Amendment of the Law

Part of the debate – in the House of Commons at 1:17 pm on 23rd April 2009.

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Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer 1:17 pm, 23rd April 2009

As my hon. Friend says, the Chancellor might well want to put in a call to the IMF for all sorts of reasons.

It is good to open this debate with the Energy Secretary here. He is always an engaging fellow and we always have a good relationship. After all, he was one of the key economic advisers of the last 10 years—one of the members of the council of economic advisers and one of the adjuncts in that famous Treasury bunker. To be fair, he has always stressed that he just stuck to giving economic advice rather than trying to run the political operations. Given what has happened to the British economy, perhaps in the interests of his long-term ambitions, he should take credit for the political operations and leave Mr. McBride to take the blame for the economic advice.

We welcome the Secretary of State to this debate, and it is a special one. Government Budgets normally take a few days to unravel—sometimes just one day—but this one set a new record. It unravelled half an hour after the Chancellor sat down. He sat down at around 1.30 pm, and at 2 pm the IMF produced its growth forecasts for the world economy and the British economy, which completely contradicted the growth that the Chancellor had given to the House just a few minutes earlier.

Instead of the economy going from a staggering 3.5 per cent. contraction to a fantastically optimistic 3.5 per cent. growth in just two years, the IMF says the recovery will be much slower and, indeed, that Britain's economy will still be contracting next year. I hear sneers and dismissal from Government Members about the IMF's figures, but I thought that the IMF was going to be the new early-warning system for the Prime Minister. In a stroke, the IMF destroyed the credibility of the premise on which the Budget and its borrowing figures had been built. The claim is that within just two years, the British economy is supposed to bounce from the deepest recession that it has known since the second world war to levels of economic growth and household consumption seen only at the height of the boom; we now know that, frankly, in the view of almost every independent forecaster, that is a complete fantasy. No wonder that one paper this morning described the whole thing as "Alistair in Wonderland". I guess that that leaves the Prime Minister as our mad hatter—and given the expression on the face of the Secretary of State for Energy and Climate Change, he is the white rabbit.

As I say, the IMF was not the only one to question the central Budget assumptions. Almost every single business organisation and independent forecaster followed suit, including the Institute of Directors, the Engineering Employers Federation and a host of others. This is what the chief economist at Standard Chartered—one of the few banks that has not gone bust under this Government—said yesterday afternoon:

"The chancellor...believes recovery will be rapid...we will see growth of 1.25 per cent. in 2010 and 3.5 per cent. in 2011. This is this...rebound is expected to occur" while the "legacy" of the borrowing binge "lingers on".

Extraordinarily, the Chancellor of the Exchequer yesterday announced the worst public finances ever announced in the House of Commons, told us that in the next two years we would borrow more than has been announced at that Dispatch Box by all previous Chancellors combined, and said that he would double the national debt, yet he was guilty of being too optimistic. That is the scale of the mess that the Government have created. The tragedy of yesterday was that instead of being honest about that mess—instead of taking responsibility for the mistakes that have been made and giving us a credible plan to pull Britain through—we got that complete fantasy.

This is what the director general of the CBI said yesterday afternoon:

"The key question for this Budget was whether it set out a credible and rigorous path for restoring the public finances to health. The CBI's preliminary judgement must be that it does not".

That sums up the scale of the failure yesterday. The central task of a Budget in a recession such as this is to inspire confidence in the future—confidence that the Government are realistic about the problems that the country faces, confidence that they have a credible and rigorous plan to deal with those problems, and confidence that they have the leadership and vision to take this country forward. Who would say that in Britain today, people and families are feeling more confident about this country's future as a result of the Budget? Almost no one. That is why yesterday was not a route map to recovery but the death rattle of a tired and discredited Government who are limping on until the law of the land actually forces them to hold a general election.

Let us look at the components of what a credible and rigorous path for restoring the public finances might look like, and then we can see why the Budget failed. [Interruption.] Indeed, and it might come as a surprise to the Secretary of State for Energy and Climate Change, that there is such a thing as a credible and rigorous path because we certainly did not hear of one yesterday. First, it would involve understanding why the public finances are in such a disastrous state. The Prime Minister is still stuck in the rut of claiming that this is the recession that came from America and hit an otherwise sound British economy. I see Mr. Hamilton nodding his head. He must be about the only person in the world who believes that now. [Interruption.] Okay, the three of them do—the hon. Members for Glasgow, North-West (John Robertson), for Coventry, South (Mr. Cunningham), and for Midlothian. Perhaps if we have a swipe-card system, we will get some more in, too.

Whether we are talking about Lord Turner, from whom the Government commissioned a report, or the Treasury Secretary of the United States, there is now consensus that the British economy, like the American economy, went through a credit boom that fuelled an unsustainable rise in house prices, household borrowing and bank leverage. Indeed, it was greater in the UK than in the US. It was an illusion of economic stability built on a mountain of debt. Given that, the claim to have abolished boom and bust was surely one of the greatest political deceits ever told to the British people, and the decision to borrow at unsustainable levels during the boom, instead of fixing the roof when the sun was shining, left Britain totally unprepared for the economic slow-down. That is why Britain now has the worst public finances of any major economy in the developed world. Even in the past 24 hours, after the Government forecast a Budget deficit of over 12 per cent. of national income, Ministers still will not admit it.

I welcome the Chief Secretary to the Treasury to the Chamber. Yesterday, I watched her saying in the media that the US deficit was going to be higher than ours. I do not know whether she read the IMF report published yesterday afternoon. It says that with the exception of Ireland, the UK has the highest budget deficit of any of the countries that it looked at—higher even than that of Iceland, let alone the United States of America. That is the highest deficit in our peacetime history.

Let us remember what the Prime Minister said just last year. Perhaps these words were crafted by the Secretary of State for Energy and Climate Change:

"Look in the early 1990s, let's look at how economies go wrong,"— said the Prime Minister—

"in the early 1990s Government borrowing went up to 8 per cent of GDP, that's what happened under the Conservatives. It went completely out of control."

If he describes 8 per cent. as "completely out of control", what does he call a 12 per cent. budget deficit?

In the Red Book, there is an admission, which we might well be putting on posters in the run-up to the next election, that the current downturn is forecast to be much deeper than that of the early 1990s.