Budget Resolutions and Economic Situation — amendment of the law

Part of Oral Answers to Questions — Prime Minister – in the House of Commons at 1:58 pm on 24th March 2010.

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Photo of John McFall John McFall Chair, Treasury Committee 1:58 pm, 24th March 2010

The Treasury Committee has persistently focused on that issue, and this morning I was at a business breakfast with small business representatives, who outlined the problems with lending. At the time, we said to the Chancellor that the lending agreements had to be more transparent-there is a problem with them-but I welcome the additional £90 billion that the Royal Bank of Scotland and Lloyds will provide. We really need to get that lending to small businesses, so the initiatives in the Budget are welcome.

To some extent, however, the uncertainties, whether about credit or the wider economic outlook, remain. The fear of a double-dip recession raises its head every now and again, and monthly data releases are analysed to within an inch of their lives-only to be revised in the following month. In the face of those uncertainties, the Government must act as a buffer, providing support to the economy as the private sector recovers from the banking crisis and resultant recession. That of course has a worrying effect on the public finances, but at times of crisis it is necessary for a Government to support people. The Government must ensure that hope for a better future is not lost, and that will be a theme of the general election. Yes, times are difficult, but we must offer hope and a future to people if they are to maintain their faith in the parliamentary system.

None of us can deny that the choices that we are to make on spending or taxes are difficult, and good decision making requires accurate and timely information. That is why the Treasury Committee, in its report on the pre-Budget report, urged the Government to provide more information. On one such point, we noted:

"There is a sense that the Treasury are using uncertainty to suit themselves. Despite substantial uncertainties they still produce some forecasts out to 2014-15 and illustrative projections out to 2017-18. We can see no good reason for the Treasury failing to produce illustrative figures for future expenditure, at least the projected split between DEL and AME. We recognise that there will be uncertainty in these figures, but they are produced as part of the Spending Review process".

So, with the spending review process in the autumn, I look forward to those figures becoming clearer.

The deficit will have to be tackled, but perhaps more importantly it has to be seen to be tackled. We must satisfy the markets and, more importantly, the people that the deficit is in hand, regardless of our political affiliations. I should like to offer the following notes-some may say, crumbs-of comfort from the Governor of the Bank of England, who, at the Treasury Committee's hearing on the February inflation report, said:

"I think it is very clear we have political consensus on the need for fiscal consolidation. We have a very good track record in the past at meeting our obligations. We have our own currency which gives us greater freedom of manoeuvre and we also have a public debt which has a much longer maturity so that we are not faced with the same rollover refinancing problems which affect many other economies. The UK should be grateful that we have the maturity of our public debt which is almost twice that of any other country."

That comment is very important, particularly in the face of the deficit hawks who want to cut now and cut severely.

We must tread the path of the next few years carefully. The public sector will have to step back and allow the private sector to play a leading role in growing our economy, but we must ensure that the timing is right and we do not crowd out private sector growth with too much debt-fuelled public sector spending. [Hon. Members: "Hear, hear."] But, the dangers are equally treacherous on the other side. If the private sector is so sickly, as it is at the moment-whether owing to a lack of confidence or credit, or because it cannot grow as fast as needed-we risk losing more people to unemployment. So I welcome the Government's commitment to support people and businesses during these difficult economic times.

There is some evidence to show that the Government's action on the economy is working-the number of companies being wound up falls far short of the numbers seen under the previous Tory Government in 1992. To withdraw that support too soon, in the name of balancing the books, would be nothing less than economic suicide. Thousands of people's livelihoods depend on that support remaining in place until the economic recovery is secure. If we were to withdraw it, the fiscal position might deteriorate, not improve, because we would have to deal with the costs of mass unemployment and mass business insolvencies. They would not just represent short-term costs on the public purse, but would create lasting, long-term problems. Mass unemployment turns into worklessness, as we saw in the 1980s, and unnecessary business insolvencies lead to permanent losses in the skills and productivity of the UK's work force.

The Treasury Committee was especially concerned about young people in the current economic climate. We noted:

"We remain concerned over the levels of youth unemployment. While the story for the overall labour market has been more positive than might have been initially hoped at the start of recession, the young have, as we feared, been badly hit. We note the Government's measures in this area, and will continue to monitor their impact."

I welcome the measures on youth unemployment, because I speak not only as a parliamentarian, but as a former school teacher: one who taught in the '70s and '80s; and one who met his former pupils 10 years later, married or with partners with children, and asked them whether they had a job. They told me no. The impact on many young people, and at an early age, is terminal, and that is why we have to support them through that time of hardship.

Let us not forget that 600,000 young people leave full-time education each year, and it is vital that they have education, training or employment opportunities. Labour market economists, supporting what I said earlier, say that a person who suffers six months' unemployment aged 18 can feel the effects for decades. Even when they reach 50, they might still earn less than they would have had they not been unemployed. So, without the Government's targeted support for young people, we could go back to the 1980s and see a new generation of worklessness in the UK. All of us must strive to ensure that that does not happen.

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