Fiscal Responsibility Bill

My right hon. Friend makes an extremely telling point, and I am going to come on exactly to the threat to interest rates posed by the Government's policy. Before I move on from Pimco, I cannot help noticing that the head of the European arm of Pimco, one Mr. Andrew Balls, is the brother of the Schools Secretary. Clearly, the Balls family's confidence in the Chancellor's ability to do his job runs across the brothers. My right hon. Friend the Member for Wokingham (Mr. Redwood) makes a very important point about gilts and the fact that we are now in a period when the Bank of England is pursuing a policy of quantitative easing, but with £200 billion of gilts to get away next year, we need buyers, not sellers of those gilts. Here, however, we have the world's largest bond investor saying that it is going to be selling gilts next year. Of course gilt yields are rising—up 1 per cent. last year and up 0.5 per cent. in the last month, which is twice the rate of increase in countries like Germany. Rising gilt yields, of course, mean in the end rising interest rates, so a central objective of policy for recovery must be to allow the Bank of England to keep interest rates as low as possible for as long as possible, which requires a credible fiscal plan. The absence of such a plan from the Labour Government is pushing up the yields that will push up the interest rates and the mortgage rates, causing businesses to fail and jobs to be lost. The Chancellor, however, remains paralysed by inaction. He seems to see the storm clouds gathering, but he is doing nothing. We know the reason why. The Prime Minister and Schools Secretary—the man whom the Prime Minister wanted to be the Chancellor—will not let him. The disagreements between them are now an open secret. They are on the front page of The Financial Times and are being read across Europe. The Chancellor is at least vaguely aware, I think, of the seriousness of the debt crisis this country faces, but the Prime Minister is in complete denial. The Chancellor at least uses the word "cuts", but the Prime Minister could not bring himself to use that word in the first big interview he gave in the new year. I believe that the Chancellor wanted to accelerate the reduction in the deficit and he wanted to do so in the pre-Budget report, but he was overruled by the Prime Minister who accelerated the spending instead. That is the problem—the Chancellor keeps losing this argument in Downing street and the result is that Britain's credibility in the world markets is further undermined. Britain's credit rating is for the first time in our history at serious risk and British interest rates are set to rise in a recovery. The answer surely is to deal more decisively with the deficit. As the Chancellor well knows, that is the view of British business and the CBI. The Labour party used to parade the CBI as one of its great supporters, and I believe that in 1997 the CBI was invited into Downing street before the trade unions were. Now the Labour party dismisses the views of the organisation that speaks for many British businesses, but this is what Richard Lambert, the man who was also appointed to the Monetary Policy Committee by the Prime Minister, says:""History tell us that these are really difficult nettles to grasp but if you grasp them in a clear and bold way, then the pain lasts for a shorter period than if you just limply grab and hold of ""them… Our strong instincts are that the risks of going too soon are less than the risks of waiting too long… Two full parliaments of chancellors being responsible just seems too much to expect."" Here is the view of the OECD expressed in the last few days:""Major fiscal consolidation is needed"" in the UK""and more concrete plans should be developed and communicated as early as possible."" That is the OECD's view expressed after the pre-Budget report. Here, now, is the view of the international markets. BNP Paribas says:""The UK's public finances are in such a poor state that delay could lead to a loss of confidence, a downgrade of the UK credit rating and a crisis in the public finances."" Sir John Gieve, another former deputy governor of the Bank of England appointed by the Prime Minister, stated that the Government's plan""will be hard to sustain politically and eliminating the structural deficit more quickly in 2011 and 2012 looks a better course.""