Pre-Budget Report

I will tell you. They say that we will do nothing. They are wrong, and they know that they are wrong. Doing nothing is not an option, but neither is doing just anything and borrowing to pay for it. A temporary tax cut when prices are falling, funded by promises of tax rises in the recovery, is as good as doing nothing. What is needed is a targeted response to the real underlying problem, which is the credit crunch. The CBI and the Governor of the Bank of England agree that getting lending going again is the critical test—far more important than a temporary cut in VAT. My hon. Friend the shadow Chancellor set out this afternoon a specific proposal for the creation of a state credit insurance institution to guarantee loans to businesses in order to get credit flowing to save jobs and businesses in this Labour recession. We have already announced a raft of targeted measures to help families and businesses and save jobs, including a £2.6 billion package to support employers taking on new staff, a cut in national insurance contributions for the smallest employers, a council tax freeze and, most importantly, an automatic right for smaller and medium-sized businesses to defer their VAT payments by six months. That would pump £10 billion of working capital into the corporate sector of Britain as of right, not after a mountain of form-filling and a delay intermediated by the banks, which is what the Chancellor's small firms loan guarantee scheme expansion would involve. That is a coherent package that would not place a tax bombshell under Britain's future. The Government have made their choice—short-term tax cuts before an election, followed by a massive tax hike after the election—just as they did in the previous two elections. We have made our choice, too: fiscal prudence with a sustainable path for the growth of public spending and a focus on where the real problem lies, getting credit flowing again, and helping families and businesses in the meantime with properly targeted help. The Prime Minister said that he had abolished boom and bust, so he did not notice that the boom was based on a bubble and financed by a mountain of unsustainable debt. He deluded himself and the country into mistaking the creation of credit for the creation of wealth. We had the illusion of boom and now we have the reality of a bust. Now that the bubble has burst, his only answer, like a junkie reaching for one last fix, is to borrow still more, but he cannot avoid the truth. This recession was caused by excessive debt and we cannot borrow our way out of debt. The Prime Minister has planted a tax bombshell under the British people. The clock is ticking, but the British people are not fools. They know that Britain can no longer afford this Government. His fiscal rules are gone, his reputation is shattered, his economic policy is crumbling before our eyes and he no longer has the authority or the credibility to lead Britain through the economic challenges ahead. For years he has lived on borrowed money; now he is living on borrowed time.