The Economy

Part of Council Tax Rebate – in the House of Commons at 8:13 pm on 31st March 2009.

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Photo of Mark Todd Mark Todd Labour, South Derbyshire 8:13 pm, 31st March 2009

I hope that the House will bear with my slightly croaky voice, which would certainly stop me singing and will abbreviate what I say. Coincidentally, my speech will follow on precisely from that of Mr. Brady.

In this debate, our immediate focus has understandably been on the process of restarting the economy. Others have been bold enough to talk about the world economy and our role in that. We have yet to consider, beyond the inclusion of broad figures in the already wildly outdated projections of the pre-Budget report, the harsh task that lies ahead of us if we are to rebuild a framework of sound public finance in this country.

The debate has been useful because we have attempted to educate each other in what we have been talking about. Frankly, some of the more informed Members have said that the much-debated fiscal stimulus is pretty small in comparison with the other means that have been employed to boost our economy. The automatic stabilisers are far more substantial, and the steps taken in monetary policy and the devaluation of sterling are also much more material.

Even according to our current relatively conservative way of counting, the impact on public expenditure as a whole will leave us with net borrowing of more than £125 billion in 2009-10, the year that we are just starting, and with total borrowings of more than £1 trillion. Others have speculated that if we included a variety of other things, the figure would be much greater still. Hidden within the figures is the fact that from 2002 onwards, we operated with what would seem to have been a structural deficit.

Even in a period of consistent growth, we were running material and non-forecast public deficits. Mr. Fallon drew attention to the consistent misforecasting of our deficit in the early part of this decade. Merely reverting to pre-crisis patterns of spending and revenue-raising—even if it were possible to do that; I shall touch on why it is not—would see deficits growing still further. According to one estimate that I have read, it will take until 2030 to return public finances to pre-crisis levels.

There are already signs that the scale of future deficits, unbacked as yet by clear strategies on how they may be corrected, are having an impact on the effectiveness of our short-term measures. Dissonance between the Bank of England and Government messages is one obvious example, but bond market reactions—the willingness to purchase Government bonds—may be another indication of exactly the same concern. [Interruption.] My hon. Friend Ian Lucas is very kind to give me a glass of water; it may also provide relief to Members listening.

The default past response to the need for reductions in deficits has been broad-brush top-down spending cuts. On the evidence of past programmes, that produces extraordinarily inefficient spending management. The cuts made are normally those easiest to make—capital expenditure is generally the first victim—rather than cuts that may require longer gestation and will have a more enduring structural impact. Localised non-strategic savings are also produced; a cut in one area generates an increased cost within another budget heading, outside the responsibility of the accountable manager.

Clearly, we will need new tools in confronting the task that lies ahead. We have an extraordinarily limited institutional memory of robust spending management. The Gershon reviews yielded some material savings, although audit suggests that they did not add up to as much as has been claimed, but they were achieved within a comfort blanket of general public spending growth, allowing redeployment of resources to count as a saving towards new priorities and allowing long paybacks through substantial initial investment. Those luxuries will not be available to us in the future.

What must we do? First, we should use part of the time bought by the fiscal and monetary stimuli to debate the political framework within which we will have to operate. I say "we", because I take the view of the hon. Member for Altrincham and Sale, West: this will be a task for whichever party wins the election and arguably it makes the election one that many might wish to lose. I am not a candidate at the next election myself.

To make serious inroads into our debt ratio will require far more than annualised savings or economic recovery, especially bearing in mind the large tax takes from banking and the City on which we have relied, and which will certainly not return in the short term and may never return. One estimate suggests—it was quoted by the hon. Member for Altrincham and Sale, West—that merely to stop total public debt increasing further will require a real-terms cut in public spending of about 5 per cent. every year from 2011 to 2014.

First, what will be our political and ethical compass? The Government have indicated, rightly, that tax increases, particularly for higher earners, will play a part in addressing the deficit, but I would not try to exaggerate the significance of that in terms of the scale of the task ahead of us. We will be operating in a context where most losers will see themselves as victims of the errors or venality of others; a willing partnership of burden-sharing will be near impossible to construct. To even attempt that, it will be necessary to demonstrate that there is clear ethical governance in what we do.

Secondly, we will need to reinforce our strategic armoury. Radical choices will be required. Incremental chiselling will certainly not deliver what is needed. To be honest, we will have to ask questions about whether there are parts of public spending that simply cannot be justified in the predictable circumstances of the next decade. Merely twiddling away 1 or 2 per cent. will not do the job.

Thirdly, we should use the recovery period—when a cuts programme would be counter-productive—to engage with our public sector work forces. In the straitened circumstances of the recession, collective bargaining in the private sector on the sharing of burdens has been shown to work effectively, with work forces clearly understanding the need to protect the business in which they work. It will be extremely hard to remove memories of rigid top-down programmes of savings, but the dilemma ahead will place in sharp focus the choices that have to be made by workers and management within the public services.

Finally, a change programme typically requires leadership quite different from that required to lead a stable organisation: that normally means importing hugely expensive consultants and their PowerPoint slides. Their presence in large numbers is a strong impediment to collective burden-sharing, and we must accelerate the growth of our own skills and their transference within the public sector.

One thing is absolutely certain: our public services will be reshaped very substantially as a consequence of this crisis. The moral compass and the methodology that we decide to use will be one of the critical choices before the electorate at the next election; so far, they have heard little that could inform their choice.

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