Pre-Budget Report 2009

The noble Baroness can do her own research, frankly; she should read a document before she comes in if she is going to talk about it. The fact is that, if there is the commitment to protecting certain services, other department budgets will have to shrink. The Institute for Fiscal Studies has got it about right. We are talking about 5.6 per cent or 6 per cent, which will mean severe cuts; there is no question about that. To those who criticise the Chancellor for being too timid, I say that there are very severe cuts in this plan. On debt levels, I have one remark. I agree that it is true that our debt levels will rise, albeit from a low base, because we had one of the best debt to GDP ratios of any country in the world. However, because of that low starting level, in a sense we can afford a higher one in a crisis. In fact, even at its peak we shall be reaching the average for the other G7 countries, so this is not way out of line with everybody else. There is a legitimate debate over the timing of the reduction plan. I understand that the noble Lord, Lord Lamont, would like to start all the cuts now. I think that that was what he was arguing this morning; at least, that is the inference that I took and presumably it is what the Opposition would like to do. The fact is that the Government have resisted immediate fiscal tightening because, although a return to growth is predicted by the end of the year, the outlook is still uncertain. It is fair to say that this is perhaps the most uncertain time that any of us have been in. Therefore, the Government have produced their plan but are not introducing it straightaway, because we are not absolutely certain that we have come out of the recession. That is a perfectly legitimate and sensible position for the Government to adopt. There is a fear that, if we reduce the deficit straightaway, we risk a double-dip recession and could be in the position that Japan was in in the 1990s. That is precisely what happened there; when the Japanese cut back on public spending, they went back into recession. The United States in the late 1930s also failed to come out of recession and went back into it. There is a danger of premature action, which is what the Government are trying to guard against. It is interesting that the Governor of the Bank of England and the head of the IMF think that it is right not to take that sort of risk and that we have to see rather more certainly where we are before we start a massive cutback—and it is a massive cutback, whatever the noble Lord may think. Incidentally, I note that the leader of the Opposition said recently—I think that it was last week—that, ""there is a danger, if you do too much too early, you would choke off some demand"." That message is clearly getting through to the Opposition as well. I have said quite enough and will conclude by noting that, in 1945, Keynes warned the incoming Labour Government that, with the abrupt ending of US lend-lease, the United Kingdom faced "a financial Dunkirk". That is not the situation that we are in today, in 2009, but, as the Chancellor told the Commons, it is, ""a critical time for our economy and for our country".—[Official Report, 9/12/09, Commons; col. 359.]" There is no question about that; if anybody has got the wrong message from the Chancellor’s speech to the House of Commons, that is not what I took from him. I took the message that we are in a serious situation, which is why we have to prepare such a major cutback over the next few years. However, I am confident that, provided that we act calmly and with forethought, we can come through this once again, as we did in 1945 with the Labour Government.