Fiscal Responsibility Bill

Part of the debate – in the House of Commons at 8:42 pm on 5th January 2010.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury) 8:42 pm, 5th January 2010

I do not want to repeat what anyone else has said, but this is a profoundly pointless piece of legislation, because one would have imagined that the job of any Government at any time would have been to ensure fiscal responsibility and sound public finances all the time. One would not imagine that the Government would need a law to tell them to do that, and certainly not a law that will enshrine on the statute book, if it gets that far, deep and savage cuts-cuts that this Labour Government have already planned. An £800 million budget cut has already been announced for Scotland.

Only this Government, I suspect, could be so foolish as to lay out very broad and deep public spending cuts before we have a sustained and sustainable economic recovery from the recession. Only this Government, I suspect, would carve them into stone on the statute book, at a stroke sucking out the consumption and demand that has propped up the economy in the past little while and which is almost certainly necessary to ensure a further and sustainable economic recovery.

At its heart, the Bill is also dishonest. Although it is fundamentally about deep cuts-as I said, an £800 million cut to the Scottish budget has already been announced-the Government have refused to publish or carry out a comprehensive spending review. That means that we do not yet know the implications for every single one of the UK's spending Departments. We are therefore having this debate in a vacuum, without knowing the implications for ordinary people and ordinary services or for the economy more widely-the very point that Ms Clark made. It may be those at the bottom of the pile who will pay the price for this Government's economic failure.

The absence of both a comprehensive spending review and an understanding of what the cuts really mean make a mockery of the explanatory notes. Mr. Browne, who speaks for the Liberals, mentioned this earlier, but paragraph 31 says:

"There are no significant financial effects of the Bill."

He seemed to agree with that, but I disagree entirely. There are massive financial implications for every UK spending Department and, potentially, for almost every piece of public investment. There are also implications for, in the first instance, the incomes of tens of thousands or hundreds of thousands of public sector employees who will lose their jobs and, in the second instance, private sector employees, as expenditure in local communities is reduced, as the cuts begin to bite on public sector income and the spending power in local communities. There are also massive financial implications arising from the increased social protection costs as people are paid off as a direct consequence of the cuts.

Do the Government not understand that it was only increased Government consumption-up 2.2 per cent. last year, at a time when household expenditure fell by 3.6 per cent., when total business investment was down by 22 per cent. and when gross fixed capital formation was down by 17 per cent.-that kept the economy afloat at all? Do they not understand that to begin the process of deep and savage cuts now, before the private sector has the confidence to spend and invest, and when credit for businesses and individuals remains incredibly difficult or expensive, is economically stupid? That is the economics of the madhouse. The measures-the Labour cuts-therefore not only put faltering economic recovery at risk but, as the hon. Lady said in her speech, run the risk of pushing the economy into a double-dip recession, which is something that I know the Treasury is concerned about. I am therefore at a loss to explain why they are introducing the measures today.

As an aside, I am also at a loss to say where the Chancellor is. There were only two, very modest financial measures in the Queen's Speech: the Financial Services Bill and the Fiscal Responsibility Bill. Both are small and modest-indeed, this one really does not matter-yet the Chancellor is not even here to listen to this short debate, on one of only two financial measures in the Queen's Speech.

Before embarking on this political dividing line of a Bill-that is all it is-this Labour Government should have learned the lessons of fairly recent history: the recessions of the 1980s and 1990s. The recessions of 1980-81 and 1990-91 lasted for five quarters. This recession has already lasted for six. The declines in GDP then were 4.7 and 2.5 per cent. respectively. This recession has already taken our GDP down by 5.9 per cent. The economy took two full years after the technical end of those earlier recessions to reach the point at which the GDP recovered to pre-recession levels. As I said earlier to Mr. Redwood, it took three years before unemployment stopped rising after the technical end of the recession in 1981 and two full years before it stopped rising after the technical end of the recession in 1991. In the absence of the clarity that a comprehensive spending review would give, the scale of the cuts envisaged by the Bill and the PBR run the risk of replicating, or worse, the human cost, as well as the economic danger, of the 1980s and 1990s recessions.

I have been a critic of the deficit and the debt levels since before the recession and before the banking crisis. Going into the recession, I said that there was nothing in the tank, because our debt at that point was around £500 billion and due to rise. I want the deficit and the debt to be reduced, but there are alternatives to what the Government propose in the Bill. When the New Zealand Government introduced their Fiscal Responsibility Act 1994, they did so on the basis of five important principles. I shall go through them briefly. The first was that Government debt would be reduced to a "prudent" level. That principle acknowledged that the existing level of Government debt was too high-as it is here-and that the Government needed to run operating budget surpluses for a period of time to reduce the outstanding debt and the annual deficits. They talked about a "prudent" level, not about an arbitrary 50 per cent. cut in order to be able to afford an artificial political dividing line.

The second principle was that, once debt was reduced to a prudent level, the New Zealand Government would seek to maintain a balanced budget on average over the medium to long term. They did not seek to do so over one economic cycle, in which the Government would change the start and end dates to make the cycle fit the numbers, or over a single Parliament. They sought to achieve their aim using an average over the medium to long term. That was very sensible. If the Government here were to adopt that principle, they would still be able to invoke counter-cyclic measures in the midst of an ongoing debt and deficit reduction programme, if we were to hit a further significant downturn. The automatic stabilisers would kick in safely, and we would have the ability to use fiscal stimulus measures, if they were required, while we stuck to a medium to long-term objective of bringing the debt and deficit down to a prudent level.

The third principle was that the New Zealand Government would achieve and maintain a level of net worth that provided a buffer against unforeseen future factors. That principle recognised that factors other than explicit Government debt-such as public service pension liabilities or bank deposit insurance such as the asset protection scheme-have an impact on the fiscal position.

The fourth principle was that the Government would manage fiscal risks prudently. That called for attention to be paid to all fiscal risks, such as shifts in the demographic structure of the population and off-balance sheet state guarantees. This Bill, however, is a blunt measure to camouflage risky and damaging cuts, and it says nothing about prudent financial management.

The fifth principle was that the Government would pursue policies that were consistent with a reasonable degree of predictability in regard to the level and stability of tax rates for future years. That principle recognised the importance of tax stability for private sector planning and growth. Although this Bill is called the Fiscal Responsibility Bill, it says nothing about the important matter of tax stability.

Whether the Bill is passed or not, we might have a Budget in the spring. On the "Andrew Marr Show", the Prime Minister said that that could happen

"if it's the right time", which was meaningless nonsense to avoid saying yes or no. There might be a Budget in the spring, but there will be no time for a Finance Bill to consider its tax implications. There will almost certainly be an emergency Budget closer to the summer, but that will cause further uncertainty and delay. We are already seeing further tax rises, more tax changes and more tax uncertainty, all of which risk discouraging the investment that we need in order to grow the economy. Growing the economy is the real key to tackling the deficit and ending the debt, but the Bill says precisely nothing about that.

I heard the Chancellor's rhetoric earlier, but when I looked at the Bill, I wondered whether he was talking about the same piece of legislation. I also wondered, when I heard him justifying some of the measures, whether he was on speaking terms with the Prime Minister, who said on 10 June last year that

"you cannot cut your way out of the recession".

On 21 October, the Prime Minister said:

"The only way forward for this economy at the moment is to maintain the fiscal stimulus".-[ Hansard, 21 October 2009; Vol. 497, c. 906.]

In The Daily Telegraph on 25 October, he said that

"it would be suicidal to put recovery at risk by suddenly cutting".

Then, on 28 October, he said:

"What sense does it make to withdraw the fiscal stimulus now...?"-[ Hansard, 28 October 2009; Vol. 498, c. 279.]

He is, of course, the Prime Minister of the only serious economy in the world that does not have a fiscal stimulus package any more. As recently as 2 December, he railed against those who wanted "immediate and savage" cuts that would prevent Britain from recovering from the recession, yet that is precisely what the Bill and the pre-Budget report will achieve. It is precisely what the noble Lord Mandelson was referring to at the Press Gallery lunch in July, when he warned of austerity "for the next decade". When I hear the Chancellor and other Labour figures railing against so-called Tory austerity for a decade, I am reminded of the noble Lord Mandelson warning against Labour austerity for the next decade. The Herald reported accurately-I was there at the lunch-that

"Lord Mandelson has raised the prospect of an age of austerity in Britain under Labour, with spending cuts... running right the way through to 2020."

What we are seeing today is the enabling legislation to do that.

The Government appear to be determined to risk economic recovery by withdrawing the lifeblood from the economy before we have a sustained and sustainable recovery. I believe that they will pay the price for that at the ballot box, but that will be of little comfort to the hundreds of thousands of ordinary people who will pay the real price for Labour's economic failure and this inflexible Bill.

I want to see the deficit and the debt cut, but I want to see that done from a position of a sustained and a sustainable economic recovery. I conclude my remarks by saying that if anyone thinks that tackling the deficit and then the debt will be difficult from a position of sustained and sustainable recovery-and it will be; there will be tough choices to make-it will be absolutely impossible from a position of faltering recovery or a double-dip recession or one that will require the kind of swingeing cuts that other Members have spoken about, made in a knee-jerk and panicked way. That is something that none of us wants to see.

I tell the Government that we will oppose the Bill today and bring forward amendments in future stages. The attempt to tackle the deficit and the debt must be done in a flexible way that protects genuine front-line services and allows the deficit and the debt actually to be reduced from a position of real growth, rather than having the whole economy butchered simply to create an idiotic dividing line between two parties in the run-up to an election that the Prime Minister does not even have the guts to call.

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