Government's Fiscal Rules

Part of Opposition Day — [18th Allotted Day] – in the House of Commons at 4:52 pm on 7th October 2008.

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Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 4:52 pm, 7th October 2008

The underlying philosophy of recent economic policy has been deregulation and free markets. Even though there has been some regulation, particularly of monetary policy, it has been nothing like the regulation that we have needed or that we saw after the second world war. Indeed, after the second world war, no one seriously suggested going back to the arrangements that precipitated the 1929 crash and the subsequent depression.

However, there was one potty ideologue who wanted to turn back history—Friedrich von Hayek. Like hypnotised joiners of a religious cult, our leaders followed Hayek and led us to today's nightmare—Milton Friedman, Keith Joseph, Nicholas Ridley and, of course, Margaret Thatcher. When history is written, the terms of today's motion and the amendment will surely inspire incredulity at their triviality in the face of the global crisis that is now unfolding.

I never believed that there was anything golden about the Government's borrowing rules. Picking a figure for Government debt as a proportion of GDP was always arbitrary. It could have been 50, 60 or 70 per cent., provided that Government revenues were sufficient to pay the interest. It was just like a mortgage: what one could borrow depended on one's income. At least, that was the case until the sub-prime catastrophe.

If the Government wish to help the less well off, they could simply collect more taxes from the very rich and substantially increase the basic state pension and child benefits, which I recommend. Successive Governments have resisted returning to anything like the tax rates that existed in the 1970s. Perhaps those rates were rather extreme, but if we were even to inch in that direction, it would be welcome.

The credit crunch, the crisis in bank borrowing and the coming recession have killed off neo-liberalism, and it is now time to accept that capitalism can be made to work at all only with heavy regulation, a substantial state sector and the use of all the levers of macro-economic policy on a continuing basis. That is my view, and I hope to elaborate on it in more detail in subsequent debates, but I wanted to get it on the record today.

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