Budget Debate

David Gauke winds up the second day of the Budget Debate for the Opposition and accuses the Government of using the budget for political purposes rather than for the good of the UK economy. Mr. David Gauke (South-West Hertfordshire) (Con): We have had a fascinating debate this afternoon, with a number of thoughtful contributions. I should like to highlight one or two of them. My hon. Friend the Member for Tiverton and Honiton (Angela Browning) made some important points about the role of savings in our society and the falling savings ratio. She also made a point that she made last year, and I feel that I must correct her again. She claimed to have been born in 1946, but I think that she is misleading the House. She must have transposed those last two numbers. She made that claim in her very valuable speech last year, and she has done it again today. I do wish that she would stop doing it.

My hon. Friend the Member for Sevenoaks (Mr. Fallon) made a thoughtful speech in which he highlighted three requirements for the Budget. He said that it should help the hardest hit, rebalance the economy and address the public finances. He detailed how this Budget and this Government had failed on all three fronts. In particular, he highlighted the schemes that the Government had announced and re-announced, and noted how little they had achieved.

The hon. Members for Crawley (Laura Moffatt) and for Northampton, North (Ms Keeble) highlighted housing issues and the hon. Member for Northampton, North particularly addressed issues connected with the schemes. The hon. Member for Edinburgh, North and Leith (Mark Lazarowicz) expressed his excitement about the Budget's green proposals, although I think most of them were based on pre-publicity rather than what is actually deliverable. Even the Secretary of State for Energy and Climate Change said relatively little about the green proposals, most of which were, like the electric car proposal and as I said, more about gaining publicity beforehand than any kind of delivery.

The hon. Member for Carmarthen, East and Dinefwr (Adam Price) began his speech-an excellent speech, I have to say-by stating that the Government had run out of self-belief. He then made a persuasive case to show that the Government were entirely justified in running out of self-belief.

My hon. Friend the Member for Wellingborough (Mr. Bone) raised a number of important constituency issues. As he has done with some tenacity, he detailed the increasing unemployment levels in Wellingborough-something that the Prime Minister, thanks to my hon. Friend's many interventions, also follows very closely.

The hon. Member for Angus (Mr. Weir) highlighted some of the Budget's environmental issues, while my hon. Friend the Member for Broxbourne (Mr. Walker) revealed how he sat in stunned silence during the Budget speech. If my hon. Friend's stunned silence demonstrates anything, it underlines the magnitude of the difficulties this country faces.

It would be remiss of me if I failed to say a few words about the Secretary of State for Energy and Climate Change. He began by criticising my hon. Friend the shadow Chancellor for spending most of his speech criticising his opponents, and then proceeded to deliver a speech almost entirely devoted to criticising his opponents. I have to say that his speech appeared to be a rehearsal, or perhaps an audition, for one day being shadow Chancellor. I am not sure whether that is his aspiration.

Mr. George Osborne: His ambition might be higher.

Mr. Gauke: I, for one, believe that the right hon. Gentleman's ambition should be higher. I think the Labour party could do a lot worse-I genuinely mean this-than make the right hon. Gentleman its leader. In fact, it is doing a lot worse, so perhaps he should consider this course sooner rather than later.

This Budget is, as right hon. and hon. Members have argued in today's debate, essentially about the issue of borrowing and debt and the state of the public finances. We have seen a spectacular deterioration in our public finances. Just a year ago, in the 2008 Budget, it was anticipated that we would need to borrow £38 billion this year-a not insignificant sum in itself. Now, however, we are looking at a figure of about £175 billion-the highest level of borrowing in our peacetime history. As the IMF has made clear, we have the highest deficit in the G20.

The figure for debts-an area where we were relatively better placed than many of our competitors-is also pretty frightening. In the early years of this Government or up until relatively recently, it is true that debt fell as a percentage of gross domestic product from 42 per cent. to 36 per cent. As the Institute for Fiscal Studies, and, indeed, my hon. Friend the Member for Wellingborough pointed out, it has fallen less than in than the majority of OECD countries during those years, but it is now rising more quickly.

Let us not forget the sustainable investment rule, which says that debt should be no more than 40 per cent. of GDP. We have learned from the IFS today that such is the state of our public finances that the rule is unlikely to be met until 2032. In fact, we are going to see a doubling of the figure in the sustainable investment rule level up to just below 80 per cent.-overtaking in the process the debt levels of France and Germany. Those figures are based on what the Government provided yesterday, yet the real concern persists that what we heard yesterday was an underestimate. Within an hour of the revealing of the Budget figures, the International Monetary Fund predicted that growth would be worse in 2009 than the Government's projection, and that we would still be in recession in 2010.

Conservatives and, I am sure, Members in all parts of the House hope that the Government's figures will be proved right and the IMF's will be proved wrong, but the Government's claim that growth in 2011 growth will be at 3.5 per cent. is clearly unsustainable. As my right hon. Friend the Leader of the Opposition said yesterday, that is a trampoline recovery. Independent forecasters whose views were published by the Treasury only a month or so ago predict growth at such levels as 2.2 per cent. and 2.6 per cent. in 2011, 2012 and 2013, not 3.5 per cent. It appears that after many years of the Prime Minister's promising that there would be no return to boom and bust, it is the Government's aspiration and hope to return to boom and bust, with another boom in 2011.

Let us look at the small print of what was published yesterday. Paragraph 108 on page 26 of the National Audit Office's "Audit of Assumptions" states:

"The Treasury has reduced its trend assumption further for Budget 2009, incorporating a permanent reduction in output totalling around 5 per cent, phased in between"

the third quarter of 2007 and the third quarter of 2010. What that means is that the productive potential of the United Kingdom has taken a permanent hit of 5 per cent., yet the Government still think that growth of 3.5 per cent. will be possible in 2011. As the hon. Member for Carmarthen, East and Dinefwr pointed out, there is no historic precedent for that sort of recovery from a recession.

The significance of that is twofold. It makes the claim for growth in 2011 less credible, and it reveals that much of the £175 billion deficit-£140 billion, according to the Institute for Fiscal Studies-is structural. Given the current projections, we are not likely to be able to grow our way out of a recession unless serious measures are taken.

The test of the Budget is whether it represents a credible route out. As we heard from my hon. Friend the Member for Sevenoaks, the Government's record on projecting the public finances is so grim that they consistently overestimate the position, yet even according to these projections we shall have to wait for many years. For the last eight years or so, the Government have tended to say that the Budget will balance in about two years' time. In last year's pre-Budget report the period was extended to six years, and, in this year's Budget, it was extended to eight. Those are hopelessly optimistic assumptions.

Yesterday the Government had an opportunity to explain how to restore the public finances, and they failed to do so. What did we get? We got their proposal to alter their own spending plans in 2011. In 2010, they will still be increasing spending, although they believe that the economy will be growing. As my hon. Friend the Member for Tatton (Mr. Osborne), the shadow Chancellor pointed out, if we use the methodology that the Government have used against us for many years, any reduction of announced spending constitutes a cut. We see this as a cut of £84 billion.

That is not just a pedantic point. At the last election, the Government managed to reach a figure of £35 billion on the basis of an alteration in our announced spending plans. We heard the statements made by Labour Members at the time. The current Chancellor said that it was the equivalent of sacking every teacher, doctor and nurse in the country. Over the past 10 years, the central argument has been that the Government could always afford these big increases in public spending: increases of 4, 5 or 6 per cent. We have argued against that, and in doing so have been portrayed as slashers and burners of public services. We could not afford those increases then, and we cannot afford them now. The question now is how we can deliver quality public services in an age of austerity. The Government, however, continue to search for the old dividing lines, trying to pretend that we are the party that cuts public spending while they are entirely different.

What is the Government's approach to bringing down the deficit? Let us look at tax. They have tried to highlight one issue above all others: the 50p rate. That has the singular achievement of being cynical in at least four respects. First, it is a breach of a manifesto pledge. The Secretary of State for Energy and Climate Change was very keen for the shadow Chancellor to intervene on him, and I am perfectly prepared to let the Secretary of State intervene on me to say whether he denies or accepts that the Labour party's last manifesto stated that it would not raise the basic or top rates of income tax in the next Parliament and therefore that the policy announced yesterday is the clearest and most blatant breach imaginable of a manifesto pledge.

Secondly, it is cynical because it is a distraction from other taxes. In truth, even before the next general election, most of the taxes imposed will apply across the board, such as the fuel duty increases, and the increases in the cost of alcohol and tobacco. However, the really big tax increase will happen after the next general election. As soon as the election is over, Labour will increase national insurance contributions, affecting everyone earning more than £20,000 a year.

Mr. Betts: The hon. Gentleman was talking about manifesto commitments. Will the Conservative party put in its manifesto that immediately after it wins the next general election-if it does-it will reverse the 50p income tax rate? Also, as he has described a black hole that he believes exists in the public finances, will he come clean and spell out precisely the cuts in public expenditure that he would make if he got into power?

Mr. Gauke: The Labour party has announced-under, I suspect, the same methodology that it used at the last election-£84 billion-worth of cuts. The Conservative party position is that our priority will be to try to tackle the tax increases introduced by the Labour party that will affect the many and not the few. Therefore, there is no commitment here to reverse that particular tax rate-but whether we can reverse it or not, the fact remains that it is a cynical policy.

That point brings me to another reason why this tax rate is so cynical. One can see what happened here. As the Government sat down in No. 11 Downing street-or, more likely, No. 10 Downing street-the thinking was not, "How are we going to bring in some tax increases that are good for the UK economy and will not damage its productivity?" Instead, the thinking was more, "What can we do to put the Conservative party in a difficult position?" That is the way that this Government work.

The fourth reason why the policy is cynical is that it will not raise the amount of revenue that has been claimed. We do not dispute that it will raise some revenue, but as the IFS has stated today, no account has been taken of the fall in indirect consumer spending that will result from this tax increase, so the Government will not raise as much money as they claim.

Let me return to the issue of how this Government operate: they are not thinking about what is best for the country; they are not thinking about addressing the fiscal crisis that we face; the way they operate is all about political positioning and trying to damage their opponents. This is all of a piece; it is consistent with the way that this Prime Minister has operated throughout his career. Even when dealing with his own party colleagues, he blocked public services reform because it suited his own internal party position. As Chancellor of the Exchequer, he abolished the 10p tax rate to try to wrong-foot the Leader of the Opposition. No wonder there is an atmosphere within Downing street that leads people to believe that there are no limits on what can be done to put pressure on their opponents, as we saw over Easter and in the McBride affair.

This is a Budget that fails to address the long-term needs of the country and ducks the big issues-it is a cowardly and dishonest Budget. Tony Blair's speechwriter yesterday described it as a Budget of a Government preparing themselves for opposition. The Government have neither the ability nor the desire to govern responsibly, and it is time that they made way for those who can.

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