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I assure my hon. Friend that I have dealt with the good news part of my speech so far as the Government are concerned, and I am extremely conscious of the point that he makes. Many fall outside the labour market statistics altogether, and such people—particularly those on long-term incapacity benefit, for example—should be of great concern to the Government. I hope that they are.
There are two clouds on the economic horizon—the shadow Chief Secretary has referred to them—and they both relate to debt. The first problem concerns consumer debt and the valuation of housing assets, and the second public sector borrowing. Both should be of great concern to the Government, not least because although, as the Chancellor has observed, we have enjoyed an unprecedented number of years of positive economic growth, it is in the nature of history that such periods always come to an end. We should therefore try to anticipate what could bring these benign circumstances to an end.
One of our greatest concerns, which has been expressed by my hon. Friend Dr. Cable, is the accumulation of consumer debt and the appreciation of house prices in particular. House prices have risen by at least 100 per cent. across most of the country in the past four years or so. That speculative bubble in the housing market could burst at some stage, leading to a decline in consumer expenditure, which might be over-extended as a consequence of the high level of consumer debt. I do not get the impression that the Government believe that there could be a problem with consumer debt and the housing market, or that there is a pin out there that will burst the speculative bubble.
The Treasury Committee touched on the issue in a relatively fair way in its Budget report. It is true that a number of the reasons for the increase in house prices and in consumer borrowing are related to fundamental economic factors, which might give less cause for concern than some of the speculative pressures. We have enjoyed relatively strong growth of real incomes, and low unemployment. The increase in house prices perhaps constitutes an adjustment for the fact that interest rates are at a very low level historically. It is probably reasonable to assume that they will stay low for the foreseeable future; at least, that is what the financial markets are saying.
Some speculative house buying is taking place as people switch their investments from other classes of assets that have not performed well recently, including the share market. That should give us pause for thought, as should the extraordinarily high level of house prices compared with earnings across the country. Since I became Member of Parliament for Yeovil, the price of houses at the bottom end of the market in my constituency has at least doubled. Properties in Chard—a town marked by very low-paid employment—that were going for £45,000 to £50,000 in 1999 are now on the market for £115,000 to £120,000. It is incredible that the lowest priced houses in a town with such low pay should be that highly priced, and constitute so many multiples of average earnings.
The Government might be aware of recent statistics produced by financial commentators such as Barclays bank. According to a Barclays bulletin, the major factor that pushed up the value of lower priced properties in the past couple of years was not first-time buyers, but a huge explosion in the speculative market for buy-to-let properties. In the past couple of years, the growth in the number of such properties far outweighed the decline that was otherwise taking place in the number of mortgages taken out by first-time buyers.
The Government may feel that they can afford some complacency at present, and that even if there might be an overstretched housing market there is no obvious factor on the horizon to end the current position—no pin to burst the bubble. However, we cannot easily anticipate an increase in inflation, not only in this country but overseas, perhaps as a consequence of loose monetary policy in several countries. If, as a consequence, there is a significant rise in UK interest rates, the house price bubble might burst significantly, and that might accumulate in its effect as a result of the amount of speculative buying in the housing market. That seems to be a real risk to the economic outlook, which the Government should take more seriously. They should encourage regulators to police very carefully the way in which lenders are dealing with the property market in particular, and continue to support the Monetary Policy Committee in taking early action on interest rates.
The second controversy and other cloud on the economic horizon is the borrowing problem and fiscal deficit that the Government face. There has been a significant increase in public sector borrowing and the projections for it over the past few years. As the Select Committee report pointed out, that has happened despite the Government's success over the past year in achieving their growth forecast—something that a year ago many of us felt was somewhat unlikely.
The Select Committee also pointed out that the Chancellor's problem with public borrowing over the past few years has been a consequence of a shortfall not in growth, but largely in tax revenues per pound of economic growth. Commentators are still expressing considerable scepticism about whether the Chancellor's forecast for increasing tax revenues over the next few years will be borne out. If they are not, we will face the serious risk of public borrowing rising significantly above 3 per cent., which has for a long time been the benchmark with which both the present Government and their predecessors have been comfortable.
I am not sure yet that my forecast would be as gloomy as those of the shadow Chief Secretary and the shadow Chancellor. After all, the figures on potential deficit and excess in the borrowing forecast mentioned by the Institute for Fiscal Studies and others are of the order of only £10 billion to £12 billion—the average error from looking one year ahead on the public finances. No Government should necessarily be proud of that, but it remains the case. If the Government are lucky and the position turns out to be more benign than the forecast, the deficit could disappear very quickly indeed. However, if they are wrong in the opposite direction, the deficit will be even greater than that expected by the IFS, which should give the Government serious cause for concern.
What should the Government do? One action that they should consider is giving the same type of credibility to their fiscal regime—particularly transparency—that exists for the monetary policy regime. I wish that the Treasury Committee had gone a little further in its recommendations on that point. It has at least pointed out that it is unsatisfactory when the National Audit Office is called in by the Chancellor only to audit particular assumptions and not other assumptions. Problems have occurred recently in the private sector, but if we proposed a system whereby auditors were instructed to examine only certain assumptions and not others—about oil, stocks and so forth—people would be very worried.