I inform the House that I have selected the amendments in the name of the Prime Minister for both debates.
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I beg to move,
That this House
notes that the International Monetary Fund believes that the UK will suffer the worst economic contraction among advanced countries;
notes with alarm that the Pre-Budget Report 2008 announced an effective 16.5 per cent. decrease in public sector net investment from 2012-13;
further notes with concern that the Learning and Skills Council has decided to halt funding decisions for college rebuilding;
expresses concern that there are currently 1.77 million people on the social housing waiting list, an increase of 100,000 on last year;
further notes that only £400 million has been brought forward out of £8 billion to spend on social housing;
notes how little investment the Government has made to ensure that homes are energy efficient and well-insulated;
believes that the Government has neglected the current opportunity to invest in expanding the rail network;
and calls on the Government to immediately bring forward funding for capital projects, particularly for schools, colleges, social housing, public transport and environmental works, all of which will create assets for the taxpayer and generate future income as well as countering recession in the short run.
The ministerial statement set out the chilling context in which this debate takes place. We are dealing with rapidly rising unemployment, much of it centred on the construction industry, and the situation is bitter and divisive. We shall try to suggest a positive approach to the problem through fiscal stimulus from capital spending.
I wish to make three simple points. First, fiscal stimulus is necessary, and the best way of providing it is through properly targeted public investment. Secondly, despite the Government's claim to be bringing forward capital investment, that is not happening. There are severe problems in the public investment area, and the situation is complicated by the virtually complete collapse of private finance initiative projects. Thirdly, if we are to have public investment in an environment where there are growing anxieties about public debt, we need a mechanism for proper evaluation of such things in a way that does not happen now, because much of it takes place in the framework of the commercial secrecy that surrounds PFI projects.
Let me develop each of the points in turn. First, like most western Governments, we believe—and the Government say that they believe—in the need for a fiscal stimulus. Despite the severe financial constraints on the public sector, we believe that such a stimulus is right and necessary, and that the best way of bringing it about is through properly targeted public investment rather than, as has happened, the value added tax reduction. A few weeks ago, we proposed in the House that, assuming a belief in the fiscal stimulus, a much better use of that £12.5 billion would have been to introduce a series of public investment measures aimed at, for example, home insulation, social housing projects and public transport. We remain of the view that that would have been the correct way forward.
Why is public investment so important in a recession? Partly because it creates employment. There is a big opportunity cost to the alternative of not investing: people remain unemployed. Some 100,000 construction workers have already been laid off in this recession. The figure was 300,000 at the peak of the last recession in the early 1990s, and there is a reasonable expectation that the number of unemployed construction workers in this recession will be even bigger than that.
My hon. Friend is talking about the absolute importance of fiscal stimulus through capital investment. Does he share my concern about local authorities that put together capital programmes which rely partly on anticipated receipts on capital sales and the disposal of assets? Such local authorities are finding it increasingly difficult to make their programmes add up, as the opportunities for disposing of assets at a reasonable price dry up because of the recession. Does he agree that if the Government want the economic stimulus and local councils to deliver better street lighting, and improvements in schools and various other assets that councils hold on the public's behalf, they need to find ways to bridge the funding gap to allow councils to make the capital investment today?
My hon. Friend makes a good point that I shall develop later. He is absolutely right that in the current environment trying to finance projects by selling off assets cheaply in highly depressed asset markets is not efficient, and that is one of the reasons why the Government's own programmes are in considerable difficulty.
Let me finish my central point about the importance of public investment. Of course, it is important for employment generation, but it also generates an asset. If it is properly constructed, it generates a stream of income and environmental and social benefits. That is why we presented our series of proposals before Christmas.
My second basic point is that, despite the Government's commitment in principle to accelerating public investment, a growing amount of evidence—anecdotal so far, but I hope that the Government will clarify the matter—shows that many of their enhanced public investment projects are not happening or are severely delayed. Let me enumerate some of the difficulties that we hear about from councils, parliamentary questions and elsewhere.
In the middle of last week, we heard about the serious problems that are beginning to arise with the large capital works programme for further education colleges and adult colleges. Two in my constituency are affected. Twenty-two advanced projects have been put on hold and a long pipeline of more than 100 others has been put into abeyance. There may be good technical reasons for re-examining the projects—for example, some depend on asset disposal, as my hon. Friend Mr. Burstow said. However, many do not. The adult college and the tertiary college in my constituency do not have that problem, or the other problems that are supposed to be associated with the building programme, and cannot understand why the projects are being held up. They say that they may have to retender. The process will take a long time—they will have to renegotiate bank loans, which will cause serious delay. Some of the colleges, which are being held up by what appears to be merely a three-month delay, say that it will retard construction by up to two years. When they come on stream, the recession may have passed, though perhaps that is an optimistic interpretation.
I visited Bournemouth and Poole college on Friday to learn that a project of £150 million had to be divided in two. Half has been deferred for at least 24 months and half is faced with general uncertainty. Does my hon. Friend believe that the Government should give a clear explanation for the hold-up and the possible waste of money for up-front expenditure, and a timeline for tackling that? My local college has already spent £11 million and it is faced with total uncertainty and antiquated buildings.
My hon. Friend makes her point well. Indeed, hon. Members of all parties made similar points last Thursday during Innovation, Universities and Skills questions. The problem is not only wasteful and exacerbates delays, but it affects a specific form of public investment, which, as the Government have demonstrated, is of great benefit. The colleges that have been built in the existing programme have produced quick returns in accelerating apprenticeship training and other useful activities.
The only explanation for the circumstances that the hon. Gentleman describes is either that the Learning and Skills Council overcommitted and led people to believe in an outcome that was never on the cards, or the Treasury has put a stop on the projects and blocked the pipeline. The cause of the problem was not clear from Innovation, Universities and Skills questions. Will he speculate on the answer?
I do not know the answer. The Financial Secretary is here and I am happy to take an intervention from him, but I am sure that he will give a proper explanation in his speech. Having talked to my local learning and skills council, I have a sense of Treasury involvement, but I do not know whether it is exclusively responsible.
In addition to the problems that affect colleges, other bits of the advanced investment programme are running into difficulties. I was recently shown a summary of a meeting of council leaders in the south-west. It reported repeated appeals to the Department for Transport to say whether the advanced projects that the Government had flagged up would happen and simply never getting an answer. The projects are not moving ahead. If that is happening in the south-west, I am sure that it is happening everywhere else.
There are particular problems with social housing. In the past year, my colleagues and I have asked the Government about the obvious things they can do in the face of the collapsing housing market, such as investing in social housing, both in new build and in acquiring unsold properties. The Government have responded in a general sense, but only very little is happening.
The Government had approval, within the envelope of the spending review, to spend £1 billion on social housing. As far as we can establish, only a tiny fraction of that has been committed. One of the reasons is that public housing projects—social housing—whether undertaken by councils or by housing associations, depend on agreements with developers and section 106 money. Private development has largely ground to a halt and section 106 money is not available, so public sector housing is not proceeding either. We also know that many social landlords have collaborated with developers, and many of them overcommitted themselves with bank borrowing. There is about £50 billion of borrowing by social landlords—certainly by the registered social landlords. Many of them are now paralysed and unable to proceed with developments.
The ambitious targets for social housing are not being met at a time of growing housing need. Moreover, in the middle of a recession, one of the things that the Government concretely can do, and which we all agree is an imperative, is simply not happening. I would be interested to hear exactly what is happening on that front. We have repeatedly asked the Government. As far as we can establish, virtually no money is coming out of the appropriate Department to develop social housing when it is most needed.
The hon. Gentleman is advancing a sound case. Does he believe that because of the seriousness of the credit crunch and the financial crisis, there should be more genuine co-operation, contact and communication between the Government and the Opposition parties, to see whether there could be co-operation in bringing about a solution to the extremely serious problems that we face?
Over the past couple of weeks, Ministers, including the Prime Minister, have accepted the case that my hon. Friend makes and the need to get things going in the social housing, housing association and housing trust sector. Will my hon. Friend seek to elicit from the Government today a commitment, first, to draw down more money from the new Homes and Communities Agency—it says that it has lots of money that it is willing to spend, and that could plug the gap—and, secondly, to call in local authorities with a large social housing programme that is currently blocked, so that the money can be released? The sites are there, planning permission has been granted, and there are people queuing up waiting for the homes. Something could be done if the Government gave the matter urgent attention.
The idea of getting the councils in to talk to the Government about what can be done is right. It should also be possible to bring in some of the developers and get them to work together. There should not necessarily be a public/private sector demarcation. My hon. Friend is right. Although I think the failings are largely in the Government, they are not entirely in the Government. The new agency is probably highly conservative in its approach. I get a sense that it is reluctant, for example, to encourage the buying up of empty stock because it says that it is the wrong quality and cannot be used for public sector housing, so housing stock just sits there empty when many people are desperate. There is a conservatism and a reluctance to act across the board. If my hon. Friend's suggestion is taken seriously, the Government should get all the parties round the table, bang their heads together and get some action.
Does my hon. Friend agree that a key barrier preventing many councils from investing in more social house building is the continuance of the housing revenue account system? While that is under review, should not everything be done to bring forward the review, so that we can see changes sooner rather than later?
I very much agree. Until recently, the assumption was that only housing associations should do social housing, but of course councils have a key role in that, and they cannot perform it while such an archaic and irrelevant formula persists. My hon. Friend is right about that.
My hon. Friend is right about everything he says, but is he aware that in Scotland the situation has been made even worse by rule changes imposed by the Scottish Government which require housing associations to borrow much more money from the private sector, so causing small housing associations in rural areas to have to suspend their house building programmes in many cases? Does he agree that the Scottish Government, as well as the Westminster Government, should be making changes?
Unlike Treasury Ministers, the Scottish nationalists are not here to answer for themselves, but we shall take it that my hon. Friend's point is entirely correct.
My final point on the way in which existing programmes are not working relates to the developing PFI crisis. In the past six months, only one PFI project—as it happens, the M80 motorway in Scotland—has been able to proceed. All others have ground to a halt, as I understand it. The Financial Secretary shakes his head; if he can encourage us with some good news, I would be delighted to hear it. The PFI process is in considerable difficulty because commercial partners will not come forward, and the number of banks willing to participate has drastically contracted, mainly because of the credit crunch. It was always a rather questionable financial mechanism, and it is now in the deepest difficulty.
I have made several points about the difficulty that the Government are having in making capital investment take place. The problem is that the context is one of a crisis that is far worse than we knew it to be even three months ago. One of last week's revelations was the fairly clear indication from independent outside bodies, such as the International Monetary Fund, that the crisis in the UK is significantly worse than that of almost any other developed country. It is worth reflecting briefly on why that is the case.
There are two major reasons why the British recession is likely to be much worse than in other developed countries. The first is that the bubble in the housing market and the growth of personal debt were more extreme than they were in almost any other developed country, except for Ireland and possibly Spain. The blame for that is quite widely distributed, but it is partly down to a failure of regulation: the deregulations of the 1980s and the liberation of the building societies that allowed them to become banks. It is partly due to failures by the Financial Services Authority, and partly due to a failure of monetary policy. Much of the responsibility for the failure to spot the bubble in the housing market lies with the Government, but also with irresponsible lending by the banking system. That was exceptional in the UK.
The second reason, and the full significance of this point is only now becoming fully apparent, is that Britain will suffer severely because we are host to some of the world's largest banks. Of the largest five, three are in the UK, and they are ultimately the responsibility of the British taxpayer—not counting Lloyds HBOS, which is not far behind them. The City of London hosts those enormous, universal banks that are now in extreme difficulty, and the effects are rippling through our economy. That is happening because banks are rapidly—to use an ugly phrase—deleveraging, which is showing up in a contraction of credit to British companies, and because of the loss of revenue from the City on which the Government hitherto relied. A factor that has not yet come through, but which could be of enormous magnitude, is the big losses that the banks will accrue, much of which will end up with the Treasury. We do not know how much, but the amount will be large.
The context of the debate is one in which we understand that the recession in Britain could be much worse than it is everywhere else. Therefore, Government action, including fiscal stimulus, is all the more important.
I wonder whether the hon. Gentleman could give us a clear indication of the size of the fiscal stimulus for this year, and the next two full years, if he thinks that it is appropriate to announce it at this stage. The automatic stabilisers constitute more than 80 per cent. of the current stimulus package, given the fall in tax revenues and the rise in public spending, and less than 20 per cent. of the package will come from measures in the Government's announcement.
Although £12 billion is a lot of money, the Government's fiscal stimulus is not large in terms of the British economy. It is less than 1 per cent. of the economy, which is a much smaller proportion than in the United States. We have supported that measure, but we suggested a different mechanism for going about it.
A problem arises from the fact that we have growing budget deficits and growing public debt, which may have the effect of squeezing out any future public investment, which will be crucial in providing a continued fiscal stimulus.
I do not think that that is the right way to approach the problem. There is a great difference between a public investment such as a stadium or sports arena, which provides no return, and a public investment in the form of, say, social housing, which generates a steady stream of income and is justified in economic terms.
Why have an artificial cap on sensible public investment that produces a return to society? It should be justifiable in its own terms. Capital rationing, which is the approach that Conservative Back Benchers seem to be advocating, is a narrow approach to a big problem, and that is completely wrong.
I am intrigued by what the hon. Gentleman is saying. I think that there is a need to build hundreds of thousands of social housing units in the United Kingdom, to deal with the 30-year backlog. I also think that, in order to meet our climate change commitments, there is a need to insulate homes and so on, to which the motion refers. However, I understand him to have just said that if something is worthy, there should be no cap on it. That seems to be an extraordinary approach for a Government to take towards capital spending. Will he clarify that? If he agrees with me that we need, say, 1 million more social housing units, does he think that we should start building them immediately, with no capital caps? Is that what he is really saying?
The hon. Gentleman knows perfectly well that when the Treasury evaluates a project, it takes account of the scale of the problem and the amount of spare capacity available, and that affects the economics of the project. In recent years, the Government have made public investments amounting to something in the order of 2 to 3 per cent. of GDP. That is the order of magnitude that we are talking about. My concern is that that should continue, but the danger in the current budgetary crisis is that it will simply stop. My concern is how we create a mechanism to ensure that it continues.
For those of us who are less economically capable than the hon. Gentleman, can he give us a rough guide to how much money we are talking about, if we take his figure of 2 to 3 per cent.? He is not being tied to this figure, but to give us some idea of the scale that we are talking about, if we take the figure of 3 per cent., how much more is he suggesting that the Government should be spending?
I thought that I had just answered that. If we can sustain that level of public investment, it will be an important achievement in itself. The danger is that that investment will simply stop. If we look at what the Government have done in their public investment programme, we can see that they have brought investment forward; I think that the figures are £365 million for the current financial year—that probably will not happen—and £2.5 billion for the next financial year. After that they want a big cut of £3 billion in public investment in the following year. That assumes a short, minor recession, which seems utterly foolish in the current context.
I want to ensure that a steady programme of public investment of the kind that the Government had built up, albeit artificially, in many cases through private finance initiatives, is sustained. I have given the hon. Gentleman an indication of the magnitudes that we are talking about. Many of those projects will be justified in any event by the economic returns—they will produce a return to the taxpayer. Those projects will, of course, be costly and involve public borrowing in the short run, but in many cases they will pay for themselves and reduce debt in the long term. That seems to be basic common sense. I am not sure why he is wrinkling his brow in such a confused way, because I think that I am making the point very simply.
I am just checking, but the hon. Gentleman seems to be suggesting that those public investments will provide a long-term return on expenditure by the Government, who are not going to be subsidising houses, but making a great profit on them. Can he clarify that?
There may be a subsidy, which of course has to be weighed against other elements of current spending, but that is a separate argument. However, good public investment may well produce a return for the taxpayer, which has to be factored into all our calculations. Anybody who has read about what the American Administration argue on public investment, and anybody who has looked back to the 1930s and the role that public investment played in hauling western economies out of that slump, would not have difficulty with the obvious point that I am trying to make.
I am listening with interest to what the hon. Gentleman is saying. He talked about the International Monetary Fund projections published last week. Of course, as he knows, another projection was published by the Institute for Fiscal Studies. It argued that the UK would avoid a long and protracted downturn, not least because of the effectiveness of the VAT cut. I wondered what he made of the arguments that the IFS set out.
I am baffled that the Minister—or, indeed, the IFS, if that is what it said—thinks that the VAT cut made a major difference to the UK economy, because it was less than 1 per cent. of GDP, and a substantial fraction of it flowed straight out to imports. I think that we all know, from the experiences of our local shopping centres, that much of it was completely lost. Most of that VAT cut finished up in increased margins for retailers, which of course has some kind of indirect economic consequence, but not very much. It is difficult to see how it could credibly be argued that the cut had a major impact in staving off recession; I simply do not believe it.
The motion before the House, and the hon. Gentleman's speech, are properly focused on capital expenditure through the public sector, but I hope that he agrees that that need not be to the exclusion, or even to the detriment, of means by which to stimulate effective consumer demand. In that context, and focusing at least in part on private expenditure, what view does he take on the merits of a marked increase in the national minimum wage to stimulate consumer expenditure, particularly among people on notably low incomes?
There are many ways of stimulating spending, and to be frank, the one that the hon. Gentleman suggests is probably the least helpful in the short run, for the simple reason that it would make it difficult for a lot of employers who are currently struggling to hold on to their labour force. As a general social objective, I support the principle of the minimum wage, and would like it to be improved, but I do not think that that would help us better than many of the mechanisms that I have described. What does have to happen is the expansion of credit; that, of course, is the key. This debate is not about the role of the banks and monetary policy, but that is the key element in reviving demand and spending. However, it is a debate for another day.
Is my hon. Friend as astonished as I am at the surprise that Conservative and Labour Members are showing towards the principle that he is proposing, given that that principle is put into practice by the most fiscally conservative Government in Europe, namely the German Government, who call it the golden rule? Matching borrowing with capital spending is a sound principle of public finance.
That is certainly right, and of course although the Germans were prayed in aid a few weeks ago in arguments against stimulating the economy, they have done exactly that—stimulated their economy—and have done so very much along the lines that we advocate.
Does my hon. Friend agree that if some long-overdue infrastructure projects, such as the dualling of sections of the A303 and the Kingskerswell bypass, were brought forward, it would not only create employment in construction and subsidiary industries, but benefit the south-west economy in the long term?
My colleague will have heard me say a few moments ago that the south-west councils have already expressed frustration at the fact that earmarked road projects, perhaps including the one that my hon. Friend mentions, were not proceeding as the Government said they would. I am sure that that is part of the problem.
I have some sympathy for the argument that if shifting forward investment creates a problem a year or two on, that gap ought to be filled, but of course the classic argument in opposition to that is that a further build-up of debt will bring into focus the value of the currency. The hon. Gentleman refers to the United States, but its currency is, of course, the reserve currency, and is somewhat protected. Are there any concerns among Liberal Democrat Members about the possibility that our currency might be threatened?
Of course, any responsible person has to worry about that risk, which, although probably not large, certainly exists. I am surprised that the hon. Gentleman is reinforcing the rather hysterical approach taken by the Conservatives, who think we are on the edge of a major currency collapse and all that will follow from it. Nevertheless, that risk has to be taken into account.
To answer the hon. Gentleman's question and to put the British financial position into context, we started the recession with the Government in a position where public debt was about 40 per cent. of gross domestic product—we can argue about whether they were concealing one or two percentage points, but it was of that order of magnitude and it was less than the figure for the United States, Germany or France. I am always happy to concede that. The worry is that public debt is growing very rapidly and that within two to three years it may well have reached 60 per cent., by which time other developed countries will also have increased their public debt as a share of GDP.
It is worth while putting that in the wider context and considering the extreme cases, such as those of Italy and Japan. As far as I am aware, Japan has not had a currency crisis, yet it has public debt of well over 100 per cent. of GDP. It finances that comfortably by patriotic saving on the part of the Japanese and their lending their money to the Government. Its high levels of debt are way beyond what we are currently contemplating and do not, by any means, necessarily create the kind of problems that some hon. Members are worrying about, but clearly we must be cautious. That is why any public investment programme has to be carried out in a disciplined way.
The problem relating to public debt arises not from excessive public investment, but from the fact that over the next two to three years the expected deficit will be very large compared with other western countries—8 to 10 per cent. of GDP is the relevant figure and it is a major worry. This situation is partly to do with the cycle and partly to do with a structural deficit, and it has emerged partly because of the collapse in the housing market and the revenue associated with it, and partly because of the collapse in the City and the revenue associated with that. The Government, the Conservatives and the Lib Dems—all of us—will have to face the fact that over the long term there is a structural deficit problem that will have to be dealt with, come what may. It is fair to say that none of us have yet come up with a convincing explanation of how that structural deficit will have to be addressed, but that is the nature of the problem—it is not, by any means, about excessive public investment.
Deficits have two factors: spending and income. Our problem has been a failure to collect the taxes that were due and because we have a very low level of tax on the rich—we have tax concessions to the rich. If we just collected a little more tax, we could afford to spend more. Taking such an approach might move us a little in the direction of Sweden—a successful economy that has a much higher tax-take and a much higher level of public spending—and we could live in a much more civilised society.
If the hon. Gentleman reads my article tomorrow morning in his favourite newspaper, he will discover that we deal with tax havens —[Interruption.] Not the Morning Star.
To round off my comments, I acknowledge, as has been pointed out clearly in interventions, that we operate in an environment in which, although the British public finances are not in quite the desperate state that they are sometimes portrayed to be, there is a legitimate source of anxiety. Therefore, any public investment cannot be undertaken indiscriminately; it must be very carefully vetted. At the moment, we have no mechanism for doing that, because public investment has largely been undertaken through private finance initiative projects, which are subject to commercial confidentiality. Through the Public Accounts Committee we know very approximately and many years later whether such projects were good or bad ones, but there is no system for assessing in advance, publicly and openly, what are good projects and what are bad projects. We have to set such a system in train.
I do not think that the hon. Gentleman will find any of those siren voices on the Liberal Democrat Benches. We have very carefully stated our position; our leader wrote an excellent article in another broadsheet last week explaining precisely how the joining the euro now should be opposed. We remain in favour of the principle, because we think it would be good for the British economy, but the worst possible time to make such a move is in the middle of a major financial crisis, in an environment of panic. We think it quite likely that after two or three years in which the weaknesses of the British economy have been brutally exposed, people in this country will consider the matter in a fresh and more positive way, but that debate remains to be had.
We have a very serious recession, much worse than we believed we were likely to have and almost certainly much worse than in other developed countries, and the Government will have to play a major role in countering it. Public investment has a key role, and we have set out a series of proposals on social housing, transport and environmental projects to fulfil it. The public need to be given hope that we are getting through this recession, and such investment is one of the best ways in which the Government can do that. We are seriously concerned that because of drift, difficulties with PFI and other problems, that is simply not happening.
I beg to move an amendment, to leave out from "House" to end and add:
"notes the substantial investment over the last decade in frontline public services in every region of the country;
notes that the Government paid down debt over the last 10 years, reducing it from 42.5 per cent. to 36 per cent. of GDP over the last economic cycle, before the global credit crunch hit Britain;
further notes that public sector net investment was only 0.6 per cent. of GDP in 1997-98 but was 2.1 per cent. of GDP by 2007-08, supporting sustained increases in investment in schools, hospitals and other key public services;
welcomes the action the Government has taken in response to the international financial crisis both to support financial stability and to provide help for people and businesses at the time when they need it most;
notes that to support the economy in the short term the Government's fiscal stimulus includes public sector net investment rising to 2.7 per cent. of GDP by 2009-10 and a value added tax cut putting over £12 billion into the economy throughout 2009;
further notes the Pre-Budget Report 2008 measures to bring forward £3 billion of capital investment from 2010-11 to 2008-09 and 2009-10 which will support a number of different industries and jobs and directly improve key public services including schools, transport projects and social housing;
welcomes the Government's commitment to ensuring that the overall level of capital spending is sustainable and protects investment in public services;
and believes that action now to support the economy will enable Britain to take advantage of Opportunities arising as global growth resumes."
I shall disagree with a number of points that Dr. Cable has just made, but I welcome his thoughtful and interesting contribution to the debate.
When the Government came to office in 1997, we put in place a fiscal framework to bring some much-needed discipline to the public finances. The robust new framework that we introduced was extremely effective. Public debt fell from 42.5 per cent. in 1996-97 to 36 per cent. in 2006-07, as the hon. Gentleman acknowledged. That meant, for example, that when we received more than £20 billion from auctioning licences for third-generation mobile phone services in 2000, we used the proceeds to pay down debt. The Nobel prize-winning economist Joseph Stiglitz said when I was on "Newsnight" with him last Wednesday:
"We look at Britain as an example, in times in which the economy was good you did the right thing."
The right hon. Gentleman began by saying that Labour brought in fiscal rules to introduce fiscal discipline and sort out the public finances. Can he name any serious commentator who believes that the fiscal rules are any longer worth the paper that they are written on?
Indeed, I have just named Joseph Stiglitz, who made the point that Britain did the right thing when the economy was good, thanks to the rules and framework that we introduced in 1997. That fiscal responsibility explains why we can afford to borrow more now to support our economy through these difficult times.
My right hon. Friend will be aware that Joseph Stiglitz chairs a UN commission looking into the financial needs of many developing countries. One thing that it has said is that the depreciation of sterling and other currencies is having a big impact on the amount of aid that we can give the developing world. We know what is happening in Africa, Gaza and elsewhere, so is there not a strong case for revisiting our commitment to development aid?
We must certainly reflect on the interests of developing countries and the developments within them, and we will do that in the G20 discussions leading up to the summit in London in April. It is clear that the downturn is affecting not just developed countries but developing ones, and some investment is being withdrawn from developing countries. We need to consider that matter.
"Labour entered the crisis with one of the largest structural budget deficits in the industrial world and a bigger debt than most OECD countries, having done less to reduce debt and—in particular—borrowing than most since 1997."
I hope that the hon. Gentleman also noticed what the IFS said about the effectiveness of the VAT cut as a stimulus to the economy. When he or Mr. Hammond speak later in the debate, as I hope they will, I would welcome clarification of their view about the fiscal stimulus that has been announced in the USA. The shadow Chief Secretary, the hon. Member for Runnymede and Weybridge, told us in a debate a couple of weeks ago that there was an emerging consensus that there should be no fiscal stimulus in circumstances such as ours when there is a deficit. He will by now have noticed that this emerging consensus does not extend to the incoming US Administration. As the hon. Member for Twickenham rightly said, the US has higher debt than us and a larger deficit, and it is planning a larger fiscal stimulus. It would be very helpful if the Conservative Opposition could confirm to us their apparent view that there is a consensus that President Obama should abandon the central economic policy proposal he has put to the American people. This underlines just how isolated and out of touch the Conservative party is.
I will gladly give way to the hon. Gentleman in a few moments, after I have made a little progress.
At the same time as reducing our public debt, as we did, the fiscal framework has allowed us to protect public investment. The last Conservative Government allowed public investment to shrivel: it hit a low of 0.3 per cent. of GDP in 1988, and in 1996-97—the last year for which they were responsible—it was just 0.6 per cent. That abysmal record of under-investment left a legacy of decaying public services and infrastructure that every Member of this House will remember all too clearly in their own area.
Does my right hon. Friend also recall that under the last Conservative Government of 1992-97, with their woeful investment record to which he has just referred, the national debt doubled, and that this Government started to pay that down? Can he also tell us what are the accumulated national debts as a proportion of GDP of other leading industrialised countries, compared with that of the United Kingdom?
My hon. Friend is absolutely right, of course, and I can tell him that every G7 country apart from Canada has a higher level of net debt as a proportion of GDP than us, and that our level is therefore comparatively low and puts us in a very good position for taking the measures we now need to take.
Under this Government, investment has grown by more than three times the 1997 level, to 2.1 per cent. of GDP this year. Next year, at 2.7 per cent. of GDP, public investment will be at a higher level than at any time in the last 30 years.
Given the case the Minister is making, is he as concerned as I am that the net worth of the UK public sector—not just the debt position, but that taken together with the asset position—is very much lower today than it has been historically, and that that deterioration has taken place under both his Government and the Conservatives?
I am not sure what data the hon. Gentleman is referring to, but I can tell him that sustained investment over a long period has enabled us to repair a lot of the damage caused to schools, hospitals, transport and other national infrastructure. In the health service, for example, in 1997 half of NHS buildings predated the national health service; that proportion is now down to 20 per cent. I therefore think the statistic the hon. Gentleman cited is a bit misleading.
Will the right hon. Gentleman respond to a question I earlier asked my hon. Friend Dr. Cable about the difficulty local authorities face in financing their capital programmes? In making good at the local level— through investment in their housing stock and schools—the damage that the right hon. Gentleman is talking about, how can they now bridge the gap caused by their not being able to realise receipts? My local authority is partly funding its programme from £12 million of receipts that it now does not anticipate will come about.
I will come to that point. There certainly is a challenging market environment for private finance initiative deals at present, but a number of them have been agreed recently; I am thinking of the Forest Gate housing project in my own area, for example—which was, I think, agreed last week—and Building Schools for the Future projects, and not only of the project to which the hon. Gentleman referred.
We have been able to put right a lot of the damage caused by previous years of chronic under-investment. Today, we are in a recession—the first to hit the UK since the early 1990s and face some of the harshest economic conditions for decades, and perhaps for a century. The nature of this downturn is fundamentally different from those the UK suffered in the past. In the late 1980s, UK GDP growth was allowed to rise to 6 per cent., well above the economy's growth potential. As a result inflation rose to double digits and interest rates followed in an effort to control inflation. Domestic policy mistakes caused the economy to enter recession in 1990 and unemployment to rise above 3 million for the second time in 10 years.
Today, things are very different. The problem we face is global, with many forecasters now expecting the world economy to contract for the first time since the second world war. Bad decisions at the heart of the international financial system have meant banks losing confidence in each other and, therefore, global credit markets to freeze up.
Does the Minister share my view that the Prime Minister was wrong to suggest that the UK was uniquely well placed to deal with a recession, especially in light of the IMF's damning judgment last week that this year the country would have the greatest reduction in GDP of any of the major developed countries?
No. I agree with the Prime Minister's assessment and there are two reasons: first, as we have already discovered in this debate, we go into the recession with a low level of debt compared with other G7 countries and, secondly, we go in with a high level of employment; indeed, for several months last year more people in the UK were working than ever before. We have gone into the recession in good shape but the effects of the downturn are now being felt everywhere around the world. Trade and manufacturing have contracted sharply in America, Europe and Asia as companies have been unable to access the credit they need, so economic forecasts for growth in 2009 have been revised sharply downwards.
The Minister is exactly right in his point that the circumstance is unique and that the recession is being felt not just in the UK but in Europe and America. In the downturns of the 1980s and 1990s, the construction industry was able to take some work abroad; people moved abroad—for example, lift manufacturers took projects abroad—but at present, they are unable to do so. Does that not mean that there is greater need for investment in construction projects and the construction industry to mitigate this special and—for the construction industry—very deep downturn?
I largely agree, which is why we have taken the measures that I shall be setting out in a moment, although there are still opportunities overseas—in China, for example. We have been talking with Premier Wen today about the Chinese economy, which will grow significantly in the coming year, although not at as high a rate as in recent years.
The right hon. Gentleman is being very generous in giving way. If I heard him correctly, I think he said that Britain now faces an economic crisis that is perhaps the worst for a century. Is he suggesting that what we may be facing is worse than the great depression of the 1930s?
I am suggesting that the world economy is facing a situation that is certainly the worst in decades—looking at the world as a whole—and some people are saying that it is the worst for a century.
Will my right hon. Friend take this opportunity, verbally, to give the bankers a kicking? Around the world, they have caused hundreds of thousands, if not millions, of people to lose their jobs and there is general recognition that, very sadly, that situation will get worse. The bankers, some of whom are now fortunately former bankers, have created a terrible situation, so will my right hon. Friend give them a verbal kicking instead of—as politicians too often do—letting those charlatans and mountebanks off the hook?
My hon. Friend may have heard me refer to bad decisions at the heart of the international financial system, which I think is an accurate account of what happens. I very much sympathise with the point he makes.
Key to solving the global problem will be a global response. Working with international partners, we are taking a leading role in developing, agreeing and delivering that global response. As I said, the Chinese Premier is in London today and the Prime Minister and other Ministers are in regular contact with leaders around the world. We took a leading role in the G7 autumn discussions in Washington and the five-point action plan produced there was largely based on the UK's then recently implemented financial stability measures. Both the Prime Minister and the Chancellor were at the Washington summit in mid-November. We hold the G20 presidency this year, and it is increasingly recognised, as Stephen Green of HSBC was saying last week, that the G20, in bringing together the biggest developing as well as developed countries, is the right group of nations to bring together to formulate solutions. My hon. Friend Mr. Hendrick rightly expressed concerns earlier about developing countries, which underlines the importance of the G20. Through our presidency, we are driving an ambitious work plan to help tackle the problems.
The Prime Minister presented a paper to the European Council in October, outlining five key principles to improve regulation and supervision, and setting out reform of the International Monetary Fund and the World Bank. We know that there are major lessons to be learned there. It is clear that existing international systems of regulation failed to adapt to the challenges of this new, highly globalised world; we need to co-operate internationally to make major changes so that those mistakes cannot be repeated.
International action needs to be accompanied by a decisive domestic response. Our response has been threefold. First, we had the comprehensive package of support for the banking system announced in October, which has been widely replicated around the world since. Secondly, there were announcements in the pre-Budget report of a major fiscal stimulus package to support the wider economy; the measures we are discussing today are an important part of that—and I shall say more about it in a few moments. Thirdly, there was a package of measures last month to begin to replace the lending capacity lost by the withdrawal from the UK of foreign banks and other institutions and to address the barriers preventing UK banks from expanding lending, to support stability and to restore certainty in the banking sector.
I am very supportive of the fiscal stimulus, but one issue greatly concerns me—the slimness of the evidence of whether anything is actually happening on the ground. Let me provide the example of two projects in my own constituency, both of which are Barratt developments that have now been mothballed. They could be picked up and got going; they could employ construction workers immediately by building flats that were initially aimed at the private sector, but could be brought into social housing. That could be got going immediately. Why is the Treasury not getting the biggest four or five developers together in a room and actually doing a deal with them to proceed with those sort of projects? Why do we not get some action on the ground?
Some resources—a substantial sum—have been allocated to the agency to enable it to take forward purchases of that kind.
Let me set out the measures that we are taking. Of course, the global, macro-economic action that I have described takes time to benefit the firms and individuals being hit. That is why we are taking action now with the business payment support scheme to allow firms to spread tax payments over a timetable they can manage. More than 34,000 businesses have reached agreements since that was announced at the time of the PBR. We have provided extra capacity for Jobcentre Plus; we have expanded schemes to enable those losing their jobs to stay in their homes with support for their mortgage repayments; and there is also the VAT cut. I very much welcome what the Institute for Fiscal Studies said last week about the effectiveness of that as a stimulus measure. I think that the mistake of the hon. Member for Twickenham is his apparent belief that the effectiveness of the VAT measure is about what happened in the past, but I think that the measure will, as the IFS pointed out, prove increasingly effective as the year progresses and as the subsequent increase back up to the original rate approaches on
We are increasing household income next year by putting an extra £145 in the pocket of every basic rate taxpayer; we have given all pensioners a bonus £60 one- off payment, and the basic state pension for a single person is going up very sharply from £90.70 to more than £95 a week in April. We are supporting families by permanently increasing child benefit to £20 a week with effect from last month instead of April, and we are increasing child tax credit by £75 a year in April, which is above inflation. So, unlike the Conservative party, we agree with the Governments of every major economy in the world who are increasing public spending now. I agree with the hon. Member for Twickenham that bringing forward major capital spending on our national infrastructure is a vital way to preserve jobs and boost our economy through this period.
On new projects, it is obviously important to get projects moving as quickly as possible for the next year or so, but there are some huge capital projects around, particularly the Mersey Gateway bridge, which is in my constituency, worth some £700 million and might be ready in the next two or three years, following a public inquiry this year. Does my right hon. Friend agree that it is important not only to get projects on the move this year, but to plan for the next two or three years? A project of that size— £700 million—will provide thousands of new jobs and stimulate the local economy in Cheshire, Merseyside and the whole north-west.
Indeed, and I think that the total amount of transport investment being brought forward is about £700 million—a substantial contribution, with the kind of benefits that my hon. Friend describes. We have brought forward a total of £3 billion-worth of capital projects on housing repairs and insulation, school extensions, health centre refurbishments and transport improvements to provide jobs now, when the economy is under pressure, and to improve services.
The debate is about capital expenditure during the recession. Does the right hon. Gentleman agree that, when we consider existing public assets, we should be looking for renovation and restoration before demolition and new build? Surely, the existing capital could be spread further to get more projects not by destroying what we already have, but by restoring and renovating it.
It depends on the circumstances. Certainly, there is a big commitment in the programme for housing repairs and refurbishment—for example, under the decent homes programme—but new build is needed elsewhere.
Will my right hon. Friend tell the House a little bit about how the Treasury is working with other Departments, the Cabinet Office and regional Ministers to make sure that, where it is urgent to ensure that the capacity exists to pursue capital projects in different regions—as in north Staffordshire and Stoke-on-Trent, as I am sure he knows—we can do so quickly? He can ensure that we have a joined-up government approach to make sure that, for example, investment in new sixth-form colleges, social housing and so on goes ahead as quickly as possible.
My hon. Friend is absolutely right about the importance of the Treasury and all the Departments affected working together, and we are doing so through the National Economic Council and the regional economic councils, and by enabling Departments to look at such issues in the round, exactly as she says.
Let me pick up the issues raised by the hon. Member for Twickenham in the motion and in his speech. First, there simply is no freeze on the capital funding programme for further education colleges. Investment in college capital projects will amount to £2.3 billion between 2007-8 and 2010-11. That programme is steaming ahead. Incidentally, the equivalent programme in 1997 was zero—there was no capital investment at all in FE in 1997. More than 250 projects are under way, funded by the Learning and Skills Council, helped by the recent decision to accelerate £110 million in the current year from future budgets to help beat the downturn; 154 of those projects are due for completion this year. There has been some disappointment that a number of projects have not gone ahead as quickly as was hoped, but the programme is proceeding on precisely the scale that we said that it would, with a very large number of colleges benefiting as a result.
In an earlier intervention, co-operation between the Treasury and other Departments was mentioned. What co-operation was there between the Treasury and the Department for Communities and Local Government, which vetoed any English region from applying for extensions that would have brought in an extra £671 million-worth of EU funding? Why were the regions not allowed a say on that? Was the Treasury involved in that decision?
I am not sure which programme the hon. Lady means. If she will drop me a line, I shall be happy to tell her what happened in that specific instance. I can assure her, however, that we are working very closely with all the spending Departments. In the case of the Department for Communities and Local Government, it is true that there is pressure on social housing, but we have set ambitious targets to increase provision, and over the next three years we are investing about £6.5 billion to deliver on those targets. That will include acquired and refurbished homes as well as newly built ones.
We have taken major steps to guarantee that homes are energy-efficient and well insulated. Since 2000 the Warm Front programme has helped more than 1.7 million households, and the £50 million that is being brought forward from the year after next to next year following the announcement in the pre-Budget report will improve energy efficiency and heating in some 20,000 homes. The Warm Front programme will provide 112,000 insulation measures this year, and another 108,000 next year.
I join my right hon. Friend in congratulating Eaga Partnership on the excellent performance of the Warm Front programme, from which 7,000 homes in my constituency have benefited, but may I return him to the subject of capital expenditure on colleges? As he may know, the principals of Lancashire colleges visited Westminster last week. They are anxious for the Learning and Skills Council to release money quickly for many capital projects that are currently being held up. People are being asked to leave building sites and architects are being asked to stop works because of the delay, and those principals are very concerned about the impact that that will have.
As my hon. Friend knows, our right hon. Friend the Secretary of State for Innovation, Universities and Skills has commented on the issue. I know that some projects have not proceeded as quickly as was hoped, but the programme is going ahead on precisely the scale that we predicted: a great many projects are proceeding.
The Minister must be careful in his choice of words. He is giving the impression that the hold-ups experienced by schools and colleges such as Sharnbrook community college in my constituency, which was told at Christmas that there was a freeze on capital decisions by the LSC, in some way constitute a planned freeze, and that everything is, in his words, steaming along. In common-sense terms, what he has described, what has happened in my constituency and what others have mentioned is a freeze. Perhaps he could explain the distinction between a freeze—which is what everyone thinks is going on—and steaming ahead.
I think we have all had some experience of what a freeze is like today!
As I said, a great many projects are going ahead; there are 250 altogether, of which more than 150 will be completed this year. It is true that some proposed projects have not been given the go-ahead because the resources available have been committed to projects that are going ahead, but it is not the case that the programme has been frozen. It is going ahead, and a large number of colleges will benefit as a result.
On the rail network, £10 billion has been committed to enhancing capacity between 2009 and 2014. Overall Government support for the railway over that period will be more than £15 billion. My right hon. Friend the Chancellor announced in the pre-Budget report that we would provide £300 million for the purchase of new rolling stock. The contract for those new carriages will be awarded by April this year, and the stock will be in place from 2011. I therefore hope that the House will accept that the true picture is very different from the one sketched in the Liberal Democrat motion.
I am grateful for the news that many projects are being brought forward, but why are further education projects being frozen when college principals had felt that they were well down the line towards full approval, and vast sums had already been invested? College principals need to know the time line for decision making, and the Treasury has a role to play in that.
As the hon. Lady knows, Andrew Foster has been brought in to look at those issues and he will report as soon as he is able to do so.
The Liberal Democrat motion is also wrong to criticise the fact that we have set out in our plans a fiscal consolidation in the period ahead. We have set out how we will get back to balance in the medium term, and I make no apology for that. We need to get back to balance and to set out plainly how we will do that. Indeed, that is what we did in the pre-Budget Report. I think that we are the only country to have set out the trajectory that we will follow to do that, and it is the right thing to do. It will involve, when the upturn comes, a level of public sector net investment that will be lower as a proportion of GDP than it will be next year—but at 1.8 per cent. of GDP it will still be three times as big as in 1997.
My right hon. Friend mentioned the upturn and when it will come. The recent evidence from the IMF and other forecasters is that the recession may last longer. If the recession is likely to last longer than until the end of this calendar year, will Ministers, when they make the Budget projections, consider putting in place a further fiscal stimulus and bringing forward investment so that we do not have a deeper recession than is necessary?
As my hon. Friend knows, we will set out new forecasts at the time of the Budget, and of course we will reflect on the lessons from them. However, the IMF forecast is for growth for the UK for the next calendar year. Interestingly, it also forecasts a shorter period of negative growth for this country than for several other G7 countries.
As I was saying, our increase in public investment compared with the Tory years will be sustained not just through the current downturn but through to the other side of it as well. Of course, paying for the fiscal stimulus, and for the steps that we are taking to support British businesses and households, will require Government borrowing to increase. We are starting from a strong position. According to the OECD, the UK had the lowest net debt of any country in the G7 apart from Canada—the point that Joseph Stiglitz rightly underlined on "Newsnight". That is the point that the Conservatives have failed to recognise. It would be helpful if Mr. Gauke confirmed, when he speaks later on behalf of the Conservative party, whether it is his party's view that President Obama should abandon his central economic policy proposal because of what they think is an emerging consensus, although it does not even appear to be a consensus in the shadow Cabinet, given some of the remarks that have been made by its members.
Of course debt in the UK will rise in the period ahead, as it will rise in the other major economies. Every advanced country in the world is increasing Government borrowing in response to the downturn. The latest OECD forecast shows not only that UK net debt was the second lowest in the G7 when the shocks began, however, but that our net debt will remain below that of most other G7 countries right the way through this downturn.
Some hon. Members would have us believe that we cannot afford to take measures to counter the effects of the global downturn in Britain. Their view is that we should do nothing, let the recession run its course and turn our backs, as the Tories did with such disastrous results in the recession of the early 1990s. We strongly disagree. Because of our responsible handling of public finances over the past decade, we can act now to preserve British jobs and boost our economy. These steps will ensure that Britain comes through the global downturn sooner and stronger than would otherwise be the case.
As the Institute for Fiscal Studies said last week, the cost of doing nothing would be greater than the cost of acting. Others in the House have today urged us to spend more—in effect, to throw sustainability in the public finances to the winds. We are not going to do that either. We will always live within our means. In that way, we will navigate a path that gets Britain through in the best possible shape. We will do that in a way that is fair to everyone, and make sure that we are in a position to grow again when the new opportunities of the upturn emerge in due course.
It is a pleasure to speak in this debate. The Liberal Democrats have proposed an interesting motion, which is very helpful to the House in one sense—it highlights an inconsistency in the Government's approach. We hear how the Government are engaging in a fiscal stimulus through public works and additional spending to help people out of the recession, but almost daily we read that public expenditure is being held back and that capital projects have been cut. A number of those points have been raised today by hon. Members, including by Dr. Cable.
The Minister, in a carefully worded response, stated that 250 further education college projects are under way and that there is some disappointment about what is going forward. However, it appears that there is a freeze on new projects, and that is the reality that Members are finding in their constituencies. It has not been made up—we are hearing about it, our constituents are telling us about it daily. We see frequent newspaper reports of PFI projects being put on hold. The Times tells us that more than 100 school and hospital projects are being delayed. The Government have announced that many of the proposals, such as the widening of the M25, are to be held back for budgetary reasons.
We know that there is a crisis in social housing. It is a long-standing fact that less social housing has been built in every year of this Labour Government than was built in every year under the last Conservative Government and that the number of households on local authority waiting lists for social housing has increased from 1 million to 1.8 million.
The Government say that they are trying to spend their way out of a recession, but in reality they faced the difficulty of the unsustainable nature of their public finances, and they are unable to deliver. I am grateful to the Liberal Democrats for highlighting that point. However, we are not entirely sympathetic with the Liberal Democrat policy that underlies the motion, which is to try to deal with the recession through expenditure on public works. I think that that was essentially what the hon. Member for Twickenham outlined.
Irrespective of the merits of capital expenditure, does the hon. Gentleman agree that if there is to be public expenditure, in order to get value for money and to spread the money to as many projects as possible, renovation and restoration of the existing capital plant owned by the public should be considered before demolition and rebuilding?
There is always an argument for considering existing infrastructure and not demolishing it if it would be more worth while to keep it. That is a truism and I will not disagree with it.
It might be worth highlighting the evolution, to put it kindly, of the Liberal Democrats' policy. It is now their policy that the country needs more spending and that that is the way to get out of the recession. Last May, the leader of the Liberal Democrats stated that they would
"focus all our attention on cutting taxes" and that
"We must get away from the Labour notion that if the Government is spending more it must be doing better."
In his September 2008 party conference speech, the hon. Member for Twickenham, said that there was now
"a mood of austerity" and
"an intolerance of...binge spending by government".
As recently as
Yes, I do agree with the hon. Lady, and if the Liberal Democrats' policy is simply to identify wasteful spending, I am certainly with her. We welcome the Liberal Democrats to that cause.
In the debate on
"There are dangers in doing what I believe the Government propose, which is to have an unfunded tax cut, which I understand would be financed by Government borrowing. However, Government borrowing ultimately has to be paid for—it is deferred taxation or inflation, and that is not a satisfactory way forward either."
We would certainly agree with that. The hon. Gentleman concluded by saying:
"We need a stimulus that will be funded".
However, only a few weeks later, the Liberal Democrats are calling for higher spending, and are not calling for any tax cuts.
The hon. Gentleman is describing the evolution of our policy over a period that has seen a dramatic worsening of the economic outlook, not only in this country but more broadly. The great Liberal, Lord Keynes, pointed out that, when circumstances changed, he changed his mind. Sadly, that does not seem to be true of the Conservatives, who always seem to say the same, regardless of the circumstances.
I am grateful to the hon. Gentleman for noting our consistency. I have to say that there has been a pretty dramatic change since
"Government borrowing ultimately has to be paid for—it is deferred taxation or inflation, and that is not a satisfactory way forward either."
We share that view. I think that the hon. Gentleman shares that view in the context of tax cuts, but not in the context of public works.
Has the hon. Gentleman not yet understood the central point that lies behind the interventions by all western Governments—namely, that if people are unproductively unemployed and out of work, instead of being productively employed in public investment, that itself constitutes an unfunded public spending commitment? We are concerned with the alternative, which is that resources remain unemployed.
The hon. Gentleman is making the Keynesian, expansionary argument, and I will address that. I merely point out that, in early November, the Liberal Democrats were the party of fiscal conservatism and that they now appear to be outflanking the Government in their desire for fiscal expansion.
May I gently caution the hon. Gentleman? In late November, there existed a Government who were against fiscal stimulus. Last Tuesday, that Government introduced a budget that will involve a fiscal stimulus of 3.2 per cent. of gross domestic product over the next two years. That represents quite a turnaround in just a few weeks. They are a capital-"C" Conservative Government: the Conservative Government in Canada, led by the Conservative Prime Minister, Stephen Harper, and the Conservative Finance Minister, Jim Flaherty, who have, in the past few weeks, fallen into line with the rest of the world. They have recognised that the world has changed in those few short weeks, although they were a bit late in getting there. I suggest that the hon. Gentleman should follow his Conservative colleagues in Canada and go for fiscal stimulus.
The hon. Gentleman always cautions gently. I say to him that there are different circumstances in different countries. I return to the Institute for Fiscal Studies quotation that I cited earlier to the Minister:
"Labour entered the current crisis with one of the largest structural budget deficits in the industrial world and a bigger debt than most OECD countries, having done less to reduce debt and—in particular—borrowing than most since 1997."
Our position is precarious and difficult. According to the IFS, our debt as a percentage of GDP will go up to 62.1 per cent.—even the Government acknowledge that it will be 57.4 per cent. According to the IFS, debt will not reach 40 per cent. of GDP for another 20 years. It will double over the next few years, with the danger that the cost of borrowing will go up. That puts us in an extremely difficult position. It would be splendid to be able to afford to cut taxes or fund public expenditure, but the fact is that over many years the Government have failed to put the country in the strongest fiscal position.
I will give way, but I shall just make this point. The hon. Member for Twickenham mentioned the structural difficulties created by the collapse of our housing market and financial services, but the problem goes back further than that. Essentially, it goes back to the reckless running of the public finances in the early part of this decade, when during boom years we were still borrowing huge amounts and organisations such as the International Monetary Fund were warning the UK Government that the fiscal position was unsustainable.
My party was making that point; my right hon. Friend Mr. Letwin made it as shadow Chancellor. Indeed, we entered the 2005 general election making that warning—I am not sure that it did us much good, but none the less we made the case. At the time, the Government and the Liberal Democrats dismissed it. The hon. Member for Twickenham said:
"We should not be panicked by the IMF into early tax increases or expenditure cuts, which would be damaging in the short term."
I am grateful to the hon. Gentleman for giving way again. His case on the detail of the UK public finances is there, and we can examine the record. However, I am intrigued. Clearly, the United States is the most important global economy, but it has a higher level of borrowing to GDP and public debt to GDP than we do and its banking system is worse placed than ours. Does the hon. Gentleman therefore advise President Obama to shelve his plans for fiscal stimulus?
The US has a reserve currency; it does not have the same risk of a run on its currency as the UK does. The important distinction is that its automatic stabilisers are much smaller than the UK's. A lot of the fiscal stimulus that is going to occur in the UK would happen automatically, and the same does not happen to the same extent in the US. At the point where our respective economies entered into recession, the US was borrowing less than we were.
Let me make a point to the hon. Gentleman about the reserve currency issue and see whether he has a response. In fact, economic history tells us the exact opposite of the point that he has just made. Reserve currencies are, in fact, most vulnerable to crises. The great sterling crises in our economic history happened precisely because we were unwinding our reserve currency role. The hon. Gentleman's point is exactly, 180°, wrong.
If the hon. Gentleman agrees with the International Monetary Fund that the recession will hit this country harder than most other countries, why do Conservative Members oppose a stimulus? What would they do to alleviate the suffering that job losses, business failures and everything else that is associated with a deep recession causes?
Essentially, we have a credit crunch and a monetary problem, and we believe that we should focus on monetary policy. That view is also held by, for example, Christina Romer, President Obama's chief economic adviser. The mainstream view is that monetary policy is the most effective way of tackling the problems. Given the UK's fiscal position—thanks to the Government—we do not have a realistic option.
The hon. Gentleman claims that the Opposition believe that the problem is monetary, and strongly implies that the only reasonable solution is monetary. If interest rates get as low as they have done in Japan and the US, where is monetary policy then? Is he asking for quantitative easing?
Let me follow up the Exchequer Secretary's question. I agree that monetary expansion is an important part of the package, but quantitative easing is now the only way of achieving that. I understood the shadow Chancellor to say a few weeks ago that the Conservatives categorically oppose that policy. Will the hon. Gentleman clarify that?
Our position on quantitative easing is that it is the last resort. We have consistently said that it cannot be ruled out. However, for months, we have called for an effective national loan guarantee scheme. This country needs that. [Interruption.] The Exchequer Secretary says that that is not monetary policy, but it is. It is about getting money flowing through the economy and giving credit to businesses. That is a monetary policy, which we need, and that answers the intervention of Mr. Hendrick.
The hon. Gentleman is generous in giving way. Does not he agree that, at least in my constituency, banks are not lending, not because they perceive companies as too high a risk—it is not a guarantee issue—but because they simply refuse to lend? Perhaps the reason for that is that they are not aware of the bad assets on their books and they cannot tap the broader financial markets.
There is an issue about greater transparency in the banking system—I agree with the hon. Lady to that extent. However, it is vital that we restore confidence if we are to get the economy working again. The amount of debt and borrowing into which the Government are taking us will not restore confidence for a long time.
"The government's ballooning budget deficit will soon require it to issue debt on a scale last seen at the end of the second world war."
In the context of perceiving the fiscal stimulus as an enormous help, it is interesting to examine the work undertaken by Oxford Economics, which believes that the fiscal stimulus means that 35,000 fewer jobs will be lost in 2009 than would otherwise be the case. However, it also states that the VAT rise, which will occur to return VAT to its previous level, will cost 30,000 jobs in 2010 and lead to a neutral year in 2011, and that the increase in national insurance will cost 91,000 jobs in 2012 and 84,000 jobs in 2013. This is a short-term measure that leaves the UK in a vulnerable position.
I return briefly to the subject of public works—
I am grateful. The hon. Gentleman has explained in careful detail what his party is against. The only policy that he has come up with in order to alleviate the current recession is a loan guarantee scheme. Is there anything else? Is that it? Given that his party has fulminated against the problem of debt, is the only solution that he is offering a system of lending people more money?
We have set out a series of policies to help small businesses, such as a VAT deferral, which the Government have to some extent taken up. We have set out proposals for national insurance contribution cuts and a council tax freeze. The essential problem is to get lending going again.
I am grateful to my hon. Friend. It is an extraordinary position, is it not, that the Labour Government came into power on the basis that finally the Labour party had understood the need for fiscal responsibility—that they could spend only the money that they had coming in? Prudence was their watchword, when they first came in, to restore confidence, but now they have reverted to type. They are making the country run out of money and they think the only response to any problem is to throw money at it. That undermines confidence, which is the single most important thing we need to restore the economy of this country.
I agree with that intervention. It appears that this is a Labour Government in reverse. Normally they come in, are reckless, and are forced to take more conservative measures. The present Government appear to have done the reverse.
I return to a further point about public works, which is essentially a practical argument. I will not develop the argument in great detail, but all parties would agree that where, within existing budgets, it is possible to bring forward projects, given that land and labour are relatively cheap and available at present, it is sensible to do so. Indeed, on the subject of social housing—the point was made earlier—where there are no rigid rules preventing private housing development which has been mothballed from being taken into social housing use, there is a strong argument for considering that.
There may well be merit in the proposals set out by the Liberal Democrats, but they are not a response to the recession. They are not a way of pump-priming the economy. For example, one of their proposals is a five-year programme to insulate schools and hospitals. That may be a sensible policy, but it is not a response to the recession. They advance an argument for improving railway infrastructure. There may be something to be said for that. I looked at the set of schemes that they proposed, the various lines that would be improved or doubled, and the destinations and areas that those serve.
The list is interesting. Can the House spot a link? It includes Oxford, the Lake district, Lewes, quite a few destinations in the west country, Southport, Chesterfield, Hazel Grove, Cheltenham, Colchester, and a double whammy—the line from Eastleigh to Romsey. [Interruption.] The list is not exclusive. I did not see any reference to Wolverhampton, but perhaps that is the least of the worries of Rob Marris. The policy is not focused on the recession. It is focused on the "Focus" leaflet.
The problem of getting public works expenditure to tackle the recession is not unique to the UK. It is worth quoting what the US congressional budget office found when it examined the $356 billion spending proposals as part of the fiscal stimulus in the US. It concluded that only 7 per cent. would be spent in 2009 and 31 per cent. in 2010. There is a practical point—planning permission and various details need to be dealt with. It is not easy to do that quickly.
On public spending, does my hon. Friend recognise this critique of the relevance of public spending, which was issued barely three months ago, when an hon. Member said that
"it is entirely wrong for the Government to assume that the economy should be stimulated by yet more public spending rather than tax cuts"?
I am sorry I missed that one, so I am grateful to my hon. Friend for highlighting it. Let me match that quotation from one Liberal sage to conclude with a quotation from another Liberal sage—the Liberal sage, Lord Keynes—who wrote in 1942:
"Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle."
That is the problem with the proposals from the Liberal Democrats, and that is why we will not support them, despite the fact that there is much merit in the motion.
I support my right hon. and hon. Friends on the Front Bench. Irrespective of the crisis that we face in international banking and the financial sector, the strategy of co-ordinated investment in social and economic regeneration over the past decade has worked and continues to work. Without it, communities such as my constituency would still have Dickensian schools, hospitals and GP surgeries, and we would have had construction workers on the dole for the past decade and more. If we are serious about regenerating communities and engaging the private sector to reinvest in communities, the public sector requires a co-ordinated approach to replenishing the public realm.
I invite my right hon. Friend the Financial Secretary to visit us in my area of Wigan. For the past decade, we have worked with the private sector to reinvest in our townships, abandoned by the last Conservative Government, and our pit villages and our textile communities, left almost overnight with no economy and a disinvestment in our public services. That caused great social and economic dislocation. Some parts of our community are still grappling with the consequences a decade or more later.
It is important that we do not look for merely a short-term fix to get us out of our fiscal difficulties because of the failure of the American and other banking systems. We must sustain our investment for social and economic good. If we are serious about re-skilling and up-skilling our work force and giving every kid in Britain the right to be the best they can be, we need a co-ordinated approach at local level, with public investment linked to engagement with the private sector in order to develop our infrastructure and encourage investment in communities where previously the private sector had disinvested for a decade and more.
In our community, the local authority worked with the private sector to encourage the creation of public sector campuses in our small townships and our larger ones. We want the Government to utilise capital investment in the NHS, the education system, housing and local government, and to bring those investments together, instead of allowing investment by individual Departments to be made in a pepper-pot way. We need to bring forward those investments to ensure a better-resourced outcome from public investment.
During this crisis, the Government have established a National Economic Council. Before Christmas, we in Wigan met the banks, building societies and private sector developers to create our own economic council to ensure that work introduced at the top line happens locally, on the front line. I say to the Exchequer Secretary that when top-line announcements are made, we must have the capacity to ensure that they are followed through at a local level. We will be judged by communities when they can see what we talk about in this place making a difference in their everyday lives. When we say that we will invest in schools and colleges, we have to ensure that that investment is set out in an effective way over the next two or three years, and that we are certain that local authorities can invest in them. We have to be sure about investment in housing, whether it is social housing or public-private investment to bring back private sector housing into public use, such as old stock that needs refurbishing, or new stock that cannot be sold in the marketplace today. We need a time scale that ensures that people can see the differences made.
It is important that alongside those public investments, we ensure that the banking system generates enough resources, so that where public investment with the engagement of the private sector is needed, the private sector can work in sync with us. That is critical to the LIFT—local improvement finance trust—strategy for NHS investment, particularly in primary care. We can get an agreement with the national health service, but without investment to encourage the private sector to engage in big infrastructure projects, and without banks agreeing to participate with private sector developers as part of the LIFT company, some of the Government's priority projects will be delayed. It is important to listen to voices at ground level to ensure that top-line announcements by Ministers are delivered on the bottom line, in the local community.
We must not allow the Conservatives to get away with what they have attempted to get away with tonight. They have made it absolutely clear that there would be immediate removal of capital investment in this country under a Conservative Government, leading to dislocation for the private and public sectors. The consequences for public services, and private sector companies engaged in public services, would be double what they were under the last Tory Government during the 1980s and 1990s. It is not rocket science. The policies advocated by the Tory Front-Bench spokesman, Mr. Gauke, were those pursued by the last Conservative Government during two recessions. At that time, the consequence of those policies was a laying waste of my community and its public services. We were trying to provide public services in our community at a time when nine out of 10 people on council estates had to rely on some form of state benefit. That was the level of dislocation caused the last time the Conservatives put into practice the policies that the hon. Gentleman advocated in relation to this recession. These are siren voices: they were wrong then, and they are wrong now. It is important, in arguing our corner, that we do not just become administrators of Treasury policies. We should be enthusiastic and tough in arguing our corner on public service investment.
My final point is about the banks, and it is not an easy hit. It is important, having rightly saved the banking system from meltdown, that the system does not revert to type. We saved the banking system for a simple reason: to protect the long-term future of business and commerce, and to protect pensions and other assets. It is no job of ours to sit back if a bank allows 12,000 jobs to go to the wall, as one bank in my constituency is doing. Why is that happening? Because the bank will not implement the strategy that the Government rightly outlined weeks ago. It is our task not only to ensure that public services invest in the way we want them to, but to make sure that the banking system fulfils its side of the bargain. Good businesses in our constituencies are going to the wall not because they have failed—they have not—but because they need support from the banking system to get them through this recession into better days.
I hope that, in her response, my hon. Friend the Exchequer Secretary gives a clear indication of how the Government are ensuring, alongside local authorities, that public sector investments will take place in a time scale that will make a difference. They must take further action, if necessary, to protect individual companies when the banks are acting inappropriately and putting those businesses at risk.
The debate has been global and national, with interventions of a constituency nature. I shall make some brief remarks.
The Financial Secretary said that the colleges programme is steaming ahead, but oh no, it is not. If the Exchequer Secretary does not believe me, I invite her to come to Colchester, where phase 1 of the Colchester institute is about to finish. In a few weeks' time, the entire work force will leave the site to join the dole queue because the much-promised phase 2 does not have the necessary finance. Given some of the interventions we have heard, I imagine that that story is being repeated in other constituencies.
I made two interventions on those speaking on behalf of their Front-Bench teams, when I asked about renovation and restoration before demolition, and about new build. Let me set out the significance of those comments. I welcome public investment in my constituency whether it is £100 million or £150 million, as promised by the Conservative-led Essex county council for new schools—or at least I welcome part of it, because some of it will not provide value for money. One of the aspects that will not provide value for money is the demolition of a perfectly good secondary school opposite the Colchester institute. The people of Colchester want phase 2 of the institute to be built before we start demolishing buildings to provide new ones. We need a bit of joined-up government.
Many hon. Members will know that I have been badgering the Government for 12 years about the resumption of council house building. It is a fact that Conservative Governments have built more council houses since the second world war than Labour ones. I made that point to Brother Blair and to the then Deputy Prime Minister, and I have made it to the current Prime Minister. We need to invest more in existing housing stock that stands vacant. In my constituency, the Government have in excess of 200 houses standing empty, for which they are paying rent approaching £750,000. Those 200-plus family houses could accommodate some of the families for whom the waiting list has virtually doubled under Labour. The houses are under the control of the Ministry of Defence, and I make a particular plea for the Government to engage in a bit of joined-up thinking, so that some of those families can move into houses that currently stand empty. I am sure that there are other houses standing empty across the country which should be brought back into use, and we could also buy up houses in new developments—but not flats, please. We need family houses, and I urge the Government to take that line.
I shall be brief. I do not know how long the winding-up speeches are going to be, but I am sure that someone will signal to me when they want me to sit down. I will do my best to make a few comments until then.
I would like to clear up a point that was made as a result of an intervention by the Exchequer Secretary. I think that she said something to the effect that we did not have any monetary policy tools left to deal with the crisis now that interest rates were so low.
I was asking Mr. Gauke a question about monetary policy, should we get to the stage where interest rates in this country are as low as they have been in Japan and the USA. I was talking about a hypothetical situation, not one that is in existence, because, as Mr. Tyrie knows, interest rates are currently 1.5 per cent.
I think that the hon. Lady is labouring under a massive misapprehension about monetary policy and the main tools available to the authorities. I hope that that misapprehension is not informing the higher reaches of policy making in the Labour Government, because if it is, it must be partly responsible for the talk about using all sorts of other tools, which in my view is probably premature.
At least three monetary tools are still available. The first, as the hon. Lady correctly implies, is 1.5 percentage points of interest rate cuts. Secondly, there is the use of funding policy. I find it quite baffling that the Government should be allowing the Debt Management Office to issue so much long-dated stock, when they should be asking it to fund at least part of the deficit at the short end, thereby generating some further monetary easing. The third tool is the exchange rate, which she has ignored completely. The dramatic fall in the exchange rate is by far the biggest event to have taken place in monetary policy—bigger even than the fall in interest rates that we have seen—and it will have considerable effects. However, those effects will take some months to come through. Until they do, monetary policy needs to be given a chance to work.
Fiscal policy is broadly working—that is, the fiscal stabilisers are already operating as they should. It is monetary policy, and in particular that part which pertains to banks and the credit system, that needs a good deal of Government attention. However, they have been remiss in not acting on that earlier, first, by not underwriting the banks with recapitalisation, and then, when they did, by recapitalising the banks in a way that encouraged them to strengthen their balance sheets at almost any cost, thereby negating part of the purpose of the recapitalisation in the first place.
Given that so little time is available and given the fact that we are going to hear a couple of Front-Bench speeches in a moment, let me quickly make one or two further points. [ Interruption. ] I am getting a signal that it might be helpful if I make only one further point, so I will do that, and in only one minute, too. It might be misrepresented as being party political, but the point that I am going to make, which is almost universally accepted by all dispassionate observers of economic policy, is that there is absolutely nothing left of Labour's economic policy at all.
The policy that was put together a decade ago has been completely dismantled. The idea—the rhetoric or the mantra—of so-called spending to invest was long ago replaced by spending to consume. Indeed, the use of the word "investment" for current spending in the public sector has devalued the term, which has been damaging. The fiscal rules were consigned to the dustbin at the time of the Northern Rock episode—it was the first time that they were seriously tested, and they collapsed. Then there was the Chancellor's autumn statement, which tore up all the Labour Government's remaining pledges on taxation—the pledges that they used to try to persuade middle Britain that the economy was safe with them.
It is against that backdrop that in just over a year we will hold an election. The conduct of economic policy will be central to that election. I leave the House with one thought. When they go to the polls, the electorate will have in their mind a simple question. When looking at the Prime Minister and the running of the economy over the previous decade or so, will they be able to say well done?
This has been an interesting, albeit short debate. I am aware that I have very little time to wind up, as we would like to finish by half-past 6 to ensure that House staff can go home.
My hon. Friend Dr. Cable opened this debate by making a case for sensible public investment that would create jobs today and build assets for tomorrow. However, in the interventions that we have heard today, many of my hon. Friends, as well as colleagues in other parts of the House, have pointed out examples of programmes that have stalled. In particular, my hon. Friend Annette Brooke mentioned building projects for colleges in her constituency. I was surprised by the response from the Minister, who said that those projects were steaming ahead, because it is self-evident that they are not.
Mr. McCartney said in his contribution that the Government would be judged on how they make a difference to people's lives on the ground. Unfortunately, that was not the tone of the Minister's response. He agreed with almost everything that my hon. Friend the Member for Twickenham said about the need for a fiscal stimulus, the need to invest in social housing and the need to invest in insulation, but he made no new announcements. We are talking about an issue of scale. Ticking a box and saying that the Government have a programme is not going to help us out of recession.
The Conservative spokesperson, Mr. Gauke, rightly pointed out the inconsistencies in the Government's position. However, he said nothing about how the Conservatives would lead us out of the current recession and seemed to misunderstand the point that my hon. Friend the Member for Twickenham was making. He has consistently argued for borrowing to invest in capital projects, not borrowing to fund tax cuts or current expenditure. Those things are different, and the hon. Gentleman should be aware of that.
My hon. Friend made the point, which others made too, that unemployment involves a large cost. Doing nothing is not a cheaper option, and I wish that the Conservatives would be aware of that. As for railway redevelopment, the hon. Member for South-West Hertfordshire perhaps gives us credit for having more cunning than my colleagues are capable of. However, now that he has acknowledged on the Floor of the House that Liberal Democrat projects will make an immense difference to many of my hon. Friends' constituents, I am sure that his words will be quoted in Liberal Democrat "Focus" leaflets in no time at all.
Nowhere is there a more urgent need to invest than in housing. There are 1.77 million households on the housing waiting list in England. Far from the need declining, more and more families are struggling to afford private rents or mortgages. The Council of Mortgage Lenders has estimated that 75,000 families will have their homes repossessed this year. Many will arrive at their council's door with their belongings in one hand and their children on their other arm. Councils will have nowhere to house those people, because housing projects have been drying up.
Demand for housing does not dry up because house prices are falling or because banks have stopped lending. As soon as lending recovers, the real and present danger will be that we might end up with hyper-inflation in the market, because we will have failed to keep pace with true demand in the meantime. As my hon. Friend the Member for Twickenham said, the truth is that house building in both the public and private sectors has stalled. Figures from the National House-Building Council suggest that the industry started fewer than 30 per cent. as many homes in the last quarter of 2008 as it did in the last quarter of 2007.
In an intervention, my hon. Friend Chris Huhne mentioned developments in his constituency. Many such developments are now being mothballed, which is why my hon. Friend the Member for Twickenham has been arguing for a dramatic increase in the amount of funding available for councils and housing associations to buy up such properties. The Minister said that that money had been made available, but only £200 million has been made available through the national clearing house scheme, most of which has been spent. Surely that demonstrates the need for more money to be made available.
The problem with housing associations being able to build is partly to do with lending and partly to do with the model of cross-subsidy that has been used for a decade to fund social house building. That model will simply not work in the current climate. Private sales have dried up. Housing associations that previously relied on being able to sell homes off plan cannot even sell them when they are fully built. Furthermore, low-cost home ownership lending products are no longer being offered by banks, so all the options for housing associations to cross-subsidise their social housing, affordable housing and housing for rent are just not available.
As a consequence, many housing associations have stopped building—they have certainly stopped building shared ownership homes—because they know that mortgages are not available. The consequence for them, as for the construction industry, is that they are making many staff redundant. The Government will have to accept that Treasury subsidy-per-unit targets will not work at the moment. The Homes and Communities Agency says that it will make more flexible funding available, but we need that funding to get to housing associations quickly, so that they can take advantage of it. Delay is costly for those people waiting for social housing.
I said that a consequence of the fact that building has stalled is that construction workers are being laid off in their thousands. The Federation of Master Builders predicts that job losses in the construction industry could reach 90,000 this year. The consequence is not just short-term, and it is not just misery for families whose major breadwinner has lost their job. The costs will be felt in the British economy for at least a decade, because even when the money to build again becomes available, the country will have lost vital construction skills, and it will take a decade, or possibly even a generation, for us to recover. Families, certainly in my constituency, cannot wait that long for house building to begin again.
In the face of that, the Government have been tinkering at the edges. They are bringing forward £400 million in the next 18 months for social housing providers to deliver just 5,000 homes, but 1.7 million households are on the housing waiting list. A further £150 million was announced in the pre-Budget report, but reports from the Department for Communities and Local Government suggest that it has not yet even worked out how to allocate that. It is a drop in the ocean given the fiscal stimulus that is needed for the recession, and given the number of families desperate for housing.
Some £12 billion was frittered away on a VAT tax cut that made little or no difference to most families; that money would have been better used in putting unemployed people back into work, and in leaving a lasting legacy that would save energy, reduce bills and fight climate change. With the money used to make a tiny VAT cut, we could have insulated every school and hospital in the country, funded insulation for a million people languishing in fuel poverty, and have built 40,000 extra zero-carbon social homes. The Conservative spokesperson said that that was not a response to the recession; well, it is certainly a response to need, and he has come up with no response to the recession whatever.
If the Government really wanted to cut VAT, how much more useful would it have been to cut the rate of VAT for rebuilding and renovation? My hon. Friend Bob Russell made a point about the number of empty homes that are left derelict, not just in the private sector, but often in the public sector. There are more than 700,000 empty properties in England—enough to make a sizeable dent in the amount of housing needed in this country—yet the Government are not prepared to take the action necessary to bring those homes back into use. What is needed from the Government is a dramatic building programme that focuses attention across all Departments. They need to get the public sector to release land now. They need to bring forward substantial amounts of new money, and money in the existing comprehensive spending review, to make sure that housing associations and councils can buy up land and property while prices are cheaper.
We have had a short but interesting debate this evening, and I would like to deal with some of the issues raised. Interestingly, Dr. Cable said that capital expenditure simply is not taking place at the moment. I am glad to say that that is not true; I am sorry to disappoint him, but there is a great deal of work going on, and a great deal of extra capital expenditure coming through. I hope that he is reassured by that.
The Government will continue to show the commitment to investing in public services that we have demonstrated since 1997. That commitment is in contrast to years of neglect under the previous Conservative Government. Our investment has meant the building of 1,100 new schools, and more than £20 billion of improvements to social housing. The 100th new NHS hospital was recently successfully completed, and more are in the pipeline. When we came to government in 1997, 50 per cent. of the NHS estate dated from before 1948. Today that figure is down to just 20 per cent. We are proud of that record and are determined to continue investing in UK infrastructure to ensure world-class public services in buildings fit for the 21st century.
To mention just one of the many examples that have been given on the Floor of the House in this debate, the builders are to leave the Colchester institute site in the next few weeks. Many other colleges are in exactly the same position; building work is grinding to a halt. What is happening?
There is no freeze to the capital programme for further education expenditure, and there is no question but that the £110 million that was brought forward in the pre-Budget report this year will be spent. There are signs that the ability of some colleges to raise their own funds for proposed projects is being affected by the downturn, and it is right that the Learning and Skills Council should take a look at the proposals for capital schemes in the pipeline to assess the likely impact on funding support for individual projects. I understand the concerns that have been raised, but hon. Members who are anxious about projects in their constituency should recognise and accept that the 253 projects to which my right hon. Friend the Financial Secretary referred have been given the go-ahead, and that more than 150 of them are due to be completed this year, so there is a substantial programme of capital works in the pipeline—£2.3 billion over the next three years. I point out that the figure was zero in 1997.
We know that we can sensibly combine our commitment to investment in our infrastructure and our public services with a real boost to the economy to help us through this very difficult global downturn. That is why we are bringing forward capital expenditure—not only because it is the right thing to do if we are to support jobs and stimulate economic activity, but because it will modernise Britain's infrastructure and ensure that we are in the best possible position to take advantage of the upturn when it comes. That is why we are using the fiscal stimulus to invest in our competitiveness for generations to come.
I agree with Sarah Teather that it is far more costly to do nothing than to invest in increased public expenditure as part of a co-ordinated fiscal stimulus to deal with the unprecedented global situation in which we find ourselves. That is why the pre-Budget report in November set out a fiscal stimulus, including £3 billion of capital expenditure on schools, transport and homes, which is to be brought forward from 2010-11 to the next financial year. That is real help now, and it is in contrast to the attitude of the do nothing Tories. This Government have taken concrete action to give a timely boost to prevent job losses and stimulate economic activity, and we are on track to deliver that spending.
There are reports that the difficult economic climate will adversely affect the private finance initiatives that are a common feature of the Government's public investment programmes. Some of those worries have been expressed this evening. There is no doubt that the market is challenging. The credit crunch has reduced liquidity in the financial markets, and that has affected all debt-raising. Understandably, there is a concern that that could result in new PFI deals struggling to find finance, or increase costs for those that do obtain finance. Obviously, we are watching the situation extremely closely.
Projects continue to reach financial closure. As my right hon. Friend the Financial Secretary said, in January, two projects—the M80 highway project and the Forest Gate housing project—closed successfully. That involved £370 million of public investment, which had been committed and which is now being put to effect. We are working to push forward all the projects currently in the pipeline. In recognition of the potential difficulties facing such initiatives, Treasury officials are working with other Departments and Partnerships UK to help ensure that projects are able to obtain finance in a timely fashion. In addition, the measures to unfreeze credit announced last month by my right hon. Friend the Chancellor are intended to help remove barriers to lending.
My right hon. Friend Mr. McCartney made an impassioned speech, as usual, about the importance of protecting communities during such downturns. I agree with him about the policy of the Conservative party, which is to cut public expenditure now, right in the middle of a recession. That is the opposite of a fiscal stimulus. The Conservatives would not do nothing—they would take action that would make matters worse. By cutting public expenditure, the Conservatives are once more falling into the trap of laying waste to entire communities and huge areas of the country. This Government will not fall into that trap. We are committed to ensuring that public expenditure remains higher, even after the fiscal consolidation that we have planned. Public capital expenditure will be 1.8 per cent. of gross domestic product in 2013-14, which is three times more than the paltry 0.6 per cent. that we inherited from the Opposition. The Government have addressed the huge backlog—
Question accordingly negatived.
Question put forthwith (
Question agreed to.
The Deputy Speaker declared the main Question, as amended, to be agreed to (
That this House notes the substantial investment over the last decade in frontline public services in every region of the country; notes that the Government paid down debt over the last 10 years, reducing it from 42.5 per cent. to 36 per cent. of GDP over the last economic cycle, before the global credit crunch hit Britain; further notes that public sector net investment was only 0.6 per cent. of GDP in 1997-98 but was 2.1 per cent. of GDP by 2007-08, supporting sustained increases in investment in schools, hospitals and other key public services; welcomes the action the Government has taken in response to the international financial crisis both to support financial stability and to provide help for people and businesses at the time when they need it most; notes that to support the economy in the short term the Government's fiscal stimulus includes public sector net investment rising to 2.7 per cent. of GDP by 2009-10 and a value added tax cut putting over £12 billion into the economy throughout 2009; further notes the Pre-Budget Report 2008 measures to bring forward £3 billion of capital investment from 2010-11 to 2008-09 and 2009-10 which will support a number of different industries and jobs and directly improve key public services including schools, transport projects and social housing; welcomes the Government's commitment to ensuring that the overall level of capital spending is sustainable and protects investment in public services; and believes that action now to support the economy will enable Britain to take advantage of opportunities arising as global growth resumes.