The Economy

Part of Council Tax Rebate – in the House of Commons at 6:22 pm on 31st March 2009.

Alert me about debates like this

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee 6:22 pm, 31st March 2009

If my hon. Friend will forgive me, I will not give way because of time.

We have to rebalance our economy. I hope that there might now be support across the House for the view that we cannot build a long-term, sustainable, wealth-creating and reskilling economy on the back of an over-inflated housing market, an over-exuberant financial services sector and a bloated public sector, because over the past 10 years, all three have combined to distort how our economy is growing, frustrate innovation across different sectors and prevent the reallocation of resources in response to the change that we now face. All three of those sectors have also been created and sustained on a mountain of debt—private debt in the housing market, to the extent that British households now have debt equal to 70 per cent. of disposable income; public debt, which I shall come to in a moment and which has sustained the vast expansion of the public sector; and commercial debt, which allowed the expansion of financial services.

We need to look again at how we treat debt in the commercial sector. I welcome the intriguing and thoughtful proposals made a couple of weeks ago by my hon. Friend Mr. Osborne, the shadow Chancellor, about how we might move from a debt-driven economy to an equity-driven economy that no longer has a tax system that favours debt over equity finance and which moves us forward towards reinforcing our skills base and building a better value-added economy.

We also have to put our public finances in order. With all the extra taxes from the boom years—the additional stamp duty from the housing market, the income tax from City bonuses and the corporation tax from the financial sector—the Government were able to double public spending from £320 billion when they came in to £623 billion in the current financial year. However, the Government have failed in that period to balance the budget since 2001. That is not a deliberate strategic failure and the failure to control our public finances is not sudden or recent. On the contrary: in the 2003 Budget, it was planned that we would be in surplus by 2006. By 2005, that had slipped to 2008, and by 2007 it had slipped to 2009. By last year's Budget, that target had slipped out to 2010-11 and now it appears to have been postponed sine die—which, for the benefit of the House, means "until a Conservative Government."

That matters, because in the end, unless we properly control the public finances, we cannot achieve our goals as a country, and we are failing to invest for the long term. It is that systemic failure to get a grip on our public expenditure that explains why no new power stations have been built, thus jeopardising our future energy security; why only half our school leavers achieve good GCSEs, thus risking our future competitiveness; why our welfare rules rose in the good years, well before the recession started; and why our dilapidated infrastructure continues to put us to shame in front of foreign visitors.

In conclusion, I think our economy is in very poor shape. I think it is badly positioned for the future. Our financial system has been badly regulated and our overall economy has been lopsided in its growth and dominated by debt on such a scale that it is undermining both our private and public finances. Once again, it will be left to a Conservative Government to clean up the mess.

Embed this video

Copy and paste this code on your website