Mr Speaker, you will recall that when I first took my seat as the Member of Parliament for Bromsgrove, the economy was in a very difficult and different position. Since then we have had to work hard to restore the nation’s finances, and it is precisely because we have restored the nation’s finances that we can have the spending commitments that I am about to make today. I have to—if I may, Mr Speaker—set out the context of the situation then and how we got out of it, so that we can focus on how we can generate the spending power that we are able to deploy today.
Back then, our budget deficit was 10% of GDP. We borrowed £150 billion in Labour’s last year in office. It was the highest deficit in our peacetime history. We were borrowing £1 in every £4 that was spent. The Labour party lost control of the nation’s finances, as it always does, and it fell to the Conservatives to pick up the mess.
My two immediate predecessors took the difficult decisions that we needed to bring the deficit under control, allowing us to have the spending that I am setting out today. They did that not for ideological reasons, but because running an enormous deficit meant that our debt was rising at an unsustainable rate, making our economy vulnerable to shocks and passing on a huge burden to the next generation. The deficit is now 1.1% of GDP. For the first time in a generation, public sector debt is falling sustainably as a share of our national income, and we have boosted our credibility around the world and built confidence in the UK economy again. Labour left behind a bankrupt Britain, and we have fixed it.
Thanks to those difficult decisions and the hard work of the British people, we can now afford to turn the page on austerity and move forward from a decade of recovery to a decade of renewal. Our careful management of the public finances means that we can now afford to spend more on vital public services, so today I am deciding to set the real increase in day-to-day spending next year at £13.8 billion, delivering on the people’s priorities across the NHS, education and police, and giving certainty to all Departments about their budgets for next year—clearing the decks for a Government who are delivering Brexit.
I have always believed in the importance of living within our means, and—unlike the Labour party—I will not squander the hard work of the last nine years, so even with the extra spending, we are still meeting the current fiscal rules. While the biggest challenge a decade ago was getting the deficit down, our biggest challenge today is getting our long-term economic growth back to where it was before Labour’s great recession. If we can do that, we can ensure that there can be future spending increases that can also be sustainable, boosting wages and raising living standards, which have stagnated for too long, levelling up across the regions and nations.
We need to improve our productivity—the amount that is produced every hour worked. That is not just a technical term. Slower productivity means lower wages and uneven growth across the country. If productivity had continued to grow at its pre-crisis levels, then average annual wages would be £5,000 higher. That pressure on people’s pay packets speaks to a wider sense of disillusion and unfairness, especially in so many towns and cities outside London and the south-east. Even as the economy has grown, and people have worked hard, not everyone feels they have benefited. There is a real sense of anxiety that has emerged over the years: a sense that politicians are not listening and that the system is not working; that the free market model is not living up to its promise. We are seeing divisions emerge throughout society between regions and communities, rich and poor, rural and urban, young and old. Addressing those concerns will be a serious effort, and that is what will be shown in these spending plans today. We will develop a new economic plan for the years ahead—a plan that moves beyond the last decade of economic recovery and looks forward to a decade of renewal; a plan that invests more in the future growth of this country.
We can afford to invest more because our economy is growing and our public finances are strong. We are also deciding on our fiscal approach at a time when the cost of Government borrowing is at record lows. Interest rates have been low for many years, and in recent weeks the cost of Government borrowing has fallen below 1% across all maturities. In the years after the financial crisis, many expected interest rates to swiftly rise to pre-crisis levels, but structural factors have kept interest rates low, not just in the UK but across the developed world, increasing our confidence that we will be able to continue to see low rates for a number of years. So it is my judgment today that with a strong fiscal position and record low cost of borrowing, we can invest more in our growing economy.
That does not mean that we can borrow more for ever and ever. The sustainability of our public finances depends on wider factors, not just the cost of borrowing: our population is ageing; the global economy is slowing; the challenge of decarbonisation is real. So we will not be writing blank cheques, unlike Labour. We will not be able to afford everything, and we will need to prioritise investment in policies that deliver real productivity gains and boost economic growth in the long term. We will still need to make difficult choices about our national priorities, within a clear set of rules, to anchor our fiscal policy and keep control of our national debt. So today I can announce that ahead of the Budget later this year I will review our fiscal framework to ensure that it meets the economic priorities of today, not of a decade ago.
The first priority of our new economic plan will be to rebuild our national infrastructure. High-quality and reliable infrastructure is essential to how we live, work and travel, but the truth is that across many decades Governments of all colours have underinvested in infrastructure. The quality of our infrastructure means that we have fallen behind our competitors. We are the fifth largest economy in the world. It is not good enough that we are so far behind on infrastructure. It is not good enough that so many commuters spend their morning staring at a “Delayed” sign at their train platform. It is not good enough that our small business owners waste so much time because of slow internet speeds and poor mobile communications. We are going to change that. We want faster broadband for everyone in the country, quicker mobile connections and better signal coverage, cleaner energy, greener transport, and more affordable fuel bills for our homes and offices. We want more trains and buses to connect the great cities of the north. We want to build world-class schools and hospitals. We want to push the frontiers of science and technology and turbocharge our ambition on research and development. We want to build and invest in every region and every nation of this great United Kingdom. From the motor highway to the information highway, we will settle for nothing less than an infrastructure revolution.
To keep spending under control, we will of course set a high bar for funding projects. They will have to show real value for money with credible delivery plans and budgets, starting with the Government’s rapid review of HS2. We will target that investment at national priorities like regional growth and decarbonisation. Let me take this opportunity to thank my hon. Friend Vicky Ford for her tireless work as chair of the all-party parliamentary group on infrastructure. So yes, we will use the Government’s resources to kickstart the infrastructure revolution, but we will also do more to give private investors the confidence to back these projects too. We want all this to be underpinned by strong, independent institutions. We set up the National Infrastructure Commission in 2015, and we will continue to rely on its expert advice as we look carefully at other institutional reforms that might be needed. So our infrastructure revolution will be strategic and carefully planned.
Speaking of revolutionaries, let us contrast that with Labour’s approach. I will invest in new infrastructure that will grow the economy, and Labour will borrow hundreds of millions to renationalise unproductive assets and then run them into the ground. The choice for the country is clear, between a wasteful ideological Opposition with outdated ideas and a Government who will kick start a decade of renewal for this country.
Today we lay the foundations of a new economic plan. We are turning the page on a decade of necessary work to fix the public finances and writing a new chapter in our public services. Health and Education are not just the names of Departments; they are lifelines of opportunities, just as they were for me when I was growing up: the teachers and lecturers who persuaded me to study economics in the first place—[Interruption.]