Amendment of the Law

Part of the debate – in the House of Commons at 5:50 pm on 28 April 2009.

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Photo of Peter Hain Peter Hain Labour, Neath 5:50, 28 April 2009

What was striking about the speech from Mrs. May was that it was devoid of any content on the policy alternative she might advocate. The policies advocated so effectively by my right hon. Friend the Secretary of State would be unaffordable and undeliverable if Conservative policy cuts were implemented. I shall explain why.

The economy is contracting faster than the Treasury expected only five months ago, so the Chancellor was right in the Budget to give a further fiscal stimulus, expanding the one announced in November. It brought total fiscal support through discretionary action in the Budget, the pre-Budget report and the automatic stabilisers to 4 per cent. of GDP, on top of the other action to boost the flow of credit and cut interest rates. Goodness knows where the economy might be heading now if the Government had instead followed Conservative strictures, and had not acted promptly to adopt a Keynesian response to the crisis.

The Budget also did the right thing by boosting public investment this year to £44 billion, compared with the £35 billion the Chancellor was planning to spend 12 months ago. These are exactly the right policies and priorities to stop a slide into slump, and exactly the right strategy to ensure that the recession is not deeper and longer.

Conservatives seem to forget that the purpose of extra public borrowing is to make up for the collapse in private spending brought about by the global financial crisis. By helping families who are in danger of losing their homes and their livelihoods, and by helping firms that cannot spend because their banks will no longer lend, Government can stop economic casualties turning into social catastrophes. Without such Government action and borrowing, millions more jobs, and tens of thousands more businesses, would be in jeopardy.

Borrowing is rising because of the impact on UK public finances of the world economic crisis, not the so-called public spending extravagance beloved of the leader of the Conservative party and his right-wing media allies. The Institute for Fiscal Studies reckons that the global financial crisis is costing the Exchequer around £90 billion per year, owing to lost tax revenues and higher social security costs. The fiscal stimulus since last year's Budget accounts for only about £26 billion of the nearly £400 billion increase in Government debt to 2012, or roughly one fifteenth of that total.

No one here or elsewhere in the world foresaw the severity of the crisis currently gripping the global economy. Perhaps that is why, after 15 years of expanding UK employment, and Labour's 11 years of unprecedented stability and growth, much of the media appear both bewitched and bewildered by the prospects for Government borrowing and national debt. In one surreal moment last week I heard the Chancellor on the BBC "Today" programme being asked by Evan Davis about Government borrowing for the Budget, not last week or even next year, but in 2014.

Even more preposterous is media speculation about borrowing and debt in 25 years' time, when the average Budget forecasting error is £12 billion for net public borrowing looking just one year ahead. Many commentators have become spellbound by long-term forecasts of public sector borrowing, and are quite unable to focus on the benefits that such borrowing brings, or to contemplate the truly horrendous alternative without it.