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Amendment of the Law

Part of the debate – in the House of Commons at 5:14 pm on 29th March 2010.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury) 5:14 pm, 29th March 2010

The hon. Gentleman is making an interesting point, and I want to engage him directly on it. The deficit is always rolled into the £167 billion figure, but it has two component parts, and different economists take different views on the size of those parts. However, there is a deficit, and the country will have to get to grips with it, either by raising taxes or by cutting expenditure. My party has a preference for cutting expenditure, but there will have to be a mix of the two. The Government have announced large numbers of tax rises, although they are being much less specific about the reductions in expenditure until after the election. They are being more explicit about the tax rises.

The other component of the deficit will, we hope, be dealt with by the economy returning to healthy growth and burning off the deficit in that way. That is why, when I caution the Conservatives, I am not just saying that there is a risk of going back into recession in relation to employment or to business failures, although those factors are obviously important. Healthy economic growth will also be crucial in making the numbers add up in our deficit reduction programme. We could have a debate about how we should best stimulate that growth, but I do not propose to go a long way down that avenue this afternoon.

We need to ensure, however, that there remains demand in the system. So far as I can see, the Conservatives seemed to acknowledge that need this morning. We can achieve demand by spending public money, or by allowing private individuals to spend more of their money by cutting their taxes, which appears to be the Conservative shadow Chancellor's policy. There would be a risk to the recovery itself, however, if we were to try to cut the deficit quickly by taking money out of the economy, whether from the public or the private sphere.

The second subject that I want to talk about is the deficit. This country is still borrowing an additional £450 million every single day, and our budget deficit this year remains at more than 12 per cent. of gross domestic product. According to the ready reckoner, any country with a deficit of more than 10 per cent. of GDP in any financial year is in serious trouble. Well, this country has gone way beyond that point for two financial years, and our deficit this year is comparable to that of Greece, whose problems have been well documented. It would of course be fair and accurate to point out that Greece's cumulative debt is roughly double ours, which is why we have not yet had the degree of difficulty that it has experienced. Nevertheless, our borrowing this year as a percentage of GDP is comparable to the worst cases elsewhere in Europe. We are going to have to deal with that, and that is a truth that all the parties will need to explain to the electorate. To varying degrees, I would say that none has done so sufficiently yet.

The Government have gone into great detail in the Budget about tax rises. They are talking about roughly a third of the deficit being dealt with through tax rises, and two thirds being dealt with through expenditure cuts. Where they are very specific in terms of tax rises, however, they are very vague in terms of reductions in expenditure. That probably suits the Government as we approach the election in trying to create the right dividing lines, as they would see it, between them and the Conservatives on tax, while ignoring what they see as potentially disadvantageous dividing lines between them and the Conservatives and other Opposition parties on public expenditure reductions.

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