New Clause 1 — Commencement

Oral Answers to Questions — Prime Minister – in the House of Commons at 6:15 pm on 20th January 2010.

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'(1) This Act comes into force on such day as the Treasury may by order made by statutory instrument appoint.

(2) No such order may be made unless a draft of the statutory instrument containing it has been laid before Parliament and approved by a resolution of the House of Commons.

(3) No such draft may be laid until the Treasury has conducted a consultation on the contents of this Act and laid before Parliament a report setting out a summary of responses.'.- (Mr. Gauke.)

Brought up.

Question put, That the clause be added to the Bill.

The Committee proceeded to a Division.

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The Chairman:

I ask the Serjeant at Arms to investigate the delay in the No Lobby.

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The Committee having divided: Ayes 201, Noes 266.

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Question accordingly negatived.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment .

Third Reading.

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Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury 6:31 pm, 20th January 2010

I beg to move, That the Bill be now read the Third time.

I thank all hon. Members who participated in the Committee stage today. The Bill is short, and we have had sufficient time to scrutinise its key provisions.

As we debated on Second Reading and in Committee, the Government have set out consolidation plans to halve the deficit over four years and put debt on a downward path. The Bill places obligations on the Government to cut the deficit at an appropriate and sensible pace, as well as allowing us to protect the economy and maintain key public services.

Every country has been hit by a severe financial crisis, resulting in the worst global economic recession for decades. That has had a profound impact on the public finances and resulted in a significant increase in Government borrowing and public sector net debt. We have had to be responsible but flexible in the way in which we have dealt with those changing circumstances. That is why the Government provided a fiscal stimulus to support the economy and help people and businesses-a measure that the Conservative party opposed.

Of course, there were costs to stepping in, but not allowing borrowing and the deficit to rise to help people and businesses would have meant greater pain and more job losses. However, the Government have always made it clear that support for the economy must be followed by steps to rebuild our fiscal strength. It is our judgment that tightening fiscal policy too much in 2010-11 would risk the recovery and be likely to cause the fiscal position to deteriorate. We believe that the economy can support a more rapid tightening in 2011-12, and growth will help us reduce our borrowing and debt.

As we look to the future, the Government believe that it is appropriate to strengthen the fiscal framework. Other Governments around the world are considering similar measures. The Bill enshrines consolidation plans in legislation. It requires the Government to have at all times a legislative fiscal plan, approved by Parliament, for delivering sound public finances, and places a binding duty on the Government to fulfil the plan.

Some have claimed that placing those plans in statute is a distraction. As we have debated, legislation will provide certainty and stability for business, and the Bill will bind the Government, to ensure that they deliver the tough decision to more than halve the deficit over four years and get debt falling.

The UK is not alone. As Governments throughout the world work together on the response to the downturn, many other countries are also examining their fiscal frameworks. Indeed, the International Monetary Fund has highlighted fiscal responsibility laws as a way of supporting fiscal adjustment by strengthening institutional arrangements. As I have said previously, Germany already has similar legislation on its statute book.

The fiscal plan for delivering sound public finances must be approved by Parliament before it becomes law. As I said, the Bill places a binding duty on the Government to meet that plan. We believe accountability to Parliament is important. Giving Parliament that new scrutiny role in relation to progress and compliance with fiscal plans is innovative and new for the Government.

I contrast what the Government are doing-we are willing and prepared to be open and responsible to Parliament-with the policies of the Conservatives, who want to set up an office of budget responsibility, which would, in effect, be an unelected quango. They would diminish the role of Parliament in such important decisions, but we do not believe that that is the right thing to do. Under the Bill the Government will be required, through regular progress and compliance reports, to account to Parliament for their actions. The progress reports, which will be produced alongside Budgets and pre-Budget reports, must set out progress that has been made toward compliance with the plans. If targets are not met, the Treasury must explain why not to Parliament.

I think it right that that is the method of accountability. The Conservatives say that we could hive off economic forecasting to a separate office, while presumably relying on those forecasts, but who would be responsible if the forecasts turned out to be wrong? Who is to blame if policy is wrong because forecasts are wrong? Would it be the new office of budget responsibility or the Government? Why should Parliament not hold the Government to account for those actions? That is why setting up a new office or body and separating forecasting from policy consideration and delivery, rather than going down the legislative route that we have proposed, is the wrong way to go.

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Photo of David Drew David Drew Labour, Stroud

Can the Minister assure us that the Governor of the Bank of England is also bound-in to those statements?

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Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

My hon. Friend may have heard some earlier exchanges about the Governor and his views on cutting the fiscal deficit. We are all agreed-the Governor and all political parties-about the need to cut the deficit. The big debate between us is on how quickly to do it. The Conservatives would place the recovery at risk by acting too soon.

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Photo of Alan Haselhurst Alan Haselhurst Chairman of Ways and Means

Order. I am sorry to interrupt the Minister, but he places me in a difficulty. On Third Reading, he should really be concentrating on what is in the Bill. If he talks about what might have been in the Bill, it makes it difficult for me to resist counter-arguments that would almost certainly be out of order.

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Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I will return directly to the Bill, Mr. Deputy Speaker.

Our judgment is that it is better to engage in the necessary fiscal tightening from 2011-12 onwards, when all the predictions are that the economy is likely to be growing far more and we will be better able to make those necessary, difficult decisions. However, having said that, our fiscal consolidation plan extends from 2009-10 right through to 2015-16.

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Photo of Sally Keeble Sally Keeble Labour, Northampton North

What if the Government were to start fiscal tightening earlier? When-roughly-would redundancy notices have to start going out to public sector workers to get savings in the coming financial year?

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Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I do not particularly want to speculate on that, other than to say that it is difficult to take action now that will produce meaningful results in 2010-11, and I have not seen proposals of any significant detail from the Conservatives that would deliver what they say they want.

There is a clear commitment in the Bill to a fiscal consolidation plan that will halve public sector borrowing as a share of gross domestic product over four years from its forecast peak in 2009-10. As we have debated, we are setting a target in secondary legislation for borrowing to be 5.5 per cent. of GDP or less in 2013-14. The plan also commits us to reducing borrowing as a share of GDP in each and every year from 2009-10 to 2015-16 and it ensures that public sector net debt is falling as a share of GDP in 2015-16. This is the sharpest reduction in the budget deficit for any G7 country, but it is not unreasonable. The average pace of consolidation over the period is forecast to be comparable with the speed at which the deficit was reduced during the period of consolidation in the 1990s.

The framework that we propose is flexible, as I explained in Committee. The key point to recognise is that as growth picks up we have to ensure that we have sound public finances. That is essential for economic stability for the long-term health of our economy. We all know that; the debate has been about the pace at which we achieve that and the point of having legislation on that issue. The point of legislation is to give confidence to the public and the markets that we are committed to taking these actions.

Actions have already been announced, as part of the PBR 2008, the Budget 2009 and the PBR 2009. Further actions will undoubtedly be necessary. We are building on principles in the code for fiscal stability, the revised version of which was published yesterday, and we discussed those principles in Committee. The building of the fiscal framework on top of those principles-enhancing it through this Bill-will support the task of ensuring that we have sound public finances for the long term. Parliament will be given a new role to hold Government to account, and that is important and the right thing to do. I commend the Bill to the House.

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Photo of David Gauke David Gauke Shadow Minister (Treasury) 6:42 pm, 20th January 2010

It has been striking, in the brief course of this Bill, just how embarrassed the Labour party and the Government are about it. On Second Reading, we did not have a single contribution from a Labour Back Bencher in support of the Bill. The explanation given by the Exchequer Secretary, in the course of her winding-up speech, was that perhaps those who wanted to make a contribution were not able to do so because of the bad weather. Well, the weather is fine today and, despite the best efforts of the Government Whips, we have had one contribution from a Labour Back Bencher that could be said to be mildly supportive. It was from Mr. Todd, although his argument was that the Bill gave us an opportunity to debate the matter and he did not expect it to become legislation in any event. He did not sound unduly unhappy about that state of affairs.

Even on Second Reading it was clear that the Chancellor of the Exchequer did not have his heart in proposing the Bill. He explained that if there was a major recession the terms of the Bill would have to be ignored anyway. Even by his standards, he had the lugubrious and weary tone of someone who did not really want to be there, and his body language was almost enough to say, "That's another fine mess you've got me into, Gordon." Since then, the Chancellor has had one of his periodic bouts of assertiveness and has started giving lengthy newspaper interviews about cuts in public spending, although it is noticeable that he has stopped talking about this Bill. Even the Chancellor does not take it seriously enough, or believe that the public will take it seriously enough, to be bothered to advocate its merits.

We have not had enough time to debate the matter. The Minister said that there had been sufficient time, but I am not sure how many Bills there have been on which consideration in Committee has not got beyond clause 1, which is what has happened on this occasion. I suspect that the Lords will not have an opportunity either to scrutinise the Bill sufficiently. Unlike with most Bills, there has not been an opportunity for evidence sessions to hear what the experts say. Given that this Bill is all about creating the right impression, one would have thought that that would have been of some use.

It is not surprising, however, that we have been denied the opportunity to hear what the experts have to say, given that practically every public comment on the Bill has dismissed it. I have quoted at length already various economist and business leaders. One person whom I have not quoted, however, is Lord Turnbull, former Cabinet Secretary and permanent secretary to the Treasury, who last week wrote in the Financial Times that

"an external constraint is needed... It should not take the form of a statutory limit on borrowing, as the present government proposes. Remember the fate of the US Gramm-Rudman act and the European Union's stability and growth pact...More promising is the proposal for an office of budget responsibility...Its purpose should be to provide authoritative judgments and commentary that ministers ignore at their peril-in other words, to raise the political cost of bad policy."

There is a credibility gap that needs to be filled.

The Government are right to identify the need to provide reassurance to the bond market and the public as a whole. It is right that we try to improve parliamentary accountability in public finances; that we give Members proper information to hold a Chancellor to account; that we put pressure on any Government to meet their fiscal objectives; that the tools to provide internal Government discipline and ensure fiscal responsibility are improved; and that we try to do something to enhance credibility with the bond markets to ensure that interest rates can be kept low for as long as possible. However, the Bill does not do that. An office of budget responsibility would do that.

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Photo of Andrew Pelling Andrew Pelling Independent, Croydon Central

That is an excellent idea. Could it not be taken further to improve Parliament itself by having that operation within Parliament-a bit like with the budget office in Congress?

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Photo of David Gauke David Gauke Shadow Minister (Treasury)

That is a helpful contribution. I am sure that you, Mr. Deputy Speaker, would not want me to be overly diverted on to the governance of such an office of budget responsibility. Clearly, however, accountability to Parliament is important, and I have no doubt that such an office would enhance the role of the Treasury Committee and Parliament's ability to scrutinise what the Government are doing.

The Bill represents displacement activity. When the Treasury should be tackling our deficit, it is forced to waste its time bringing in this meaningless Bill, because the Prime Minister will not face up to the consequences of what he has done to the public finances. If we want credible finances, this Bill is not the answer and this Government are not the answer. Only a new Government can give this country fiscal credibility. We simply cannot go on like this. It is time for a change.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury) 6:49 pm, 20th January 2010

Traditionally, at this point in the Bill process, we all thank the Clerks and the others who have contributed so much to our deliberations over many weeks, but as we have not had any meaningful deliberations, it is difficult to thank them to the extent that normally I would. I have hardly got to know them or, for that matter, the Minister any better than I did. It was the most cursory examination of a most pathetic Bill. The Minister says that we have had a chance to look at the Bill in detail, but we got only to the end of clause 1. Admittedly the Bill has only six clauses, but if the entire detailed scrutiny process gets bogged down in clause 1, it is hard to argue that we have had the opportunity that the Minister claims we have.

Leaving that to one side, it is fair to argue that we do not need to scrutinise the Bill for very long because it is so pathetic and because it is such an insult to the House to introduce it in this form, as is the idea that the Government have fiscal responsibility merely because they proclaim in an Act of Parliament that they possess it, even though they have no evidence to support that assertion. Indeed, that is such a laughable claim that very few Labour MPs have been able to bring themselves to come to the House and show any enthusiasm for the Bill at all, which is extraordinary when we consider what the Government are proposing.

Let us suspend our judgment for a moment and imagine the Labour party winning the next general election. The Government are proposing that all those Labour MPs who are returned would march through the Lobby, month after month for the duration of the next Parliament, and cut about £100 billion off public spending, even if we went into recession again.

Let us imagine what would happen if we went into another recession in, for the sake of argument, 2013 or 2014. At that point, one would normally expect the automatic stabilisers to kick in to help deal with all the people-the real victims of a second recession-who would be affected by rising unemployment, the closure of factories and offices around the country and all the other consequences of a recession that we can imagine. However, at precisely that point-the point at which one would expect the Government to expand public spending to try to cushion those blows, and the point at which Governments have historically always done just that-the Bill would dramatically cut public spending.

Labour MPs, who have just marched through the Lobby to vote on all those matters, are basically signing up to closing whole swathes of schools and hospitals, in a fire sale of public services, because they would need to keep within the strictures of the Bill. What an extraordinary position for Labour MPs to be in. Indeed, I am amazed that the Government could find any MPs to vote for the legislation at all. I know that some oppose it from the left, as it were, because they think that the Government are cutting the deficit with excessive zeal, but that is not essentially the point that I am making. The point that I am making is that the Government should not be putting Labour MPs in a straitjacket with this preposterous Bill, which takes no account of what might happen in the next six years and chains Labour MPs to a potentially devastating series of public spending cuts.

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Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Was it not the hon. Gentleman's party leader who talked about the need for "savage" cuts? I thought I heard that word.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I think it is necessary to cut the deficit-

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I have said that, and I do not know many people who think that £178 billion a year is not enough. Of course we need to cut the deficit. Less than two years ago the Government estimated that the deficit this year would be £38 billion; instead it is £178 billion. We are borrowing about £500 million extra every day. One quarter of our entire public expenditure is unfunded. Do I think that that is sustainable? Of course not. Of course we have to address the budget deficit. The question is whether we actually do something about it, by making concrete proposals and putting in place a series of credible measures, or whether, as an act of displacement, we pass a law that says that in future we have to make some meaningful suggestions and actually do something, and imagine that, as a consequence, people will be reassured.

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Photo of John Reid John Reid Labour, Airdrie and Shotts

That is not the question. The question, if the hon. Gentleman can set aside his displacement concern for his beloved Labour MPs, is what the Liberal MPs are going to do. How much will they cut the budget and over what period?

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I do not wish to talk out of turn, but the right hon. Gentleman has not followed every ebb and flow of our deliberations this afternoon. We have said repeatedly that the deficit is unsustainable. We have talked about a series of tests that we think would need to be satisfied to cut it in an intelligent way and a way that was compatible with returning the economy to growth.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Wait a second.

We have identified specific proposals that other parties have typically been unenthusiastic about initially, but which they have come to support as the full consequences have become apparent to them.

We are supposed to be debating Third Reading and there are four specific objections to the Bill. First, it offers no flexibility. We have tried to improve that, but there is still no flexibility short of the Chancellor ripping up the legislation. Secondly, the provisions cannot be disregarded. There is no flexibility for different circumstances, and there is no formal mechanism for disregarding the Bill. It is all to be done on the whim of the Chancellor or a Minister. Thirdly, there is no accountability. What will happen if the Government do not meet the terms of their own legislation? The answer is nothing.

Finally, and most importantly, the Bill is not meant to achieve any of the things that I have mentioned. The Minister has acknowledged that it is meant to send a signal that the Labour Government are credible on deficit reduction, but no one believes that it sends that signal. There are only two reasons why anyone in the markets and in the country is feeling reassured about deficit reduction. The first is that Lord Mandelson has seized the wheel of the Government again, and he appears to have an understanding of these matters that the Prime Minister does not. The second is that people are expecting Labour to lose the general election. They are not as alarmed as they would otherwise be because, when they see this charade; they know that the group of people surrounding the Prime Minister who put together this insulting legislation will be governing the country for only a matter of weeks, and that we can then get on with the serious business of making proper progress.

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Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington 6:56 pm, 20th January 2010

I have sat through the debates all afternoon; I left the Chamber for only a short time. I hope that the House will forgive me if I intervene at this point, but my amendment was not reached. I think that that has now happened for about three days running, but never mind.

The tragic irony for many of us is that there is a consensus across the main political parties that some of us do not share. That consensus is on the answer to the question: who is going to pay for this crisis? It appears from the consensual discussions that have taken place that the people who will pay for it are those who never contributed to it. It will not be the people who got the bonuses, or those who, through their reckless greed, brought the economy to a standstill and into crisis. Nor, to be frank, will it be the Government Ministers who, through their neglect and deregulation, allowed that to happen. As a result of this Bill, it will be ordinary working people who will lose their jobs.

The level of cuts described in the Financial Times interview yesterday involved a 17 per cent. cut across the board for Departments other than those covering health, schools and policing. On average, we can expect a 10 per cent. cut in jobs, which means 500,000 civil servants. The tragedy is that, in the very month in which the Government are announcing those cuts through this legislation, they are also bringing forward proposals to scrap the civil service compensation scheme, so the redundancy scheme will go as well. Large numbers of people will lose their jobs as a result of this economic crisis, which was not of their making. They will also lose the redundancy entitlements that they had been expecting and to which they signed up when they took their jobs in the public service.

In addition, our communities will now be at risk of losing some of their essential services. We have already seen announcements in London this week about possible hospital closures. There was a lobby of Parliament today by Land Registry workers, 1,700 of whom are to be sacked, and 1,500 jobs are to go at Network Rail, which will put public safety at risk. This is all because there is consensus in this House that ordinary working-class people will pay for this crisis.

Some of us think that there is an alternative. Yes, it would involve cutting some public services, but it is also about scrapping Trident and ID cards, and about getting rid of the waste of resources involved in privatisation and getting rid of all the consultants, on whom we spend hundreds of millions: £400 million alone was spent on the private finance initiative on the London underground. It is also about re-introducing a fair taxation system that would tackle all the avoidance and evasion and ensure that those people who have made such profits through their exploitation of the public services that have been privatised actually pay their way in our economy. Why are we so hidebound in trying to resolve this economic crisis within the four-year time scale that the Government have set for us?

What we are asking for now is a planned economy-no longer a casino economy. We need an economy that serves the needs of our people, rather than the current rush towards cuts, further privatisations and towards the creation of an economy that will enable the casino wheels to start spinning again. That is the debate that we should have had today, but instead we have had a surreal debate about a meaningless piece of legislation that will have no effect in the real world in terms of reassuring the markets in the long term, but will have a real effect in terms of cuts in public-

Debate interrupted (Programme Order, 10 January).

The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the Bill be now read the Third time.

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The House divided: Ayes 265, Noes 197.

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Question accordingly agreed to.

Bill read the Third time and passed.

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