Economy — Debate

Part of the debate – in the House of Lords at 2:21 pm on 25th March 2010.

Alert me about debates like this

Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury 2:21 pm, 25th March 2010

My Lords, I thank everyone for their contributions. In particular, my special thanks go to the noble Lord, Lord Macgregor of Pulham Market, for securing today's debate. I was not aware that the noble Lord, Lord Macgregor, had been known as "Mac the knife". I remember the words of the song. They do not make a great deal of sense, they are somewhat circuitous and they are very repetitive. One can understand why this descriptor might have been used. There is a reference which states:

"And now MacHeath spends like a sailor

Could it be our boy's done something rash?".

Surely these were not the words that would have been applied to the noble Lord. Perhaps we should be thinking of someone else in "Mack the knife". Certainly, as I listened to some of the observations from the opposition Benches, particularly those which decried the achievement of our economy and the strength of our people, the name of Sukey Tawdry sprang to mind.

Last year, the global economy contracted for the first time in 60 years, following a succession of severely damaging shocks, including the worldwide financial crisis. All countries have been affected, and the impact has been felt by households and businesses across the world. The economy showed a huge shock and contracted by around 6 per cent during the recession, but latest data have shown that growth returned at the end of 2009. The Government's support for the economy, along with action from the Bank of England such as interest rate cuts, have prevented the recession turning into a severe depression.

The claimant count of unemployment is much less than economists would have predicted, given the severity of the downturn. Unemployment has risen markedly in a number of other countries, compared with our own experience. Financial support and advice have helped 330,000 homeowners stay in their homes and limited the number of repossessions to 46,000 last year-a figure significantly lower than the 75,000 forecast by the Council of Mortgage Lenders. More than 200,000 businesses, employing more than 1.4 million people, have been helped with cash flow by spreading the payment of their tax bills.

This year, the economy is forecast to grow between 1 per cent and 1.25 per cent. However, reflecting the weaker outlook for the euro area, the growth forecast for next year has been revised down a little to 3.5 per cent. The noble Lord, Lord Northbrook, who is normally very flattering in his comments about the Bank of England, expresses some doubt about these numbers. I should point out that these are the Bank of England's own growth forecasts.

We have to be wary. The world economy is still in a period of great uncertainty. It is clear that a strong and lasting recovery depends on continued support, and for this reason the budget actions required to meet the critical challenges ahead-the challenges of securing the recovery and of bringing down debt while still protecting front-line services, and of promoting sustainable growth and creating job opportunities-will be fundamental for our future prosperity.

Government action has played a critical role in helping limit the impact of the recession on families, households and businesses. They have also demonstrated their resilience in weathering the storm. Nevertheless, the global economic recovery is still in its very early stages. Withdrawing support too soon could jeopardise this recovery. That is why we have made the choice to continue support for the economy.

For young people, every 18 to 24 year-old will have access to guaranteed work or training after six months out of work. In the Budget, we extended this guarantee until March 2012. This has been funded as a direct result of unemployment turning out to be much lower than forecast.

For homeowners, we have made the decision to maintain help through support from the mortgage interest scheme until June. For first-time buyers, we announced yesterday a doubling of the stamp duty limit from £125,000 to £250,000 this year. To fund this, we have had to increase the stamp duty on mansions worth more than £1 million.

For business, the Time to Pay scheme, which has helped businesses spread £5 billion worth of tax payments over a timetable that they can afford, will continue. This is much welcomed by people in the business community.

The downturn has led to increased pressure on the public finances. Last year, in the Pre-Budget Report, the Chancellor forecast that borrowing in the 12 months to December would reach £178 billion. However, as a result of supporting the economy, in December, January and February tax receipts have been higher than forecast. This means that this year the borrowing forecast has been revised down by £11 billion to £167 billion, and in the following year borrowing will be even less than that, at £163 billion. As the economy recovers, together with the revenue from tax increases already announced, borrowings will fall progressively to £74 billion in 2014-15. As a share of GDP, borrowing is forecast to be 11.8 per cent in 2009-10, but will subsequently fall to 5.2 per cent in 2013-14, and thereby will have more than halved over the four-year period. This addresses the bulk of the structural deficit. By the end of the forecast period in 2014, borrowing, as a percentage of GDP, will have fallen to 4 per cent.

Our plan to halve the deficit over the next four years is the most ambitious deficit-reduction plan in the G7 countries, and we are firm in the belief that the pace of consolidation is correct. To start consolidating too early, as the noble Baroness suggests, could risk the recovery. To go too fast when there is still such global uncertainty would be foolhardy in the extreme-playing games with the lives of British families, British workers and British small businesses. That is possible to contemplate from a position of privilege and wealth, but is not salient to the lives of most people in our population or those who will be thinking how to vote in the forthcoming general election.

We have already outlined tax measures that will reduce borrowing by £19 billion in 2014, with the biggest burden falling on those who can afford it most. We are determined to continue our successful drive to prevent avoidance and evasion. Measures in this Budget will bring in additional tax receipts worth half a billion pounds each year, while protecting £4 billion in revenues by 2012-13, including tax agreements such as that already signed with Liechtenstein. We are now ready to sign tax information exchange agreements with three additional countries-Dominica, Grenada and Belize.