Fiscal Responsibility Bill

In 1997 the Government established two clear fiscal objectives, which have been maintained since and will remain in place. The first is, over the medium term, to ensure sound public finances and ensure that spending and taxation have a fair impact within and between generations. The second is, over the short term, to support monetary policy to help smooth the path of the economy. The financial crisis and the global recession have had a profound impact on the public finances, resulting in a significant increase in Government borrowing and, as a result, increasing public sector net debt. Those major economic shocks have hit every country in the world, and we have had to be flexible in our response to changing circumstances. As my right hon. Friend the Chancellor set out, our first priority was to provide support to the economy, which is why the Government undertook a fiscal stimulus to provide support when the economy was weakened. That stimulus and the effect of the automatic stabilisers are providing fiscal support totalling about 5 per cent. of GDP this financial year, which has helped limit the severity of the downturn and its impact on businesses and individuals. The Government estimate that as a direct result of the fiscal stimulus announced in the 2008 pre-Budget report, GDP growth in 2009 will be about half a percentage point higher than it would otherwise have been. There were costs to stepping in, but not to have intervened would have been even more costly and burdened the economy over a much longer horizon. We have always been clear that the initial support must be followed by steps to secure sound public finances. Our fiscal stimulus was deliberately time-limited to increase its impact during the downturn and ensure sound public finances over the medium term. Timing is all, and much of today's debate has centred around the timing of the consolidation. There have been contributions from my right hon. Friend the Member for Birkenhead (Mr. Field), the hon. Member for Chichester (Mr. Tyrie), the right hon. Member for Wokingham (Mr. Redwood), my hon. Friend the Member for North Ayrshire and Arran (Ms Clark) and the hon. Members for Dundee, East (Stewart Hosie), for Croydon, Central (Mr. Pelling) and for Ludlow (Mr. Dunne). Some hon. Members complained that we were not going fast enough, and others that we were going too fast.