Fiscal Responsibility Bill

That helps to explain the differential rates in different countries. I am trying to draw out the significant increase since this Bill was first referred to in the pre-Budget report, to show that the markets have no faith in it as a means of trying to reduce the public finance black hole the country finds itself in. The third measure is credit default swaps, which take out the currency risk because they indicate the premium this country would have to pay should it raise debt in other currencies. Here again, the issue is stark. The UK credit default swap rate today is 83 basis points, up 12 since 1 December 2009, whereas in Germany the rate is only 26 basis points and has risen by three since 1 December. We have had an increase of four times more than that in Germany, and we have a credit default rating twice that of the United States. Where does that place the UK when competing for finance internationally to fund our deficit? A table helpfully produced by the House of Commons Library showing 2009 Government borrowing as a proportion of gross domestic product for OECD countries rates the UK as third worst. Only the economies of Iceland and Greece are in a more precarious position, and the country that is closest to the UK is Ireland. We have all seen what has happened to their borrowing costs and the stark action that has had to be taken by all three of those countries to bring their public finances under control. The UK sits right in the middle of that bunch. Quite apart from the challenges of funding the Government's spending over the coming years, given the public finance position we are in, the other significant worry is the impact the increase in rates will have on the rest of the economy—the whole private sector, whose borrowing costs are also priced off the so-called risk-free sovereign rating. There is no question but that the volume of Government debt is not allowing private sector credit spreads to contract. The simplest indicator is the continued wide spread of new mortgages. It is not the supply of credit to the household sector that is so much of a problem, but the price. The Government need to recognise that their action in failing to get to grips with the state of the public finances is spilling over and restraining growth in the private sector of the economy that they are so keen to support. The Government's credibility is the key to understanding whether the Bill has any prospect of achieving success. We have heard from many other speakers this evening that the Government have no credibility when it comes to forecasting either their debt levels or GDP growth. The track record for their debt forecasting was well demolished by my hon. Friend the shadow Chancellor. As he said so clearly, in every Budget or pre-Budget report from the Chancellor and his predecessor, there has been a claim for debt reduction over a four-year period—as envisaged in the Bill—yet not once has it been achieved. On the forecasting track record for GDP growth, the pre-Budget report assumes, first, that the economy will recover in a more dramatic fashion than we have experienced in any previous recession. Secondly, it assumes a consistency in growth rates that is unprecedented on two counts. It assumes a 3.25 per cent. increase in GDP for the four years starting next year. This is not only above the trend rate that the Government have presided over throughout the past 13 years, but it is a greater and more sustained increase than in any comparable four-year period of the Blair/Brown chancellorship. One can only assume that those forecasts were optimistic. My final point on the credibility of the Government in their approach to the Bill relates to their actions. The Bill does nothing to restore faith in the Government's competence in administering the economy or to restore faith in the Treasury's competence. Let us take a recent example of Treasury competence to see whether the current Treasury team are the right people to monitor the reductions in the deficit envisaged in the Bill. Let us take the issue of the bank bonuses. At the time of the pre-Budget report, the Government announced that they wished to get a grip on bank bonuses. Their objective, which was widely shared across the House, was to extend the period of deferral of bonuses to bank executives in particular, to ensure that they were not motivated to bet the bank's balance sheet, to put it crudely. Let us take as an example the largest financial institution over which the Government have some direct influence—the Royal Bank of Scotland, where the taxpayer is the largest shareholder. The Government have proposed a bonus scheme for executives at the Royal Bank of Scotland that envisages payments over a three-year period—50 per cent. in year one, 25 per cent. one year later, and 25 per cent. a year after that. That is, broadly speaking, more generous than the current market norm, where deferred bonuses are typically paid equally in three instalments, rather than loaded to year one. Leaving that criticism aside, the other issue that the Government have completely failed to take into account when considering introducing a deferral scheme to Royal Bank of Scotland is that a large proportion of the senior executives at RBS who are transacting in the markets and who are therefore eligible for bonuses are former ABN bankers—the very bank that got RBS into the perilous state that it is in. If we look at the bonus scheme that applied to those bankers—the current RBS executives who were formerly ABN AMRO executives—the Government's proposed bank bonus deferral scheme, far from extending the period over which they get paid their bonuses, will actually reduce it. Their scheme had a four-year deferral provision, whereas the proposed scheme has a three-year deferral. Not only have the Government introduced a more generous scheme in the one company over which they have some direct control, but they have exposed an issue in relation to the Bill—that is, what happens to a Government Minister who makes such a mess of an area for which they are responsible, such as the bank bonus deferral that I have just described? What sanctions apply? Will such a Minister be fired or moved on? Who knows? That is highly unlikely. In this Bill no sanctions at all are proposed in the event that one of the targets is missed. As Martin Wolf suggested in the Financial Times to add to the ridicule of the Bill, a future Chancellor who failed to meet the targets might be sent to the tower of London. What chance of this Chancellor or the Minister accepting that as a suitable sanction in the event of failure of the Bill? Perhaps she might be able to tell us.