Pre-Budget Report

It seems like an awfully long time since the publication of the PBR for us to be debating it now. If the Government had followed the Opposition's advice and moved the start of the Christmas recess, so that it was actually closer to Christmas, we could easily have debated the PBR when it was truly tropical. Nevertheless, as we know, this debate is all about the deficit and how we secure economic recovery in this, the last G20 country still in recession. I will deal with the deficit and bond markets in due course. However, it is interesting that today, in the week that PIMCO, one of the world's largest bond funds, starting dumping UK Government gilts and only a few weeks after the OECD, the CBI and the Bank of England all warned that there was no proper plan in place to deal with the deficit, we have seen no response from the bunker, other than the pathetic Fiscal Responsibility Bill, which panned so badly on Tuesday. Not only is there is no plan; as I said from this Dispatch Box in October, the Government seem to be reverting to the view that there is actually no problem, returning to their position of last June, which is that there will be growth in spending after all. I want to digress for a moment and mention one item in the PBR that has not been mentioned today, namely the one tax cut in it, which is actually another tax con. The Chancellor has reduced bingo duty from 22 to 20 per cent., without bothering to mention that it was 15 per cent. before the last Budget. The Government claim that removing VAT offset the damage, but their sums were a mess. Even with duty at 20 per cent., bingo players today are paying more. Listening to the Back-Bench speakers, I noticed a curious tale from those on the Government Benches. Perhaps they thought better of it, but on Tuesday there were no Government Back-Bench speakers whatever, on the Government's flagship Fiscal Responsibility Bill. Clearly the Whips put out the call today, and the call was answered. The first three speakers were, again, mainly opponents of the Government, which I think is a sign of Labour's lurch to the left. Perhaps the Whips decided to bring them in here to prevent them from plotting. We heard similar themes from the right hon. Members for Holborn and St. Pancras (Frank Dobson) and for Oldham, West and Royton (Mr. Meacher) and from the hon. Member for Great Grimsby (Mr. Mitchell)—real "Back to the 1980s", old Labour socialism. We even heard an incredible and wide-ranging attack on the financial services industry as a whole from the right hon. Member for Holborn and St. Pancras, which I found remarkable coming from the man who not so long ago ran to be Mayor of London. We also heard from two or three other Government Back Benchers who were perhaps a little less opposed and a little less socialist. The hon. Member for Sedgefield (Phil Wilson) seemed to be rather obsessed with class and what school people had been to. I shall have to disappoint him, because, in 386 years, I am the only former pupil of the state school that I attended to become a Member of Parliament, which would seem to contradict his overall thesis that everybody on the Conservative Benches comes from Eton. Among Opposition speakers, we heard from my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), who made a sound attack on the Fiscal Responsibility Bill and powerfully outlined the urgent need to close the deficit, the dangers of high interest rates across the economy and the lessons to be learned from domestic and international experience. My hon. Friend the Member for West Suffolk (Mr. Spring) also eloquently outlined the challenges ahead if the Government do not get a grip on the deficit. Indeed, his insights on financial matters will be much missed in the next Parliament. My hon. Friend the Member for Mid-Worcestershire (Peter Luff), who has had to go back to Worcestershire, also made a good speech—a real tour de force—about the PBR, and in particular about how it affects industry. I should also mention my hon. Friend the Member for Putney (Justine Greening). She tried to get in, but there was simply too much demand for speakers. The hon. Member for Dundee, East (Stewart Hosie), who was the only Back-Bench speaker from a party other than the two major parties, also returned our focus to the PBR and Government failings in industrial investment, and highlighted high youth unemployment. The hon. Member for Newcastle-under-Lyme (Paul Farrelly) made a slightly more thoughtful contribution, and we also heard a short but useful contribution from the hon. Member for Glasgow, North-East (Mr. Bain). To return to the deficit, the British people clearly get the message that they have over-borrowed. According to the most recent figures that I have seen, new consumer borrowing per household has fallen, from £11.11 a day in January 2008 to just 34p a day in October 2009. The equivalent figures for new Government borrowing over the same period have risen from only £3.65 to a staggering £18.44 per household per day. I applaud the efforts of the British public to get to grips with their own debt. As the shadow Chancellor said, we are all in this together. Imagine our dismay, therefore, that the good work done by the British consumer to repair his or her own balance sheet has been submerged by the explosion in Government borrowing overseen by those on the Treasury Bench. There is a link between consumer credit, our disastrously poor savings ratio over the past 10 years, and the all-important bond markets. The Financial Secretary to the Treasury, who is going to wind up the debate, knows that I used to work in the international fixed income markets, so he could take heed of my warnings. Official and market interest rates are currently very low, but great care will be needed in the future. Forward interest rates—the indicator of where the market thinks rates are heading—are much higher than short-term rates. In fact, the multiplier of headline long-term rates, at about 8 times the level of short-term rates, could represent a historical record. It is worth remembering, as I have said before in this place, that a half per cent. increase in interest rates is far more significant when rates are low than when they are high. So the market is already anticipating substantial rises in interest rates. Even before any such rises have taken effect, debt interest is projected by the Treasury itself to rise from £22 billion this year to £67 billion in 2013. Obviously, the debt interest bill will rise substantially if interest rates rise significantly. That is another reason why fiscal responsibility is so important. If the Government continue to borrow uncontrollably, not only will the interest bill rise substantially, and potentially unsustainably, but the public sector will crowd the private sector out of the credit market. Members on both sides of this House rightly urge that more credit be offered to small and medium-sized enterprises, but this will be made much harder if we do not get a grip on the public finances and, at the same time, do all that we can to keep interest rates low. Our deficit is the worst of any major country. As I pointed out earlier in an intervention, the overall amount of debt in countries such as Italy and Japan is higher, but they have the saving grace of having a significant savings market. This country does not have such a market, due to the appalling decline in our savings ratio over the past 10 to 12 years. This is also where the public finances link in to our consumer debt problems. The crucial point is that if we divide the percentage of GDP that each country's outstanding debt represents by its domestic savings ratio, we find that we are actually in a far worse position than other countries—possibly even than Japan. We are already highly dependent on foreign demand, which means that we have to keep an eye on our currency strength as well as on our international credit rating. There has been a great deal of talk in recent months of credit rating downgrades and the possibility of gilt buyers' strikes. Neither of those risks should be underestimated, but another risk is that uncontrolled borrowing will lead to higher interest rates, both for the Government and for the wider economy, almost regardless of what happens to our credit rating. The market could make borrowing much more expensive than should ordinarily be the case, and the Government could end up paying large premiums for their borrowings. So whether long-term Government borrowing rates are at 4 per cent., 6 per cent. or 8 per cent. will make a huge difference to the public finances and to how much we can spend on our cherished public services. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) called for clarity and honesty from the Government, as did the Chairman of the Treasury Select Committee, the right hon. Member for West Dunbartonshire (John McFall). The biggest failure of this Government is their failure to be honest with the public, or even with themselves. Everyone knows that the deficit will require cuts to public spending, but still the Government will not reveal their plans for departmental spending. This fraudulent approach was displayed in all its glory by the Chief Secretary to the Treasury on Monday night in his appearance on "Newsnight". With incredulity pushed to the limit, Jeremy Paxman asked him:""Do you mean to say that a government which only two or three years ago was giving us public spending forecasts for the next three years will go into this election unable to tell us what will happen over the next eleven months?"" What was the clear, honest answer from the right hon. Gentleman?""No, because the comprehensive spending review is about three years; that's starting in about eighteen months time."" Having digested that, Paxman tried again:""So, we are going to have a budget, are we, that is not going to tell us what's going to happen to departmental spending?"" This time, there was an admission from the right hon. Gentleman:""I think that is possible."" What a shoddy excuse for a Government! In conclusion, the facts are these. In 1997, Labour inherited an economy in very good shape, characterised by low national debt, flexible labour markets and strong private pensions. All three of those areas have been gravely degraded. I end with this thought. When it comes to spending and the deficit, the Government are behaving like a set of habitual drinkers, gathered around a table in a dingy pub as chucking-out time approaches. Everyone else in town, even those in the pub, can see that it is time for them to be slung out, but they are discussing going for one last binge. The way to avoid the hangover, they say, is to carry on drinking to the end. The worst offender is the boss himself, sat there with his two mates. Suddenly, the slightly more responsible Chancellor, who is actually the designated driver, weakly suggests that it might be time to stop. Heated discussion ensues: the Chancellor suggests that it is time for the boss to give up entirely, but suddenly, the boss's best mate of all returns from the bar clutching two bottles of whisky. Last orders are approaching for these people. The binge needs to end, the Government need to sober up and the whole country can see that it is time urgently to change course.