Budget Resolutions and Economic Situation

I am not sure that I have always bought into that analysis, but I will try to deal with the state and structure of the British economy during my speech because it is central to the debate. Another letter to the Financial Times on 18 February from a further group of respected economists said:""History is littered with examples of premature withdrawal of the government stimulus, from the US in 1937 to Japan in 1997"." The Conservative party tries to justify its cuts agenda by talking about fear in the financial markets about the level of national debt but, interestingly, the letter continued:""Britain's level of government debt is not out of control. The net debt relative to GDP is lower than the Group of Seven average, and on present government plans it will peak at 78 per cent. of annual GDP in 2014-15, and then fall. Even at its peak, the debt ratio will be lower than in the majority of peacetime years since 1815."" As well as the views of such economists, we have real-life examples from other countries that show how the cuts policy would damage our economy, why our Government were right to stimulate the economy last year to offset some of the worst effects of the recession, and why that should continue. Ireland gives us such an example because, interestingly, it has taken the route with which the cuts club is so enamoured by cutting back to restore confidence to the markets. Even more interestingly, Opposition politicians have urged us to look and learn from across the Irish sea. What do we learn from the experiences of the Irish economy? As I argued in the House just before Christmas, the Fianna Fail-led Government in Ireland have been unique among the industrialised countries. In 2009, while virtually the whole world was busy implementing a variety of packages to stimulate the economy, Ireland was alone in implementing a series of deep cuts in Government spending. The lessons from that are clear: the savage cuts agenda has deepened the Irish recession, and Government finances have worsened as economic activity has slumped. So the first priority should be to restore robust growth, which will not be achieved by cuts. What is the way forward? The key common factor in the economies that have suffered badly in this recession is that there has been a huge collapse in investment. In the UK, the fall in investment accounts for nearly £6 out of every £10 by which the economy has shrunk. This is because investment is mainly done by the private sector, and in the recession the private sector is not investing. Business investment was 24 per cent. lower at the end of 2009 than at the start, the worst annual decline since records began in 1967. Without investment to generate demand and rebuild the economy, we will fall back into recession or be left with years of low growth. The way forward is clear. When the private sector will not invest, the Government must step in. We need to invest our way out of recession. For those who argue that this is not affordable, there is some good news. When the Government invest, that has a much wider impact on the economy, an impact much greater than the initial outlay. That, in economic jargon, is called the multiplier. What is more, the Government get taxes back on this wider economic growth, and the Treasury's own figures show that, if done properly, such investment pays for itself through higher tax takes.