing, so that we do not damage our economy or damage the social fabric of this country. However, to suggest that we should not have done anything to support our economy as we went into recession or that we should not have stepped in to prevent the banking system from collapsing-and it was hours from collapsing-is simply nonsense, frankly. Indeed, if we had not done what we did, the cost, in terms of increased borrowing and higher debt, would have been far higher even than it is today, so that argument simply does not stack up.
We need a sensible plan to get borrowing down, but if we get this wrong we will cause major problems, given the scale and speed of the Government's action. Again, the Business Secretary said a few weeks ago that
"it would be foolish to rush in significant cuts now which take the economy down even further, which lead to an even bigger deficit problem".
He was right when he said that, yet the view of the Government of whom he is now a member is rather different. To be fair to the Chancellor, he has been consistent. He has wanted to take this risk for some time, and he is now taking it in great style. Even better, from his point of view, is that he has got the Liberals to
front it up. No wonder that, once they are out of this Chamber, Conservative Members are laughing at the very idea of getting the Chief Secretary to the Treasury fronting up the cuts last week in his boss's constituency. That is indeed new politics; I just wonder how long it will last. All I can say is that if things get better, there is no way that the Conservatives will allow the Liberals to front up any good news when it comes.
I am concerned at this time that we run the risk of derailing the recovery, which is why I took a different view. I thought that we should halve borrowing over four years, rather than go further and faster. Looking at the Office for Budget Responsibility's forecasts published yesterday, I am concerned that it has downrated the growth forecast for this year, which it published a week before, from 1.3% down to 1.2%, and that it has downrated growth in 2011 from 2.6% to 2.3%. The OBR therefore recognises that growth is going to be suppressed as a result of what is being done.
Mr Tobias Ellwood (Bournemouth East) (Con): Will the right hon. Gentleman give way?
Mr Darling: Yes, I suppose so.
Mr Ellwood: I am honoured that the right hon. Gentleman has taken the time to give me tuppence-worth of his attention. Will he comment on whether he supports the creation of the Office for Budget Responsibility, bearing in mind his own predictions? In March he stated in this place that the growth forecast for 2011 was 3.25%, but now the Office for Budget Responsibility says that the forecast is 2.6%.
Mr Darling: I am glad that I gave way to the hon. Gentleman, because the last time we touched on whether I supported the creation of the OBR, I think that the Chancellor said that I had always opposed it. However, I was careful before the election, and I think that I am right in saying that I did not oppose it as a matter of principle. The present Government decided to set up the OBR. If it works, it is worthy of support, so we will support the legislation in principle, but we will look at the detail. One interesting question is whether the OBR should be responsible to the Treasury or to Parliament-to this House in particular.
Mr Ellwood: It has rubbished your forecasts.
Mr Darling: Let me come to the forecasts. Forecasting, as I am sure the hon. Gentleman knows, is an art rather than a science. Let us just see, because as I understand it, the OBR is being advised by exactly the same civil servants who advise the Chancellor, and who advised me a few months ago. However, I note that when Sir Alan Budd announced the OBR pre-Budget report a week last Monday, he said that one of the reasons why he had changed his estimate was recent developments, including what is happening in Europe. As I said earlier, I am less optimistic now than I was three months ago about what is likely to happen to growth.
Mr Ellwood: Will the right hon. Gentleman give way?
Mr Darling: No, I think I have dealt with that point.
There will be some people who argue that the private sector would see faster growth and job creation if there was a swift consolidation that supported looser monetary policy. However, with inflation down, interest rates at 0.5% and bond yields coming down-they were coming down before the election, as well as after it-there is no evidence of suppressed private sector demand, so that argument does not stack up. I am concerned that we may see a situation when there are not the right conditions or the right confidence to bring forward business investment. I am happy to welcome the proposed reduction in corporation tax rates and other business help, but what governs whether businesses come forward with investment is whether they are confident that the economy is going to be growing so that people will buy their goods and services. That is what I am concerned about.
I am also concerned that the Office for Budget Responsibility forecast shows employment taking a hit of about 100,000 compared with what we had forecast previously. The Chartered Institute of Personnel and Development foresees unemployment rising and sticking around 3 million for this entire Parliament. The history of Japan in the 1990s-and, indeed, our own history back in the 1930s-provides a lesson in what happens if we get all this wrong. Wherever we sit in this House, we should all be concerned about rising and persistent unemployment. Not only is it an economic waste; it is also a social catastrophe, as we have seen on many occasions.
Jacob Rees-Mogg (North East Somerset) (Con) rose-
Mr Darling: I shall give way to the hon. Gentleman, not least because I had the pleasure of visiting what is now his constituency during the election campaign, and I can see that my contribution there did not quite work out.
Jacob Rees-Mogg: I thank the right hon. Gentleman for giving way-and, indeed, for visiting North East Somerset, where he will be welcome again. He has mentioned Japan, and what Japan got wrong. What it got wrong was massive overspending, as a result of which it is now forecast to have a debt to GDP ratio of 246%. Surely that overspending is exactly what we need to avoid.
Mr Darling: What Japan got wrong was snuffing out a recovery at a very early stage and never really getting over it. As the hon. Gentleman knows, the Japanese have had complete stagnation for a long period now. The debt is just going up and up, and understandably they are very concerned about it. The new Prime Minister was the finance Minister until a few weeks ago, and understandably, he has huge problems on his hands.
The tests we need to apply to the Budget relate to growth and jobs, which I remain very concerned about; there is a substantial risk there, and I would like to have heard more said about policies to promote growth so that we do not end up with years of very sluggish growth at best or, even worse, bumping along the bottom for some years.
I have said that one of the tests that needs to be applied to this Budget is its fairness and another relates to the promises made about it before the election.
Where better to start, then, than with VAT? During the election there was a lot of discussion about that. The Conservatives, like ourselves, said that they had no plans to raise VAT. I remember having a discussion with the Chancellor when he announced his plans not to go ahead with at least some of the national insurance increases, and he said that he would fund that from efficiency savings. I remember saying that I thought that was highly doubtful, and that they would have to raise money from another big tax. Sure enough, VAT is going up.
Interestingly, for some reason, not much was said about efficiencies yesterday, although they loomed very large during the election. We now know that "no plans" on the Tory side meant exactly what Geoffrey Howe said in 1979 when he said he had "no intention" of doubling VAT. Of course he was factually right, as it only went up from 8% to 15%. It was the same with John Major when he was Prime Minister in 1992, and said he had "no plans" to raise "extra resources from VAT": of course, VAT went up. Even last year, the Prime Minister said in opposition that putting up VAT was regressive. He said:
"You could try, as you say, put it on VAT, sales tax, but again if you look at the effect of sales tax, it's very regressive, it hits the poorest the hardest. It does, I absolutely promise you."
I assume he was not absolutely promising to do that, but was trying to point out to the questioner that he thought that VAT was regressive. Yet here we have it-VAT going up to 20%, as I always suspected would happen.
What I find even more curious is how on earth the Business Secretary can back this proposal. He cannot have been unaware of the Liberal campaign which spent two days dealing with the "Tory VAT bombshell". We saw the posters all over the country. They said a Tory Government would come up with "a secret VAT bombshell", but the only secret appears to be that the Liberals intended to vote for it when it was introduced. The hon. Member for Bermondsey and Old Southwark (Simon Hughes), who is no longer in his place, said last week that he thought VAT was
"the most regressive form of tax"
in that it "penalises the poor". When the Business Secretary said during the election that he would
"hardwire fairness back into national life",
I see that there are, wisely, only four Liberal Democrats in the House at the moment; the others are no doubt explaining to their constituents why it is that when they said, "Vote for us and keep the Tories out," they completely misunderstood the position. It seems to me that this is not just a broken promise, as there are real issues at stake. I was criticised for what I did with national insurance, but I wanted to ensure that pensioners would not have to pay the increased tax and I wanted to protect people earning less than £20,000-of course, that has not happened.
Phil Wilson (Sedgefield) (Lab): The Chancellor keeps saying that we are all in this together, but the headlines in The Financial Times today suggest otherwise. Under the headline, "Well paid breathe collective sigh of relief", the article quotes someone from RBC Wealth Management saying:
"Many high earners will be breathing a sigh of relief."
Does that not prove that we are not all in it together?
Mr Darling: My hon. Friend makes a fair point. It is interesting that the Liberal Democrats promised us that if they went into coalition they would get something in return on capital gains tax. They wanted a 40% CGT, yet they appear to have settled for 28%.
The Chancellor of the Exchequer (Mr George Osborne): That is 10% higher than under Labour.
Mr Darling: The Chancellor says it is 10% higher, but when I raised capital gains tax to 18%, I remember the angry campaign waged against it by Conservative Members. They said that 18% would discourage enterprise and was a terrible thing, but they seem to have changed their minds on that absolutely and completely. By the way, we are not going to oppose the increase in capital gains tax; especially when there is a higher 50p rate of tax, sooner or later action would have to be taken to stop the real risk of leakage. As I think the Chancellor said yesterday, the real gain from raising capital gains tax comes from income tax receipts. The position of the Liberal Democrats, however, was quite different.
There are other areas, too, where questions of fairness will be raised. Where in the manifestos of either of the political parties that form the Government was it said that they were going to index benefits to the lower inflation index of the CPI-the consumer prices index-which takes about £6 billion away from people whose income, generally speaking, is not that great? Where was it said in their manifestos that they were going to cut more than £100 in relation to child benefit, or to freeze that benefit for three years? Other changes also deserve very close examination. Everybody knows that housing benefit is in need of reform, as is the disability living allowance, but as we all know, these are complicated, difficult and sometimes controversial issues. It will be interesting to see whether the coalition Government can deliver all the things they promised yesterday.
Geoffrey Clifton-Brown: The shadow Chancellor said that action would have had to be taken on the CGT rate sooner or later, but I cannot remember him criticising his predecessor when the Labour party reduced CGT from 40% down to 18%. Is he now saying that that was the wrong thing to do, or not?
Mr Darling: I am not saying that, and I am bound to say that I do not remember anybody-and certainly not the Conservative party at the time-criticising the reduction of CGT down to 10%. It was believed that it would help and encourage entrepreneurship- [Interruption.] The hon. Gentleman might like to have a long look at that, but I am sure that many arguments can be mounted both ways. As he knows, I made changes in 2007; I remember that the Conservative party's complaint then was not about the reduction of CGT, but about my increasing it to 18%. As I said, with income tax rates at 50%, it is sensible to keep an eye on this.
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