Fiscal Responsibility Bill

I shall come on to that point, but as I was saying before I gave way all Governments have rules and objectives. Up until 1997, those were simply statements made by the Chancellor in a Budget or at some other fiscal event. Since 1998, we have had the code for fiscal stability and two rules that have guided fiscal policy for the past 10 years. The hon. Gentleman is right: it is open to any Government and Chancellor to say that circumstances have changed and so we need to change policy. I have been a Minister for the past 12 years and I can tell the hon. Gentleman that the discipline created by rules, so the Chancellor can tell Departments that they can not have any more funds because it would breach a particular rule, is important. I daresay that that was also important for previous Governments. Today we are legislating to put on the statute book a requirement to reduce the deficit by half. Of course, it will not be a question of going to jail if we do not do it, but having to come back to the House to seek further legislation will be a discipline for future Governments. It is not uncommon for Governments in other parts of the world to have similar strictures on them. The two rules that the Government operated between 1997 and 2007, before the current financial crisis hit us and hit other countries, were to balance the budget, excluding public investment, over the economic cycle and to keep Government debt at a prudent level. Those two rules were appropriate to the challenges of the time. We wanted to increase public investment, and at the time there was a consensus in this House—certainly in the latter part of the 1990s and the early part of the last decade—that our public services did need more money spent on them, including the health service and schools. Those rules were designed to enable us to do that. Over that 10-year economic cycle, which ended in 2007, we were able to balance the budget and borrow to invest, which is something that previous Governments of both political colours had not been able to do previously. We were able to increase significantly investment in public services, tripling it from 0.6 per cent. of GDP in 1996-97 to 2 per cent. in 2006-07, its highest level since 1979. We also saw a continuous expansion in the economy, while also reducing Government debt as a share of GDP, from 42.5 per cent. in 1996-97 to 36 per cent. in 2006-07. Those rules stood our economy and the country in good stead during that period, but events towards the end of 2007 and in 2008 fundamentally changed the economic situation for the entire global economy, because we experienced the worst economic conditions seen in more than 60 years. We were operating in a completely different environment, and policy, here and in other countries, needed to adapt to reflect that. No one could have foreseen the sheer scale and spread of the global financial recession that hit economies all over the world in 2007 and at the beginning of 2008. The result is that borrowing and debt have risen in most countries, ours included.