Budget Resolutions and Economic Situation — Amendment of the Law

Part of the debate – in the House of Commons at 5:18 pm on 25th March 2013.

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Photo of David Ruffley David Ruffley Conservative, Bury St Edmunds 5:18 pm, 25th March 2013

My hon. Friend makes an interesting point.

There were no shock-and-awe measures in the Budget, because the Chancellor is probably right to believe that we are not approaching a lost Japanese decade. Nevertheless, I am concerned about the Office for Budget Responsibility growth projections; it forecasts growth of 2.3% in 2015, 2.7% in 2016 and 2.8% in 2017. The forecast turns on one central OBR assumption that might be wrong. The OBR assumes that there is quite a large negative output gap—that, in simple terms, there is a lot of slack in the economy. Forecasting or estimating the output gap is very difficult. If its assumption is wrong, and if the output gap is smaller than it says, a huge amount of the £120 billion a year last year and the coming year is structural rather than cyclical. If that is the case, we will need shock-and-awe measures—deeper cuts than those implied in the spending envelope and, yes, a fiscal stimulus in deeper tax cuts.