Fiscal Responsibility Bill

I remind the House that I have business interests with a multinational industrial company and an investment management company. I rise to remind the House that the big financial crisis through which we have been living was in origin a crisis of borrowing too much. The Government now admit that their regulators were asleep on the watch, and that banks borrowed too much. It is clear that individuals and families borrowed too much. They felt that they had to because the erratic and expansionary monetary policy followed on both sides of the Atlantic fuelled a house-price boom and took houses and flats ever more beyond people's reasonable expectations of being able to service a mortgage. They were dragged into borrowing too much to meet those giddy house prices based on the monetary excess that the Government and their agents had unleashed. Industry and commerce also borrowed too much, and in some cases, particularly under the private equity model, the levels of leverage for companies were very high and made it difficult for them to trade profitably and successfully. Yet the Government, who tell us that the private sector sinned and borrowed too much, now seem to believe that the way to correct the problem is for the state to borrow too much in its turn. My first message for the Government is that we cannot solve a crisis of over-borrowing by borrowing too much in the state sector. We cannot resolve the British state finances by underwriting every bad debt and every bad loan throughout the banking system—we have to get the banks to sort it out and to take more of the hit. This Government have dragged the taxpayer and the state into accepting far too much risk and far too much debt obligation. That is why we are now on the verge of another nasty phase to this long and tragic financial crash: the phase when the state is made to realise that it is borrowing too much, and the markets and others force the state and its agents—the Government of the day—into getting their own house in order because otherwise they will find that they cannot borrow at anything like a sensible rate, if at all, or on the scale that they wish. I think it is agreed ground between the three largest parties in this House that the deficit is too large, that it is growing too quickly, and that it needs to be controlled within the next four to five years. It seems that the principal disagreement remains between the Government and the rest of us about the timing of when to start to control borrowing. It is less painful to start to control borrowing now than to leave it for another year. It will do less damage not to have borrowed another £200 billion before deciding to give up the bad habit. If someone is an alcoholic, the time to stop drinking is today—it is not a good idea to have another year of drinking very heavily and damaging their liver. They know they have to tackle the issue, so why not start now? They may then discover that they have a longer and happier life, because there is life after alcoholism, as all those of us who are not alcoholics are pleased to report to anyone who might be in doubt. We have to say exactly the same thing to this Government about borrowing. There is life for a Government after borrowing too much. It can be a very good life where the economy will function better, not worse—a situation where the public services are better run, not worse run, and where if they put quality, efficiency, productivity and performance into their vocabulary when managing the public services, they may well discover that they can run them better and provide more for considerably less input than the current costs. As my hon. Friend the Member for Chichester (Mr. Tyrie) remarked, one of the extraordinary things about this Government is how they managed to spend so much money to so little effect; that is the tragedy that we have to tackle. Unfortunately, the Bill is not the means to do that, as my hon. Friend the Member for Tatton (Mr. Osborne) pointed out with great humour and aplomb in noting that it sets out to have the Treasury controlling the Treasury. Why should the Treasury need to control itself? Why can it not run self-disciplined budgets in the normal way? Why can it not use the existing mechanisms of pre-Budget reports, Budgets, forecasts and economic reports to this House to provide the discipline that is required? I should like to pause for a little on the details of the Bill, which I hope will be substantially amended if we have to go through the rigmarole of legislating it at all. It is bizarre in its own terms and seems to be against the run of the advice that the Chancellor has regularly given us on how to run an economy in trouble. Clause 1 tells us that in""each of the…years 2011 to 2016, public sector net borrowing expressed as a percentage of gross domestic product"" has to fall compared with the preceding year. To ensure that it falls by a reasonable amount, there is the added rider in subsection (2) that it needs to halve by 2014. That means, as I reminded the Chancellor when he was here earlier, that in any given year borrowing could go up. That is even true in the period when one is trying to halve borrowing, because one could leave it all to the end and suddenly have very big cuts in the last year or do it all earlier and then have greater freedom. Because it is expressed as a proportion of income, there could be individual years when borrowing was going up, assuming that the economy was growing. Perversely, however, if in that period we had another unfortunate year when the economy was not growing, it would be necessary to reverse and to cut borrowing in cash terms. That is the exact opposite of the natural stabilisers that the Chancellor has always told us are very important, as Conservative Members have accepted. We agree that the natural stabilisers are important if one gets into a position where there is such a big fall in output as this Government have presided over. The Government should change this and come up with a formula that recognises that it is necessary to take into account the state of the economic cycle. The second part of clause 1 contains the most important part of the whole proposition—that borrowing should be halved as a proportion of gross domestic product. Given that under current economic policy we are not going to get much growth, that means that it is necessary, roughly speaking, almost to halve the current cash deficit, so we are talking about somewhere between £80 billion and £100 billion of spending cuts, tax increases or some combination of the two. There is always a temptation among those on the Labour Benches to believe that tax increases are the better option, but if they choose the wrong tax increases they could make the position worse. If enterprise is taxed too much, there will be less of it and they may end up with less revenue. They also like to tell themselves that if only they could at last get to grips with tax evasion and avoidance all our problems would be solved, whereas after 12 years of their trying to do that, all the evidence shows that it does not solve the problem as it is a very small part of a much bigger problem. We cannot get away from the fact that in order to cut the deficit by this magnitude, even under a Labour Government with some strange tax plans, most of the burden would have to fall on public spending, and trying to cut public spending by £80 billion to £100 billion has proved to be difficult in the past. The Government clearly find it impossible because they have produced a Bill for the House of Commons demanding that we do this, yet there is not a single item in the supporting papers or speeches to tell us how they would achieve it. Worse than that, they have cancelled the normal public expenditure review setting out detailed plans for the future because they clearly find it too difficult, too embarrassing, or both, to have to admit that the large chunks of money that they have committed in the past are no longer affordable and perhaps discover that some of those chunks of money are indeed very wasteful.