Pre-Budget Report

My Lords, the Government intend to adopt a prudent and appropriate funding structure and, as such, to seek to fund that deficit fully from the non-bank public sector. As I was saying, UK net debt as a share of GDP will increase before peaking at 57 per cent in 2013-14. Our economy cannot insulate itself from this global financial turmoil, but credible medium-term objectives and mechanisms for short-term flexibility mean that the Bank of England and the Government can deliver the necessary support to the economy, without compromising their respective commitments to low inflation and sound public finances. Responding to the global financial crisis, the Bank of England has reduced interest rates by 350 basis points since September, to an all-time low of 1.5 per cent, but most people recognise that monetary policy and interest rates on their own are not enough to stimulate the economy. There is widespread international consensus that a fiscal stimulus to help the economy is the right thing to do. A consensus to do nothing—to walk on by as people struggled to keep their jobs and homes, letting the recession run deeper and longer—would be a massive mistake. The USA, France, Germany, Japan, Italy, India, China, South Korea and Australia—I could go on—have all announced fiscal stimulus packages in recent months. More are expected to follow. That approach has been agreed by the European Council and the leaders of the G20. It is backed by parties of both left and right on every continent; by international institutions such as the IMF and OECD; by business groups such as the CBI and the Institute of Directors; the Bank of England, and many more. We need immediate action to boost economic activity, help us emerge faster and stronger from these difficult times, and face the future with renewed confidence. If we do not act now, that will cost more to the economy, to the public finances and to society. That is why the Pre-Budget Report represented a package of substantial fiscal action to help the economy now, with a £20 billion fiscal stimulus between now and April 2010, or around 1 per cent of GDP. We are doing everything in our power to give real help to home owners and to businesses, including cutting VAT by 2.5 per cent for one year and putting £12.4 billion into the economy. We are bringing forward £3 billion of capital projects on housing repairs and insulation, school extensions, GP surgery refurbishments and transport improvements to provide jobs right now when the economy is under pressure. We are increasing support for pensioners and families with children, as well as for all taxpayers on modest to middle incomes. We are helping home owners with the new home owners mortgage support scheme to help people to stay in their homes if they experience a redundancy, and we will continue to invest in public services—just as we have done over the past 10 years. Investing in schools and hospitals and modernising infrastructure and transport links is not just an effective way of stimulating the economy, safeguarding jobs and protecting incomes; it is also vital for the future strength and health of our country. We have seen in the past the long-term damage that cutting public investment has on the essential fabric of the country and the support people need. Since 1997, we have doubled the NHS budget, cutting hospital waiting lists. Spending on education is 60 per cent higher, improving schools, educational provision and exam results. Transport spending is up by 70 per cent, with more than 130 major road schemes and record numbers travelling by rail. As the PBR set out, over the medium term, the Government’s fiscal policy objective remains to ensure the sustainability of the public finances to protect economic stability and long-term growth. Therefore, it set out plans to deliver a sustained fiscal consolidation from 2010-11 when the economy is expected to be recovering and is able to support a reduction in public sector borrowing. Our objectives for fiscal policy in the face of these shocks remain unchanged. It is right that in the Pre-Budget Report the Government did all they could to support the economy in these difficult times, taking immediate action to support the economy and setting out a path for ensuring fiscal sustainability. The Government’s objectives of smoothing the path of the economy in the short term while ensuring sound public finances over the medium term are consistent with the October European Council conclusions, which confirmed that the stability and growth pact should be applied in a manner that reflects current exceptional global economic circumstances. The objectives are also consistent with the European economic recovery plan that was agreed by the December European Council. This calls for an EU-wide fiscal stimulus of around 1.5 per cent of EU GDP and recognises that a temporary deepening of deficits is justified, given the scale of the global crisis. Furthermore, to ensure sustainability of public finances, it calls for consolidation in pace with economic recovery. These are exceptional times and require exceptional measures. They require immediate action to help people and action to build a stable economy. We have made our choices: helping businesses, helping house owners and helping people into work; boosting incomes; and giving real help now. That is possible only because this Government have taken the deliberate decision to support people and businesses through these difficult times. That is the programme set out in the 2008 Pre-Budget Report and that, with the approval of the House, is the basis on which we will send updated information to the European Commission. I welcome the opportunity to debate it here this afternoon.