My Lords, it is my honour to bring today's portion of the debate on the humble Address to a close. I am sure that your Lordships will agree that we have enjoyed a spirited and productive discussion on the important subject of business and the economy. I thank my noble friend Lord Mandelson for opening the debate and for giving such a clear account of the comprehensive and judicious steps that the Government are taking in response to the global economic downturn and its consequences for us here in Britain.
I extend my thanks to all other noble Lords who have spoken for their very thoughtful contributions. In the space of 20 minutes I shall endeavour to respond to some 50 speeches. Frankly, it will be extraordinarily difficult to do that. To the extent that specific questions were asked that I do not cover in my speech, I will of course, on studying Hansard, ensure that they are answered in writing.
I say that particularly looking at the noble Baroness, Lady O'Cathain, who mentioned that we had not answered all the questions at the last economy debate. That was my first major debate in this House and I made a distinguishedly undistinguished contribution. For me, the only enjoyable part of the evening was when I wandered off to try to find somewhere to have something to eat and the noble Baroness and the noble Baroness, Lady Shephard, invited me to join them—they were most convivial and helpful company. That was a fine day. It was also the day when I first met the noble Lord, Lord Forsyth of Drumlean, whom I suspect I shall meet on many future occasions in the Chamber.
Before I answer the questions, I shall make a few observations of my own about the economy. We face some of the most challenging economic conditions for a century. Irresponsible lending decisions in the American mortgage markets and the packaging of those assets into non-transparent securities have infected financial institutions around the world. At the same time, the global economy has been heavily struck by volatility in the energy, food and commodity markets.
The euro area has been in recession since April. In Japan and Germany, GDP has already shrunk by 1 per cent in the past six months. We are forecasting 0.75 per cent GDP growth for the current year, although that growth will be achieved in the first six months of the year. In America, manufacturing output is falling at the fastest rate since 1982 and over 1.5 million jobs have been lost in the past six months. The Bank of England estimates that global bank losses could eventually exceed $3 trillion.
The UK economy faces these global challenges from a position of relative strength compared to the downturns of the past. Even today, employment remains near record levels. The claimant count, while rising, is 2 million below the level of the early 1990s. There are still today over half a million unfilled vacancies in the economy. The discipline imposed on public finances by the fiscal framework that this Government put in place has seen debt cut and borrowing reduced.
Between 1997 and 2007, borrowing peaked at just 3.3 per cent of GDP and ran at an annual average of only 1 per cent. Compare that to the previous 10 years, when borrowing peaked at 7.8 per cent of GDP and averaged 3.1 per cent. The noble Baroness, Lady Noakes, talks about the growth in debt as a percentage of GDP. It will increase, but it has increased in the past and we have reduced it in the past. The increase that we are projecting is precisely to address the effects of the global economic challenges on British families and British business. We are doing it from a position of relative strength. We are not doing it as we did in the recession of the 1980s, when interest rates were 17 per cent. We are not doing it as we did in the 1990s, when interest rates were 15 per cent. We are doing it against a backdrop of base rates of 2 per cent. That is evidence of stronger and more responsible economic management.
Government debt last year was among the lowest in the most advanced economies. The noble Lord, Lord Higgins, asked how we will finance our debt going forward. We do so from a position where the cost of borrowing is at a lower rate in nominal terms—the long end of the gilt curve—than it has been for 40 years. We are in a position where there is a serious appetite for borrowing and buying government securities. We will not run risks with the public finances. The measures that we are taking strike the right balance between supporting the economy now and ensuring that the public finances are on a sustainable path.
I listened with great care to the opposition Front Bench. I heard little of substance; I thought that it was rather lacklustre. There were no ideas and nothing fresh to say. There were no answers to questions. The noble Lord, Lord De Mauley, did not even answer the question about pensions asked by the noble Lord, Lord Patten, on his own Back Benches. I am pleased to give the noble Lord the assurance that he sought, which is that we have no plan to adversely change the taxation of pensions. The noble Lord addressed that question to the government Benches; he also addressed it to his own Front Bench, from which he did not get a reply.
There was little acknowledgement from the opposition Front Bench of the global nature of the situation that we face and there was little empathy. We had to wait until the speeches of my noble friend Lord Barnett and the noble Lord, Lord Bates, to hear any concern expressed about the plight of people. The noble Lord, Lord Newby, spoke about the challenges facing people who risk losing their jobs and businesses, which are under threat. I heard nothing from the government Front Bench—